Registration No. 333-26673
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EUROTECH, LTD.
(Exact name of registrant as specified in its charter)
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District of Columbia 873-8731 33-0662435
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1101 30th Street, N.W.
Suite 500
Washington, D.C. 20007-3772
(202) 625-4382
(Address and telephone number
of principal executive offices)
Peter Gulko
President and Secretary
1101 30th Street, N.W.
Suite 500
Washington, D.C. 20007-3772
(202) 625-4382
(Name, address, and telephone
number of agent for service)
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Copies to:
Vincent J. McGill, Esq.
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
(212) 977-9700
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Approximate dates of proposed sales to the public: From time to time after
this Registration Statement becomes effective.
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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, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities To Be Price Per Offering Registration
to be Registered Registered Share(1)(2) Price(1)(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, par
value $.00025 per
share 4,321,249 shares $2.3125(1) $ 9,992,888(1) $ 2,947.90
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Common Stock, par
value $.00025 per
share (underlying
Warrants and
Options) 127,500 shares $4.73(2) $ 603,075(2) $ 177.91
-------------------------------------------------------------------------
60,000 shares $2.3125(2) $ 138,750(2) $ 40.93
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430,000 shares $2.3125(2) $ 994,375(2) $ 293.34
-------------------------------------------------------------------------
75,000 shares $6.75(2) $ 506,250(2) $ 149.34
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25,000 shares $2.50(2) $ 62,500(2) $ 18.44
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Common Stock, par
value $.00025 per
share (underlying
Convertible
Debentures) 4,799,999 shares(3) $2.3125(2) $11,099,998(2) $ 3,275.00
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5,907,692 shares(3) $2.3125(2) $13,661,538(2) $ 4,030.15
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TOTAL $10,933.01
less registration fee paid on initial filing (6,188.88)
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$ 4,744.13
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</TABLE>
(1) The Shares are offered at prices not presently determinable. The offering
price is estimated pursuant to the provisions of Rule 457 solely for the
purpose of calculating the registration fee based on the average bid and
ask price for the Company's Common Stock on March 16, 1998, which was
$2.3125 per share.
(2) In accordance with Rule 457(g), The offering price is based on the higher
of the conversion or exercise price, or the average bid and ask price for
the Company's Common Stock on March 16, 1998.
(3) The exact number of shares issuable upon conversion of the Convertible
Debentures is not presently determinable. The Company will rely on Rule
416 to cover any additional shares that are ultimately issuable upon such
conversion.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EUROTECH, LTD.
Cross reference sheet pursuant to Item 501(b) of Regulation S-K
Registration Statement Items and Headings Location in Prospectus
- ----------------------------------------- ----------------------
1. Forepart of the Registration Statement and Facing page of
Outside Front Cover of Prospectus................. registration statement
and outside front cover
page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside front and outside
back cover page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk
Factors
4. Use of Proceeds................................... *
5. Determination of Offering Price................... *
6. Dilution.......................................... *
7. Selling Security Holders.......................... Prospectus Summary;
Principal Shareholders
and Selling
Shareholders;
Shares Eligible for
Future Sale
8. Plan of Distribution.............................. Plan of Distribution
9. Description of Securities to Be Registered........ Description of
Securities
10. Interests of Named Experts and Counsel............ *
11. Information with Respect to the Registrant........ Cover Page; Prospectus
Summary; Summary
Financial Information;
Risk Factors; Dividends;
Capitalization;
Management's Discussion
and Analysis of
Financial Condition and
Results of Operations;
Business; Market Price
of Common Stock;
Management; Certain
Transactions; Principal
and Selling
Shareholders; Shares
Eligible for Future
Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... Part II of the
Registration Statement
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* Not Applicable
<PAGE>
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 19, 1998
15,746,440 SHARES OF COMMON STOCK
EUROTECH, LTD.
This Prospectus relates to the resale of 15,746,440 shares (the "Shares")
of the Common Stock, par value $.00025 per share, of Eurotech, Ltd., a District
of Columbia corporation (the "Company"), from time to time for the account of
certain existing shareholders (the "Selling Shareholders") of the Company. The
Company will not receive any proceeds from any sale of the Shares.
The distribution of the Shares by the Selling Shareholders or by their
respective pledgees, donees, transferees or other successors in interest may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) on the NASD Electronic Bulletin Board
("Bulletin Board"), or on any automated quotation system or exchange on which
the Shares may then be listed, in negotiated transactions, through the writing
of options on shares (whether such options are listed on an options exchange or
otherwise), through short sales, sales against the box, puts and calls and other
transactions in securities of the Company or other derivatives thereof, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Selling Shareholders may effect such transactions by selling Shares
to or through broker-dealers, including broker-dealers who may act as
underwriters, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders or the
purchasers of Shares for whom such broker-dealers may act as agent, or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Shareholders may also sell Shares pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or may pledge Shares
as collateral for margin accounts and such Shares could be resold pursuant to
the terms of such accounts. The Selling Shareholders and any other participating
brokers and dealers may be deemed to be "underwriters" as defined in Section
2(11) of the Securities Act. See "PRINCIPAL AND SELLING SHAREHOLDERS" and "PLAN
OF DISTRIBUTION."
The Common Stock of the Company is traded on the Bulletin Board under the
symbol "EURO." The last sale price for the Company's Common Stock, as reported
on the Bulletin Board on March 16, 1998, was $2.3125 per share.
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear all
expenses, other than selling commissions and fees, in connection with the
registration and sale of the Common Stock being offered by the Selling
Stockholders. See "PLAN OF DISTRIBUTION."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE _____.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is March __, 1998
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share and per share information in this Prospectus gives effect
to the June 1, 1996, four-to-one forward split of the then outstanding shares of
the Company's Common Stock, and does not give effect to (i) the issuance of
717,500 shares of Common Stock issuable upon exercise of stock options and
warrants outstanding at the date of this Prospectus, which shares have been
registered under the Registration Statement of which this Prospectus is a part;
(ii) the issuance of up to an additional 869,000 shares of Common Stock issuable
upon exercise of stock options and warrants outstanding as of the date of this
Prospectus, (iii) the issuance of up to 10,707,692 shares of Common Stock upon
the conversion of outstanding convertible debentures, (iv) the issuance of up to
500,000 additional shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan, and (v) any sale of any of the Shares
registered under the Registration Statement of which this Prospectus is a part.
See "Management -- 1995 Incentive Stock Option Plan" and "Principal and Selling
Shareholders."
THE COMPANY
GENERAL
Eurotech, Ltd. (the "Company") was incorporated in May, 1995 under the
laws of the District of Columbia, and is a development stage, technology
transfer, holding and management company formed to commercialize new, existing
but previously unrecognized, and previously "classified" technologies, with a
particular current emphasis on technologies developed by prominent research
institutes and individual researchers in the former Soviet Union and in Israel,
and to commercialize those and other Western technologies for business and other
commercial applications principally in Western and Central Europe, Ukraine,
Russia, and North America. Since the Company's formation it has acquired
development and marketing rights to a number of technologies by purchase,
assignments, and licensing arrangements. Although the Company intends to
continue identifying, monitoring, reviewing and assessing new technologies, its
primary emphasis is marketing and sales of four of its present technologies that
it deems to be ready for commercialization (the "Principal Technologies"). To
that end, the Company recently has initiated discussions with a number of
potential end-users of those technologies, with a view towards the future
negotiation and execution of licensing and/or joint venture marketing
agreements. Additionally, the Company is proceeding with the marketing and
potential application of its silicon-organic (EKOR) compound technology (which
is one of the four Principal Technologies) in connection with nuclear
contamination remediation projects at the Chernobyl Nuclear Power Plant
("ChNPP") in Ukraine, and in the United States, Russia and Germany. See
"Business - Principal Technologies," and "Management's Discussion and Analysis
of Results of Operation and Financial Condition - Plan of Operation." The
Company intends to operate its business by licensing its technologies to
end-users and through development and operating joint ventures and strategic
alliances. To date, the Company has not generated any significant revenues from
operations.
PRINCIPAL TECHNOLOGIES
Silicon-Organic (EKOR) Compound. The Company's silicon-organic (EKOR)
compound technology was jointly developed by scientists at the I.V. Kurchatov
Institute ("Kurchatov") in Moscow and the Euro-Asian Physical Society ("EAPS")
for the conservation and containment of ecologically hazardous radioactive
materials. The EKOR compound is based on radiation-resistant compounds produced
from silicon-organic elastomers. Kurchatov is a physics and scientific research
institute, which in the former Soviet Union enjoyed a position of prestige,
sophistication and importance roughly equivalent to that of the
Lawrence-Livermore National Laboratory in the United States. EAPS is a
professional society of over 5,000 scientists, physicists, and engineers in the
former Soviet Union. Until August 1, 2014, the Company is the exclusive licensee
of all right, title and interest (inclusive of all patent and other intellectual
property rights) in and to the EKOR technology in Canada, China, Japan, the
Republic of Korea, the United States of America, Ukraine, and all member
countries of the European Patent Agreement. See "Certain Transactions -
Transactions Involving ERBC, Eurowaste and Arbat American - Silicon-Organic
(EKOR) Compound."
In testing conducted at Kurchatov, the EKOR compound has been shown to be
highly resistant to radiation and structural degradation from exposure to
radiation, highly fire-resistant, water-proof, and capable of being formulated
in densities that display considerable structural strength and weight-bearing
properties (based on testing to date) of 100 lbs. per square inch. The Company
believes that the EKOR compound is the most technologically advanced material
for comprehensively containing
<PAGE>
both solid and liquid radioactive materials, suppressing radioactive dust and
preventing such materials and dust from escaping into the atmosphere or leaching
into and contaminating ground-water supplies.
The Company expects that one of the first commercial uses of its EKOR
compound technology will be to contain and stabilize the extensive radioactive
debris and dust that continues to accumulate and contaminate the environment at
ChNPP Reactor 4 in Ukraine, the site of a disastrous explosion and near-reactor
core meltdown in 1986, and to help structurally support the concrete and steel
"sarcophagus" that was built over Reactor 4 as an interim containment measure
after the accident. The rapid deterioration of the "sarcophagus," caused by the
intense radiation persisting at Reactor 4, has occasioned international concern
that without the implementation of effective site containment measures, a second
nuclear disaster and possible melt-down may occur. In high dosage radiation
tests EKOR compound has met or exceeded all specifications established by the
ChNPP authorities for containment materials. In April 1997 the equipment for
synthesizing and applying the EKOR compound was successfully demonstrated for
officials of ChNPP and other entities.
The G-7 group of industrialized nations (the United States, United
Kingdom, Italy, France, Canada, Japan and Germany) has pledged up to U.S. $3.1
billion to assist in a multi-step project of remediating and closing the
Chernobyl plant, with approximately U.S. $300 million budgeted for the project's
first containment and site stabilization phase. In September 1997, pursuant to a
joint bidding agreement with Duke Engineering & Services, Inc. ("DES"), a
business unit of Duke Power Company (the "Company-DES Agreement"), DES and the
Company gave formal notice of their intent to bid on the ChNPP Reactor 4
remediation project to the European Bank of Reconstruction and Development
("EBRD").
Pursuant to an agreement with Kurchatov Research Holdings, Ltd., ("KRH") a
Delaware corporation jointly owned by ERBC Holdings, Limited, a British Virgin
Islands corporation ("ERBC"), and CIS Development, Inc., a Delaware corporation
("CIS"), 50% of the net profits derived from the sale or licensing of the EKOR
compound will be retained by the Company, and 50% will be remitted to KRH. One
present employee and one former business representative of ERBC are beneficial
owners of shares of the Company's Common Stock, and the chief executive officer
and sole shareholder of ERBC is the beneficial owner of 6.9% of the Company's
outstanding Common Stock. Peter Gulko, who is a former director, and presently
is the President, Secretary and Principal Financial Officer, of the Company, is
the sole record owner of CIS. Pursuant to an agreement between CIS and EAPS (as
representative of individual Russian scientists, researchers and academics
affiliated with Kurchatov and EAPS), the shares of KRH common stock registered
to CIS are being held by CIS for the benefit of EAPS. From June 1997 until
February 13, 1998, Dr. Randolph A. Graves (who served as the Chairman, Chief
Executive Officer and a director of the Company until January 23, 1998) also
served as a director and Secretary of KRH. See "Principal and Selling
Shareholders," "Certain Transactions" and "Risk Factors - Conflicts of
Interest."
In addition to remediation of ChNPP Reactor 4, the Company's near- and
mid-term commercialization and marketing efforts relative to the EKOR compound
principally are directed at nuclear waste remediation projects in the U.S.,
Russia and Germany. Pursuant to the Company-DES Agreement, the Company and DES
have submitted a successful, first-round demonstration project bid on the U.S.
Department of Energy's ("DoE") reactor decommissioning technology program at
DoE's Hanford, Washington, reactor facility. Joint Company-DES bids presently
are being prepared for other DoE demonstration projects. The Company also has
entered into an agreement with the Research Center Julich, a German governmental
research institution, providing for its assistance with certifying the EKOR
compound for use in Germany. Additionally, the Company is in the process of
identifying potential licensees of the EKOR technology, and has commenced
initial licensing discussions with a Japanese corporation. No assurance can be
given that the EKOR compound will be certified for use in Germany, that the
Hanford, Washington DoE demonstration will be successful or that if successful
it will result in a project contract being awarded to the Company, or that such
licensing discussions will successfully result in the execution of an EKOR
license.
In addition, further applications of the EKOR technology are being
reviewed for several sites in Russia: Chelyabinsk Mayak (a plutonium production
site), Kola (a disposal site for nuclear fuel from atomic-powered ships and
submarines), and Krasnoyarsk (a uranium mining and enrichment facility). To this
end, at nominal cost to it, the Company has provided EKOR documentation and
material samples to these sites, and has arranged for personnel from Kurchatov
and EAPS to be available to provide technical advice regarding pertinent
applications of the EKOR compound. To date, the Company has not entered into any
agreements pertaining to either the testing or application of the EKOR compound
at these sites.
Non-isocyanate Polyurethane ("NIPU"). NIPU is a modified polyurethane that
does not contain the toxic isocyanates used in the production of conventional
polyurethane, and has lower permeability and greater chemical resistance
qualities as compared to conventional polyurethane. The Company believes that
these advanced characteristics make NIPU superior to conventional polyurethanes
in connection with their use in a number of industrial application contexts such
as manufacturing automotive bumpers, paints, plastics and truck beds; airplane
and rocket sealants, interior components and seating; construction
<PAGE>
adhesives, coatings, flooring, glues and rooftops; industrial equipment and
machinery; and consumer goods such as appliances, footwear, furniture and
plastic products.
NIPU was developed by Chemonol, Ltd. ("Chemonol"), an Israeli corporation
of which the Company is a 20% common equity holder, and the holder of an option
to purchase an additional 31% of such common equity. Pursuant to a voting
agreement with the Company, Chemonol's Principal Shareholder has agreed to vote
his common equity as directed by the Company. See "Business - Acquisition of
Israeli Technologies - Incubator Technologies; -Principal
Technologies-Non-isocyanate Polyurethane." There can be no assurance that such
option will be exercised, which will principally depend upon the results of the
Company's efforts to commercially market and sell NIPU to industrial users.
The Company intends to market and sell NIPU through one or more license
and/or joint venture agreements with major chemical companies, and has recently
commenced initial discussions with several such companies with a view towards
negotiating one or more licenses and/or joint venture agreements. Such
discussions are in their initial stages, only, and no assurance can be given
that any of them will result in an NIPU license or joint venture agreement, or
that such license or agreement, if concluded, will be on terms favorable to the
Company.
Liquid Ebonite Material ("LEM"). LEM is a synthetic liquid rubber with
enhanced mechanical, permeability and anti-corrosive qualities as compared to
conventional sheet rubber coverings. In laboratory testing, coverings made with
LEM, as compared to conventional sheet rubber coverings, have displayed greater
resistance to harsh chemicals such as acids, alkalis and benzene, and have been
successfully applied to intricate and complex surfaces such as sieve meshing.
Based on the physical and chemical properties of LEM, and on such tests, the
Company believes that LEM coverings are capable of providing superior protection
to small-diameter piping, and to the intricate parts of pumps, fans and
centrifuge rotors. LEM can be applied to form surface coverings using standard
coating techniques, including spraying and dipping.
LEM was independently developed by Oleg L. Figovsky, Ph.D., and was
acquired by the Company pursuant to a Technology Purchase Agreement dated
January 1, 1998, for a purchase price of $15,000, plus royalties equal to 49% of
the Company's net revenues from sales or licenses of any products incorporating
LEM, payable for a period of 15 years commencing on January 1, 1998. To date,
the Company has not derived any such revenues and does not expect to derive any
such revenues in 1998. Prof. Figovsky is a consultant to the Company. See
"Business - General - Acquisition of Israeli Technologies - Technologies
Acquired from Prof. Oleg L. Figovsky," "Risk Factors - Conflicts of Interest,"
"Management-Consultants," and "Certain Transactions."
A major international chemical company has expressed interest in
potentially licensing LEM for production and world-wide distribution and sales.
At such company's request, the Company is preparing evaluation samples of LEM.
No assurance can be given that such chemical company or any chemical or other
company will determine that LEM is suitable or economically viable for its
business purposes or that any production/distribution license for LEM will be
negotiated or executed. See "Business - General," "Risk Factors - Uncertainty of
Sales Revenues and of Technology Transfer Fee, Consulting Fee and Royalty
Payments; - No Assurance of Joint Venture Licenses, Further Collaborative
Agreements or Further Project Contracts; - Uncertainty of Market Acceptance,"
and "Management's Discussion and Analysis of Results of Operation and Financial
Condition - Plan of Operation."
RubCon. "RubCon" is a technologically advanced, polymer-based, rubberized
concrete that utilizes polybutadiene (a polymer derived from liquid rubber) as a
binding material for the various aggregates that, together with binders,
constitute concrete. In laboratory testing RubCon has exhibited high degrees of
compression, bending and tensile strength, a high degree of water-resistance and
a high degree of resistance to aggressive, corrosive chemicals as compared to
conventional "cement" concrete. The Company believes that RubCon has significant
potential utility in the manufacture of industrial flooring, equipment operating
in aggressive chemical media such as galvanic and electrolysis "baths,"
foundations, concrete pipes and other underground structures, seismic
reinforcement materials, and outdoor structures such as bridges that are
routinely exposed to harsh weather, climatic and corrosive conditions.
RubCon was independently developed by Oleg L. Figovsky, Ph.D., and was
acquired by the Company pursuant to a Technology Purchase Agreement dated
January 1, 1998, for a purchase price of $35,000, plus royalties equal to 49% of
the Company's net revenues from sales or licenses of any products incorporating
LEM, payable for a period of 15 years commencing on January 1, 1998. To date,
the Company has not derived any such revenues and does not expect to derive any
such revenues in 1998. See "Business - General - Acquisition of Israeli
Technologies - Technologies Acquired from Prof. Oleg L. Figovsky," "Risk Factors
- - Conflicts of Interest," "Management - Consultants," and "Certain
Transactions."
<PAGE>
The Company currently anticipates that it will enter into discussions with
one or more of four major chemical companies that presently are evaluating
RubCon, with a view towards negotiating product purchase and/or license
agreements. No assurance can be given that any of those or any other companies
will determine that RubCon is suitable or economically viable for its business
purposes, that the Company will enter into discussions or negotiations with any
of those companies, or that, if entered into, they will result in product
purchases or license agreements. See "Business - General," "Risk Factors -
Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee and
Royalty Payments; - No Assurance of Joint Venture Licenses, Further
Collaborative Agreements or Further Project Contracts; - Uncertainty of Market
Acceptance," and "Management's Discussion and Analysis of Results of Operation
and Financial Condition - Plan of Operation."
OTHER TECHNOLOGIES
The Company also is engaged in the continuing research and development of
other technologies it believes to be of potential, future commercial
significance.
Electromagnetic Separation ("EMS") Technology. The Company is
participating in the further research and development of a process to
electromagnetically separate high temperature superconducting ("HTSC") metal
powders, that has been developed by Separator, Ltd. ("Separator"), an Israeli
corporation. The Company is the holder of 20% of Separator's common equity and
has an option to purchase an additional 31% of such common equity. Pursuant to a
voting agreement with the Company, Separator's Principal Shareholders have
agreed to vote their common equity as directed by the Company. See "Business -
General - Acquisition of Israeli Technologies - Incubator Technologies." There
can be no assurance that such equity purchase option will be exercised, which
will principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the EMS
technology.
The electromagnetic separation of HTSC powdered metals is based on the
interaction of HTSC particles with alternating magnetic fields at temperatures
approaching the level required for "HTSC transition," i.e., the point at which a
substance becomes superconducting. The research and testing data provided by
Separator indicates that the EMS technology allows for the extraction of
powdered metal particles having optimal electrophysical qualities, and in the
production of HTSC metallic powders with a critical electrical current that
exceeds those of HTSC powders produced using conventional technologies. Based on
demonstration testing conducted by Separator, the Company believes that the EMS
process for HTSC metallic powder can be used with a variety of powdered metals,
and can be configured either as a small bench testing device for laboratory
applications at universities and research and development companies, or as an
industrial-scale device with the capacity to produce up to 8 kilograms per hour
of HTSC powdered metal. The Company believes that the EMS technology can be
commercially applied in the production of underground electric transmission
cables, transformers, electric power system control and protection systems,
motors, generators, magnetic resonance imaging equipment and cellular telephone
base stations.
Powdered Metallurgy Technology. The Company is participating in the
further research and development of a process developed by Remptech, Ltd.
("Remptech") an Israeli corporation, to produce extra fine cobalt and nickel
powders by recycling materials containing cobalt and nickel. Powdered metallurgy
is generally acknowledged as being capable of yielding product with superior
structural, physical and mechanical properties. The Company believes that the
powdered metallurgy process developed by Remptech is technologically advanced
and, based on Remptech's research and testing data, is capable of producing
cobalt and nickel powders of 99.8% purity and a grain size of 1-2
micro-centimeters. The Company believes that such purities and grain sizes are
significant factors in the manufacture of materials of high quality and internal
physical integrity from powdered cobalt and nickel. Cobalt and nickel are among
the three naturally occurring elements that display magnetic properties at room
temperature and are widely used in metal alloys. Powdered cobalt and nickel are
used in a wide variety of industrial applications, including magnetic,
electrical and electronic materials and products.
The Company is the holder of 20% of Remptech's common equity and has
options to purchase the 20% common equity interest in Remptech held by the Ofek
Le-Oleh Foundation ("Ofek"), an Israeli technology incubator that is partially
sponsoring Remptech's research and development activities, and an additional 31%
of such common equity from Remptech's Principal Shareholders. Pursuant to a
voting agreement with the Company, Remptech's Principal Shareholders have agreed
to vote their common equity as directed by the Company. See "Business -
Acquisition of Israeli Technologies - Incubator Technologies." There can be no
assurance that such equity purchase options will be exercised, which will
principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the Powdered
Metallurgy technology.
<PAGE>
Continuous Combustion Synthesis Technology. The Company also is
participating in the further research and development of a process for the
continuous combustion synthesis ("CCS") of ceramic, composite and intermetallic
powders, including titanium carbide powder, developed by Comsyntech, Ltd.,
("Comsyntech"), an Israeli corporation. CCS is a newly devised process utilizing
the internal chemical energy of initial reactants in a continuous action
reactor, a device being developed by Comsyntech. The Company believes this
process offers competitive advantages (such as increased productivity and lower
production costs) over conventional technology. Comsyntech research and testing
data indicate that materials produced with the CCS technology have exhibited
superior high-thermomechanical properties such as high strength, thermo and wear
resistance and good corrosion stability. Based on these properties, the Company
believes that the CCS technology is of potentially significant utility in
producing ceramic, composite and intermetallic powders with potential commercial
application in the production of metal-cutting tools and abrasives; metal
alloys; aircraft and automotive combustor, nozzle and turbine parts; piezo- and
ferro-electric materials; and surgical instruments.
The Company is the holder of 20% of Comsyntech's common equity and has
options to purchase the 20% common equity interest in Comsyntech held by Ofek,
which is partially sponsoring Comsyntech's research and development activities,
and an additional 31% of such common equity from Comsyntech's Principal
Shareholders. Pursuant to a voting agreement with the Company, Comsyntech's
Principal Shareholders have agreed to vote their common equity as directed by
the Company. See "Business - Acquisition of Israeli Technologies - Incubator
Technologies." There can be no assurance that such equity purchase options will
be exercised, which will principally depend upon the results of further research
and development activities and later expressions of commercial interest, if any,
in the powdered metallurgy technology.
Silicon-Carbide "Wafer" Technology. The Company has participated in the
development of a silicon carbide "wafer" technology in conjunction with the I.V.
Kurchatov Institute ("Kurchatov") in Moscow, Russia, and the Euro-Asian Physical
Society ("EAPS"). Although no assurance can be given, the Company presently
expects that upon the successful completion of its development, all intellectual
property, marketing and sales rights in and to the silicon carbide "wafer"
technology will be assigned to the Company. While there is no assurance that
such technology will be successfully developed, based on reports from Kurchatov
the Company believes the silicon carbide technology will permit the production
of defect-free, radiation-resistant "wafers" (from which integrated circuit
chips are fabricated) that will be approximately twice the size of those
currently available. The Company expects that integrated circuit chips
fabricated from its silicon carbide wafers will have particular application in
high power environments such as automobile and aircraft engine control systems,
high power environments such as power control transistors, and environments
subject to ionizing radiation such as spacecraft.
Presently, the Company is not devoting any significant time or resources
to the further development of this technology. The Company anticipates that it
will resume such participation only after the completion of the ChNPP Reactor 4
remediation project. See "Business - Principal Technologies - Silicon- Organic
(EKOR) Compound".
Waste-to-Energy Technology. The Company's waste-to-energy technology is a
combination of "low-tech" mechanical technologies, "high-tech" combustion
controls, modern emissions abatement technology and effective operation
procedures configured into modules that produce steam energy from ordinary
municipal waste. The basic configuration was pioneered in 1980 by the U.S.
National Aeronautics and Space Administration ("NASA") and the city of Hampton,
Virginia, to provide steam power for NASA's Langley Research Center and the
Langley Air Force Base.
The Company has entered into a technology transfer and consulting
agreement with Eurowaste Management, Ltd., a Delaware corporation ("EuroWaste"),
under which Eurowaste will pay the Company a U.S. $2.4 million technology
transfer fee prior to the construction of the first waste-to-energy plant, and a
design and implementation consulting fee of U.S. $425,000 for each subsequent
plant. A shareholder of the Company who beneficially owns less than 1% of the
Company's Common Stock is the chairman, chief executive officer and a
shareholder of Eurowaste. See "Management," "Risk Factors - Conflicts of
Interest," and "Certain Transactions."
The Company recently has de-emphasized its prior plans to introduce its
waste-to-energy technology in the city of Cherkassy, Ukraine principally because
neither the Ukrainian government, the city of Cherkassy nor Eurowaste has
obtained construction or other financing for the proposed Cherkassy
waste-to-energy facility, and because the Company believes that marketing its
Principal Technologies is more likely to result in near-to-mid-term revenues
than is the Cherkassy waste-to-energy project. If commenced, the Cherkassy
waste-to-energy facility will take approximately thirteen months to construct,
with an expected energy output of approximately seven megawatts per day, based
on an assumed consumption of approximately 240 tons of municipal waste per day.
<PAGE>
There is no assurance that the necessary financing will be obtained or
that, if obtained, it will be on terms favorable to the venture. Neither is
there any assurance that the Ukrainian government will not abandon its support
of the proposed Cherkassy facility. In the absence of such financing and
governmental support the construction in Ukraine of any waste-to-energy
facilities utilizing the Company's technology cannot be expected to occur. See
"Business -- Risk Factors -- Risks Relating to the Russian Federation and
Ukraine."
Automated Parking Garages. Automated parking technology consisting of
computer-controlled, rotating carousels which can be configured to contain
varying numbers of automobile parking spaces, substantially reduces the
economically unproductive space devoted to ramps and maneuvering areas in
traditional, multi-story parking garages, and through the use of elevators and
multi-level "stacking" of the carousels, permits the erection of high-capacity
garages on parcels of land otherwise too small for such use. Essentially,
automobiles are raised by elevators to computer-controlled carousels which
rotate the vehicles to their respective parking slots. The Company believes that
its automated parking technology is particularly useful in congested urban areas
and in cities where available land for parking is scarce.
The Company contemplates that the automated parking technology will be
introduced in Moscow, Russia. Moscow has experienced a substantial increase in
automobile ownership and traffic congestion, and has a relative scarcity of
existing parking spaces and construction sites of a size suitable for
traditionally designed parking garage facilities. The municipal government of
Moscow has allocated a suitable construction site for the contemplated automated
parking facility, to be located at Arbat 8-10. Arbat is one of the City of
Moscow's principal commercial districts.
The Moscow automated parking garage will be developed, and if completed
will be owned and operated by "Cinema World on Arbat," a Russian joint stock
company, the equity of which is owned 50% by Arbat American Autopark, Ltd., a
Delaware corporation ("Arbat American"), 45% by "Soyuz Agat Fil," a Russian
company to which the Moscow municipal government has allocated the construction
site and which holds the necessary construction approvals and permits, and 5% by
a privately owned Russian affiliate of "Mosinterstroi," a quasi-governmental
entity of the City of Moscow. 40% of the equity of Arbat American is owned by
ERBC. One present employee and one former business representative of ERBC are
beneficial owners of shares of the Company's Common Stock, and the chief
executive officer of ERBC is the beneficial owner of 6.9% of the Company's
outstanding Common Stock. One of the directors of Arbat American is a
shareholder of the Company's Common Stock, and another individual, who is a
director and the president of Arbat American, is a shareholder of the Company's
Common Stock.
The Company has identified automated parking garage equipment, plant,
specifications and engineering documentation, adaptable to the multiple
applications required for garage sites in Moscow, for use by Arbat American.
Arbat American will purchase such equipment, plant, specifications and
documentation from MEPA - Sachisische Parksystemme GmbH, a German company.
Pursuant to a technology agreement entered into with Arbat American, the
Company has been paid a one-time fee of U.S. $225,000 in respect of the Arbat
parking garage ($1,250 for each parking space to be contained in the automated
parking facility), which constitutes the Company's sole compensation in respect
of that facility. That agreement also provides for the payment to the Company of
a one-time fee of U.S. $1,250 for each parking space to be contained in any
garage facilities that in the future are developed, owned and/or operated by
Arbat American and use the automated parking technology. Presently, the Company
is not aware of any plans of Arbat American for any further such parking
garages.
The Company has been advised that Arbat American has not obtained project
financing for the proposed Arbat facility, and that Arbat American could for
that reason be declared in default of its obligations under its agreements with
the Municipal Government of Moscow. If Arbat American is declared in default,
its ability to commence the project, and any other similar project in Moscow,
could be jeopardized. See "Risk Factors - Conflicts of Interest," "Principal and
Selling Shareholders," "Management," "Certain Transactions," and "Risk Factors -
No Assurance of Joint Venture Licenses, Further Collaborative Agreements or
Further Project Contracts."
Re-sealable Containers. Pursuant to a sublicense (the "Re-sealable
Container Sublicense") entered into in December 1997, the Company has acquired
from ERBC an exclusive, worldwide and perpetual license to commercialize, use,
exploit and market two mechanical systems (the "Re-sealable Container Systems")
for re-sealing soft-drink (and other similarly confirgured) beverage cans, and
cardboard "TetraPak" beverage containers. "TetraPak" containers are four-sided,
pyramidical beverage containers widely used in Europe, made of packaging
material similar to milk "cartons" familiar to the U.S. market. The "TetraPak"
re-sealing system attaches to and re-seals opened containers by creating an
air-pocket between the containers outer surface and the re-sealing device. The
beverage can re-sealing device is designed to attach to the top of the beverage
can and
<PAGE>
provides a manually operated metal flap that, when rotated into position over
the opening in the can, creates a leak-proof, gas-tight seal.
The Re-sealable Container Systems are each designed to integrate with the
"TetraPak" container or beverage can top, as the case may be, and permit
re-sealing without deforming the container's shape or diminishing its volume
capacity. The Company believes that the Re-sealable Container Systems more
effectively preserve the freshness and hygiene of the contents of opened
beverage cans and "TetraPak" containers, and (in the case of the beverage can
re-sealing system) more effectively prevents leakage and loss of carbonation,
than presently available re-sealing devices. The Company further believes that
the Re-sealable Container Systems have a variety of potential applications that
include carbonated and non-carbonated beverages, canned infant formula, canned
motor oil, and dry package contents such as breakfast cereals, coffee, flour and
sugar.
ERBC acquired an exclusive, worldwide and perpetual license to the
Re-sealable Container Systems pursuant to a license agreement, dated March 20,
1997, with Cetoni Unwelttechnologie-Emwik Lungs GmbH ("Cetoni"), a German
company that developed and held all right, title and interest in and to those
systems, in consideration of ERBC's payment to Cetoni of U.S. $495,000 plus 50%
of all royalties received by ERBC from sales of products and devices embodying
or otherwise using Re-sealable Container Systems. Under the Re-sealable
Container Sublicense the Company paid ERBC U.S. $495,000 in consideration of the
sub-license granted thereunder, and is obligated to pay to Cetoni 50% of all
royalties received by the Company from sales of such products and devices. ERBC
will not receive from the Company any portion of such royalties.
ERBC is the beneficial owner of 255,000 shares of the Company's Common
Stock, all of which shares have been registered and are being offered by this
Prospectus. The chief executive officer and sole shareholder of ERBC is the
beneficial owner of 6.9% of the Company's Common Stock, and one present
employee and one former business representative of ERBC are beneficial owners of
shares of the Company's Common Stock. See "Principal and Selling Shareholders,"
"Risk Factors-Conflicts of Interest" and "Certain Transactions."
Other technologies, including the "CORO" telephone technology (see note
9(d) to the Company's Financial Statements) are presently being evaluated by the
Company. Pending the results of those evaluations, the Company has no current
plans to develop or commercialize those technologies.
The Company is not a subsidiary of another corporation, entity or other
person. The Company does not have any subsidiaries.
<PAGE>
The Offering
Capital Stock Offered by
the Selling Shareholders....... 15,746,440 shares of Common Stock, $.00025
par value per share.
Capital Stock Outstanding
Before Offering................ 18,916,834 shares of Common Stock, par value
$.00025 per share.
Capital Stock Outstanding
After Offering (1)............. 34,663,274 shares of Common Stock, par value
$.00025 per share.
Use of Proceeds................... The Company will not receive any proceeds
from any sale of the Shares.
- ----------
1 Gives effect to the issuance of 717,500 shares of Common Stock issuable
upon exercise of certain stock options and warrants, and of up to
10,707,692 shares of Common Stock issuable upon conversion of convertible
debentures, outstanding as of the date of this Prospectus, which shares
have been registered by the Company under the Registration Statement of
which this Prospectus is a part. Does not give effect to (i) the issuance
of up to 869,000 shares of Common Stock issuable upon exercise of certain
other stock options and of warrants outstanding as of the date of this
Prospectus, and (ii) the issuance of up to 500,000 additional shares of
Common Stock reserved for issuance under the Company's 1995 Stock Option
Plan. See "Management - 1995 Incentive Stock Option Plan."
<PAGE>
SUMMARY FINANCIAL DATA
The following selected financial data has been derived from, and are
qualified by reference to, the Financial Statements of the Company. The
Company's Financial Statements as of December 31, 1995, 1996, and 1997, and for
the period from inception (May 26, 1995) to December 31, 1995 and for the years
ended December 31, 1996 and 1997, and for the period from inception (May 26,
1995) to December 31, 1997, including the Notes thereto and the related
auditors' report (which contains an explanatory paragraph relating to the
Company's ability to continue as a going concern) of Tabb, Conigliaro & McGann,
P.C., independent auditors, are included elsewhere in this Registration
Statement. The following data should be read in conjunction with such Financial
Statements and Management's Discussion and Analysis and Plan of Operation.
<PAGE>
Statement of Operations Data:(1)
<TABLE>
<CAPTION>
For the
For the Period
Period from from
Inception Inception
(May 26, For the Year For the Year (May 26,
1995) to Ended Ended 1995) to
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1995 1996 1997 1997
-------- ---- ---- ----
<S> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT $ 212,061 $ 1,170,782 $ 1,007,671 $ 2,390,514
EXPENSES
CONSULTING FEES 266,900 1,486,830 1,392,845 3,146,575
OTHER GENERAL AND 34,265 547,447 1,262,067 1,843,799
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE -- 43,422 270,740 314,162
AMORTIZATION OF DEFERRED -- 228,502 8,507,919 8,736,421
AND UNEARNED FINANCE COSTS ------------ ------------ ------------ ------------
NET LOSS $ (513,226) $ (3,476,983) $(12,441,242) $(16,431,451)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.06) $ (0.23) $ (0.71)
============ ============ ============
WEIGHTED AVERAGE NUMBER 8,159,467 14,808,000 17,581,711
OF SHARES OUTSTANDING ============ ============ ============
</TABLE>
Balance Sheet Data:
At December 31,
--------------------------------------
1995 1996 1997
--------- ----------- ------------
Working Capital (deficit) $ 42,000 $(1,809,237) $ (2,156,753)
Total assets $ 56,000 $ 617,492 $ 952,243
Total liabilities $ 13,000 $ 2,292,316 $ 5,801,966
Deficit accumulated during
the development stage $(513,000) $(3,990,209) $(16,431,451)
Total stockholders' equity
(deficiency) $ 43,000 $(1,674,824) $ (4,849,723)
- ----------
(1) Through December 31, 1997, and since that date, the Company has not derived
any significant sales revenues.
<PAGE>
RISK FACTORS
Investment in the Shares offered hereby involves a high degree of risk and
should be made only by those investors who can afford the loss of their entire
investment. Accordingly, prospective investors, before making an investment,
should carefully consider the following risk factors:
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of The Private
Securities Litigation Reform Act of 1995
The United States Private Securities Litigation Reform Act of 1995
provides a new "safe harbor" for certain forward-looking statements. The
following factors set forth under "Risk Factors" among others, could cause
actual results to differ materially from those contained in forward-looking
statements made in this Registration Statement, in future filings by the Company
with the SEC, in the Company's press releases and in oral statements made by
authorized officers of the Company. When used in this Registration Statement,
the words "estimate," "project," "anticipate," "expect," "intend," "believe" and
similar expressions are intended to identify forward-looking statements.
Limited Operating History; Net Losses; Future Losses; Initial Commercialization
Stage; Uncertainty of Continuation as a Going Concern
The Company's limited operations to date have consisted primarily of
activities related to identifying and financing the development of its products
and technologies, including conducting laboratory tests, and planning and
conducting on-site tests and demonstrations. The Company is subject to all of
the business risks associated with a new enterprise, including, but not limited
to, risks of unforeseen capital requirements, failure of market acceptance,
failure to establish business relationships, and competitive disadvantages as
against larger and more established companies. At December 31, 1997, the Company
had an accumulated stockholders' deficit of $4,849,723, a working capital
deficit of $2,156,753, and an accumulated deficit since inception of
$16,431,451.
The Company anticipates that it will continue to incur significant
operating losses through 1998. The Company may incur additional losses
thereafter, depending upon its ability to consummate any or a sufficient number
of collaborative working arrangements or licenses with third parties and the
operation and financial success of any projects which the Company and its
potential working partners may be awarded. The Company has had no meaningful
revenues to date, and there can be no assurance as to when or whether it will be
able to commercialize its products and technologies. Its products and
technologies have never been utilized on a large-scale commercial basis. The
Company's ability to operate its business successfully will depend on a variety
of factors, many of which are outside the Company's control, including:
competition, cost and availability of raw material supplies, changes in
governmental (including foreign governmental) initiatives and requirements,
changes in domestic and foreign regulatory requirements, and the costs
associated with equipment repair and maintenance. See "Risk Factors-Competition;
- - Risks Related to the Russian Federation and Ukraine - Political and Social
Risks - Economic Risks - Risks as to Availability and Cost of Materials,
Supplies and Equipment; - Regulation."
The report of the Company's independent public accountants and the notes
to the Company's financial statements included elsewhere in this Prospectus
state that the continuation of the Company's business as a going concern
depends, among other things, on the obtaining of additional funds to continue
its research and development activities and to complete the commercialization of
its present technologies, the generation of significant future revenues and
income, and market acceptance of its technologies, none of which can be assured.
See "Financial Statements - Independent Auditor's Report, - Note 1" and "Risk
Factors -- Need for Additional Financing; Possibility of Future Dilution."
Need for Additional Financing; Possibility of Future Dilution
The Company's future capital requirements could vary significantly and
will depend on certain factors, many of which are not within the Company's
control. These include the existence and terms of any collaborative
arrangements; the ongoing development and testing of its products; the existence
and terms of any licensing and/or joint venture agreements for the marketing and
sales of the Company's Principal Technologies; the nature and timing of
remediation and clean-up projects; and the availability of financing. The
Company`s lack of operational experience and limited capital resources could
make it difficult
<PAGE>
to successfully bid on major remediation or clean-up projects. In such event,
the Company's business development could be limited to smaller projects with
significantly lower potential for profit.
In addition, the expansion of the Company's business will require
significant capital resources for hiring technical and operational support
personnel, and to a lesser extent, for research and development activities.
Although based on the completion in November 1997 and in February 1998 of two
private placements, each of $3,000,000 principal amount of its 8% Convertible
Debentures, due November 27, 2000, and February 23, 2001, respectively, the
Company believes it has adequate financing and capital through the end of fiscal
year 1998, there can be no assurance that additional capital requirements will
not arise, or that for periods following fiscal year 1998 the Company will
generate sufficient revenues to cover its expenses or generate profits. If
adequate financing is not available, the Company may be required to delay, scale
back or eliminate certain of its research and development programs and marketing
and sales programs, forego technology acquisition opportunities, or license
third parties to commercialize technologies that the Company would otherwise
seek to develop itself. To the extent the Company raises additional capital by
issuing equity securities, holders of its equity securities will be diluted. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."
No assurance can be given that the Company will successfully obtain any
further working capital or complete any further offerings of its securities, or
that, if obtained or completed, that such funding will be sufficient or that it
will not cause substantial dilution to shareholders of the Company. Further, no
assurance can be given as to the completion of research and development
activities and the successful marketing of the Company's technologies. See
"Management's Discussion and Analysis of Results of Operation and Financial
Condition - Liquidity and Capital Resources."
Significant Leverage; Uncertain Ability to Repay Debt
As of February 23, 1998 the Company had $6,000,000 of long-term debt
outstanding, consisting of $3,000,000 principal amount of 8% Convertible
Debentures due November 27, 2000, issued pursuant to a private placement of such
debentures (and warrants to purchase shares of the Company's Common Stock)
completed in November 1997 (the "1997 Debenture Offering"), plus related annual
interest expense of $240,000; and $3,000,000 principal amount of 8% Convertible
Debentures due February 23, 2001, issued pursuant to a private placement of such
debentures (and warrants to purchase shares of the Company's Common Stock)
completed in February 1998 (the "1998 Debenture Offering"), plus related annual
interest expense of $240,000. As a result, the Company is highly leveraged and
has long-term indebtedness which is substantial in relation to its stockholders'
deficiency of ($4,849,723) at December 31, 1997.
In connection with the 1997 Debenture Offering, the Company agreed not to
use more than $1,000,000 of the proceeds thereof to repay outstanding
indebtedness. Consequently, at the maturity in December 1997 of $2,000,000
principal amount of promissory notes issued pursuant to a bridge financing
completed in December 1996 (the "Bridge Notes"), the Company had insufficient
funds to repay those Notes in full and the Company obtained the agreement of the
holders of the Bridge Notes (the "Bridge Holders") to extend their maturity to
March 18, 1998. In connection therewith, the Company also agreed to issue to the
Bridge Holders an aggregate of 1,000,000 shares of Common Stock as a penalty for
having failed to complete the registration of their Common Stock during 1997. In
accordance with the terms of the Bridge Notes, as of December 19, 1997, their
annual interest rate was increased from 12% to 15%.
The Company fully repaid all principal and outstanding accrued interest on
the Bridge Notes on February 28, 1998, from the combined proceeds of the 1997
and 1998 Debenture Offerings.
To date, the Company has not generated any significant operating revenues
and presently is not generating any operating revenues. Although the Company
believes that its recently initiated marketing program with respect to its
Principal Technologies will result in one or more revenue-producing licenses
and/or joint ventures, and in sales of the EKOR compound for use in the ChNPP
Reactor 4 remediation project, there is no assurance that any such license or
joint venture will be consummated, that the EKOR compound will formally be
selected for use at ChNPP, that any such license, joint venture or EKOR sales
will result in significant net revenues to the Company, or when, if ever, any of
the foregoing will occur. A failure of the Company to realize significant
near-to-mid-term operating revenues will have a material adverse impact on the
Company's financial condition, make it unlikely that the Company will be able to
borrow or otherwise raise necessary working capital and other funds, and may
cause the Company to defer, scale down or eliminate portions of its business.
<PAGE>
If the Debentures are not fully converted to shares of Common Stock prior
to maturity, the Company will be obligated to pay to the Debenture Holders up to
$3,000,000 in principal (plus outstanding accrued interest) on November 27,
2000, and up to $3,000,000 in principal (plus outstanding accrued interest) on
February 23, 2001. Moreover, the terms of the Convertible Debentures grant the
Debenture Holders the right to require the Company to redeem the Convertible
Debentures for cash if, at any time, less than $400,000 of the Common Stock
trades on the OTC Bulletin Board in any one week. The trading volume of the
Common Stock has been below such minimum. Although the Company does not expect
the Debenture Holders to exercise this right, if they do so it is unlikely that
the Company will have sufficient funds to pay the redemption price.
Accordingly, the Company is highly dependent on the success of its present
marketing program in respect of the Principal Technologies to meet its mid-term
working capital requirements and to repay outstanding long-term debt at maturity
or upon redemption. If the Company is unable to repay such debt when due, the
Company could have no practical option other than to seek debtor's relief under
the U.S. Bankruptcy Code and/or other similar laws.
Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee and
Royalty Payments
The Company's near-term revenues are expected substantially to derive from
royalties pursuant to potential licenses of its Principal Technologies, sales of
those technologies and of products produced thereby pursuant to potential
marketing and sales joint ventures, and the receipt of funds in connection with
U.S. nuclear waste remediation projects. Presently the Company does not expect
to derive near-term revenues from transfer and consulting fees in respect of
Ukrainian waste-to-energy facilities or from any further royalties in respect of
automated parking garages.
The Company has only recently determined to focus the majority of its
business activities and resources on the marketing and sale of its four
Principal Technologies (i.e., EKOR compound, "Non-isocayanate Polyurethane-Based
Hybrid Cross-Linked Polymers," "Liquid Ebonite Material," and "RubCon," see
"Business -- General; - Principal Technologies"). The Company's marketing and
sales program, which presently depends upon negotiating and entering into joint
ventures with and licenses of its technologies to major international chemical
companies, and upon successfully bidding on U.S. and foreign nuclear
contamination remediation projects (including the remediation of Reactor 4 at
the Chernobyl Nuclear Power Plant in Ukraine), is in its initial stage only, and
to date the Company has not entered into any such license or joint venture, and
has successfully bid on only one U.S., first-round, nuclear contamination
remediation demonstration project. Although based on the expressions of interest
in the Principal Technologies received to date from such companies and on
preliminary discussions with several of those companies, the Company believes
that it will enter into such licenses and/or joint ventures, no assurance can be
given that any such licenses or joint ventures will be entered into or that if
entered into they will result in significant revenues to the Company.
Risks Relating to the Russian Federation and Ukraine
Political and Social Risks. In recent years, Russia and Ukraine each have been
undergoing a substantial political and social transformation from centralized
communism to the early stages of pluralist democracy. As part of this process,
the former centrally controlled, command economies of Russia and Ukraine have
been subject to various reforms intended to lead to generally capitalist,
market-oriented economies. There can be no assurance that the political and
economic reforms necessary to complete these transformations will continue, or
if they continue, will be successful. In their present stages of relative
infancy, the Russian and Ukrainian political and economic systems are
characterized by a proliferation of political parties, none of which hold a
legislative majority. The Russian and Ukrainian political and economic systems
are also vulnerable to their respective populations' dissatisfaction with
reform, economic dislocations, social and ethnic unrest, and changes in
governmental policies and decisions. Any of these factors could have a material
adverse effect on the private or governmental availability of hard currency,
currency exchange rates, the private ownership of businesses and other
enterprises, the social distribution of wealth, the private ownership and
alienality of tangible and intellectual property, and the availability of
construction materials and equipment. Any of such adverse effects could have a
materially adverse effect on the Company.
As part of the reforms being instituted in Russia and Ukraine, both
countries have enacted legislation to protect private property against
expropriation and nationalization. However, due to the lack of experience in
enforcing these provisions in the short time they have been in effect, and due
to the potential political changes that could occur in the future, no assurance
can be given that these protections will be enforced in the event of an
attempted expropriation or nationalization. The Company does not anticipate the
occurrence of such developments in respect of its presently contemplated
ventures involving Ukraine
<PAGE>
and Russia, because (i) in the case of the application of the Company's EKOR
compound technology to the remediation of radioactive contamination at the
Chernobyl Nuclear Power Plant ("ChNPP") Reactor 4, the increasing probability of
a second, disastrous nuclear accident has made the rapid containment of
radioactive debris a matter of high Ukrainian and international concern and, to
the Company's knowledge, the EKOR compound is the only material presently being
considered by the Chernobyl authorities for such purpose; (ii) the Company's
waste-to-energy technology has been selected by the Ukrainian government as the
national standard for the production of energy from municipal waste products;
and (iii) the Company's high-tech, automated parking garage technology can
assist in relieving the City of Moscow's acute shortage of automotive parking
spaces and has received preferential site allocation treatment from Moscow's
municipal government. Nevertheless, expropriation or nationalization of the EKOR
foam intellectual property rights, the waste-to-energy technology, the presently
selected, Moscow parking garage site, or the parking garage technology, would
have a material adverse effect on the Company. In particular, the EKOR compound
technology was developed by the I.V. Kurchatov Institute, a Russian,
state-controlled scientific research and development institute and the
Euro-Asian Physical Society, a professional society in Russia, which through a
series of assignments have, ultimately, assigned the EKOR compound intellectual
property rights to the Company. All site allocation and construction approvals
for Ukrainian waste-to-energy facilities are at the discretion of the respective
Ukrainian municipal governments, whose political autonomy from the national
government (which has selected the Company's waste-to-energy technology as the
Ukrainian national standard for such facilities) is in an unsettled state. The
allocation of the Moscow site for the automated parking garage is controlled by
the City of Moscow. No assurance can be given that any of these governmental,
governmentally controlled, or governmentally affiliated entities would legally
resist an attempted expropriation or nationalization, either of which, if
successful, would have a materially adverse impact on the Company.
