<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1997
REGISTRATION STATEMENT NO. 333-10949
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 1 ON
FORM S-1
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MOLTEN METAL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 52-1659959
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
400-2 TOTTEN POND ROAD
WALTHAM, MASSACHUSETTS 02154
(617) 487-9700
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
-----------------------------------
WILLIAM M. HANEY, III
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------
with a copy to:
ETHAN E. JACKS, ESQ.
Vice President and General Counsel
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700
----------------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
----------------------------
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION DATED JUNE 25, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
$142,750,000
[MOLTEN METAL TECHNOLOGY LOGO]
5-1/2% Convertible Subordinated Notes Due 2006
This Prospectus relates to the 5-1/2% Convertible Subordinated Notes Due
2006 (the "Notes") of Molten Metal Technology, Inc. ("MMT" or the "Company")
and the shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), issuable upon conversion of the Notes. The Notes were issued
and sold May 1, 1996 and May 9, 1996 (the "Original Offering") in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), to persons reasonably believed by Lazard Freres
& Co. LLC, Alex. Brown & Sons Incorporated and Oppenheimer & Co., Inc., as the
initial purchasers of the Notes (collectively, the "Initial Purchasers"), to be
"qualified institutional buyers" (as defined by Rule 144A under the Securities
Act), other institutional "accredited investors" (as defined in Rule 501(a)(2),
(3) or (7) under the Securities Act) or in transactions complying with
Regulation S under the Securities Act. The Notes (other than Notes originally
sold pursuant to Regulation S) and the Common Stock issuable upon conversion
thereof (collectively, the "Securities") may be offered and sold from time to
time by the holders named herein or by their transferees, pledgees, donees or
their successors (collectively, the "Selling Holders") pursuant to this
Prospectus. The Registration Statement of which this Prospectus is a part has
been filed with the Securities and Exchange Commission pursuant to a
registration rights agreement dated as of April 25, 1996 (the "Registration
Rights Agreement") between the Company and the Initial Purchasers, entered into
in connection with the Original Offering.
The Notes will mature on May 1, 2006. Interest on the Notes will be paid
semiannually on May 1 and November 1 of each year, commencing November 1, 1996.
The Notes are convertible, at the option of the holder thereof, at any time
prior to maturity, unless previously redeemed, into shares of Common Stock at a
conversion price of $38.75 per share, subject to adjustment in certain events.
On June 20, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market (symbol "MLTN") was $5 9/16 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on and after May 1, 1999, at the redemption prices set
forth herein together with accrued interest. A Note also will be subject to
redemption, at the option of the Company, in whole but not in part, at any time,
at 100% of their principal amount plus accrued interest in the event of certain
changes affecting U.S. taxes applicable to such Note. The Notes do not provide
for any sinking fund. Upon a Change of Control (as defined) or in the event the
Common Stock is no longer publicly traded, holders of the Notes will have the
right, subject to certain restrictions and conditions, to require the Company to
purchase all or any part of the Notes at a purchase price equal to 100% of the
principal amount thereof together with accrued and unpaid interest to the date
of purchase. See "Description of the Notes -- Repurchase Rights."
The Notes are unsecured obligations of the Company and are subordinate in
right of payment to all existing and future Senior Debt (as defined) of the
Company.
The Securities may be sold by the Selling Holders from time to time
directly to purchasers or through agents, underwriters or dealers. See "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Securities in respect of which this Prospectus is
being delivered and the applicable agent's commission, dealer's purchase price
or underwriter's discount, if any, will be set forth in an accompanying
supplement to this Prospectus. The Selling Holders and broker-dealers, agents or
underwriters which participate in the distribution of the Securities may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution."
The Selling Holders will receive all of the net proceeds from the sale of
the Securities and will pay all underwriting discounts and selling commissions,
if any, applicable to the sale of the Securities. The Company is responsible for
the payment of all other expenses incident to the offer and sale of the
Securities.
See "Risk Factors" for a description of the material risks involved in an
investment in the Securities.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _________________, 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 5th Street, N.W., Washington,
D.C. 20549, as well as at the following regional offices: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 5th Street, N.W., Washington, D.C. 20549. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. The Commission maintains a World Wide
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document, if
any, filed as an exhibit to the Registration Statement on Form S-1 of which this
Prospectus is a part, each such statement being qualified in all respects by
such reference.
The Company has agreed to distribute to holders of the Notes reports,
information and documents specified in Section 13 or 15(d) of the Exchange Act,
so long as the Notes are outstanding, whether or not the Company is subject to
such informational requirements of the Exchange Act. While any Notes remain
outstanding, the Company will make available, upon request, to any holder of the
Notes, the information required by Rule 144(d)(4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act. Any such request should be directed to the Company, Investor
Relations at 400-2 Totten Pond Road, Waltham, Massachusetts 02154 (Telephone No.
(617) 487-9700).
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, any Selling Holder or any of the Initial Purchasers. This
Prospectus does not constitute an offer to sell
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or a solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall in any circumstances create any implication that there has been
no change in the affairs of the Company since the date hereof.
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<PAGE> 5
RISK FACTORS
An investment in the Securities offered by this Prospectus involves a
high degree of risk. Accordingly, prospective investors should consider
carefully the following risk factors, in addition to the other information
concerning the Company and its business contained in this Prospectus, before
purchasing the Securities offered hereby.
Uncertainty of Future Profitability. The Company's results of
operations have varied significantly in the past and may continue to vary
significantly in the future. The Company had a net loss of approximately $61.2
million for the year ended December 31, 1996 and a net loss of approximately
$23.5 million for the three months ended March 31, 1997. Other than 1995, the
Company has had losses in each of the years since its incorporation. Losses have
resulted principally from costs incurred in connection with research and
development activities and from costs associated with the Company's
administrative and marketing activities. A significant portion of the Company's
revenues consisted of technology transfer and success fees from M4 Environmental
L.P., the Company's former joint venture with Lockheed Martin Corporation
("LMC") (approximately $13.1 million in 1996). MMT anticipates that during 1997
it will earn limited revenue from the operations of M4. In addition, in
accordance with the terms of its agreements with LMC, the Company began
recognizing its share of revenues and other income, but not expenses, of M4.
The Company's future profitability is dependent upon its ability to
successfully commercialize its CEP technology and to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to pay interest and principal on the Notes or to achieve profitability.
Uncertainty of Market Acceptance. The Company's CEP technology is a new
technology for which there is no established market. There can be no assurance
that feedstock generators will view the Company's CEP process as an economically
and environmentally acceptable means of disposing of their hazardous and
non-hazardous wastes and industrial by-products, which could result in the
Company experiencing difficulty in selling its CEP systems. Moreover, there can
be no assurance that the economic terms under which generators may be willing to
use the Company's CEP process will be profitable to the Company. In addition, a
particular generator may be subject to environmental regulation unique to its
location which may affect its ability to use CEP.
Initial Commercialization Stage. 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
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 has limited experience developing and constructing
commercial CEP plants. In addition, the Company's "first of a kind" CEP plants
have required larger capital expenditures and a longer period to develop and
construct than originally anticipated by the Company. If the Company is not
able to develop and construct CEP plants, particularly "second of a kind"
plants, on time and under budget, this would have a material adverse effect on
the Company's ability to successfully sell CEP plants to customers and to
obtain financing for the development and construction of CEP plants.
Reliance on Environmental Regulation. Federal, state and local
environmental legislation and regulations require substantial expenditures and
impose liabilities for noncompliance. Environmental laws and regulations are,
and will continue to be, a principal factor affecting demand for the systems and
services being developed or offered by the Company. The level of enforcement
activities by federal, state and local environmental protection agencies and
changes in regulations will also affect demand. Any changes in these regulations
which increase compliance standards may require MMT to change or improve the CEP
technology to meet more stringent regulatory
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requirements. To the extent that the burdens of complying with such laws and
regulations may be eased, the demand for the Company's services could be
materially adversely affected. In addition, international environmental
regulations and enforcement of such regulations vary by country and are subject
to changes which may adversely affect the Company's operations and its ability
to commercialize its CEP technology internationally.
Dependence on Disposal Facilities. The Company's CEP technology may
not be successful in recovering materials in a form that is commercially usable
or saleable. The Company also could be materially adversely affected by a
decrease in the demand for the recovered materials. Some materials produced
using CEP may have little to no commercial value, and may be considered wastes.
Such waste may be classified as a hazardous or low-level radioactive waste (and
may need to be handled as such) under current United States environmental
regulations. In addition, such waste may need to be disposed of at specially
permitted disposal facilities. In order to utilize such facilities, any waste
produced by CEP must meet the acceptance criteria of the particular facility.
Fees for disposal of wastes at such facilities, and the methods for calculating
such fees, are subject to change. The Company's ability to operate its CEP
systems profitably may be adversely affected by increases in such fees or
changes in the methods of calculating such fees. The Company expects that the
volume of residual waste streams produced from the processing of radioactive
wastes with Quantum-CEP(R) will be greater than those produced from other
applications of CEP.
Availability of Markets for Recovered Materials. CEP has been designed
to perform Elemental Recycling. There can be no assurance, however, that the
Company's CEP process will be successful in recovering materials in a form that
is commercially usable or saleable or that the Company would not be materially
adversely affected by a decrease in the demand for the recovered materials.
Potential Environmental Liability. The Company's business exposes it to
the risk that harmful substances such as hazardous or toxic wastes or
radioactive materials will escape into the environment and cause substantial
damages or injuries. The Company's ownership or operation of CEP systems expose
it to possible liability for investigation and clean-up costs under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and the Resource Conservation and Recovery Act of 1976, as amended
("RCRA") and to possible liability under RCRA for violations of requirements
applicable to the generation, transportation, treatment, storage and disposal of
hazardous waste. In addition, the Company may be exposed to certain
environmental risks resulting from the actions of its customers. Although the
Company maintains general liability insurance, this insurance is subject to
coverage limits and generally excludes coverage for losses or liabilities
relating to environmental damage or pollution. The Company has obtained nuclear
insurance for its Quantum-CEP(R) operations in Oak Ridge, Tennessee and
environmental impairment liability insurance for its research and development
facility in Fall River, Massachusetts in compliance with applicable state and
federal regulatory standards. Although the Company has developed plans to
conduct its operations prudently and to structure its relationships with
customers and contractors in a manner so as to minimize its exposure to
environmental risks, the Company could be materially adversely affected by a
claim that is not covered or only partially covered by insurance.
Regulatory Status of Operations. The Company and its customers operate
in a highly regulated environment and certain of the operations at the Company's
CEP facilities will be required to have federal, state and local government
permits and approvals. Any of these permits or approvals may be subject to
denial, revocation or modification under various circumstances. Failure to
obtain or comply with the conditions of permits or approvals may adversely
affect the introduction or operation of the Company's CEP systems and may
subject the Company to penalties. The Company's ability to satisfy permitting
requirements for a particular CEP system does not assure that permitting
requirements for other CEP systems will be more easily satisfied, if at all. In
addition, if new environmental legislation or regulations are enacted or
existing legislation or regulations are amended or are interpreted or enforced
differently, the Company or its customers may be required to obtain additional
operating permits or approvals. There can be no assurance that the Company will
meet all of the applicable regulatory requirements.
Future Capital Needs. The Company will require substantial funds to
construct the commercial CEP systems that it anticipates it will own and
operate, and to continue its development activities. The amount and timing of
the Company's expenditures and the Company's future capital requirements could
vary significantly and will depend on certain factors, many of which are not
within the Company's control, including customers' decisions to finance, own and
operate their CEP systems; the terms of any collaborative arrangements entered
into by the Company; the progress of the Company's development of CEP; the
nature and timing of permits required for CEP systems; and the availability of
alternative sources of financing. There can be no assurance that such financing
will be available or, if available, that it will be on favorable terms. 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 Certain Customers. During the years ended December 31,
1996 and 1995, revenue from M4 accounted for approximately 87% and 69%,
respectively, of the Company's total revenue, and revenue from the U.S.
Department of Energy ("DOE") accounted for approximately 13% and 30%,
respectively, of the Company's total revenue. 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.
Reliance on Subcontractors. The Company relies principally on
subcontractors to build CEP system components and to assemble and install such
systems. The Company's ability to deliver high quality systems on time will
depend upon the reliability and performance of its subcontractors. The failure
of a subcontractor to meet delivery schedules could cause the Company to default
on its obligations to its customers. In addition, the Company's reliance on
subcontractors for manufacturing, assembly and installation places a significant
part of the Company's quality control responsibilities on these subcontractors.
There can be no assurance that the Company will be able to continue to contract
for the level of quality control required by the Company's customers.
Risks of "Fixed-Price" Contracts. The Company expects that a majority
of its contracts will be performed on a "fixed-price" basis. In a fixed-price
contract, the Company bears the full risk of cost overruns caused by estimates
that differ from actual costs incurred or manufacturing delays during the course
of the contract. If manufacturing or installation costs for a particular project
exceed anticipated levels, gross margins would be materially adversely affected,
and the Company could experience losses on such contracts.
Risks of International Sales. The Company expects that a significant
portion of its revenues will come from sales of CEP systems overseas.
International sales and operations may be limited or disrupted by the imposition
of government controls, export license requirements, trade restrictions, changes
in tariffs, difficulties in staffing, the transport of machinery, managing
international operations and other factors. Regulatory compliance requirements
differ among foreign countries and are also different from those established in
the United States. If the Company's customers are unable to obtain the necessary
foreign regulatory approvals on a timely basis, the Company's international
sales could be materially adversely affected. Additionally, the Company's
business may be materially adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates, difficulties in obtaining
export licenses, ability to maintain or increase prices and competition. Since
the bulk of expenses in connection with international contracts are often
incurred in United States dollars, the Company may be subject to exchange rate
risk. If the Company has significant international sales in the future
denominated in foreign currencies, the Company may purchase hedging instruments
to mitigate the exchange risk on these contracts.
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Dependence on Collaborative Relationships. The Company's future success
may depend, in part, on its collaborative relationships.
Risks of Government Contracting. The Company's existing government
contracts can generally be canceled, delayed or modified at the sole option of
the government and are generally subject to annual funding limitations and
public sector financing constraints. The Company believes that any future
government contracts will be structured similarly. In addition, under the terms
of future government contracts, if any, the Company may be required to grant the
federal government greater rights with respect to the Company's intellectual
property than the Company would grant private parties. As a result of engaging
in the government contracting business, the Company is subject to audits, and
may be subject to investigation, by government agencies. As described below
under "Business -- Legal Proceedings," 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 terms of any of its government contracts could result
in the Company's suspension or debarment from future government contracts for a
significant period of time. All of the foregoing risks associated with
government contracting also may apply to M4 with respect to its government
contracts.
Competition. The Company anticipates that the initial market for CEP
will be the hazardous and non-hazardous waste and industrial by-products
treatment and disposal market, which is characterized by several large companies
and numerous small companies. Existing technologies may prove more
cost-effective than CEP, or new technologies which are superior to those of the
Company may be developed. In addition, the Company and its customers will
compete with other producers of raw materials and recycled products for the sale
of products recovered from the CEP process. Many of the Company's competitors
are large companies with substantially greater financial resources than the
Company. To the extent these competitors offer comparable services or products
at lower prices or of higher quality, or more cost-effective waste disposal
alternatives, the Company's ability to compete effectively could be adversely
affected.
