Let's go back..Agreement with Drosrite International
On October 9, 2019, PyroGenesis announced that Drosrite International LLC (“Drosrite
International”), a US-based private company, had signed an agreement with Radian Oil & Gas Services
Company, an oil and gas services company operating in the Middle East (the “Dross Processing Service
Agreement”). The Dross Processing Service Agreement was structured as a “BOOT” agreement (build,
own, operate and transfer) having a 20-year term and using the Company’s DROSRITE technology.
The Dross Processing Service Agreement provides that Drosrite International will manufacture and
deliver to Radian Oil & Gas five DROSRITE TPY systems with an annual treatment capacity of
approximately 5,000 tons per year each and two DROSRITE TPY systems with an annual treatment
capacity of approximately 10,000 tons per year each, for a total annual treatment capacity of 30,000 to
40,000 tons per year of white and black aluminum dross, all of which will be installed at the aluminium
smelting facility of Ma’aden Aluminum Company located at Ras Al-Khair, in Saudi Arabia. In addition,
Drosrite International will oversee the installation of the systems at the Ras Al-Khair facility. Drosrite
International will also supply spare parts over the 20-year duration of the Dross Processing Service
Agreement and be entitled to receive an annual royalty. Total payments of approximately US$5.5 million have been made as of the date of this AIF for the engineering, design, supply, installation, supervision and
commissioning of the systems following the satisfaction of certain milestones. Drosrite International is
entitled to receive additional payments in the future for spare parts as well as annual royalty payments
during the term of the Dross Processing Service Agreement. The Dross Processing Service Agreement
includes customary termination rights, which include termination rights for a material breach of the
agreement that is not remedied within a certain period, prolonged force majeure, insolvency events and
failure to meet specification requirements.
In connection with the Dross Processing Service Agreement between Drosrite International and Radian
Oil & Gas, an agreement dated August 29, 2019 was entered into between PyroGenesis and Drosrite
International (the “Drosrite International Exclusive Agreement”) under which Drosrite International
received the required rights from PyroGenesis to perform its obligations under its agreement with Radian
Oil & Gas. Under the Drosrite International Exclusive Agreement, PyroGenesis will receive payments equal
to the payments received by Drosrite International under its Dross Processing Service Agreement with
Radian Oil & Gas. Based on the estimated payments that it will receive in the future subject to the terms of
the agreement, PyroGenesis estimates that the agreement has a total value of over $55 million. On the date
the agreement was entered into, the net present value, using a 5% discount rate, of the subsequent annual
payments was estimated at approximately $35 million.
The sole director, officer and shareholder of Drosrite International is Alex Pascali, an employee of the
Company and the son of P. Peter Pascali, Chief Executive Officer of the Company. See “Directors and
Executive Officers - Conflicts of Interest”.
Drosrite International does not receive any management, administration or other fee from the Company.
Drosrite International is, on an accounting basis, a subsidiary of the Company and not a client, as under applicable accounting standards the Company is considered to effectively control Drosrite International.
The Company has to indemnify Drosrite International for any claims and liabilities incurred in connection
with the Drosrite systems. The Company’s Drosrite technology was protected by patents until 2017 and
new patent applications pertaining to the technology have been filed before 2017, which patent applications
are pending.
So, effectively, a subsidiary of PyroGenesis owes Pyrogenesis $10.5 million, and has been given addition time to pay up ?
You figure it out.