In both Russia and Ukraine governmental institutions and the relations
between them, as well as governmental policies and the political leaders who
formulate and implement them, are subject to rapid and potentially violent
change. The Constitution of the Russian Federation gives the President of the
Russian Federation substantial authority, and any major changes in, or rejection
of, current policies favoring political and economic reform by the President may
have a material adverse effect on the Company. The Constitution of Ukraine has
been only recently adopted, and contrary to President Leonid Kuchma's prior
expectation, substantially divides governmental power between the President and
Parliament. The relations between the Ukrainian President and Parliament often
have been characterized by factional infighting in which communist-oriented
members of Parliament have mounted vigorous campaigns against President Kuchma's
economic reform policies and programs to stimulate economic growth, curb
inflation, and stabilize foreign exchange rates. In the summer of 1996,
President Kuchma caused a widely reported "shake-up" of his cabinet, in which a
relatively aggressive reform-oriented Minister of Finance was replaced by one
who advocates a more gradualist approach. This relative political instability
could result in major changes in the Ukrainian government, present reform
policies or rejection of the same, any of which may have a material adverse
effect on the Company. No assurance can be given that such developments will not
occur either in Russia or Ukraine.
The Russian Federation is a federation of republics, territories, regions
(one of which is an autonomous region), cities of federal importance and
autonomous areas, all of which are equal members of the Russian Federation.
Ukraine is composed of twenty-four regions ("Oblasts"), an autonomous republic
and two municipalities, Cherkas'ka and Chernihiv'ka. The delineation of
authority in both Russia and Ukraine between these political subdivisions and
the national government is, in many instances, uncertain. In some cases in
Russia, it is, in fact, contested, most notably in Chechnya which has
experienced protracted military confrontation with the Russian federal
government. This lack of consensus in Russia and Ukraine between local and
regional authorities and the respective national governments may result in
political instability and negative economic effects which could be materially
adverse to the Company.
The political and economic changes that have occurred in Russia and
Ukraine in recent years have resulted in significant dislocations of political
and governmental authority caused by the collapse of their, respective, previous
governmental structures and political systems. New political and governmental
systems are only beginning to take form in Ukraine and Russia. Furthermore,
significant unemployment in Russia and Ukraine, the influx of unemployed persons
into major Russian cities, significant wage arrearages in Ukraine and Russia,
and the existence of poorly paid police forces in both countries have led to
significant increases in crime in Russia and Ukraine. Significant levels of
organized criminal activity exist in large metropolitan areas of both countries.
While President Yeltsin of Russia and President Kuchma of Ukraine have
instituted anti-crime and anti-corruption programs, such measures are of recent
origin and have achieved minimal and uncertain results. No assurance can be
given that the levels of crime and corruption in Russia and Ukraine will be
curbed or otherwise brought under control, and no assurance can be given that
the social and economic dislocations caused by high rates of organized and other
crime and of official corruption will not in the future have a material adverse
impact on the Company.
<PAGE>
In both Ukraine and Russia state-controlled and, more recently,
privately-owned enterprises have often failed to pay full salaries to their
employees, and in some instances have not paid salaries at all for extended
periods of time. This, in conjunction with historically high rates of inflation
and escalating costs of living in both countries, could lead in the future to
labor and social unrest. Such unrest could have political, social and economic
consequences such as increased support for a return to centralized governments,
a climate hostile to foreign investment and increasing levels of violence, any
of which could have a material adverse impact on the Company.
Although the present, public policy initiatives of Russia are favorable to
the commercialization of the Company's automated parking garage technology in
Moscow, and those of Ukraine are favorable to the utilization of the Company's
EKOR compound technology to remediate ChNPP Reactor 4 and to the use of the
Company's waste-to-energy technology for production of energy from municipal
waste products, the present political instability, social unrest and
dislocations of governmental authority in either or both countries could result
in changes in Russian and Ukrainian public policy that are adverse to the
commercialization of the Company's technologies or that favor other, competing
technologies for use in the same or similar projects for which the Company's
EKOR compound, automated parking garage and waste-to-energy technologies are
currently contemplated. No assurance can be given that such changes will not
occur, or, if they do occur, will not have a significant adverse impact on the
Company's financial condition, business and business prospects.
Economic Risks
Along with the institution of political reforms, the Ukrainian and Russian
governments have been attempting to create and implement policies of economic
reform and economic stabilization, and to create legal structures intended to
promote private, market-based activities, foreign trade and foreign investment.
Although these policies have met with some success in both countries, no
assurance can be given that they, or similar policies will continue to be
supported and pursued, or that if supported and pursued, will be successful.
Despite the implementation of economic reform policies, the Russian
economy and the Ukrainian economy are characterized by declining gross domestic
production, significant inflation, increasing rates of unemployment and
underemployment, unstable currencies, and high levels of governmental debt as
compared to gross domestic production. The prospect of wide-spread insolvencies
and the collapse of various economic sectors exists in both countries.
Additionally, in both Russia and Ukraine there is a general lack of consensus as
to the rate, extent and substantive content of economic reform. No assurance can
be given that either Russia or Ukraine in the future will remain receptive to
foreign investment or market-oriented economies. Moreover, no assurance can be
given that the economy of either country will improve.
Ukraine and Russia presently receive substantial financial assistance from
several foreign governments and from international organizations. The
restriction or elimination of any or all such financial assistance could have
severe negative impacts on those countries' respective economies, and could
significantly decrease the availability of hard currency, the payment of which
in technology transfer and consulting fees the Company depends upon. In
particular, the Ukrainian government's planned remediation of radioactive
contamination at the Chernobyl Nuclear Power Plant substantially depends on
financial assistance from the G-7 nations, and the reduction or elimination of
such assistance could impair or prevent the Company's use of its EKOR technology
in that remediation, thereby reducing or eliminating a substantial amount of the
Company's presently expected revenues. No assurance can be given that any or all
such events will not occur.
Ukrainian and Russian businesses have limited experience operating in free
market conditions, and compared with Western businesses have limited experience
with entering into contracts and performing contractual obligations.
Additionally, Ukrainian and Russian governmental agencies, as well as Ukrainian
and Russian business enterprises, have limited experience with the substantive
content and detail typical of Anglo-American and other Western contracts.
Accordingly, the detailed agreement to perform specified contractual obligations
in many instances may be contained in a series of written approvals, consents
and the like from various governmental and quasi-governmental bodies, as well as
from business companies, that accompany a formal contract. Legal reforms have
only been recently instituted in Russia and Ukraine to interpret and enforce
contractual obligations on principles similar to those of the legal systems of
Western countries. The Company's expected near-term revenues substantially
depend upon technology transfer and consulting fees memorialized in written
contracts with Ukrainian and Russian entities. No assurance can be given that
such fees will be paid in the manner called for in such contracts or that
enforcement of such payment obligations, if not performed fully or at all, will
be successful in Russian or Ukrainian courts.
<PAGE>
Risks as to Availability and Cost of Materials, Supplies and Equipment
Presently, the development of the silicon-carbide "wafer" technology is
being conducted, and the Company's EKOR compound is being manufactured and
produced, in Russia by a Russian sub-contractor of the I.V. Kurchatov Institute
("Kurchatov"), which is a state-controlled entity. While most of the constituent
materials used in manufacturing the EKOR compound are commercially available at
competitive prices on a world wide basis, a key chemical catalyst - without
which the EKOR compound cannot be produced - is presently a trade secret of and
produced only by Kurchatov. Accordingly, without the continued cooperation of
Kurchatov, which is subject to the dictates and policies of the Russian
Government and over which the Company has no control, the Company will be unable
to produce, commercialize or sell the EKOR compound, or complete the development
of the silicon-carbide "wafer" technology. No assurance can be given that the
present, favorable policy of the Russian Government will continue (see "Risk
Factors-Risks Relating to the Russian Federation and Ukraine-Political and
Social Risks") or that Kurchatov's processes for producing such chemical
catalyst and the silicon-carbide "wafers" will at any time be made available to
the Company, or that if such processes are made available to the Company, their
respective costs to the Company will be reasonable.
Additionally, both Russia and Ukraine historically have experienced
persistent shortages of basic, industrial materials and goods, including piping,
pumps, machine tools, presses and the like, some or all of which are used in
manufacturing the EKOR compound and in producing the silicon-carbide "wafers".
No assurance can be given that such shortages will not occur, interfere with
and/or substantially increase the cost of either or both manufacturing the EKOR
compound in commercially saleable quantities, and completing the development of
the silicon-carbide "wafer" technology, either of which could have a presently
unquantifiable, substantial adverse impact on the Company's financial condition,
business and business prospects.
No Assurance of Joint Venture Licenses, Further Collaborative Agreements or
Further Project Contracts
The Company's business strategy presently is principally based upon
entering into joint ventures and licenses for the marketing and sale of its
Principal Technologies, collaborative agreements that allow the Company to bid
on nuclear waste and contamination remediation projects, the awarding of such
project contracts to the Company, and to a lesser extent collaborative joint
working arrangements with foreign governmental and quasi-governmental entities.
To date, the Company has entered into one such collaborative bidding agreement
(with Duke Engineering & Services, Inc.) which has resulted in one successful,
first-round demonstration project bid, and has not entered into any licenses or
joint ventures for the marketing and sale of its four Principal Technologies.
Duke Engineering and Services has submitted a letter of intent to bid, on behalf
of itself and the Company, to the European Reconstruction and Development Bank
in connection with studies for the remediation of Reactor 4 at the Chernobyl
Nuclear Power Plant ("ChNPP"). There can be no assurance that the Company will
enter into any further collaborative bidding agreements, will enter into
definitive project agreements, will successfully bid with respect to ChNPP, or
will enter into any licenses or joint ventures for the marketing and sale of its
Principal Technologies. There can be no assurance that, if entered into, any
such agreements will (in the case of projects in Russia and Ukraine) be similar
in form to Western agreements covering like activities, or (in the case of all
such agreements) will be on terms and conditions that are sufficiently
advantageous to the Company to enable it to generate profits.
There can be no assurance that the Company will be awarded further
contracts to perform decontamination, remediation or waste disposal projects.
Even if such contracts are awarded, there can be no assurance that these
contracts will be profitable to the Company. In addition, any project contract
which may be awarded to the Company and/or any of its working partners may be
curtailed, delayed, redirected or eliminated at any time. Problems experienced
on any specific project, or delays in the implementation and funding of
projects, could materially adversely affect the Company's business and financial
condition.
The Company has been advised that Arbat American Autopak, Ltd. ("Arbat
American"), with which the Company has entered into a technology agreement
pertaining to the Automated Parking Garage technology, has not obtained project
financing for the contemplated automated parking garage facility in Moscow,
Russia. See "Business - Other Technologies - Automated Parking Garages." Such
failure could constitute a default under Arbat American's agreements with the
Municipal Government of Moscow. If Arbat American is declared in default, its
ability to commence such Moscow project, or any other project in Moscow, could
be jeopardized. In such a case, the Company might need to enter into a
technology agreement with another entity or entities in order to derive any
revenues from this technology, for which no assurance can be given.
<PAGE>
Uncertainty of Acquisition of Additional Israeli Technologies
<PAGE>
One of the Company's Principal Technologies ("Non-isocyanate
Polyurethane") and three of the Company's Other Technologies ("Electromagnetic
Separation Technology," "Powdered Metallurgy Technology" and "Continuous
Combustion Synthesis Technology") were acquired by the Company in accordance
with informal agreements in principal with three Israeli technology incubators
(the "Incubators" and, each, an "Incubator"), which generally provide for the
Company's investment in and receipt of equity in technology research and
development projects sponsored by the Incubator and selected by the Company. See
"Business - Acquisition of Israeli Technologies - Incubator Technologies."
Those agreements in principal are not in writing, are informal
arrangements between the Company and the Incubators, and are not enforceable as
against any of the Incubators. As a result, although the Company has entered
into written investment and other agreements in the case of each of the
foregoing technologies (see "Business - Acquisition of Israeli Technologies -
Incubator Technologies"), none of the Incubators is obligated to permit the
Company to invest in and/or acquire any further Incubator- sponsored research
and development projects. Accordingly, the Company's opportunities to acquire
and commercialize Incubator - sponsored technologies may be limited to the
foregoing technologies, only.
Uncertainty of Market Acceptance
Many prospective users of the Company's EKOR compound and waste-to-energy
technologies have already committed substantial resources to other forms of
radioactive contaminant remediation, municipal waste management and
environmentally clean energy production. The Company's growth and future
financial performance in large measure will depend on demonstrating to
prospective licensees, joint venturers, collaborative partners and users the
advantages of the EKOR compound, the Company's other Principal Technologies, and
(in light of the Company's recent decision to concentrate on marketing and
selling its Principal Technologies) to a significantly lesser extent its
waste-to-energy technology over alternative products and technologies. There can
be no assurance that the Company will be successful in any of these efforts. See
""Business--Principal Technologies,--Other Technologies."
Risk of Environmental Liability; Present Lack of Environmental Liability
Insurance
The Company's radioactive contaminant technology is subject to numerous
national and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of such materials, and the use of
specialized technical equipment in the processing of such materials. There is
always the risk that such materials might be mishandled, or that there might be
equipment or technology failures, which could result in significant claims for
personal injury, property damage, and clean-up or remediation. Any such claims
against the Company could have a material adverse effect on the Company. The
Company does not presently carry any environmental liability insurance, and may
be required to obtain such insurance in the future in amounts that are not
presently predictable. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against the Company
(even if covered by insurance policies) for amounts substantially in excess of
applicable policy limits. Any such event could have a material adverse effect on
the Company.
Competition and Technological Alternatives
The near-term, primary markets for the Company's products and technologies
are chemical manufacturing and radioactive contamination containment,
remediation and transportation. Mid-term markets are expected to continue in
these industries. The Company has limited experience in marketing its products
and technologies and, other than in connection with the remediation of Reactor 4
at the Chernobyl Nuclear Power Plant, intends to rely on licenses and joint
ventures with major international chemical and other companies (and in the case
of the EKOR compound, upon its joint bidding agreement with Duke Engineering and
Services) for the marketing and sale of its Principal Technologies. In contrast,
other private and public sector companies and organizations have substantially
greater financial and other resources and experience than the Company.
Competition in the Company's business segments is typically based on product
recognition and acceptance, price, and marketing and sales expertise and
resources. Any one or more of the Company's competitors or other enterprises not
presently known to the Company may develop technologies and/or products which
are superior to the Company's, significantly underprice the Company's products
and technologies, and/or more successfully market existing or new competing
products and technologies. To the extent that the Company's competitors are able
to accomplish any of the foregoing, the Company's ability to compete could be
materially and adversely affected. See "Business."
<PAGE>
Unpredictability of Patent Protection and Proprietary Technology
Of the Company's present technologies, patent protection has been sought
only for the EKOR compound material and the Re-sealable Container Systems.
Patent applications on EKOR have been filed and are pending in the U.S., Ukraine
and Japan, and two such patent applications have been filed in Russia, one of
which is pending, and one of which has been granted. Patent application on the
Re-sealable Container Systems have been filed and are pending in Germany. The
Company's success depends, in part, on its ability to obtain and protect patents
covering, and maintain trade secrecy protection of its EKOR compound and other
Principal Technologies, as well as other, future technologies, and to operate
without infringing on the proprietary rights of third parties. Additionally,
since the waste-to-energy technology is a combination of existing, public domain
technologies, it is uncertain whether the waste-to-energy technology is
patentable. Accordingly, such technology could be subject to appropriation and
use by any individual or entity that is so inclined, for which the Company might
not have legal recourse under any national or international patent law. There
can be no assurance that any of the Company's pending or future patent
applications will be approved, that the Company will develop additional
proprietary technology that is patentable, that any patents issued 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 Company's ability to conduct its business. Furthermore,
there can be no assurance that others will not independently develop similar or
superior technologies, duplicate any of the Company's processes, or design
around any technology that is patented by the Company. It is possible that the
Company may need to acquire licenses to, or to contest the validity of, issued
or pending patents of third parties relating to its products. There can be no
assurance that any license acquired under such patents would be made available
to the Company on acceptable terms, if at all, or that the Company would prevail
in any such contest. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on its patents or in
bringing patent suits against other parties.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which its seeks to protect, in
part, by confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets and proprietary know-how
will not otherwise become known or be independently discovered by others.
Factors Affecting Market Price of Common Stock
Prices for the Company's Common Stock will be influenced by many factors,
including the depth and liquidity of the market for the Common Stock, investor
perception of the Company and its products, and general economic and market
conditions. The market price of the Company's Common Stock may also be
significantly influenced by factors such as the announcement of new projects by
the Company or its competitors and quarter-to-quarter variations in the
Company's results of operations.
Applicability of Rules Relating to Low-Price Stocks or "Penny Stock"; Effect of
Failure to Qualify for Nasdaq Market Listing
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5.00 per share, subject to certain exceptions.
The Company's Common Stock presently is a "penny stock" and, accordingly, is
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors. There can be no assurance that the Common
Stock will trade for $5.00 or more per share, or if so, when. Consequently, the
"penny stock" rules may restrict the ability of broker/dealers to sell the
Company's Common Stock and may affect the ability of the Selling Shareholders in
this Offering (and their purchasers) to sell the Company's Common Stock in a
secondary market.
Although the Company desires to list the Common Stock on the Nasdaq
SmallCap Market, there can be no assurance that the Company will ever qualify
for the same, or that if the Company does so qualify that a listing application
will be approved.
In order to qualify for initial listing on the Nasdaq SmallCap Market a
company must, among other things, have at least $4,000,000 in net tangible
assets, a $5,000,000 "public float." and a minimum bid price for its securities
of $4.00 per share. For continued listing on the Nasdaq SmallCap Market, a
company must maintain $2,000,000 in net tangible assets, and a
<PAGE>
$1,000,00 market value of the public float. In addition, continued inclusion
requires two market makers and a minimum bid of $1.00 per share. Failure to meet
these maintenance criteria may result in the discontinuance of Nasdaq SmallCap
Market listing.
Absent Nasdaq SmallCap Market or other Nasdaq or stock exchange listing,
trading, if any, in the Company's Common Stock will (as it presently is) be
continued in the "Electronic Bulletin Board" administered by the National
Association of Securities Dealers, Inc. As a result, a shareholder may find it
difficult to dispose of or to obtain accurate quotations as to the market value
of the Common Stock.
Dependence on Certain Personnel
Until recently, the Company's business had been substantially dependent on
the services and business experience of Peter Gulko, Hans-Joachim Skrobanek, Dr.
Randolph Graves, and of ERBC Holdings, Limited ("ERBC"). In January 1998 Dr.
Graves resigned as Chairman and CEO, and Dr. Graves, Mr. Gulko and Mr. Skrobanek
resigned as directors. Mr. Skrobanek continues to serve the Company as its
representative in the European market. Eurotech had been dependent on Dr. Graves
for administering the office in La Jolla, California during the first stage of
the Company's existence in which the key technologies were developed. The shift
of the Company's focus from development to marketing (see "Business"), and the
moving of the Company's executive offices from La Jolla to Washington, D.C.
substantially reduced the need for Dr. Graves' contributions. Accordingly, the
Company does not believe that the recent resignations of Dr. Graves as Chairman,
CEO and a director, or of Mr. Skrobanek and Mr. Gulko as directors, will have a
material adverse effect upon the Company. Peter Gulko has been appointed
President and Secretary of the Company, and presently serves without an
employment agreement. Mr. Gulko presently is not covered by key-man life
insurance. The Company is presently seeking to hire a chief financial officer.
See "Management."
Conflicts of Interest
Certain shareholders, directors and officers of the Company are also
shareholders, directors, officers and/ or employees of a number of companies
with which the Company has entered into contracts and expects to conduct
business. See "Certain Transactions." Specifically, Kurt Seifman, the beneficial
owner of 1,246,300 shares of the Company's Common Stock, is the chief executive
officer and sole shareholder of ERBC which, in turn: (i) has licensed the
Silicon-Organic (EKOR) compound technology and the Re-sealable Container Systems
to the Company (see "Business - Principal Technologies - Silicon-Organic
Compound; Other Technologies - Re-sealable Containers"); (ii) is a principal
equity owner of Kurchatov Research Holdings, Ltd. ("KRH"), to which the Company
has agreed to remit 50% of all net profits from sales of the EKOR compound (see
"Business - Principal Technologies - Silicon-Organic Compound"); and (iii) owns
40% of the outstanding common stock of Arbat American Autopark, Ltd. ("Arbat
American") the owner of 50% of the equity in "Cinema World on Arbat," the
Russian joint stock company that is developing a Moscow, Russia, parking garage
utilizing the Company's automated parking technology. See "Business - Other
Technologies - Automated Parking Garages." In addition, Hans-Joachim Skrobanek,
who is the beneficial owner of 145,000 shares of the Company's Common Stock, is
an employee of ERBC and a shareholder and former President of Arbat American.
Peter Gulko, who until January, 1998, had been a Director of the Company and who
presently is the President and Secretary of the Company and the beneficial owner
of 1,110,000 shares of the Company's Common Stock, has, at various times acted
as a business agent of ERBC. See "Business - Other Technologies," "Management,"
and "Certain Transactions."
By virtue of its ownership interest in KRH, ERBC and Mr. Seifman will
derivatively benefit from any sales of EKOR compound by the Company to a greater
extent than they would by virtue of their ownership of Common Stock, alone.
Similarly, by virtue of its ownership interest in Arbat American, ERBC (and
Messrs. Seifman and Skrobanek) will derivatively benefit from the success, if
any, of parking garages constructed by Arbat American or its affiliates, which
may be disproportionate to the income derived by the Company from royalties paid
by Arbat American.
During the period of June, 1997, through February 13, 1998, Dr. Randolph
A. Graves (who until January 23, 1998, served as the Chairman, Chief Executive
Officer and a director of the Company) served as a director and Secretary of
Kurchatov Research Holdings, Ltd., a Delaware corporation ("KRH"), which is
entitled to receive 50% of the net profits derived by the Company from the sale
or licensing of the Company's EKOR compound. During Dr. Grave's tenure as
<PAGE>
President of KRH, the Company did not enter into any material agreements or
commitments with KRH. See "Business - Principal Technologies - Silicon Organic
(EKOR) Compound" and "Certain Transactions."
Oleg L. Figovsky, Ph.D., a consultant to the Company, is the originator
and developer of three technologies, "Interpenetrated Network Polymers," "Liquid
Ebonite Material" and "Rubber Concrete," all right, title and interest in which
were purchased by the Company from Prof. Figovsky in January, 1998, for an
aggregate purchase price of $125,000 plus royalties equal to 49% of the
Company's net revenues from the sale and/or licensing of such technologies,
payable for a period of 15 years commencing on January 1, 1998. See "Business --
General -- Acquisition of Israeli Technologies -- Incubator Technologies --
Technologies Purchased from Prof. Oleg L. Figovsky; - Principal Technologies,"
"Management - Consultants," and "Certain Transactions."
Proceeds Not Available to Company
The Company will not receive any proceeds from the sale of Shares offered
hereby.
Regulation
The Company is not aware of any U.S. or foreign laws or regulations that
govern the marketing, sale or use of any of its present technologies, other than
U.S., Russian and various Western European environmental safety laws and
regulations pertaining to the containment and remediation of radioactive
contamination and the toxicity of materials used in connection therewith (in the
case of the EKOR compound), and local, Russian and Ukrainian site approval and
construction permit, and construction code compliance requirements (in the cases
of the Company's automated parking and waste-to-energy technologies). Based on
the results of tests conducted at Kurchatov, the Company believes that the EKOR
compound meets applicable U.S. and German regulatory standards. However, there
can be no assurance that more stringent standards may not in the future be
adopted, or that if adopted, they will not materially increase the cost to the
Company of licensing and using the EKOR compound, or prevent its use altogether.
Moreover, there can be no assurance that any or all jurisdictions in which the
Company presently or in the future conducts its business will not enact laws or
adopt regulations which increase the cost of or prevent the Company from
licensing its other technologies or otherwise doing business therein.
Particularly in the cases of Russia and Ukraine, the enactment of such laws or
the adoption of such regulations may have a presently unquantifiable,
substantial adverse impact on the Company's financial condition, business and
business prospects. See "Risk Factors - Risks Related to the Russian Federation
and Ukraine-Political and Social Risks, - Economic Risks; - Limited Operating
History; Net Losses; Future Losses; Initial Commercialization Stage; Uncertainty
of Continuation as a Going Concern."
Shares Eligible for Future Sale
Of the 34,663,274 shares of the Company's Common Stock to be outstanding
after the Offering(1), 15,746,440 shares are being registered by the Company
under, and will be eligible for sale upon the effectiveness of, the Registration
Statement of which this Prospectus is a part. 6,998,000 shares of the Company's
currently outstanding Common Stock were issued without registration pursuant to
Rule 504 of Regulation D under the Securities Act, and are free-trading. Of the
shares of Common Stock to be outstanding after the Offering(1) 9,118,477 shares
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), and pursuant to that
- ----------
(1) Gives effect to the issuance of 717,500 shares of Common Stock
issuable upon exercise of certain stock options and warrants, and of up to
10,707,692 shares of Common Stock issuable upon the conversion of convertible
debentures, outstanding at the date of this Prospectus. Does not give effect to
the issuance of (i) up to 869,000 shares of Common Stock issuable upon exercise
of certain other stock options and warrants outstanding at the date of the
Prospectus, and (ii) the issuance of up to 500,000 shares of Common Stock
reserved for issuance under the Company's 1995 Stock Option Plan. See
"Management - 1995 Stock Option Plan."
(2) Includes 187,500 shares of Common Stock issuable upon the exercise of
warrants granted in connection with the November 1997 and February 1998 private
placements of the Company's 8% Convertible Debentures.
<PAGE>
Rule, under certain circumstances may be sold without registration; and
2,800,357 shares, although issued without registration, are free-trading either
by reason of having been sold pursuant to Rule 144 or having qualified for sale
without registration pursuant to Rule 701 under the Securities Act. All
"restricted" shares of Common Stock will become eligible for sale at various
times after the applicable holding period has expired, without registration. See
"Shares Eligible for Future Sale."
2,000,000 of the Shares offered hereby carry registration rights pursuant
to a Bridge Financing completed by the Company in December, 1996, and
10,895,192(2) of the Shares offered hereby carry registration rights pursuant to
two private placements of the Company's 8% Convertible Debentures due November
27, 2000 and February 23, 2001, respectively. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition - Liquidity and
Capital Resources." The holders of those securities have exercised their
registration rights. Those Shares have been registered in this Offering, and are
free-trading.
1,586,500 shares of Common Stock are issuable upon the exercise of
outstanding options and warrants. 717,500 of those shares have been registered
in the Registration Statement of which this Prospectus is a part and will be
free-trading at the time of issuance.
The availability for sale, as well as actual sales, of currently
outstanding shares of Common Stock, and up to 12,259,192 shares of Common Stock
issuable upon the conversion of outstanding convertible debentures and upon the
exercise of outstanding options and warrants, may depress the prevailing market
price for the Common Stock and could adversely affect the terms upon which the
Company would be able to obtain additional equity financing.
Pursuant to the compensation provisions of outstanding consulting
agreements, the Company is obligated to issue to those consultants an aggregate
of 17,000 shares of Common Stock per month. Such shares, when issued, qualify as
shares issued pursuant to an "Employee Benefit Plan" under Rule 701 under the
Securities Act, and may be sold without registration 90 days after the date of
issuance.
USE OF PROCEEDS
The Shares are being offered by the Selling Shareholders for their own
accounts. The Company will not receive any proceeds from the sale of the Shares.
DIVIDENDS
To date the Company has not declared or paid any dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted to reflect (i) the issuance of 430,000 shares
of Common Stock upon the exercise of outstanding warrants registered under the
Registration Statement of which this Prospectus is a part and (ii) to reflect
the issuance of 2,142,857 shares of Common Stock related to an assumed
conversion of all of the Convertible Debentures outstanding at December 31,
1997. This table should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Actual As Adjusted
----------- -----------
(1) & (2)
<S> <C> <C>
BRIDGE NOTES $2,000,000 $2,000,000
=========== ===========
CONVERTIBLE DEBENTURES $3,000,000 $ --
=========== ===========
STOCKHOLDERS' DEFICIENCY -- --
Common stock - $0.00025 par value;
50,000,000 shares authorized;
18,928,836 shares issued and outstanding actual,
and 21,501,693 outstanding as adjusted 4,732 5,375
Additional paid-in capital 12,892,313 16,471,670
Unearned financing costs (1,315,317) --
Deficit accumulated during the development stage (16,431,452) (17,746,768)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (4,849,723) (1,269,723)
----------- -----------
TOTAL CAPITALIZATION $150,277 $730,277
=========== ===========
</TABLE>
(1) Does not include warrants and stock options that contain exercise prices
in excess of the market value as of December 31, 1997.
(2) Assumes the conversion of the November 27, 1997 Convertible Debentures at
a conversion price equal to the floor price of $2.00 per share and
utilizing the most beneficial conversion rate available to the holders of
the debentures of 70%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the selected
financial data and the financial statements and notes thereto appearing
elsewhere herein.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein.
PLAN OF OPERATION
Eurotech, Ltd. (the "Company") is a development stage, technology
transfer, holding and management company formed to commercialize new, existing
but previously unrecognized, and previously "classified" technologies, with a
particular emphasis on those developed by prominent research institutes and
individual researchers in the former Soviet Union and in Israel, and to
commercialize those and other Western technologies for business and other
commercial applications principally in Central Europe, Ukraine, Russia and North
America. Until recently the Company had been principally engaged in identifying,
monitoring, reviewing and assessing technologies for their commercial
applicability and potential, and in acquiring selected technologies by equity
investment, purchase, assignments, and licensing arrangements, four of which
(the "Principal Technologies") the Company believes to be presently ready for
commercialization and marketing. To that end, the Company has decided to devote
its business activities and resources principally to the marketing and sale of
the Principal Technologies, which include its EKOR compound technology. The
Company recently has initiated a marketing and sales program for the Principal
Technologies, and also has initiated discussions with a number of prominent,
potential users thereof, with a view towards the future negotiation and
execution of licensing and/or joint venture marketing and sales agreements. The
Company is proceeding with the marketing and potential application of its EKOR
compound technology in connection with nuclear contamination remediation
projects at the Chernobyl Nuclear Power Plant, and in the U.S., Russia and
Germany. See "Business." The Company intends to operate its business by
licensing its technologies to end-users and through development and operating
joint ventures and strategic alliances.
The Company was organized and commenced operation in May of 1995. The
Company is in the development stage and until recently its efforts have been
principally devoted to research and development activities and organizational
efforts, including the identification, review and acquisition of various
technologies, recruiting its scientific and management personnel and alliances
and raising capital.
The Company has not been profitable since inception and expects to incur
substantial operating losses over the next twelve months. For the period from
inception to December 31, 1996, the Company incurred a cumulative net loss of
$3,990,209, and for the period from inception to December 31, 1997, a cumulative
net loss of $16,431,451. The Company expects that it will generate losses until
at least such time as it can commercialize its technologies, if ever. No
assurances can be given that any of the Company's technologies can be
manufactured on a large scale basis or at a feasible cost. Further, no assurance
can be given that any technology will receive market acceptance. Being a
start-up stage entity, the Company is subject to all the risks inherent in the
establishment of a new enterprise and the marketing and manufacturing of a new
product, many of which risks are beyond the control of the Company.
The Company's plan of operation for the next twelve months will consist of
activities aimed at: (i) negotiating and executing license and/or joint venture
agreements with industrial end-users for the marketing and sale of
"Non-isocyanate Polyurethane," "RubCon" (a rubber-based concrete) and "Liquid
Ebonite Material" (a liquid rubber, protective coating material), Israeli
technologies as to which the Company has acquired equity participation and
marketing rights (see "Business"); (ii) continuing its work with the I.V.
Kurchatov Institute ("Kurchatov") in Moscow, Russia, the Euro-Asian Physical
Society ("EAPS"), and the Chernobyl Nuclear Power Plant ("ChNPP") with a view
towards using the EKOR compound in the remediation of ChNPP Reactor 4 (which
experienced a catastrophic near-meltdown in 1986); and (iii) through an
agreement entered into in April, 1997 with Duke Engineering & Services, Inc.
("DES"), a business unit of Duke Power Company, continue to bid jointly with DES
on U.S. nuclear waste transportation, contaminant and like projects utilizing
the EKOR compound. See "Business - Principal Technologies." To a lesser extent
(and apart from the Principal Technologies), the Company also intends to
continue its efforts in connection with those of its technologies that are not
presently ready for commercialization and marketing. See "Business - Other
Technologies."
<PAGE>
RESULTS OF OPERATION
For the Year Ended December 31, 1996 vs. the Period from Inception (May 26 1995)
to December 31, 1995:
The Company commenced operations on May 26, 1995. The Company has had no
significant revenues to date. Consulting and other general and administrative
expenses increased from $301,000 for the period ended December 31, 1995 to
$2,034,000 for the year ended December 31, 1996 principally as a result of
adding an executive secretary, a Director of Corporate Planning and a Market
Research Analyst as employees and increased marketing and research consulting
expenses. During 1996, the Company satisfied obligations under consulting
arrangements aggregating $1,210,000 by the issuance of 4,345,036 shares of
Common Stock.
The Company is focusing on the commercialization of its technologies.
Research and development expenses (consisting principally of expenses associated
with the final development of the EKOR compound, validation testing of the EKOR
compound and its application, and the fabrication of EKOR production equipment)
increased in the year ended December 31, 1996 to $1,171,000 from $212,000 for
the period ended December 31, 1995 as the Company funded the development of
additional technologies.
For the year ended December 31, 1996 and the period from inception (May
26, 1995) through December 31, 1995, the Company incurred operating losses of
$3,205,000 and $513,000, respectively. The losses are principally due to
expenses incurred in the development of the technologies, including
administrative expenses and consulting expenses.
Interest expense and amortization of deferred and unearned finance costs
increased from $-0- in 1995 to $272,000 in the year ended December 31, 1996.
This increase was attributable to financing costs related to promissory notes of
$341,000 and a bridge loan of $2,000,000. See Note 6 to the accompanying
financial statements.
For the Year Ended December 31, 1997 vs. the Year Ended December 31, 1996:
For the year ended December 31, 1997, consulting expenses decreased to
$1,392,845 from $1,486,830 for the year ended December 31, 1996. Other general
and administrative expenses for the year ended December 31, 1997, increased to
$1,262,067 from $547,447 for the year ended December 31, 1996 principally as a
result of an increase of $469,000 in legal fees, recording a charge against
operations of $75,000 in connection with an abandoned initial public offering,
and a $90,000 increase in salaries resulting from additions to staff, in the
1997 period as compared to the 1996 period.
Research and development expenses for the year ended December 31, 1997,
decreased to $1,007,671 from $1,170,782 for the year ended December 31, 1996,
attributable to the Company having completed research and development related to
its EKOR compound technology.
For the years ended December 31, 1997 and December 31, 1996, the Company
incurred operating losses of $3,662,583 and $3,205,059 respectively. These
losses are principally the result of expenses incurred in developing the
Company's EKOR technology and the lack of revenues.
Interest expense and amortization of deferred and unearned finance costs
increased from $271,924 for the year ended December 31, 1996, to an aggregate of
$8,778,659 for the year ended December 31, 1997 (of which, $270,740 represents
interest expense). This increase was attributable principally to $7,218,219 of
financing costs, exclusive of interest expense, related to the issuance of
2,000,000 additional shares of Common Stock to holders of promissory notes
issued in connection with a bridge financing completed in December 1996 as
penalties in connection with such holders' registration rights, $367,128 of
financing costs related to the
<PAGE>
issuance on November 27, 1997, of $3,000,000 principal amount of 8% Convertible
Debentures, and $862,680 of financing costs related to the issuance of warrants
to purchase 364,000 shares of Common Stock in repayment of certain shareholder
loans.
The Company recorded an additional charge against income of approximately
$2,000,000 during the fourth quarter of 1997 related to shares of common stock
issued in connection with the bridge financing completed in December 1996. The
Company has only recently initiated marketing and sales efforts in connection
with its four Principal Technologies (see "Business - General; - Principal
Technologies"), and, consequently, there can be no assurance that the Company
will be profitable on quarterly or annual basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been net proceeds
of $842,000 from the offering of common stock under Rule 504 of Regulation D,
shareholder advances aggregating $761,440, the bridge financing discussed below,
completed in December 1996 of $2,000,000, and from the private placement of
$3,000,000 principal amount of 8% Convertible Debentures completed in November
1997. Of the shareholder advances, promissory notes evidencing approximately
$200,000 of shareholder indebtedness were exchanged for units in the bridge
financing and the balance was repaid from the proceeds of the bridge financing
and the Debenture placement. The net proceeds of the bridge financing reflect
the cancellation of the notes referred to above and were being used for
repayment of accrued liabilities and funding the development of certain
technologies and for other working capital purposes. The Company had a working
capital deficiency and stockholders' deficiency of $1,809,237 and $1,674,824,
respectively, as of December 31, 1996 and $2,156,753 and $4,849,723,
respectively, as of December 31, 1997. The report of the Company's independent
certified public accountants contains an explanatory paragraph which expresses
substantial doubt as to the Company's ability to continue as a going concern.
In December 1996, the Company entered into a purchase agreement for an
offering of up to an aggregate of 40 units to certain accredited investors as
defined by Rule 501 of Regulation D under the Securities Act of 1933, as amended
(the "Act") in reliance on an exemption from registration under Rule 506 of
Regulation D (the "Bridge Financing"). Each unit consists of one promissory note
(a "Bridge Note") issued by the Company in the principal amount of $50,000
bearing interest at the rate of 12% per annum and 25,000 shares of the Company's
Common Stock. Under the agreement, the notes were due one year from the issuance
date. Gross proceeds received under this offering were $2,000,000. Holders of
the shares of common stock issued pursuant to this agreement have, among other
things, demand and mandatory registration rights, including penalties, which
require the Company to issue to the unit holders up to 1,000,000 additional
shares of common stock if such shares were not registered under the Act within
the specified time frame. As of December 31, 1996, the Company recorded an
additional 500,000 shares of Common Stock to be issued under the offering based
on the Company's belief that it would not meet one of the two filing deadlines.
The Company did not meet either filing deadline and, accordingly the 500,000
additional common shares recorded as of December 31, 1996, were issued to such
holders in April, 1997, and a further 500,000 common shares were issued to such
holders in August, 1997. See Note 6 to accompanying financial statements. As of
their maturity in December 1997, the Company had insufficient funds to repay
such notes and, accordingly, has obtained the agreement of the noteholders to
extend the notes' maturity until March 18, 1998, in consideration of the
issuance to the noteholders of an aggregate of 1,000,000 shares of the Company's
Common Stock. The Company has agreed to register such shares of Common Stock
under the Act, and they are included in the shares offered hereby. Pursuant to
the terms of the notes, as of December 19, 1997 their interest rate has been
increased to 15% per annum. The Bridge Notes and all accrued interest thereon
were repaid by the Company on February 26, 1998.
In November 1997 and February 1998, the Company completed two private
placements, each of $3,000,000 principal amount of its 8% Convertible Debentures
due November 27, 2000 and February 23, 2001, respectively (the "Debentures"). In
each such private placement, warrants (the "Warrants") to purchase up to 60,000
shares of Common Stock (the Debentures and Warrants, collectively, the
"Securities," each offering of the Securities a "Debenture Offering," and the
offering of the Securities the "Debenture Offerings") were also issued. The
Securities were offered and sold only to accredited investors as defined by Rule
501 of Regulation D under the Act, in reliance on an exemption from registration
under Rule 506 of Regulation D.
The Debentures may be converted by the holders thereof (each a "Debenture
Holder" and collectively the "Debenture Holders"), in whole or in part, at any
time and from time to time during the period beginning on the earlier of
February 25, 1998 (August 22, 1998 in the case of the Debentures issued in the
February 1998 Debenture Offering), or the date upon which a
<PAGE>
Registration Statement under the Act covering the shares of Common Stock into
which the Debentures are convertible (the "Underlying Shares") is declared
effective by the Securities and Exchange Commission (the "SEC"), and ending on
November 27, 2000 (February 23, 2001, in the case of the Debentures issued in
the February 1998 Debenture Offering). The Debentures may be converted into a
number of shares of Common Stock equal to the quotient of (i) the outstanding
principal amount of Debentures to be converted (plus all accrued but unpaid
interest thereon), divided by (ii) the "Conversion Price" (determined as set
forth below). The Debentures may also be converted by the Company, in whole or
in part, at any time and from time to time on or after November 27, 1999
(February 23, 2000, in the case of the Debentures issued in the February 1998
Debenture Offering) into a number of shares of Common Stock determined in
accordance with the foregoing calculation, subject to certain restrictions
relating to the registration of the Underlying Shares and the trading of the
Company's Common Stock. The "Conversion Price" in relation to conversion of the
Debentures by either the Debenture Holders or the Company is the lesser of (a)
$5.38 or (b) the average closing bid price per share of Common Stock for the
five trading days immediately preceding the conversion date, multiplied by (x)
80% in the case of conversions effected prior to May 29, 1998 (August 22, 1998
in the case of the February 1998 Debenture Offering), (y) 75% in the case of
conversions effected on or after May 29, 1998 (August 22, 1998 in the case of
the February 1998 Debenture Offering) but prior to November 25, 1998 (February
8, 1999 in the case of the February 1998 Debenture Offering) and (z) 70% in the
case of conversions effected on or after November 25, 1998 (February 8, 1999 in
the case of the February 1998 Debenture Offering). In the case of Debenture
conversions by Debenture Holders, the "Conversion Price" may not be less than a
specified "floor" initially set at $2.00 ($1.625 in the case of the February
1998 Debenture Offering).
The Warrants may be exercised by the holders thereof (each a "Warrant
Holder" and collectively the "Warrant Holders") at any time and from time to
time during the period beginning on November 27, 1997 (February 23, 1998, in the
case of the Warrants issued in the February 1998 Debenture Offering) and ending
at 5:30 p.m. New York time on November 27, 1999 (February 23, 2000, in the case
of the Warrants issued in the February 1998 Debenture Offering) at a per share
exercise price of $4.73 ($2.73 in the case of the February 1998 Debenture
Offering). The Warrant Holders have "piggy-back" registration rights with
respect to all or any portion of the Warrant Shares, pursuant to which the
Company, upon the request of any Warrant Holder, is obligated to include the
Warrant Holder's Warrant Shares (or any portion thereof as the Warrant Holder
may elect) in any Registration Statement under the Act that the Company files
with the SEC (other than Registration Statements on Form S-8 or Form S-4
covering securities issued by the Company pursuant to an employee benefit plan
or in connection with a merger, acquisition or similar transaction,
respectively), and naming the Warrant Holder as a selling shareholder therein.
Pursuant to the Debenture Offerings the Company agreed that if a
Registration Statement under the Act covering the Underlying Shares were either
not filed with the SEC on or prior to January 15, 1998 or, if filed, not
declared effective by the SEC on or prior to February 16, 1998, the Company will
be obligated to pay to the Debenture Holders liquidated damages equal to 1% of
the aggregate principle amount of the then outstanding Debentures, on the first
day of each month until such filing or effectiveness deficiency is cured.
Neither deadline was met, and the Company was obligated to make monthly
payments, aggregating $_________, to the Debenture Holders until the
Registration Statement was declared effective.
The Company has agreed to fund the commercialization of certain
technologies developed in the former Soviet Union by scientists and researchers
at the I.V. Kurchatov Institute ("Kurchatov"), other institutes associated
therewith, and the Euro-Asian Physical Society ("EAPS"), collectively the
"Scientists". Kurchatov will provide the materials, facilities and personnel to
complete the necessary work to commercialize such technologies. The Company also
has agreed to provide funding in connection with the marketing and sale of three
Israeli technologies ("RubCon," "Liquid Ebonite Mixture" and Non-isocyanate
Polyurethane, see "Business -- General; -- Principal Technologies") and to
provide funding for the further research and development of four other Israeli
technologies. See "Business -- Other Technologies." Total planned expenditures
under these programs, including related general and administrative expenses, are
expected to approximate $1,500,000 during fiscal year 1997 and $800,000 during
fiscal year 1998. The Company's principal sources of funding for these
expenditures during fiscal 1997 were remaining cash from the Bridge Financing
($380,000 as of December 31, 1996 and $0 as of December 31, 1997) and loans from
shareholders and other private lenders, which for the period January 1, 1997,
through December 31, 1997, have totalled approximately $450,000. The Company's
principal source of funding for these expenditures during fiscal year 1998 will
be the proceeds of the Debenture Offerings. As the development of each
technology is completed and the technology's commercial applications are
identified, the Company also will seek joint venture partners to fund any
further capital expenditures, including the project financing.
<PAGE>
As discussed above, the Company may require additional financing to
continue to fund research and development efforts, operating costs and complete
necessary work to commercialize its technologies. The Company has determined not
to proceed with a previously contemplated, initial public offering of 5,000,000
shares of cumulative convertible preferred stock. Costs in connection therewith,
aggregating $75,000, have been charged to expenses during fiscal year 1997.
The Company is exploring additional sources of working capital, including
further private sales of securities and joint ventures and licensing of
technologies. During the first three quarters of 1997 the Company relied on
shareholder loans and remaining Bridge Financing proceeds as its principal
sources of working capital. Through its joint bidding agreement with Duke
Engineering & Services, Inc. (see "Business -- Principal Technologies --
Silicon-Organic Compound"), the Company has successfully bid on a remediation
demonstration project at the federal nuclear facility in Hanford, Washington.
While management believes that other successful private placement and successful
bids on U.S. nuclear remediation demonstration projects are possible, there is
no assurance that the its present joint venture with Duke Engineering and
Services will result in the award of any further nuclear remediation contracts.
No assurance can be given that the Company can successfully obtain any
additional working capital or complete any additional offerings or, if obtained,
that such funding will not cause dilution to shareholders of the Company.
Further, no assurance can be given as to the completion of research and
development and the successful marketing of the Company's technologies. See
"Risk Factors - Need for Additional Financing; Possibility of Future Dilution; -
No Assurance of Collaborative Agreements, Licenses or Project Contracts;
Uncertainty of Market Acceptance".
COMPUTER SYSTEM - "YEAR 2000" ISSUES
The Company is not significantly dependent on customized or highly
sophisticated computer systems and software. Presently and for the foreseeable
future the Company utilizes and will utilize commercially available, "small
office" computers and commercially available "off-the-shelf" software. The
Company is not part of and is not interfaced or otherwise electronically
connected to any large or sophisticated industrial, financial or banking
computer networks or systems. Accordingly, the Company does not expect to be
faced with a "Year 2000 Problem," which refers to a design flaw in many computer
systems (and, particularly, in large, highly sophisticated or custom-designed
systems) whereby the system cannot distinguish between the year (or numbers)
1900 and 2000. The Company believes that appropriate "off-the-shelf" hardware
and software up-grades will be readily available, at reasonable cost, in time
for the Company to purchase, install and test them prior to the year 2000.
<PAGE>
BUSINESS
GENERAL
Eurotech, Ltd. (the "Company"), which was incorporated in May, 1995 under
the laws of the District of Columbia, is a development stage, technology
transfer, holding and management company formed to commercialize new, existing
but previously unrecognized, and previously "classified" technologies, with a
particular current emphasis on technologies developed by prominent research
institutes and individual researchers in the former Soviet Union and in Israel,
and to commercialize those and other Western technologies for business and other
commercial applications principally in Western and Central Europe, Ukraine,
Russia, and North America. Since the Company's formation it has acquired
development and marketing rights to a number of technologies by purchase,
assignments, and licensing arrangements. Although the Company intends to
continue identifying, monitoring, reviewing and assessing new technologies, its
primary emphasis is marketing and sales of four of its present technologies that
it deems to be ready for commercialization and marketing (the "Principal
Technologies"). To that end, the Company recently initiated discussions with a
number of potential end-users of those technologies, with a view towards the
future negotiation and execution of licensing and/or joint venture marketing
agreements. Additionally, the Company is proceeding with the marketing and
potential application of its EKOR compound technology in connection with nuclear
contamination remediation projects at the Chernobyl Nuclear Power Plant
("ChNPP") in Ukraine, and in the United States, Russia and Germany. See
"Business - Principal Technologies," and "Management's Discussion and Analysis
of Financial Results of Operation and Financial Condition - Plan of Operation."
The Company intends to operate its business by licensing its technologies to
end-users and through development and operating joint ventures and strategic
alliances. To date, the Company has not generated any significant revenues from
operations.
The Company's plan of operation for the next twelve months will consist of
activities principally aimed at: (i) negotiating and executing license and/or
joint venture agreements with industrial users for the marketing and sale of
coatings based on its "Non-isocyanate Polyurethane" technology, "Rub Con" (a
rubber-based concrete) and "Liquid Ebonite Material" (a liquid rubber,
protective coating material), which are Israeli technologies the Company has
acquired, and each of which is a Principal Technology; (ii) continuing its work
with the I.V. Kurchatov Institute ("Kurchatov") in Moscow, Russia, the
Euro-Asian Physical Society ("EAPS") and ChNPP with a view towards using the
EKOR compound in the remediation of ChNPP Reactor 4 (which experienced a
catastrophic near-meltdown in 1986); and (iii) through an agreement entered into
in April, 1997 with Duke Engineering & Services, Inc., ("DES"), a business unit
of Duke Power Company, jointly bidding with DES on U.S. nuclear waste
transportation, remediation and like projects utilizing the EKOR compound. To a
lesser extent (and apart from the Principal Technologies), the Company also
intends to continue its efforts in connection with those of its technologies
that are not presently ready for commercialization and marketing (the "Other
Technologies").
Acquisition of Israeli Technologies
Incubator Technologies
The Company has informally agreed in principle with three Israeli
technology incubators, the Technion Entrepreneurial Incubator Co., Ltd. ("TEI"),
the Ofek Le-Oleh Foundation ("Ofek") and the Incubator for Technological
Entrepreneurship-Kiryat Weizmann, Ltd. ("Weizmann") (collectively, the
"Incubators"), to participate in certain technology research and development
projects which the Incubators individually sponsor. Pursuant to such informal
arrangement, the Company would provide 15%-20% of the financing required for,
and would receive a 20% equity interest in, research and development projects
selected by the Company and such Israeli corporations as are formed for the
purpose of owning, developing and commercializing the technologies resulting
from those selected projects (each, an "Israeli Technology Company"). In
furtherance of this, the Company has opened an office at the premises of TEI in
Haifa, Israel. The Company has not entered into a written agreement with any of
the Incubators memorializing such agreement in principal, and the only written
agreements between the Company and any Incubator are those disclosed herein in
connection with Chemonol, Ltd., Separator, Ltd., Remptech, Ltd., and Comsyntech,
Ltd. None of the Incubators are legally obligated to enter into any further such
agreements with the Company and as a result there is no assurance that the
Company will be able to invest in or acquire any additional Incubator-sponsored
technologies. See "Risk Factors - Uncertainty of Acquisition of certain
Additional Israeli Technologies."
<PAGE>
Pursuant to agreements with each of Chemonol, Ltd., an Israeli corporation
("Chemonol"), and with Ofek and Weizmann, the Company has invested in four
Israeli Technology Companies, to wit: Chemonol, which has developed materials
and processes for manufacturing non-isocyanate polyurethane ("NIPU") industrial
coatings (see "Business -- Principal Technologies -- Non-isocyanate
Polyurethane"); Separator, Ltd. ("Separator"), which is developing a process for
the electromagnetic separation and production of high temperature
superconductive metallic powders; Remptech, Ltd. ("Remptech") which is
developing processes for the production of extra-fine cobalt and nickel powders;
and Comsyntech, Ltd. ("Comsyntech"), which is developing a process for the
continuous combustion synthesis of ceramic, composite and intermetallic powders.