Unpredictability of Patent Protection and Proprietary Technology. The
Company's success depends, in part, on its ability to obtain additional patents,
protect the patents which it owns, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that any of the Company's pending patent applications will be
approved, that the Company will develop additional proprietary processes that
are patentable, that any patents issued or licensed to the Company will provide
the Company with competitive advantages or will not be challenged by third
parties or that the patents of others will not have an adverse effect on the
ability of the Company to conduct its business. Furthermore, there can be no
assurance that others will not independently develop similar or superior
technologies, duplicate any of the Company's processes or design around the
patented processes developed by the Company. It is possible the Company may need
to acquire licenses to, or to contest the validity of, issued or pending patents
of third parties relating to the Company's technology. There can be no assurance
that any license under such patents would be made available to the Company on
acceptable terms, if at all, or that the Company would prevail in any such
contest. In addition, the Company could incur substantial costs in defending
itself in suits brought against the Company on its patents or in bringing suits
against other parties.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in part,
by confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
Dependence on Key Management and Qualified Personnel. The Company is
highly dependent upon the efforts of its senior management and scientific staff.
The Company maintains key man insurance in the amount of $1.0 million on the
lives of each of William M. Haney, III, Chairman of the Board of Directors and
Chief Executive Officer, and Dr. Christopher J. Nagel, Chief Technical Officer.
The Company is the
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sole beneficiary of these policies, but the proceeds of such policies may not be
adequate to compensate the Company for the loss of either individual. The loss
of the services of one or more of these individuals may have a material adverse
effect upon the Company.
The Company's future success will depend in large part upon its ability
to attract and retain further highly skilled scientific, managerial,
manufacturing and marketing personnel. The Company faces competition for hiring
such personnel from other companies, research and academic institutions,
government entities and other organizations. With the exception of William M.
Haney, III, and G. Earl McConchie, Vice President of Sales and Marketing, the
Company does not have any employment agreements with any of its executive
officers for a specific time. There can be no assurance that the Company will
continue to be successful in attracting and retaining such personnel.
Lack of Established Market. There is no established trading market for
the Notes. Although the Initial Purchasers have advised the Company that they
each currently intend to make a market in the Notes, they are not obligated to
do so and any such market making may be discontinued at any time without notice,
at their sole discretion. The Company does not intend to apply for listing of
the Notes on any securities exchange. Accordingly, there can be no assurance as
to development of a market for the Notes or as to the liquidity of any market
that may develop. Moreover, to the extent that they trade at all, the Notes may
trade at a discount from their stated principal.
Possible Volatility of Share Price. There has been a history of
volatility in the market prices for securities of emerging growth companies such
as the Company, which volatility often has been unrelated to or
disproportionately impacted by the operating performance of such companies.
There can be no assurance that the market for the Notes and Common Stock
issuable upon conversion thereof will not be subject to similar fluctuations.
Factors such as announcements of technological developments, sales of waste
treatment or disposal systems or status of collaborative agreements of the
Company or its competitors, government regulatory action, public concern as to
the safety of products developed by the Company, patent or proprietary rights
developments and market conditions in general could have a significant impact on
the future market price of the Company's securities, including the Notes and
Common Stock.
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THE COMPANY
The Company is an environmental technology company engaged in the
commercialization and continued development of its innovative, proprietary
processing technology known as Catalytic Extraction Processing ("CEP"). The
Company has its principal executive offices at 400-2 Totten Pond Road, Waltham,
MA 02154. The telephone number of said offices is (617) 487-9700.
USE OF PROCEEDS
All of the Securities offered hereby are being offered by the Selling
Holders. The Selling Holders will receive all of the net proceeds from the
Securities sold pursuant to this Prospectus.
PRICE RANGE OF COMMON STOCK
Since February 10, 1993, the first day of trading for the Common Stock,
the Common Stock has traded on the Nasdaq National Market under the symbol
"MLTN." The following table sets forth, for the periods indicated, the high and
low sale prices per share of the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
PRICE PRICE
----- -----
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1995
First Quarter .............................. $19.25 $13.75
Second Quarter ............................. $26.25 $15.75
Third Quarter .............................. $33.25 $21.00
Fourth Quarter ............................. $41.25 $27.50
YEAR ENDING DECEMBER 31, 1996
First Quarter .............................. $40.25 $29.75
Second Quarter ............................. $36.50 $28.00
Third Quarter .............................. $34.63 $21.75
Fourth Quarter ............................. $33.25 $ 9.25
YEAR ENDING DECEMBER 31, 1997
First Quarter............................... $13.13 $ 8.38
Second Quarter (through June 20, 1997)...... $ 9.25 $ 4.25
</TABLE>
On June 20, 1997, the last sale price of the Common Stock, as reported
by the Nasdaq National Market, was $5 9/16 per share. As of June 20, 1997, there
were 940 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.
8
<PAGE> 10
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
the actual capitalization of the Company as of March 31, 1997 and December 31,
1996, which reflects the issuance of $143,750,000 principal amount of Notes on
May 1, 1996.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Current portion of long-term debt.............................. $ 1,840,023 $ 1,884,486
Long-term debt, excluding current portion...................... 164,750,000 164,753,334
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;
23,680,673 shares issued 23,570,273 outstanding at March
31, 1997 and 23,643,707 shares issued and 23,603,707
outstanding at December 31, 1996.......................... 236, 807 236,437
Additional paid-in capital................................... 163,232,684 163,124,587
Valuation allowance for short-term investments............... (243,497) (86,653)
Accumulated deficit.......................................... (121,293,739) (97,820,411)
------------- ------------
41,932,255 65,453,960
Less: Treasury stock, 110,400 shares at March 31, 1997 and
40,000 shares at December 31, 1996, at cost.................. (1,251,319) (482,504)
Less: Deferred compensation.................................... (1,224,117) (1,459,624)
------------- ------------
Total stockholders' equity................................ 39,456,819 63,511,832
------------- ------------
Total capitalization................................. $ 206,046,842 $230,149,652
============= ============
</TABLE>
9
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of the
Company for the quarter ended March 31, 1997 and the 5 years ended December 31,
1996.
<TABLE>
<CAPTION>
QUARTER
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue................. $ 4,973,221 $ 63,511,190 $ 44,181,398 $ 14,398,829 $ 4,721,953 $ 2,526,327
Operating expenses:
Cost of revenue....... 7,959,263 50,478,630 34,901,904 11,057,163 2,205,316 2,172,399
Research and
development......... 9,131,539 26,183,268 10,986,234 14,417,327 10,837,484 4,208,319
Selling, general and
administrative...... 6,940,057 18,708,514 2,877,371 7,132,256 5,661,953 4,133,270
----------- ----------- ----------- ----------- ----------- -----------
24,030,859 95,370,412 48,765,509 32,606,746 18,704,753 10,513,988
Equity income (loss)
from affiliate........ (3,677,953) (31,612,891) 834,294 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (22,735,591) (63,472,113) (3,749,817) (18,207,917) (13,982,800) (7,987,661)
Interest income......... 1,571,237 8,812,303 5,559,690 4,376,403 1,861,077 400,559
Interest expense........ (2,308,974) (6,521,654) (1,455,084) (737,741) (160,233) (15,972)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)..... $(23,473,328) $(61,181,464) $ 354,789 $(14,569,255) $(12,281,956) $ (7,603,074)
=========== =========== =========== =========== =========== ===========
Net income (loss) per
share............... $ (1.00) $ (2.62) $ 0.01 $ (0.67) $ (0.69) $ (0.59)
=========== =========== =========== =========== =========== ===========
Weighted average common
shares outstanding.... 23,556,029 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,
MARCH 31, ------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents
and short-term
investments.......... $ 87,770,106 $129,067,763 $ 86,276,250 $100,196,475 $104,423,037 $ 2,234,110
Working capital........ 68,284,866 108,630,338 89,306,823 95,318,381 103,689,795 (72,876)
Total assets........... 250,360,981 272,745,249 153,336,001 135,541,524 123,628,053 11,523,176
Long-term liabilities,
less current
maturities (2)....... 174,518,476 173,597,488 26,818,466 24,549,733 3,625,427 3,538,531
Convertible preferred
stock................ -- -- -- -- -- 72,727
Accumulated deficit.... (121,293,739) (97,820,411) (36,638,947) (36,993,736) (22,424,481) (10,142,525)
Stockholders' equity... 39,456,819 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 March
31, 1997 and December 31, 1996 and $1,474,586 at December 31, 1995, 1994,
1993 and 1992, (iii) deferred income of $2,382,369 at March 31, 1997,
$2,437,500 at December 31, 1996 and $2,459,918 at December 31, 1995 and (iv)
$6,000,218 of accumulated losses of affiliate in excess of investment at
March 31, 1997 and $5,020,765 at December 31, 1996.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues for the first quarter of 1997 decreased to $4,973,000 from $22,374,000
in the first quarter of 1996. The following table compares sources of revenue
for the quarters ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Waste services $ 3,945,000 $ -
Equipment sales 707,000 -
Engineering and construction 121,000 16,485,000
R&D and consulting 200,000 2,139,000
Technology transfer and success fees - 3,750,000
----------- -----------
$ 4,973,000 $22,374,000
=========== ===========
</TABLE>
Waste services revenue is from processing, managing and handling radioactive
wastes through the Company's nuclear waste services division based in Oak Ridge,
Tennessee. The first quarter of 1997 marked the commercial start-up of the
Company's Quantum CEP Facility in Oak Ridge, Tennessee ("Q-CEP Facility") and
the commencement of commercial CEP operations. The Company also began operations
of its newly acquired waste service business from The Scientific Ecology Group,
Inc. ("SEG") and VECTRA Technologies, Inc. ("VECTRA"). The Company expects that
revenue from plant operations will continue to increase in future periods as
operations at the Q-CEP Facility ramp up and as commercial operations commence
at additional facilities in Oak Ridge, Tennessee and Bay City, Texas.
Equipment sales are from the sale of waste storage and processing equipment for
commercial low-level radioactive waste. The sales are a result of operations
related to the acquisitions from SEG and VECTRA.
During the quarter ended March 31, 1996, the Company recognized $16.5 million in
revenue related to the engineering, design and construction of M4's Technology
Center. During the quarter ended March 31, 1997, the Company recorded no such
revenue. The Company expects engineering and construction revenue to increase in
the next few quarters due to activities related to engineering, design and
construction of an initial CEP system for the joint venture with Nichimen
Corporation and NKK Plant Engineering Corporation for the processing of fly ash
in Japan.
During the quarter ended March 31, 1996, the Company recognized $2.1 million in
revenue related to research and development and consulting contracts with M4 and
the US government. During the quarter ended March 31, 1997, the Company recorded
no
11
<PAGE> 13
such revenue from M4 or the US government. The Company expects to continue with
research and development projects, some of which will be funded by third parties
and some of which will be funded from the Company's working capital. The Company
anticipates that the amount of both internally and externally funded research
and development will decrease over the next year.
There were no technology transfer and success fees for the first quarter of
1997. Technology transfer and success fees for the first quarter of 1996
resulted from the recognition of a portion of the original $14 million license
fee from M4 and from plant start-up fees from M4. Part of the Company's strategy
is to license its technology under arrangements which provide for up-front
technology transfer fees, ongoing tolling fees, license fees or royalties and
the Company expects such revenues to increase in future periods over the first
quarter of 1997.
The existence and timing of revenues related to the Company's commercial
operations will depend on a number of factors, including the ability of the
Company and its affiliates to successfully market, permit and build CEP systems
on a timely and economic basis for their target markets, customer acceptance of
the technology, and competition from other companies in the Company's target
markets, and no assurances can be made in this regard.
Cost of revenues for the quarter ended March 31, 1997 decreased to $7,959,000
from $16,323,000 in the quarter ended March 31, 1996. The decrease is primarily
attributable to a reduction in cost reimbursement contracts for R&D and
engineering and construction activities.
R&D expenses increased to $9,132,000 for the quarter ended March 31, 1997 from
$4,708,000 for the quarter ended March 31, 1996. The increase reflects a lower
absorption of R&D expenses into cost of revenue due to a reduction in cost
reimbursement contracts. The Company expects that R&D costs will decrease during
1997 as efforts become more directed toward commercial operations. SG&A expenses
increased to $6,940,000 for the quarter ended March 31, 1997 from $2,418,000 for
the quarter ended March 31, 1996. The increase reflects a lower absorption of
SG&A expenses into cost of revenue due to a reduction in cost reimbursement
contracts. The Company is making efforts to decrease SG&A expenses in future
periods. The classification of expenses between cost of revenue, R&D and SG&A
will depend on the number and amount of future cost reimbursement contracts and
the related absorption of R&D and SG&A expenses into cost of revenue.
Prior to the completion of the restructuring described below, the Company
accounted for its investment in M4 using the equity method and recorded an
equity loss of $3,678,000 in the first quarter of 1997 compared to equity income
of $369,000 in the first quarter of 1996. Under the M4 limited partnership
agreement, the Company and Lockheed Martin Corporation ("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. During the first quarter of
1996, the Company's and LMC's capital accounts were not
12
<PAGE> 14
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 for the quarter ended March 31, 1996. In the fourth
quarter of 1996, the Company's and LMC's capital accounts became equal and the
Company began to share in the recognition of expenses from M4. As such, the
Company recognized one half of the net loss of M4 for the quarter ended March
31, 1997, which resulted in a net equity loss of $3,678,000. The Company expects
to incur equity losses from M4 through June 16, 1997, the closing date of the
restructuring. Thereafter, M4 will be a wholly-owned subsidiary of the Company
and all operations of M4 will be consolidated with MMT's results of operations.
Interest income increased to $1,571,000 for the first quarter of 1997 from
$1,355,000 in the first quarter of 1996. 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 increased to $2,309,000 for the first quarter of 1997 from
$432,000 in the first quarter of 1996. The increase is due to interest on the
convertible debt issued in May 1996.
Inflation is not expected to have a material effect on future results of
operations.
The Company's results of operations have varied significantly in the past and
may continue to vary significantly in the future. The Company's future
profitability is dependent upon its ability to commercialize successfully its
CEP technology and to find alternative sources of revenue. There can be no
assurance that the Company will generate sufficient revenue to achieve
profitability.
In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the quarters ended March 31, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.
13
<PAGE> 15
Years Ended December 31, 1996 and 1995
Revenue was approximately $63.5 million for 1996 compared with $44.2 million for
1995. The following table compares sources of revenue for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
<S> <C> <C>
Engineering and construction $ 37,796,000 $ 20,242,000
R&D and consulting 12,632,000 14,939,000
Technology transfer and success fees 13,083,000 9,000,000
------------ -----------
$ 63,511,000 $44,181,000
============ ===========
</TABLE>
Engineering and construction revenue is from services provided to M4 for the
engineering, design and construction of the M4 Technology Center. The increase
in 1996 over 1995 is a result of billings to M4 during the peak period of
construction and start-up of the M4 Technology Center. Overall, the Company
expects engineering and construction revenue to decline until it enters into
definitive contracts to construct commercial CEP systems for customers that will
be financially responsible, in whole or in part, for the construction of such
systems. In June 1997, the Company and LMC entered into definitive agreements to
restructure their relationship with respect to M4's market. Although the Company
may earn revenue in the future pursuant to the new agreements with LMC, the
Company will earn limited additional revenue from the operations of M4 in 1997.
Additionally, there is uncertainty as to the amounts and timing of revenue, if
any, that may be earned by the Company in the future under the new agreements
with LMC.
R&D and consulting revenue decreased in 1996 from 1995 due to a reduction in
billings under a cost sharing contract with the United States Department of
Energy (the "DOE"). During 1996, the Company recorded $8 million in revenue for
the reimbursement of R&D costs incurred under the cost sharing contract with the
DOE compared to approximately $13.2 million for 1995. The decrease is a result
of the Company reaching the funded contract value during the third quarter of
1996 and not entering into any arrangements providing for additional funding
from the DOE. The Company expects to continue with research and development
projects, some of which will be funded by third parties and some of which will
be funded from the Company's working capital. The Company anticipates that the
amount of both internally and externally funded research and development will
decrease over the next year.
Technology transfer and success fees increased in 1996 over 1995 due to $5
million of revenue recognized for the sale of a license to M4 for the Japanese
chemical weapons market. During 1996, the Company recognized the remaining $4
million of the original $14 million license fee from M4. This license fee was
being recognized over a two year period that began in August 1994. Also during
1996, the Company recognized $4 million of plant start-up fees from M4. Under
the terms of the M4 limited partnership agreement, the Company was entitled to a
fee of $2 million upon the start-up of each of the first three CEP plants
developed by M4. As of June 30, 1996, the Company had earned each of these three
success fees. Part of the Company's strategy is to license its technology under
arrangements which provide for up-front technology transfer fees, ongoing
tolling fees, license fees or royalties and the Company expects such revenues
to increase in future periods.
As commercial operations commence at the Company's facilities in Oak Ridge,
Tennessee and Bay City, Texas, the Company expects to generate revenue from
processing and recycling wastes. The Company expects that revenue from plant
operations will be a significant portion of its total revenue in future periods.
During 1996, however, the Company did not receive any revenue from plant
operations. The existence and timing of revenues related to the Company's
commercial operations will depend on a
14
<PAGE> 16
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 "Business -- U.S. Government Market -- United States
Department of Energy," the Company does not anticipate receiving research and
development funding from the DOE in 1997.
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 recorded an equity loss of $31.6 million in 1996 with respect to M4
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.
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.
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
15
<PAGE> 17
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 "Business -- Legal Proceedings." The
committee has completed its review of matters affecting the presentation of the
Company's financial statements, including the restatement discussed in Note 17
to the financial statements.
Years Ended December 31, 1995 and 1994
Revenue was approximately $44.2 million for 1995 compared with $14.4
million for 1994. The increase is primarily attributable to an increase in
engineering and construction activities in connection with the development of
CEP systems for M4, an increase in license fees from M4 and an increase in
customer-funded activities under TDPs. The increase in 1995 TDP revenue over
1994 is a result of revenue earned under a cost-sharing contract with the U.S.
government.
During 1995, revenue from M4 and the DOE accounted for approximately 69%
and 30% of revenue, respectively.
Cost of revenue was approximately $34.9 million for 1995 compared with
$11.1 million for 1994. The increase is primarily attributable to an increase in
engineering and construction activities in connection with the development of
CEP systems for M4 and an increase in costs related to cost-sharing contracts
with the U.S. government.
Research and development expenses decreased to $11.0 million for 1995 from
$14.4 million for 1994. The decrease is a result of increased customer funding
resulting in an increase in research and development expenses being included in
cost of revenue. Selling, general and administrative expenses decreased to $2.9
million for 1995 from $7.1 million for 1994. The decrease is a result of
increased customer funding resulting in an increase in selling, general and
administrative expenses being included in cost of revenue.
Interest income increased to $5.6 million in 1995 from $4.4 million in
1995, reflecting a full year of interest earned on the net proceeds from debt
financings in 1994. Interest expense increased to $1.5 million for 1995 from $.7
million for 1994, reflecting a full year of interest expense on a $21 million
tax-exempt bond financing received during 1994. Equity income from affiliate
increased to $.8 million in 1995 from $0 in 1994 reflecting the Company's share
of revenue and other income earned by M4. Inflation is not expected to have a
material effect on future results of operations.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling $87.8 million compared to $129.1 million at December 31,
1996. The decrease was primarily a result of cash used in operations and for the
acquisition of fixed assets. 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.
17
<PAGE> 19
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 June 1997, the Company and LMC completed a restructuring of their
relationship with respect to the commercialization of CEP and other
technologies for the government and other waste markets. The objective of the
restructuring is to enable MMT and LMC to access target markets more
efficiently by eliminating many of the organizational redundancies associated
with the prior M4 structure. LMC and MMT believe that the restructuring also
will enable them to better leverage LMC's expertise in systems integration and
MMT's ability to provide its CEP technology to target markets. Following the
completion of the restructuring, LMC and MMT are each free to pursue projects
formerly governed by the previous joint venture agreements, subject to the
requirements established by the new arrangements. The restructuring entailed
five principal changes in the companies' relationship: (1) LMC has the
exclusive right to lead and pursue contracts for the Hanford radioactive tanked
waste cleanup project described below, and MMT will provide directly to LMC
certain construction and development services with respect to Q-CEP, (2) the
Company and LMC formed a new limited liability company to be their exclusive
vehicle to deliver processing services to customers in the chemical
demilitarization market worldwide, (3) MMT has the exclusive right to lead
and pursue worldwide opportunities for processing DUF(6), (4) the Company has
become the sole owner of M4, which will continue to own and operate its primary
remaining asset, the M4 Technology Center, and (5) the Retech division of M4,
which provides plasma arc technology, was transferred to LMC.
As part of the LMC team for the Hanford tanked waste cleanup project, LMC
offered to purchase and MMT has agreed to deliver a pilot-scale, demonstration
Q-CEP plant to LMC in 1997 for a fixed price of $5 million. This plant will be
used to process surrogate Hanford tank waste. Additionally, LMC has agreed to
fund certain development work with respect to Q-CEP for possible application to
the Hanford project. LMC has informed the DOE that LMC currently intends to
propose an alternative technology, vitrification, as its baseline processing
technology for Phase 1B of the Hanford contract. However, in connection with the
development work to be performed by MMT, LMC and MMT have agreed to develop a
technology insertion plan for the possible inclusion of Q-CEP in the Hanford
project if such development work is successful. LMC has informed the DOE of its
intention to develop this technology insertion plan. If the LMC team is awarded
a contract under Phase 1B of the Hanford cleanup program and Q-CEP is used in
the Phase 1B performance, LMC has agreed to pay MMT a fee of $15 million. $5
million of this fee will be payable on award of the contract and the remaining
$10 million will be payable upon timely delivery and acceptance of a CEP
production plant pursuant to terms to be agreed upon by LMC and MMT. MMT also is
entitled to an on-going royalty of 3.5% of all revenues generated from the
processing of waste in equipment supplied by MMT under the Hanford contract.
There can be no assurances that LMC will include Q-CEP in any proposal for any
Phase 1B contract or that LMC will submit a bid for Phase 1B. There also can be
no assurances that DOE will award a Phase 1B contract to the LMC team or that,
even if it does so, Q-CEP will prove to be satisfactory to the DOE for
processing the Hanford waste.
The limited liability company formed by the Company and LMC has exclusive
worldwide rights to commercialize CEP for the chemical weapons demilitarization
market. The limited liability company is owned 50/50 by subsidiaries of LMC and
the Company. The Company is entitled to success fees of up to an aggregate of
$25 million in connection with the successful deployment of CEP systems to
process chemical weapons. The limited liability company has an initial term of
five years.
As sole owner of M4, the Company is responsible for the future operations of
the M4 Technology Center, and is entitled to all future revenues from such
operations. The $38 million aggregate principal amount of bonds issued by the
Industrial Development Board of Oak Ridge relating to the M4 Technology Center
remain outstanding, LMC's guarantee of these bonds remains in place, and each
of LMC and the Company is responsible for 50% of the principal, interest and
other costs relating to these bonds.
In addition to the changes described above, the Company and LMC have agreed
that the Company will have the exclusive right to lead and pursue worldwide
opportunities for processing DUF6. LMC has agreed not to pursue this market for
five years except that, at the request of MMT, LMC will consider participating
in this market jointly with MMT on a case-by-case basis, subject to mutual
agreement of the parties.
LMC and the Company also have established a strategic alliance committee,
in the form of a limited liability company governed by three directors from
each company,
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to review and monitor the relationships created by the restructuring and to
evaluate new market opportunities within the DOE and DoD markets. Prior to
pursuing any such opportunity alone, each of LMC and MMT will be obligated to
first offer such opportunity to the other party by presenting it to the
strategic alliance committee. The committee would determine whether such
opportunity would be pursued jointly by the parties and the terms thereof. If
the committee does not elect to pursue the opportunity jointly, either party
would be free to pursue it alone.
In connection with the restructuring, (i) LMC has terminated its line of credit
with M4 and deemed the approximately $15.8 million aggregate principal and
accrued interest outstanding thereunder to have been paid in full, and (ii) the
Company has contributed outstanding accounts receivable of $14.6 million to M4's
capital. LMC and the Company will generally share equally in substantially all
of the costs of the restructuring.
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 the year ended December 31, 1996 and the quarter ended March 31,
1997, the Company spent approximately $12.6 million and $16.1 million,
respectively, for the engineering, construction and permitting of this facility.
As of December 31, 1996, accounts receivable from affiliate (billed and
unbilled, in the aggregate) decreased by approximately $9.1 million from
December 31, 1995 as a result of the reclassification of certain amounts due
from M4 to accumulated losses of affiliate in excess of investment in light of
the treatment of these receivables in connection with the M4 restructuring.
As of December 31, 1996, other assets increased by approximately $5 million
from December 31, 1995 due to costs incurred for issuance of the Company's 5
- -1/2% Convertible Subordinated Notes Due 2006. As of December 31, 1996, prepaid
expenses increased by approximately $4.0 million from December 31, 1995 due to
increases in prepayments to suppliers, accrued interest receivable and spare
parts. Restricted cash decreased by approximately $4.8 million from 1995 to
1996 due to expenditures of funds reserved for qualified spending relating to a
tax-exempt bond financing for the Fall River Facility The Company's investment
in M4 decreased by approximately $5.9 million from December 31, 1995, resulting
in accumulated losses of affiliate in excess of investment of approximately
$5.0 million, primarily due to the recognition of the Company's share of M4's
expenses, including the effect of a reduction in the carrying value of M4's
long-lived assets.
As of December 31, 1996, deferred revenue from affiliate decreased by
approximately $4 million from December 31, 1995 due to the recognition of
technology transfer fees from M4 as revenue in 1996.
In May 1996, the Company issued $143,750,000 of Convertible Subordinated Notes
Due 2006 (the "Notes"). The Notes have a term of ten years and are payable in
full on May 1, 2006. The Notes bear interest at the rate of 5.50% per year
payable semi-annually. The Notes are convertible, at the option of the holder,
into shares of the Company's common stock at an initial conversion price of
$38.75 per share. Beginning in May 1999, the Notes become redeemable at the
option of the Company at an initial redemption price of 102.75% of the
principal amount plus any accrued interest. Upon a change of control (as
defined in the Indenture relating to the Notes) or in the event the Company's
common stock is neither listed on a U.S. national securities exchange nor
approved for trading on an established automated over-the-counter U.S. trading
market, each holder of the Notes will have the right to require the Company to
repurchase all or a portion of such holder's Notes at price equal to 100% of
the principal amount plus any accrued interest. The Notes are subordinated in
right of payment to the Company's other existing debt.
In 1994, the Company completed a tax-exempt bond financing in connection with
the Fall River Facility. Pursuant to the financing, the Company entered into a
loan agreement with the Massachusetts Industrial Finance Agency, which issued
$21 million aggregate principal amount of Solid Waste Disposal Facility
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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. 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. The Company
has accrued $1.3 million for anticipated losses relating to this lease net of
expected sublease income.
The Company incurred a net loss of $23.5 million 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 Prospectus regarding future events or
the future financial performance of the Company are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements include
statements concerning the Company's growth strategies, anticipated trends in the
Company's business, receipt of research and development funding, anticipated
capital expenditures, anticipated revenues from license fees and commercial
operations, continued operations and start-up of operations at the Company's and
M4's CEP facilities, construction and operation of the Bay City CEP Facility,
expected sales of CEP systems by the Company and its partners, regulatory
acceptance of the
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Company's CEP technology, the Company's plans to obtain additional financing,
and expectations regarding the future performance of the Company's relationship
with LMC. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Accordingly, actual results could differ
materially from those contemplated by these forward-looking statements. Among
the risks and uncertainties which could affect actual results are that
potential customers will not accept the Company's CEP technology as an
economically and environmentally acceptable means of disposing of wastes and
by-products; that the Company will not be able to build its CEP plants on time
and under budget; that the Company will not be able to commercially operate CEP
plants on a sustained basis and profitable basis; and that the Company will not
be able to obtain required funding on satisfactory terms or at all.
Additional factors which may cause actual results to differ are described
in "Risk Factors" above, as well as the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, including Exhibit 99.1 thereto, and
the Company's other filings with the Securities and Exchange Commission and
are incorporated herein by reference.
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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
- -------------
(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 former joint venture with
Lockheed Martin Corporation) ("M4")) has constructed or is constructing
"first-of-a-kind" commercial CEP systems.
In the commercial low-level radioactive waste sector, MMT estimates that
over three million cubic feet (approximately 150 million pounds) of waste is
generated annually in the United States by more than 1,300 generators, including
nuclear power plants and medical and research facilities. These generators seek
technological solutions to effectively process their waste into a weight- and
volume-reduced, stable, self-shielding form, suitable for long-term storage or
disposal. This volume reduction reduces these generators' disposal costs and
lengthens the useful life of current and future radioactive waste repositories.
The Company expects that international markets also will provide additional
opportunities for radioactive waste management. The commercial mixed waste
market in the United States is characterized by a broad range of small volume
waste streams that vary widely in composition. Most of these wastes are
generated from the operations of nuclear power plants. MMT estimates that these
nuclear utilities have stored in excess of 700,000 pounds of mixed waste, and
generate an additional 200,000 to 300,000 pounds of mixed waste annually.
In the government market, MMT estimates that the United States Department
of Energy ("DOE") and the United States Department of Defense ("DoD") together
spend nearly $8 billion annually on waste management and cleanup programs,
making the U.S. government the world's largest consumer of environmental goods
and services. Wastes requiring treatment at over 30 DOE sites include mixed
wastes, waste from the demilitarization of nuclear weapons, and wastes generated
during the remediation of large-scale decontamination and decommissioning
projects. The major focus of the DoD environmental restoration effort is on
munitions demilitarization, destruction of chemical weapons, and remediation of
sites contaminated with these priority wastes. Another government entity, the
United States Enrichment Corporation ("USEC"), annually produces approximately
15 million kilograms of depleted uranium hexafluoride ("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
LOCKHEED MARTIN CORPORATION. In August 1994, the Company entered into a
series of related 50/50 agreements with Martin Marietta Corporation to form M4
Environmental L.P. ("M4"). Martin Marietta has since merged into Lockheed Martin
Corporation ("LMC"), with LMC as the surviving entity. Pursuant to these
agreements, the Company and LMC formed M4, a 50/50 Delaware limited partnership,
to commercialize CEP to service the environmental remediation, waste management,
decontamination and decommissioning needs of the DoD, the DOE, and USEC. In
April 1996, MMT and LMC expanded M4 through the acquisition by M4 of the Retech
division of Lockheed Environmental Systems & Technologies Co., a wholly-owned
subsidiary of LMC. The Retech division designs and manufactures metallurgical
equipment and waste processing systems that utilize a plasma technology. In
March 1997, MMT and LMC entered into a letter of intent to restructure MMT's and
LMC's
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relationship with respect to M4's market. This restructuring, which was
completed in June 1997, is described below. During 1996, revenue from M4
accounted for approximately 87% of the Company's total revenue. This revenue was
generated as the result of sales of goods and services to M4, as well as
technology transfer and success fees. As a result of the restructuring described
below, M4 has become a wholly-owned subsidiary of MMT and its revenues will be
consolidated with MMT's. Accordingly, MMT's revenues from M4 in 1997 primarily
will be generated through M4's operations, including the provision of processing
services and funded research and development for third parties, rather than from
M4 purchasing goods and services from MMT. The Company does not anticipate that
these M4 operations will account for a substantial portion of its revenue for
1997.