See "Business-Other Technologies." Under those agreements the Company will
receive 20% of each Israeli Technology Company's common equity, and will invest
U.S. $60,000 in each such corporation. In connection with these investments, the
Company also has obtained: (i) options to purchase Ofek's 20% common equity
interest in each of Remptech and Comsyntech, each of which is exercisable for a
period of 90 days commencing on November 6, 1999 at an exercise price to be
established by the parties; (ii) options to acquire from the holders of a
majority of the outstanding common equity (the "Principal Shareholders") of each
of Chemonol, Separator, Remptech and Comsyntech an additional 31% of each
corporation's common equity, which are exercisable for a period of 6 months
commencing on May 4, 1998 in the case of Chemonol, 12 months commencing on
September 4, 1998 in the case of Separator, and 12 months commencing on May 6,
1998 in the cases of Remptech and Comsyntech, each at an exercise price of
U.S.$93,000, and (iii) the perpetual right to direct the voting of the common
equity of the Principal Shareholders' of each company, giving the Company voting
control in each case.
In the event the Company exercises the foregoing equity purchase options,
it will own 51% of each of Chemonol's and Separator's common equity and 71% of
the common equity of each of Remptech and Comsyntech, and for financial
reporting purposes will consolidate each of those corporation's balance sheets
and other financial statements with the Company's. There is no assurance that
any of the foregoing options will be exercised. There is no assurance that when
such options become exercisable the Company will have sufficient funds to
exercise any of them.
For a period of two years commencing on the date of its registration as an
Israeli corporation, the sale or other transfer of 25% or more of the
outstanding common equity of each of Chemonol, Separator, Remptech and
Comsyntech requires the consent of the Chief Scientist of the Israeli Ministry
of Commerce and Technology. The Company's options to acquire additional common
equity of the above Israeli Technology Companies are exercisable within such two
year periods and any acquisition of the common equity purchasable thereunder
will, therefore, require the Chief of Scientist's consent. Although the Company
presently expects that if requested such consent would be given, there is no
assurance that such consent will be obtained. Accordingly, the Company plans to
seek to amend the terms of those options to extend their respective exercise
periods beyond the applicable two-year periods during which the Chief of
Scientist's consent is required, prior to the times they each first commence.
Technologies Acquired from Prof. Oleg L. Figovsky
Pursuant to three Technology Purchase Agreements each dated January 1,
1998, the Company has acquired from Oleg L. Figovsky, Ph.D. (who is a consultant
to the Company) all right, title and interest in and to the following three,
unpatented, technologies developed by him, inclusive of future improvements
thereto: (i) a group of related technologies collectively known as
"Interpenetrated Network Polymers" ("INPs"), (ii) "Liquid Ebonite Material"
("LEM") and (iii) "Rubber Concrete" ("RubCon") for purchase prices of $75,000,
$15,000 and $35,000, respectively (each, a "Purchase Price"). Pursuant to each
such Technology Purchase Agreement, during the 15-year period commencing on
January 1, 1998, the Company is also obligated to pay to Prof. Figovsky
royalties equal to 49% of the Company's net revenues from the sales or licensing
of any products incorporating the applicable technology, subject to the
Company's right to deduct from the first royalties otherwise payable under each
agreement an aggregate sum equal to the Purchase Price paid thereunder. The
Company has prepared patent applications for these technologies and plans to
file the same during the second quarter of 1998 in the U.S., Canada, China,
Korea, Russia, Ukraine, Germany, Japan and the countries of the European Patent
Agreement.
The Company believes that two of these technologies, RubCon and LEM, are
ready for commercialization, and has included them in the Principle Technologies
which the Company intends to be the focus of its marketing and sales program.
RubCon is a rubberized concrete which the Company believes is superior to
presently available similar concretes and to conventional cement-based concretes
for applications in, among other things, the manufacture of industrial
floorings, equipment operating in aggressive chemical media, building
foundations, concrete pipes and outdoor structures. LEM is a synthetic, liquid
<PAGE>
rubber having enhanced mechanical, permeability and anti-corrosive qualities,
that the Company believes can be applied successfully as a protective covering
for such objects as small-diameter piping, and the intricate parts of pumps,
fans and centrifuge rotors. See "Business - Principal Technologies."
The INP technology consists of a related group of technological processes
to produce a variety of polymeric compounds, including polyurethanes, that is
based on modifying the molecular structure of olygomeric cyclocarbonates. The
INP constituent technologies presently are in their respective research and
development phases. No assurance can be given that any INP constituents will be
successfully developed or, if developed, will result in commercially saleable or
profitable products or processes.
PRINCIPAL TECHNOLOGIES
Silicon-Organic (EKOR) Compound. Pursuant to agreements variously among
the Company, "Ukrstroj" (the Ukrainian State Construction Company), ChNPP,
Kurchatov and EAPS, the Company has provided financing for and has successfully
completed demonstration testing of its proprietary silicon-organic (EKOR)
compound technology for the purpose of remediating the severe radioactive
contamination problems that persist from the 1986 explosion of ChNPP Reactor 4,
in Chernobyl, Ukraine. In September, 1997, pursuant to a joint-bidding agreement
between the Company and Duke Engineering & Services, Inc. ("DES"), a business
unit of Duke Power Company (the "Company-DES Agreement"), the Company and DES
submitted to the European Bank of Reconstruction and Development a letter of
intent to bid in "Early Biddable (Study) Projects for the Chernobyl Unit 4
Shelter Implementation Plan." The Company believes its EKOR compound technology
is the most effective existing technology and material for containing and
facilitating the disposal of radioactive dust and waste materials.
The Company's silicon-organic (EKOR) compound technology was jointly
developed by scientists at the I.V. Kurchatov Institute ("Kurchatov") in Moscow
and the Euro-Asian Physical Society ("EAPS") for the conservation and
containment of ecologically hazardous radioactive materials. The EKOR compound
is based on radiation-resistant compounds produced from silicon-organic
elastomers. Kurchatov is a pre-eminent physics and scientific research
institute, which in the former Soviet Union enjoyed a position of prestige,
sophistication and importance roughly equivalent to that of the
Lawrence-Livermore National Laboratory in the United States. EAPS is a
professional society of over 5,000 scientists, physicists, and engineers in the
former Soviet Union. Until August 1, 2014, the Company is the exclusive licensee
of all right, title and interest (inclusive of all patent and other intellectual
property rights) in and to the EKOR technology in Canada, China, Japan, the
Republic of Korea, the United States of America, Ukraine, and all member
countries of the European Patent Agreement. See "Certain Transactions -
Silicon-Organic (EKOR) Compound."
In testing conducted at Kurchatov, the EKOR compound has been shown to be
highly resistant to radiation and structural degradation from exposure to
radiation, highly fire-resistant, water-proof, and capable of being formulated
in densities that display considerable structural strength and weight-bearing
properties (based on testing to date) of 100 lbs. per square inch. In
high-dosage radiation tests the EKOR compound has met or exceeded all
specifications for containment materials developed by the Chernobyl authorities.
The Company believes that the EKOR compound is the most technologically advanced
material for comprehensively containing both solid and liquid radioactive
materials, suppressing radioactive dust and preventing such materials and dust
from escaping into the atmosphere and from leaching into and contaminating
ground-water supplies. On November 28, 1997, the Ministry of Health of the
Russian Federation certified EKOR and its components as non-toxic, thereby
allowing for EKOR's production, delivery, sale and use in the Russian
Federation.
As a silicon-based elastomer, the EKOR compound has adhesive properties
that allow it to stick to a wide variety of surfaces and materials. When
applied, the EKOR compound surrounds and "glues down" nuclear debris ranging
from fine dust to broken fuel rods, and in combination with its fire-resistant
and waterproof properties, prevents such debris from migrating by water or as
air-borne particles. The EKOR compound can be applied by a number of methods,
but most generally will be sprayed onto contaminated areas using a hose and
nozzle arrangement. The foaming rate and "curing" time for the EKOR compound can
be varied, thereby allowing it to penetrate cracks and crevices before curing,
and providing a seal against the transport of radioactive particles and
water-soluble radionuclides. The application of the EKOR compound to nuclear
accident sites would constitute an interim containment measure, pending the
removal and permanent storage or other disposal of the radioactive contaminants.
<PAGE>
The Company expects that one of the first commercial uses of its EKOR
compound technology will be to contain and stabilize the extensive radioactive
debris and dust that continues to accumulate and contaminate the environment at
ChNPP Reactor 4, the site of a disastrous explosion and near-reactor core
meltdown in 1986, and to help structurally support the concrete and steel
"sarcophagus" that was built over Reactor 4 as an interim containment measure.
The rapid deterioration of the "sarcophagus," caused by the intense radiation
persisting at Reactor 4, has occasioned international concern that without the
implementation of effective site containment measures, a second nuclear disaster
and possible melt-down may occur. To this end, the G-7 group of industrialized
nations (the United States, United Kingdom, Italy, France, Canada, Japan and
Germany) has pledged up to U.S. $3.1 billion to assist in a multi-step project
of remediating and closing the plant, with approximately U.S. $300 million
budgeted for the project's first containment and site stabilization phase.
Pursuant to an agreement with Kurchatov Research Holdings, Ltd. ("KRH"), a
Delaware corporation jointly owned by ERBC Holdings, Limited, a British Virgin
Islands corporation ("ERBC"), and CIS Development, Inc., a Delaware corporation
("CIS"), 50% of the net profits derived from the sale or licensing of the EKOR
compound will be retained by the Company, and 50% will be remitted to KRH. Peter
Gulko, formerly a director of and presently the President, Secretary and
Principal Financial Officer of the Company, is the sole owner of CIS. The KRH
shares owned of record by CIS are being held for the benefit of EAPS which, in
turn, is acting as representative of individual scientists, researchers and
academics who are affiliated with Kurchatov and EAPS. One present employee and
one former business representative of ERBC are beneficial owners of shares of
the Company's Common Stock, and Kurt Seifman, the chief executive officer and
sole shareholder of ERBC, is the beneficial owner of 6.9% of the Company's
outstanding Common Stock. From June 1997 until February 13, 1998, Dr. Randolph
Graves (who served as a director, chairman and Chief Executive Officer of the
Company until January 23, 1998) served as a director and secretary of KRH.
During the period June 1997 through January 23, 1998, the Company did not enter
into any material agreements or commitments with KRH. See "Principal and Selling
Shareholders," "Certain Transactions" and "Risk Factors - Conflicts of
Interest."
Based on the properties demonstrated by the EKOR compound, ChNPP (an
industrial amalgamation of the State Committee of Ukraine on Atomic Energy),
Kurchatov, the Ukrainian State Construction Company ("Ukrstroj") and the Company
entered into a Memorandum of Intent (the "Chernobyl Memorandum of Intent") which
acknowledged the successful completion of the laboratory development of EKOR
compound for the purpose of its application to the radioactive contamination
remediation of ChNPP Reactor 4, and pursuant to which the Company, "Ukrstroj"
and EAPS entered into a co-operation Agreement whereby the Company has provided
financing for demonstrating the technical and mechanical feasibility of applying
the EKOR compound for ChNPP Reactor 4 remediation. In furtherance of the
foregoing, Ukrstroj and ChNPP entered into an agreement (the "Ukrstroj-ChNPP
Agreement") to conduct such demonstration testing of the EKOR compound as is
necessary to ascertain the specification requirements for its application to the
containment of ChNPP Reactor 4. The Ukrstroj-ChNPP Agreement also provides for
the Company's participation in and financing of the EKOR demonstration test.
On April 24, 1997, the demonstration of the equipment for synthesizing and
applying the EKOR compound was successfully conducted for officials of ChNPP and
Ukrstroj at the Sverdlosk Chimmash manufacturing facility in Ekaterinburg,
Russia. Following this successful demonstration, the Company, the management of
the ChNPP Reactor 4 Shelter Project, Ukrstroj and EAPS entered into a Joint
Working Group Agreement for the purpose of preparing the industrial-scale
equipment, machinery and other items that would be required to apply the EKOR
compound at ChNPP Reactor 4, if as and when the EKOR compound is ultimately
selected for that remediation project. Such activities are presently expected to
occur during the second quarter of 1998. In connection therewith, and at the
request of ChNPP, the Company presently is constructing industrial scale
machinery for application of the EKOR compound at ChNPP Reactor 4, based on the
application machinery successfully demonstrated on April 24, 1997. Financing
therefor is being provided by KRH. Although the Company expects such time-frames
will substantially be met, no assurance can be given that implementation of the
EKOR application machinery at ChNPP Reactor 4 will not experience delays, and
that if delays occur, the EKOR application machinery will be completed at the
time presently contemplated. The occurrence of substantial delays will adversely
affect the Company's generation of near-term revenues.
Coordination and management of the formal selection of contractors and
technologies for studies relating to the ChNPP Reactor 4 remediation project has
been delegated to the European Bank of Reconstruction and Development ("EBRD")
on the basis of submitted bids, to be passed on by EBRD and ChNPP. It is
presently expected that EBRD, through G-7 funds, will provide the financing for
the actual remediation project. Additionally, ChNPP is authorized to initiate
further, independent studies. In September 1997 DES on its and the Company's
behalf, submitted to EBRD and ChNPP a letter of intent to bid on the ChNPP
Reactor 4 remediation project. Although no assurance can be given, based
<PAGE>
on the Chernobyl Memorandum of Intent, the Ukrstroj - ChNPP Agreement, the
Co-operation Agreement, the Joint Working Group Agreement, the results of the
April 24, 1997 EKOR application demonstration test, and ChNPP's role in the
Reactor 4 remediation selection process, the Company believes that the EKOR
compound will be selected for the ChNPP Reactor 4 remediation project and that
the Company will be selected as the contract vendor of EKOR for that purpose.
In addition to remediation of ChNPP Reactor 4, the Company's near- and
mid-term commercialization and marketing efforts relative to the EKOR compound
principally are directed at nuclear waste remediation projects in the U.S.
Separately from its contemplated ChNPP bid, the Company-DES Agreement provides
for joint bidding on U.S. nuclear waste transportation, containment, storage and
burial projects utilizing the EKOR compound technology. The Company also has
entered into an agreement with the Research Center Julich, a German governmental
research institution, providing for its assistance with certifying the EKOR
compound for use in Germany. Pursuant to the Company-DES Agreement, the Company
and DES have submitted a successful, first-round demonstration project bid on
the U.S. Department of Energy's ("DoE") reactor decommissioning technology
program at DoE's Hanford, Washington, reactor facility, utilizing the EKOR
compound. Additionally, joint Company-DES bids presently are being prepared for
other DoE demonstration projects. The Company is also in the process of
identifying potential licensees of the EKOR technology, and has commenced
initial licensing discussions with a Japanese corporation. No assurance can be
given that the EKOR compound will be certified for use in Germany, that the
Hanford, Washington DoE demonstration will be successful or that if successful
it will result in a project contract being awarded to the Company, or that such
licensing discussions will successfully result in the execution of an EKOR
license.
In addition, further applications of the EKOR technology are being
reviewed for several sites in Russia: Chelyabinsk Mayak (a plutonium production
site), Kola (a disposal site for nuclear fuel from atomic-powered ships and
submarines) and Krasnoyarsk (a uranium mining and enrichment facility). To this
end, at nominal cost to it, the Company has provided EKOR documentation and
material samples to these sites, and has arranged for personnel from Kurchatov
and EAPS to be available to provide technical advice regarding pertinent
applications of the EKOR compound. To date, the Company has not entered into any
agreements pertaining to either the testing or application of the EKOR compound
at these sites.
Non-isocyanate Polyurethane ("NIPU"). NIPU was developed by Chemonol, Ltd.
("Chemonol"), an Israeli corporation which is one of the four Israeli Technology
companies in which the Company has invested. See "Business-Acquisition of
Israeli Technologies-Incubator Technologies." NIPU is a modified polyurethane
that does not contain the toxic isocyanates used in the production of
conventional polyurethane. NIPU has lower permeability and greater chemical
resistance qualities as compared to conventional polyurethane. The Company
believes that these advanced qualities of NIPU, which are based on hydrogen
bonds within NIPU's molecular structure, make NIPUs superior to conventional
polyurethanes in connection with their use in a number of industrial application
contexts such as manufacturing automotive bumpers, paints, plastics and truck
beds; airplane and rocket sealants, interior components and seating;
construction adhesives, coatings, flooring, glues and rooftops; industrial
equipment and machinery; and consumer goods such as appliances, footwear,
furniture and plastic products.
At the date hereof, the Company is the holder of 20% of Chemonol's common
equity, has an option to purchase an additional 31% of such common equity from
Chemonol's Principal Shareholder, and controls the right to vote the Principal
Shareholder's common equity. See "Business - Acquisition of Israeli Technologies
Incubator Technologies." There can be no assurance that the Company will
complete its investment in Chemonol (which, if completed would total $60,000),
or that such equity purchase option will be exercised, both of which will
principally depend upon the results of the Company's efforts to commercially
market and sell NIPU to industrial users.
Consistent with its general plan of operation, the Company intends to
market and sell NIPU through one or more license and/or joint venture agreements
with major chemical companies. In September 1997, the Company presented NIPU at
the World Congress on Polyurethanes (the "WCP"), in Amsterdam, Netherlands. As a
result of the expressions of interest shown at the WCP, the Company has recently
commenced initial discussions with several major international chemical
companies with a view towards negotiating one or more licenses and/or joint
venture agreements for the marketing and sale of NIPU. Such discussions are in
their initial stages, only, and no assurance can be given that all or any of
them will result in a NIPU license or joint venture agreement, or that such
license or agreement, if concluded, will be on terms favorable to the Company.
To date, the Company has incurred expenses of $30,000 in connection with
Chemonol, and through the end of fiscal year 1998 the Company presently expects
to incur an aggregate of $30,000 in additional such expenses. See "Management's
<PAGE>
Discussion and Analysis of Results of Operation and Financial Condition -
Liquidity and Capital Resources."
Liquid Ebonite Material ("LEM"). LEM is a synthetic liquid rubber with
enhanced mechanical, permeability and anti-corrosive qualities as compared to
conventional sheet rubber coverings. In laboratory testing, coverings made with
LEM have, as compared to conventional sheet rubber coverings, displayed greater
resistance to harsh chemicals such as acids, alkalis and benzene, and have been
successfully applied to intricate and complex surfaces such as sieve meshing.
Based on the physical and chemical properties of LEM, and on such tests, the
Company believes that LEM coverings are capable of providing superior protection
to small-diameter piping, and to the intricate parts of pumps, fans and
centrifuge rotors. LEM can be applied to form surface coverings using standard
coating techniques, including spraying and dipping.
LEM was independently developed by Oleg L. Figovsky, Ph.D., who is a
consultant to the Company, and was acquired by the Company pursuant to a
Technology Purchase Agreement dated January 1, 1998, for a purchase price of
$15,000, plus royalties equal to 49% of the Company's net revenues from sales or
licenses of any products incorporating LEM, payable for a period of 15 years
commencing on January 1, 1998. To date, the Company has not derived any such
revenues and does not expect to derive any such revenues until the third quarter
of 1998, at the earliest. See "Business - General - Acquisition of Israeli
Technologies - Technologies Acquired from Prof. Oleg L. Figovsky; "Risk Factors
- - Conflicts of Interest," "Management Consultants," and "Certain Transactions."
A major international chemical company has expressed interest in
potentially licensing LEM for production and world-wide distribution and sales.
At such company's request, the Company is preparing evaluation samples of LEM.
No assurance can be given that such chemical company or any chemical or other
company will determine that LEM is suitable or economically viable for its
business purposes or that any production/distribution license for LEM will be
negotiated or executed with that company. See "Business General," "Risk Factors
- - Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee
and Royalty Payments - No Assurance of Joint Venture Licenses, Further
Collaborative Agreements or Further Project Contracts - Uncertainty of Market
Acceptance," and "Management's Discussion and Analysis of Results of Operation
and Financial Condition - Plan of Operation."
To date, the Company has incurred $15,000 in expenses in connection with
the LEM acquisition. Through the end of fiscal year 1998, the Company expects to
incur an aggregate of approximately $25,000 in additional, LEM-related expenses,
of which approximately $15,000 is expected to be incurred in connection with
further research and development activities, and $10,000 is expected to be
incurred in connection with marketing and sales efforts.
RubCon. "RubCon" is a technologically advanced, polymer-based concrete
that utilizes polybutadiene (a polymer derived from liquid rubber) as a binding
material for the various aggregates that, together with binders, constitute
concrete. The fabrication of RubCon results in a rubberized concrete that in
laboratory testing has exhibited high degrees of compression, bending and
tensile strength, a high degree of water-resistance and a high degree of
resistance to aggressive, corrosive chemicals as compared to conventional
"cement" concrete. RubCon is applied in the same manner as conventional
concrete. The Company believes that RubCon has significant potential utility in
the manufacture of industrial flooring, equipment operating in aggressive
chemical media such as galvanic and electrolysis "baths," foundations, concrete
pipes and other underground structures, seismic reinforcement materials, and
outdoor structures such as bridges that are routinely exposed to harsh weather,
climatic and corrosive conditions.
RubCon was independently developed by Prof. Oleg L. Figovsky, and was
acquired by the Company pursuant to a Technology Purchase Agreement dated
January 1, 1998, for a purchase price of $35,000, plus royalties equal to 49% of
the Company's net revenues from sales or licenses of any products incorporating
LEM, payable for a period of 15 years commencing on January 1, 1998. To date,
the Company has not derived any such revenues and does not expect to derive any
such revenues until the third quarter of 1998, at the earliest. See "Business -
General - Acquisition of Israeli Technologies Technologies Acquired from Prof.
Oleg L. Figovsky," "Risk Factors - Conflicts of Interest," "Management
Consultants," and "Certain Transactions."
The Company has provided samples of RubCon to four major chemical
companies which have, variously, expressed interest in direct purchases of
RubCon and in licensing RubCon for production and commercial sale. These
chemical companies
<PAGE>
presently are evaluating RubCon. The Company currently anticipates that it will
enter into discussions with one or more of these companies with a view towards
negotiating product purchase and/or license agreements, as the case may be. No
assurance can be given that any of those or other chemical or other companies
will determine that RubCon is suitable or economically viable for its business
purposes, that the Company will enter into discussions or negotiations with any
of those companies, or that, if entered into, they will result in product
purchases or license agreements. See "Business General," "Risk Factors -
Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee and
Royalty Payments - No Assurance of Joint Venture Licenses, Further Collaborative
Agreements or Further Project Contracts - Uncertainty of Market Acceptance," and
"Management's Discussion and Analysis of Results of Operation and Financial
Condition - Plan of Operation."
To date, the Company has incurred $35,000 in expenses in connection with
the RubCon acquisition, $5,000 in connection with RubCon research and
development activities and $3,000 in marketing and sales activities related to
RubCon. Through the end of fiscal year 1998, the Company expects to incur an
aggregate of approximately $35,000 in additional, RubCon-related expenses,
principally in connection with marketing and sales efforts.
OTHER TECHNOLOGIES
In addition to the foregoing Principal Technologies, with respect to which
the Company has commenced initial marketing and sales efforts, the Company also
is engaged in the continuing research and development of other technologies it
believes to be of potential, future commercial significance.
Electromagnetic Separation Technology. The Company is participating in the
further research and development of a process to electromagnetically separate
high temperature superconducting ("HTSC") metal powders, that has been developed
by Separator, Ltd. ("Separator"), an Israeli corporation, which is one of the
four Israeli Technology Companies in which the Company has invested. At the date
hereof the Company is the holder of 20% of Separator's common equity, has an
option to purchase an additional 31% of such common equity from Separator's
Principal Shareholders, and controls the voting rights with respect to the
Principal Shareholders' common equity. See "Business - General - Acquisition of
Israeli Technologies Incubator Technologies." The electromagnetic separation
("EMS") of HTSC powdered metals is based on the interaction of HTSC particles
with alternating magnetic fields at temperatures approaching the level required
for "HTSC transition," i.e., the point at which a substance becomes
superconducting. The research and testing data provided by Separator indicate
that the EMS technology allows for the extraction of powdered metal particles
having optimal electrophysical qualities, and in the production of HTSC metallic
powders with a critical electrical current that exceeds those of HTSC powders
produced using conventional technologies. Based on demonstration testing
conducted by Separator, the Company believes that the EMS process for HTSC
metallic powder can be used with a variety of powdered metals, and can be
configured either as a small bench testing device for laboratory applications at
universities and research and development companies, or as an industrial-scale
device with the capacity to produce up to 8 kilograms per hour of HTSC powdered
metal. The Company believes that the EMS technology can be commercially applied
in the production of underground electric transmission cables, transformers,
electric power system control and protection systems, motors, generators,
magnetic resonance imaging equipment and cellular telephone base stations.
To date, the Company has invested $30,000 in Separator, and pursuant to
its agreement with the Incubator for Technological Entrepreneurship - Kiryat
Weizmann, Ltd., an Israeli technology incubator, and the individual originators
of the EMS technology, the Company expects to invest an additional $30,000
during 1998. Assuming the completion of the contemplated $60,000 investment, if
the Company exercises its equity purchase option, the Company will own 51% of
Separator's voting equity. Although the Company presently intends to complete
the $60,000 investment in Separator and expects to exercise its equity purchase
option, there can be no assurance that the investment will be completed or that
the equity purchase option will be exercised, both of which will principally
depend upon the results of further research and development activities and later
expressions of commercial interest, if any, in the EMS technology.
Powdered Metallurgy Technology. The Company is participating in the
further research and development of a process developed by Remptech, Ltd.
("Remptech") an Israeli corporation, to produce extra fine cobalt and nickel
powders by recycling materials containing cobalt and nickel. Remptech is one of
the four Israeli Technology Companies in which the Company has invested. At the
date hereof the Company is the holder of 20% of Remptech's common equity, has
options to purchase the 20% common equity interest in Remptech held by the Ofek
Le-Oleh Foundation ("Ofek"), an Israeli technology incubator that is partially
<PAGE>
sponsoring Remptech's research and development activities, and an additional 31%
of such common equity from Remptech's Principal Shareholders, and controls the
right to vote with respect to the Principal Shareholders' common equity. See
"Business - Acquisition of Israeli Technologies - Incubator Technologies."
Powdered metallurgy is generally acknowledged as being capable of yielding
product with superior structural, physical and mechanical properties. The
Company believes that the powdered metallurgy process developed by Remptech is
technologically advanced and, based on Remptech's research and testing data, is
capable of producing cobalt and nickel powders of very high purity and very
small grain size. The powdered metallurgy technology is based on recycling
cobalt and nickel-containing materials using internal hydrogen in composition
with cobalt and nickel fluoride salts. Remptech data presently indicates that
the resulting cobalt and nickel powders have a purity of 99.8% and a grain size
of 1-2 microcentimeters. The Company believes that such purities and grain sizes
are significant factors in the manufacture of materials of high quality and
internal physical integrity from powdered cobalt and nickel. Cobalt and nickel
are among the three naturally occurring elements that display magnetic
properties at room temperature and are widely used in metal alloys. Powdered
cobalt and nickel are used in a wide variety of industrial applications,
including magnetic, electrical and electronic materials and products.
To date, the Company has invested $21,000 in Remptech and pursuant to its
agreement with Ofek and the individual originators of the Powdered Metallurgy
technology, the Company expects to invest an additional $39,000 during 1998.
Assuming completion of the contemplated $60,000 investment, if the Company
exercises its equity purchase options, the Company will own 71% of Remptech's
voting equity. Although the Company presently intends to complete the $60,000
investment in Remptech and expects to exercise its equity purchase options,
there can be no assurance that the investment will be completed or that either
of the equity purchase options will be exercised, each of which will principally
depend upon the results of further research and development activities and later
expressions of commercial interest, if any, in the Powdered Metallurgy
technology.
Continuous Combustion Synthesis Technology. The Company also is
participating in the further research and development of a process for the
continuous combustion synthesis ("CCS") of ceramic, composite and intermetallic
powders, including titanium carbide powder, developed by Comsyntech, Ltd.,
("Comsyntech"), an Israeli corporation which is one of the four Israeli
Technology Companies in which the Company has invested. At the date hereof the
Company is the holder of 20% of Comsyntech's common equity, has options to
purchase the 20% common equity interest in Comsyntech held by Ofek, which is
partially sponsoring Comsyntech's research and development activities, and an
additional 31% of such common equity from Comsyntech's Principle Shareholders,
and controls the right to vote with respect to the Principal Shareholders'
common equity. See "Business - Acquisition of Israeli Technologies - Incubator
Technologies." CCS is a newly devised process for the production of ceramic,
composite and intermetallic powders based on utilizing the internal chemical
energy of initial reactants, performed in a continuous action reactor, a device
being developed by Comsyntech.
Presently, ceramic, composite and intermetallic powders generally are
manufactured with the use of electrical and melting furnaces, high-temperature
sprayers and crushing and grinding equipment, in closed reactors which entails a
cyclical manufacturing process of loading, synthesis, cooling and unloading. The
Company believes that the CCS technology using the Comsyntech continuous reactor
potentially offers competitive advantages (such as increased productivity and
lower production costs) over conventional technology.
Comsyntech research and testing data indicate that materials produced with
the CCS technology have exhibited superior high-thermomechanical properties such
as high strength, thermo and wear resistance and good corrosion stability. Based
on these properties, the Company believes that the CCS technology is of
potentially significant utility in producing ceramic, composite and
intermetallic powders with potential commercial application in the production of
metal-cutting tools and abrasives; metal alloys; aircraft and automotive
combustor, nozzle and turbine parts; piezo- and ferro-electric materials; and
surgical instruments.
To date, the Company has invested $21,000 in Comsyntech and pursuant to
its agreement with Ofek and the individual originators of the CCS technology,
expects to invest an additional $39,000 during 1998. Assuming completion of the
contemplated $60,000 investment, if the Company exercises its equity purchase
options, the Company will own 71% of Comsyntech's voting equity. The Company
presently intends to complete the $60,000 investment in Comsyntech and expects
to exercise its equity purchase option. However, there can be no assurance that
the investment will be completed or that the equity purchase option will be
exercised, both of which will principally depend upon the results of further
research and development activities and later expressions of commercial
interest, if any, in the powdered metallurgy technology.
<PAGE>
Silicon-Carbide "Wafer" Technology. The Company is participating in the
development of a silicon carbide "wafer" technology in conjunction with
Kurchatov and EAPS. To date, the Company has provided approximately $40,000 in
financing to Kurchatov in connection with this technology, and while the Company
is not obligated to provide any further financing, it presently expects to
provide approximately $10,000 in additional financing during fiscal year 1998.
Although no assurance can be given, the Company presently expects that upon the
successful completion of its development, all intellectual property, marketing
and sales rights in and to the silicon carbide "wafer" technology will be
assigned to the Company. While there is no assurance that such technology will
be successfully developed, based on reports from Kurchatov the Company believes
the silicon carbide technology will permit the production of defect-free,
radiation-resistant "wafers" (from which integrated circuit chips are
fabricated) that will be approximately twice the size of those currently
available. The Company expects that integrated circuit chips fabricated from its
silicon carbide wafers will have particular application in high temperature
environments such as automobile and aircraft engine control systems, high power
environments such as automobile and aircraft engine control systems, high power
environments such as power control transistors, and environments subject to
ionizing radiation such as spacecraft.
Waste-to-Energy Technology. The Company's waste-to-energy technology is a
combination of "low-tech" mechanical technologies, "high-tech" combustion
controls, modern emissions abatement technology and effective operation
procedures configured into modules that produce steam energy from ordinary
municipal waste. The basic configuration was pioneered in 1980 by the U.S.
National Aeronautics and Space Administration ("NASA") and the city of Hampton,
Virginia, to provide steam power for NASA's Langley Research Center and the
Langley Air Force Base.
Steam energy produced by the waste-to-energy technology is clean,
efficient and environmentally "friendly". A typical modular unit burns 120 tons
of refuse per day and produces 33,000 pounds of steam per hour at 400 psi.
Pollutant levels are below present U.S. Environmental Protection Agency
minimums, and each modular unit reduces the volume of raw waste to ash at a
ratio of 10:1.
Through a consulting agreement with Hunter Taylor, the President of Power
Development Associates, Inc., the original designer of the NASA City of Hampton
facility, the Company has obtained the engineering and implementation know-how,
and has identified willing suppliers of component equipment for the
waste-to-energy technology, including Detroit Stoker Company, a leading
manufacturer of waste-to-energy stokers and a leading project management company
for the engineering and construction of waste-to-energy plants. Detroit Stoker
has informally agreed to act as the engineering project lead for the Company's
waste-to-energy projects, which the Company believes will enable it to
efficiently design and construct waste-to-energy plants customized to meet the
varying energy generation needs of disparate municipalities. Mr. Taylor will be
compensated on a per diem consulting fee basis, which presently is being
negotiated. Based on those discussions, the Company expects that Mr. Taylor's
consulting fees will be approximately $1,000 per day. Detroit Stoker will be
compensated on the basis of phased, project engineering fees which, based on its
fees for similar projects, are expected to approximate $50,000 per
waste-to-energy plant.
The Company had intended to first introduce its waste-to-energy technology
in the city of Cherkassy, Ukraine, where the National Government had selected
this technology as the national standard for waste-to-energy facilities, and
approved the construction of ten such facilities using the waste-to-energy
technology. The Company has entered into a technology transfer and consulting
agreement with Eurowaste Management, Ltd., a Delaware corporation ("EuroWaste")
under which Eurowaste will pay the Company a U.S. $2.4 million technology
transfer fee prior to the construction of the first waste-to-energy plant, and a
design and implementation consulting fee of U.S. $425,000 for each subsequent
plant. A shareholder of the Company is the chairman, Chief Executive Officer and
a shareholder of Eurowaste. See "Management," "Risk Factors - Conflicts of
Interest," and "Certain Transactions." The initial, Cherkassy waste-to-energy
facility will take approximately thirteen months to construct. Its operational,
energy output is expected to be approximately seven megawatts per day, based on
an assumed consumption of approximately 240 tons of municipal waste per day.
Although the necessary Ukrainian governmental approvals for the Cherkassy
waste-to-energy facility have been obtained, including local site allocation and
construction approvals and a large fertilizer production enterprise, "AZOZ", in
Cherkassy has agreed to purchase the entire output of the Cherkassy
waste-to-energy facility at rates of U.S. $.04-$.06 per kilowatt hour, neither
the Ukrainian government, the city of Cherkassy nor Eurowaste has obtained
construction or other financing for the proposed Cherkassy waste-to-energy
facility. The Company is not obligated to finance or arrange for the financing
of the
<PAGE>
Cherkassy facility. However, the Company has paid the $15,000 cost of a
financial feasibility study for the proposed Cherkassy waste-to-energy facility,
which in November, 1997 was submitted by "Ukrstroj", the Ukrainian State
Construction company, to an Austrian financial institution as part of an
application for construction financing. There is no assurance that the necessary
financing will be obtained or that, if obtained, it will be on terms favorable
to the venture. Neither is there any assurance that the Ukrainian government
will not abandon its support of the proposed Cherkassy waste-to-energy
facilities in Ukraine. In the absence of such governmental support the
construction of any waste-to-energy facilities utilizing the Company's
technology cannot be expected to occur. See "Risk Factors -- Risks Relating to
the Russian Federation and Ukraine."
The Company has reduced its level of activity in connection with the
proposed introduction of its waste-to-energy technology in Ukraine, due to the
present lack of adequate project funding among the project co-venturers and the
Company's belief that the commencement of marketing and sales activities in
connection with the Principal Technologies is more likely to result in the
near-to-mid-term generation of revenues than is the existing, Ukrainian
waste-to-energy venture.
Automated Parking Garages. Automated parking technology consisting of
computer-controlled, rotating carousels which can be configured to contain
varying numbers of automobile parking spaces, substantially reduces the
economically unproductive space devoted to ramps and maneuvering areas in
traditional, multi-story parking garages, and through the use of elevators and
multi-level "stacking" of the carousels, permits the erection of high-capacity
garages on parcels of land otherwise too small for such use. Essentially,
automobiles are raised by elevators to computer-controlled carousels which
rotate the vehicles to their respective parking slots. The Company believes that
its automated parking technology is particularly useful in congested urban areas
and in cities where available land for parking is scarce.
The Company contemplates that the automated parking technology will be
introduced in Moscow, Russia. Since the collapse of the former Soviet Union and
the subsequently increased pace of political and economic reforms, Moscow has
experienced a substantial increase in automobile ownership and traffic
congestion. Additionally, there is a relative scarcity of existing parking
spaces and construction sites of a size suitable for traditionally designed
parking garage facilities in Moscow. The municipal government of Moscow has
allocated a suitable construction site for the contemplated automated parking
facility, to be located at Arbat 8-10. Arbat is one of the City of Moscow's
principal commercial districts.
The Moscow automated parking garage will be developed by and if completed
will be, owned and operated by "Cinema World on Arbat," a Russian joint stock
company, the equity of which is owned 50% by Arbat American Autopark, Ltd., a
Delaware corporation ("Arbat American"), 45% by "Soyuz Agat Fil," a Russian
company to which the Moscow municipal government has allocated the construction
site and which holds the necessary construction approvals and permits, and 5% by
a privately owned Russian affiliate of "Mosinterstroi". "Mosinterstroi" is a
quasi-governmental entity of the City of Moscow. 40% of the equity of Arbat
American is owned by ERBC. One present employee and one former business
representative of ERBC are beneficial owners of shares of the Company's Common
Stock, and the chief executive officer and sole shareholder of ERBC is the
beneficial owner of 6.9% of the Company's outstanding Common Stock. A
shareholder and former director of the Company is the president and a
shareholder, of Arbat American.
The Company has identified automated parking garage equipment, plant,
specifications and engineering documentation, adaptable to the multiple
applications required for garage sites in Moscow, for use by Arbat American.
Arbat American will purchase such equipment, plant, specifications and
documentation from MEPA - Sachisische Parksystemme GmbH, a Germany company.
Pursuant to a technology agreement entered into with Arbat American, the
Company has been paid a one-time fee of U.S. $225,000 in respect of the Arbat
parking garage ($1,250 for each parking space to be contained in the automated
parking facility), which constitutes the Company's sole compensation in respect
of that facility. That agreement also provides for the payment to the Company of
a one-time fee of U.S. $1,250 for each parking space to be contained in any
garage facilities that in the future are developed, owned and/or operated by
Arbat American and use the automated parking technology. Presently, the Company
is not aware of any plans of Arbat American for any further such parking
garages.
The Company has been advised that Arbat American has, to date, not
obtained project financing for the proposed Arbat facility, and that Arbat
Americn could for that reason be declared in default of its obligations under
its agreements with the Municipal
<PAGE>
Government of Moscow. If Arbat is declared to be default, its ability to
commence the project, and any other similar project in Moscow, could be
jeopardized. See "Risk Factors Conflicts of Interest," Principal and Selling
Shareholders," "Certain Transactions," and "Risk Factors - No Assurance of Joint
Venture Licenses, Further Collaborative Agreements or Further Project
Contracts."
Re-sealable Containers. Pursuant to a sublicense (the "Re-sealable
Container Sublicense") entered into in December 1997, the Company has acquired
from ERBC an exclusive, worldwide and perpetual license to commercialize, use,
exploit and market two mechanical systems (the "Re-sealable Container Systems")
for re-sealing soft-drink (and other similarly confirgured) beverage cans, and
cardboard "TetraPak" beverage containers. "TetraPak" containers are four-sided,
pyramidical beverage containers widely used in Europe, made of packaging
material similar to milk "cartons" familiar to the U.S. market. The "TetraPak"
re-sealing system attaches to and re-seals opened containers by creating an
air-pocket between the containers outer surface and the re-sealing device. The
beverage can re-sealing device is designed to attach to the top of the beverage
can and provides a manually operated metal flap that, when rotated into position
over the opening in the can, creates a leak-proof, gas-tight seal.
The Re-sealable Container Systems are each designed to integrate with the
"TetraPak" container or beverage can top, as the case may be, and permit
re-sealing without deforming the container's shape or diminishing its volume
capacity. The Company believes that the Re-sealable Container Systems more
effectively preserve the freshness and hygiene of the contents of opened
beverage cans and "TetraPak" containers, and (in the case of the beverage can
re-sealing system) more effectively prevents leakage and loss of carbonation,
than presently available re-sealing devices. The Company further believes that
the Re-sealable Container Systems have a variety of potential applications that
include carbonated and non-carbonated beverages, canned infant formula, canned
motor oil, and dry package contents such as breakfast cereals, coffee, flour and
sugar.
ERBC acquired an exclusive, worldwide and perpetual license to the
Re-sealable Container Systems pursuant to a license agreement, dated March 20,
1997, with Cetoni Unwelttechnologie-Emwik Lungs GmbH ("Cetoni"), a German
company that developed and held all right, title and interest in and to those
systems, in consideration of ERBC's payment to Cetoni of U.S. $495,000 plus 50%
of all royalties received by ERBC from sales of products and devices embodying
or otherwise using Re-sealable Container Systems. Under the Re-sealable
Container Sublicense the Company paid ERBC U.S. $495,000 in consideration of the
sub-license granted thereunder, and is obligated to pay to Cetoni 50% of all
royalties received by the Company from sales of such products and devices. ERBC
will not receive from the Company any portion of such royalties.
ERBC is the beneficial owner of 255,000 shares of the Company's Common
Stock, all of which shares have been registered and are being offered by this
Prospectus. The chief executive officer and sole shareholder of ERBC is the
beneficial owner of 6.9% of the Company's Common Stock, and one present employee
and one former business representative of ERBC are beneficial owners of shares
of the Company's Common Stock. See "Principal and Selling Shareholders," "Risk
Factors -- Conflicts of Interest" and "Certain Transactions."
Other technologies, including the "CORO" telephone technology (see note
9(d) to Financial Statements) are presently being evaluated by the Company.
Pending the results of those evaluations, the Company has no current plans to
develop or commercialize those technologies.
The Company is not a subsidiary of another corporation, entity or other
person. The Company does not have any subsidiaries.
EMPLOYEES
The Company has five full-time employees and four part-time employees.
None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its employee relations to be satisfactory and
has not experienced any labor problems.
<PAGE>
EXECUTIVE OFFICE
The Company's headquarters are located at 1101 30th Street, N.W., Suite
500, Washington, D.C. 20007 pursuant to a lease commencing March 1, 1998, and
ending August 31, 1998, for which the Company pays monthly rent of $3,350. The
Company believes that its current facilities are sufficient to meet its
requirements.
The Company also occupies office space at the premises of Technion
Entrepreneurial Incubator, Ltd., in Haifa, Israel, on a month-to-month tenancy
basis. The Company expects to commence rental payments for such Israeli office
in March, 1997 at the rate of $300 per month. Such office will be utilized by
the Company for its contemplated, Israeli technology development and marketing
activities. See, "Business -- General."
LITIGATION
In December 1997, Raymond Dirks, Jessy Dirks, Robert Brisotti and David
Morris filed an action in the Supreme Court for the State of New York, County of
New York, against Eurotech Ltd. for breach of contract, seeking injunctive
relief, specific performance and monetary damages of nearly $5 million (the
"Dirks Litigation"). The Dirks Litigation arises solely from an agreement
between Eurotech and National Securities Corporation ("National") relating to
financial advisory services to be performed by National Securities Corporation,
a broker/dealer with which the plaintiffs were affiliated and of which Raymond
Dirks Research was a division. Eurotech granted National a warrant certificate
for 470,000 shares at $1.00 per share (as adjusted to reflect the June 1, 1996,
four-to-one forward split of the Company's Common Stock) as a retainer for
general financial advisory services. In conjunction with the separation of the
plaintiffs and Raymond Dirks Research from National Securities Corporation,
National assigned a significant portion of the warrant certificate to the
plaintiffs. It is Eurotech's position that the warrant certificate is voidable.
The plaintiffs allege among other things that they are entitled to damages
composed of both the value of the stock on the date of their purported exercise
of an alleged assignment of the warrant certificate, and the decrease in value
of the price of the stock since the date of their purported exercise. Eurotech
believes that the plaintiffs have significantly overstated their monetary damage
claim and that, having sought monetary damages, the plaintiffs are not entitled
to any type of equitable relief.
Process was served upon Eurotech at its California office in late January
1998. Eurotech believes that the plaintiffs' claims will be resolved favorably
to the Company. However, it is possible that the Company will be adjudged liable
in the Dirks Litigation, and if so, the resolution of the litigation could have
a material adverse effect on the Company.
<PAGE>
MARKET PRICE OF COMMON STOCK
Trading Market
The Company's Common Stock trades on the NASD Electronic Bulletin Board
market.
Principal Market-Makers
Following are the principal market-makers in the Company's Common Stock:
Cantor Fitzgerald Securities, Grady & Hatch, Olson & Company, Sherwood
Securities, Fahnstock & Co., Paragon Capital Corporation, and Nash Weiss & Co.
Number of Shareholders of Record
The following table sets forth the approximate number of holders of record
of the Company's Common Stock at the end (December 31) of fiscal years 1996 and
1997. The Common Stock is the only class of the Company's equity securities
share of which are outstanding.
-------------------------------------------------------------
Title of Class Number of Record Holders
-----------------------------------
as of December 31, 1996 as of February 28, 1998
-------------------------------------------------------------
Common Stock 59 148
Dividends. To date the Company has not declared or paid dividends on its Common
Stock. The Company presently plans to retain earnings, if any, for use in its
business.
Market Price. The following table set forth the quarterly high and low closing
bid and closing asked prices (in U.S. dollars) or the Company's Common Stock,
since July 25, 1995:
CLOSING BID CLOSING ASKED
1995 HIGH LOW HIGH LOW
---- ---------------------------------------------------
JULY 25
(First Available)
THRU .718 .531 .781 .593
SEPT. 29
OCT. 2
THRU 1.000 .562 1.125 .75
DEC. 29
1996
----
JAN. 2
THRU
MAR. 29 1.343 1.000 1.467 1.125
(Excluding Jan. 8)
APR. 1
THRU 2.312 .625 2.406 .75
JUNE 21
JUNE 24
THRU 2.625 2.000 2.875 2.375
JUNE 28
<PAGE>
JULY 1
THRU 2.500 1.325 2.625 1.40625
SEPT. 30
OCT. 1
THRU 10.000 1.9375 10.250 2.0625
DEC. 31
1997
----
JAN. 2
THRU 12.25 5.625 12.500 6.000
MAR. 31
APR. 1
THRU 9.625 4.000 9.750 4.250
JUNE 30
JULY 1
THRU 6.875 5.000 7.125 5.1875
SEPT. 30
OCT. 1
THRU 5.4375 1.875 5.5625 1.9375
DEC. 31
1998
----
JAN. 2
THRU 3.3125 2.000 3.375 2.1875
MAR. 16
The foregoing data represents prices between dealers and does not include
retail mark-ups, mark-downs or commissions, nor does such data represent actual
transactions or adjustments for stock-splits or dividends.
Source: National Quotation Bureau, LLC
<PAGE>
MANAGEMENT
Executive Officers and Directors
Name Age Position with the Company
---- --- -------------------------
James D. Watkins 70 Director and Chairman
Maxwell Rabb 87 Director
Peter Gulko 48 President, Secretary and Principal
Financial Officer
Lawrence McQuade 70 Director
James D. Watkins is a retired Admiral of the U.S. Navy, and has served as
Director and Chairman of the Board of the Company since January 1998. Admiral
Watkins has also served the Company as a technology consultant since October,
1996. Since 1993, Admiral Watkins has served as the President of the Joint
Oceanographic Institutions, Inc., in Washington, D.C., and later, President,
Consortium for Oceanographic Research and Education (two non-profit consortia
that manage research projects). He is also a director of the International
Technology Corporation (IT Corp) and GTS-Duratek. From March 1989 until January
1993 Admiral Watkins served as the Secretary of the U.S. Department of Energy in
the administration of President Bush. Admiral Watkins was named Chief of Naval
Operations by President Regan in June, 1982. admiral Watkins is a 1949 graduate
of the U.S. Naval Academy, and received a Master's Degree in Mechanical
Engineering from the U.S. Naval Postgraduate School in 1958.
Maxwell Rabb has been a Director of the Company since January, 1998. Mr.
Rabb served as the U.S. Ambassador to Italy from 1981 to 1989, and has held many
U.S. government assignments. He is currently counsel to the law firm of Kramer,
Levin, Neftalis & Frankel. From 1953 to 1956, he served as Secretary of the
Cabinet of the President of the United States in the Eiseinhower Administration.
Since then, Ambassador Rabb has served every President in each administration
thereafter in various government posts, including: Chairman of the U.S.
Delegation to UNESCO in Paris (1959-1960); U.S. Representative to the World Bank
and Member of the Conciliation Panel for the Settlement of International
Disputes (1967-1973); and the Panel for Relief Assistance for India, Pakistan
and Bangladesh. From 1937 to 1943, Ambassador Rabb served as Administrative
Assistant to U.S. Senator Henry Cabot Lodge and to U.S. Senator Sinclair Weeks
in 1944, prior to entering the Navy during World War II. In 1946, he became
legal and legislative counsel to Secretary of the Navy, Honorable James
Forestal, and a consultant to the U.S. Senate Rules Committee in 1952. In 1989,
Ambassador Rabb was awarded the Grand Cross of the Order of Merit of the Knights
of Malta in Rome. He received an LLB from Harvard Law School.
Lawrence C. McQuade has served as Director of the Company since January
1998. In 1997, Mr. McQuade was a founding partner of River Capital International
and continues as one of two partners engaged in the creation and execution of
all phases of River Capital International's financial services business,
primarily in Russia. Since 1995, Mr. McQuade has been the Chairman of Qualitas
International, a financial consulting business with business in Russia and South
America. From 1996 to 1997, Mr. McQuade was a director of Country Baskets Index
Fund. Mr. McQuade was a director of Applied Bioscience International from 1995
to 1996 and a director of the Czech & Slovak American Enterprise Fund from 1994
to 1996 serving as chairman of the board from 1995 to 1996. From 1988 to 1995,
Mr. McQuade was the Vice Chairman of Prudential Mutual Fund Management, Inc.,
where he was the President and a director of 39 mutual funds. Mr. McQuade served
as Assistant Secretary to the U.S. Department of Commerce under President Lyndon
Johnson. Mr. McQuade is a 1950 graduate of Yale University, received a B.A. and
an M.A. from Oxford University where he was a Rhodes Scholar and earned a law
degree at Harvard Law School.
Peter Gulko has been the President, Secretary and Principal Financial
Officer of the Company since February, 1998, and served as a Director of the
Company from its incorporation in May, 1995 until January, 1998. From May 1994
until February 1998 Mr. Gulko also acted as a business agent for ERBC,
particularly with respect to that company's activities in the former Soviet
Union. See "Risk Factors - Conflicts of Interest," and "Certain Transactions."
From 1995 Mr. Gulko has also been the President of CIS Development, Inc., a
consulting company of which he is the sole owner. From 1991 until 1994 Mr. Gulko
was the director of the Moscow, Russia, office of TMR, International, a
technology transfer company that specialized in oil refining. Mr. Gulko is a
1973 recipient of a Masters Degree in Civil Engineering from Novocherkassk
University in Russia.
KEY CONSULTANTS
Name Age
---- ---
Oleg L. Figovsky, Ph.D. 57
Richard A. Wall 56
<PAGE>
Oleg L. Figovsky, Ph.D. has served as a technology and business
development consultant to the Company since April, 1996. From 1993 Prof.
Figovsky has served as the General Manager of Polyadd, Ltd., an Israeli
corporation. From 1992 until 1993, Prof. Figovsky was the Manager of Research
and Development at the Israeli Corrosion Research Institute. From 1990 until
1991 Prof. Figovsky served as the Director of Research Center of "Intercorr", an
Austrian-Russian joint venture, and from 1986 until 1991 he was the Head of the
Corrosion Protection Department of the All-Union Corrosion Protection Research
Institute in Moscow, Russia. Prof. Figovsky received a Masters of Science degree
in Materials Engineering from the All-Union Civil Engineering Institute, Moscow,
Russia, in 1964, a Ph.D in Materials Engineering from the Moscow Civil
Engineering Institute in 1971, and a Doctor of Science in Materials Engineering
from the Institute of Corrosion Protection, Moscow, in 1989.
Richard A. Wall acted as a financial and business development consultant
to the Company from its inception until December 1997. Since 1996 Mr. Wall has
been a U.S. Resident Partner in the Institute for Applied Social Sciences
(Dusseldorf, Germany - Zurich, Switzerland - LaJolla, California). Since 1983 he
has been engaged in private, international investment banking activities head
quartered in New York City.
In 1996 and 1997 Mr. Wall loaned an aggregate of $561,440 to the Company,
all of which, together with accrued interest, has been repaid. Mr. Wall is the
beneficial holder of 120,000 shares of the Company's Common Stock and of options
to purchase 364,000 shares of Common Stock.
FOUNDER
Kurt Seifman, through ERBC Holdings, Limited (of which he is the chief
executive officer and sole shareholder), is the Founder of the Company. Mr.
Seifman is 85 years old, and is principally engaged in investment activities
personally and through ERBC. For the past five years Mr. Seifman has not been an
executive employee, director or officer of any business entity other than ERBC.
Mr. Seifman is the beneficial owner of 1,246,300 shares of the Company's
Common Stock. ERBC is the beneficial owner of 255,000 shares of the Company's
Common Stock. ERBC has sub-licensed to the Company the EKOR compound and the
Re-sealable Container Systems. See "Principal and Selling Shareholders," "Risk
Factors -- Conflicts of Interest" and "Certain Transactions."
Executive Compensation
The following table sets forth the compensation paid by the Company for
services rendered in all capacities during the calendar years 1997, 1996 and
1995 to Randolph A. Graves, Jr., its chief executive officer during 1996. No
other executive officer or key employee was compensated in excess of $100,000.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Annual Compensation
- --------------------------------------------------------------------------------
Other Annual
Salary Bonus Compensation(1)
Name and Principal Position Year ($) ($) ($)
- --------------------------------------------------------------------------------
Randolph A. Graves, Jr, President &
Chief Executive Officer................. 1997 $77,374 0 0
1996 $77,374 $20,000 $243,109
1995 0 0 $10,500
- --------------------------------------------------------------------------------
- ----------
(1) Reflects the value of common stock issued as partial compensation for
services rendered in 1995 and 1996, respectively. Dr. Graves resigned as a
Director, and as the Chairman and Chief Executive Officer of the Company on
January 23, 1998.
<PAGE>
Board of Directors
All Directors hold office until the next annual meeting of shareholders of
the Company or until their successors have been elected. All officers are
appointed annually by the Board of Directors and serve at the discretion of the
Board. Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. It is expected that Directors who are not
employees of the Company will receive compensation for their services in an
amount to be determined. All Directors are reimbursed by the Company for any
expenses incurred in attending Director's meetings. The Company has obtained
Officers and Directors liability insurance.
On November 17, 1997, Karl J. Krobath resigned as a Director of the
Company. On January 23, 1998, Randolph Graves, Peter Gulko and Hans Joachim
Skrobanek resigned as Directors of the Company.
On January 23, 1998, Adm. James D. Watkins, Maxwell Rabb and Lawrence
McQuade were elected by the departing Directors to serve as Directors of the
Company.
Audit Committee of the Board of Directors
The Board of Directors has established an Audit Committee, the membership
of which presently is vacant. The functions of the Audit Committee are to
recommend annually to the Board of Directors the appointment of the independent
auditors of the Company, discuss and review in advance the scope and the fees of
the annual audit and review the results thereof with the independent auditors,
review and approve non-audit services of the independent auditors, review
compliance with existing major accounting and financial reporting policies of
the Company, review the adequacy of the financial organization of the Company
and review management's procedures and policies relating to the adequacy of the
Company's internal accounting controls and compliance with applicable laws
relating to accounting practices. The Company expects to appoint one of its
Directors to fill the Audit Committee vacancy in the near future.
1995 Incentive Stock Option Plan
The Company has adopted its 1995 Incentive Stock Option Plan ("Plan"). The
Board believes that the Plan is desirable to attract and retain executives and
other key employees of outstanding ability. Under the Plan, options to purchase
an aggregate of not more than 500,000 shares of Common Stock may be granted from
time to time to key employees, officers, directors, advisors and consultants to
the Company or to any of its subsidiaries.
The Plan is currently administered by the Board of Directors which may
empower a committee to administer the Plan. The Board is generally empowered to
interpret the Plan, prescribe rules and regulations relating thereto, determine
the terms of the option agreements, amend them with the consent of the optionee,
determine the individuals to whom options are to be granted, and determine the
number of shares subject to each option and the exercise price thereof. The per
share exercise price for options granted under the Plan are determined by the
Board of Directors provided that the exercise price of incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of the
Common Stock on the date the option is granted (110% of fair market value on the
date of grant of an ISO if the optionee owns more than 10% of the Common Stock
of the Company). Upon exercise of an option, the optionee may pay the purchase
price with previously acquired securities of the Company, or at the discretion
of the Board, the Company may loan some or all of the purchase price to the
optionee.
Options will be exercisable for a term determined by the Board, which will
not be greater than ten years from the date of grant (five years in the case of
ISO's). Options may be exercised only while the original grantee has a
relationship with the Company which confers eligibility to be granted options or
within three months after termination of such relationship with the Company, or
up to one year after death or total and permanent disability. In the event of
the termination of such relationship between the original grantee and the
Company for cause (as defined in the Plan), all options granted to that original
optionee terminate immediately. In the event of certain basic changes in the
Company, including a reorganization, merger or consolidation of the Company, or
the purchase of shares pursuant to a tender offer for shares of Common Stock of
the Company, in the discretion of the Committee, each option may become fully
and immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Non-qualified
<PAGE>
stock options may be transferred to the optionee's spouse or lineal descendants,
subject to certain restrictions. Options may be exercised during the holder's
lifetime only by the holder, his or her guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISOs, with the
attendant tax benefits provided under Section 421 and 422 of the Internal
Revenue Code of 1986. Accordingly, the Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its subsidiaries) may not
exceed $100,000. The Board may modify, suspend or terminate the Plan; provided,
that certain material modifications affecting the Plan must be approved by the
stockholders, and any change in the Plan that may adversely affect an optionee's
rights under an option previously granted under the Plan requires the consent of
the optionee.
To date, no options have been granted pursuant to the Plan.
Compensation of Directors
The Company's directors do not receive any compensation for their service
as directors or on any committee of the Board.
Limitation on Officers' and Directors' Liability
The Company's Certificate of Incorporation provides that the Company
shall, to the full extent permitted by Section 29-304 of the District of
Columbia Business Corporation Act, as from time to time amended and in effect
(the "BCA"), indemnify any and all persons it has the power to indemnify under
said section. Section 29-304 of the BCA grants to the Company the power to
indemnify any and all of its directors or officers or former directors of
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit or proceeding in which
they, or any of them, are made parties or a party, by reason of being or having
been directors or officers or a director or officer of the Company, or of such
other corporation, except in relation to matters as to which any such director
or officer or former director or officer or person is adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in the performance
of duty. Such indemnification is not deemed to be exclusive of any other rights
to which those indemnified may be entitled, under any bylaw, agreement, vote of
stockholders or otherwise. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against the
Company's directors and officers for breach of their fiduciary duties, even
though such action, if successful, might otherwise benefit the Company and its
stockholders.
Additionally, the Company's By-Laws provide for the indemnification of
directors and officers. The specific provisions of the By-Laws related to such
indemnification are as follows:
ARTICLE VI
INDEMNIFICATION
No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of the director's duty
of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) liability which may be
specifically defined by law or (4) a transaction from which the
director derived an improper personal benefit, it being the
intention of the foregoing provision to eliminate the liability of
the corporation's directors of the corporation's directors to the
corporation or its stockholders to the fullest extent permitted by
law. The corporation shall indemnify to the fullest extent permitted
by law each person that such law grants the corporation the power to
indemnify.
The Company has obtained an officers' and directors' liability insurance
policy which will indemnify officers and directors for losses arising from any
claim by reason of a wrongful act under certain circumstances where the Company
does not indemnify such officer or director, and will reimburse the Company for
any amounts where the Company may by law indemnify any of its officers or
directors in connection with a claim by reason of a wrongful act.
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of this
Prospectus by (i) each person known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers, (iv) all officers and directors of the
Company as a group, and (v) each of the beneficial owners of the 15,781,440
shares of Common Stock registered in the Registration Statement covering the
Shares offered hereby (the "Selling Shareholders"). The Shares offered hereby
will be sold, if at all, solely by and at the discretion of the Selling
Shareholders, and the Company will not receive any proceeds from any such sales.
See "Plan of Distribution". Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, and have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable.
Of the 15,746,440 shares of Common Stock offered hereby, 4,321,249 shares
have been registered under the Securities Act of 1933 at the request of certain
present shareholders to whom registration rights had not otherwise been granted.
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Kurt Seifman
150 East 58th Street
New York, NY 10155 1,246,300 6.9% 370,000 876,300 2.5%(1)
Peter Gulko(3)
976 Rock Haven Drive
Rockville, Maryland 20852 1,110,000 5.9 -- 1,110,000 3.2(1)
Maxwell Rabb(2)
480 Park Avenue
New York, New York 10016 80,000 -- -- 80,000 --(1)
Randolph A. Graves, Jr.
3299 Villanova Avenue
San Diego, California 92122 615,000 3.3 -- 615,000 1.8(1)
Hans Joachim Skrobanek
Wiesbadener Strasse 17A
D-12309 Berlin
Germany 145,000 .8 -- 145,000 --(1)
Mr. John A. Kinard
919 Kay Street
Murfreesboro, TN 37130 265,000 1.4 265,000 -- --(1)
Ms. D.K. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 452,500 2.4 582,500(4) -- --(1)
Mr. Chad Nellis
3812 Pacific Avenue, #3
Marina del Rey, Ca. 90292 300,000 1.6 300,000 -- --(1)
Mr. Simon Nemzov
30 Blackstone Blvd.
Providence, RI 02906 112,500 -- 112,500 -- --(1)
Mr. Miguel N. Alexiades
375-21C South End Avenue
New York, NY 10280 12,500 -- 12,500 -- --(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Mr. James C. Buckner
402 Harbor Drive North
Indian Rocks Beach, Fla.
33785 18,750 -- 18,750 -- --(1)
CBB Office Furnishings
Defined Benefit Plan
34 Lincoln Drive
Sausalito, Ca 94965-1641 49,250 -- 49,250 -- --(1)
Mr. Charles D. Smith
4661 Cedar Grove Road
Murfreesboro, TN 37127 150,000 .8 150,000 -- --(1)
Mr. Colin Cody
1059 Ocotillo Drive
Sun City, AZ 85373 187,500 1.0 187,500 -- --(1)
Mr. Monni Weisberger
1016 East 18th Street
Brooklyn, New York 11230 325,000 1.7 105,000 220,000 --(1)
Mr. David Weisberger
1016 East 18th Street
Brooklyn, NY 11230 75,000 -- 75,000 -- --(1)
Mr. Richard D. Willey &
Linda Willey JTWRS
926 Keowee Avenue
Knoxville, TN 37919 37,500 -- 37,500 -- --(1)
Mr. John C. Trotter
4309 Topside Road
Knoxville, TN 37920 37,500 -- 37,500 -- --(1)
Mr. Patrick S. Martin
8916 Strawflower Drive
Knoxville, TN 37920 206,250 1.0 206,250 -- --(1)
Chad A. Verdi
100 Pheasant Drive
E. Greenwich, RI 02818 75,000 -- 75,000 -- --(1)
Ms. Pamela Kaweske
P.O. Box 31457 SMB
Grand Cayman
Cayman Islands 93,750 -- 93,750 -- --(1)
Mr. Wesley Burdette
2733 Jersey Avenue, B-300
Knoxville, TN 37919 75,000 -- 75,000 -- --(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Mr. William T. Thompson
31 Ridge Road
Ridgewood, New Jersey 07450 150,000 .8 150,000 -- --(1)
Sherwood Securities
Attn: Michael Caedinale
10 Exchange Place Centre
Jersey City, N.J. 07302 100,000 -- 100,000 -- --(1)
David Wilkes
15 Sommerset Dr., South
Great Neck, NY 11020 75,000 -- 75,000 -- --(1)
B.V.H. Holdings
2125 Center Avenue, Suite 508
Fort Lee, New Jersey 07024 75,000 -- 75,000 -- --(1)
Michael Krasnoff
PDK Labs, Inc.
750 Lexington Avenue, #2750
New York, NY 10022 50,000 -- 50,000 -- --(1)
Jeffrey Markowitz
7 Kensington Road
Scarsdale, NY 10583 100,000 -- 250,000(5) -- --(1)
Richard Friedman
49 Fort Royal Isle
Fort Lauderdale, Fla. 33308 200,000 1.0 350,000(5) -- --(1)
Chana Sasha Foundation
1 State Street Plaza, 29th Floor
New York, NY 10004
(Morris Wolfson, President) 75,000 -- 50,000 25,000 --(1)
Mr. Frank T. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 28,124 -- 28,124 -- --(1)
Mr. Craig S. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 28,124 -- 28,124 -- --(1)
Credit Suisse
c/o Nesbit Burns
Triftstrasse 4
80538 Munich
Germany
Attn: Rolf 10,000 -- 10,000 -- --(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Rene Carrel
c/o Nesbit Burns
Triftstrasse 4
80538 Munich
Germany
Attn: Rolf 5,000 -- 5,000 -- --(1)
NFC Services/ABW Trading
Eichelbrelte 1
82335 Berg II
Germany 50,000 -- 50,000 -- --(1)
Dionne Fedderson
7878 East Gainey Branch Road
#23
Scottsdale, Arizona 10,000 -- 10,000 -- --(1)
Yvonne Fedderson
6135 East McDonald Drive
Paradise Valley, Arizona
85253-5222 200,000 1.0 200,000 -- --(1)
Sara O'Meara
6135 East McDonald Drive
Paradise Valley, Arizona
85253-5222 5,000 -- 5,000 -- --(1)
James D. Watkins(2)
2021 Indian Circle
Saint Leonard, MD 20685 97,000 -- 25,000 72,000 --(1)
AIM Corporate Relations Inc.
5540 14B Avenue
Tsawwassen, British Columbia
V4M 2G6 Canada -- -- 100,000(6) -- --(1)
ERBC Holdings, Ltd.
Weisbadner Strasse 1/A
D-12309 Berlin
Germany 255,000 1.3 255,000 -- --(1)
ABW Trading/NFC (Service) Ltd.
POB12 Budleigh Salterton
Devon FX96TA
England 119,000 -- 119,000 -- --(1)
Wolfgang Jastram
Apartado 6512
Comunicaciones SA
Avenida Francisco
de Maranda
Edificio Mene Grande
6 Piso
Caracas, Venezuela 44,500 -- 44,500 -- --(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Harald Block
POB 310
CH 8123 Ebmatengen
Zurich, Switzerland 30,500 -- 30,500 -- --(1)
Mindy Ackerman
1137 East 24th Street
Brooklyn, NY 11210 5,000 -- 5,000 -- --(1)
Gerald Bruno
c/o Tabb, Conigliaro & McGaun
200 Madison Avenue
New York, NY 10016 40,000 -- 40,000 -- --(1)
EITZ Chaim Foundation
1505 Coney Island Avenue
Brooklyn, NY 11230
Richard Jedwab, Pres. 5,000 -- 5,000 -- --(1)
David Lane
904 Benedict Canyon Dr.
Beverly Hills, CA 90210 35,000 -- 35,000 -- --(1)
Martin Spicer
2144 California St. #904
Washington, D.C. 20008 7,000 -- 3,000 4,000 --(1)
CDC Consulting, Inc.
19476 Dorado Dr.
Trabuco Canyon, CA 92679 67,500 -- 67,500(6) -- --(1)
JNC Opportunity Fund Ltd.
c/o Olympia Capital
(Bermuda) Ltd.
Williams House, 20 Reid St.
Hamilton HM 11, Bermuda -- -- 10,017,692(7) -- --(1)
Diversified Strategies
Fund, L.P.
c/o Encore Capital
Management, L.L.C.
12007 Sunrise Valley Dr.
Suite 460
Reston, VA 20191 -- -- 810,000(8) -- --(1)
Directors and Officers
As a Group
(4 Persons) 1,287,000 6.5 25,000 2,762,000 3.5(1)
</TABLE>
<PAGE>
(1) Gives effect to: (i) the issuance of 717,500 shares of Common Stock
issuable upon the exercise of stock options and warrants, and of up to
10,707,692 shares of Common Stock issuable upon the conversion of
convertible debentures, outstanding at the date of this Prospectus (which
shares have been registered under the Registration Statement of which this
Prospectus is a part; and (ii) the sale by the Selling Shareholders of all
of the Shares registered under the Registration Statement of which this
Prospectus is a part.
(2) Chairman and Member of the Company's Board of Directors.
(3) Executive Officer of the Company.
(4) 130,000 shares issuable upon exercise of warrants.
(5) 150,000 shares issuable upon exercise of warrants.
(6) Shares issuable upon exercise of warrants.
(7) 110,000 shares issuable upon exercise of warrants; 9,907,692 shares
issuable upon conversion of Convertible Debentures.
(8) 10,000 shares issuable upon exercise of warrants; 800,000 shares issuable
upon conversion of Convertible Debentures.
CERTAIN TRANSACTIONS
Shareholder and Other Loans.
On June 30, 1996, Richard A. Wall Associates, Inc. a company controlled by
Richard A. Wall (who has acted as a consultant to the Company) loaned $128,300
to the Company, payable with accrued interest at the rate of 10% per anum, on
December 31, 1996.
On August 31, 1996, Richard A. Wall Associates, Inc., Chad Nellis (a
shareholder and the son of Mr. Wall) and D.K. Rogers (a shareholder and
consultant to the Company) loaned to the Company $13,000, $100,000, and
$100,000, respectively, each such loan being payable, with accrued interest at
the rate of 10% per annum, on December 31, 1996.
During 1997, Richard A. Wall Associates, Inc., loaned $420,140 to the
Company.
The loans made by Richard A. Wall Associates, Inc., in 1996 and in 1997
were repaid in full in fiscal years 1996 and 1997, respectively. The loans made
by Mr. Nellis and Ms. Rogers were fully converted into four Units in the
Company's third unregistered offering of Common Stock pursuant to Rule 506 of
Regulation D under the Securities Act.
Issuance of Common Stock to Consultants and Advisors.
On October 10, 1995, the Company granted options to Richard A. Wall and
Kelly Capital Corporation to acquire 200,000 shares, each, of the Company's
Common Stock in exchange for past financial public relations and investment
banking services, respectively. The shares issuable upon exercise of those
options were part of the Company's first unregistered offering of Common Stock
pursuant to Rule 504 of Regulation D under the Securities Act of 1933. All such
options were exercised on January 18, 1996.(1)
The services of Mr. Wall and Kelly Capital Corporation were each valued by
the Company at $25,000, which valuation the Company believes to be fair and
reasonable.
Acquisition of Technologies from Consultant
Oleg L. Figovsky, Ph.D., who is a consultant to the Company, is the
originator and developer of three technologies, "Interpenetrated Network
Polymers," "Liquid Ebonite Material" and "RubCon," all right, title and interest
in which was purchased by
- ----------
(1) On June 1, 1996, the Company's Board of Directors authorized a four-for-one
forward split of the then outstanding shares of the Company's Common Stock. The
number of shares of Common Stock issuable upon exercise of the foregoing options
has been restated to reflect such stock split.
<PAGE>
the Company from Prof. Figovsky in January, 1998, for an aggregate purchase
price of $125,000 plus royalties equal to 49% of the Company's net revenues from
the sale and/or licensing of such technologies, payable for a period of 15 years
commencing on January 1, 1998. See "Business -- General -- Acquisition of
Israeli Technologies -- Incubator Technologies - Technologies Purchased from
Prof. Oleg L. Figovsky; - Principal Technologies," Risk Factors -- Conflicts of
Interest," "Management -- Consultants," and "Certain Transactions."
Common Directors, Officers and Shareholders
See "Risk Factors - Conflicts of Interest."
ERBC Holdings, Limited. ERBC Holdings, Limited., a British Virgin Islands
corporation ("ERBC"), is the beneficial owner of 255,000 shares of the Company's
Common Stock. One present employee and one former business representative of
ERBC, Hans-Joachim Skrobanek and Peter Gulko, respectively, are shareholders and
former directors of the Company, and Mr. Skrobanek is the former Secretary of
the Company. Mr. Skrobanek is the beneficial owner of 145,000 shares, and Mr.
Gulko is the beneficial owner of 1,110,000 shares, of the Company's Common
Stock. The chief executive officer and sole shareholder of ERBC, Kurt Seifman,
is the beneficial owner of 1,246,300 shares of the Company's Common Stock. Mr.
Gulko currently is the President, Secretary and Principal Financial Officer of
the Company.
Eurowaste Management, Ltd. Karl Krobath, the chairman and chief executive
officer of Eurowaste Management, Ltd., a Delaware corporation ("Eurowaste"), is
the beneficial owner of 25,000 shares of the Company's Common Stock.
Arbat American Autopark, Ltd. Hans-Joachim Skrobanek, a shareholder and
former director and the Secretary of the Company, is a shareholder and president
of Arbat American Autopark, Ltd., a Delaware corporation ("Arbat American").
ERBC is the beneficial owner of 40% of the outstanding common stock of Arbat
American.
Kurchatov Research Holdings, Ltd. During the period of June, 1997, through
February 13, 1998, Dr. Randolph A. Graves (who until January 23, 1998, served as
the Chairman, Chief Executive Officer and a director of the Company) served as a
director and Secretary of Kurchatov Research Holdings, Ltd., a Delaware
corporation ("KRH"), which is entitled to receive 50% of the net profits derived
by the Company from the sale or licensing of the Company's silicon-organic
(EKOR) compound. During Dr. Grave's tenure as President of KRH, the Company did
not enter into any material agreements or commitments with KRH. See "Business -
Principal Technologies - Silicon Organic (EKOR) Compound" and "Certain
Transactions." The outstanding common stock of KRH is owned of record by ERBC
and by CIS Development, Inc., a Delaware corporation ("CIS"). Such stock is held
by CIS for the benefit of the Euro-Asian Physical Society ("EAPS") in EAPS's
capacity as representative of various individual Russian and Ukrainian
scientists, researchers and academics affiliated with EAPS and the I.V.
Kurchatov Institute. KRH is entitled to receive 50% of the net profits derived
by the Company from the sale and licensing of the EKOR compound, one of the
Company's Principal Technologies. Peter Gulko, the beneficial owner of 1,110,000
shares of the Company's Common Stock, who served as a director of the Company
until January 23, 1998, and who presently is the President, Secretary and
Principal Financial Officer of the Company, is the sole shareholder of CIS. See
"Business - Principal Technologies - Silicon - Organic (EKOR) Compound," "Risk
Factors - Conflicts of Interest," "Management" and "Principal and Selling
Shareholders."
Transactions Involving ERBC, Eurowaste and Arbat American.
See "Risk Factors - Conflicts of Interest."
Business Structure; Inter-company Relationships. The business structure
and relationships between the Company, ERBC, Eurowaste and Arbat American
diagrammed and described below (i) separate the Company's business purpose of
developing and commercializing technologies from end-user business operations,
and from on-going research in Russia, and (ii) advance the Company's strategy of
commercializing technologies through joint ventures, license arrangements and
strategic alliances. Additionally, such structure reduces the Company's exposure
to the various risks of conducting on-going business operations in Russia and
Ukraine. See "Risk Factors - Risks Relating to the Russian Federation and
Ukraine."
Re-sealable Containers. ERBC is the sub-licensor to the Company of the
Re-sealable Container Systems.
Silicon-Organic (EKOR) Compound. The Euro-Asian Physical Society ("EAPS"),
a professional society of scientists, physicists and engineers in the former
Soviet Union, is the applicant under pending patent applications in respect of
the EKOR
<PAGE>
compound filed in Russia, the U.S., Ukraine, Japan and Germany. Pursuant to a
License Agreement among EAPS (as Licensor), and ERBC (as Licensee) dated
September 6, 1996 (the "EAPS-ERBC License") ERBC became the exclusive licensee
of all right, title and interest in and to the EKOR technology in Canada, China,
Japan, the Republic of Korea, the United States of America, Ukraine and all
countries that are members of the European Patent Agreement (the "Territory")
for a term expiring on August 1, 2014. The EAPS-ERBC License, among other
things, grants ERBC the right to sub-license its rights and interest thereunder.
Pursuant to the License Agreement among ERBC and the Company dated September 16,
1996 (the "ERBC-Eurotech License"), ERBC exclusively sub-licensed all of its
right, title and interest in and to the EKOR technology to the Company for a
term co-terminus with the term of the EAPS-ERBC License. Pursuant to an
agreement among Kurchatov Research Holdings, Ltd., a Delaware corporation
("KRH") and the Company dated January 28, 1997, 50% of the net profits the
Company derives from the commercialization, sale or licensing of any technology
developed by the I.V. Kurchatov Institute ("Kurchatov") and EAPS (which includes
the EKOR compound) will be remitted to KRH. KRH's outstanding capital stock is
owned of record by ERBC and by CIS Development, Inc., ("CIS"). Such stock is
held by CIS for the benefit of EAPS (which in such regard is acting as
representative of individual Russian scientists, researchers and academics
affiliated with either or both Kurchatov and EAPS). See "Certain Transactions -
Common Directors, Officers and Shareholders."
----------
| EAPS |
----------
|
|
Technology
License
v
----------
----------------| ERBC |--------------
| ---------- |
minority | |
shareholder | shareholder
| v v
| Sublicense |
| --------------- -------
| | EUROTECH, | | KRH |
------------->| LTD. | -------
--------------- ^
| |
| 50% of |
------>net EKOR----
profits
Waste-to-Energy Technology. Pursuant to a letter agreement among the
Company and Eurowaste Management, Ltd., a Delaware corporation ("Eurowaste")
dated September 18, 1996, Eurowaste has agreed to pay to the Company $2,450,000
upon the initiation of construction of the first waste-to-energy plant in which
Eurowaste is involved, and to pay to the Company $425,000 upon the initiation of
construction of each additional waste-to-energy plan in which Eurowaste is
involved. The Company believes that the terms of this agreement are fair and
commercially reasonable.
<PAGE>
------------------
| |
------------->| EUROTECH, LTD. |---------
| | | |
| ------------------ |
| v |
| Technology |
| License |
Technology v |
License & ------------------ |
Transfer | EUROWASTE |<--------
Fees ------------------
--<-------------
Automated Parking Garages. Pursuant to a letter agreement among the
Company and Arbat American Autopark, Ltd., a Delaware corporation ("Arbat
American") dated January 28, 1997, Arbat American has agreed to pay to the
Company $1,250 per parking space in each parking garage erected by Arbat
American or any affiliate of Arbat American the design of which substantially
conforms to the technology, designs, renderings, blueprints and plans previously
furnished by the Company to Arbat American. The Company believes that the terms
of such agreement are fair and commercially reasonable.
----------------
| EUROTECH, |
----------->| LTD. |<-------------
| ---------------- |
| v minority
| Technology shareholder
Technology Agreement ^
fees | --------
| | | ERBC |
| | --------
v 40%
| -------------------- shareholder
----------| ARBAT AMERICAN | |
--------------------------------
v
50% shareholder
v
------------------------------
| CINEMA WORLD ON ARBAT 1 |
| (Russian operating entity) |
------------------------------
- ----------
(1) See "Business - Other Technologies - Automated Parking Garages."
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's authorized capital consists of 50,000,000 shares of Common
Stock, par value $.00025 per share, and 1,000,000 shares of "blank check"
Preferred Stock (the "Blank Check Preferred Stock"). As of February 28, 1997,
there were outstanding 18,916,834 shares of Common Stock, and no shares of Blank
Check Preferred Stock. See "Principal and Selling Shareholders." Set forth below
is a summary description of certain provisions relating to the Company's capital
stock contained in its Certificate of Incorporation and By-laws and under the
District of Columbia Business Corporation Act. Such summary is qualified in its
entirety by reference to the Company's Certificate of Incorporation and By-laws
and the District of Columbia Business Corporation Act.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. All
the issued and outstanding shares of Common Stock are validly issued, fully paid
and non-assessable. Each outstanding share of Common Stock has one vote on all
matters requiring a vote of the stockholders. There is no right to cumulative
voting; thus, the holders of fifty percent or more of the shares outstanding
can, if they choose to do so, elect all of the directors of the Company. In the
event of a voluntary or involuntary liquidation of the Company, all stockholders
are entitled to a pro rata distribution after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the Common Stock. The holders of the Common Stock have no preemptive rights with
respect to the Company's offerings of shares of its Common Stock. Holders of
Common Stock are entitled to dividends if, as and when declared by the Board of
Directors out of the funds legally available therefor. It is the present
intention of the Company to retain earnings, if any, for use in its business.
Dividends are, therefore, unlikely in the foreseeable future. See "Dividend
Policy."
Blank Check Preferred Stock
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 1,000,000 shares of Blank Check Preferred Stock.
The Board of Directors has authority to divide the Blank Check Preferred Stock
into one or more series and has broad authority to fix and determine the
relative rights and preferences, including the voting rights of the shares of
each series. Such Blank Check Preferred Stock could be used as a method of
discouraging, delaying, or preventing a change in control of the Company or be
used to resist takeover offers opposed by management. Under certain
circumstances, the Board of Directors could create impediments to or frustrate
persons seeking to effect a takeover or otherwise gain control of the Company by
causing shares of Blank Check Preferred Stock with voting or conversion rights
to be issued to a holder or holders who might side with the Board of Directors
in opposing a takeover bid that the Board of Directors determines not to be in
the best interest of the Company and its stockholders. In addition, the
Company's ability to issue such shares of Blank Check Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity. No shares of Blank Check Preferred Stock are currently issued and
outstanding and the Company has no plans to issues any shares of Blank Check
Preferred Stock at this time.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is Interwest
Transfer Co., Inc., 1981 East Murray Holladay Road, Suite 100, Salt Lake City,
Utah 84117.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
<PAGE>
Of the 34,663,274 shares of the Company's Common Stock to be outstanding
after the Offering (1), 15,746,440 shares are being registered by the Company
under, and will be eligible for sale upon the effectiveness of, the Registration
Statement of which this Prospectus is a part. 6,998,000 shares of the Company's
currently outstanding Common Stock were issued without registration pursuant to
Rule 504 of Regulation D under the Securities Act, and are free-trading. Of the
shares of Common Stock to be outstanding after the Offering (1), 9,118,477
shares will be "restricted securities" as that term is defined in Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), and pursuant to
that Rule, under certain circumstances may be sold without registration, and
2,800,317 shares, which were issued without registration in reliance on
available exemptions under the Securities Act, are free-trading by reason either
of having been sold pursuant to Rule 144 or having qualified for sale without
registration pursuant to Rule 701 under the Securities Act. All "restricted"
shares will become eligible for sale under Rule 144, at various times, after the
applicable holding period has expired, without registration.
2,000,000 of the Shares offered hereby carry registration rights pursuant
to a Bridge Financing completed by the Company in December, 1996, and
10,895,192(2) of the shares offered hereby carry registration rights pursuant to
two private placements of the Company's 8% Convertible Debentures due November
27, 2000 and February 23, 2001, respectively. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition Liquidity and Capital
Resources." The holders of those securities have exercised their registration
rights. Those Shares have been registered in this Offering, and are
free-trading.
Pursuant to the compensation provisions of outstanding consulting
agreements, the Company is obligated to issue to those consultants an aggregate
of 17,000 shares of Common Stock per month. Such shares, when issued, qualify
as shares issued pursuant to an "Employee Benefit Plan" under Rule 701 under the
Securities Act, and may be sold without registration 90 days after the date of
issuance.
1,586,500 shares of Common Stock are issuable upon the exercise of
outstanding options and warrants. 752,500 of those shares have been registered
in the Registration Statement of which this Prospectus is a part and will be
free-trading at the time of issuance.
The availability for sale, as well as actual sales, of currently
outstanding shares of Common Stock, and shares of Common Stock issuable upon the
conversion of outstanding convertible debentures, upon the exercise of
outstanding options and warrants, and as compensation to consultants may depress
the prevailing market price for the Common Stock, and could adversely affect the
terms upon which the Company would be able to obtain additional financing.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner other than an affiliate)
is entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the effectiveness of the Form 10
Registration Statement filed by the Company on February 12, 1997 pursuant to the
Securities Exchange Act of 1934, a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without compliance with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
- ----------
(1) Gives effect to the issuance of 717,500 shares of Common Stock issuable upon
exercise of certain stock options and warrants, and up to 10,707,692 shares of
Common Stock issuable upon the conversion of convertible debentures, outstanding
at the date of this Prospectus. Does not give effect to the issuance of (i) up
to 869,000 shares of Common Stock issuable upon exercise of certain other stock
options and warrants outstanding at the date of the Prospectus, and (ii) the
issuance of up to 500,000 shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan. See "Management - 1995 Stock Option Plan."
(2) Includes 187,500 shares of Common Stock issuable upon the exercise of
warrants granted in connection with such private placements of the Company's 8%
Convertible Debentures.
<PAGE>
Registration Rights
In connection with the Bridge Financing completed in December, 1996, the
Company granted to the holders of an aggregate of 2,000,000 shares of the
Company's Common Stock mandatory and demand registration rights as to their
shares, which have been exercised. Pursuant to the exercise of such mandatory
registration rights, the Company has registered those 2,000,000 shares of Common
Stock in the Registration Statement of which this Prospectus is a part.
Additionally, in connection with two private placements, each of $3,000,000
principal amount of 8% Convertible Debentures due November 27, 2000 and February
23, 2001, respectively, the Company granted to the holders of those Debentures
and to the holders of warrants to purchase an aggregate of 187,500 shares of
Common Stock (which warrants were also issued in connection with those private
placements) mandatory registration rights as to the shares underlying those
Debentures and warrants. Such registration rights have been exercised and the
Company has registered 10,895,192 shares of Common Stock (respectively the
shares underlying those Debentures and Warrants) in such Registration Statement.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition - Liquidity and Capital Resources".
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Shareholders or by their
respective pledgees, donees, transferees or other successors in interest may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) on the NASD Electronic Bulletin Board or
any exchange on which the Shares may then be listed, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), through short sales, sales against the box, puts
and calls and other transactions in securities of the Company or other
derivatives thereof, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling Shares to or through broker-dealers, including
broker-dealers who may act as underwriters, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders may also sell Shares pursuant
to Rule 144 promulgated under the Securities Act or pledge Shares as collateral
for margin accounts, and such Shares could be resold pursuant to the terms of
such accounts. The Selling Shareholders and any participating brokers and
dealers may be deemed to be "underwriters" as defined in Section 2(11) of the
Securities Act.
In order to comply with certain state securities laws, if applicable, the
Shares will not be sold in a particular state unless such securities have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and complied with.
The Company has agreed to bear all expenses, other than selling
commissions and fees, in connection with the registration and sale of the Shares
being offered by the Selling Shareholders.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1995, 1996 and
1997 and for each of the years then ended, have been included in this Prospectus
in reliance upon the report of Tabb, Conigliaro & McGann, P.C., New York, New
York, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; and 5757 Wilshire Boulevard, Los
Angeles, California 90036; at the New York Regional Office of the Commission, 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the registration of the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, which are
incorporated herein by reference, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus or in any document incorporated by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement for such other
documents, which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission. Each
such statement is qualified in its entirety by such reference.
The Company's Registration Statement on Form S-1, as well as any reports,
proxy statements and other information filed under the Exchange Act, can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones and
Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.
Any statement contained herein, or any document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information and
financial statements (including notes thereof) appearing in the documents
incorporated herein by reference. This Prospectus incorporates documents by
reference which are not presented herein or delivered herewith. These documents
(other than exhibits thereto) are available without charge, upon written or oral
request by any person to whom this Prospectus has been delivered, from
Secretary, Eurotech, Ltd., 1101 30th Street, N.W., Suite 500, Washington, D.C.
20007-3772 (telephone) (202) 625-4382).
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
Page
----
Eurotech, Ltd.
Index to Audited Financial Statements................................F-1
Report of Independent Accountants................................... F-2
Financial Statements................................................ F-3
Notes to Financial Statements....................................... F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page Nos.
---------
INDEPENDENT AUDITORS' REPORT F-2
BALANCE SHEETS
At December 31, 1996 and December 31, 1997 F-3
STATEMENTS OF OPERATIONS F-4
For the Period from Inception (May 26, 1995) to December 31, 1995
For the Years Ended December 31, 1996 and 1997 For the Period from
Inception (May 26, 1995) to December 31, 1997
STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-5 - F-6
For the Period from Inception (May 26, 1995) to December 31, 1995
For the Years Ended December 31, 1996 and 1997
STATEMENTS OF CASH FLOWS F-7
For the Period from Inception (May 26, 1995) to December 31, 1995
For the Years Ended December 31, 1996 and 1997 For the Period from
Inception (May 26, 1995) to December 31, 1997
NOTES TO FINANCIAL STATEMENTS F-8 - F-34
F-1
<PAGE>
Board of Directors and Stockholders
Eurotech, Ltd.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Eurotech, Ltd. (the
"Company") (a development stage company) as of December 31, 1996 and 1997 and
the related statements of operations, stockholders' deficiency, and cash flows
for the period from inception (May 26, 1995) to December 31, 1995, the years
ended December 31, 1996 and 1997 and for the period from inception (May 26,
1995) to December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eurotech, Ltd. (a development
stage company) at December 31, 1996 and 1997 and the results of its operations
and its cash flows for the period from inception (May 26, 1995) to December 31,
1995, the years ended December 31, 1996 and 1997 and for the period from
inception (May 26, 1995) to December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered a loss from
operations in each of its three years of operations and, as of December 31,
1997, had a working capital deficiency of $2,156,753 and stockholders'
deficiency of $4,849,723. As discussed in Note 1 to the financial statements,
these factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ TABB, CONIGLIARO & McGANN, P.C.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
March 12, 1998
F-2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Note 1)
At December 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 2) $ 380,183 $ 617,756
Receivable from related parties (Note 6) 89,918 5,918
Prepaid expenses and other current assets 12,978 21,539
------------ ------------
TOTAL CURRENT ASSETS 483,079 645,213
PROPERTY AND EQUIPMENT - net of accumulated depreciation
(Notes 2 and 4) 10,556 14,050
OTHER ASSETS:
Organization and patent costs - net of accumulated amortization (Notes 2 and 5) 25,402 28,651
Deferred financing costs (Notes 2 and 10) 20,304 261,178
Deferred offering costs (Note 14) 75,000 --
Other assets 3,151 3,151
------------ ------------
TOTAL ASSETS $ 617,492 $ 952,243
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Notes payable - bridge notes (Notes 7, 10 and 15) $ 2,000,000 $ 2,000,000
Accrued liabilities (Note 12) 292,316 576,966
Deferred revenue (Notes 2 and 3) -- 225,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,292,316 2,801,966
------------ ------------
CONVERTIBLE DEBENTURES (Notes 8 and 15) -- 3,000,000
------------ ------------
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
(Notes 1, 3, 7, 8, 10, 12, and 15)
STOCKHOLDERS' DEFICIENCY: (Notes 2, 7, 8, 10, 11, 12 and 15)
Preferred stock - $0.01 par value; 1,000,000 shares authorized;
-0- shares issued and outstanding -- --
Common stock - $0.00025 par value; 50,000,000 shares authorized;
17,233,836 and 18,928,836 shares issued and outstanding at December 31,
1996 and December 31, 1997, respectively 4,306 4,732
Additional paid-in capital 4,804,298 12,892,313
Unearned financing costs (2,493,219) (1,315,317)
Deficit accumulated during the development stage (3,990,209) (16,431,451)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (1,674,824) (4,849,723)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 617,492 $ 952,243
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(May 26, 1995) to For the Years Ended December 31, (May 26, 1995) to
December 31, 1995 1996 1997 December 31, 1997
---------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development
(Notes 2 and 3) 212,061 1,170,782 1,007,671 2,390,514
Consulting fees (Notes 10 and 12) 266,900 277,353 553,295 1,097,548
Compensatory element of stock
issuances pursuant to consulting
agreements -- 1,209,477 839,550 2,049,027
Other general and administrative
expenses 34,265 547,447 1,262,067 1,843,779
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 513,226 3,205,059 3,662,583 7,380,868
------------ ------------ ------------ ------------
OPERATING LOSS (513,226) (3,205,059) (3,662,583) (7,380,868)
------------ ------------ ------------ ------------
OTHER EXPENSES:
Interest expense (Notes 6, 7 and 8) -- 43,422 270,740 314,162
Amortization of deferred and
unearned financing costs
(Notes 2, 7, 8 and 10) -- 228,502 8,507,919 8,736,421
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES -- 271,924 8,778,659 9,050,583
------------ ------------ ------------ ------------
NET LOSS $ (513,226) $ (3,476,983) $(12,441,242) $(16,431,451)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $(0.06) $(0.23) $(0.71)
====== ====== ======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 8,159,467 14,808,000 17,581,711
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1995
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(Notes 2, 7, 8, 10, 11, 12 and 15)
<TABLE>
<CAPTION>
Common Stock Additional Unearned
Date of ------------------------- Paid-in Due from Financing
Period Ended December 31, 1995: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------ ----------- ----------- ----------- ----------- ------------ -----------
(1)
<S> <C> <C> <C> <C> <C> <C>
Founder shares issued ($0.00025 per share) 05/26/95 $ 4,380,800 $ 1,095 $ (1,095) -- --
Issuance of stock for offering consulting fees
($0.0625 per share) 08/31/95 440,000 110 27,390 -- --
Issuance of stock ($0.0625 and $0.25
per share) Various 4,080,000 1,020 523,980 (3,000) --
Issuance of stock for license ($0.0625 per
share) 08/31/95 600,000 150 37,350 -- --
Issuance of stock options for offering legal
and consulting fees -- -- 75,000 -- --
Offering expenses -- -- (105,398) -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1995 9,500,800 2,375 557,227 (3,000) --
Year Ended December 31, 1996:
- -----------------------------
Issuance of stock ($0.25 per share) Various 1,278,000 320 319,180 -- --
Exercise of stock options 01/18/96 600,000 150 -- -- --
Issuance of stock for consulting fees
($0.34375 per share) 03/22/96 160,000 40 54,960 -- --
Issuance of stock for consulting fees
($0.0625 per share) 05/15/96 2,628,000 657 163,593 -- --
Issuance of stock for consulting fees
($0.590625 per share) 06/19/96 1,500,000 375 885,563 -- --
Issuance of stock for consulting fees
($1.82 per share) 11/12/96 57,036 14 104,275 -- --
Issuance of stock pursuant to bridge financing
($1.81325 per share) 12/96 1,500,000 375 2,719,500 -- (2,719,875)
Amortization of unearned financing costs -- -- -- -- 226,656
Repayment by stockholders -- -- -- 3,000 --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1996 17,223,836 $ 4,306 $ 4,804,298 $ -- $(2,493,219)
=========== =========== =========== =========== ===========
</TABLE>
Deficit
Accumulated
During the
Development
Period Ended December 31, 1995: Stage Total
- ------------------------------ ----------- -----------
Founder shares issued ($0.00025 per share) -- $ --
Issuance of stock for offering consulting fees
($0.0625 per share) -- 27,500
Issuance of stock ($0.0625 and $0.25
per share) -- 522,000
Issuance of stock for license ($0.0625 per
share) -- 37,500
Issuance of stock options for offering legal
and consulting fees -- 75,000
Offering expenses -- (105,398)
Net loss (513,226) (513,226)
----------- -----------
Balance - December 31, 1995 (513,226) 43,376
Year Ended December 31, 1996:
- -----------------------------
Issuance of stock ($0.25 per share) -- 319,500
Exercise of stock options -- 150
Issuance of stock for consulting fees
($0.34375 per share) -- 55,000
Issuance of stock for consulting fees
($0.0625 per share) -- 164,250
Issuance of stock for consulting fees
($0.590625 per share) -- 885,938
Issuance of stock for consulting fees
($1.82 per share) -- 104,289
Issuance of stock pursuant to bridge financing
($1.81325 per share) -- --
Amortization of unearned financing costs -- 226,656
Repayment by stockholders -- 3,000
Net loss (3,476,983) (3,476,983)
----------- -----------
Balance - December 31, 1996 $(3,990,209) $(1,674,824)
=========== ===========
(1) Share amounts have been restated to reflect the 4 for 1 stock split
on June 1, 1996.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1995
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(Notes 2, 7, 8, 10, 11, 12 and 15)
<TABLE>
<CAPTION>
Common Stock Additional Unearned
Date of ------------------------- Paid-in Due from Financing
Period Ended December 31, 1997: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------ ----------- ----------- ----------- ----------- ------------ -----------
(1)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 17,223,836 $ 4,306 $ 4,804,298 $ -- $ (2,493,219)
Issuance of stock for consulting fees
($2.50 per share) 03/97 64,000 16 159,984 -- --
Issuance of stock for consulting fees
($5.45 per share) 06/97 39,000 9 212,540 -- --
Issuance of stock for consulting fees
($5.00 per share) 09/97 59,000 15 294,986 -- --
Issuance of stock pursuant to penalty
provision of bridge financing
($5.45 per share) 06/97 500,000 125 2,724,875 -- (2,725,000)
Value assigned to conversion feature of
Convertible Debentures 11/97 -- -- 1,337,143 -- (1,337,143)
Value assigned to issuance of 127,500 warrants
in consideration for interest and placement
fees in connection with Convertible
Debentures 11/97 -- -- 284,480 -- (284,480)
Value assigned to issuance of 35,000 warrants
to shareholder for consulting services 11/97 -- -- 39,588 -- (39,588)
Value assigned to issuance of 364,000 warrants
to shareholder as additional consideration
for financing activities 11/97 -- -- 862,680 -- (862,680)
Issuance of stock for consulting fees
($4.00 per share) 12/97 43,000 11 171,989 -- --
Accrual of stock issued January 1998 pursuant
to penalty provision of bridge financing
($2.00 per share) 12/97 1,000,000 250 1,999,750 -- (2,000,000)
Amortization of unearned financing costs -- -- -- -- 8,426,793
Net loss -- -- -- -- --
---------- ------------ ------------ ------------ ------------
Balance - December 31, 1997 18,928,836 $ 4,732 $ 12,892,313 $ -- $ (1,315,317)
========== ============ ============ ============ ============
</TABLE>
Deficit
Accumulated
During the
Development
Period Ended December 31, 1997: Stage Total
- ------------------------------ ----------- -----------
Balance - December 31, 1996 $ (3,990,209) $ (1,674,824)
Issuance of stock for consulting fees
($2.50 per share) -- 160,000
Issuance of stock for consulting fees
($5.45 per share) -- 212,549
Issuance of stock for consulting fees
($5.00 per share) -- 295,001
Issuance of stock pursuant to penalty
provision of bridge financing
($5.45 per share) -- --
Value assigned to conversion feature of
Convertible Debentures -- --
Value assigned to issuance of 127,500 warrants
in consideration for interest and placement
fees in connection with Convertible
Debentures -- --
Value assigned to issuance of 35,000 warrants
to shareholder for consulting services -- --
Value assigned to issuance of 364,000 warrants
to shareholder as additional consideration
for financing activities -- --
Issuance of stock for consulting fees
($4.00 per share) -- 172,000
Accrual of stock issued January 1998 pursuant
to penalty provision of bridge financing -- --
($2.00 per share)
Amortization of unearned financing costs -- 8,426,793
Net loss (12,441,242) (12,441,242)
------------ ------------
Balance - December 31, 1997 $(16,431,451) $ (4,849,723)
============ ============
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(May 26, 1995) to For the Years Ended December 31, to (May 26, 1995)
December 31, 1995 1996 1997 December 31, 1997
------------- ------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $ (513,226) $ (3,476,983) $(12,441,242) $(16,431,451)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 182 1,009 4,810 6,001
Amortization of deferred and unearned
financing costs -- 228,502 8,507,919 8,736,421
Stock issued for license 37,500 -- -- 37,500
Consulting fees satisfied by stock issuances -- 1,209,477 839,550 2,049,027
Cash provided by (used in) the change in assets
and liabilities:
(Increase) decrease in advances to related
parties -- (89,918) 84,000 (5,918)
(Increase) decrease in prepaid expenses (1,100) (11,878) (8,561) (21,539)
Increase in other assets -- (3,151) -- (3,151)
Increase in accrued liabilities 13,100 279,216 284,650 576,966
Increase in deferred revenue -- -- 225,000 225,000
------------ ------------ ------------ ------------
NET CASH USED IN OPERATING
ACTIVITIES (463,544) (1,863,726) (2,503,874) (4,831,144)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization and patent costs (1,557) (24,639) (5,162) (31,358)
Capital expenditures -- (10,953) (6,391) (17,344)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (1,557) (35,592) (11,553) (48,702)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options -- 150 -- 150
Proceeds from issuance of common stock 522,000 319,500 -- 841,500
Offering costs (2,898) (75,000) 75,000 (2,898)
Repayment by stockholders -- 3,000 -- 3,000
Proceeds from bridge notes -- 2,000,000 -- 2,000,000
Proceeds from Convertible Debentures -- -- 3,000,000 3,000,000
Borrowings from stockholders -- 141,000 420,140 561,140
Repayment to stockholders -- (141,000) (420,140) (561,140)
Deferred financing costs -- (22,150) (322,000) (344,150)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 519,102 2,225,500 2,753,000 5,497,602
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH 54,001 326,182 237,573 617,756
CASH - BEGINNING -- 54,001 380,183 --
------------ ------------ ------------ ------------
CASH - ENDING $ 54,001 $ 380,183 $ 617,756 $ 617,756
============ ============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ 8,127 $ 270,804 $ 278,931
============ ============ ============ ============
Income taxes $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1- BUSINESS AND CONTINUED OPERATIONS
Eurotech, Ltd. (the "Company") was incorporated under the laws of
the District of Columbia on May 26, 1995. The Company is a
development-stage, technology transfer, holding and management
company, formed to commercialize new, existing but previously
unrecognized, and previously "classified" technologies, with a
particular current emphasis on technologies developed by prominent
research institutes and individual researchers in the former Soviet
Union and in Israel, and to license those and other Western
technologies for business and other commercial applications
principally in Western and Central Europe, Ukraine, Russia and North
America. Since the Company's formation, it has acquired development
and marketing rights to a number of technologies by purchase,
assignments, and licensing arrangements. The Company intends to
operate its business by licensing its technologies to end-users and
through development and operating joint ventures and strategic
alliances. To date, the Company has not generated any revenues from
operations.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However,
as shown in the accompanying financial statements, the Company has
incurred losses from operations from inception. As of December 31,
1997, the Company has a stockholders' deficiency of $4,849,723, a
working capital deficiency of $2,156,753 and an accumulated deficit
since inception of $16,431,451. The Company requires additional
funds to commercialize its technologies and continue research and
development efforts. Until the commencement of sales, the Company
will have no operating revenues, but will continue to incur
substantial expenses and operating losses. No assurances can be
given that the Company can complete development of any technology,
not yet completely developed, or that with respect to any technology
that is fully developed, it can be manufactured on a large scale
basis or at a feasible cost. Further, no assurance can be given that
any technology will receive market acceptance. Being a start-up
stage entity, the Company is subject to all the risks inherent in
the establishment of a new enterprise and the marketing and
manufacturing of a new product, many of which risks are beyond the
control of the Company. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Since inception, the Company has financed its operations through
sale of its securities, shareholder loans, a bridge financing
totalling $2,000,000 completed in December of 1996, a Convertible
Debenture financing of $3,000,000 completed in November of 1997 and
a Convertible Debenture financing of $3,000,000 completed in
February of 1998. The Company is exploring additional sources of
working capital, which include a private offering of common stock,
private borrowings and joint ventures.