M4 Technology Center. In February 1995, M4 began construction of its
Technology Center in Oak Ridge, Tennessee (the "M4 Technology Center"). In
October 1995, M4 began operating its first CEP system, a demonstration facility
for 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. This
project is further described below under "--Restructuring of M4--Hanford
Project."
Commercial Mixed Waste. In December 1995, MMT and M4 entered into an
agreement to expand M4's processing rights to include mixed wastes generated by
commercial customers in the United States. In March 1996, M4 entered into its
first agreement to process commercial mixed waste with Duke Power Company. Under
this agreement, M4 will process various types of mixed waste, including various
freon wastes and sludges, batteries and halogenated solvents. Since then, M4
also has entered into agreements with IES Utilities Inc., Baltimore Gas &
Electric Company and PECO Energy Company to process such companies' commercial
mixed waste. Mixed wastes from these companies are being or will be processed
using Q-CEP systems at the M4 Technology Center. 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 June 1997, the Company and LMC completed a
restructuring of their relationship with respect to the commercialization of CEP
and other technologies for the government and other waste markets. The objective
of the restructuring is to enable MMT and LMC to access target markets more
efficiently by eliminating many of the organizational redundancies associated
with the prior M4 structure. LMC and MMT believe that the restructuring also
will enable them to better leverage LMC's expertise in systems integration and
MMT's ability to provide its CEP technology to target markets. Following the
completion of the restructuring, LMC and MMT are each free to pursue projects
formerly governed by the previous joint venture agreements, subject to the
requirements established by the new arrangements. The restructuring entailed
five principal changes in the companies' relationship: (1) LMC has the exclusive
right to lead and pursue contracts for the Hanford radioactive tanked waste
cleanup project described below, and MMT will provide directly to LMC certain
construction and development services with respect to Q-CEP, (2) the Company and
LMC formed a new limited liability company to be their exclusive vehicle to
deliver processing services to customers in the chemical demilitarization market
worldwide, (3) MMT has the exclusive right to lead and pursue worldwide
opportunities for processing DUF(6), (4) the Company has become the sole owner
of M4, which will continue to own and operate its primary remaining asset, the
M4 Technology Center, and (5) the Retech division of M4, which provides plasma
arc technology, was transferred to LMC.
As part of the LMC team for the Hanford tanked waste cleanup project, LMC
offered to purchase and MMT has agreed to deliver a pilot-scale, demonstration
Q-CEP plant to LMC in 1997 for a fixed price of $5 million. This plant will be
used to process surrogate Hanford tank waste. Additionally, LMC has agreed to
fund certain development work with
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respect to Q-CEP for possible application to the Hanford project. LMC has
informed the DOE that LMC currently intends to propose an alternative
technology, vitrification, its baseline processing technology for Phase 1B of
the Hanford contract. However, in connection with the development work to be
performed by MMT, LMC and MMT have agreed to develop a technology insertion plan
for the possible inclusion of Q-CEP in the Hanford project if such development
work is successful. LMC has informed the DOE of its intention to develop this
technology insertion plan. If the LMC team is awarded a contract under Phase 1B
of the Hanford cleanup program and Q-CEP is used in the Phase 1B performance,
LMC has agreed to pay MMT a fee of $15 million. $5 million of this fee will be
payable on award of the contract and the remaining $10 million will be payable
upon timely delivery and acceptance of a CEP production plant pursuant to terms
to be agreed upon by LMC and MMT. MMT also is entitled to an on-going royalty of
3.5% of all revenues generated from the processing of waste in equipment
supplied by MMT under the Hanford contract. There can be no assurances that LMC
will include Q-CEP in any proposal for any Phase 1B contract or that LMC will
submit a bid for Phase 1B. There also can be no assurances that DOE will award a
Phase 1B contract to the LMC team or that, even if it does so, Q-CEP will prove
to be satisfactory to the DOE for processing the Hanford waste.
The limited liability company formed by the Company and LMC has exclusive
worldwide rights to commercialize CEP for the chemical weapons demilitarization
market. The limited liability company is owned 50/50 by subsidiaries LMC and the
Company. The Company is entitled to success fees of up to an aggregate of $25
million in connection with the successful deployment of CEP systems to process
chemical weapons. The limited liability company has an initial term of five
years.
As sole owner of M4, the Company is responsible for the future operations of
the M4 Technology Center, and is entitled to all future revenues from such
operations. The $38 million aggregate principal amount of bonds issued by the
Industrial Development Board of Oak Ridge relating to the M4 Technology Center
remain outstanding, LMC's guarantee of these bonds remains in place, and each
of LMC and the Company is responsible for 50% of the principal, interest and
other costs relating to these bonds.
In addition to the changes described above, the Company and LMC have agreed
that the Company will have the exclusive right to lead and pursue worldwide
opportunities for processing DUF6. LMC has agreed not to pursue this market for
five years except that, at the request of MMT, LMC will consider participating
in this market jointly with MMT on a case-by-case basis, subject to mutual
agreement of the parties.
LMC and the Company also have established a strategic alliance committee, in the
form of a limited liability company governed by three directors from each
company, to review and monitor the relationships created by the restructuring
and to evaluate new market opportunities within the DOE and DoD markets. Prior
to pursuing any such opportunity alone, each of LMC and MMT will be obligated
to first offer such opportunity to the other party by presenting it to the
strategic alliance committee. The committee would determine whether such
opportunity would be pursued jointly by the parties and the terms thereof. If
the committee does not elect to pursue the opportunity jointly, either party
would be free to pursue it alone.
In connection with the restructuring, (i) LMC has terminated its line of credit
with M4 and deemed the approximately $15.8 million aggregate principal and
accrued interest outstanding thereunder to have been paid in full, and (ii) the
Company has contributed outstanding accounts receivable of $14.6 million to M4's
capital. LMC and the Company will generally share equally in substantially all
of the costs of the restructuring.
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 "Business--Legal Proceedings," 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 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.
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 of 1986, and the
Pollution Prevention Act of 1990, and various state analogs to these federal
laws. Additional provisions which may be applicable to Quantum-CEP technology
include the Atomic Energy Act of 1954, the Federal Facility Compliance Act of
1992, the Low-Level Radioactive Waste Policy Amendments Act of 1985, the United
States Department of Energy Orders, Policy and Guidance, the Nuclear Regulatory
Commission Regulatory Policy and Guidance, and their state analogs. These
provisions regulate the management and disposal of radioactive, hazardous and
non-hazardous wastes, control the discharge of pollutants and radionuclides into
the air, land and water, provide for the investigation and remediation of
contaminated land and groundwater resources and establish a pollution prevention
program. Many of these laws have international counterparts, particularly in
Europe and elsewhere in North America.
Environmental Permitting Implications
To maximize the market acceptance of CEP technology, MMT has chosen to
focus certain initial project efforts on the development of systems whose
feedstocks and designs are most likely to qualify for exemptions or favorable
regulatory treatment. These projects involve: (i) systems for processing
feedstocks that are not classified as hazardous wastes and are not subject to
RCRA permitting requirements; (ii) systems that handle feedstocks in a manner
that may qualify such materials for exclusions from RCRA regulation (e.g., a
closed-loop process whereby secondary materials will be returned to the original
manufacturing process in which they were generated or processing of waste
materials as feedstocks to manufacture valuable products); (iii) systems that
may qualify for an exemption from RCRA permitting requirements (e.g., systems
involving bona fide recycling of hazardous wastes); (iv) systems that provide
for significant volume reduction and stable final form for low-level radioactive
waste to allow for increased disposal capacity or a more manageable form for
storage, or both; and (v) systems that provide for volume reduction, stable
final form and recycling for mixed waste streams. MMT also would consider use of
CEP as part of the treatment train in previously permitted RCRA treatment
facilities for which MMT believes that only a permit modification would be
required.
The permitting burden on a facility utilizing CEP will depend on the
nature of the feedstock (including whether it is classified as a solid waste or
hazardous waste), the configuration of the process at the particular facility,
the manner in which product is recovered from the waste and the type of waste
residuals created by the process.
BDAT Equivalency Determinations
Pursuant to EPA environmental regulations, the processing of hazardous
waste that is to be disposed of on or in land must be accomplished using the
Best Demonstrated Available Technology ("BDAT"). In April 1996, EPA issued a
BDAT equivalency determination for CEP for all RCRA-listed waste streams which
were previously required to be incinerated prior to being land disposed. As a
result, generators are permitted to meet their BDAT requirement by using CEP for
these waste streams. In connection with a July 1995 equivalency determination
for chlorinated organic wastes, the EPA noted that dioxin, a toxic and harmful
substance, was not detected at targeted regulatory levels in CEP demonstrations.
The
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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, soil and water from 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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<PAGE> 38
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 June 20, 1997, the Company had 518 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
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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.
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 1998, but MMT Tennessee has the right to negotiate a longer term lease
for the building. During the one year period ending in December 1997, MMT
Tennessee also has the right to occupy and use a portion of SEG's facility in
Kingston, Tennessee for the conduct of certain wet waste processing activities.
Thereafter, MMT Tennessee may move the personnel and equipment used for such
activities to the Q-CEP facility site or may attempt to negotiate an extension
to the one year occupancy period.
As part of the acquisition of wet waste processing assets from VECTRA, MMT
Tennessee acquired a maintenance facility located on approximately 16 acres of
land in Columbia, South Carolina. MMT Tennessee will continue to operate this
facility in connection with the wet waste business.
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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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<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 Chief Technical Officer 1989
Sc.D. 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> 42
<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 Chief Technical Officer since June 1997. From October
1996 until June 1997, Dr. Nagel served as Vice President of Process
Fundamentals/Founding Scientist. From August 1994 until October 1996, Dr. Nagel
served as Executive 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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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
42
<PAGE> 44
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.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors is currently set at seven members, each of whom is
elected to hold office until the next annual meeting of stockholders, or special
meeting in lieu thereof, and until their respective successors are duly elected
and qualified.
The Board of Directors has appointed an Audit Committee and a Compensation
Committee. The functions of the Audit Committee include: (1) making
recommendations to the Board of Directors with respect to the engagement of the
Company's independent accountants; (2) reviewing the audit plans developed by
the independent accountants for the annual audit of the Company's books and
records and the results of such audit; (3) reviewing the annual financial
statements; (4) reviewing the professional services provided by the independent
accountants and the accountants' independence; and (5) reviewing the adequacy of
the Company's system of internal controls and the responses to management
letters issued by the independent accountants. The principal functions of the
Compensation Committee are to review and approve salary plans and bonus awards,
as well as other forms of compensation, and to administer the Company's Amended
and Restated 1989 Long Term Incentive Compensation Plan (the "1989 Plan") and
the Company's 1993 Employee Stock Purchase Plan pursuant to the terms of such
plans.
In April 1997, the Board of Directors appointed a committee of three
outside directors to review matters concerning the Company's financial
statements for the year ended December 31, 1996 and the allegations in the
securities class action suits described in "Business--Legal Proceedings" above.
The committee has completed its review of matters affecting the presentation of
the Company's financial statements, including the restatement of the Company's
quarterly results of operations for the periods ended June 30, 1996 and
September 30, 1996 discussed in Note 17 to the financial statements.
COMPENSATION OF DIRECTORS
Except for the option grants described below, directors do not receive
compensation for services on the Board of Directors or any committee thereof.
The Company reimburses directors for expenses incurred in connection with
attendance at meetings of the Board of Directors or committees thereof.
In September 1993, March 1994 and March 1996, the Board of Directors of the
Company amended the 1989 Plan to provide for the automatic grant of stock
options (the "Formula Grants") to directors who are not officers or employees of
the Company ("Non-Employee Directors"). These amendments were approved by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders and at
the 1996 Annual Meeting of Stockholders. A Formula Grant will be granted to any
Non-Employee Director who is elected to the Board of Directors, will be for
25,000 shares of Common Stock, will vest over 20 quarters and will be
exercisable at the fair market value as of the date of the Formula Grant. Each
Non-Employee Director will be eligible to receive an additional Formula Grant
upon his or her reelection to the Board of Directors each time the previous
Formula Grant has fully vested.
43
<PAGE> 45
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 $335,000 $ -- -- 30,100 -- $ 18,140(2)
III 1995 $289,167(3) (4) -- 14,826 -- $ 26,777(5)
Chairman, Chief 1994 $280,000 -- -- 108,000 -- $ 17,119(6)
Executive
Officer and
President
Christopher J 1996 $201,333 $ 11,250 -- 39,000 -- $ 69,022(7)
Nagel, Sc.D 1995 $192,000 $ 21,600 -- 100 -- $ 24,724(8)
Chief Technical 1994 $182,801 $ 310 -- 54,000 -- $ 45,897(9)
Officer
Benjamin T. Downs 1996 $190,833 $ -- -- 35,250 -- $ 146(10)
Executive Vice 1995 $135,993 19,125 -- 7,600 -- $ 146(11)
President of 1994 $143,310 32,448 -- 43,400 -- $ 100(12)
Finance and
Administration
and Chief
Financial Officer
G. Earl McConchie(13) 1996 $163,457 $ 7,031 40,000 50,000 -- $ 68,587(14)
Vice President
of Sales and
Marketing
Victor E. Gatto, 1996 $174,646 $ 6,750 -- 45,250 -- $ 949(15)
Jr 1995 $151,000 $ 55,000 -- 100 -- $ 569(16)
Vice President 1994 $143,906 $ 15,310 -- 72,175 -- $ 348(17)
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) Includes $9,167 paid to Mr. Haney in 1996 for a salary increase that was
retroactive to 1995.
(4) Mr. Haney directed that his bonus for 1995, $100,800, be paid by the
Company to a charitable foundation designated by Mr. Haney.
(5) Represents a payment of $26,561 to Mr. Haney to reimburse him for the cost
of a personal life insurance policy maintained by him and $216 in term
life insurance premiums on a group policy maintained by the Company.
(6) Represents a payment of $16,903 to Mr. Haney to reimburse him for the cost
of a personal life insurance policy maintained by him and $216 in term
life insurance premiums on a group policy maintained by the Company.
(7) Represents a payment of $24,475 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, $198 in term life
insurance premiums on a group policy maintained by the Company and a
payment of $44,349 pursuant to a Technical Assignment Agreement between
the Company and Dr. Nagel dated May 31, 1990.
44
<PAGE> 46
(8) Represents a payment of $24,526 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, and $198 in term
life insurance premiums on a group policy maintained by the Company.
(9) Represents a payment of $24,547 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, $187 in term life
insurance premiums on a group policy maintained by the Company and $21,163
in interest forgiven by the Company on a $400,000 note, which was paid in
full in December 1994.
(10) Represents $146 in term life insurance premiums on a group policy
maintained by the Company.
(11) Represents $146 in term life insurance premiums on a group policy
maintained by the Company.
(12) Represents $100 in term life insurance premiums on a group policy
maintained by the Company.
(13) Mr. McConchie became an employee of the Company in April 1996.
(14) Represents $68,067 for reimbursement of relocation expenses, and $522 in
term life insurance premiums on a group policy maintained by the Company.
(15) Represents $749 in term life insurance premiums on a group policy
maintained by the Company, and $200 payment of a life-cycle account
maintained by the Company.
(16) Represents $369 in term life insurance premiums on a group policy
maintained by the Company, and $200 payment of a life-cycle account
maintained by the Company.
(17) Represents $348 in term life insurance premiums on a group policy
maintained by the Company.
Option Grants in Last Fiscal Year. The following table sets forth
information as to stock options granted for the year ended December 31, 1996 to
each of the individuals listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------ Value of Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees in Price Expiration --------------------
Name Granted Fiscal Year ($/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").
45
<PAGE> 47
(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.
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. Peter A. Lewis, a member of
the Compensation Committee, is a limited partner of Lazard Freres and Co.
("Lazard") and has served as a limited managing director of Lazard since 1995.