F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
The $2,000,000 bridge financing was retired from proceeds of the
February 1998 Convertible Debenture financing.
While no assurance can be given, management believes the Company can
raise adequate capital to keep the Company functioning during 1998.
No assurance can be given that the Company can successfully obtain
any working capital or complete any proposed offerings or, if
obtained, that such funding will not cause substantial dilution to
shareholders of the Company. Further, no assurance can be given as
to the completion of research and development and the successful
marketing of the technologies.
These financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts that might be
necessary as a result of the above uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Actual results
could differ from those estimates.
Equity Method of Accounting for Unconsolidated Foreign Affiliates
Investment in companies in which the Company has a 20% to 50%
interest, in which it has the ability to exercise significant
influence over operating and financial policies are accounted for on
the equity method. Accordingly, the Company's proportionate share of
their undistributed earnings or losses are included in the statement
of operations.
At December 31, 1997, investments in companies accounted for under
the equity method consist of the following foreign companies which
are located in Israel:
Chemonol, Ltd. ("Chemonol") 20%
Separator, Ltd. ("Separator") 20%
Comsyntech, Ltd. ("Comsyntech") 20%
Remptech, Ltd. ("Remptech") 20%
F-9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
The Company maintains cash balances at a bank which exceeded the
Federal Depository Insurance Corporation's ("FDIC") maximum balance
of $100,000 by $623,581 as of December 31, 1997.
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful life of
five years.
Organization and Patent Costs
Organization costs are being amortized on a straight-line basis over
5 years. Patent costs are being amortized on a straight-line basis
over 17 years, which represent both the statutory and economic lives
of the patents.
Impairment of Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted Statement
121 on January 1, 1996 and there was no effect to the Company.
Income Taxes
Deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
Revenue Recognition
The Company expects that it will derive substantially all of its
revenue from the sale, licensing and sub-licensing of technology.
Revenue from the sale of technology will be recognized in the year
of sale. Revenue from licensing and sub-licensing will be recognized
in the periods when the fees have been earned.
F-10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development
Research and development expenditures are charged to expense as
incurred, unless they are reimbursed under specific contracts.
Losses incurred on the equity basis in the Company's interest in
four Israeli research and development companies are included in
research and development. In addition, expenditures in connection
with a technology licensing agreement concluded in December 1997,
aggregating $495,000, were charged to research and development
during 1997 (see Note 3).
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires compensation expense to be recorded (i)
using the new fair value method, or (ii) using existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25") and related
interpretations with proforma disclosure of what net income and
earnings per share would have been had the Company adopted the new
fair value method. The Company intends to continue to account for
its stock-based compensation plans in accordance with the provisions
of APB 25.
Deferred and Unearned Financing Costs
Financing costs in connection with a one-year bridge loan completed
in December of 1996 are being amortized over the life of the
promissory note.
Financing costs in connection with the November 1997 Convertible
Debentures offering are being amortized over the expectant life (180
days) of the obligation. The expectant life was determined to be the
conversion date that was most beneficial to the note holder, in
accordance with Emerging Issues Task Force ("EITF") topic number
D-60.
Stock Split
On June 1, 1996, the Board of Directors authorized four-for-one
stock split, thereby increasing the number of issued and outstanding
common shares to 14,166,800 and decreasing the par value of each
common share to $0.00025. The accompanying financial statements,
notes and other references to share and per share data have been
retroactively restated to reflect the stock split for all periods
presented.
F-11
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Per Share Data
Net loss per common share has been computed based on the weighted
average number of shares of common stock outstanding during the
periods presented, which were retroactively adjusted to give
recognition to the stock split on June 1, 1996. Common stock
equivalents, consisting of warrants and Convertible Debentures
discussed in Note 10, were not included in the calculation of loss
per share because their inclusion would have had the effect of
decreasing the loss per share otherwise computed.
In February 1997, Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), was issued which
establishes standards for computing and presenting earnings per
share. The Company adopted SFAS No. 128 January 1, 1997. The impact
of such adoption on the accompanying financial statements had no
effect.
Fair Value of Financial Instruments
The financial statements include various estimated fair value
information at December 31, 1996 and December 31, 1997, as required
by Statement of Financial Accounting Standards 107, "Disclosures
about Fair Value of Financial Instruments". Such information, which
pertains to the Company's financial instruments, is based on the
requirements set forth in that Statement and does not purport to
represent the aggregate net fair value to the Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents: The carrying amount approximates fair
value because of the short-term maturity of those instruments.
Receivables and Payables: The carrying amounts approximate fair
value because of the short maturity of those instruments.
Notes Payable: The carrying amounts of notes payable approximate
fair value due to the length of the maturities, the interest rates
being tied to market indices and/or due to the interest rates not
being significantly different from the current market rates
available to the Company.
All of the Company's financial instruments are held for purposes
other than trading.
F-12
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - TECHNOLOGY RESEARCH, COLLABORATION, INVESTMENTS, TRANSFER AND LICENSING
AGREEMENTS
a) Collaboration Agreements With Russian Organizations
Under various agreements, the Company has agreed to fund the
commercialization of certain technologies developed in the former
Soviet Union by scientists and researchers at the I.V. Kurchatov
Institute ("Kurchatov"), other institutes associated therewith, and
the Euro-Asian Physical Society ("EAPS"), collectively the
"Scientists". Kurchatov will provide the materials, facilities and
personnel to complete the necessary work to commercialize such
technologies. Disbursements made by the Company related to the
Kurchatov arrangement were charged to research and development
expenses and amounted to $174,561, $1,109,550 and $408,000,
respectively, during the period from inception (May 26, 1995) to
December 31, 1995 and for the years ended December 31, 1996 and
1997.
In addition, pursuant to an agreement with the Kurchatov Research
Holdings, Ltd. ("KRH"), a Delaware corporation, beneficially owned
by ERBC Holdings, Ltd. ("ERBC") and individual Russian scientists,
researchers and academics, who are affiliated with Kurchatov and
EAPS, the Company agreed to pay KRH 50% of the net profits derived
from the sale, license or commercialization of any technologies or
products based upon technologies developed by the scientists and
transferred to the Company or supplied by the scientists to the
Company. The managing director and one former business
representative of ERBC are shareholders of the Company.
In connection with the collaboration agreement discussed above, in
September 1996, the Company entered into a licensing agreement with
ERBC, whereby ERBC sublicensed its license to use and exploit
certain technologies and inventions relating to a silicon organic
("EKOR") compound technology in the United States, Ukraine, Canada,
China, Japan, Republic of Korea and all European countries who are
members of the European Patent Agreement. The term of the license
expires on August 1, 2014. Under the agreement, the Company shall
pay to ERBC a royalty equal to 3% of the cost of contracts made by
the Company on which the Company would have any income. In addition
to the royalty payment, pursuant to the collaboration agreement with
KRH, the Company will be required to remit 50% of the net profit
derived from the EKOR compound technology to KRH.
b) Investments in Israeli Technology Companies
During 1997, the Company acquired a 20% interest in four separate
Israeli technology, research and development companies. The
Company's share of losses incurred by these companies has been
accounted for on the equity basis and included in research and
development expenses. The amount charged to research and development
for 1997 approximated $102,000, which reduced the Company's
investment in these four companies to zero.
F-13
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - TECHNOLOGY RESEARCH, COLLABORATION, INVESTMENTS, TRANSFER AND LICENSING
AGREEMENTS
Technion Entrepreneurial Incubator, Ltd.
During April 1997, the Company entered into an informal agreement in
principal with the Technion Entrepreneurial Incubator, Ltd. ("TEI"),
an Israeli corporation, to participate in certain technology
research and development projects sponsored by the TEI, whereby the
Company will provide 15%-20% of the financing required for, and will
receive a 20% equity interest in, research and development projects
selected by the Company. In furtherance of this venture, the Company
has opened an office at the premises of TEI in Haifa, Israel, has
identified three technology development projects for investment, and
has agreed to invest in a fourth such project, involving certain
polyurethane technology with potential use in paints and coatings.
Pursuant to that agreement, the Company agreed to invest up to
$60,000 in Chemonol, Ltd. ("Chemonol"), an Israeli corporation
established to own and develop that technology, in exchange for 20%
of Chemonol's voting equity. As of December 31, 1997, the Company
has made two payments totalling $30,000 to Chemonol. The remaining
$30,000 is scheduled to be paid by November 1, 1998. The Company has
also entered into agreements with the holder of 50% of Chemonol's
outstanding voting equity (the "Principal Shareholder") granting to
the Company an option to acquire from the Principal Shareholder an
additional 31% of Chemonol's voting equity for $93,000, and the
present right to direct the voting of the Principal Shareholder's
voting equity. There can be no assurance that these or any other
development projects will result in useful technologies or that the
same will be commercially saleable or profitable.
Incubator for Technological Entrepreneurship - Kiryat Weizmann, Ltd.
During July 1997, the Company entered into an informal agreement in
principal with the Incubator for Technological Entrepreneurship -
Kiryat Weizmann, Ltd. ("Kiryat Weizmann, Ltd.") to participate in
certain technology research and development projects sponsored by
Kiryat Weizmann Ltd.
Pursuant to that informal agreement, the Company agreed to invest,
pursuant to a written agreement, up to $60,000 in Separator, Ltd.
("Separator"), an Israeli corporation established to own and develop
technology, in exchange for 20% of Separator's voting equity. As of
December 31, 1997, the Company has made total payments of $30,000 to
Separator. The remaining $30,000 is scheduled to be paid by August
1, 1998. The Company has also entered into written agreements with
the holder of 50% of Separator's outstanding voting equity (the
"Principal Shareholder") granting to the Company an option to
acquire from the Principal Shareholder an additional 31% of
Separator's voting equity for $93,000, and the present right to
direct the voting of the Principal Shareholder's voting equity.
There can be no assurance that these or any other development
projects will result in useful technologies or that the same will be
commercially saleable or profitable.
F-14
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - TECHNOLOGY RESEARCH, COLLABORATION, INVESTMENTS, TRANSFER AND LICENSING
AGREEMENTS
Ofek Le-Olem Foundation
During August 1997, the Company entered into an informal agreement
in principal with the Ofek Le-Olem Foundation ("Foundation") to
participate in certain technology research and development projects
sponsored by the Foundation.
Pursuant to that informal agreement, the Company agreed to invest,
pursuant to written agreements, up to $60,000 per company in
Comsyntech, Ltd. ("Comsyntech") and Remptech, Ltd. ("Remptech"),
Israeli corporations established to own and develop technology, in
exchange for 20% of Comsyntech's and Remptech's voting equity. As of
December 31, 1997, the Company has made its first payment of $21,000
per company to Comsyntech and Remptech. The last scheduled payment
of $13,000 is scheduled to be made no later than February 1, 1999.
In connection with these investments, the Company obtained (I) an
option to purchase a 20% common equity interest owned by the
foundation exercisable for a period of 90 days commencing on
November 6, 1999 at a price to be determined, (ii) an option to
acquire from the Principal Shareholders an additional 31% of
Comsyntech's and Remptech's voting equity for $93,000, and (iii) the
present right to direct the voting of the Principal Shareholders'
voting equity. There can be no assurance that these or any other
development projects will result in useful technologies or that the
same will be commercially saleable or profitable.
Equity Transfer Consents for Israeli Companies
For a period of two years commencing on the date of its registration
as an Israeli corporation, the sale or other transfer of 25% or more
of the outstanding common equity of each of Chemonol, Separator,
Remptech and Comsyntech requires the consent of the Chief Scientist
of the Israeli Ministry of Commerce and Technology. The Company's
options to acquire additional common equity of the above Israeli
Technology Companies are exercisable within such two-year periods
and any acquisition of the common equity purchasable thereunder
will, therefore, require the Chief of Scientist's consent. Although
the Company presently expects that if requested such consent would
be given, there is no assurance that such consent will be obtained.
F-15
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - TECHNOLOGY RESEARCH, COLLABORATION, INVESTMENTS, TRANSFER AND LICENSING
AGREEMENTS
c) Re-sealable Containers. Pursuant to a sublicense (the "Re-sealable
Container Sublicense") entered into in December 1997, the Company
has acquired from ERBC an exclusive, worldwide license to
commercialize, use, exploit and market two mechanical systems (the
"Re-sealable Container Systems") for resealing soft-drink (and other
similarly configured) beverage cans, and cardboard "TetraPak"
beverage containers. "TetraPak" containers are four-sided,
pyramidical beverage containers widely used in Europe, made of
packaging material similar to milk "cartons" familiar to the U.S.
market.
ERBC acquired an exclusive and worldwide license to the Re-sealable
Container Systems pursuant to a license agreement, dated March 20,
1997, with Cetoni Unwelttechnologie-Emwik Lungs GmbH ("Cetoni"), a
Germany company that developed and held all right, title and
interest in and to those systems, in consideration of ERBC's payment
to Cetoni of $495,000, plus 50% of all royalties received by ERBC
from sales of products and devices embodying or otherwise using
Re-sealable Container Systems. Under the Re-sealable Container
Sublicense, the Company paid ERBC $495,000 in consideration of the
sub-license granted thereunder, and is obligated to pay to Cetoni
50% of the Company's net revenues from the sale or licensing of such
products and devices.
The Company has accounted for this technology license fee as
acquired research and development and, in accordance with FASB
Interpretation No. 4, has charged the license fee of $495,000 to
research and development expenses for the year ended December 31,
1997.
d) On January 28, 1997, the Company entered into a technology transfer
consulting arrangement with American Autopark, Ltd. ("Arbat") to
license its technology, designs, renderings, blueprints and plans
for the construction and operation of vertical parking structures.
The Company is to receive a fee equal to $1,250 per parking space in
each garage erected by Arbat or any of its affiliates based upon the
technology transferred to Arbat by the Company. Certain shareholders
of the Company are shareholders of Arbat.
In August 1997, the Company received a $225,000 technology transfer
fee under this agreement related to a construction of a parking
structure in Moscow, Russia. The Company has deferred the
recognition of this revenue until the commencement of construction
of this project.
e) In September 1996, the Company entered into a technology transfer
and consulting agreement with Eurowaste, Ltd. ("Eurowaste"), a
related party, under which Eurowaste will pay the Company $2,450,000
upon the initiation of construction of the first waste to energy
plant, and a design and implementation consulting fee of $425,000
for each subsequent plant. A shareholder and director of the Company
is the Chairman, Chief Executive Officer and a shareholder of
Eurowaste.
F-16
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - TECHNOLOGY RESEARCH, COLLABORATION, INVESTMENTS, TRANSFER AND LICENSING
AGREEMENTS (Continued)
The Company intends to recognize revenue from the initial fee of
$2,450,000 at the time when all initial technology has been
transferred to Eurowaste and the Company has no remaining
obligations once construction commences. Revenue from the $425,000
design and implementation and consulting fee will be recognized
during the construction period of each subsequent waste-to-energy
plant.
f) On May 1, 1995, the Company entered into a license agreement which
granted the Company an exclusive right to license certain
technologies for medical application systems in Russian/European
countries for the remaining life of the patent for $37,500. In lieu
of cash, the owner accepted 600,000 shares of the Company's common
stock. The agreement called for quarterly royalty payments equal to
5% of gross revenues earned and received by the Company with a
minimum annual royalty of $100,000. No minimum royalty payment was
to accrue or be payable until December 1, 1995. The Company
terminated the agreement on November 30, 1995 and expensed the cost
of the license. No products were developed or sold using the
licensed technology and no royalties were due the owner.
g) On May 29, 1995, the Company entered into a license agreement which
granted the Company, for the life of the patent, territorially
limited exclusive license to use technology marketed under the name
Coherent On Receive Only ("CORO") in Europe and the Near East. In
consideration for the grant of the license and the use of the
proprietary engineering, the Company agreed to pay the developer a
$200,000 initial license fee upon delivery of the technology, along
with an 8% royalty payable semi-annually on equipment gross sales.
If the technology is delivered, the Company intends to account for
the $200,000, an initial license fee and amortize over the shorter
of the economic life of the technology or remaining term of license
agreement.
Management is currently evaluating the viability of this technology
and its potential uses in various markets.
NOTE 4 - MACHINERY AND EQUIPMENT
Machinery and equipment consisted of the following:
December 31,
-------------------------
1996 1997
-------- --------
Cost $ 10,953 $ 17,344
Accumulated depreciation (397) (3,294)
-------- --------
$ 10,556 $ 14,050
======== ========
F-17
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - MACHINERY AND EQUIPMENT (Continued)
Depreciation expense for the period from inception (May 26, 1995) to
December 31, 1995 and for the years ended December 31, 1996 and 1997
amounted to $-0-, $397 and $2,897, respectively.
NOTE 5 - ORGANIZATION AND PATENT COSTS
Organization and patent costs consisted of the following:
December 31,
--------------------------
1996 1997
-------- ---------
Organization costs $ 1,557 $ 1,557
Costs of patents 24,639 29,801
Accumulated amortization (794) (2,707)
-------- ---------
$ 25,402 $ 28,651
======== =========
Patent costs capitalized during 1996 and 1997 represent legal and
other costs related to filing of patent applications in various
countries.
Amortization expense for the period from inception (May 26, 1995) to
December 31, 1995 and for the years ended December 31, 1996 and 1997
amounted to $182, $612 and $1,913, respectively.
NOTE 6 - NOTES PAYABLE TO/RECEIVABLES FROM RELATED PARTIES
Loans from Related Parties
During 1996, three shareholders of the Company loaned the Company
$341,300 under four separate promissory note. The notes bear
interest at the rate of 10% per annum and were due on December 31,
1996. In December of 1996, $141,300 of principal on such notes was
repaid by the Company. The balance of $200,000 was converted into
four units of the bridge financing discussed in Note 8. Interest
expense related to these loans for 1996 amounted to $15,948.
During 1997, the Company borrowed $420,140 from a shareholder of the
Company. The loans were due on demand and provided for an interest
rate of 10% per annum. As additional consideration, the shareholder
received warrants to purchase 364,000 shares of common stock at
$5.02 exercisable over the three-year period ending December 31,
2000 (see Note 10). As of December 31, 1997, the Company repaid all
of the shareholder's loans which amounted to $420,140, plus
applicable interest of $7,075.
F-18
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - NOTES PAYABLE TO/RECEIVABLES FROM RELATED PARTIES (Continued)
Loans to Related Parties
In December 1996, the Company advanced $84,000 to a consultant and
shareholder of the Company. The full amount, plus interest at 10%
per annum, was repaid during February 1997.
During 1996, the Company advanced $5,918 to Arbat Autopark, Ltd., a
company related by virtue of common shareholders. Said advance is
non-interest bearing and outstanding at December 31, 1997.
NOTE 7 - NOTES PAYABLE - BRIDGE LOAN
In December 1996, the Company completed a private placement of 40
Units, each consisting of the Company's one-year promissory note in
the principal amount of $50,000, bearing interest at the rate of 12%
per annum, and 25,000 shares of its common stock for an aggregate
offering price of $2,000,000. Of such Units sold, four Units were
issued to two shareholders in exchange for cancellation of
promissory notes amounting to $200,000 (see Note 6).
The proceeds of such offering were used to pay accrued liabilities,
repay shareholders promissory notes of $141,000 and fund research
and development costs.
In December of 1997, the Company and the promissory note holders
agreed to extend the original maturity date from December 18, 1997
to March 18, 1998 and increase the interest rate from 12% to 15% per
annum effective on December 19, 1997. On March 6, 1998, the
promissory notes were satisfied by the Company from proceeds of a
Convertible Debenture financing completed in February of 1998.
See Note 10 for further discussion of this financing.
NOTE 8 - 8% CONVERTIBLE DEBENTURES
On November 27, 1997, the Company sold through a private placement
$3,000,000, 8% Convertible Debenture notes, due November 27, 2000.
As additional consideration, the Company issued separate warrants to
the purchasers to purchase 60,000 shares of the Company's common
stock at 110% of the market price, determined over the last five
trading days prior to November 27, 1997, or $4.73 per share. The
warrants are exercisable over two years.
See Note 10 for further discussion of the Convertible Debentures.
F-19
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 9 - INCOME TAXES
For the period from inception (May 26, 1995) to December 31, 1995,
pursuant to Internal Revenue Service Code Section 195, the Company
elected to treat its expenditures as start-up costs. These costs
totalling approximately $510,000 were treated, for income tax
purposes, as deferred expenses to be amortized on a straight-line
basis over five years.
The Company was not required to provide for a provision for income
taxes for the period ended December 31, 1995 and for the years ended
December 31, 1996 and 1997 as a result of net operating losses
incurred during these periods.
The components of deferred tax assets and liabilities at December
31, 1996 and 1997 are as follows:
1996 1997
---------- ----------
Deferred Tax Assets:
Net operating loss carryforwards $ 803,902 $ 2,562,766
Start-up costs 138,728 104,045
Temporary differences, principally
relates to tax effects of
compensatory element of stock
issuances 411,251 2,831,219
---------- ----------
Total Gross Deferred Tax Assets 1,353,881 5,498,030
Less: Valuation allowance (1,353,881) (5,498,030)
---------- ----------
Net Deferred Tax Assets $ -- $ --
========== ===========
The net change in the valuation allowance for deferred tax assets
was an increase of $4,144,149.
As of December 31, 1997, the Company had available approximately
$7,537,000 of net operating losses for income tax purposes that may
be carried forward to offset future taxable income, if any. These
carryforwards expire during the year 2015 through 2017. Pursuant to
Section 382 of the Internal Revenue Code, substantial restrictions
are imposed on the utilization of net operating loss carryforwards
in the event of an ownership change.
F-20
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 9 - INCOME TAXES (Continued)
A reconciliation of income tax expense at the statutory rate to
income tax expense at the Company's effective rate is as follows:
1996 1997
----------- -----------
Computed tax at the statutory rate $(1,182,174) $(4,230,022)
Non-deductible expenses and losses 1,702 85,873
Tax effects of temporary differences 411,251 2,419,968
Start-up costs (34,681) (34,683)
Unutilized net operating loss 803,902 1,758,864
State income taxes -- --
----------- -----------
Income Tax Expense $ -- $ --
=========== ===========
NOTE 10 - STOCKHOLDERS' DEFICIENCY
Common Stock Transactions
In May 1995, the Company issued 4,380,800 shares to its founder.
Since inception (May 26, 1995) through December 31, 1997, the
Company completed two offerings of common stock under Rule 504 and
two offerings under 506 of the Securities Act of 1933 (the "Act") as
follows:
First Offering
Under the first offering, during the period from inception (May 26,
1995) to December 31, 1995, the Company sold 2,640,000 shares of
common stock at $0.0625 per share and derived aggregate proceeds of
$165,000, of which $3,000 was due from stockholders at December 31,
1995.
During August 1995, the Company issued 440,000 shares of common
stock, valued at $27,500, to two individuals and a financial
institution as consideration for assistance in the above offerings.
During August 1995, the Company issued 600,000 shares of common
stock in connection with its purchase of a license valued at
$37,500. The shares were issued as part of the first offering.
F-21
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIENCY (Continued)
On October 10, 1995, the Company issued 600,000 non-qualified stock
options to acquire shares of common stock to three related parties
as consideration for financial public relations services, investment
banking services and legal services, valued at $75,000, in
connection with the above offerings. The options were issued outside
of the 1995 Stock Option Plan and had a term of one year commencing
January 1, 1996. All of the options were exercised on January 18,
1996 and the related 600,000 shares were issued as part of the first
offering.
Second Offering
Under the second offering, which commenced in October of 1995, the
Company sold 2,718,000 shares of common stock at $0.25 per share and
derived aggregate proceeds of $679,500. Of these 2,718,000 shares
sold, pursuant to the second offering, 1,440,000 shares were sold
during 1995 for aggregate proceeds of $360,000 and 1,278,000 shares
were sold during 1996 for aggregate proceeds of $319,500.
Third Offering/Bridge Financing
In December 1996, the Company completed a private placement (the
"Bridge Financing") of 40 Units, each consisting of the Company's
one-year promissory note in the principal amount of $50,000, bearing
interest at the rate of 12% per annum, and 25,000 shares of its
common stock for an aggregate offering price of $2,000,000, and
aggregate number of common shares of 1,000,000. Of such Units sold,
four Units were issued to two shareholders in exchange for
cancellation of promissory notes amounting to $200,000 (see Note 6).
The Units were offered and sold in reliance on an exemption from
registration pursuant to Rule 506 of Regulation D under the Act, and
only to accredited investors within the meaning of Rule 501 of
Registration D under the Act.
Under the agreement, the notes were due one year from the issuance
date. Holders of the shares of common stock issued pursuant to this
agreement have, among other things, demand and mandatory
registration rights, including penalties, which require the Company
to issue to the Unit holders up to 1,000,000 additional shares of
common stock if such shares were not registered under the Act within
the specified time frame. As of December 31, 1996, the Company
recorded an additional 500,000 shares of common stock to be issued
under the offering based on the Company's belief that it would not
meet one of the two filing deadlines. The Company did not meet
either filing deadline and, accordingly, the 500,000 additional
common shares recorded as of December 31, 1996, were issued to such
holders in April 1997, and a further 500,000 common shares were
issued to such holders in August 1997. As of their maturity in
December 1997, the Company had insufficient funds to repay such
notes and also had not yet registered the shares of common stock as
required under the agreement. Accordingly, the Company obtained the
agreement of the noteholders to extend the notes' maturity until
March 18, 1998, in consideration of the issuance to the noteholders
of an aggregate of 1,000,000 additional shares of the Company's
common stock. The Company agreed to register such shares of common
stock under the Act. Pursuant to the terms of the notes, as of
December 19, 1997, their interest rate has been increased to 15% per
annum.
F-22
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIENCY (Continued)
Furthermore, under the terms of the December 1997 extension
agreement, if by April 1, 1998 a registration statement, which shall
include all shares issued to holders of bridge notes, is not
declared effective by the Securities and Exchange Commission (the
"SEC"), then the Company will issue to each Unit holder, 12,500
shares of the Company's common stock. Effective on April 2, 1998,
and for each of the three-month period thereafter, if the
registration statement is not declared effective by the SEC, the
Company and unit holders will negotiate the number of penalty shares
to be issued.
The 3,000,000 common shares issued under the December 1996 agreement
and December 1997 extension agreement are detachable shares and are
accounted for separately from the promissory notes as an addition to
paid-in capital for the value of the stock issued and as a charge to
stockholders' deficiency for the unearned portion. The value
assigned to the 3,000,000 shares was based on fair value and
amounted to $7,444,875, of which $2,719,875 was recorded in 1996
attributable to 1,500,000 shares, and $4,725,000 was recorded in
1997 attributable 1,500,000 shares. These amounts are being
amortized on the interest method over a 12-month period and charged
to financing costs. The amount charged to financing costs for the
years ended December 31, 1996 and 1997 amounted to $226,656 and
$7,218,219, respectively.
Costs associated with this offering allocated to the promissory
notes, which amounted to $22,150, have been capitalized and are
being amortized as financing costs over the life of the notes. For
the years ended December 31, 1996 and 1997, amortization related to
the promissory note costs amounted to $1,846 and $20,304,
respectively.
Fourth Offering/8% Convertible Debentures
On November 27, 1997, the Company sold through a private placement
$3,000,000, 8% convertible debenture notes, due November 27, 2000.
As additional consideration, the Company issued separate warrants to
the purchasers to purchase 60,000 shares of the Company's common
stock at 110% of the market price, determined over the last five
trading days prior to November 27, 1997, or $4.73 per share. The
warrants are exercisable over two years.
The debenture agreement permits the holders of the debentures to
convert the debt into shares of common stock at beneficial
conversion rates based on the timing of the conversions. The
conversion feature commences at the earlier of: (i) the date the
underlying shares to the convertible debentures are registered and
declared effected by the SEC; (ii) February 25, 1998. Shares of
common stock to be issued at the conversion date shall be equal to
the outstanding principal and accrued interest at the conversion
date, divided by the conversion price. The conversion price is the
lower of $5.38 or the average bid price per share of the Company's
common stock for five trading days immediately preceding the
conversion date,
F-23
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIENCY (Continued)
multiplied by (i) 80% in the case of conversions effected prior to
May 29, 1998, (ii) 75% in the case of conversions effected on or
after May 29, 1998, but prior to November 25, 1998, and (iii) 70% in
the case of conversions effected on or after November 25, 1998.
Furthermore, the conversion price may not be less than a specified
"floor" initially set at $2.00. Commencing on November 27, 1999, all
or any portion of the remaining debt, at the option of Eurotech, is
convertible into common stock at the 70% conversion rate.
The Convertible Debenture agreement obligates the Company to
register a number of common shares equal to the sum of (i) 200% of
the number of shares of common stock into which the debentures are
convertible, (ii) interest thereon and (iii) 127,500 shares of
common stock related to the warrants. Further, the Company has
agreed that if a registration statement covering the underlying
shares of the Convertible Debenture is either not filed with the SEC
on or prior to January 15, 1998, or, if filed, is not declared
effective by the SEC on or prior to February 16, 1998, the Company
will be obligated to pay to the debenture holders liquidated damages
equal to 1% of the aggregate principal amount of the then
outstanding notes on the first day of each month until such filing
or effectiveness deficiency is cured. As of March 12, 1998, such
registration statement has not been declared effective by the SEC.
Accordingly, the Company will be liable for such damages to the
purchasers of the Convertible Debentures.
The Company has assigned a value of $1,337,143 to the beneficial
conversion feature of the debentures and $134,400 to the 60,000
warrants issued the purchasers of the Convertible Debentures. These
amounts are accounted for separately from the Convertible Debentures
as an addition to paid-in capital and as a reduction of
stockholders' equity for the unearned portion. The unearned portion
is being amortized on the interest method over the 180-day period
commencing November 27, 1997 and is charged to financing costs. For
the year ended December 31, 1997, amortization of such unearned
financing cost amounted to $277,958.
Costs in connection with the $3,000,000 Convertible Debenture
offering allocated to the Convertible Debentures, amounted to
$472,080. Such costs were comprised of: (i) legal and professional
fees amounting to $22,000, (ii) a placement fee to an unrelated
party amounting to $300,000 and (iii) the placement agent received
non-cash consideration valued at $150,080 consisting of warrants to
purchase 67,500 shares of the Company's common stock at $4.73 per
share, or 110% of Company's average closing price, determined over
the last five trading days prior to November 27, 1997. The Company
is amortizing such costs over 180 days as a financing expense
commencing November 27, 1997. For the year ended December 31, 1997,
amortization related to such costs amounted to $89,170.
F-24
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIENCY (Continued)
Other Issuances
During 1996, the Company issued 4,345,036 shares of common stock as
consideration for consulting services performed by various employees
and consultants, including related parties, through December 31,
1996. Shares issued under these arrangements were valued at
$1,209,477, which was all charged to operations during 1996.
During 1997, the Company issued 205,000 shares of common stock as
consideration for consulting services performed by various
consultants, including related parties, during the year ended
December 31, 1997. Shares issued under these arrangements were
valued at $839,550, which was all charged to operations during 1997.
General
Shares of common stock and stock options issued for other than cash
have been assigned amounts equal to the fair value of the underlying
service or assets received in the exchange. The fair market value of
the shares issued were determined by taking into consideration
restrictions on future sale, risks associated with start-up of a new
business, lack of revenues, lack of working capital and equity and
other various economic risks.
Compensation to related parities paid in the form of shares of
common stock or stock options, materially approximate amounts that
would have been paid by unrelated parties.
Warrants
At December 31, 1997, the Company had outstanding warrants to
purchase 1,426,500 shares of the Company's common stock at prices
ranging from $1 to $5.02 as described below.
Pursuant to a financial consulting agreements, in April of 1996, the
Company agreed to issue warrants to purchase 600,000 shares of
common stock. The warrants are exercisable for a period of four
years commencing May 22, 1997 at an exercise price of $1.00 per
share. To date, the Company has issued warrants to purchase 130,000
shares of common stock. The Company has not issued the remaining
470,000 warrants due to the non-performance of services and for
other business reasons (see Note 12).
In October 1996, the Company entered into two-year consulting
agreements with two individuals for certain advisory services. As
full compensation for services to be rendered to the term of the
agreements, the Company issued warrants to purchase 150,000 shares
of common stock each exercisable for a period of five years
commencing October 1, 1996 at an exercise price of $1.50 per share.
For the years ended December 31, 1996 and 1997, no warrants were
exercised.
F-25
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
As additional consideration for monies advanced the Company during
1997 (Note 6), a shareholder received warrants to purchase 364,000
common shares at a price of 110% of the average market price over
the five-day period ending November 20, 1997, or $5.02 per share.
The warrants may be exercised commencing January 1, 1998 and expire
on December 31, 2000. The warrants were assigned a value of $862,680
which was all charged to operations as a financing expense during
1997.
Pursuant to a financial consulting agreement in December of 1997, a
consultant was issued warrants to purchase 35,000 shares of common
stock at $4.73 per share. The warrants may be exercised commencing
January 1, 1998 and expire on December 31, 2000. The warrants were
assigned a value of $39,588 which was all charged to operations as a
financing expense during 1997.
Pursuant to the Convertible Debenture financing completed in
November of 1997, the Company issued to the purchasers of the
debentures warrants to purchase 60,000 shares of common stock and
issued to the placement agent warrants to purchase 67,500 shares of
common stock at $4.73 per share. The warrants may be exercised over
the two-year period ending November 27, 1999. The warrants were
valued at $284,480 and said amount will be charged to operations as
a financing cost over the 180-day period commencing November 27,
1997.
In estimating the value of warrants pursuant to the accounting
provisions SFAS 123, the Company used the following assumptions:
December 31, 1996 December 31, 1997
----------------- -----------------
Risk-free interest rate 6% 5%
Expected life 3 years 2 years
Expected volatility 30% 99.61%
Dividend yield 0 0
If such accounting provisions of SFAS 123 were applied, then the
Company's net loss and the net loss per share would have been
$3,764,983 and $.25, respectively, for the year ended December 31,
1996.
F-26
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - 1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "Option Plan") was adopted
by the Board of Directors and stockholders of the Company on
November 12, 1995. Under the Option Plan, 500,000 shares of the
Company's common stock, subject to certain adjustments, are reserved
for issuance upon the exercise of options. Options granted under the
Option Plan may be either (i) options intended to constitute
incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, or any corresponding provisions of
succeeding law (the "Code") or (ii) non-qualified stock options.
Incentive stock options may be granted under the Option Plan to
employees (including officers) of the Company or a subsidiary
corporation (or any director of, or consultant or advisor to, the
Corporation, as may be selected by the committee) thereof on the
date of grant. Non-qualified options may be granted to (i)
non-employees of the Company or a subsidiary thereof on the date of
the grant, and (ii) consultants of advisors who do not provide
bonafide services, and such services must not be in connection with
the offer or sale of securities in a capital raising transaction.
By its terms, the Option Plan is to be administered by a committee
(the "Committee") appointed by the Board of Directors which shall
consist of either the entire Board of Directors, or by a committee
of two or more persons (who may or may not be directors), and who
serve at the discretion of the Board of Directors. Subject to the
provisions of the Option Plan, the Committee has the authority to
determine the persons to whom options will be granted, the exercise
price, the term during which options may be exercised and such other
terms and conditions as it deems appropriate.
Any options granted under the Option Plan will be at the fair market
value of the common stock on the date of the grant (or 110% of the
fair market value in the case of employees holding ten percent or
more of the voting stock of the Company). Options granted under the
Option Plan will expire not more than ten years from the date of the
grant subject to earlier termination under the Option Plan. The term
of an incentive stock option granted to a 10% shareholder shall be
no more than 5 years from the date of the grant. The Option Plan
will terminate on November 12, 2005.
As of December 31, 1997, no options were granted under the Option
Plan.
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Lease Obligations
In August 1996, the Company entered into a sublease agreement to
rent office space for a period of fourteen months. On November 1,
1997, the Company renewed its lease for a five-year period. Under
the lease agreement, annual rent will amount to $48,000 for each
year, commencing November 1, 1997, subject to certain expense
adjustments.
Commencing March 1997, the Company rented office space at the
premises of Technion Entrepreneurial Incubator, Ltd., in Haifa,
Israel, on a month-to-month tenancy basis at the rate of $300 per
month.
F-27
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Rent expense for all premise operating leases was approximately
$-0-, $11,000 and $42,000 for the period ended December 31, 1995,
and the years ended December 31, 1996 and 1997, respectively.
Employment Agreement
The Company terminated the employment agreement with the former
President of the Company effective on February 28, 1998. Pursuant to
the employment agreement, the former President received: (i) a base
salary of $77,374 per year; (ii) 255,000 shares of the Company's
common stock. The 255,000 shares issued pursuant to the contract was
valued at $152,000 and was charged to operations during 1996.
Consulting Agreements/Commitments
Commencing January 1, 1997, the Company agreed to pay a consultant
and advisor to the Company who is also a shareholder of the Company,
monthly consulting fees of $16,667. This agreement expired on
December 31, 1997.
The Company engages ERBC under an oral agreement to develop business
plans, develop business opportunities in the European Union, Russian
and Ukraine and for the evaluation of various technologies held by
former instrumentalities in the former Soviet Union. The Company
paid ERBC for consulting services $177,400, $16,200 and $-0- ,
respectively, during the period from inception (May 26, 1995) to
December 31, 1995 and for the years ended December 31, 1996 and
1997.
On April 15, 1996, the Company entered into a consulting agreement
with a director and, effective January 23, 1998, the Chairman of the
Company to evaluate technologies acquired by the Company for the
purpose of introducing such technologies to potential licensees. The
agreement calls for a payment of $10,000 and issuance of 20,000
shares of common stock as consideration for services performed
through September 15, 1996. Commencing October 15, 1996 through
April 15, 1998, the Company is obligated to pay $2,000 and issue
4,000 shares of common stock on a monthly basis as compensation for
the consulting services through the earlier of April 15, 1998 or the
termination date.
F-28
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
In July 1996, as amended, the Company entered into a consulting
agreement to provide financial public relations services for a term
of two years. The agreement can be terminated by the Company at the
end of any calendar quarter by providing one week's written notice
to the consultant. The agreement provided that the consultant
initially receive monthly payments of $2,500, increased to $5,000,
effective November 1996. Also, the consultant was granted an option
to acquire up to 12,500 shares of common stock in each calendar
quarter at an exercise price equal to the ask price per share on
July 1 of each year as reported by National Quotation Bureau. During
1996 and 1997, options to acquire up to 25,000 common shares at
$2.50 per share and 50,000 common shares at $6.75 per share,
respectively, have vested under this agreement, but have not been
exercised by the consultant. Each option shall has a term of one
year.
In November 1996, the Company entered into a consulting agreement
for certain technology advisory services, including the evaluation
of nuclear waste disposal technologies acquired by the Company for
the purpose of introducing such technologies to potential licensees,
for a term of two years. The Company is obligated to pay $4,000 and
issue 20,000 shares of common stock for services performed through
November 15, 1996. Commencing December 15, 1996, the consultant is
obligated to receive $4,000 and 4,000 shares of common stock on a
monthly basis as compensation during the term of the agreement.
In December 1996, the Company entered into a consulting agreement
for certain advisory services, including directing a technology
development branch in Israel, for a term of two years. The advisor
is obligated to be paid $2,000 and issued 5,000 shares of common
stock for services performed through November 15, 1996. In addition,
commencing January 1, 1997, on a monthly basis, the advisor will
receive as compensation $1,000 and 2,000 shares of common stock
during the term of the agreement. On December 1, 1997, the agreement
was revised for a term of two years commencing on December 1, 1997.
The revised agreement states that, on a monthly basis, the
compensation will increase to 3,000 and 4,000 shares of common
stock.
In December 1996, the Company entered into a consulting agreement
for certain services, including establishing a technology
development branch is Israel, for a period of two years. The Company
is obligated in January 1997 to pay $2,000 and issued 5,000 shares
of its common stock for services rendered through the date of the
agreement. In addition, commencing January 1, 1997, the advisor will
receive as compensation $1,000 and 1,000 shares of common stock
during the term of the agreement.
In December 1996, the Company entered into a consulting agreement
with a shareholder of the Company for certain technology advisory
services, including establishing a technology development branch in
Israel, for a term of two years. Under the agreement, on April 1,
1997, the Company will pay an introductory sum of $2,000 and issue
5,000 shares of common stock. Commencing April 1, 1997, the
shareholder will receive $1,000 on a monthly basis as compensation
during the term of the agreement.
F-29
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
In December 1996, the Company entered into a consulting agreement
for certain advisory services, including managing a technology
development branch in Israel, for a term of two years. The advisor
is obligated to be paid $2,000 and issued 5,000 shares of common
stock for services performed through November 15, 1996. In addition,
commencing January 1, 1997, on a monthly basis, the advisor will
receive as compensation $1,000 and 2,000 shares of common stock
during the term of the agreement. On December 1, 1997, the agreement
was revised for a term of two years commencing on December 1, 1997.
The revised agreement states that, on a monthly basis, the
compensation will increase to $3,000 and 4,000 shares of common
stock.
Compensation paid to related parties under the above listed
consulting and other arrangements materially approximated amounts
which would be assessed by unrelated parties.
International Operations
The Company has strategic alliances, collaboration agreements and
licensing agreements with entities which are based in Russia and
Ukraine. Both of these countries have experienced volatile and
frequently unfavorable economic, political and social conditions.
The Russian economy and the Ukraine economy are characterized by
declining gross domestic production, significant inflation,
increasing rates of unemployment and underemployment, unstable
currencies, and high levels of governmental debt as compared to
gross domestic production. The prospects of wide-spread insolvencies
and the collapse of various economic sectors exist in both
countries.
In view of the foregoing, the Company's business, earnings, asset
values and prospects may be materially and adversely affected by
developments with respect to inflation, interest rates, currency
fluctuations, government policies, price and wage controls, exchange
control regulations, taxation, expropriation, social instability,
and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such
conditions and developments, and can provide no assurance that such
conditions and developments will not adversely affect the Company's
operations.
F-30
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Risk of Environmental Liability; Present Lack of Environmental
Liability Insurance
The Company's radioactive contaminant technology is subject to
numerous national and local laws and regulations relating to the
storage, handling, emission, transportation and discharge of such
materials, and the use of specialized technical equipment in the
processing of such materials. There is always the risk that such
materials might be mishandled, or that there might be equipment or
technology failures, which could result in significant claims for
personal injury, property damage, and clean-up or remediation. Any
such claims against the Company could have a material adverse effect
on the Company. The Company does not presently carry any
environmental liability insurance, and may be required to obtain
such insurance in the future in amounts that are not presently
predictable. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against
the Company (even if covered by insurance policies) for amounts
substantially in excess of applicable policy limits. Any such event
could have a material adverse effect on the Company.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash which is at
one bank. Future concentration of credit risk may arise from trade
accounts receivable. Ongoing credit evaluations of customers'
financial condition will be performed and, generally, no collateral
will be required.
Litigation
In December 1997, Raymond Dirks, Jessy Dirks, Robert Brisotti and
David Morris filed an action in the Supreme Court for the State of
New York, County of New York, against Eurotech, Ltd. for breach of
contract, seeking injunctive relief, specific performance and
monetary damages of nearly $5 million (the "Dirks Litigation"). The
Dirks Litigation arises solely from an agreement between Eurotech
and National Securities Corporation ("National") relating to
financial advisory services to be performed by National Securities
Corporation, a broker/dealer with which the plaintiffs were
affiliated and of which Raymond Dirks Research was a division.
Eurotech granted National a warrant certificate for 470,000 shares
at $1.00 per share as a retainer for general financial advisory
services. In conjunction with the separation of the plaintiffs and
Raymond Dirks Research from National Securities Corporation,
National assigned a significant portion of the warrant certificate
to the plaintiffs. It is Eurotech's position that the warrant
certificate is voidable.
The plaintiffs allege, among other things, that they are entitled to
damages composed of both the value of the stock on the date of their
purported exercise of an alleged assignment of the warrant
certificate, and the decrease in value of the price of the stock
since the date of their purported exercise. Eurotech believes that
the plaintiffs have significantly overstated their monetary damage
claim and that, having sought monetary damages, the plaintiffs are
not entitled to any type of equitable relief.
F-31
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Process was served upon Eurotech at its California office in late
January 1998. Based on the advice of its outside counsel, Eurotech
believes that the plaintiffs' claims will be resolved favorably to
the Company. However, it is possible that the Company will be
adjudged liable in the Dirks Litigation, and if so, the resolution
of the litigation could have a material adverse effect on the
Company.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Transactions
1995:
During the period from inception (May 26, 1995) to December 31,
1995, the Company issued 440,000 shares of common stock to settle
liabilities of $27,500 associated with stock offerings and issued
600,000 shares of common stock for the purchase of a license valued
at $37,500.
During the period from inception (May 26, 1995) to December 31,
1995, the Company issued stock options for 600,000 shares of common
stock to settle legal and consulting fee liabilities of $75,000
associated with stock offerings.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
1996:
During the year ended December 31, 1996, the Company issued
4,440,036 shares of common stock to settle liabilities of $1,381,736
associated with consulting services and financing costs.
1997:
During the year ended December 31, 1997, the Company issued 205,000
shares of common stock to settle liabilities of $839,550 associated
with consulting services.
NOTE 14 - ABORTED PROPOSED INITIAL PUBLIC OFFERING OF PREFERRED STOCK
In June of 1997, the Company had determined not to proceed with a
previously contemplated, initial public offering of 5,000,000 shares
of cumulative convertible preferred stock. Costs in connection
therewith, aggregating $75,000, were charged to operations during
the year ended December 31, 1997.
F-32
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 15 - SUBSEQUENT EVENTS
Technologies Acquired
Pursuant to three Technology Purchase Agreements each dated January
1, 1998, the Company has acquired from Oleg L. Figovsky, Ph.D. , a
consultant to the Company, all right, title and interest in and to
the following three unpatented technologies developed by him,
inclusive of future improvements thereto: (i) a group of related
technologies collectively known as "Interpenetrated Network
Polymers" ("INPs"), (ii) "Liquid Ebonite Material" ("LEM") and (iii)
"Rubber Concrete" ("RubCon") for purchase prices of $75,000, $15,000
and $35,000, respectively (each, a "Purchase Price"). Pursuant to
each such Technology Purchase Agreement, during 15-year period
commencing on January 1, 1998, the Company is obligated to pay to
Dr. Figovsky royalties equal to 49% of the Company's net revenues
from the sale or licensing of any products incorporating the
applicable technology, subject to the Company's right to deduct from
the first royalties payable under each agreement an aggregate sum
equal to the Purchase Price paid thereunder.
Convertible Debenture Offering
On February 23, 1998, the Company sold through a private placement
$3,000,000, 8% convertible debenture notes, due February 23, 2001.
As additional consideration, the Company issued separate warrants to
purchase 60,000 shares of the Company's common stock at $2.30 per
share. The warrants are exercisable over two years.
The debenture agreements permit the holders of the debentures to
convert the debt into shares of common stock at beneficial
conversion rates based on the timing of the conversion. The notes
conversion feature commences at the earlier of: (i) the date the
underlying shares to the convertible debenture notes are registered
and declared effected by the SEC; (ii) 90 days after February 23,
1998. Shares of common stock to be issued at the conversion date
shall be equal to the outstanding principal and accrued interest at
the conversion date, divided by the conversion price. The conversion
price is the lower of $2.62 or the average bid price per share of
the Company's common stock for five trading days immediately
preceding the conversion date, multiplied by (i) 80% for any
conversion honored prior to the 180th day after February 23, 1998,
(ii) 75% for any conversion honored on or after the 180th day and
prior to the 360th after February 23, 1998, and (iii) 70% for any
conversion honored after the 360th day after February 23, 1998.
Furthermore, the conversion price may not be less than a specified
"floor" initially set at $1.625. Commencing on February 23, 2000,
all or any portion of the remaining debt due under this financing at
the option of Eurotech is convertible into shares of common stock at
the 70% conversion rate.
Furthermore, the Company has agreed that if a Registration Statement
covering the underlying shares of the convertible note is either not
filed with the SEC on or prior to March 2, 1998 or, if filed, is not
declared effective by the SEC on or prior to March 15, 1998, the
Company will be obligated to pay to the debenture holders liquidated
damages equal to 1% of the aggregate principal amount of the then
outstanding notes on the first day of each month until such filing
or effectiveness deficiency is cured.
F-33
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 15 - SUBSEQUENT EVENTS (Continued)
The Company intends to assign a value to the debentures' beneficial
conversion feature and warrants amounting to $1,100,000, which will
be amortized over 180 days commencing February 23, 1998.
Proceeds from the sale of the 3,000,000, 8% convertible debenture
notes amounted to $2,765,000 net of costs which were comprised of:
(i) legal and professional fees amounting to $10,000, (ii) a
placement fee to an unrelated party amounting to $225,000. The legal
and placement fees of $235,000 will be recorded as deferred
financing costs and will be amortized over 180 days commencing
February 23, 1998.
Repayment of $2,000,000 Bridge Notes
On March 6, 1998, the Company repaid all of the $2,000,000 principal
due to the holders of the bridge notes from proceeds of the February
1998 Convertible Debenture offering.
F-34
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction where such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary
Risk Factors
Use of Proceeds
Dividends
Capitalization
Selected Consolidated Financial Data
Management's Discussion and Analysis
of Results of Operations and
Financial Condition
Business
Market Price of Common Stock
Management
Principal and Selling Shareholders
Certain Transactions
Description of Securities
Shares Eligible for Future Sale
Plan of Distribution
Legal Matters
Experts
Additional Information
Index to Financial Statements
------
================================================================================
EUROTECH, LTD.