During 1996, Lazard was lead underwriter of an offering of $143,750,000 of
convertible notes issued by the Company. The Company and John T. Preston, a
member of the Compensation Committee, are parties to a Consulting Agreement
pursuant to which Mr. Preston will provide advice on technology implementation,
business planning, 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. To the Company's knowledge, there were no other relationships
involving members of the Committee requiring disclosure in this proxy statement.
The Company's Compensation Committee currently consists of Peter A.
Lewis and John T. Preston.
46
<PAGE> 48
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.
47
<PAGE> 49
CERTAIN TRANSACTIONS
In October 1996, the Company and Maurice F. Strong, a director of the
Company, entered into a Consulting Agreement pursuant to which Mr. Strong 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.
Peter A. Lewis, a member of the Compensation Committee, is a limited
partner of Lazard Freres & Co. ("Lazard") and has served as a limited managing
director of Lazard since 1995. During 1996, Lazard was a lead underwriter of an
offering of $143,750,000 of convertible notes issued by the Company.
In August 1996, December 1996 and January 1997, the Company loaned G. Earl
McConchie, 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.
48
<PAGE> 50
PRINCIPAL STOCKHOLDERS
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.
49
<PAGE> 51
<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
50
<PAGE> 52
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).
51
<PAGE> 53
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued pursuant to an Indenture dated as of May 1, 1996
(the "Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Indenture, copies of which are available for inspection at the corporate trust
office of the Trustee in New York, New York and at the offices of the Paying
Agent referred to below. The definitions of certain terms used in the following
summary are set forth below under " -- Certain Definitions." Capitalized terms
used but not defined herein have the meanings ascribed to them in the Notes and
the Indenture.
The Notes are unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company to the
extent set forth in the Indenture. The Indenture does not limit the amount of
other indebtedness or securities that may be issued by the Company or any of its
Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Notes bear interest from May 1, 1996, at the rate of 5-1/2% per
annum and will mature on May 1, 2006. The Notes are limited to $143,750,000
aggregate principal amount. Interest on the Notes is payable semiannually on May
1 and November 1 of each year (each an "Interest Payment Date"), commencing on
November 1, 1996, to holders of record at the close of business on the 15th of
April or 15th of October (each a "Regular Record Date") immediately preceding
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from May 1, 1996. See also " -- Payment and Conversion" below.
OPTIONAL REDEMPTION
Redemption at the Option of the Company
The Notes will not be subject to redemption prior to May 1, 1999, and
will be redeemable on such date and thereafter at the option of the Company, in
whole or in part (in any integral multiple of $5,000), upon prior notice as
described under " -- Selection and Notice" below, at the following redemption
prices (expressed as percentages of the principal amount), if redeemed during
the 12-month period beginning May 1 of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999...................................... 102.75%
2000...................................... 102.29
2001...................................... 101.83
2002...................................... 101.38
2003...................................... 100.92
2004...................................... 100.46
</TABLE>
and at May 1, 2005 and thereafter, 100%, in each case together with accrued
interest to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on an Interest Payment Date).
If less than all Notes are to be redeemed, the Trustee will select the Notes to
be redeemed by lot, pro rata or by such other method as the Trustee shall deem
fair and equitable. On or after the redemption date, interest will cease to
accrue on the Notes, or portion thereof, called for redemption.
Redemption of Notes for Taxation Reasons
A Note will also be redeemable at the option of the Company in whole,
but not in part, at any time, upon prior notice as described under " --
Selection and Notice" below, at a Redemption Price of 100% of its principal
amount,
52
<PAGE> 54
together with accrued interest to the Redemption Date, if the Company has or
will become obligated to pay Additional Amounts (as described under " -- Payment
of Additional Amounts" below) with respect to such Note as a result of any
change in, or amendment to, the laws (including any regulations or rulings
promulgated thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or any change in the official position
regarding the application or interpretation of such laws, regulations or
rulings, which change or amendment is announced or becomes effective on or after
the date of this Prospectus, and such obligation cannot be avoided by the
Company taking reasonable measures available to it; provided, that no such
notice of redemption shall be given earlier than 90 days prior to the earliest
date on which the Company would be obligated to pay any such Additional Amounts
with respect to such Note were a payment in respect of the Notes then due. Prior
to the giving of any notice of redemption pursuant to this paragraph, the
Company shall deliver to the Trustee (i) a certificate stating that the Company
is entitled to effect such redemption and setting forth a statement of facts
showing that the conditions precedent to the right of the Company so to redeem
have occurred and (ii) an opinion of independent counsel of recognized standing
selected by the Company to the effect that the Company has or will become
obligated to pay such Additional Amounts as a result of such change or
amendment. Any Note converted into shares of Common Stock prior to the date
fixed for redemption with respect to such Note will not be subject to the
foregoing redemption.
Redemption Procedures
Notice of intention to redeem Notes will be given to holders of the
Notes in accordance with " -- Selection and Notice" below, not more than 60 nor
less than 30 days prior to the Redemption Date.
Notice of redemption will specify, among other things, the Redemption
Date, the applicable Redemption Price and, in the case of partial redemption,
the aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of the Notes which will be outstanding after such partial
redemption. In addition, in the case of a partial redemption, such notice will
specify the last date on which exchanges or registration of transfers of Notes
may be made pursuant to the provisions described under " -- Exchange and
Transfer " above and will specify the serial numbers and the portions thereof
called for redemption, which will be selected in such manner as the Trustee
shall deem to be fair and appropriate.
Cancellation and Reacquisition
All Notes that are redeemed or purchased by the Company or any of its
Subsidiaries will forthwith be canceled and accordingly may not be reissued or
resold.
The Company or any Subsidiary or affiliate of the Company may at any
time purchase Notes in the open market or otherwise.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE RIGHTS
Upon any Designated Event (as defined below) with respect to the
Company, each holder of Notes will have the right (the "Repurchase Right"), at
the holder's option, to require the Company to repurchase all of such holder's
Notes, or a portion thereof which is $5,000 or any integral multiple thereof, on
the date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined below) at a price equal to 100% of the principal amount of
the Notes, plus accrued interest, if any, to the Repurchase Date; provided,
however, that installments of interest due on an Interest Payment Date occurring
on or prior to the Repurchase Date shall be payable to the registered holders of
the applicable Notes on the relevant Regular Record Date.
Within 30 days after the occurrence of a Designated Event, the Company
is obligated to give notice (the "Company Notice") as provided in the Indenture,
of the occurrence of such Designated Event and the Repurchase Right arising as a
result thereof. To exercise the Repurchase Right, a holder of Notes must deliver
on or before the 30th day after the date of the Company Notice irrevocable
written notice to the Company (or an agent designated by the Company
53
<PAGE> 55
for such purpose) and the Trustee of the holder's exercise of such right
together with the Notes with respect to which the right is being exercised, duly
endorsed for transfer. The submission of a Note pursuant to the exercise of a
Repurchase Right will be irrevocable on the part of the holder (unless the
Company fails to repurchase the Note on the Repurchase Date) and the right to
convert such Note will expire upon such submission.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Designated Event.
On the Repurchase Date, the Company will, to the extent lawful, (1)
accept for payment Notes or portions thereof tendered, (2) deposit with the
Paying Agent an amount equal to the purchase price in respect of all Notes or
portions thereof so tendered plus accrued interest thereon payable on such
Repurchase Date and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Company. The Paying Agent shall promptly mail
to each holder of Notes so accepted payment in an amount equal to the purchase
price for such Notes plus accrued interest thereon payable on such Repurchase
Date, and the Trustee shall promptly authenticate and mail to each holder a new
Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided, that each such new Note shall be in a principal
amount of $5,000 or an integral multiple thereof. The Company will publicly
announce the results of the offer to repurchase on or as soon as practicable
after the Repurchase Date. There can be no assurance that the Company will have
the financial resources necessary to repurchase the Notes in such circumstances.
"Designated Event" means a Change of Control (as defined below) or a
Termination of Trading (as defined below).
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"Beneficial Owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
including all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the Voting Stock of
the Company; provided, however, that the Permitted Holders do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company (for the purposes
of this clause (i), such other person shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation, if such
other person is the Beneficial Owner, directly or indirectly, of more than 50%
of the voting power of the Voting Stock of such parent corporation and the
Permitted Holders do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors of the Company or whose nomination for election by the
shareholders of the Company was approved by a vote of 66-2/3% of the directors
of the Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (iii) the merger or consolidation of
the Company with or into another Person or the merger of another Person with or
into the Company, or the sale of all or substantially all the assets of the
Company to another Person (other than a Person that is controlled by the Company
or the Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the Voting
Stock of the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed into
or exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Permitted Holders" means any of William M. Haney, III, John T. Preston
or Dr. Christopher J. Nagel or any of their affiliates or family members.
A "Termination of Trading" shall have occurred if the Common Stock (or
other common stock into which the Notes are then convertible) is neither listed
for trading on a U.S. national securities exchange nor approved for trading on
an established automated over-the-counter trading market in the United States.
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"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
Except as described above with respect to a Designated Event, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring.
The Designated Event purchase feature of the Notes, insofar as it
pertains to a Change of Control, may in certain circumstances make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. Such purchase feature, however, is not the result of
management's knowledge of any specific effort to accumulate the Company's stock
or to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, such purchase feature is a result of
negotiations between the Company and the Initial Purchasers. Management has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that the Company could decide to do so in the future.
Subject to the limitations on mergers, consolidations and sale of assets
described herein, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of debt (including Senior Debt) outstanding at such
time or otherwise affect the Company's capital structure or credit ratings. The
payment of the purchase price is subordinated to the prior payment of Senior
Debt as described under " -- Subordination of Notes" below.
Any future credit agreements or other agreements relating to debt of
the Company may contain prohibitions or restrictions on the Company's ability to
effect the repurchase of the Notes. In the event a Designated Event occurs at a
time when such prohibitions or restrictions are in effect, the Company could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will be effectively
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate, provided that
no Notes of $5,000 or less shall be redeemed in part. Notice of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
REGISTRATION RIGHTS
In connection with the Original Offering, the Company entered into a
Registration Rights Agreement dated April 25, 1996 between the Company and the
Initial Purchasers (the "Shelf Registration Agreement"). Pursuant to the Shelf
Registration Agreement, the Company agreed for the benefit of the holders of the
Notes (other than Notes originally sold pursuant to Regulation S under the
Securities Act), that (i) it will, at its cost, within 120 days after the
Closing Date, file a shelf registration statement (the "Shelf Registration
Statement") with the Commission with respect to resales of the Notes and the
Common Stock issuable upon conversion thereof, (ii) within 180 days after the
date of the Closing Date, such Shelf Registration Statement shall be declared
effective by the Commission and (iii) the Company will maintain such Shelf
Registration Statement continuously effective under the Securities Act until the
third anniversary of the date of the Closing Date (or, in the event that Rule
144(k) under the Securities Act is amended to provide for a shorter holding
period, until the end of such shorter period) or such earlier date as of which
all the Securities have been sold pursuant to such Shelf Registration Statement.
If the Company fails to comply with clause (i) above then, at such time, the per
annum interest rate on the Notes will increase by 25 basis points. Such increase
will remain in effect until the date on which such Shelf Registration Statement
is filed, on which date the interest rate on the Notes will revert to the
interest rate originally borne by the Notes plus any increase in such interest
rate pursuant to the
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following sentence. If the Shelf Registration Statement is not declared
effective as provided in clause (ii) above, then, at such time and on each date
that would have been the successive 30th day following such time, the per annum
interest rate on the Notes (which interest rate will be the original interest
rate on the Notes plus any increase or increases in such interest rate pursuant
to the preceding sentence and this sentence) will increase by an additional 25
basis points; provided, that the interest rate will not increase by more than 50
basis points pursuant to this sentence and will not increase by more than 75
basis points pursuant to this sentence and the preceding sentence. Such increase
or increases will remain in effect until the date on which such Shelf
Registration Statement is declared effective, on which date the interest rate on
the Notes will revert to the interest rate originally borne by the Notes.
Pursuant to clause (iii) above, however, if the Company fails to keep the Shelf
Registration Statement continuously effective for the period specified above,
then at such time as the Shelf Registration Statement is no longer effective and
on each date thereafter that is the successive 30th day subsequent to such time
and until the earliest of (i) the date that the Shelf Registration Statement is
again deemed effective or (ii) the date that is the third anniversary of the
date of the Closing Date (or, in the event that Rule 144(k) under the Securities
Act is amended to provide for a shorter holding period, until the end of such
shorter period) or (iii) the date as of which all of the Securities are sold
pursuant to the Shelf Registration Statement, the per annum interest rate on the
Notes will increase by an additional 25 basis points; provided, however, that
the interest rate will not increase by more than 50 basis points pursuant to
this sentence. The Company shall have the right, however, to suspend the use of
the prospectus which will be a part of the Shelf Registration Statement, as more
fully described below.
The Company will be permitted to suspend the use of the prospectus
which is a part of the Shelf Registration Statement for a period not to exceed
30 days in any three month period or four periods not to exceed an aggregate of
60 days in any 12 month period under certain circumstances relating to pending
corporate developments, public filings with the Commission and similar events.
The Company will pay all expenses of the Shelf Registration Statement, provide
to each registered holder copies of such prospectus, notify each such registered
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the Securities.
CONVERSION
The holder of any Note has the right, exercisable at any time after 90
days following the date of original issuance thereof and prior to maturity, to
convert the principal amount thereof (or any portion thereof that is an integral
multiple of $5,000) into shares of Common Stock at the conversion price set
forth on the cover page of this Prospectus, subject to adjustment as described
below (the "Conversion Price"), except that if a Note is called for redemption,
the conversion right will terminate at the close of business on the Business Day
immediately preceding the date fixed for redemption, and except that if a Note
is submitted pursuant to the exercise of a Repurchase Right, the right to
convert such Note will expire upon such submission. Except as described below,
no adjustment will be made on conversion of any Notes for interest accrued
thereon or for dividends on any Common Stock issued. If Notes not called for
redemption are converted after a record date for the payment of interest and
prior to the next succeeding Interest Payment Date, such Notes must be
accompanied by funds equal to the interest payable on such succeeding Interest
Payment Date on the principal amount so converted. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision or
combination of the outstanding Common Stock; (iii) the issuance to all holders
of Common Stock of rights or warrants to subscribe for or purchase Common Stock
(or securities convertible into Common Stock) at a price per share less than the
then current market price per share (determined as provided in the Indenture);
(iv) the distribution of shares of Capital Stock of the Company (other than
Common Stock), evidences of indebtedness or other assets (excluding dividends in
cash, except as described in clause (v) below) to all holders of Common Stock;
(v) the distribution, by dividend or otherwise, of cash to all holders of Common
Stock in an aggregate amount that, together with the aggregate of any other
distributions of cash that did not trigger a Conversion Price adjustment to all
holders of its Common Stock within the 12 months preceding the date fixed for
determining the stockholders entitled to such distribution and all Excess
Payments (as defined below) in respect of each tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for Common Stock concluded
within the preceding 12 months not triggering a Conversion Price adjustment,
exceeds 10% of the product of the current market price per share (determined as
provided in the Indenture) on the date fixed for the determination of
stockholders entitled to receive such distribution times the number of shares of
Common Stock
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outstanding on such date; (vi) payment of an Excess Payment in respect of a
tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock, if the aggregate amount of such Excess Payment,
together with the aggregate amount of cash distributions made within the
preceding 12 months not triggering a Conversion Price adjustment and all Excess
Payments in respect of each tender offer or other negotiated transaction by the
Company or any of its Subsidiaries for Common Stock concluded within the
preceding 12 months not triggering a Conversion Price adjustment, exceeds 10% of
the product of the current market price per share (determined as provided in the
Indenture) on the expiration of such tender offer or consummation of such
negotiated transaction times the number of shares of Common Stock outstanding on
such date; and (vii) the distribution to substantially all holders of Common
Stock of rights or warrants to subscribe for securities (other than those
securities referred to in clause (iii) above). In the event of a distribution to
substantially all holders of Common Stock of rights to subscribe for additional
shares of the Company's Capital Stock (other than those securities referred to
in clause (iii) above), the Company may, instead of making any adjustment in the
Conversion Price, make proper provision so that each holder of a Note who
converts such Note after the record date for such distribution and prior to the
expiration or redemption of such rights shall be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of such
rights. No adjustment of the Conversion Price will be made until cumulative
adjustments amount to one percent or more of the Conversion Price as last
adjusted.
If the Company reclassifies or changes its outstanding Common Stock, or
consolidates with or merges into any person or transfers or leases all or
substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the Notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
Notes would have owned immediately after the transaction if the holders had
converted the Notes immediately before the effective date of the transaction.
The Indenture also provides that if rights, warrants or options expire
unexercised the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
An "Excess Payment" means the excess of (A) the aggregate of the cash
and fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the market value of such acquired shares after
giving effect to the completion of the tender offer or other negotiated
transaction.
The Company may, at its option, make such reductions in the Conversion
Price, in addition to those set forth above, as the Board of Directors deems
advisable in order that any stock dividend, subdivision of shares, distribution
or rights to purchase stock or securities or distribution of securities
convertible into or exchangeable for stock made by the Company to its
stockholders will not be taxable to its recipients.
SUBORDINATION OF NOTES
The Notes are subordinate in right of payment to all existing and
future Senior Debt. The Indenture does not restrict the amount of Senior Debt or
other indebtedness of the Company or any Subsidiary of the Company.
The payment of the principal of, interest on or any other amounts due
on the Notes is subordinated in right of payment to the prior payment in full of
all Senior Debt of the Company. Upon the maturity of any Senior Debt of the
Company by lapse of time, acceleration or otherwise, such Senior Debt shall
first be paid in full, or duly provided for, before any payment may be made with
respect to the Notes. In addition, no payment on account of principal, premium,
if any, or interest on, or redemption or repurchase of, the Notes or any coupon
may be made by the Company if there is a default in the payment of principal,
premium, if any, or interest or other amounts (including a default under any
repurchase or redemption obligation) with respect to any Senior Debt or if any
other event of default with respect to any Senior Debt, permitting the holders
thereof to accelerate the maturity thereof, shall have occurred and shall not
have been cured or waived or shall not have ceased to exist after written notice
to the Company and the Trustee by any holder of Senior Debt.
At March 31, 1997, the Company had Senior Debt of approximately $22.8
million. There are no restrictions in the Indenture on the creation of
additional Senior Debt or any other indebtedness.
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Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of the Company or acceleration of the
principal amount due on the Notes because of an Event of Default, all Senior
Debt must be paid in full before the holder of the Notes are entitled to any
payments whatsoever.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of Senior Debt or
the trustee(s) for such Senior Debt of the acceleration. The Company may not pay
the Notes until five days after such holders or trustee(s) of Senior Debt
receive notice of such acceleration and, thereafter, may pay the Notes only if
the subordination provisions of the Indenture otherwise permit payment at the
that time.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Notes may recover ratably less than general
creditors of the Company.
The Company is obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for payments will be senior to those of holders of Notes in
respect of all funds collected or held by the Trustee.
PAYMENT AND CONVERSION
Payment of principal of and premium, if any, on the Notes will be made
to the registered holder thereof against surrender of such Notes at the
corporate trust office of the Trustee in New York City or, subject to any
applicable laws and regulations, at the offices of the Paying Agents, by dollar
check drawn on, or by transfer to, a dollar account (such transfer to be made
only to holders of an aggregate principal amount of Notes in excess of
$5,000,000) maintained by the holder with a bank in New York City. Interest on
the Notes will be payable semiannually on May 1 and November 1 of each year to
the person in whose name such Note is registered at the close of business on the
preceding April 15 and October 15 (a "Regular Record Date"), subject to certain
exceptions in the case of Notes redeemed or repurchased upon a Designated Event
between a Regular Record Date and the next succeeding Interest Payment Date.
Payments of such interest will be made by a dollar check drawn on a bank in New
York City mailed to the holder at such holder's registered address or, upon
application by the holder thereof to the Registrar, not later than the
applicable Regular Record Date, by transfer to a dollar account (such transfer
to be made only to holders of an aggregate principal amount of Notes in excess
of $5,000,000) maintained by the holder with a bank in New York City.
The Company has initially appointed as Paying Agent and Conversion
Agent The Bank of New York. The Company may at any time terminate the
appointment of any Paying Agent or Conversion Agent and appoint additional or
other Paying Agents and Conversion Agents, provided that until the Notes have
been delivered to the Trustee for cancellation, or moneys sufficient to pay the
principal of and premium, if any, and interest on the Notes have been made
available for payment and either paid or refunded to the Company as provided in
the Indenture, it will maintain a Paying Agent and Conversion Agent in New York
City for payments with respect to the Notes and for surrender of the Notes for
conversion. Notice of any such termination or appointment and of any change in
the office through which any Paying Agent or Conversion Agent will act will be
given in accordance with " -- Selection and Notice" above .
All monies paid by the Company to a Paying Agent for the payment of
principal of or premium, if any, or interest on any Notes which remains
unclaimed at the end of two years after such payment has become due and payable
will be repaid to the Company, and the holder of such Note will thereafter look
only to the Company for payment thereof.
In any case where the due date for the payment of the principal of and
premium, if any, on or interest with respect to any Note or the date fixed for
redemption of any Note shall be at any place of payment a day on which banking
institutions are authorized or obligated by law to close, then payment of
principal and premium, if any, or interest need not be made on such date at such
place but may be made on the next succeeding day at such place which is not a
day on which banking institutions are authorized or obligated to close, with the
same force and effect as if made on the date for such payment or the date fixed
for redemption, and no interest shall accrue with respect to the period after
such date.
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PAYMENT OF ADDITIONAL AMOUNTS
The Company will pay to the holder of a Note who is a United States
Alien such Additional Amounts as may be necessary in order that every net
payment of the principal of and premium, if any, and interest on such Note,
after deduction or withholding for or on account of any present or future tax,
assessment or governmental charge imposed upon or as a result of such payment by
the United States or any political subdivision or taxing authority thereof or
therein, will not be less than the amount provided for in such Note to be then
due and payable; provided, however, that the foregoing obligation to pay
Additional Amounts will not apply to:
(a) any tax, assessment or other governmental charge which
would not have been so imposed but for (i) the existence of any present
or former connection between such holder or the beneficial owner (or
between a fiduciary, settlor, beneficiary, member, shareholder of or
possessor of a power over such holder or beneficial owner, if such
holder or beneficial owner is an estate, a trust, a partnership or a
corporation) and the United States, including, without limitation, such
holder or beneficial owner (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been a citizen or
resident of the United States or treated as a resident thereof, or
being or having been engaged in a trade or business or present therein,
or having or having had an office, fixed place of business or permanent
establishment therein, (ii) such holder's or beneficial owner's present
or former status as a personal holding company or a foreign personal
holding company with respect to the United States, a foreign private
foundation or other foreign tax exempt organization described in
Section 1443 of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), a controlled foreign corporation or a passive foreign
investment company for United States tax purposes or a corporation
which accumulates earnings to avoid U.S. federal income tax, (iii) such
holder or the beneficial owner (or such fiduciary, settlor,
beneficiary, possessor, member or shareholder) is considered as having
made an election the effect of which is to make payments of principal
of and premium, if any, and interest on such Note subject to U.S.
federal income tax; or (iv) such holder's status as a bank whose
receipt of interest on a Note is described in Section 881(c)(3)(A) of
the Code;
(b) any tax, assessment or other governmental charge which would
have been so imposed but for the presentation by the holder of such
Note for payment on a date more than 15 days after the date on which
such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later;
(c) any estate, inheritance, gift, sales transfer, excise,
personal property or similar tax, assessment or governmental charge;
(d) any tax, assessment or other governmental charge which would
not have been imposed but for the failure to comply with any
certification, identification or other reporting requirements
concerning the nationality, residence, identity or present or former
connection with the United States of the holder or beneficial owner of
such Note if compliance is required by statute or by regulation, ruling
other administrative action of the United States or any political
subdivision or tax authority thereof or therein as a precondition to
exemption from such tax, assessment or other governmental charge;
(e) any tax, assessment or other governmental charge which is
payable otherwise than by deduction or withholding from payments of
principal of and premium, if any, or interest on such Note;
(f) any tax, assessment or other governmental charge imposed as a
result of a holder's or beneficial owner's past or present status as a
"10-percent shareholder" with respect to the Company within the meaning
of Sections 871(h)(3)(B) or 881(c)(3)(B) of the Code;
(g) any tax, assessment or other governmental charge required to
be withheld by any Paying Agent from any payment of the principal of or
premium, if any, or interest on such Note, if such payment can be made
without such withholding by any other Paying Agent;
(h) any tax, assessment or other governmental charge imposed on a
holder that is not the beneficial owner of such Note or that is a
partnership or a fiduciary, but only to the extent that any beneficial
owner, beneficiary or settlor with respect to such fiduciary or member
of the partnership would not have been entitled
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to the payment of Additional Amounts had the beneficial owner,
beneficiary, settlor or member directly received its beneficial or
distributive share of payment on such Note; or
(i) any combination of items (a), (b), (c), (d), (e), (f), (g)
and (h).
As used in this Prospectus, the term "United States Alien" means any
person who, for U.S. federal income tax purposes, is (i) a foreign corporation,
(ii) a nonresident alien individual, (iii) an estate or trust that is not an
estate or trust that is subject to U.S. federal income taxation regardless of
the source of its income, or (iv) a foreign partnership one or more of the
members of which is, for U.S. federal income tax purposes, a foreign
corporation, a nonresident alien individual, an estate or trust that is not an
estate or trust that is subject to U.S. federal income taxation regardless of
the source of its income or a foreign partnership as otherwise defined in this
clause (iv).
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge
with or into any Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i) (a) the Company
is the surviving or continuing corporation or (b) the person formed by or
surviving any such consolidation or merger (if other than the Company), or the
person which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company, is a corporation organized
or existing under the laws of the United States, any state hereof or the
District of Columbia; (ii) the entity or person formed by or surviving any such
consolidation or merger (if other than the Company) assumes all the obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes and the Indenture, (iii) such sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the Company's properties or assets shall be as an entirety
or virtually as an entirety to one person and such person shall have assumed all
the obligations of the Company, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Notes and the Indenture; (iv)
immediately after such transaction no Default or Event of Default exists; and
(v) the Company or such person shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such transaction and
the supplemental indenture comply with the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
Under certain circumstances described above involving a Change of Control, each
holder of Notes may have the right to require the Company to repurchase such
Notes. See " -- Repurchase Rights".
REPORTS
Whether or not required by the rules and regulation of the Commission,
so long as any Notes are outstanding, the Company will file with the Commission
and furnish to the Trustee all quarterly and annual financial information
required to be contained in a filing with the Commission on Forms 10-Q and 10-K,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual consolidated financial
statements only, a report thereon by the Company's independent auditors.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of principal on the Notes; (iii) failure
by the Company to comply with the provisions described under " -- Repurchase
Rights"; (iv) failure by the Company for 60 days after notice to comply with any
other covenants and agreements contained in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries), whether such indebtedness
or guarantee now exists or is created after the date on which the Notes are
first authenticated and issued, which default (a) is caused by a failure to pay
when due principal or interest on such indebtedness within the grace period
provided in such indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (b) results in the acceleration of such
indebtedness prior to its express maturity and, in each case, the principal
amount of any such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $15 million or more; (vi) failure
by the Company or any Subsidiary of the Company to pay final judgments (other
than any judgment as to which a reputable insurance company has accepted full
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liability) aggregating in excess of $5 million, which judgments are not stayed
within 60 days after their entry; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of the interest or premium on, or the principal of, the Notes or the
failure of the Company to repurchase Notes in connection with any Designated
Event.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form, without coupons in minimum denominations of $5,000 and integral multiples
above such amount. The Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC"), and registered in the name
of Cede & Co., as DTC's nominee in the form of a global Note certificate (the
"Global Certificate") or will remain in the custody of the Trustee pursuant to a
FAST Balance Certificate Agreement between DTC and the Trustee.
Ownership of beneficial interests in a Global Certificate representing
Notes will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in a Global Certificate will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Notes represented by such Global Certificate for
all purposes under the Indenture and the Notes. No beneficial owner of an
interest in a Global Certificate will be able to transfer the interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, a Global Certificate will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Certificate, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Certificate as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in such
Global Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of a
certificated note for any reason, including to sell Notes to persons in
jurisdictions which require such delivery of such Notes or to pledge such Notes,
such holder must transfer its interest in a Global Certificate in accordance
with the normal procedures of DTC and the procedures set forth in the Indenture.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Certificate is credited and only in respect of such
portion of the aggregate principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC will exchange a
Global Certificate for certificated Notes, which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act"). DTC was created to hold securities of persons who
have accounts with DTC ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies
(including the Trustee), clearing corporations and certain other organizations,
some of which (and/or their representatives) own DTC. Access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant either directly or indirectly.
Although the Company expects that DTC will agree to the foregoing
procedures in order to facilitate transfers of interests in a Global Certificate
among participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for a
Global Certificate and a successor depositary is not appointed by the Company
within 90 days, the Company will issue certificated Notes in exchange for a
Global Certificate.
Such definitive certificated Notes shall be registered in names of the
owners of the beneficial interests in the Global Certificate as provided by the
participants. Convertible Notes issued in definitive certificated form will be
fully registered, without coupons, in minimum denominations of $5,000 and
integral multiples of $5,000 above that amount. Upon issuance of Notes in
definitive certificated form, the Trustee is required to register the Notes in
the name of, and cause the Notes to be delivered to, the person or persons (or
the nominee thereof) identified as the beneficial owner as DTC shall direct.
Notes in definitive form are available to any holder of Notes.
EXCHANGE AND TRANSFER
At the option of the holder thereof and subject to the terms of the
Notes and of the Indenture, Notes will be exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, in each case
without service charge (other than the cost of delivery) and upon payment of any
taxes and other governmental charges. The registered holder of a Note will be
treated by the Company, the Trustee and their respective agents for all purposes
as the owner of such Note.
The transfer of Notes may be registered, and Notes may be presented in
exchange for other Notes of different authorized denominations, at the office of
the Trustee in The City of New York, without service charge (other than the cost
of delivery) and upon payment of any taxes or other governmental charges.
In the event of a partial redemption, the Company will not be required
(i) to register the transfer of Notes for a period of 15 days immediately
preceding the date on which notice is given identifying the serial numbers of
the Notes called for such redemption or (ii) to register the transfer or
exchange of any Note, or portion thereof, called for redemption.
The Company has initially appointed as Registrar and Transfer Agent The
Bank of New York acting through its corporate trust office in New York City. The
Company reserves the right to vary or terminate the appointment of the Registrar
or of any Transfer Agent or to appoint additional or other registrars or
transfer agents or to approve any change in the office through which any
Registrar or any Transfer Agent acts, provided that there will be at all times a
Registrar in New York City.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
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holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes,
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a default in the payment of principal of or interest on any Notes
(except a rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or Events of
Default or the rights of holders of Notes to receive payments of principal of or
interest on the Notes, (vii) waive a redemption payment with respect to any
Note, (viii) impair the right to convert the Notes into Common Stock or
adversely affect the Repurchase Rights, (ix) modify the conversion or
subordination provisions of the Indenture in a manner adverse to the holders of
the Notes or (x) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act of 1939.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Molten Metal Technology, Inc., Investor Relations
Department, 400-2 Totten Pond Road, Waltham, MA 02154.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any preferred stock,
but excluding any debt securities convertible into such equity.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
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"Material Subsidiary" means any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof).