15,746,440 Shares of Common Stock
----------------------------------------
PROSPECTUS
----------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below are the expenses expected to be incurred in
connection with the issuance and distribution of the securities registered
hereby. With the exception of the Securities and Exchange Commission
registration fee and the NASD filing fee, the amounts set forth below are
estimates.
Securities and Exchange Commission registration fee.................. $10,933.01
Printing and engraving expenses ..................................... *
Legal fees and expenses ............................................. *
Accounting fees and expenses ........................................ *
Blue Sky fees and expenses .......................................... *
Transfer agent fees and expenses .................................... *
Miscellaneous Expenses .............................................. *
Total ................................................ $ *
==========
- ----------
* To be furnished by amendment.
Item 14. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that the Company
shall, to the full extent permitted by Section 29-304 of the District of
Columbia Business Corporation Act, as from time to time amended and in effect
(the "BCA"), indemnify any and all persons it has the power to indemnify under
said section. Section 29-304 of the BCA grants to the Company the power to
indemnify any and all of its directors or officers or former directors of
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit or proceeding in which
they, or any of them, are made parties or a party, by reason of being or having
been directors or officers or a director or officer of the Company, or of such
other corporation, except in relation to matters as to which any such director
or officer or former director or officer or person is adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in the performance
of duty. Such indemnification is not deemed to be exclusive of any other rights
to which those indemnified may be entitled, under any bylaw, agreement, vote of
stockholders or otherwise. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against the
Company's directors and officers for breach of their fiduciary duties, even
though such action, if successful, might otherwise benefit the Company and its
stockholders.
Additionally, the Company's By-Laws provide for the indemnification of
directors and officers. The specific provisions of the By-Laws related to such
indemnification are as follows:
ARTICLE VI
INDEMNIFICATION
No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of the
<PAGE>
director's duty of loyalty to the corporation or its stockholders,
(2) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) liability which may be
specifically defined by law or (4) a transaction from which the
director derived an improper personal benefit, it being the
intention of the foregoing provision to eliminate the liability of
the corporation's directors of the corporation's directors to the
corporation or its stockholders to the fullest extent permitted by
law. The corporation shall indemnify to the fullest extent permitted
by law each person that such law grants the corporation the power to
indemnify.
The Company has obtained an officers' and directors' liability insurance
policy which will indemnify officers and directors for losses arising from any
claim by reason of a wrongful act under certain circumstances where the Company
does not indemnify such officer or director, and will reimburse the Company for
any amounts where the Company may by law indemnify any of its officers or
directors in connection with a claim by reason of a wrongful act.
Item 15. Recent Sales of Unregistered Securities
In December, 1995, the Company completed a private placement of 4,280,0001
shares of its Common Stock for an aggregate offering price of $305,000, of
which: (i) 440,000 shares were issued in exchange for services rendered in
connection with that offering, valued by the Company at $27,500; (ii) 600,000
shares were issued in exchange for certain legal, financial public relations and
investment banking services rendered to the Company and valued by the Company at
$75,000 in the aggregate; and (iii) 600,000 shares were issued in exchange for a
certain technology license, valued by the Company at $37,500. The shares were
offered and sold in reliance on an exemption from registration pursuant to Rule
504 of Regulation D under the Securities Act of 1933 (the "Act") and only to
accredited investors within the meaning of Rule 501 of the Regulation D under
the Act. The proceeds of such offering have been used as follows:
Purpose Amount
------- ------
Payment for services rendered $ 102,500
Acquisition of technology license $ 37,500
Technology development $ 165,000
In June, 1996, the Company completed a private placement of 2,718,0001
shares of its Common Stock for an aggregate offering price of $679,500. The
shares were offered and sold in reliance on an exemption from registration
pursuant to Rule 504 of Regulation D under the Securities Act of 1933 (the
"Act") and only to accredited investors within the meaning of Rule 501 of the
Regulation D under the Act. The proceeds of such offering have been used as
follows:
Purpose Amount
------- ------
Bonuses $ 20,000
Accounting Fees 22,000
Technology Development 637,500
- --------
(1) On June 1, 1996, the Company's Board of Directors authorized a four-for-one
forward split of the then outstanding shares of the Company's Common Stock. The
number of shares issued in this offering have been re-stated adjusted to reflect
such stock split.
<PAGE>
In December, 1996, the Company completed a private placement of 40 Units,
each consisting of the Company's one-year promissory note in the principal
amount of $50,000 and 25,000 shares of its Common Stock for an aggregate
offering price of $2,000,000. The Units were offered and sold in reliance on an
exemption from registration pursuant to Rule 506 of Regulation D under the Act,
and only to accredited investors within the meaning of Rule 501 of Regulation D
under the Act.
The proceeds of such offering have been used as follows:
Purpose Amount
------- ------
Legal fees $ 120,000
Accounting fees 5,000
Consulting fees 350,000
Repayment of loans 210,000
Salaries 100,000
Technology development 915,000
Reserved for working capital 300,000
In November 1997, the Company completed a private placement of $3,000,000
principal amount of its 8% Convertible Debentures due November 27, 2000 (the
"Debentures") and of Warrants to purchase up to 60,000 shares of the Company's
Common Stock (the "Warrants") (the Debentures and the Warrants, collectively,
the "Securities"). The Warrants were issued as additional consideration for the
purchase of the Debentures. The Securities were offered and sold in reliance on
an exemption from registration pursuant to Rule 506 of Regulation D under the
Act, and only to "accredited investors" within the meaning of Rule 501 of
Regulation D. See "Management's Discussion and Analysis of Results of Operation
and Financial Condition -- Liquidity and Capital Resources." The proceeds of
such offering have been and will be used as follows:
Purpose Amount
------- ------
Technology acquisition and $ 1,000,000
development
Interest on debt 678,000
Working capital 1,000,000
In February 1998 the Company completed a private placement of $3,000,000
principal amount of its 8% Convertible Debentures due February 23, 2001 (the
"Debentures") and of Warrants to purchase up to 60,000 shares of the Company's
Common Stock (the "Warrants") (the Debentures and the Warrants, collectively,
the "Securities"). The Warrants were issued as additional consideration for the
purchase of the Debentures. The Securities were offered and sold in reliance on
an exemption from registration pursuant to Rule 506 under Regulation D under the
Act, and only to "accredited investors" within the meaning of Rule 501 of
Regulation D. See "Management's Discussion and Analysis of Results of Operation
and Financial Condition -- Liquidity and Capital Resources." The proceeds of
such offering have been and will be used as follows:
Purpose Amount
------- ------
Retirement of Debt $ 2,000,000
Working Capital 765,000
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
No. Description of Exhibit
------- ----------------------
3.1 Certificate of Incorporation of the Company(1)
3.2 By-Laws of the Company(1)
4.1 Form of Common Stock Certificate(1)
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP(2)
10.1 Material Contracts(1)
10.2 Technology Purchase Agreement between the Company and
Oleg L. Figovsky(2)
10.3 Technology Purchase Agreement between the Company and
Oleg L. Figovsky(2)
10.4 Technology Purchase Agreement between the Company and
Oleg L. Figovsky(2)
10.5 Teaming Agreement between the Company and Duke
Engineering & Services, Inc.(2)
10.6.1 Form of Agreement between the Company, V. Rosenband,
C. Sokolinsky, and Ofek Le-Oleh Foundation(2)
10.6.2 Equity Sharing Agreement between the Company, V.
Rosenband and C. Sokolinsky(2)
10.6.3 Voting Agreement between the Company, V. Rosenband and
C. Sokolinsky(2)
10.7.1 Investment Agreement between the Company and Chemonol,
Ltd.(2)
10.7.2 Equity Sharing Agreement between the Company and Leonid
Shapovalov(2)
10.7.3 Voting Agreement between the Company and Leonid
Shapovalov(2)
10.8.1 Agreement between the Company and Separator, Ltd.(2)
10.8.2 Equity Sharing Agreement between the Company and Efim
Broide(2)
10.8.3 Voting Agreement between the Company and Efim Broide(2)
10.9.1 Form of Agreement between the Company, Ofek Le-Oleh
Foundation and Y. Kopit(2)
10.9.2 Equity Sharing Agreement between the Company, Y. Kopit
and V. Rosenband(2)
10.9.3 Voting Agreement between the Company, Y. Kopit and V.
Rosenband(2)
10.10 Form of License Agreement between the Company and ERBC
Holdings, Ltd.(2)
10.11 Cooperation Agreement between the Company and
Forschungszentrum Julich GmbH(2)
10.12.1 Convertible Debenture Purchase Agreement among the
Company, JNC Opportunity Fund, Ltd. and Diversified
Strategies Fund, L.P.(2)
10.12.2 Escrow Agreement among the Company, JNC Opportunity
Fund, Ltd., Diversified Strategies Fund, L.P. and
Robinson Silverman Pearce Aronsohn & Berman, LLP(2)
10.12.3 Registration Rights Agreement among the Company, JNC
Opportunity Fund, Ltd. and Diversified Strategies Fund,
L.P.(2)
10.12.4 Form of 8% Convertible Debenture Due November 27, 2000
between the Company and JNC Opportunity Fund, Ltd.(2)
10.12.5 Form of 8% Convertible Debenture Due November 27, 2000
between the Company and Diversified Strategies Fund,
L.P.(2)
10.12.6 Warrant No. 1 between the Company and JNC Opportunity
Fund, Ltd.(2)
10.12.7 Warrant No. 2 between the Company and Diversified
Strategies Fund, L.P.(2)
10.12.8 Warrant No. 3 between the Company and Diversified
Strategies Fund, L.P.(2)
10.13.1 Convertible Debenture Purchase Agreement between the
Company and JNC Opportunity Fund, Ltd.(2)
10.13.2 Escrow Agreement among the Company, JNC Opportunity
Fund, Ltd. and Robinson Silverman Pearce Aronsohn &
Berman, LLP(2)
10.13.3 Registration Rights Agreement between the Company and
JNC Opportunity Fund, Ltd.(2)
10.13.4 Form of 8% Convertible Debenture Due February 23, 2001
between the Company and JNC Opportunity Fund, Ltd.(2)
10.13.5 Warrant No. 3 between the Company and JNC Opportunity
Fund, Ltd.(2)
23.1 Consent of Tabb, Conigliaro & McGann(2)
23.2 Consent of Phillips Nizer Benjamin Krim & Ballon LLP
(included in Exhibit 5.1)
24.1 Power of Attorney (included in Part II)
27 Financial Data Schedule(2)
(b) Financial Statement Schedules
All other financial statement schedules are omitted because the
information is not required, is not material or is otherwise included in the
financial statements or related notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
- --------
(1) Incorporated by reference to the Company's Registration Statement on Form 10
under the Securities Exchange Act of 1934, on file with the Commission.
(2) Filed herewith.
<PAGE>
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus 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.
The undersigned Registrant hereby further undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any acts 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 the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned in Washington, D.C., on March 19, 1998.
EUROTECH, LTD.
By:/s/ Peter Gulko
--------------------------
Peter Gulko
POWER OF ATTORNEY
Each of the undersigned does hereby constitute and appoint James D.
Watkins, and each of them acting singly, his attorneys-in-fact and agents, with
full power of substitution, to execute for him in his name, and in any and all
of his capacities, any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform every act and thing required or necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Titles Date
--------- ------ ----
/s/ James D. Watkins Director and Chairman March 19, 1998
- ---------------------------
/s/ Maxwell Rabb Director March 19, 1998
- ---------------------------
/s/ Lawrence McQuade Director March 19, 1998
- ---------------------------
/s/ Peter Gulko President, Secretary March 19, 1998
- --------------------------- and Principal
Financial Officer
March 19, 1998
Eurotech, Ltd.
1101 30th Street, N.W.
Suite 500
Washington, D.C. 20007-3772
Re: Eurotech, Ltd.;
Registration Statement on Form S-1
Gentlemen:
We refer to the above-captioned registration statement on Form S-1 (the
"Registration Statement") filed under the Securities Act of 1933, as amended
(the "1933 Act"), by Eurotech, Ltd., a District of Columbia corporation (the
"Company"), with the Securities and Exchange Commission, relating to a proposed
offering by certain existing shareholders of the Company (the "Selling
Shareholders") of 15,746,440 shares of the Company's Common Stock (the
"Shares").
Terms used herein that are defined in the Registration Statement and not
otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement.
We have examined the originals or photocopies or certified copies of such
records of the Company, certificates of officers of the Company and public
officials, and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures (except for those of representatives
of the Company), the authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as certified copies
or photocopies and the authenticity of the originals of such latter documents.
Based on our examination mentioned above, and such other investigation as
we have deemed necessary, and assuming effectiveness of the Registration
Statement and payment in full for those of the Shares to be issued upon
conversion of outstanding convertible debentures and upon exercise of options
and warrants as more fully described in the Registration Statement, we are of
the opinion that the Shares to be sold by the Selling Shareholders pursuant to
the Registration Statement, are duly authorized, legally and validly issued,
fully paid and nonassessable.
<PAGE>
Eurotech, Ltd.
March 19, 1998
Page 2
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the references to our firm under "Legal Matters"
in the related Prospectus. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
PHILLIPS NIZER BENJAMIN
KRIM & BALLON LLP
By: /s/ Vincent J. McGill
--------------------------
A Partner
Technology Purchase Agreement
This Technology Purchase Agreement (the Agreement) is made and entered
into this 1st day of January, 1998 by and between Prof. Oleg L. Figovsky with
offices located at 41/5 Ratner str., Haifa 32802, Israel (referred to herein as
the "Inventor") and Eurotech, Ltd., a District of Columbia corporation with
offices at 1200 Prospect Street, Suite 425, La Jolla, California 92037 USA
("Company").
RECITALS
A. Inventor is the developer of the technology known as Liquid Ebonite
Material in application to the Chemical Industry as a substitute for existing
rubber coatings as protection for materials in contact with aggressive media
(the Technology) a description of which and the uses therefor are set forth in
Schedule A hereto ("the Technology"). It is also understood that the Technology
is applicable to the Oil and Gas Pipeline Industry and that the Technology may
substitute and or compete with existing epoxy coatings. With the knowledge that
the approval and development process for the Technology may take some time, the
parties of this Agreement have agreed that the conditions of this Agreement will
apply to the Technology in application to the Chemical Industry only. At the
same time, the Inventor commits to sign an agreement with the Company at a later
date for the application of the Technology to the Oil and Gas Pipeline Industry
under the terms later discussed and will not transfer the rights for the
Technology application to the Oil and Gas Pipeline Industry to any other Party
B. Inventor is willing to sell and assign the Technology to the Company on
the terms and conditions set forth herein.
AGREEMENTS
In consideration of the foregoing premises, and of the agreements,
covenants, representations, warranties, and indemnities contained herein, the
parties hereto agree as follows:
1. Sale and Assignment
1.1 Sale and Transfer of Interests. Inventor hereby sells, assigns, and
transfers to the Company all of his right, title, and interest in and to the
Technology, including each and every invention, whether machine, manufacture,
method, composition or design, or any of them, or system concepts which employ
the Technology, as subject to the provisions of Section 3.1 hereof.
1.2 Additional Assistance. Inventor shall, upon request from the Company,
execute any further instruments or documents and take any additional actions
which further the intent of this Article I. The obligations of the Inventor to
assist the Company shall continue beyond the termination of their employment by
the Company, but the Company shall compensate Inventor at a reasonable rate
after such termination for time actually spent by the Inventor at the Company's
request of such assistance.
2. Consideration
In consideration of the sale and assignment of the Technology, the Company
(i) shall pay Inventor the sum of fifteen thousand United States dollars
(US$15,000) (the "Purchase Price") upon the execution hereof, and (ii) for a
period of 15 years from the date hereof, the Company shall pay to Inventor a
royalty equal to forty nine percent (49%) of net revenues generated by the
Company from the sale or license of any products incorporating the Technology,
provided,
<PAGE>
however, that the Company shall be entitled to deduct the entire amount of the
Purchase Price from the first royalty payments which become due to Inventor
hereunder until the entire Purchase Price shall have been repaid in full.
3. Improvements and Patents
3.1 Improvements. Inventor covenants that any improvements to the
Technology developed or invented by the Inventor, after the date hereof, except
any improvement as to which the Inventors can prove that (a) no equipment,
supplies, facility, or trade secret information of the Company was used; (b) it
was developed entirely on the Inventor's own time; and (c)(i) it does not relate
to the business or the actual or demonstrably anticipated research or
development of the Company; or. (ii) it does not result from any work performed
by the Inventor for the Company, shall belong solely to the Company, and the
Inventor shall promptly inform the Company thereof and provide the Company with
any documentation necessary or desirable to enable the Company to practice fully
such improvements.
3.2 Applications. Upon the request of and at the expense of the Company,
the Inventor shall file such applications for letters patent or copyrights in
the United States, or in foreign countries, on the Technology and improvements
thereto, as the Company deems necessary. Inventor shall, coincident with such
application, assign it to the Company, or, as otherwise requested by the
Company, convey all right, title, and interest in and to such application.
4. Inventor's Representations
Inventor represents and warrants as follows:
(a) that he is the sole owner of all title and interest in the Technology
and has not assigned or hypothecated any rights in or to any of the
Technology.
(b) that he does not have rights to any other trade secret, or other
proprietary information, patents, copyrights, patent applications, or
other patentable inventions in the same field as the Technology.
(c) to the best of his knowledge, without having conducted any special
investigation, that the Technology does not infringe upon any letters
patent heretofore issued in the United States or upon any other
applications for letters patent.
(d) to the best of his knowledge, that the manufacture, marketing, and use
of products embodying the Technology will not require the unauthorized use
of any technology to which any third parties have proprietary rights, and
to the best of his knowledge, without having conducted any special
investigation, that such manufacturing, marketing, and use will not
involve infringement or claimed infringement by the Company of any
copyright, trademark, trade name, service mark, trade secret, or other
proprietary right of any other person.
(e) that there are no outstanding options, licenses, or agreement of any
kind relating to the Technology or to the manufacture, use, or sale of the
Technology or improvements thereto.
(f) that he has full power to grant the rights, licenses, and privileges
herein given.
(g) that any invention, development, or modification made by the Inventor
and amounting to an improvement to the Technology shall be added to this
Agreement, in accordance with the other terms of this Agreement.
(h) that the Inventor shall enjoy no right, title, or interest in any
improvements to the Technology made by the Company, its employees, or
licensees.
<PAGE>
(i) that he has been advised by counsel of the actions which he might take
to impair the validity or enforceability of the Technology, and that he
has not taken any such actions.
5. Inventor's Covenants
5.1 As soon as practicable following the execution of this Agreement, the
Inventor shall deliver to the Board of Directors of the Company in written form
all such documentation, paperwork, computer code, and other written or
electronic media as the Company may request, containing all proprietary and
trade secret information relating to the Technology. The Company will treat such
information with the same degree of care as it treats its other confidential
information and will use its best efforts to prevent unauthorized disclosure
thereof.
5.2 Assistance in Utilizing Technology. While an employee of or consultant
to the Company, Inventor shall assist the Company's employees in utilizing all
existing and future information which the Company or its employees own or might
obtain in order to use fully and efficiently the Technology or any improvements
thereto.
5.3 Confidentiality. The Inventor agrees that he will not disclose any
proprietary information of the Company with respect to the Technology and any
improvements thereto to any other person or entity (except to employees of the
Company in connection with their performance as employees, or to prospective
employees of the Company who sign appropriate nondisclosure agreements) without
the written consent of the Company's Board of Directors, nor will he use the
Technology for the benefit of any person or entity other than the Company
without such consent. This covenant shall survive the termination of this
Agreement, except for termination pursuant to Articles 6 or 7.
6. Litigation
6.1 Prosecution by Company. The Company shall have the sole right to
prosecute any action, suit, or proceeding necessary to prevent the infringement
by others of any protectable Technology, shall pay all expenses associated with
any such action, suit, or proceeding, and shall retain all sums recovered
therefrom.
6.2 Defense. The Company shall defend all actions, suits, or proceedings
based on claims that may be brought against it and the Inventor on account of
the ownership, manufacture, use, or sale of the Technology, shall pay all
expenses associated with such action, suit, or proceeding, and shall, subject to
the other provisions of this article 6, pay all sums for which the Company is
liable as a result thereof; provided, however, that if the Inventor elects to
participate actively in the defense of any such action, suit, or proceeding, the
Inventor shall pay all its own expenses. In any event, Inventor shall be
entitled to receive copies of all filings and documents and to participate in
all meetings in connection with such action, suit, or proceeding; provided that
the Company reserves the right not to disclose or provide any documents or
portion thereof, and to exclude the Inventor from any meeting or portion
thereof, if such disclosure or attendance by Inventor could, in the opinion of
counsel to the Company, adversely affect the attorney-client privilege between
the Company and its counsel.
6.3 Assistance. In connection with any such actions, suits, or
proceedings, the Inventor shall assist the Company and shall testify, whenever
requested to do so by the Company at the Company's expense, and shall execute
all agreements, instruments, or other documents necessary or desirable for such
assistance.
7. Development of Technology
7.1 Funding. The Company agrees to budget and to make available in the
frame of the mutually agreed budget of the Israel Research Center the funds
needed for transfer of the Technology to the Company which may include but are
not limited to the preparation of the samples, needed research, travel,
patenting, and other associated costs.
<PAGE>
7.2 Repurchase of Technology. In the event that the Company materially
breaches its obligation under Section 7.1, the Inventor shall have the right to
purchase and receive all of the Technology (including all improvements thereon,
source and object code, marketing materials, and other documentation with
respect to the Technology and improvements) for the sum of $1.00.
7.3 Repurchase of Equipment. If the Inventor exercises its rights under
Section 7.2, the Inventor shall also have the right to purchase and receive all
equipment purchased by the Company after the date hereof specifically in
connection with the development and production of the products based on the
Technology and improvements thereto at a price equal to the sum of the aggregate
cost of such equipment incurred by the Company and depreciation of such
equipment to the date of purchase by the Inventors.
7.4 Exercise of Repurchase Option. The Inventor may, on or before the
earlier of sixty days after such breach or one year after the date hereof,
exercise his rights under Section 7.2 and 7.3 by executing and delivering to the
Company a written notice as provided in Section 8.7 which notice shall specify
the facts constituting the breach and that the Inventor is exercising such
rights. The date, time, and place of such purchases shall be established by
mutual agreement of the parties, but in no event more than ninety days after the
date of the notice.
8. Miscellaneous
8.1 Survival of Warranties. The warranties, representations, and covenants
of the Inventors and covenants of the Company contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the other parties hereto.
8.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties, except that the rights of the Inventor contained in
Article VII are not assignable (except by will or by the laws of descent and
distribution) and any such attempted assignment shall be null and void. Nothing
in this Agreement, express or implied, is intended to confer upon any parry
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement
8.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the state of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the U.S. Post Office, by registered or certified mail, postage prepaid, and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
8.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Inventor.
<PAGE>
8.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Inventor: Company:
Prof. OLEG L. FIGOVSKY EUROTECH, LTD.
/s/ Oleg L. Figovsky By:/s/ Randolph Graves, Jr.
-------------------- ----------------------------
Chief Executive Officer
<PAGE>
Schedule A.
LIQUID EBONITE MATERIAL
Liquid Ebonite Material (LEM) are a type of liquid rubber with superior
mechanical, permeable and anticorrosive properties in comparison to conventional
sheet rubber coverings. LEM coverings display excellent resistance to such harsh
chemicals as acids, alkalis, benzene, etc., and can be applied as a protective
covering for materials with intricate surfaces, such as the mesh of sieves,
helping to facilitate its operation. LEM coverings are most efficient in
protecting the intricately shared and perforated parts of pumps, fans,
centrifuge rotors, small-diameter pipes and outlets. LEM can be easily applied
using such simple coating techniques as brushing, spraying or dipping. LEM can
be utilized in various industries such as the chemical, oil, and gas pipeline
industries.
Technology Purchase Agreement
This Technology Purchase Agreement (the Agreement) is made and entered
into this 1st day of January, 1998 by and between Prof. Oleg L. Figovsky with
offices located at 41/5 Ratner str., Haifa 32802, Israel (referred to herein as
the "Inventor") and Eurotech, Ltd., a District of Columbia corporation with
offices at 1200 Prospect Street, Suite 425, La Jolla, California 92037 USA
("Company").
RECITALS
A. Inventor is the developer of a certain technology known as Rubber
Concrete, a description of which and the uses therefor are set forth in
Schedule A hereto (the "Technology").
B. The Inventor is willing to sell and assign the Technology to the
Company on the terms and conditions herein set forth.
AGREEMENTS
In consideration of the foregoing premises, and of the agreements,
covenants, representations, warranties, and indemnities contained herein, the
parties hereto agree as follows:
1. Sale and Assignment
1.1 Sale and Transfer of Interests. Inventor hereby sells, assigns, and
transfers to the Company all of his right, title, and interest in and to the
Technology, including each and every invention, whether machine, manufacture,
method, composition or design, or any of them, or system concepts which employ
the Technology, as subject to the provisions of Section 3.1 hereof.
1.2 Additional Assistance. Inventor shall, upon request from the Company,
execute any further instruments or documents and take any additional actions
which further the intent of this Article 1. The obligations of the Inventor to
assist the Company shall continue beyond the termination of their employment by
the Company, but the Company shall compensate Inventor at a reasonable rate
after such termination for time actually spent by the Inventor at the Company's
request of such assistance.
2. Consideration
In consideration of the sale and assignment of the Technology, the Company
(i) shall pay Inventor the sum of thirty five thousand United States dollars
(US$35,000) (the "Purchase Price") upon the execution hereof, and (ii) for a
period of 15 years from the date hereof, the Company shall pay to Inventor a
royalty equal to forty nine percent (49%) of net revenues generated by the
Company from the sale or license of any products incorporating the Technology,
provided, however, that the Company shall be entitled to deduct the entire
amount of the Purchase Price from the first royalty payments which become due to
Inventor hereunder until the entire Purchase Price shall have been repaid in
full.
3. Improvements and Patents
3.1 Improvements. Inventor covenants that any improvements to the
Technology developed or invented by the Inventor, after the date hereof, except
any improvement as to which the Inventors can prove that (a) no equipment,
<PAGE>
supplies, facility, or trade secret information of the Company was used; (b) it
was developed entirely on the Inventor's own time; and (c)(i) it does not relate
to the business or the actual or demonstrably anticipated research or
development of the Company; or (ii) it does not result from any work performed
by the Inventor for the Company, shall belong solely to the Company, and the
Inventor shall promptly inform the Company thereof and provide the Company with
any documentation necessary or desirable to enable the Company to practice fully
such improvements.
3.2 Applications. Upon the request of and at the expense of the Company,
the Inventor shall file such applications for letters patent or copyrights in
the United States, or in foreign countries, on the Technology and improvements
thereto, as the Company deems necessary. Inventor shall, coincident with such
application, assign it to the Company, or, as otherwise requested by the
Company, convey all right, title, and interest in and to such application.
4. Inventor's Representations
Inventor represents and warrants as follows:
(a) that he is the sole owner of all title and interest in the Technology
and has not assigned or hypothecated any rights in or to any of the
Technology.
(b) that he does not have rights to any other trade secret, or other
proprietary information, patents, copyrights, patent applications, or
other patentable inventions in the same field as the Technology.
(c) to the best of his knowledge, without having conducted any special
investigation, that the Technology does not infringe upon any letters
patent heretofore issued in the United States or upon any other
applications for letters patent.
(d) to the best of his knowledge, that the manufacture, marketing, and use
of products embodying the Technology will not require the unauthorized use
of any technology to which any third parties have proprietary rights, and
to the best of his knowledge, without having conducted any special
investigation, that such manufacturing, marketing, and use will not
involve infringement or claimed infringement by the Company of any
copyright, trademark, trade name, service mark, trade secret, or other
proprietary right of any other person.
(e) that there are no outstanding options, licenses, or agreement of any
kind relating to the Technology or to the manufacture, use, or sale of the
Technology or improvements thereto.
(f) that he has full power to grant the rights, licenses, and privileges
herein given.
(g) that any invention, development, or modification made by the Inventor
and amounting to an improvement to the Technology shall be added to this
Agreement, in accordance with the other terms of this Agreement.
(h) that the Inventor shall enjoy no right, title, or interest in any
improvements to the Technology made by the Company, its employees, or
licensees.
(i) that he has been advised by counsel of the actions which he might take
to impair the validity or enforceability of the Technology, and that he
has not taken any such actions.
<PAGE>
5. Inventor's Covenants
5.1 As soon as practicable following the execution of this Agreement, the
Inventor shall deliver to the Board of Directors of the Company in written form
all such documentation, paperwork, computer code, and other written or
electronic media as the Company may request, containing all proprietary and
trade secret information relating to the Technology. The Company will treat such
information with the same degree of care as it treats its other confidential
information and will use its best efforts to prevent unauthorized disclosure
thereof.
5.2 Assistance in Utilizing Technology. While an employee of or consultant
to the Company, Inventor shall assist the Company's employees in utilizing all
existing and future information which the Company or its employees own or might
obtain in order to use fully and efficiently the Technology or any improvements
thereto.
5.3 Confidentiality. The Inventor agrees that he will not disclose any
proprietary information of the Company with respect to the Technology and any
improvements thereto to any other person or entity (except to employees of the
Company in connection with their performance as employees, or to prospective
employees of the Company who sign appropriate nondisclosure agreements) without
the written consent of the Company's Board of Directors, nor will he use the
Technology for the benefit of any person or entity other than the Company
without such consent. This covenant shall survive the termination of this
Agreement, except for termination pursuant to Articles 6 or 7.
6. Litigation
6.1 Prosecution by Company. The Company shall have the sole right to
prosecute any action, suit, or proceeding necessary to prevent the infringement
by others of any protectable Technology, shall pay all expenses associated with
any such action, suit, or proceeding, and shall retain all sums recovered
therefrom.
6.2 Defense. The Company shall defend all actions, suits, or proceedings
based on claims that may be brought against it and the Inventor on account of
the ownership, manufacture, use, or sale of the Technology, shall pay all
expenses associated with such action, suit, or proceeding, and shall, subject to
the other provisions of this article 6, pay all sums for which the Company is
liable as a result thereof; provided, however, that if the Inventor elects to
participate actively in the defense of any such action, suit, or proceeding, the
Inventor shall pay all its own expenses. In any event, Inventor shall be
entitled to receive copies of all filings and documents and to participate in
all meetings in connection with such action, suit, or proceeding; provided that
the Company reserves the right not to disclose or provide any documents or
portion thereof, and to exclude the Inventor from any meeting or portion
thereof, if such disclosure or attendance by Inventor could, in the opinion of
counsel to the Company, adversely affect the attorney-client privilege between
the Company and its counsel.
6.3 Assistance. In connection with any such actions, suits, or
proceedings, the Inventor shall assist the Company and shall testify, whenever
requested to do so by the Company at the Company's expense, and shall execute
all agreements, instruments, or other documents necessary or desirable for such
assistance.
7. Development of Technology
7.1 Funding. The Company agrees to budget and to make available in the
frame of the mutually agreed budget of the Israel Research Center the funds
needed for transfer of the Technology to the Company which may include but are
not limited to the preparation of the samples, needed research, travel,
patenting, and other associated costs.
<PAGE>
7.2 Repurchase of Technology. In the event that the Company materially
breaches its obligation under Section 7.1, the Inventor shall have the right to
purchase and receive all of the Technology (including all improvements thereon,
source and object code, marketing materials, and other documentation with
respect to the Technology and improvements) for the sum of $1.00.
7.3 Repurchase of Equipment. If the Inventor exercises its rights under
Section 7.2, the Inventor shall also have the right to purchase and receive all
equipment purchased by the Company after the date hereof specifically in
connection with the development and production of the products based on the
Technology and improvements thereto at a price equal to the sum of the aggregate
cost of such equipment incurred by the Company and depreciation of such
equipment to the date of purchase by the Inventors.
7.4 Exercise of Repurchase Option. The Inventor may, on or before the
earlier of sixty days after such breach or one year after the date hereof,
exercise his rights under Section 7.2 and 7.3 by executing and delivering to the
Company a written notice as provided in Section 8.7 which notice shall specify
the facts constituting the breach and that the Inventor is exercising such
rights. The date, time, and place of such purchases shall be established by
mutual agreement of the parties, but in no event more than ninety days after the
date of the notice.
8. Miscellaneous
8.1 Survival of Warranties. The warranties, representations, and covenants
of the Inventors and covenants of the Company contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the other parties hereto.
8.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties, except that the rights of the Inventor contained in
Article VII are not assignable (except by will or by the laws of descent and
distribution) and any such attempted assignment shall be null and void. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the state of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the U.S. Post Office, by registered or certified mail, postage prepaid, and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
8.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either
<PAGE>
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Inventor.
8.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Inventor: Company:
Prof. OLEG L. FIGOVSKY EUROTECH, LTD.
/s/ Oleg L. Figovsky By:/s/ Randolph Graves, Jr.
-------------------- ----------------------------
Chief Executive Officer
<PAGE>
Schedule A.
RUBCON
RubCon is an advanced polymer based concrete that utilizes polybutadiene -- a
type of polymer from the liquid rubber family -- as a material that binds
various aggregates into what is essentially a rubber concrete. Polybutadiene is
used as a sole binder as to oppose to the conventional mineral cements with
occasional addition of the polymers. In addition to unique elastic properties,
RubCon is extremely resistant to aggressive chemicals, highly repellant to
water, and has remarkable compression strength. RubCon's can be utilized in a
multitude of applications surpassing the boundaries that limit conventional
cementitious concrete. Such applications include: industrial flooring,
containment structures, seismic reinforcement, support foundations, overlay
applications, underground structures, sleepers for high-speed railways,
pickling, galvanic, electrolysis baths and many more.
Technology Purchase Agreement
This Technology Purchase Agreement (the Agreement) is made and entered
into this 1st day of January, 1998 by and between Prof. Oleg L. Figovsky with
offices located at 41/5 Ratner str., Haifa 32802, Israel (referred to herein as
the "Inventor") and Eurotech, Ltd., a District of Columbia corporation with
offices at 1200 Prospect Street, Suite 425, La Jolla, California 92037 USA
(Company).
RECITALS
A. Inventor is the developer of a certain family of technologies
collectively known as interpenetrated networks polymers which includes,
NIPU, epoxy NIPU, and Siloxane NIPU's and related compounds and
technologies, a description of which and the uses therefor are set forth
in Schedule A hereto (the "Technology").
B. The Inventor is willing to sell and assign the Technology to the
Company on the terms and conditions herein set forth.
AGREEMENTS
In consideration of the foregoing premises, and of the agreements,
covenants, representations, warranties, and indemnities contained herein, the
parties hereto agree as follows:
1. Sale and Assignment
1.1 Sale and Transfer of Interests. Inventor hereby sells, assigns, and
transfers to the Company all of his right, title, and interest in and to the
Technology, including each and every invention, whether machine, manufacture,
method, composition or design, or any of them, or system concepts which employ
the Technology, as subject to the provisions of Section 3.1 hereof.
1.2 Additional Assistance. Inventor shall, upon request from the Company,
execute any further instruments or documents and take any additional actions
which further the intent of this Article 1. The obligations of the Inventor to
assist the Company shall continue beyond the termination of their employment by
the Company, but the Company shall compensate Inventor at a reasonable rate
after such termination for time actually spent by the Inventor at the Company's
request of such assistance.
2. Consideration
In consideration of the sale and assignment of the Technology, the Company
(i) shall pay Inventor the sum of seventy five thousand United States dollars
(US$75,000) (the "Purchase Price") upon the execution hereof, and (ii) for a
period of 15 years from the date hereof, the Company shall pay to Inventor a
royalty equal to forty nine percent (49%) of net revenues generated by the
Company from the sale or license of any products incorporating the Technology,
provided, however, that the Company shall be entitled to deduct the entire
amount of the Purchase Price from the first royalty payments which become due to
Inventor hereunder until the entire Purchase Price shall have been repaid in
full.
<PAGE>
3. Improvements and Patents
3.1 Improvements. Inventor covenants that any improvements to the
Technology developed or invented by the Inventor, after the date hereof, except
any improvement as to which the Inventors can prove that (a) no equipment,
supplies, facility, or trade secret information of the Company was used; (b) it
was developed entirely on the Inventor's own time; and (c)(i) it does not relate
to the business or the actual or demonstrably anticipated research or
development of the Company; or (ii) it does not result from any work performed
by the Inventor for the Company, shall belong solely to the Company, and the
Inventor shall promptly inform the Company thereof and provide the Company with
any documentation necessary or desirable to enable the Company to practice fully
such improvements.
3.2 Applications. Upon the request of and at the expense of the Company,
the Inventor shall file such applications for letters patent or copyrights in
the United States, or in foreign countries, on the Technology and improvements
thereto, as the Company deems necessary. Inventor shall, coincident with such
application, assign it to the Company, or, as otherwise requested by the
Company, convey all right, title, and interest in and to such application.
4. Inventor's Representations
Inventor represents and warrants as follows:
(a) that he is the sole owner of all title and interest in the Technology
and has not assigned or hypothecated any rights in or to any of the
Technology.
(b) that he does not have rights to any other trade secret, or other
proprietary information, patents, copyrights, patent applications, or
other patentable inventions in the same field as the Technology.
(c) to the best of his knowledge, without having conducted any special
investigation, that the Technology does not infringe upon any letters
patent heretofore issued in the United States or upon any other
applications for letters patent.
(d) to the best of his knowledge, that the manufacture, marketing, and use
of products embodying the Technology will not require the unauthorized use
of any technology to which any third parties have proprietary rights, and
to the best of his knowledge, without having conducted any special
investigation, that such manufacturing, marketing, and use will not
involve infringement or claimed infringement by the Company of any
copyright, trademark, trade name, service mark, trade secret, or other
proprietary right of any other person.
(e) that there are no outstanding options, licenses, or agreement of any
kind relating to the Technology or to the manufacture, use, or sale of the
Technology or improvements thereto.
(f) that he has full power to grant the rights, licenses, and privileges
herein given.
(g) that any invention, development, or modification made by the Inventor
and amounting to an improvement to the Technology shall be added to this
Agreement, in accordance with the other terms of this Agreement.
(h) that the Inventor shall enjoy no right, title, or interest in any
improvements to the Technology made by the Company, its employees, or
licensees.
<PAGE>
(i) that he has been advised by counsel of the actions which he might take
to impair the validity or enforceability of the Technology, and that he
has not taken any such actions.
5. Inventor's Covenants
5.1 As soon as practicable following the execution of this Agreement, the
Inventor shall deliver to the Board of Directors of the Company in written form
all such documentation, paperwork computer code, and other written or electronic
media as the Company may request, containing all proprietary and trade secret
information relating to the Technology. The Company will treat such information
with the same degree of care as it treats its other confidential information and
will use its best efforts to prevent unauthorized disclosure thereof.
5.2 Assistance in Utilizing Technology. While an employee of or consultant
to the Company, Inventor shall assist the Company's employees in utilizing all
existing and future information which the Company or its employees own or might
obtain in order to use fully and efficiently the Technology or any improvements
thereto.
5.3 Confidentiality. The Inventor agrees that he will not disclose any
proprietary information of the Company with respect to the Technology and any
improvements thereto to any other person or entity (except to employees of the
Company in connection with their performance as employees, or to prospective
employees of the Company who sign appropriate nondisclosure agreements) without
the written consent of the Company's Board of Directors, nor will he use the
Technology for the benefit of any person or entity other than the Company
without such consent. This covenant shall survive the termination of this
Agreement, except for termination pursuant to Articles 6 or 7.
6. Litigation
6.1 Prosecution by Company. The Company shall have the sole right to
prosecute any action, suit, or proceeding necessary to prevent the infringement
by others of any protectable Technology, shall pay all expenses associated with
any such action, suit, or proceeding, and shall retain all sums recovered
therefrom.
6.2 Defense. The Company shall defend all actions, suits, or proceedings
based on claims that may be brought against it and the Inventor on account of
the ownership, manufacture, use, or sale of the Technology, shall pay all
expenses associated with such action, suit, or proceeding, and shall, subject to
the other provisions of this article 6, pay all sums for which the Company is
liable as a result thereof; provided, however, that if the Inventor elects to
participate actively in the defense of any such action, suit, or proceeding, the
Inventor shall pay all its own expenses. In any event, Inventor shall be
entitled to receive copies of all filings and documents and to participate in
all meetings in connection with such action, suit, or proceeding; provided that
the Company reserves the right not to disclose or provide any documents or
portion thereof, and to exclude the Inventor from any meeting or portion
thereof, if such disclosure or attendance by Inventor could, in the opinion of
counsel to the Company, adversely affect the attorney-client privilege between
the Company and its counsel.
6.3 Assistance. In connection with any such actions, suits, or
proceedings, the Inventor shall assist the Company and shall testify, whenever
requested to do so by the Company at the Company's expense, and shall execute
all agreements, instruments, or other documents necessary or desirable for such
assistance.
7. Development of Technology
7.1 Funding. The Company agrees to budget and to make available in the
frame of the mutually agreed budget of the Israel Research Center the funds
needed for transfer of the Technology to the Company which may include but are
not limited to the preparation of the samples, needed research, travel,
patenting, and other associated costs.
<PAGE>
7.2 Repurchase of Technology. In the event that the Company materially
breaches its obligation under Section 7.1, the Inventor shall have the right to
purchase and receive all of the Technology (including all improvements thereon,
source and object code, marketing materials, and other documentation with
respect to the Technology and improvements) for the sum of $1.00.
7.3 Repurchase of Equipment. If the Inventor exercises its rights under
Section 7.2, the Inventor shall also have the right to purchase and receive all
equipment purchased by the Company after the date hereof specifically in
connection with the development and production of the products based on the
Technology and improvements thereto at a price equal to the sum of the aggregate
cost of such equipment incurred by the Company and depreciation of such
equipment to the date of purchase by the Inventors.
7.4 Exercise of Repurchase Option. The Inventor may, on or before the
earlier of sixty days after such breach or one year after the date hereof,
exercise his rights under Section 7.2 and 7.3 by executing and delivering to the
Company a written notice as provided in Section 8.7 which notice shall specify
the facts constituting the breach and that the Inventor is exercising such
rights. The date, time, and place of such purchases shall be established by
mutual agreement of the parties, but in no event more than ninety days after the
date of the notice.
8. Miscellaneous
8.1 Survival of Warranties. The warranties, representations, and covenants
of the Inventors and covenants of the Company contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the other parties hereto.
8.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties, except that the rights of the Inventor contained in
Article VII are not assignable (except by will or by the laws of descent and
distribution) and any such attempted assignment shall be null and void. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the state of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the U.S. Post Office, by registered or certified mail, postage prepaid, and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
8.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either
<PAGE>
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Inventor.
8.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Inventor: Company:
Prof. OLEG L. FIGOVSKY EUROTECH, LTD.
/s/ Oleg L. Figovsky By:/s/ Randolph Graves, Jr.
-------------------- ----------------------------
Chief Executive Officer
<PAGE>
Schedule A.
Interpenetrated networks polymers, including hybrid cross-linking network
non-isocynate polyurethanes (NIPU).
Up until now, all present attempts to create the above described technology have
failed. Professor Oleg Figovsky has made significant progress in creating NIPU
and has completed theoretical and experimental research. The first samples for
HYBRID NIPU coatings have been successfully produced in a laboratory. HYBRID
NIPU are considered a new type of network polymer with no known analogy to any
pre-existing network polymer. To date, there are no known patents issued to this
type of network polymer.
Professor Oleg Figovsky transfers all past, present and future knowledge and
development rights he has to Eurotech, Ltd. relative to NIPU, interpenetrated
network polymers and any new HYBRID NIPU including, but not limited to the
following:
1. The main structure of the olygomeric cyclocarbonates with different
additional ending goups;
2. The optimal ratio of all types of reactionable ending groups;
3. The technology of organo-siloxane NIPUs including the optimal
structure of both of the reactionable olygomers used for such
synthesis;
4. The hybrid compositions based on NIPU and epoxy resins and;
5. The principal formulations for the glues, coatings, floorings,
sealants, binders for construction materials, syntactic foams,
powder paints, synthetic leather and any other application which may
arise from this research.
NIPU is a modified polyurethane without toxic isocyanates used in the production
of conventional polyurethane. It has lower permeability and greater chemical
resistance qualities than conventional polyurethane as well as a material
synthesis that is environmentally friendly. The structure of the Hybrid NIPU is
modified through the reaction between olygomeric cyclocarbonates with different
additional ending groups and primary polyamines. Within this structure, an
intramolecular hydrogen bond is formed allowing for higher levels of hydrolytic
stability. Materials containing intramolecular hydrogen bonds display a chemical
resistance of 1.5 - 2 times greater than materials of similar chemical structure
without such bonds. Hybrid NIPU have reduced permeability, 3-4 times less and
chemical resistance, 30-50% greater, making it a superior competitor to
conventional polyurethanes with applications in many industries including
automotive: bumpers, paints, plastics, truck beds; aerospace: airplane/rocket
sealant, interior components, seating; construction: adhesives, coatings,
concrete, elastomers, flooring, foams, glues, metals, plastics, rooftops, wood;
industrial: industrial equipment, machinery, molded parts; marine: bridge decks,
coatings, paints, sealants; and retail: appliances, footwear, furniture,
plastics and toys.
TEAMING AGREEMENT
THIS AGREEMENT is entered into as of April 22, 1997 between DUKE
ENGINEERING & SERVICES, INC. ("DE&S") and EUROTECH LTD. ("Eurotech").
WHEREAS, the parties desire to work together as a team to market the EKOR
technology on a worldwide basis (hereinafter the "Work");
WHEREAS, the parties wish to define their mutual roles, responsibilities
and commitments in connection with the development and the performance of the
Work;
WHEREAS, the parties intend to consider the formation of a new joint
business entity as the market for the Work develops;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. MARKETING
A. The parties shall cooperate as a team to develop market
opportunities for the Work. Any opportunity covered by this
Agreement identified by one party shall be immediately communicated
to the other party.
B. The parties shall mutually market the Work and aggressively pursue
bid opportunities utilizing the respective expertise of each party.
C. Each party shall bear its own costs and expenses in connection with
marketing and submitting proposals for the Work. Neither party shall
commit or obligate the other party to perform any Work or accept any
responsibilities without such other party's prior written consent.
D. The parties shall review each bid opportunity to mutually determine
if a team bid is desired, appropriate, and acceptable to the
customer. Each party will have the right to refuse to bid the Work.
If a party refuses to jointly bid the Work, then only the party
willing to proceed is free to bid the Work alone or with others.
E. Prior to submittal of a team proposal, the parties will determine
whether the proposal will be presented as a joint venture between
the parties or which party will bid as prime contractor with the
other as designated subcontractor. This determination will be made
so as to
<PAGE>
result in the most efficient manner of performance of the Work. In
the event of an award, the prime contractor shall offer and the
designated subcontractor shall accept a subcontract from the prime
contractor with the prior agreed upon terms and conditions for its
portion of the Work or the parties shall enter into a joint venture
agreement with the prior agreed upon terms and conditions.
F. The parties agree to establish standard pricing which is competitive
for the Work being provided, and to share proportionately on any
price reductions necessary to win a competitive bid. In addition,
the prime contractor shall not mark up the price proposed by the
subcontracting party named in this Agreement.
G. The designated prime contractor will prepare the proposal, integrate
information supplied by the designated subcontractor, consult with
the designated subcontractor on decisions affecting its input to the
proposal, obtain agreement on contract terms and conditions, and
submit the proposal to the customer. The prime contractor will
identify the other party as subcontractor and use its best efforts
to secure customer approval of the use of the other party. The prime
contractor will keep the subcontractor fully advised of the status
of the proposal including negotiations, schedule, and any change
which may affect the subcontractor's areas of responsibility. If the
subcontractor is not approved by the customer as a subcontractor, or
if the prime contractor is not the successful bidder, the parties
may request agreement to pursue the Work as may be in their
respective best interests. This agreement will not be unreasonably
withheld.
H. Each party hereby commits itself to take the necessary reasonable
steps toward the pursuit of any request for proposal, provided such
proposal is acceptable to both team members, and further commits
itself to the successful performance of any contract based on any
such proposal.
I. If a contract is awarded by a customer, invoices for completed work
will be submitted promptly by the subcontractor to the prime
contractor and the prime contractor will submit promptly the
invoices to the customer in accordance with the customer's purchase
order. Payment received for work of the designated subcontractor
will be made by the prime contractor to the
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<PAGE>
subcontractor within ten (10) days following receipt by the prime
contractor of payment from the customer.
The prime contractor agrees to present to the customer any and all
reasonable claims of the designated subcontractor arising out of the
performance of the work provided the designated subcontractor
assists in this presentation at its expense. If these claims are not
paid by the customer, the prime contractor will not be liable to the
subcontractor for the claims.
J. During the term of this Agreement, the parties agree that they shall
not directly or indirectly take part in bidding for any of the Work
without the other party's participation as called for in this
Agreement and shall not take any action which might impair the
chances for award of any part of the Work. This obligation is
binding on any subsidiaries or related companies or parties under
the direct or indirect control of the parties to this Agreement.
Each party agrees to work with, and only with, the other party in
seeking and performing the proposed Work covered by this Agreement
except in the event of any of the following:
1. when the customer determines that either or both parties are
not acceptable and chooses either to place the Work with the
other party, or the other party and a third party, or with
neither of the parties, ss. 1.G will apply; or
2. when a party is unable or unwilling to participate in the
proposed Work, ss.1.D. will apply.
K. During the term of this Agreement, each party is free to compete
with the other for work, except with respect to Work covered by this
Agreement.
2. PROPRIETARY INFORMATION
Any proprietary information transferred by the parties pursuant to this
Agreement shall be identified by the disclosing party as such by
appropriate stamp or marking on the documents transferred. The receiving
party will hold such proprietary information in confidence during the term
of this Agreement and for ten (10) years after its termination. During
this period, the receiving party will use such information only in
connection with its responsibilities under this Agreement and any
resulting contracts and make such information available only to its
employees having a "need to know" in order for them to carry out their
functions in connection with such responsibilities. Unless authorized in
writing by the dis-
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<PAGE>
closing party, the receiving party will not otherwise use or disclose such
proprietary information during the ten year period. Information shall be
afforded the protection of this ss.3, except:
A. information which, at the time of disclosure, is in the public
domain through no fault of the receiving party;
B. information which, after disclosure, becomes part of the public
domain other than by the fault of the receiving party;
C. information which the receiving party acquires from a third party
without restriction on its use and/or disclosure;
D. information which the receiving party can show by written records
was developed independently of the disclosing party; or
E. information which is disclosed pursuant to a legal requirement,
provided that the receiving party shall promptly notify the
disclosing party of such requirements and the parties shall
cooperate to minimize such disclosure.
The receiving party is required to return or, if authorized, destroy all
proprietary information and all copies thereof received under this
Agreement upon written request of the disclosing party on the termination
of this Agreement, except that proprietary information necessary to
complete any outstanding obligations under this Agreement and any
resulting contracts may be retained until those obligations have been
satisfied.
3. RELATIONSHIP OF THE PARTIES
A. The parties throughout the term of this Agreement shall be
independent entities, and nothing contained herein shall be
considered to constitute a joint venture, partnership or otherwise
imply joint and several liability, nor to constitute either party
the agent of the other, nor in any manner to limit the parties in
the conduct of their respective businesses or activities with
respect to other contracts for the performance of other work.