"Representative" means the trustee, agent or representative (if any)
for an issue of Senior Debt.
"Senior Debt" means (a) all indebtedness of the Company, including the
principal of, premium, if any, and interest on such indebtedness whether
outstanding on the date of the Indenture or thereafter created, (i) for borrowed
money, (ii) constituting purchase money indebtedness for the payment of which
the Company is directly or contingently liable, (iii) constituting reimbursement
obligations under bank letters of credit, (iv) under interest rate and currency
swaps, caps, floors, collars or similar agreements or arrangements intended to
protect the Company against fluctuations in interest or currency exchange rates,
(v) for commitment, standby and other fees due and payable to financial
institutions with respect to credit facilities available to the Company, (vi)
under any lease of any real or personal property, whether outstanding on the
date of execution of the Indenture or thereafter created, incurred or assumed,
which obligations are capitalized on the books of the Company in accordance with
generally accepted accounting principles, (vii) constituting obligations of the
Company for guarantees of indebtedness or obligations of others which would be
included in the preceding clauses (i)-(vi) if the Company were the direct
obligor, or (viii) indebtedness or obligations of others secured in whole or in
part by a lien on any of the Company's property, unless, in any such case, by
the terms of the instrument creating or evidencing such indebtedness it is
provided that such indebtedness is not superior in right of payment to the Notes
or to other indebtedness which is pari passu with, or subordinated to, the
Notes, and (b) any modifications, refundings, deferrals, renewals or extensions
of any such Senior Debt, or securities, notes or other evidences of indebtedness
issued in exchange for such Senior Debt. As used in the preceding sentence the
term "purchase money indebtedness" shall mean indebtedness evidenced by a note,
debenture, bond or other similar instrument (whether or not secured by any lien
or other security interest) given in connection with the acquisition of any
business, properties or assets of any kind acquired by the Company or any
Subsidiary; provided, however, that, without limiting the generality of the
foregoing, such term shall not include any conditional sale contract or any
account payable or any other indebtedness created or assumed by the Company in
the ordinary course of business in connection with the obtaining of inventories
or services.
"Subsidiary" means any corporation, association or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
OTHER INDEBTEDNESS
As of March 31, 1997, the Company had an aggregate of
approximately $22.8 million of debt outstanding which is senior to the Notes.
Certain of the outstanding Senior Debt as of March 31, 1997 is described
below.
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, profitability and
consolidations or mergers. Unamortized debt issuance costs at March 31, 1997
were $843,000. These costs are being amortized over the term of the debt
using the effective interest rate method.
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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 8.50%, 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. As of March 31, 1997, $1,777,000
was outstanding under this loan.
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 0.50% and
is payable monthly. As of March 31, 1997, the Company has not borrowed
against the line of credit.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock, $.01 par value, and 3,000 shares of Preferred Stock, $.01 par
value ("Preferred Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of stockholders.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of Directors may elect all of the Directors standing for
election. Subject to preferential dividend rights with respect to any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. Upon liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to share ratably in the
assets of the Company legally available, and subject to any prior rights of any
outstanding Preferred Stock. Holders of Common Stock have no cumulative voting
rights nor any preemptive, subscription, redemption or conversion rights. All
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
As of June 20, 1997, there were 23,602,830 shares of Common Stock
outstanding held by 940 holders of record.
PREFERRED STOCK
No Preferred Stock currently is outstanding. The Board of Directors is
authorized, without stockholder approval, to issue the Preferred Stock in one or
more series, with such rights, preferences and qualifications as the Board of
Directors may in its discretion determine. If the Company issues Preferred
Stock, the terms of the Preferred Stock may include, among other things,
extraordinary voting, dividend, redemption or conversion rights which could
discourage unsolicited takeovers of the Company and adversely affect the holders
of Common Stock.
WARRANTS
As of June 20, 1997, certain holders affiliated with Oppenheimer &
Co. held warrants to purchase an aggregate of up to 43,105 shares of Common
Stock at an exercise price of $10.56 per share. The holders of such warrants are
entitled to certain registration rights in respect of the shares of Common Stock
issuable upon exercise of such warrants. See "--Registration Rights."
As of June 20, 1997, there were also two outstanding warrants held
by Am-Re Services, one of which is a warrant (the "Insurance Warrant") to
purchase up to 125,000 shares of Common Stock at $12.25 per share and the other
of which is a warrant (the "Project Finance Warrant") to purchase up to 250,000
shares of Common Stock (of which 200,000 shares may be purchased at $12.25 per
share and 50,000 shares at $18.37 per share). The shares
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covered by the Insurance Warrant vest according to a schedule based upon the
Company obtaining acceptable environmental impairment insurance for the first
five CEP facilities developed by the Company that require environmental
impairment insurance. The shares covered by the Project Finance Warrant vest
according to a schedule based upon the Company accepting project financing by or
through Am-Re Services for the first five CEP plants developed by the Company
that require project financing. See "Business--Commercial Developments." Am-Re
Services is entitled to certain registration rights in respect of the shares of
Common Stock issuable upon exercise of such warrants. See "--Registration
Rights."
As of June 20, 1997, EPRI held an outstanding warrant to purchase
up to 100,000 shares of Common Stock at an exercise price of $23.375 per
share. The warrant will vest in increments upon the closing of contracts for
CEP plants for which EPRI has provided minimum levels of funding and upon
customer acceptance of such plants.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain anti-takeover provisions. The Company is subject to the
provisions of Section 203 of the General Corporation Law of Delaware. Section
203 prohibits certain publicly held Delaware corporations from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person or entity who, together with affiliates and associates, owns (or within
the preceding three years, did own) 15% or more of the corporation's voting
stock. This statute contains provisions enabling a corporation to avoid the
statute's restrictions if the stockholders holding a majority of the
corporation's voting stock approve an amendment to the corporation's Certificate
of Incorporation or By-Laws.
The Amended and Restated Certificate of Incorporation provides that the
Board of Directors shall have the authority, without stockholder approval, to
issue Preferred Stock in one or more series, with such rights, preferences and
qualifications as the Board of Directors may determine in its discretion. See
"--Preferred Stock." The Amended and Restated By-laws require that any
stockholder proposing to nominate, at any special or annual meeting of
stockholders, one or more persons for election to the Board of Directors, must
give written notice of his or her intention to do so no later than 80 days prior
to the date of such special or annual meeting. The Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws further provide
that vacancies on the Board of Directors shall be filled by a vote of the
majority of the Directors then in office and that any actions requiring approval
of the stockholders may only be approved by the stockholders at a meeting or by
written consent of the holders of at least 66 2/3% of the outstanding capital
stock entitled to vote thereon. The Amended and Restated Certificate of
Incorporation allows amendments of certain provisions thereof, and the Amended
and Restated By-Laws allow amendments to any provision thereof, only with a
66 2/3% or greater vote of the outstanding Common Stock. These provisions of the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company and therefore may limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock.
The provisions described above, although having an anti-takeover effect, are
designed primarily to provide time for management of the Company to assess and
respond to takeover threats, to encourage any person who might contemplate a
takeover to first consult with the Board of Directors and to negotiate the terms
of any proposed offer or business combination with the Board of Directors, and
to ensure that any takeover is fair to all of the Company's stockholders and
other constituencies.
Elimination of Monetary Liability for Officers and Directors. The
Company's Amended and Restated Certificate of Incorporation also incorporates
certain provisions permitted under the General Corporation Law of Delaware
relating to the liability of Directors. The provisions eliminate a Director's
liability for monetary damages for a breach of fiduciary duty, including gross
negligence, except in circumstances involving certain wrongful acts, such as the
breach of a Director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. These provisions do not
eliminate a Director's duty of care. Moreover, the provisions do not apply to
claims against a Director for violations of certain laws, including federal
securities laws. The Company's Amended and Restated Certificate of Incorporation
also contains provisions to indemnify the Directors, officers, employees or
other agents to the fullest extent permitted by the General Corporation Law of
Delaware. The
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Company believes that these provisions will assist the Company in attracting or
retaining qualified individuals to serve as Directors.
Indemnification of Officers and Directors. The Company's Amended and
Restated Certificate of Incorporation also contains provisions to indemnify the
Directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. These provisions may have the
practical effect in certain cases of eliminating the ability of shareholders to
collect monetary damages from directors. The Company believes that these
provisions will assist the Company in attracting or retaining qualified
individuals to serve as Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
The First National Bank of Boston.
REGISTRATION RIGHTS
The holders of 7,519,391 shares of Common Stock (the "Registrable
Shares") have certain rights to register such shares for sale under the
Securities Act. In addition, warrants to purchase 418,105 shares of Common
Stock are exercisable for additional Registrable Shares. Holders of Registrable
Shares have the right to participate in any registration of securities by the
Company in which shares are proposed to be sold by the Company or by selling
shareholders. William M. Haney, III also has the right, pursuant to his
Employment Agreement, to participate in any such registration of securities by
the Company. The Company is required, with respect to each such registration, to
notify Mr. Haney and each holder of Registrable Shares in writing of the
proposed offering.
The holders of Registrable Shares have the right to require the Company
to register such Registrable Shares under the Securities Act on not more than
two occasions. In addition, so long as the Company is eligible to register the
Common Stock on Form S-3, the holders may from time to time request the Company
to register Registrable Shares on Form S-3, provided that the Company is not
required to effect more than three such registrations in any 12-month period.
Am-Re Services and American Re-Insurance Company have certain
registration rights with respect to the 438,885 shares of Common Stock purchased
by American Re-Insurance Company and the 375,000 shares issuable upon exercise
of the Insurance Warrant and the Project Finance Warrant (collectively, the
"Am-Re Registrable Shares"). Holders of the Am-Re Registrable Shares have
certain demand registration rights commencing after June 30, 1997 and certain
incidental registration rights, subject to acceleration in the event of sales of
Common Stock in excess of specified levels by Messrs. Haney, Nagel or Preston or
all MMT Directors and officers as a group.
In connection with the agreement signed by LMC and the Company with
respect to the acquisition by M4 of the Retech division of Lockheed
Environmental Systems & Technologies Co., the Company has issued to LMC 352,361
shares of Common Stock. MMT has filed a "shelf" registration statement with
respect to such shares.
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SELLING HOLDERS
The Notes originally were issued by the Company and sold by the Initial
Purchasers, in a transaction exempt from the registration requirements of the
Securities Act, to persons reasonably believed by such Initial Purchasers to be
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act), other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) or in transactions complying with the
provisions of Regulation S under the Securities Act. The Selling Holders (which
term includes their transferees, pledgees, donees or their successors) may from
time to time offer and sell pursuant to this Prospectus any or all of the
Securities.
<TABLE>
The following table sets forth information with respect to the Selling
Holders and the respective principal amounts of Notes and shares of Common Stock
beneficially owned by each Selling Holder. Such information has been obtained
from the Selling Holders. Except as otherwise disclosed herein, none of the
Selling Holders has, or within the past three years has had, any position,
office or other material relationship with the Company or any of its
predecessors or affiliates. Because the Selling Holders may offer all or some
portion of the Securities pursuant to this Prospectus, no estimate can be given
as to the amount of the Securities that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders identified below
may have sold, transferred or otherwise disposed of all or a portion of their
Notes, since the date on which they provided the information regarding their
Notes, in transactions exempt from the registration requirements of the
Securities Act.
<CAPTION>
Principal Amount of Number of
Notes Shares of
Beneficially Owned Common Stock
Selling Holder and Offered Hereby Beneficially Owned(1)
- -------------- ------------------ ---------------------
<S> <C> <C>
General Motors Employees Domestic
Group Trust.................................. $19,790,000 --
Lazard Freres & Co. LLC........................... 10,159,000 2,000
Shepherd Investments International, Ltd........... 7,400,000 --
Phoenix Income & Growth Fund...................... 6,250,000 --
J.P. Morgan & Co.................................. 5,000,000 3,600
NB Convertible Arbitrage Partners, LP............. 4,700,000 --
New York Life Insurance Company................... 4,500,000 --
Massachusetts Mutual Life Insurance Company....... 4,400,000 --
Goldman, Sachs & Co............................... 4,260,000 --
Reliant Trading................................... 4,030,000 --
Oregon Equity Fund................................ 3,500,000 --
OCM Convertible Trust............................. 3,010,000 --
Continental Casualty Company
Separate Equity Trading Account.............. 3,000,000 --
STI Capital Management............................ 3,000,000 714,700
TCW Convertible Securities Fund................... 2,830,000 --
Phoenix Convertible Fund Ashore & Co.............. 2,750,000 --
Allmerica Select Growth and Income Fund........... 2,200,000 --
Delaware State Employees' Retirement Fund......... 2,070,000 --
State of Connecticut Combined
Investment Funds............................. 2,055,000 --
BNY Hamilton Equity Income Fund................... 2,000,000 --
The Common Fund................................... 2,000,000 --
Robertson Stephens Growth & Income Fund........... 2,000,000 --
SAIF Corporation.................................. 2,000,000 --
Delta Airlines Master Trust....................... 1,995,000 --
Vanguard Equity Income Fund....................... 1,900,000 --
TCW Convertible Value Fund........................ 1,895,000 --
State of Michigan Employees Retirement Fund....... 1,305,000 --
Salkeld & Co...................................... 1,240,000 --
Offshore Strategies Ltd........................... 1,026,000 --
Commonwealth Life Insurance....................... 1,000,000 --
</TABLE>
67
<PAGE> 69
<TABLE>
<S> <C> <C>
TCW Convertible Strategy Fund..................... 940,000 --
MassMutual Corporate Investors.................... 900,000 --
Winchester Convertible Plus, Ltd.................. 750,000 --
State Employees' Retirement Fund of the
State of Delaware............................ 735,000 --
Declaration of Trust for the Defined Benefit
Plans of ICI American Holdings, Inc.......... 635,000 --
Laterman Strategies 90's LP....................... 614,000 --
Meadow Lane Associates, L.P....................... 600,000 --
Hughes Aircraft Company Master Retirement Trust... 565,000 --
Delaware State Retirement Fund.................... 550,000 --
Thermo Electron Balanced Investment Fund.......... 550,000 --
Cincinnati Bell Telephone Convertible
Value Fund................................... 530,000 --
CoreStates Bank................................... 500,000 6,000
TQA Vantage Fund Ltd.............................. 500,000 --
WAFRA Discretionary............................... 500,000 --
Value Line Convertible Fund....................... 500,000 --
MassMutual Participation Investors................ 450,000 --
Declaration of Trust for the Defined Benefit
Plans of ZENECA Holdings, Inc................ 425,000 --
Laterman & Co..................................... 410,000 --
TCW/DW Income & Growth Fund....................... 355,000 --
Avery Dennison Employees Retirement Fund.......... 340,000 --
ICI American Holdings Pension..................... 325,000 --
Zeneca Holdings Pension........................... 325,000 --
TCW Convertible Value L.P......................... 300,000 --
Foundation Account No. 1.......................... 250,000 --
Gleneagles Fund................................... 250,000 --
Hick Investment................................... 250,000 --
McMahan Securities................................ 250,000 --
Ramius Fund....................................... 250,000 --
First Church of Christ, Scientist-Endowment....... 210,000 --
OCM Convertible Limited Partnership............... 205,000 --
Hillside Capital Incorporated Corporate Account... 200,000 --
Kapiolani Medical Center.......................... 200,000 --
Queen's Health Systems............................ 200,000 --
Christian Science Trustees for Gifts and
Endowments................................... 180,000 --
Nalco Chemical Retirement......................... 150,000 --
Equi-Select Growth & Income Fund.................. 100,000 --
Nicholas-Applegate Strategic Income Fund.......... 100,000 --
Teepak, Inc. Master Retirement Trust.............. 55,000 --
Norwich University Endowment Fund................. 40,000 --
------------ -------
TOTALS....................................... $128,454,000 726,300
============ =======
<FN>
- ------------
(1) Does not include shares of Common Stock issuable upon conversion of Notes.