B. This Agreement may not be assigned or otherwise transferred by a
party, in whole or in part, without the express prior written
consent of the other party.
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<PAGE>
4. PUBLICITY
Any news release, public announcement, advertisement or other publicity
proposed to be released by a party, concerning the Work or identifying the
other party in connection with this Agreement or any resulting contract
shall be subject to the approval of the other party prior to release,
which approval shall not be unreasonably withheld.
5. TERM AND TERMINATION
A. This Agreement and all rights and duties hereunder, except those in
ss.ss.2, 5 and 6 will cease and terminate upon the first to occur of
the following:
1. the expiration of two (2) years from the date of this
Agreement unless extended by mutual agreement;
2. mutual agreement between the parties;
3. by a party giving thirty (30) days written notice to the other
party of its intent to terminate this Agreement;
4. if a party is declared bankrupt or insolvent or has a receiver
appointed for its property, or petitions for reorganization or
other benefits under the bankruptcy laws, or makes an
assignment for the benefit of creditors; or
5. in the event of a transfer by sale or otherwise of a
controlling interest in the assets of one party to a
competitor of the other party.
B. Upon termination of this Agreement, the parties agree to fulfill all
outstanding obligations to each other or to any customer under this
Agreement or resulting proposals or contracts, unless ss.5.A.4.
applies.
6. GENERAL
A. If any provision of this Agreement is found to violate any law or
regulation which in any way affects the implementation of such
provision, the parties agree to modify such provision in order to
give effect to the intent of the parties as expressed therein.
B. This Agreement shall be construed in accordance with the laws of the
State of North Carolina, excluding its conflict of laws principles.
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<PAGE>
C. Each of the parties to this Agreement shall appoint a
representative. All communications relating to this Agreement shall
be directed to the specific person appointed by each of the parties
in this Agreement. These appointments shall be kept current during
the period of this Agreement.
DE&S
T. R. Stevens
Duke Engineering & Services, Inc.
400 South Tryon Street
P. O. Box 1004
Charlotte, North Carolina 28201-1004
Telephone: (704) 382-7613
Fax: (704) 382-8766
Eurotech
R. A. Graves, Jr.
1200 Prospect Street
Suite 425
LaJolla, California 92037
Telephone: (619) 551-6844
Fax: (619) 551-6840
D. Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach thereof, shall be resolved by arbitration
before one Arbitrator in accordance with the commercial arbitration
rules of the American Arbitration Association ("AAA"). Arbitration
proceedings shall be held in Charlotte, North Carolina if Eurotech
begins the arbitration and in LaJolla, California if DE&S begins the
Arbitration, and judgment upon any arbitration award may be entered
in any court having jurisdiction thereof, the parties hereby
consenting to the jurisdiction of such courts for this purpose.
Each party shall be entitled, under the supervision of the
Arbitrator, to the amount of pre-arbitration discovery deemed
reasonable by the Arbitrator. The discovery period shall not exceed
sixty (60) days. If the parties cannot agree upon an Arbitrator, the
Arbitrator shall be appointed by the AAA. The Arbitrator's award
shall be in writing and shall be final and binding upon the parties.
The parties shall share the procedural costs of arbitration
equally unless the Arbitrator decides otherwise. Each party shall
pay its own attorneys' fees and other costs incurred by it in
connection with the arbitration.
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<PAGE>
E. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES
WHATSOEVER, INCLUDING LOSS OF ANTICIPATED PROFITS, REVENUES OR SALES
OR GOODWILL, WHETHER BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE
AND STRICT LIABILITY), UNDER ANY WARRANTY OR OTHERWISE ARISING OUT
OF OR RELATING TO THE WORK OR THIS AGREEMENT AND EACH PARTY HEREBY
RELEASES THE OTHER PARTY FROM ANY LIABILITY FOR ALL SUCH LOSSES AND
DAMAGES.
F. This Agreement contains the entire agreement of the parties and
cancels and supersedes any previous understanding or agreement
related to the Work whether written or oral. All changes or
modifications to this Agreement must be agreed to in writing by the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Teaming
Agreement by their duly authorized of officers effective as of the date first
above written.
DUKE ENGINEERING & SERVICES, INC.
By: ________________________
Title: _____________________
EUROTECH LTD.
By: _________________________
Title: ______________________
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Agreement
Made and entered into on the 22 day of July, 1997;
By and Between: Ofek Le-Oleh Foundation
P.O.B. 73, Migdal H-Emek 10550
Tel: 972-66543081 Fax: 972-66543082
First Party
and: Name: D'Rosenband D'Sokolinsky
I.D. No.: 309098085 307107490
Address: Bastille St. 5/C Haifa Pua 6k/11,
Haifa
Tel: 04-8516450 04-8531551
Fax: 04-8231848
(hereinafter "The Initiator")
Eurotech, Ltd. Second Party
and: Name: Alex Trossman
I.D. No.: 1670949-5
Address: 16 Bnei Brit. St. Haifa
Tel: 04-8257403
Fax: 04-8257403
(hereinafter "The Investor")
Third Party
Whereas the Initiator has declared that he invented the invention in
the field of ____ in respect whereof he has applied for patent
rights (patent application No. ) and wishes to conduct
research and development in respect thereof in accordance with
the program approved by the Chief Scientist under project No.
(hereinafter "the project") copy whereof is hereto annexed
marked "A";
And Whereas the Initiator has declared that he is the sole and exclusive
owner of the invention and of all the right, title and
interest thereto and that he has the necessary knowledge
qualification and experience for the research and development
of the project;
<PAGE>
And Whereas the Foundation has declared that it is a legal body approved
by the Chief Scientist of the Ministry of Commerce and
Technology and the Steering Committee of the Center for
Technological Initiative and any other related body and/or
authorized institution under the Law for the Support of
Research and Development in Industry, 1984 (hereinafter "the
RDL") for the purposes of the Chief Scientist's R & D program
in Technological Initiatives;
And Whereas the Initiator has declared that he has filed a proposal with
the Foundation for the execution of the project in the
Foundation's framework in accordance with and subject to the
Chief Scientist's program which has been approved by the
Foundation's projects committee;
And Whereas the Investor has undertaken to obtain supplementary finance
for the project as hereunder defined as also to promote the
project subject to the terms of this agreement;
And Whereas the Initiator has declared that he has disclosed to the
parties hereto all the information at his disposal relating to
the project and that he is not under any restriction, whether
by contract or in law, prohibiting him from entering into this
contract or carrying out his obligations hereunder;
And Whereas the parties are desirous of regulating their respective rights
and obligations for the execution of the project in the
framework of the Foundation as set out in this agreement;
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<PAGE>
Now Therefore the parties do hereby declare and agree as follows:
1. Preamble and Definitions
a) The preamble and annexures to this agreement form and integral part
thereof.
b) The terms specified herein shall have the following definitions:
i) Holding Company - Ha-Emek Initiatives Incubator LTD (Co No
51-183764-3) a company wholly controlled by the Foundation
which manages and operates the Incubator for the Foundation.
It is hereby agreed that the Foundation is entitled take all
necessary steps and decisions to exercise all its rights in
terms of this agreement by way of and through the holding
company;
ii) The development period - the period during which the
Foundation and/or the holding company receives financial
assistance from the State for the project and/or for the
period during which the project is within the Foundation's
framework, control and/or responsibility.
2. RDL Approval
a) This agreement is subject to the RDL and regulations, the Chief
Scientist's instructions, directives and procedures as also to the
terms and conditions of the Chief Scientist's program as also to the
various agreements between the Chief Scientist, the State and the
Foundation.
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<PAGE>
b) This agreement is subject to the granting of all the necessary
approvals in terms of the law and the Chief Scientist's program as
also to the Chief Scientist's approval.
3. Formation of company for the implementation of the project
a) During the first year of the development of the project a limited
private company shall be formed for the implementation of the
project (hereinafter "the company"). The memorandum and objects of
the company shall be formulated in terms of this agreement or any
agreement that may replace this agreement.
b) Upon registration of the company the parties shall immediately take
the necessary steps for the approval of this agreement by the
company and for the signature of an agreement between the company
and the Foundation and/or the holding company, ratifying this
agreement.
Such agreement shall in no way diminish the Initiator's obligations
under this agreement.
4. Company structure and decisions:
a) Shares: Class and distribution:
The company shall have two classes of shares:
i) Ordinary shares granting the shareholder dividend rights and a
share in any residue upon Liquidation of the company.
ii) Shares granting the holder voting rights at the general
meeting and the right to be elected to the directorate of the
company.
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<PAGE>
b) Both the ordinary and voting shares shall be issued as follows:
The Initiator: 50%.
EMPLOYEES: (excluding the Initiator): 10%.
During the development period the employees shares shall be held in
trust by the Foundation.
Upon termination of the development period, the Foundation shall
transfer such shares to the employees entitled thereto subject to
the directives of the Chief Scientist and in the Foundation's
discretion. Should any of such shares remain, they shall be
allocated to the parties to this agreement in accordance with the
proportion of each party under this agreement.
The Foundation: 20%.
The Investor: 20%.
c) Issue and/or allocation of further shares
Should a general meeting of the company decide to issue and/or
allocate further shares whether of one or both of the classes
defined above, such decision shall require a majority vote of 80%.
d) Board of Directors:
i) There shall not be less then 4 directors and until decided
otherwise by the unanimous vote of the general meeting of the
company, there shall not be more than ten directors.
ii) Notwithstanding clause (d)(i) above, during the development
period, the Board of Directors shall be as follows:
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<PAGE>
The manager of the Foundation and a further representative of
the Foundation, the Initiator or his representative and the
Investor's representative. The manager or his representative
of the Foundation shall be the chairman of the
Board.
iii) Upon termination of the development period, the directors
shall be appointed by the shareholders, that is, each
shareholder of 20% of the shares shall be entitled to appoint
one director but subject to each party to this agreement being
entitled to appoint at least one director and subject to such
party owning at least 12% of the issued shares.
e) Board meetings and Decisions:
i) During the development period, the legal forum for Board
meetings and Board decisions, shall be not less than 3
directors, at least one director representing each party to
this agreement.
ii) Decisions shall be by majority vote of these present.
iii) Notwithstanding clause (e)(ii) above, during the development
period, the chairman shall have the deciding vote in regard to
differences of opinion that may arise relating to the
Foundation's duties, management of the company and project and
to carry out the provisions of the RDL, agreements between the
Chief Scientist and the Foundation and the instructions,
regulations and directives of the
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<PAGE>
Chief included in the Board's meeting agenda falls within the
ambit of his deciding vote, shall be binding upon the parties
to this agreement.
f) General meeting decisions during the development period:
During the development period the parties hereto shall endeavor to
co-ordinate their voting rights at the general meeting of the
company in order to give full support to the Foundation's stand in
matters relating to the Foundation's duties and management of the
company according to the RDL, the agreements between the Foundation
and the Chief Scientist and the Chief Scientist's directives and
regulations from time to time.
g) Authorized signatories:
i) During the development period the signatures of two directors,
namely the Foundation's manager or representative or the
representative of the holding company and the signature of
either the Initiator or the investor, shall bind the company
and/or the project in every respect.
Notwithstanding the above, during the development period, the
following shall apply:
(1) Payments in excess of 20,000 NIS shall be made only
after prior arrangement with the Investor or his
representative.
(2) Orders in respect of the project by third parties shall
require written confirmation signed by two signatories,
namely, the Foundation's
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<PAGE>
manager or his representative and the project manager.
ii) Upon termination of the development period, the authorized
signatories shall be appointed by the unanimous vote of the
Board of directors. Until such appointment clause (g)(i) above
shall apply.
5. Company operations
a) All company operations shall be subject to the RDL its laws and
regulations, the instructions and directives of the Chief Scientist,
programs prepared by him and to all agreements that may be entered
into from time to time between the Foundation and the Chief
Scientist.
b) All right, title and interest in and to the knowledge, know-how and
expertise, the patents manufacturer's rights and every right of
ownership in the project, as also every product and document
relating to the execution of the project, in the Foundation's
framework, including all research by the company in regard to the
project, shall vest exclusively in the project and upon registration
of the company, in the company. The Initiator hereby cedes and
transfers all his rights as set out above, free of consideration, to
the project and to the company aforesaid.
c) The Foundation and/or the holding company shall make suitable
accommodation available to the company for the purposes of the
project, subject to the terms, conditions and reasonable payment as
stipulated by the Foundation and/ or holding company. The foundation
and/or holding company shall in addition provide various services to
the
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<PAGE>
company upon such terms to be agreed upon between the Foundation
and/or holding company and the company. The project and/or the
company shall pay a proportionate share of the Insurance premiums in
respect of the accommodation aforesaid. All the aforesaid services
and costs in respect thereof shall be determined according to the
project budget.
d) The company shall keep proper accounting records as is required by
law and accepted in similar ventures, and shall furnish reports from
time to time to the Foundation and to the Chief Scientist as
requested by them.
e) The company shall carry out and comply with all its representations,
obligations and time schedules in terms of and as represented to the
Foundation and the Chief Scientist in order to obtain the necessary
consent for carrying out the project, and as confirmed by them,
and/or as may be presented and/or confirmed by them during the
execution of the project.
f) At least 50% of all employees shall be new immigrants. Professional
employees shall be appointed during the development period by the
Initiator with the approval of the Foundation's manager.
The rest of the employees and the Initiator shall be employed in
terms of the Foundation's standard personal employment agreement.
g) The company shall conduct its business in accordance with the
approved and/or to be approved budgets for the project by the
Foundation and/or the holding company and the Chief Scientist.
The project and/or company shall be obliged to operate strictly
within the framework of the said budget and any
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<PAGE>
deviation therefrom shall not be recognized or allowed by the
Foundation and/or Chief Scientist.
The budget shall be provided by means of the financial assistance of
the Chief Scientist as allocated to the project and by the
supplementary finance of the Investor as hereinafter set forth.
h) The Investor hereby undertakes to provide the sum of US$ 60,000 for
the purpose of financing portion of the budget of the project,
specifically excluding employees salaries, (hereinafter "the
supplementary finance"). Such sum of US$ 60,000 shall not be
returned or repaid to the Investor. The supplementary finance
aforesaid shall be made available to the company and/or project as
follows:
4 payments of US$ each, in NIS according to the known dollar
exchange rate on the date of each payment:
The first payment of US$ 21,000 shall be made on August 1, 1997.
The second payment of US$ 13,000 shall be made on the 1st day of
February 1998.
The third payment of US$ ,000 shall be made on the 1st day of August
1998.
The final payment of US$ ,000 shall be made on the 1st day of
February 1999.
i) It is hereby agreed that in the event of the project and/or company
requiring further finance in addition to the supplementary finance
as set out above, the parties hereto shall be entitled to
- 10 -
<PAGE>
introduce an additional investor to this agreement subject to the
Investor (the third party to this agreement as set out in the
preamble) having the first right of refusal to invest such further
finance as is required.
j) The Initiator shall present both the Foundation and the Investor
with a bi-annual technical report. The Foundation shall be entitled
to demand additional technical reports during the development
period. The Initiator shall provide and furnish, both during and
after the development period, all such information as may be
required, to the Foundation and/or the holding company in order to
fulfil their obligations to the Chief Scientist and to third
parties.
k) The Initiator shall maintain a full and detailed written record of
each and every stage of the research and development carried out by
him and furnish copies thereof to the Foundation, the company and
the Investor as requested from time to time.
l) Upon registration of the company, the company shall register an
overall first covering lien in respect of all of its assets as also
a permanent First lien over its equipment and fixed assets, in favor
of the Foundation and/or holding company in order to secure its
obligations as hereunder set forth in clause 6.
m) Property and equipment purchased with the finance of the Chief
Scientist and/or with his assistance, shall represent security for
the repayment of the State's investment in the project and/or
company. Until registration of the aforesaid liens, neither the
parties
- 11 -
<PAGE>
nor the company shall be entitled to in any manner dispose of or
cede any rights in and to the assets and property of the project
and/or company which were acquired with the Chief Scientist's
finance.
n) The Initiator and Investor hereby declare and confirm that they are
aware of the fact that the Foundation and the holding company have
no personal obligation in regard to financing the project. In order
to avoid any misunderstanding, the Foundation hereby undertakes to
hand over to the project and/or company all sums received from the
Chief Scientist and in accordance with the Chief Scientist's
directions.
o) The Initiator and Investor hereby confirm that they are aware of the
fact that the Chief Scientist's approval for the project is for a
period of one financial year only and the continuation of the
project thereafter is subject to renewal of such approval by the
Chief Scientist.
p) The Initiator and Investor shall take all such steps as are
necessary for the commercialization and/or application of the
results of the project in the framework of the company. The
Foundation shall give all possible assistance in this respect to the
Initiator, Investor and the company.
q) The Initiator shall work in the project and/or company on a
full-time basis and he shall not be entitled to work in any other
manner of employment unless he receives the prior written consent of
the Foundation and the Investor and subject to their conditions.
- 12 -
<PAGE>
6. Completion of the project:
Upon completion of the development period, the parties shall act as
follows:
a) The company shall pay the Chief Scientist royalties derived from the
consideration received from sales of the product and/or know-how
developed by the company, until the full repayment of the real value
of the sum paid by the Chief Scientist in respect of the project,
such royalties to be paid in terms of the Chief Scientist's
instructions.
The parties declare that they know that as at the date hereof the
Chief Scientist's regulations in respect of royalties, provide for
the company to pay the Chief Scientist and/or the Foundation for
transfer to the Chief Scientist, royalties at the rate of 3% of the
total annual sales of the company in respect of the project during
the first three years;
4% for the following three years and 5% for the seventh year until
the full repayment of all monies received from the Chief Scientist
according to their real value - such monies to be repaid shall be
linked to the U.S. dollar in this respect.
The above directives may be changed from time to time by the Chief
Scientist.
In regard to the above, sales shall be deemed to be and shall
include all income derived from products of the project and/or that
have been developed, or relating to their sale and/or the sale of
any rights thereto, including the obligation to provide services,
all the above subject to the Chief Scientist's directives.
- 13 -
<PAGE>
b) Without detracting from its obligations as set out in clause (a)
above, the company and/or its shareholders, according to the
circumstances, shall pay the Chief Scientist or the Foundation for
transfer, to the Chief Scientist, 25% of the value received for the
sale of shares to a non-shareholder, and which value has not been
invested in the company within three months of such sale. Such
repayment shall be limited to the aforesaid true value of the amount
financed by the Chief Scientist.
c) The company with the Initiator's assistance shall file a bi-annual
report with the Foundation approved a Certified Accountant in
relation to the sales of the company as set out above, until such
time as all the royalties have been paid in terms of clause (a)
above.
d) All the books of account and documents relating to the project of
the company and/or project shall be open to the inspection of the
Foundation until the final payment as set out in clause (a) above.
e) Upon completion of the final payment aforesaid, the liens shall be
canceled.
f) The company and its employees shall vacate the Foundation's premises
occupied by it.
g) The company shall present final financial and technical reports in
respect of the project within three months of the termination of the
development period.
h) The Foundation shall not be obliged to invest any monies in the
future in the company, nor to sign security for the obligations of
the company nor to provide security to
- 14 -
<PAGE>
enable the company to obtain finance or credit. The company shall
not be entitled to make any such demands of the Foundation.
i) The products developed in the project shall be manufactured in
Israel alone, unless the Chief Scientist has given contrary
permission.
7. The Investor's right to acquire the Foundation's shares
a) The Foundation hereby grants the Investor an option to purchase its
shares upon termination of the development period. Such option shall
be exercised by the Investor in writing to the Foundation within 90
days of the termination of the development period.
b) In consideration for acquiring the shares and rights of the
Foundation in the company, the Investor shall pay the Foundation the
sum of US$ ........ in NIS in one of the following methods:
[INTENTIONALLY OMITTED]
Alternatively:
(ii) Payment of the sum of US$ ........ in NIS within 7 days of
exercising the option.
In such event transfer of the shares and rights by the
Foundation to the Investor shall be made forthwith upon
payment in terms of this clause.
c) Until payment of all the royalties the company shall allow the
Foundation the right to examine its books of account and shall
furnish the Foundation with a bi-annual report of all sales duly
confirmed by a Certified Accountant.
- 15 -
<PAGE>
8. Confidentiality
The parties hereto undertake to maintain strict confidentiality and
secrecy in regard to all the present and future knowledge and information
relating to the project, whether of the Foundation that is divulged to the
Initiator or knowledge and information acquired and/or accumulated by the
company, including all proprietary knowledge and/or secrets of the company
and/or the Foundation and/or of the project, that may be divulged to one
or more of the parties.
9. Non-Competition
a) The Initiator and Investor undertake not to directly or indirectly
compete with the business of the project and/or company and/or
Foundation. Such prohibition and undertaking shall remain in force
while the said Initiator and Investor are shareholders of the
company, and should they cease to be shareholders, in any event, for
a period of three years after they cease to be employed by the
company - such prohibition and undertaking aforesaid remaining in
effect until the later of such two eventualities, namely: date of
ceasing to be shareholder or 3 years after ceasing to be employed as
aforesaid.
Such prohibition and undertaking shall include direct or indirect
dealings in the development and/or manufacture and/or sale and/or
marketing of products of the project and/or the use in any manner
whatsoever of the knowledge and information and/or being connected
directly or indirectly in any manner whatsoever in the present or
future, in the field of the project and/or company, which may
compete with their business-or occupations.
- 16 -
<PAGE>
b) The Initiator undertakes to co-ordinate the activities of the
project and/or company in respect of the fields relating to them,
whether directly or indirectly. He furthermore undertakes not to
copy and/or to make use of knowledge and/or information in regard to
the products to be developed by the company or project, in any
manner whatsoever which is contrary to the framework of the project
and/or company, nor to receive any profit and/or benefits therefrom
contrary to this agreement.
c) The present and future knowledge and information relating to the
project and/or the rights thereto, shall not be ceded in any manner
whatsoever, directly or indirectly, unless the Chief Scientist has
given written permission so to do.
10. This agreement in general and clauses 9 and 11 in particular shall in no
way prohibit the Investor from engaging in the development of products and
using such information that is public knowledge, including the knowledge
that was available to him prior to the execution of this agreement and/or
information obtained by him which is not related to nor as a result of
this agreement.
11. Cession of rights
a) During the development period neither the Initiator nor the Investor
shall be entitled to transfer and/or cede any of their rights or
obligations in terms of this agreement to another nor to transfer
their shares in any manner without the specific written consent of
the Foundation.
- 17 -
<PAGE>
b) The parties hereto acknowledge that the transfer of 25% or more of
the rights in the project and/or company requires the Chief
Scientist's prior approval.
In this respect, rights in the company and/or project, are in effect
shares and/or the holding of one or more of the following methods of
control:
Voting rights at company meetings. The right to elect directors of
the company. The right to participate in the profits and/or income
of the company.
c) Transfer and cession of one or more of such controlling rights to a
foreign resident or foreign company, requires the prior written
consent of the Research Committee of the Chief Scientist.
d) The Initiator and the Investor hereby acknowledge and consent to the
Foundation having the right to transfer its rights and obligations
under this agreement to the holding company and/or to carry out any
obligation, to exercise any authority, right and/or discretion by
means of the holding company.
12. Termination and cancellation of this agreement and their consequences
a) The Initiator and the Investor hereby declare that they are aware of
the fact that the Chief Scientist and/or the State is entitled to
withdraw from any agreement to which they are a party in regard to
the project, for governmental reasons, and in such event, every
agreement between the Initiator and/or the Investor and/or the
company with the Foundation and/or the holding company shall be
canceled.
- 18 -
<PAGE>
b) The Initiator and the Investor acknowledge that during the
development period, the Foundation shall be entitled to cancel this
agreement by prior written notice of 14 days in the event of one or
more of the following occurring:-
i) The Chief Scientist has withdrawn his support of the project.
ii) The State has withdrawn its support of the Foundation.
iii) The Foundation has decided to terminate the agreement on the
grounds that the desired results were not achieved or that
continuation of the agreement would demand and entail
substantial costs not covered by the budget or that the
Foundation deems to be unjustified, and that the Chief
Scientist has consented to the termination of the program.
c) In the event of the cancellation of this agreement as set out in (a)
or (b) above, and/or in the event that the Chief Scientist refuses
to consent to the continuance of the project in terms of his
program, the parties hereto shall be absolved of all their financial
obligations in terms of this agreement as also for the payment of
any damages resulting from loss and/or damage to any of the parties.
In such event all the assets, rights, equipment, knowledge and
information, both present and accumulated (hereinafter the assets")
in the project and/or company, shall remain with the Foundation
until such time as the amount owing to the Chief Scientist has been
repaid and if necessary, such assets, in part or all, shall be
realized to repay such debt.
- 19 -
<PAGE>
Upon payment in full to the Chief Scientist, the liens shall be
canceled and the remaining assets shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the company and/or project.
i) Breach of a basic condition of this agreement by one of the
other parties, which breach has not been rectified within a
period of 30 days from receiving notice so to do.
ii) In the event of insolvency or liquidation proceedings being
instituted against one of the parties or should a receiver be
appointed in relation to his property subject to prior notice
of 30 days grace during which period the said proceedings have
not been canceled or the receiver released from his
appointment.
iii) In the event of a party being convicted of a criminal offence
involving dishonesty.
b) In the event of termination of this agreement as set out in (a)
above, the following shall apply:
i) The assets of the project and/or company shall be utilized as
far as is necessary in order to repay the Chief Scientist in
full.
ii) Upon repayment of the amount owing to the Chief Scientist the
liens shall be canceled.
- 20 -
<PAGE>
iii) The balance of monies received from the realization of the
project and the remaining assets, shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the company and/or project.
14. Arbitration
a) Any dispute whatsoever between the parties arising our of or
relating to this agreement, shall be settled by arbitration by a
single Arbitrator, appointed by the mutual consent of the parties.
b) In the event of the parties failing to agree upon the Arbitrator
within 14 days of a party requesting Arbitration, such Arbitrator
shall be appointed by the Chief Scientist or his representative.
c) The substantive law shall apply to the Arbitration, but not the laws
of evidence nor the civil law regulations. The Arbitrator shall be
obliged to give his reasons for his judgment.
d) The Arbitrator shall be entitled to give such relief, decision or
judgment, whether temporary or final, according to his sole
discretion.
e) The provisions of this clause shall be an integral part of the
provisions of the Arbitration agreement between the parties, in
terms of the Arbitration Act of 1968.
- 21 -
<PAGE>
15. General Conditions
The entire agreement between the parties with respect to the subject
matter hereof is stated herein and this agreement cancels any other verbal
or written agreements between the parties and may be amended only in
writing signed by the duly authorized representatives of the parties.
16. This agreement shall also apply to the State of Israel insofar as is
provided in the contract law (general law).
17. Wherever there appears in this agreement the obligation of the company,
such obligation shall be deemed to be that of each of the parties hereto
to carry out all such steps as are necessary for the company to fulfil its
obligations hereunder.
18. The Law Courts at Afula and Nazareth shall have the sole and exclusive
jurisdiction in all matters relating to this agreement.
19. The cost and stamp duty relating to this agreement shall be paid by the
project.
20. a) The Foundation shall be entitled to deduct any monies due to the
Foundation from monies payable to the project and/or company and/or
Initiator.
b) The Foundation shall be entitled to require payment of linkage and
interest on all amounts owing to the Foundation by the project
and/or company and/or Initiator.
21. The addresses of the parties are as set out in the preamble above.
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<PAGE>
Any notice or letter sent by one of the parties to another party hereto,
shall be deemed to have been received within 3 working days from the date
of dispatch thereof by registered mail.
In Witness whereof, the parties hereto, each by its duly authorized signatory,
have set their hands on the date aforesaid.
- ------------------------ ------------------------ ------------------------
The Foundation The Initiator The Investor
Eurotech Ltd
By Alex Trossman
- 23 -
EQUITY SHARING AGREEMENT
AGREEMENT dated as of the 20 day of August, 1997 by and between EUROTECH
LTD a USA District of Columbia corporation with offices at 1200 Prospect Street,
Suite 425, La Jolla, California 92037 USA (the "EURO") and C. Sokolinsky and V.
Rosenband (The Author) with offices located at ISRAEL.
WITNESSETH
WHEREAS, the Author has presented certain scientific-technical ideas and
has formed or has intention to form a start up company named Remptech ("START
UP") with the intent to further research and develop the said ideas into the
marketable technologies and later to implement this development into industrial
operations.
WHEREAS, EURO would like to participate in formation of the START UP and
undertake the responsibilities for the marketing and industry implementation,
and
WHEREAS, EURO would like to provide for its share of the financing in the
START UP and would like to be fully and exclusively responsible for the
non-research related activities of START-UP, and
WHEREAS, the Author holds 50% (fifty percent) of the Allocated shares in
the START UP and the Author would like to yield the marketing responsibilities
of the START UP activities to EURO.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided the EURO and the Author agree as
follows:
1. Equity (ownership) sharing. The Author is obligated to sell to EURO or
EURO's designee at EURO's first request within the two weeks such request
has been made 31% (thirty-one percent) of the full number of shares issued
by START UP out of the full number of START UP shares owned by the Author
and the Author has agreed from the moment of START UP formation to
allocate the said 31% of the START UP shares to EURO and will have no
rights to sell, assign or otherwise transfer by any means any amount of
these shares to any other
<PAGE>
2
party without the written notarized consent from EURO.
In order to assure the following obligation the author will sign a share
transfer warrant which shall be kept in the hands of the START UP
accountant with irrevocable orders to transfer the shares to EURO if it
will pay the Author the sum as stated in paragraph 3 of the Agreement.
2. Term. The request to the Author from EURO to sell 31% shares shall come at
EURO's discretion no earlier then 6 months and no later then 18 months
after actual registration of the START UP. If EURO fails to purchase the
shares after making the request within 6 (six) months the Author becomes
no longer legally obligated to sell the shares to EURO.
3. Share sales price. EURO has agreed to buy and the Author has agreed to
sell to EURO the said 31% of the shares of the START-UP at a set price
equal to $93,000.00 (ninety three thousand US dollars). After the deal the
Author shall remain with 19% of the issued shares.
4. START UP Profit sharing. In case the Author sells 31% of the shares as
instated above EURO shall compensate the Author for the loss of the
pre-taxed profit in START UP as a result of such sale.
5. Assisting marketing. The Author Assisting Marketing that he is fully aware
of the fact that the main interest of EURO in this agreement is to get
full control over the future marketing options of the START UP and he
shall invest his best efforts to promote EURO marketing actions.
6. Other Arrangements. This Agreement does not preclude from any other
arrangements which can be made between the EURO and the Author in course
of conducting mutual business.
7. Complete Agreement. This Agreement supersedes any and all prior written
and oral agreements between the EURO and the Author.
<PAGE>
3
8. Governing law. All disputes and claims between the parties in connection
with any matter arising out of or connected with this agreement shall be
settled exclusively by the competent courts of the state of New York, and
the parties submit themselves to the jurisdiction of such courts.
9. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both
parties.
Any provision herein which is found to be invalid illegal or unenforceable
under any applicable provision of the laws valid in Israel or with respect
thereto, shall be amended to the extent required to render this agreement
valid, legal and enforceable under such laws (or deleted if no such
amendment is feasible), and such amendment of deletion shall not affect
the enforceability of other provisions hereof and the basic rights and
obligations of the parties.
All notices, consents, approvals, or other notices required under this
agreement shall be made in writing and addressed to the place of each the
parties.
10. NOTICES.
Any notices required or permitted to be given hereunder may be given by
personal delivery, registered airmail, return receipt requested telegram,
telefax or telex. Notice by telegram, be deemed given (7) days after
mailing. Notice by telegram, telefax or telex shall be deemed given on the
date transmitted provided same is a working day by recipient and the
notice is transmitted during normal working hours. Until changed by
written notice given by one party to the other, the addresses the parties
for notice shall be as follows:
<PAGE>
4
WITNESS WHEREOF, The EURO and the Author have executed this Agreement as
of the date first above written.
/s/ C. Sokolinsky
/s/ V. Rosenband /s/ Randolph A. Graves, Jr.
- -------------------------------- ---------------------------------
THE AUTHOR EUROTECH, LTD.
BY: Its Chief Executive Officer
Voting Agreement
Agreement dated as of the 20th day of August, 1997 by and between Eurotech, Ltd,
A USA District of Columbia Corporation with offices located at 1200 Prospect
Street suite 425, San Diego, California, USA 92037 ("EURO) and C. Sokolinsky and
V. Rosenband (THE AUTHOR) located in Israel at ________________________________.
WITNESSETH
Whereas THE AUTHOR has presented certain scientific-technical ideas and has
formed along with the other entities an Israeli start-up company named Remptech
(START-UP) with the intent to further research and develop the said ideas into
the marketable technologies and later to implement this development into
industrial applications,
Whereas EURO has initiated and funded the search and selection of the technology
on which THE START-UP is formed and EURO will undertake the responsibilities for
the future marketing, licensing and industrial implementation of the developed
technology and,
Whereas EURO has committed to provide for the necessary funding of the START-UP
operations and be exclusively responsible for the introduction of the developed
technology and corresponding products to the world market
Whereas THE AUTHOR holds 50% (fifty percent) of the equity in the START-UP at
the time of the formation and THE AUTHOR would like to yield the decisions on
the marketing and major operational issues of the START-UP to EURO
NOW, THEREFORE in consideration of the mutual covenants herein contained and of
the mutual benefits herein provided EURO and THE AUTHOR have agreed as follows:
1. Commitment to the mutual voting position - yield of the voting rights. THE
AUTHOR has agreed that he will yield his voting rights as a 50%
shareholder of the START-UP to EURO or its representative regardless
whether EURO representative is on the Board of Directors of the START-UP
or not. THE AUTHOR will take written instruction from EURO on THE AUTHOR's
voting position on the issues related to the strategic decisions made by
the Board of Directors of THE START-UP such as but not limited to the
issue of the shares, sales of the shares, appointment of the officers of
the START-UP, signing of the major contracts, licensing of the technology,
etc.
<PAGE>
2. Term.
The term of this agreement shall be for the life of the START-UP with
transfer of the status quo as appropriate to the successor of the STAR-UP
if and when such a transfer takes place and in which THE AUTHOR will have
the equity share.
3. Other Arrangements
This Agreement does not preclude from making any other arrangement between
EURO and THE AUTHOR in the course of conducting mutual business.
4. Complete agreement
This Agreement supersedes any other and all prior written or oral other
agreements between EURO and THE AUTHOR made on the subject of this
agreement.
5. Governing Law
All disputes and claims between the parties in connection with this
agreement shall be settled at the competent court of New York City, USA
and the parties to this agreement shall submit themselves to the
jurisdiction of such a court.
6. Penalties
THE AUTHOR agrees that if he votes against or differently from the
position taken by EURO and such voting results into direct or indirect
financial losses of EURO or damages marketing position of EURO or causes
any other setbacks for EURO THE AUTHOR will be liable to cover such losses
by transferring the EURO without compensation all the equity held by THE
AUTHOR in THE START-UP as a minimum to cover said losses. THE AUTHOR
realizes that such a transfer may or may not fully compensate EURO for the
said losses and THE AUTHOR can be further held liable and sued in the
court of law.
7. General
Any amendments to this agreement shall be binding upon the parties only if
mutually agreed upon in writing and signed by both parties to this
agreement. Any provision herein which is found to be illegal, invalid and
unenforceable under any applicable provision of the laws in effect in
Israel or with respect thereto, shall be amended to the extent required to
render this agreement valid, legal and enforceable under such laws and
such amendments shall not affect the basic rights and obligation of the
parties to this agreement and the basic intent of this agreement as given
in paragraph 1, 2 and
- 2 -
<PAGE>
In witness whereof, EURO and THE AUTHOR have executed this Agreement as of
the date first above written
/s/ C. Sokolinsky
/s/ V. Rosenband /s/ Randolph A. Graves, Jr.
- -------------------------------- ---------------------------------
THE AUTHOR
by _____________________________ EURO
By Dr. Randolph A. Graves, Jr.
CEO and Chairman of the Board
- 3 -
Investment Agreement
Made and entered into this 30 day of April, 1997
Between
CHEMONOL Ltd.
Address: Science Park Technion-Nesher,
P O. Box 2l2, Nesher 36601, Israel
(The "Company")
and
EUROTECH Ltd.
Address: 1200 Prospect Street,
Suite 425, La Jolla, California 92037, USA
(The "Investor")
WHEREAS the Company was formed according to the Founders Agreement Dated
April 16, 1997, attached hereto as Exhibit A and was duly registered
on _________________ under the laws of the State of Israel and,
WHEREAS the Company is engaged a Project for research and development of
"products based on Nonisocyanate Polyurethane Compounds" as approved
by the Chief Scientist of the Ministry of Industry and Trade (the
"CSO") of exhibit B (the "Project"), and,
WHEREAS the Investor is a company duly registered under the law of USA, and,
WHEREAS the Company desired to receive an equity investment of 60,000 USD,
and,
WHEREAS the Investor desires to subscribe for ordinary shares of the Company
and to make an equity investment in the Company, and,
WHEREAS the Investor has received all of the information requested by it
regarding the Project, the Company and all factual and legal
information related thereto,
<PAGE>
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1. The preamble and exhibits to this agreement forms an integral part hereof.
2. Payment
In exchange for the issuance to it of ordinary shares of the Company, the
Investor shall invest in the Company a total amount of $ 60,000 (sixty
thousand US dollars), in accordance with the following schedule:
a) $ 15,000 Shall be paid by the Investor no later than May 5, 1997.
b) $ 15,000 Shall be paid by the Investor no later than November 1,
1997.
c) $ 15,000 Shall be paid by the Investor no later than May 1, 1998.
d) $ 15,000 Shall be paid by the Investor no later than November 1,
1998.
The said amounts will be transferred by the Investor from it's
non-resident bank account in Israel to the Israeli bank account of the
Company, or will be paid in N.I.S according to the representative rate of
the bank of Israel of the payment date.
3. Division of Shares and Issuance
3.1 The Company's share capital at the time of the signing of this
agreement consists of 30,000 authorized ordinary shares par value of
0.01 N.I.S. each, of which 700 shares are issued as follows:
a. Dr. Leonid Shapovalov 500 ordinary shares
b. Technion Entrepreneurial
Incubator Co. Ltd. 200 ordinary shares
The Company will issue 100 shares to the employees.
3.2 100 shares shall be issued to the Investor upon the payment of the
first installment and 100 shares will be issued to the Investor upon
the payment of the third installment.
Immediately following the issuance of the shares to the Investor,
the Investor shall own 200 shares of the Company.
4. Disclaimer
THE COMPANY, ITS AFFILIATES AND ALL OTHER SHAREHOLDER AND DIRECTORS
DISCLAIM ANY EXPRESS OR IMPLIED PROMISE, REPRESENTATION AND WARRANTY, (1)
THAT ITS TECHNOLOGY, OR THE USE THEREOF AND/OR ANY KNOW-HOW AND/OR
PRODUCTS INCORPORATED OR MANUFACTURED BY THE USE THEREOF, WILL BE FREE
FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY INFORMATION OF ANY THIRD PARTY, AND (2) THE NOVELTY, ACCURACY,
RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR
MERCHANTABILITY OF THE TECHNOLOGY, AND
- 2 -
<PAGE>
(3) THE SUITABILITY OR FITNESS OF THE FOR TECHNOLOGY ANY PURPOSE
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, DEVELOPMENT,
MANUFACTURE USE OR SALE OF PRODUCTS AND (4) ALL OTHER WARRANTIES OF
WHATEVER NATURE, EXPRESS OR IMPLIED.
5. Commercialization
5.1 All patent rights whatsoever will continue to be the sole property
of the Company, and/or any patent that may be the result of the
project will be the sole property of the Company, and the Investor
or any other shareholder will not have any rights to said property.
5.2 The Parties realize that the budget approved by the CSO together
with the investment herein provided for may not be sufficient to
finish the Project and to commercialize it.
5.3 The Investor agrees that it will not receive any rights other than
its right as a shareholder in the Company in accordance with its
Memorandum and Articles of Association.
6. The Company will do its utmost in the framework of its budget from the
Chief Scientist, to develop the project and to commercialize it.
7. The Investor will be given the right to elect one member to the Board of
Directors of the Company so long as the Investor hold at least 5% of the
Company's shares.
8. Being recently formed the Company has no past fiancee and/or business
history.
9. Confidentiality and Non Compete
9.1 The Investor agrees to hold in trust and maintain confidential and
not to disclose to others without prior written approval by the
Company, and not to use except for purpose of this agreement, any of
the proprietary information of the Company. The Investor shall limit
disclosure of the Company's confidential information to those of his
employees on a need-to-know basis and will cause its employees to
sign a confidentiality agreement.
9.2 The Investor agrees not to compete and/or to assist others to
compete, with the Company whether directly or indirectly for so long
as the Investor is a shareholder and for 3 years thereafter.
10. CSO
The Investor is aware that the Company has obligations towards the CSO,
and agrees to be bound by them and by all the provisions relevant to the
shareholders according to the Founders Agreement dated April 16, 1997 (a
copy of which is attached as
- 3 -
<PAGE>
exhibit A) as if the Investor was a party to the said Agreement.
11. Governing Law & Jurisdiction
This agreement shall be interpreted in accordance with, and governed in
all aspects by the laws of the state of Israel and the competent courts in
Haifa, shall have the exclusive jurisdiction over all disputes arising
between the parties with respect to this agreement, its implementation or
interpretation.
12. General
12.1 TEIC may sell all or part of its shares in the Company to any person
or entity without the need to offer the other shareholders a right
of first refusal.
12.2 Both parties agree that this agreement may be executed in several
counterparts and all such counterparts together shall be deemed to
be the original and will constitute but one and the same instrument.
To remove any doubt, facsimile signature shall be deemed as an
original for all purposes.
12.3 The failure or delay of either party to require the performance of
any term under this Agreement, or the waiver by either party of any
breach under this Agreement, shall not prevent subsequent
enforcement of such terms, nor be deemed a waiver of any subsequent
or prolonged breach.
12.4 Any notice sent by one party to the other by registered mail to the
addresses heading the Agreement, or to addresses provided by one
party to the other from time to time - will be deemed to have been
delivered on the 6th business day after the day of mailing. Fax
messages will be deemed to have been delivered one business day
after transmission.
13. 13.1 Should the Company obtain during the next three years any
additional equity investment from a third party, the Investor shall
be offered to participate in such investment by subscribing to a
number of shares that shall be necessary in order to allow the
Investor to maintain its pro-rata share of the issued stock of the
Company as it was prior to the new investment, at a price per share
and terms equal to those agreed with the third party ("Participation
Rights").
Prior to the closing of such additional investment, the Company
shall send to the Investor a written notice advising it of the
number of shares, the price per share and all other terms and
conditions under which the Investor may exercise its Participation
Rights ("Notice of Allotment").
- 4 -
<PAGE>
13.2 The Investor shall be entitled, within ten (10) days of receipt of
the Notice of Allotment (the "Acceptance Period") to notify the
Company of its desire to exercise its Participation Rights on the
conditions stated in the Notice of Allotment.
13.3 In the event that the Investor fails to give a written notice of its
desire to exercise its Participation Rights according to section
13.2 above, or, has the failed to make the payments on the dates
specified in the Notice of Allotment, the Company shall be entitled,
at its discretion to allot the shares that were offered to the
Investor to any third party, at its discretion.
13.4 Notwithstanding the terms of sections 13.1-13.3 above, the Company
shall be exempt from fulfilling the requirements contained therein
if the Investor express its agreement to such exemption in advance
and in writing.
IN WITNESS WHEREOF THE PARTIES HAVE SIGNED
/s/ L. Shapovalov /s/ A. Trossman
- ----------------------------- ---------------------------------
The Company The Investor
- 5 -
<PAGE>
Exhibit A -
Founders Agreement
- 6 -
<PAGE>
Exhibit B -
The project for research and development of "products based on Nonisocyanate
Polyurethane Compounds" as approved by the Chief Scientist of the Ministry of
Industry and Trade.
- 7 -
EQUITY SHARING AGREEMENT
AGREEMENT dated as of the 4 day of May, 97 by and between EUROTECH LTD a
USA District of Columbia corporation with offices at 1200 Prospect street, suite
425, La Jolla, California 92037 USA (the "EURO") and Leonid Shapovalov (The
Author) with offices located at ISRAEL.
WITNESSETH
WHEREAS, the Author has presented certain scientific-technical ideas and
has formed or has intention to form a start up company named Chemonol, Ltd.
("START UP") with the intent to further research and develop the said ideas into
the marketable technologies and later to implement this development into
industrial operations.
WHEREAS, EURO would like to participate in formation of the START UP and
undertake the responsibilities for the marketing and industry implementation,
and
WHEREAS, EURO would like to provide for its share of the financing in the
START UP and would like to be fully and exclusively responsible for the
non-research related activities of START-UP, and
WHEREAS, the Author holds 50% (fifty percent) of the Allocated shares in
the START UP and the Author would like to yield the marketing responsibilities
of the START UP activities to EURO.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided the EURO and the Author agree as
follows:
1. Equity (ownership) sharing. The Author is obligated to sell to EURO
or EURO's designee at EURO's first request within the two weeks such
request has been made 31% (thirty one percent) of the full number of
shares issued by START-UP out of the full number of START-UP shares
owned by the Author and the Author has agreed from the moment of
START-UP formation to allocate the said 31% of the START-UP shares
to EURO and will have no rights to sell, assign or otherwise
transfer by any means any amount of these shares to any other party
without the written notarized consent from EURO.
<PAGE>
In order to assure the following obligation the author will sign a
share transfer warrant which shall he kept in the hands of the START
UP" accountant with irrevocable orders to transfer the shares to
EURO if it will pay the Author the sum as stated in paragraph 3 of
the Agreement.
2. Term. The request to the Author from EURO to sell 31% shares shall
come at EURO's discretion no earlier then 6 months and no later then
18 months after actual registration of the START-UP. If EURO fails
to purchase the shares after making the request within 6 (six)
months the Author becomes no longer legally obligated to sell the
shares to EURO.
3. Share sales price. EURO has agreed to buy and the Author has agreed
to sell to EURO the said 31% of the shares of the START-UP at a set
price equal t $93,000.00 (ninety three thousand US dollars). After
the deal the author shall remain with 19% of the issued shares.
4. START UP Profit sharing. In case the Author sells 31% of the shares
as instated above EURO shall compensate the Author for the loss of
the pre-taxed profit in START UP as a result of such sale.
5. Assisting marketing. The Author Assisting Marketing that he is fully
aware of the fact that the main interest of EURO in this agreement
is to get full control over the future marketing options of the
START UP and he shall invest his best efforts to promote EURO
marketing actions.
6. Other Arrangements. This Agreement does not preclude from any other
arrangements which can be made between the EURO and the Author in
course of conducting mutual business.
7. Complete Agreement. This Agreement supersedes any and all prior
written and oral agreements between the EURO and the Author.
8. Governing law. All disputes and claims between the parties in
connection with any matter arising out of or connected with this
agreement shall be settled exclusively by the competent courts of
the state of New York, and the parties submit themselves to the
jurisdiction of such courts.
9. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both
parties.
- 2 -
<PAGE>
Any provision herein which is found to be invalid illegal or
unenforceable under any applicable provision of the laws valid in
Israel or with respect thereto, shall be amended to the extent
required to render this agreement valid, legal and enforceable under
such laws (or deleted if no such amendment is feasible), and such
amendment of deletion shall not affect the enforceability of other
provisions hereof and the basic rights and obligations of the
parties.
All notices, consents, approvals, or other notices required under
this agreement shall be made in writing and addressed to the place
of each the parties.
10. NOTICES.
Any notices required or permitted to be given hereunder may be given
by personal delivery, registered airmail, return receipt requested
telegram, telefax or telex. Notice by telegram, be deemed given (7)
days after mailing. Notice by telegram, telefax or telex shall be
deemed given on the date transmitted provided same is a working day
by recipient and the notice is transmitted during normal working
hours. Until changed by written notice given by one party to the
other, the addresses the parties for notice shall be as follows:
IN WITNESS WHEREOF, The EURO and the Author have executed this Agreement as of
the date first above written.
/s/ L. Shapovalov /s/ A. Trossman
- ----------------------------- -------------------------------------
THE AUTHOR EURO
EUROTECH, LTD
BY:
it's Chief Executive Officer
- 3 -
VOTING AGREEMENT
AGREEMENT, dated as of 4 day of May, 1997 by and between EUROTECH, LTD, a
USA District of Columbia corporation with offices located at 1200 Prospect
Street, Suite 425, San Diego, California, USA 92037 ("EURO") and Dr. Leonid
Shapovalov (THE AUTHOR) located in Israel at Herzl St. 69/6 Haifa.
WITNESSETH
WHEREAS, THE AUTHOR has presented certain scientific-technical ideas and
has formed along with the other entities an Israeli start-up company named
Chemonol (START-UP) with the intent to further research and develop the said
ideas into the marketable technologies and later to implement this development
into industrial applications,
WHEREAS, EURO has initiated and funded the search and selection of the
technology on which the START-UP is formed and EURO will undertake the
responsibilities for the future marketing, licensing and industrial
implementation of the developed technology, and
WHEREAS, EURO has committed to provide for the necessary funding of the
START-UP operations and be exclusively responsible for the introduction of the
developed technology and corresponding products to the world market
WHEREAS, THE AUTHOR holds 50% (fifty percent) of the equity in the
START-UP at the time of the formation and THE AUTHOR would like to yield the
decisions on the marketing and major operational issues of the START-UP to EURO
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided EURO and THE AUTHOR have agreed as
follows:
1. Commitment to the mutual voting position - yield of the voting rights. THE
AUTHOR has agreed that he will yield his voting rights as a 50%
shareholder of the START-UP to EURO or its representative regardless
whether EURO representative is on the Board of Directors of the START-UP
or not. THE AUTHOR will take written instruction from EURO on THE AUTHOR's
voting position on the issues related to the
<PAGE>
2
strategic decisions made by the Board of Directors of THE START-UP such as
but not limited to the issue of the shares, sales of the shares,
appointment of the officers of the START-UP, signing of the major
contracts, licensing of the technology, etc.
2. Term. The term of this Agreement shall be for the life of the START-UP
with transfer of the status quo as appropriate to the successor of the
START-UP if and when such a transfer takes place and in which THE AUTHOR
will have the equity share.
3. Other Arrangements. This Agreement does not preclude from making any other
arrangements between EURO and THE AUTHOR in the course of conducting
mutual business.
4. Complete Agreement. This Agreement supersedes any other and all prior
written or oral other agreements between EURO and THE AUTHOR made on the
subject of this Agreement.
5. Governing Law. All disputes and claims between the parties in connection
with this agreement shall be settled at the competent court of New York
City, USA and the parties to this Agreement shall submit themselves to the
jurisdiction of such a court.
6. Penalties. THE AUTHOR agrees that if he votes against or differently from
the position taken by EURO and such voting results into direct or indirect
financial losses of EURO or damages marketing position of EURO or causes
any other setbacks for EURO, THE AUTHOR will be liable to cover such
losses by transferring to EURO without compensation all the equity held by
THE AUTHOR in THE START-UP as a minimum to cover said losses. THE AUTHOR
realizes that such a transfer may or may not fully compensate EURO for the
said losses and THE AUTHOR can be further held liable and sued in the
court of law.