</TABLE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Holders that the Securities
offered hereby may be sold from time to time to purchasers directly by the
Selling Holders. Alternatively, the Selling Holders may from time to time offer
the Securities to or through underwriters, broker/dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Holders or the purchasers of Securities for whom
they may act as agents. The Selling Holders and any underwriters, broker/dealers
or agents that participate in the distribution of the Securities may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit
realized by them on the sale of such Securities and any discounts, commissions,
concessions or other
68
<PAGE> 70
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Company has been advised by the Selling Holders that the Securities may
be sold from time to time in one or more transactions at fixed prices, at market
prices prevailing at the time of sale, at varying prices determined at the time
of sale or at negotiated prices. The sale of Securities may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Securities may be
listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii)
in transactions otherwise than on such exchanges or in the over-the-counter
market or (iv) through the writing of options. At the time a particular offering
of Securities is made, a supplement to this Prospectus, if required, will be
distributed which will set forth the aggregate amount and type of Securities
being offered and the terms of such offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed to be paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Securities will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the Securities may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and complied with.
Under applicable rules and regulations of the Exchange Act, any person
engaged in a distribution of the Securities may not simultaneously engage in
market-making activities with respect to such Securities for a period of two or
nine business days prior to the commencement of such distribution. In addition
to and without limiting the foregoing, each Selling Holder and any other person
participating in a distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of any of the Securities by the Selling Holders or any such
other person. All of the foregoing may affect the marketability of the
Securities and the ability of brokers or dealers to engage in market-making
activities with respect to the Securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Securities will be paid by the Company, including without
limitation Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will be indemnified by the
Selling Holders against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith.
CHANGES IN ACCOUNTANTS
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 & Lybrand during such period. Prior to the engagement of Price
Waterhouse, M4 had not consulted with Price Waterhouse regarding the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on M4's financial statements. The Company has consulted
with Price Waterhouse, in Price Waterhouse's capacity as the Company's
independent accountants, on various occasions with respect to transactions
between the Company and M4.
LEGAL MATTERS
The validity of the Securities offered hereby is being passed upon by
Elliot J. Mark, Esq., Assistant General Counsel to the Company.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
69
<PAGE> 71
MOLTEN METAL TECHNOLOGY, INC.
INDEX TO 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
<PAGE> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR
OF SUCH COMMON STOCK IN ANY STATE OR OTHER JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. EXCEPT WHERE OTHERWISE
INDICATED HEREIN, THIS PROSPECTUS SPEAKS AS OF ITS DATE AND NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk Factors .............................................................. 4
The Company ............................................................... 8
Use of Proceeds ........................................................... 8
Price Range of Common Stock ............................................... 8
Dividend Policy ........................................................... 8
Capitalization ............................................................ 9
Selected Consolidated Financial Data ...................................... 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11
Business................................................................... 22
Management................................................................. 40
Executive Compensation..................................................... 44
Certain Transactions....................................................... 48
Principal Stockholders..................................................... 49
Description of the Notes .................................................. 52
Other Indebtedness ........................................................ 63
Description of Capital Stock .............................................. 64
Selling Holders ........................................................... 67
Plan of Distribution ...................................................... 68
Changes in Accountants..................................................... 69
Legal Matters ............................................................. 69
Experts ................................................................... 69
</TABLE>
$142,750,000
5-1/2% CONVERTIBLE
SUBORDINATED NOTES DUE 2006
[MOLTEN METAL TECHNOLOGY LOGO]
--------------------
PROSPECTUS
--------------------
, 1997
================================================================================
<PAGE> 98
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
<TABLE>
<S> <C>
Registration fee..................................... $ 49,225
Accountants' fees and expenses....................... $ 10,000
Legal fees and expenses.............................. $ 5,000
Miscellaneous........................................ $ 15,000
Total................................................... $ 79,225
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the Delaware General Corporation Law
provides a detailed statutory framework covering indemnification of directors
and officers against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status or service as directors or
officers. Article Seven of the Registrant's By-Laws provides for indemnification
of directors and officers to the full extent permitted by Section 145. Section
145 generally provides that a director or officer of a corporation (i) shall be
indemnified by the corporation for all expenses of such legal proceedings when
he/she is successful on the merits, (ii) may be indemnified by the corporation
for the expenses, judgments, fines and amounts paid in settlement of such
proceedings (other than a derivative suit), even if he/she is not successful on
the merits, if he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the corporation (and,
in the case of criminal proceeding, had no reasonable cause to believe his/her
conduct was unlawful), and (iii) may be indemnified by the corporation for
expenses of a derivative suit (a suit by a shareholder alleging a breach by a
director or officer of a duty owed to the corporation), even if he/she is not
successful on the merits, if he/she acted in good faith and in a manner he/she
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made under clause (iii) above, however,
if the director or officer is adjudged liable for negligence or misconduct in
the performance of his/her duties to the corporation, unless a court determines
that, despite such adjudication, but in view of all of the circumstances, he/she
is entitled to indemnification. The indemnification described in clauses (ii)
and (iii) above may be made only upon a determination that indemnification is
proper because the applicable standard of conduct has been met. Such a
determination may be made by a majority of a quorum of disinterested directors,
independent legal counsel, the stockholders or a court of competent
jurisdiction. The board of directors may authorize advancing litigation expenses
to a director or officer upon receipt of an undertaking by such director or
officer to repay such expenses if it is ultimately determined that he/she is not
entitled to be indemnified for them.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In 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.
Pursuant to an agreement between the Company and the Electric Power
Research Institute, Inc. ("EPRI"), EPRI agreed to fund certain research and
development programs and to provide marketing and financing support for future
CEP projects. In exchange for the marketing and financing support, EPRI received
a warrant to purchase up to 100,000 shares of the Company's Common Stock at an
exercise price of $23.375 per share. The warrant will vest in increments if, as
a result of the agreement with EPRI, the Company closes a contract for a CEP
plant for which EPRI has provided minimum levels of funding and upon customer
acceptance of such plants. The warrant expires on July 7, 2015. The warrant was
issued in accordance with the exemption from the registration requirements of
the Securities Act provided in Section 4(2) of the Securities Act.
As payment for the provision of feasibility studies, designs, cost
estimations and other services by Fluor Daniel Environmental Services, Inc.
("Fluor Daniel") during 1992 and 1993, the Company issued 113,636 shares of its
Common Stock to Fluor Daniel in 1994 at a price of $10.56 per share. As payment
for the provision of engineering and other services by Fluor Daniel, the Company
issued an aggregate of 35,083 shares of its Common Stock at prices ranging from
$19.64 per share to $24.10 per share during 1994, and issued an aggregate of
139,098 shares of its Common Stock at prices ranging from $18.30 per share to
$27.04 per share during 1995. The shares were issued in accordance with the
exemption from the registration requirements of the Securities Act provided in
Section 4(2) of the Securities Act.
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<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
z 2.1 - Master Restructuring Agreement dated as of June 16, 1997 between the
Company and Lockheed Martin Corporation. #15# (2.1)
3.1 - Amended and Restated Certificate of Incorporation of the
Registrant. *4* (3.1).
3.2 - Amended and Restated By-Laws of Registrant. *4* (3.2)
4.1 - Specimen Certificate for Shares of the Registrant's Common Stock,
$.01 par value. *1* (4.1)
s 10.1 - Pilot Plant Agreement dated as of October 25, 1991 between the
Registrant and E.I. du Pont de Nemours and Company, as amended by
the Pilot Plant Funding Agreement Addendum dated as of February
10, 1992. *1* (10.2)
10.2 - Agreement dated as of December 20, 1991 between the Registrant and
L'Air Liquide S.A. *1* (10.4)
10.3 - Lease dated as of July, 1993 for Two University Office Park,
Waltham, Massachusetts. #2# (10.8)
10.4 - Lease dated as of June 29, 1992 between the Greater Fall River
Development Corporation and the Registrant for the property located
at 421 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))
s 10.9 - Asset Purchase Agreement dated as of July 7, 1992 between the
Registrant and IPS Interproject Service AB and IPS Interproject
Processteknik AB. *2* (10.8)
10.10 - Technology Assignment Agreement dated as of May 31, 1990 between
the Registrant and Christopher J. Nagel and Robert D. Bach, as
clarified by the Clarification Agreement dated as of May 31, 1990
and as amended by the Amendment to Technology Assignment Agreement
dated as of October 12, 1990. *1* (10.9)
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<PAGE> 100
+ 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. #14# (10.16)
+10.14 - Employment Agreement dated as of April 1, 1996 between the
Registrant and G. Earl McConchie. #14# (10.14)
+10.15 - Registrant's Amended and Restated 1989 Long Term Incentive
Compensation Plan, as amended effective March 27, 1996. #14# (10.15)
+ 10.16 - Registrant's 1993 Employee Stock Purchase Plan. *3* (28.2)
+ 10.17 - Registrant's 1992 Restricted Common Stock Award Plan. *1* (10.14)
10.18 - Form of Employee Non-Disclosure, Development and Non-Competition
Agreement of the Registrant. *1* (10.16)
10.19 - Loan Agreement dated February 4, 1993 between the Registrant and
Jobs for Fall River, Inc. *1* (10.18)
10.20 - $1,800,000 Promissory Note, dated February 4, 1993, made by the
Registrant in favor of Jobs for Fall River, Inc. *1* (10.19)
10.21 - $50,000 Promissory Note, dated February 4, 1993, made by the
Registrant in favor of Jobs for Fall River, Inc. *1* (10.20)
10.22 - $150,000 Promissory Note, dated February 4, 1993, made by the
Registrant in favor of Jobs for Fall River, Inc. *1* (10.21)
10.23 - Security Agreement dated February 4, 1993 between the Registrant
and Jobs for Fall River, Inc. *1* (10.22)
10.24 - Letter Agreement dated February 4, 1993 between the Registrant and
Jobs for Fall River, Inc. regarding security for loan made by Jobs
for Fall River, Inc. to the Registrant. *1* (10.23)
10.25 - Contract No. DE-AC21-9MC30171 dated September 30, 1993 between the
Registrant and the United States Department of Energy, Morgantown
Energy Technology Center. *4* (10.31)
t10.26 - 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)
u10.29 - 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)
v10.33 - Development Agreement dated as of May 3, 1995 between the
Registrant and Hoechst Celanese Chemical Group, Inc. ("HCC"). #7#
(10.1)
v10.34 - Feedstock Supply Agreement dated as of May 3, 1995 between the
Registrant and HCC. #7# (10.2)
v10.35 - Synthesis Gas Purchase and Sale Agreement dated as of May 3, 1995
between the Registrant and HCC. #7# (10.3)
w10.36 - Sales Representative and Master Services Agreement dated as of
February 29, 1996 between the Registrant and Uhde. #8#(10.1) '
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<PAGE> 101
w10.37 - 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)
x10.40 - 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)
y10.46 - Joint Venture Master Agreement dated as of October 30, 1996
between Nichimen Corporation, NKK Plant Engineering Corporation.
#14# (10.46)
z10.47 - Limited Liability Company Agreement of Lockheed Martin Chemical
Demilitarization Systems LLC dated as of June 16, 1997. #15#(10.1)
z10.48 - License Agreement dated as of June 16, 1997 between the Company,
Lockheed Martin Chemical Demilitarization Systems LLC, and
Lockheed Martin Corporation. #15#(10.2)
z10.49 - Asset Transfer Agreement dated as of June 16, 1997 between the
Company, Lockheed Martin Advanced Environmental Systems Inc.,
M4 Environmental L.P., and Lockheed Martin Corporation. #15#(10.3)
11 - Computation of Primary, Fully Diluted and Supplementary Net Income
(Loss) Per Share. #14# (11)
16 - Letter re: Change of Accountants. #13#(A)
21 - Subsidiaries of the Registrant. #14# (21)
* 23.1 - Consent of Price Waterhouse LLP. re: financial statements of the
Registrant.
* 23.2 - Consent of Price Waterhouse LLP. re: financial statement of M4
Environmental L.P.
- ----------
* Filed herewith.
+ Management contract or compensatory plan filed pursuant to item 14(c)
of Form 10-K.
s An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.1 and 10.9 was issued on February 9, 1993.
t An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.26 was issued on May 11, 1994.
u An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.29 was issued on January 6, 1995.
v An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.33, 10.34 and 10.35 was issued on October 20, 1995.
w An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.36 and 10.37 was issued on September 26, 1996.
x An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.40 was issued on July 30, 1996.
y Confidential treatment has been requested for deleted portions of
Exhibit 10.46.
z Confidential treatment has been requested for deleted portions of
Exhibits 2.1, 10.47, 10.48 and 10.49.
*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.
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<PAGE> 102
*4* Incorporated by reference to the designated exhibit to Amendment No. 1
to the Registration Statement on Form S-1 of the Registrant
(Registration No. 33-70210) filed on November 30, 1993.
#1# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
#2# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
#3# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.
#4# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
#5# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
#6# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
#7# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
#8# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
#9# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
#10# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
#11# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on January 3, 1997.
#12# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on February 13, 1997.
#13# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on April 3, 1997.
#14# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
#15# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on June 25, 1997.
(b) Financial Statement Schedules and Financial Statements of M4
(1) For the three years ended December 31, 1996:
Schedule II - Valuation and Qualifying Accounts
(2) The financial statements of M4 Environmental L.P. set forth in the list
below are incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Report of Independent Accountants
Balance Sheet at December 31, 1996 and 1995
Statement of Operations for the years ended December 31, 1996 and 1995
and the period from inception (August 8, 1994) through December 31,
1994 (unaudited)
Statement of Changes in Partners' Capital (Deficit) for the period from
inception (August 8, 1994) through December 31, 1996
Statements of Cash Flows for the years ended December 31, 1996 and 1995
and the period from inception (August 8, 1994) through December 31,
1994 (unaudited)
Notes to Financial Statements
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<PAGE> 103
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are
being made pursuant to this Registration Statement, a post-effective amendment
to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment has been signed by the following persons in the
capacities and on the dates indicated.
MOLTEN METAL TECHNOLOGY, INC.
By: /s/ Benjamin T. Downs
-----------------------------------------
Benjamin T. Downs
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive June 24, 1997
- ----------------------------------- Officer and Director (Principal
William M. Haney, III Executive Officer)
* Chief Technical Officer June 24, 1997
- ----------------------------------- and Director
Christopher J. Nagel, Sc.D.
/s/ Benjamin T. Downs Executive Vice President of June 24, 1997
- ----------------------------------- Finance and Administration
Benjamin T. Downs (Principal Accounting Officer)
* Director June 24, 1997
- -----------------------------------
James B. Anderson
</TABLE>
II-7
<PAGE> 105
<TABLE>
<S> <C> <C>
* Director June 24, 1997
- -----------------------------------
Peter A. Lewis
* Director June 24, 1997
- -----------------------------------
John T. Preston
* Director June 24, 1997
- -----------------------------------
Maurice F. Strong
* Director June 24, 1997
- -----------------------------------
Robert A. Swanson
By: /s/ Benjamin T. Downs
- -----------------------------------
Benjamin T. Downs,
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 23, 1996, relating
to the financial statements of Molten Metal Technology, Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule listed in item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report
also included this schedule. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
June 20, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 23, 1996, relating
to the financial statements of M4 Environmental L.P., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
June 20, 1997