7. General. Any amendments to this Agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both parties
to this Agreement. Any provision
<PAGE>
3
herein which is found to be illegal, invalid or unenforceable under any
applicable provision of the laws in effect in Israel or with respect
thereto, shall be amended to the extent required to render this agreement
valid, legal and enforceable under such laws and such amendments shall not
affect the basic rights and obligation of the parties to this Agreement
and the basic intent of this Agreement as given in para. l, 2 and
IN WITNESS WHEREOF, EURO and THE AUTHOR have executed this Agreement as of
the date first above written.
/s/ L. Shapovalov /s/ A. Trossman
- ------------------------------- ---------------------------------
THE AUTHOR EUROTECH, LTD.
BY: Dr. Leonid Shapovalov BY: Dr. Randolph A. Graves, Jr.
CEO and Chairman of the Board
AGREEMENT
This Agreement is entered into on the 01 day of June, 1997.
by and among
SEPARATOR LTD., a corporation organized and existing under the laws of Israel
(the "Company")
and
EUROTECH LTD., a corporation organized and existing under the laws of California
("Eurotech")
and
The Incubator for Technological Entrepreneurship - Kiryat Weizmann Ltd. (the
"Incubator")
WHEREAS, the Company was incorporated in Israel with liability under registered
number 51-245732-6 and has at the date hereof an authorized share capital of NIS
32,700 divided into 32,700 Ordinary Shares of NIS 1 each (the "Ordinary
Shares"), of which 1000 Ordinary Shares have been allotted and issued; and
WHEREAS, the Incubator is the registered holder of 400 Ordinary Shares; and
WHEREAS, the Incubator has agreed to transfer a total of 200 (Two Hundred)
Ordinary Shares to Eurotech against its contribution to the capital of the
Company in the total amount of $60,000 (US Dollars Sixty Thousand) (the
"Contribution"); and
WHEREAS, the Company is in need of the Contribution, and it is being contributed
by Eurotech, in order to enable the Company to continue the performance of its
research and development.
NOW THEREFORE, the parties agree as follows:
1. CLOSING
The consummation of the transactions contemplated by this Agreement (the
"Closing") shall be effected at Baratz & Co. Law Offices, at 8 Shaul
Hamelech Street, Tel-Aviv, Israel, on ____________, 1997 at _____________,
or at any other time or place as Eurotech, the Company and the Incubator
mutually agree in writing (the "Closing Date").
<PAGE>
2. PAYMENT OF THE CONTRIBUTION
The Contribution shall be paid by Eurotech to the Company in four equal
installments of $15,000 (US Dollars Fifteen Thousand) each, as follows:
2.1. The first installment shall be paid at the Closing Date
(the "First Installment")
2.2. The second installment shall be paid no later than August 1,
1997.
2.3. The third installment shall be paid no later than February 1,
1998 (the "Third Installment").
2.4. The fourth installment shall be paid no later than August 1,
1998.
3. TRANSFER OF SHARES
3.1. Subject to the terms and conditions hereof, the Incubator will
transfer to Eurotech 200 (Two Hundred) Ordinary Shares that
represent 20% (twenty percent) of the issued and outstanding
share capital of the Company (the "Shares"). The Shares shall be
transferred to Eurotech in two stages as follows:
3.1.1. 100 (One Hundred) Ordinary Shares shall be transferred
by the Incubator to Eurotech at the Closing Date against
payment by Eurotech to the Company of the First
Installment.
3.1.2. An additional 100 (One Hundred) Ordinary Shares shall be
transferred by the Incubator to Eurotech on February 1,
1998 against payment by Eurotech to the Company of the
Third Installment.
3.2. The Contribution shall be paid by certified check or wire
transfer of immediately available funds into the bank account
designated in writing by the Company.
3.3. The Company and the Incubator hereby agree that they will
promptly record such transfer of Shares to Eurotech with the
Registrar of Companies. The Company and the Incubator will also
take all action necessary and will cooperate with Eurotech in
order to obtain written verification from the Bank of Israel (or
an authorized dealer bank) that the Shares have been purchased
with foreign currency.
- 2 -
<PAGE>
3.4. At the Closing, the following shall occur:
3.4.1. Eurotech shall pay the First Installment to
the Company;
3.4.2. The Incubator shall deliver to Eurotech a Deed of
Transfer with respect to 100 (one hundred) Ordinary
Shares.
3.5. Notwithstanding the provisions of Paragraph 3.4 hereinabove, the
obligation of the parties with respect to the payment of the
Contribution and the transfer of Shares shall be subject to the
fulfillment of the following conditions at the Closing, which the
parties agree to use their best efforts to fulfill:
3.5.1. The Company shall have furnished Eurotech with a
certified copy of a resolution or resolutions duly
adopted by the Board of Directors of the Company and the
Incubator approving this Agreement and authorizing its
execution and delivery and the transfer of the Shares
(subject to payment of the Contribution).
3.5.2. Eurotech shall have furnished the Incubator and the
Company with a letter of authorization, duly authorizing
Mr. Alex Trossman to execute the Agreement on behalf of
Eurotech.
3.6. The parties shall cooperate with the view to execute all of the
requisite documentation in a timely manner.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Company represents to Eurotech that except for the Founders
Agreement dated February 18, 1997 (the "Founders Agreement"), it
is not a party to or bound by any other material contract and/or
obligation of any kind.
4.2. Eurotech represents and covenants to the Company and
the Incubator as follows:
4.2.1. it is fully aware of the terms of the Founders Agreement
and hereby agrees to such terms and undertakes to
fulfill the obligations set out therein, so long as they
relate to the Investor, as defined in the Founders
Agreement. For the avoidance of any and all doubt, it is
hereby expressly agreed that the
- 3 -
<PAGE>
provisions of the Founders Agreement shall prevail and
govern the relationship of each and all of the parties
to this Agreement vis-a-vis the parties to the Founders
Agreement.
4.2.2. it has all requisite power, authority and approval and
has the financial resources to enter into, execute and
deliver this Agreement and to fully perform Eurotech's
obligations hereunder.
4.3. Eurotech represents to the Company and the Incubator that it has
received answers to all questions that it has asked, received all
materials that it has requested, that all information concerning
the affairs of the Company which it requested was made available
for its review and that it is not relying on any oral
representation in connection with the investment in the Company.
5. BOARD OF DIRECTORS
Upon execution of this Agreement and payment of the First Installment to
the Company, Eurotech shall be entitled to appoint one director to the
Board of Directors of the Company, as per the provisions of the Founders
Agreement and the Company's Articles of Association.
6. CONFIDENTIALITY
Subject to any obligation to comply with (i) the requirements of the OCS;
(ii) any law; (iii) any rule or regulation of any authority or securities
exchange; or (iv) any subpoena or other legal process to make information
available to persons entitled thereto, whether or not the transactions
contemplated herein shall be concluded, all information obtained by any
party about any other and all of the terms and conditions of this
Agreement, shall be kept in confidence by each party, and each party shall
cause its shareholders, directors, officers, employees and agents to hold
such information confidential. If this Agreement is terminated for any
reason, each party shall return or cause to be returned to the other all
written data, information, files, records and copies of documents,
obtained by such party in connection with the transactions contemplated
herein.
7. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws
of Israel.
- 4 -
<PAGE>
8. TERMINATION AND RESTITUTION
Payment of the Contribution as per the provisions of Paragraph 2 of this
Agreement shall be deemed a material condition hereof. Any breach thereof,
including without limitation any delay in payment, shall be deemed a
material breach of this Agreement which shall entitle the Company to
immediately terminate this Agreement and require Eurotech to return to the
Company, without further demand, any shares already transferred to it
until the date of such termination.
Notwithstanding the foregoing, the Company shall not be required, under
any circumstances whatsoever, to return any payments made by Eurotech to
the Company until the date of such termination.
The provisions of this Paragraph shall not derogate from any remedies
and/or damages available to the Company and the incubator by law or
otherwise.
9. MISCELLANEOUS
9.1. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the parties.
9.2. The subject headings of the paragraphs of this Agreement are
included for the purpose of convenience only, and shall not
affect the construction or interpretation of any of its terms.
9.3. Eurotech shall reimburse the Company for all reasonable fees and
expenses, including legal and accounting fees and expenses,
incurred in connection with the preparation, execution and
delivery of this Agreement, and any other documents relating to
the transactions contemplated by this Agreement.
9.4. Any notice required or contemplated hereunder shall be in writing
and shall be deemed to have been duly given on the day of service
if served personally or 5 (five) days after the date of mailing,
if mailed by registered mail, postage prepaid and addressed as
follows:
To the Company and Incubator:
c/o SEPARATOR, LTD.
Building 3
Kiryat Weizmann Science Park
Ness Ziona 70400
Israel
Attention: ______________________
- 5 -
<PAGE>
To Eurotech:
EUROTECH LTD.
1200 Prospect Street
Suite 425
La Jolla, CA 92037
USA
Attention: President
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of
the date first above set forth.
EUROTECH LTD. SEPARATOR LTD.
By: Mr. Alex Trossman By: Dr. Efim Broide
/s/ A. Trossman /s/ E. Broide
- ------------------------- ------------------------------
Title: __________________ Title: _______________________
SEPARATOR LTD.
INCUBATOR FOR TECHNOLOGICAL ENTREPRENEURSHIP -
KIRYAT WEIZMANN LTD.
By: _____________________________
Title: __________________________
- 6 -
EQUITY SHARING AGREEMENT
AGREEMENT date\d as of the 10 day of June, 1997 by and between EUROTECH
LTD a USA District of Columbia corporation with offices at 1200 Prospect street,
suite 425, La Jolla, California 92037 USA (the "EURO") and EFIM Broide (The
Author) with offices located at ISRAEL.
WITNESSETH
WHEREAS, the Author has presented certain scientific-technical ideas and
has formed or has intention to form a start up company named Separator, Ltd.
("START UP") with the intent to further research and develop the said ideas into
the marketable technologies and later to implement this development into
industrial operations.
WHEREAS, EURO would like to participate in formation of the START UP and
undertake the responsibilities for the marketing and industry implementation,
and
WHEREAS, EURO would like to provide for its share of the financing in the
START UP and would like to be fully and exclusively responsible for the
non-research related activities of START-UP, and
WHEREAS, the Author holds 50% (fifty percent) of the Allocated shares in
the START UP and the Author would like to yield the marketing responsibilities
of the START UP activities to EURO.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided the EURO and the Author agree as
follows:
1. Equity (ownership) sharing. The Author is obligated to sell to EURO
or EURO's designee at EURO's first request within the two weeks such
request has been made 31% (thirty one percent) of the full number of
shares issued by START-UP out of the full number of START-UP shares
owned by the Author and the Author has agreed from the moment of
START-UP formation to allocate the said 31% of the START-UP shares
to EURO and will have no rights to sell, assign or otherwise
transfer by any means any amount of these shares to any other party
without the written notarized consent from EURO.
In order to assure the following obligation the author will sign a
share transfer warrant which shall he kept in the hands of the START
UP accountant with irrevocable
<PAGE>
orders to transfer the shares to EURO if it will pay the Author the
sum as stated in paragraph 3 of the Agreement.
2. Term. The request to the Author from EURO to sell 31% shares shall
come at EURO's discretion no earlier then 6 months and no later then
18 months after actual registration of the START - UP. If EURO fails
to purchase the shares after making the request within 6 (six)
months the Author becomes no longer legally obligated to sell the
shares to EURO.
3. Share sales price. EURO has agreed to buy and the Author has agreed
to sell to EURO the said 31% of the shares of the START-UP at a set
price equal to $93,000.00 (ninety three thousand US dollars). After
the deal the author shall remain with 19% of the issued shares.
4. START UP Profit sharing. In case the Author sells 31% of the shares
as instated above EURO shall compensate the Author for the loss of
the pre-taxed profit in START UP as a result of such sale.
5. Assisting marketing. The Author Assisting Marketing that he is fully
aware of the fact that the main interest of EURO in this agreement
is to get full control over the future marketing options of the
START UP and he shall invest his best efforts to promote EURO
marketing actions.
6. Other Arrangements. This Agreement does not preclude from any other
arrangements which can be made between the EURO and the Author in
course of conducting mutual business.
7. Complete Agreement. This Agreement supersedes any and all prior
written and oral agreements between the EURO and the Author.
8. Governing law. All disputes and claims between the parties in
connection with any matter arising out of or connected with this
agreement shall be settled exclusively by the competent courts of
the state of New York, and the parties submit themselves to the
jurisdiction of such courts.
9. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both
parties.
Any provision herein which is found to be invalid illegal or
unenforceable under any applicable provision of the laws valid in
Israel or with respect thereto,
- 2 -
<PAGE>
shall be amended to the extent required to render this agreement
valid, legal and enforceable under such laws (or deleted if no such
amendment is feasible), and such amendment of deletion shall not
affect the enforceability of other provisions hereof and the basic
rights and obligations of the parties.
All notices, consents, approvals, or other notices required
under this agreement shall be made in writing and addressed to the
place of each the parties.
10. NOTICES.
Any notices required or permitted to be given hereunder may be given
by personal delivery, registered airmail, return receipt requested
telegram, telefax or telex. Notice by telegram, be deemed given (7)
days after mailing. Notice by telegram, telefax or telex shall be
deemed given on the date transmitted provided same is a working day
by recipient and the notice is transmitted during normal working
hours. Until changed by written notice given by one party to the
other, the addresses the parties for notice shall be as follows:
IN WITNESS WHEREOF, The EURO and the Author have executed this
Agreement as of the date first above written.
/s/ E. Broide /s/ A. Trossman
- ----------------------- --------------------------------
THE AUTHOR EURO
EUROTECH, LTD
BY:
it's Chief Executive Officer
- 3 -
VOTING AGREEMENT
AGREEMENT, dated as of 10 day of June, 1997 by and between EUROTECH, LTD,
a USA District of Columbia Corporation with offices located at 1200 Prospect
Street, Suite 425, San Diego, California USA 92037 ("EURO") and Efim Broide (THE
AUTHOR) located in Israel at Massaric St. 7/6 Bat Yam, Israel.
WITNESSETH
WHEREAS, THE AUTHOR has presented certain scientific-technical ideas and
has formed along with the other entities an Israeli start-up company named
Separator (START-UP) with the intent to further research and develop the said
ideas into the marketable technologies and later to implement this development
into industrial applications,
WHEREAS, EURO has initiated and funded the search and selection of the
technology on which THE START-UP is formed and EURO will undertake the
responsibilities for the future marketing licensing and industrial
implementation of the developed technology, and
WHEREAS, EURO has committed to provide for the necessary funding of the
START-UP operations and be exclusively responsible for the introduction of the
developed technology and corresponding products to the world market
WHEREAS, THE AUTHOR holds 50% (fifty percent) of the equity in the
START-UP at the time of the formation and THE AUTHOR would like to yield the
decisions on the marketing and major operational issues of the START-UP to EURO,
NOW THEREFORE in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided EURO and THE AUTHOR have agreed as
follows:
1. Commitment to the mutual voting position - yield of the voting rights. THE
AUTHOR has agreed that he will yield his voting rights as a 50%
shareholder of the START-UP to EURO or its representative regardless
whether EURO representative is on the Board of Directors of the START-UP
or not. THE AUTHOR will take written instruction from EURO on THE AUTHOR's
<PAGE>
2
voting position on the issues related to the strategic decisions made by
the Board of Directors of THE START-UP such as but not limited to the
issue of the shares, sales of the shares, appointment of the officers of
the START-UP, signing of the major contracts, licensing of the technology
etc.
2. Term. The term of this agreement shall be for the life of the START-UP
with transfer of the status quo as appropriate to the successor of the
START-UP if and when such a transfer takes place and in which THE AUTHOR
will have the equity share.
3. Other Arrangements. This Agreement does not preclude from making any other
arrangements between EURO and THE AUTHOR in the course of conducting
mutual business.
4. Complete Agreement. This Agreement supersedes any other and all prior
written or oral other agreements between EURO and THE AUTHOR made on the
subject of this Agreement.
5. Governing Law. All disputes and claims between the parties in connection
with this agreement shall be settled at the competent court of New York
City USA and the parties to this Agreement shall submit themselves to the
jurisdiction of such a court.
6. Penalties. THE AUTHOR agrees that if he votes against or differently from
the position taken by EURO and such voting results into direct or indirect
financial losses of EURO or damages marketing position of EURO or causes
any other setbacks for EURO, THE AUTHOR will be liable to cover such
losses by transferring to EURO without compensation all the equity held by
THE AUTHOR in the START-UP as a minimum to cover said losses. THE AUTHOR
realizes that such a transfer may or may not fully compensate EURO for the
said losses and THE AUTHOR can be further held liable and sued in the
court of law.
7. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both parties
to this agreement. Any provision
<PAGE>
3
herein which is found to be illegal, invalid or unenforceable under any
applicable provision of the laws in effect in Israel or with respect
thereto shall be amended to the extent required to render this agreement
valid, legal and enforceable under such laws and such amendments shall not
affect the basic rights and obligation of the parties to this agreement
and the basic intent of this agreement as given in para. 1, 2 and
IN WITNESS WHEREOF, EURO and THE AUTHOR have executed this Agreement as of
the date first above written.
/s/ E. Broide /s/ A. Trossman
- ------------------------- -------------------------------
THE AUTHOR EUROTECH
BY: BY: Dr. Randolph A. Graves Jr.
CEO and Chairman of the Board
Agreement
Made and entered into on the 22 day of July, 1997;
By and Between: Ofek Le-Oleh Foundation
P.O.B. 73, Migdal H-Emek 10550
Tel: 972-66543081 Fax: 972-66543082
First Party
and: Name: D'Kopit
I.D. No.: 310895602
Address: Aluma St. 12#6, Nazrat, 17000
Tel: 06-6000121
Fax:
(hereinafter "The Initiator")
Eurotech, Ltd. Second Party
and: Name: Alex Trossman
I.D. No.: 1670949-5
Address: 16 Bnei Brit. St. Haifa
Tel: 04-8257403
Fax: 04-8257403
(hereinafter "The Investor")
Third Party
Whereas the Initiator has declared that he invented the
invention in the field of ______ in respect whereof he has
applied for patent rights (patent application No. )
and wishes to conduct research and development in
respect thereof in accordance with the program
approved by the Chief Scientist under project No.
(hereinafter "the project") copy whereof is hereto
annexed marked "A";
And Whereas the Initiator has declared that he is the sole and exclusive
owner of the invention and of all the right, title and
interest thereto and that he has the necessary knowledge
qualification and experience for the research and development
of the project;
<PAGE>
And Whereas the Foundation has declared that it is a legal body approved
by the Chief Scientist of the Ministry of Commerce and
Technology and the Steering Committee of the Center for
Technological Initiative and any other related body and/or
authorized institution under the Law for the Support of
Research and Development in Industry, 1984 (hereinafter "the
RDL") for the purposes of the Chief Scientist's R & D program
in Technological Initiatives;
And Whereas the Initiator has declared that he has filed a proposal with
the Foundation for the execution of the project in the
Foundation's framework in accordance with and subject to the
Chief Scientist's program which has been approved by the
Foundation's projects committee;
And Whereas the Investor has undertaken to obtain supplementary finance
for the project as hereunder defined as also to promote the
project subject to the terms of this agreement;
And Whereas the Initiator has declared that he has disclosed to the
parties hereto all the information at his disposal relating to
the project and that he is not under any restriction, whether
by contract or in law, prohibiting him from entering into this
contract or carrying out his obligations hereunder;
And Whereas the parties are desirous of regulating their respective rights
and obligations for the execution of the project in the
framework of the Foundation as set out in this agreement;
- 2 -
<PAGE>
Now Therefore the parties do hereby declare and agree as follows:
1. Preamble and Definitions
a) The preamble and annexures to this agreement form and integral part
thereof.
b) The terms specified herein shall have the following definitions:
i) Holding Company - Ha-Emek Initiatives Incubator LTD (Co No
51-183764-3) a company wholly controlled by the Foundation
which manages and operates the Incubator for the Foundation.
It is hereby agreed that the Foundation is entitled take all
necessary steps and decisions to exercise all its rights in
terms of this agreement by way of and through the holding
company;
ii) The development period - the period during which the
Foundation and/or the holding company receives financial
assistance from the State for the project and/or for the
period during which the project is within the Foundation's
framework, control and/or responsibility.
2. RDL Approval
a) This agreement is subject to the RDL and regulations, the Chief
Scientist's instructions, directives and procedures as also to the
terms and conditions of the Chief Scientist's program as also to the
various agreements between the Chief Scientist, the State and the
Foundation.
- 3 -
<PAGE>
b) This agreement is subject to the granting of all the necessary
approvals in terms of the law and the Chief Scientist's program as
also to the Chief Scientist's approval.
3. Formation of company for the implementation of the project
a) During the first year of the development of the project a limited
private company shall be formed for the implementation of the
project (hereinafter "the company"). The memorandum and objects of
the company shall be formulated in terms of this agreement or any
agreement that may replace this agreement.
b) Upon registration of the company the parties shall immediately take
the necessary steps for the approval of this agreement by the
company and for the signature of an agreement between the company
and the Foundation and/or the holding company, ratifying this
agreement. Such agreement shall in no way diminish the Initiator's
obligations under this agreement.
4. Company structure and decisions:
a) Shares: Class and distribution:
The company shall have two classes of shares:
i) Ordinary shares granting the shareholder dividend rights and a
share in any residue upon Liquidation of the company.
ii) Shares granting the holder voting rights at the general
meeting and the right to be elected to the directorate of the
company.
- 4 -
<PAGE>
b) Both the ordinary and voting shares shall be issued as follows:
The Initiator: 50%.
EMPLOYEES: (excluding the Initiator): 10%.
During the development period the employees shares shall
be held in trust by the Foundation. Upon termination of the
development period, the Foundation shall transfer such shares to the
employees entitled thereto subject to the directives of the Chief
Scientist and in the Foundation's discretion. Should any of such
shares remain, they shall be allocated to the parties to this
agreement in accordance with the proportion of each party under this
agreement.
The Foundation: 20%.
The Investor: 20%.
c) Issue and/or allocation of further shares
Should a general meeting of the company decide to issue and/or
allocate further shares whether of one or both of the classes
defined above, such decision shall require a majority vote of 80%.
d) Board of Directors:
i) There shall not be less then 4 directors and until decided
otherwise by the unanimous vote of the general meeting of the
company, there shall not be more than ten directors.
ii) Notwithstanding clause (d)(i) above, during the development
period, the Board of Directors shall be as follows:
- 5 -
<PAGE>
The manager of the Foundation and a further representative of
the Foundation, the Initiator or his representative and the
Investor's representative. The manager or his representative
of the Foundation shall be the chairman of the
Board.
iii) Upon termination of the development period, the directors
shall be appointed by the shareholders, that is, each
shareholder of 20% of the shares shall be entitled to appoint
one director but subject to each party to this agreement being
entitled to appoint at least one director and subject to such
party owning at least 12% of the issued shares.
e) Board meetings and Decisions:
i) During the development period, the legal forum for Board
meetings and Board decisions, shall be not less than 3
directors, at least one director representing each party to
this agreement.
ii) Decisions shall be by majority vote of these present.
iii) Notwithstanding clause (e)(ii) above, during the development
period, the chairman shall have the deciding vote in regard to
differences of opinion that may arise relating to the
Foundation's duties, management of the company and project and
to carry out the provisions of the RDL, agreements between the
Chief Scientist and the Foundation and the instructions,
regulations and directives of the
- 6 -
<PAGE>
Chief included in the Board's meeting agenda falls within the
ambit of his deciding vote, shall be binding upon the parties
to this agreement.
f) General meeting decisions during the development period:
During the development period the parties hereto shall endeavor to
co-ordinate their voting rights at the general meeting of the
company in order to give full support to the Foundation's stand in
matters relating to the Foundation's duties and management of the
company according to the RDL, the agreements between the Foundation
and the Chief Scientist and the Chief Scientist's directives and
regulations from time to time.
g) Authorized signatories:
i) During the development period the signatures of two directors,
namely the Foundation's manager or representative or the
representative of the holding company and the signature of
either the Initiator or the investor, shall bind the company
and/or the project in every respect.
Notwithstanding the above, during the development period, the
following shall apply:
(1) Payments in excess of 20,000 NIS shall be made only
after prior arrangement with the Investor or his
representative.
(2) Orders in respect of the project by third parties shall
require written confirmation signed by two signatories,
namely, the Foundation's
- 7 -
<PAGE>
manager or his representative and the
project manager.
ii) Upon termination of the development period, the authorized
signatories shall be appointed by the unanimous vote of the
Board of directors. Until such appointment clause (g)(i) above
shall apply.
5. Company operations
a) All company operations shall be subject to the RDL its laws and
regulations, the instructions and directives of the Chief Scientist,
programs prepared by him and to all agreements that may be entered
into from time to time between the Foundation and the Chief
Scientist.
b) All right, title and interest in and to the knowledge, know-how and
expertise, the patents manufacturer's rights and every right of
ownership in the project, as also every product and document
relating to the execution of the project, in the Foundation's
framework, including all research by the company in regard to the
project, shall vest exclusively in the project and upon registration
of the company, in the company. The Initiator hereby cedes and
transfers all his rights as set out above, free of consideration, to
the project and to the company aforesaid.
c) The Foundation and/or the holding company shall make suitable
accommodation available to the company for the purposes of the
project, subject to the terms, conditions and reasonable payment as
stipulated by the Foundation and/ or holding company. The foundation
and/or holding company shall in addition provide various services to
the
- 8 -
<PAGE>
company upon such terms to be agreed upon between the Foundation
and/or holding company and the company. The project and/or the
company shall pay a proportionate share of the Insurance premiums in
respect of the accommodation aforesaid. All the aforesaid services
and costs in respect thereof shall be determined according to the
project budget.
d) The company shall keep proper accounting records as is required by
law and accepted in similar ventures, and shall furnish reports from
time to time to the Foundation and to the Chief Scientist as
requested by them.
e) The company shall carry out and comply with all its representations,
obligations and time schedules in terms of and as represented to the
Foundation and the Chief Scientist in order to obtain the necessary
consent for carrying out the project, and as confirmed by them,
and/or as may be presented and/or confirmed by them during the
execution of the project.
f) At least 50% of all employees shall be new immigrants. Professional
employees shall be appointed during the development period by the
Initiator with the approval of the Foundation's manager.
The rest of the employees and the Initiator shall be employed in
terms of the Foundation's standard personal employment agreement.
g) The company shall conduct its business in accordance with the
approved and/or to be approved budgets for the project by the
Foundation and/or the holding company and the Chief Scientist.
The project and/or company shall be obliged to operate strictly
within the framework of the said budget and any
- 9 -
<PAGE>
deviation therefrom shall not be recognized or allowed by the
Foundation and/or Chief Scientist.
The budget shall be provided by means of the financial assistance of
the Chief Scientist as allocated to the project and by the
supplementary finance of the Investor as hereinafter set forth.
h) The Investor hereby undertakes to provide the sum of US$ 60,000 for
the purpose of financing portion of the budget of the project,
specifically excluding employees salaries, (hereinafter "the
supplementary finance"). Such sum of US$ 60,000 shall not be
returned or repaid to the Investor. The supplementary finance
aforesaid shall be made available to the company and/or project as
follows:
4 payments of US$ each, in NIS according to the known dollar
exchange rate on the date of each payment:
The first payment of US$ 21,000 shall be made on August 1, 1997.
The second payment of US$ 13,000 shall be made on the 1st day of
February 1998.
The third payment of US$ 13,000 shall be made on the 1st day of
August 1998.
The final payment of US$ 13,000 shall be made on the 1st day of
February 1999.
i) It is hereby agreed that in the event of the project and/or company
requiring further finance in addition to the supplementary finance
as set out above, the parties hereto shall be entitled to
- 10 -
<PAGE>
introduce an additional investor to this agreement subject to the
Investor (the third party to this agreement as set out in the
preamble) having the first right of refusal to invest such further
finance as is required.
j) The Initiator shall present both the Foundation and the Investor
with a bi-annual technical report. The Foundation shall be entitled
to demand additional technical reports during the development
period. The Initiator shall provide and furnish, both during and
after the development period, all such information as may be
required, to the Foundation and/or the holding company in order to
fulfil their obligations to the Chief Scientist and to third
parties.
k) The Initiator shall maintain a full and detailed written record of
each and every stage of the research and development carried out by
him and furnish copies thereof to the Foundation, the company and
the Investor as requested from time to time.
l) Upon registration of the company, the company shall register an
overall first covering lien in respect of all of its assets as also
a permanent First lien over its equipment and fixed assets, in favor
of the Foundation and/or holding company in order to secure its
obligations as hereunder set forth in clause 6.
m) Property and equipment purchased with the finance of the Chief
Scientist and/or with his assistance, shall represent security for
the repayment of the State's investment in the project and/or
company. Until registration of the aforesaid liens, neither the
parties
- 11 -
<PAGE>
nor the company shall be entitled to in any manner dispose of or
cede any rights in and to the assets and property of the project
and/or company which were acquired with the Chief Scientist's
finance.
n) The Initiator and Investor hereby declare and confirm that they are
aware of the fact that the Foundation and the holding company have
no personal obligation in regard to financing the project. In order
to avoid any misunderstanding, the Foundation hereby undertakes to
hand over to the project and/or company all sums received from the
Chief Scientist and in accordance with the Chief Scientist's
directions.
o) The Initiator and Investor hereby confirm that they are aware of the
fact that the Chief Scientist's approval for the project is for a
period of one financial year only and the continuation of the
project thereafter is subject to renewal of such approval by the
Chief Scientist.
p) The Initiator and Investor shall take all such steps as are
necessary for the commercialization and/or application of the
results of the project in the framework of the company. The
Foundation shall give all possible assistance in this respect to the
Initiator, Investor and the company.
q) The Initiator shall work in the project and/or company on a
full-time basis and he shall not be entitled to work in any other
manner of employment unless he receives the prior written consent of
the Foundation and the Investor and subject to their conditions.
- 12 -
<PAGE>
6. Completion of the project:
Upon completion of the development period, the parties shall act as
follows:
a) The company shall pay the Chief Scientist royalties derived from the
consideration received from sales of the product and/or know-how
developed by the company, until the full repayment of the real value
of the sum paid by the Chief Scientist in respect of the project,
such royalties to be paid in terms of the Chief Scientist's
instructions.
The parties declare that they know that as at the date hereof the
Chief Scientist's regulations in respect of royalties, provide for
the company to pay the Chief Scientist and/or the Foundation for
transfer to the Chief Scientist, royalties at the rate of 3% of the
total annual sales of the company in respect of the project during
the first three years;
4% for the following three years and 5% for the seventh year until
the full repayment of all monies received from the Chief Scientist
according to their real value - such monies to be repaid shall be
linked to the U.S. dollar in this respect.
The above directives may be changed from time to time by the Chief
Scientist.
In regard to the above, sales shall be deemed to be and shall
include all income derived from products of the project and/or that
have been developed, or relating to their sale and/or the sale of
any rights thereto, including the obligation to provide services,
all the above subject to the Chief Scientist's directives.
- 13 -
<PAGE>
b) Without detracting from its obligations as set out in clause (a)
above, the company and/or its shareholders, according to the
circumstances, shall pay the Chief Scientist or the Foundation for
transfer, to the Chief Scientist, 25% of the value received for the
sale of shares to a non-shareholder, and which value has not been
invested in the company within three months of such sale. Such
repayment shall be limited to the aforesaid true value of the amount
financed by the Chief Scientist .
c) The company with the Initiator's assistance shall file a bi-annual
report with the Foundation approved a Certified Accountant in
relation to the sales of the company as set out above, until such
time as all the royalties have been paid in terms of clause (a)
above.
d) All the books of account and documents relating to the project of
the company and/or project shall be open to the inspection of the
Foundation until the final payment as set out in clause (a) above.
e) Upon completion of the final payment aforesaid, the liens shall be
canceled.
f) The company and its employees shall vacate the Foundation's premises
occupied by it.
g) The company shall present final financial and technical reports in
respect of the project within three months of the termination of the
development period.
h) The Foundation shall not be obliged to invest any monies in the
future in the company, nor to sign security for the obligations of
the company nor to provide security to
- 14 -
<PAGE>
enable the company to obtain finance or credit. The company shall
not be entitled to make any such demands of the Foundation.
i) The products developed in the project shall be manufactured in
Israel alone, unless the Chief Scientist has given contrary
permission.
7. The Investor's right to acquire the Foundation's shares
a) The Foundation hereby grants the Investor an option to purchase its
shares upon termination of the development period. Such option shall
be exercised by the Investor in writing to the Foundation within 90
days of the termination of the development period.
b) In consideration for acquiring the shares and rights of
the Foundation in the company, the Investor shall pay the
Foundation the sum of US$ ........ in NIS in one of the
following methods:
[INTENTIONALLY OMITTED]
Alternatively:
(ii) Payment of the sum of US$ ........ in NIS within 7 days of
exercising the option. In such event transfer of the shares
and rights by the Foundation to the Investor shall be made
forthwith upon payment in terms of this clause.
c) Until payment of all the royalties the company shall allow the
Foundation the right to examine its books of account and shall
furnish the Foundation with a bi-annual report of all sales duly
confirmed by a Certified Accountant.
- 15 -
<PAGE>
8. Confidentiality
The parties hereto undertake to maintain strict confidentiality and
secrecy in regard to all the present and future knowledge and information
relating to the project, whether of the Foundation that is divulged to the
Initiator or knowledge and information acquired and/or accumulated by the
company, including all proprietary knowledge and/or secrets of the company
and/or the Foundation and/or of the project, that may be divulged to one
or more of the parties.
9. Non-Competition
a) The Initiator and Investor undertake not to directly or indirectly
compete with the business of the project and/or company and/or
Foundation. Such prohibition and undertaking shall remain in force
while the said Initiator and Investor are shareholders of the
company, and should they cease to be shareholders, in any event, for
a period of three years after they cease to be employed by the
company - such prohibition and undertaking aforesaid remaining in
effect until the later of such two eventualities, namely: date of
ceasing to be shareholder or 3 years after ceasing to be employed as
aforesaid.
Such prohibition and undertaking shall include direct or indirect
dealings in the development and/or manufacture and/or sale and/or
marketing of products of the project and/or the use in any manner
whatsoever of the knowledge and information and/or being connected
directly or indirectly in any manner whatsoever in the present or
future, in the field of the project and/or company, which may
compete with their business-or occupations.
- 16 -
<PAGE>
b) The Initiator undertakes to co-ordinate the activities of the
project and/or company in respect of the fields relating to them,
whether directly or indirectly. He furthermore undertakes not to
copy and/or to make use of knowledge and/or information in regard to
the products to be developed by the company or project, in any
manner whatsoever which is contrary to the framework of the project
and/or company, nor to receive any profit and/or benefits therefrom
contrary to this agreement.
c) The present and future knowledge and information relating to the
project and/or the rights thereto, shall not be ceded in any manner
whatsoever, directly or indirectly, unless the Chief Scientist has
given written permission so to do.
10. This agreement in general and clauses 9 and 11 in particular shall in no
way prohibit the Investor from engaging in the development of products and
using such information that is public knowledge, including the knowledge
that was available to him prior to the execution of this agreement and/or
information obtained by him which is not related to nor as a result of
this agreement.
11. Cession of rights
a) During the development period neither the Initiator nor the Investor
shall be entitled to transfer and/or cede any of their rights or
obligations in terms of this agreement to another nor to transfer
their shares in any manner without the specific written consent of
the Foundation.
- 17 -
<PAGE>
b) The parties hereto acknowledge that the transfer of 25% or more of
the rights in the project and/or company requires the Chief
Scientist's prior approval.
In this respect, rights in the company and/or project, are in effect
shares and/or the holding of one or more of the following methods of
control:
Voting rights at company meetings. The right to elect directors of
the company. The right to participate in the profits and/or income
of the company.
c) Transfer and cession of one or more of such controlling rights to a
foreign resident or foreign company, requires the prior written
consent of the Research Committee of the Chief Scientist.
d) The Initiator and the Investor hereby acknowledge and consent to the
Foundation having the right to transfer its rights and obligations
under this agreement to the holding company and/or to carry out any
obligation, to exercise any authority, right and/or discretion by
means of the holding company.
12. Termination and cancellation of this agreement and their consequences
a) The Initiator and the Investor hereby declare that they
are aware of the fact that the Chief Scientist and/or the
State is entitled to withdraw from any agreement to which
they are a party in regard to the project, for
governmental reasons, and in such event, every agreement
between the Initiator and/or the Investor and/or the
company with the Foundation and/or the holding company
shall be canceled.
- 18 -
<PAGE>
b) The Initiator and the Investor acknowledge that during the
development period, the Foundation shall be entitled to cancel this
agreement by prior written notice of 14 days in the event of one or
more of the following occurring:-
i) The Chief Scientist has withdrawn his support of the project.
ii) The State has withdrawn its support of the Foundation.
iii) The Foundation has decided to terminate the agreement on the
grounds that the desired results were not achieved or that
continuation of the agreement would demand and entail
substantial costs not covered by the budget or that the
Foundation deems to be unjustified, and that the Chief
Scientist has consented to the termination of the program.
c) In the event of the cancellation of this agreement as set
out in (a) or (b) above, and/or in the event that the
Chief Scientist refuses to consent to the continuance of
the project in terms of his program, the parties hereto
shall be absolved of all their financial obligations in
terms of this agreement as also for the payment of any
damages resulting from loss and/or damage to any of the
parties. In such event all the assets, rights,
equipment, knowledge and information, both present and
accumulated (hereinafter the assets") in the project
and/or company, shall remain with the Foundation until
such time as the amount owing to the Chief Scientist has
been repaid and if necessary, such assets, in part or
all, shall be realized to repay such debt.
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<PAGE>
Upon payment in full to the Chief Scientist, the liens shall be
canceled and the remaining assets shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the company and/or project.
i) Breach of a basic condition of this agreement by one of the
other parties, which breach has not been rectified within a
period of 30 days from receiving notice so to do.
ii) In the event of insolvency or liquidation proceedings being
instituted against one of the parties or should a receiver be
appointed in relation to his property subject to prior notice
of 30 days grace during which period the said proceedings have
not been canceled or the receiver released from his
appointment.
iii) In the event of a party being convicted of a criminal offence
involving dishonesty.
b) In the event of termination of this agreement as set out in (a)
above, the following shall apply:
i) The assets of the project and/or company shall be utilized as
far as is necessary in order to repay the Chief Scientist in
full.
ii) Upon repayment of the amount owing to the Chief Scientist the
liens shall be canceled.
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<PAGE>
iii) The balance of monies received from the realization of the
project and the remaining assets, shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the company and/or project.
14. Arbitration
a) Any dispute whatsoever between the parties arising our of or
relating to this agreement, shall be settled by arbitration by a
single Arbitrator, appointed by the mutual consent of the parties.
b) In the event of the parties failing to agree upon the Arbitrator
within 14 days of a party requesting Arbitration, such Arbitrator
shall be appointed by the Chief Scientist or his representative.
c) The substantive law shall apply to the Arbitration, but not the laws
of evidence nor the civil law regulations. The Arbitrator shall be
obliged to give his reasons for his judgment.
d) The Arbitrator shall be entitled to give such relief, decision or
judgment, whether temporary or final, according to his sole
discretion.
e) The provisions of this clause shall be an integral part of the
provisions of the Arbitration agreement between the parties, in
terms of the Arbitration Act of 1968.
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<PAGE>
15. General Conditions
The entire agreement between the parties with respect to the subject
matter hereof is stated herein and this agreement cancels any other verbal
or written agreements between the parties and may be amended only in
writing signed by the duly authorized representatives of the parties.
16. This agreement shall also apply to the State of Israel insofar as is
provided in the contract law (general law).
17. Wherever there appears in this agreement the obligation of the company,
such obligation shall be deemed to be that of each of the parties hereto
to carry out all such steps as are necessary for the company to fulfil its
obligations hereunder.
18. The Law Courts at Afula and Nazareth shall have the sole and exclusive
jurisdiction in all matters relating to this agreement.
19. The cost and stamp duty relating to this agreement shall be paid by the
project.
20. a) The Foundation shall be entitled to deduct any monies due to the
Foundation from monies payable to the project and/or company and/or
Initiator.
b) The Foundation shall be entitled to require payment of linkage and
interest on all amounts owing to the Foundation by the project
and/or company and/or Initiator.
21. The addresses of the parties are as set out in the preamble above.
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<PAGE>
Any notice or letter sent by one of the parties to another party hereto,
shall be deemed to have been received within 3 working days from the date
of dispatch thereof by registered mail.
In Witness whereof, the parties hereto, each by its duly authorized signatory,
have set their hands on the date aforesaid.
/s/ Kopit /s/ A. Trossman
- ------------------------ ------------------------ ------------------------
The Foundation The Initiator The Investor
Eurotech Ltd
By Alex Trossman
- 23 -
EQUITY SHARING AGREEMENT
AGREEMENT dated as of the 20 day of August, 1997 by and between EUROTECH
LTD a USA District of Columbia corporation with offices at 1200 Prospect Street,
Suite 425, La Jolla, California 92037 USA (the "EURO") and Y. Kopit and V.
Rosenband (The Author) with offices located at ISRAEL.
WITNESSETH
WHEREAS, the Author has presented certain scientific-technical ideas and
has formed or has intention to form a start up company named ComSyntech, Ltd.
("START UP") with the intent to further research and develop the said ideas into
the marketable technologies and later to implement this development into
industrial operations.
WHEREAS, EURO would like to participate in formation of the START UP and
undertake the responsibilities for the marketing and industry implementation,
and
WHEREAS, EURO would like to provide for its share of the financing in the
START UP and would like to be fully and exclusively responsible for the
non-research related activities of START-UP, and
WHEREAS, the Author holds 50% (fifty percent) of the Allocated shares in
the START UP and the Author would like to yield the marketing responsibilities
of the START UP activities to EURO.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided the EURO and the Author agree as
follows:
1. Equity (ownership) sharing. The Author is obligated to sell to EURO or
EURO's designee at EURO's first request within the two weeks such request
has been made 31% (thirty-one percent) of the full number of shares issued
by START UP out of the full number of START UP shares owned by the Author
and the Author has agreed from the moment of START UP formation to
allocate the said 31% of the START UP shares to EURO and will have no
rights to sell, assign or otherwise transfer by any means any amount of
these shares to any other
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2
party without the written notarized consent from EURO.
In order to assure the following obligation the author will sign a share
transfer warrant which shall be kept in the hands of the START UP
accountant with irrevocable orders to transfer the shares to EURO if it
will pay the Author the sum as stated in paragraph 3 of the Agreement.
2. Term. The request to the Author from EURO to sell 31% shares shall come at
EURO's discretion no earlier then 6 months and no later then 18 months
after actual registration of the START UP. If EURO fails to purchase the
shares after making the request within 6 (six) months the Author becomes
no longer legally obligated to sell the shares to EURO.
3. Share sales price. EURO has agreed to buy and the Author has agreed to
sell to EURO the said 31% of the shares of the START-UP at a set price
equal to $93,000.00 (ninety three thousand US dollars). After the deal the
Author shall remain with 19% of the issued shares.
4. START UP Profit sharing. In case the Author sells 31% of the shares as
instated above EURO shall compensate the Author for the loss of the
pre-taxed profit in START UP as a result of such sale.
5. Assisting marketing. The Author Assisting Marketing that he is fully aware
of the fact that the main interest of EURO in this agreement is to get
full control over the future marketing options of the START UP and he
shall invest his best efforts to promote EURO marketing actions.
6. Other Arrangements. This Agreement does not preclude from any other
arrangements which can be made between the EURO and the Author in course
of conducting mutual business.
7. Complete Agreement. This Agreement supersedes any and all prior written
and oral agreements between the EURO and the Author.
<PAGE>
3
8. Governing law. All disputes and claims between the parties in connection
with any matter arising out of or connected with this agreement shall be
settled exclusively by the competent courts of the state of New York, and
the parties submit themselves to the jurisdiction of such courts.
9. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both
parties.
Any provision herein which is found to be invalid illegal or
unenforceable under any applicable provision of the laws valid in Israel
or with respect thereto, shall be amended to the extent required to render
this agreement valid, legal and enforceable under such laws (or deleted if
no such amendment is feasible), and such amendment of deletion shall not
affect the enforceability of other provisions hereof and the basic rights
and obligations of the parties.
All notices, consents, approvals, or other notices required under
this agreement shall be made in writing and addressed to the place of each
the parties.
10. NOTICES.
Any notices required or permitted to be given hereunder may be given by
personal delivery, registered airmail, return receipt requested telegram,
telefax or telex. Notice by telegram, be deemed given (7) days after mailing.
Notice by telegram, telefax or telex shall be deemed given on the date
transmitted provided same is a working day by recipient and the notice is
transmitted during normal working hours. Until changed by written notice given
by one party to the other, the addresses the parties for notice shall be as
follows:
WITNESS WHEREOF, The EURO and the Author have executed this Agreement as
of the date first above written.
<PAGE>
4
/s/ Kopit /s/ A. Trossman
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THE AUTHOR EUROTECH, LTD.
BY: It's Chief Executive Officer
VOTING AGREEMENT
Agreement dated as of day of 20 day of August, 1997 by and between
EUROTECH, LTD, a USA District of Columbia corporation with offices located at
1200 Prospect Street, Suite 425, San Diego, California, USA 92037 ("EURO") and
Y. Kopit and V. Rosenband (THE AUTHOR) located in Israel at __________________.
WITNESSETH
WHEREAS, THE AUTHOR has presented certain scientific-technical ideas and
has formed along with the other entities an Israeli start-up company named
Comsyntech (START-UP) with the intent to further research and develop the said
ideas into the marketable technologies and later to implement this development
into industrial applications,
WHEREAS, EURO has initiated and funded the search and selection of the
technology on which the START-UP is formed and EURO will undertake the
responsibilities for the future marketing, licensing and industrial
implementation of the developed technology and,
WHEREAS, EURO has committed to provide for the necessary funding of the
START-UP operations and be exclusively responsible for the introduction of the
developed technology and corresponding products to the world market
WHEREAS, THE AUTHOR holds 50% (fifty percent) of the equity in the
START-UP at the time of the formation and THE AUTHOR would like to yield the
decisions on the marketing and major operational issues of the START-UP to EURO
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the mutual benefits herein provided EURO and THE AUTHOR have agreed as
follows:
1. Commitment to the mutual voting position - yield of the voting
rights. THE AUTHOR has agreed that he will yield his voting rights
as a 50% shareholder of the START-UP to EURO or its representative
regardless whether EURO representative is on the Board of Directors
of the START-UP or not. THE AUTHOR will take written instruction
from EURO on THE AUTHOR's voting position on the issues related to
the
<PAGE>
2
strategic decisions made by the Board of Directors of THE START-UP such as
but not limited to the issue of the shares, sales of the shares,
appointment of the officers of the START-UP, signing of the major
contracts, licensing of the technology, etc.
2. Term. The term of this agreement shall be for the life of the START-UP
with transfer of the status quo as appropriate to the successor of the
START-UP if and when such a transfer takes place and in which THE AUTHOR
will have the equity share.
3. Other Arrangements. This Agreement does not preclude from making any other
arrangements between EURO and THE AUTHOR in the course of conducting
mutual business.
4. Complete Agreement. This Agreement supersedes any other and all prior
written or oral other agreements between EURO and THE AUTHOR made on the
subject of this Agreement.
5. Governing Law. All disputes and claims between the parties in connection
with this agreement shall be settled at the competent court of New York
City, USA and the parties to this agreement shall submit themselves to the
jurisdiction of such a court.
6. Penalties. THE AUTHOR agrees that if he votes against or differently from
the position taken by EURO and such voting results into direct or indirect
financial losses of EURO or damages marketing position of EURO or causes
any other setbacks for EURO THE AUTHOR will be liable to cover such losses
by transferring to EURO without compensation all the equity held by THE
AUTHOR in THE START-UP as a minimum to cover said losses. THE AUTHOR
realizes that such a transfer may or may not fully compensate EURO for the
said losses and THE AUTHOR can be further held liable and sued in the
court of law.
7. General. Any amendments to this agreement shall be binding upon the
parties only if mutually agreed upon in writing and signed by both parties
to this agreement. Any provision
<PAGE>
3
herein which is found to be illegal, invalid or unenforceable under any
applicable provision of the laws in effect in Israel or with respect
thereto, shall be amended to the extent required to render this agreement
valid, legal and enforceable under such laws and such amendments shall not
affect the basic rights and obligation of the parties to this agreement
and the basic intent of this agreement as given in para. 1, 2 and
IN WITNESS WHEREOF, EURO and THE AUTHOR have executed this Agreement as of
the date first above written
/s/ Kopit /s/ A. Trossman
- ------------------------ ---------------------------------
THE AUTHOR EUROTECH, LTD.
BY: Dr. Randolph A. Graves, Jr.
CEO and Chairman of the Board
LICENSE AGREEMENT
AGREEMENT made this 4th day of December, 1997, between ERBC
Holdings, Ltd., a British Virgin Island corporation having an address at c/o
Finbar F. Dempsey & Co., Cockburn House, P.O. Box 70, Grand Turks, Turks &
Caicos Islands, British West Indies (the "Licensor") and Eurotech, Ltd., a
District of Columbia corporation having an address at 1200 Prospect Street,
Suite 425, LaJolla, California 92037-3608 (the "Licensee").
W I T N E S S E T H:
WHEREAS, the Cetoni Unwelttcchnologic--Emwik Lungs GmbH ("Cetoni")
has prepared and filed patent applications for international patents Behalter
sowie Verschlup fur einen solchen Behalter sasnple Registration 296 16 133.0 and
Patent Registration 196 46 437.4 and WiederverschlieSbare Weichverpackung, die
unter anderem fur, <Tetra Pak> geeignetist" (reclosing soft-material packaging,
suited e.g. for TetraPak) application-number for patent registration: 107-21
408.8 dated 05.21.1997 plus amendment number 197 29 194.5 dated 07.08.1997 (the
"Patent Applications") encompassing certain useful technologies (the
"Technologies") and inventions (the "Inventions") relating to reclosable cans
and Tetrapax (the Patent Applications, Technologies, and all proprietary
information, formulae, papers, engineering specifications and documents and
other related proprietary
<PAGE>
technologies principally relating thereto are herein referred to as the
"Intellectual Property"); and
WHEREAS, by agreement dated the 20th day of March, 1997, Cetoni
granted to the Licensor exclusive worldwide license to use and exploit the
Intellectual Property (herein referred to as the "Territory"), a copy of which
license and all of the exhibits and appendices thereto is appended hereto as
Exhibit A (the "Cetoni License") and which is incorporated herein and made a
part hereof; and
WHEREAS, the Cetoni has represented to the Licensor in the Cetoni
License that (i) on the date of execution of the Cetoni License it was not aware
that the license granted in the Intellectual Property infringed upon any rights
of others, (ii) it is the sole and exclusive owner of the Intellectual Property,
(iii) it has not licensed or otherwise authorized any other person or entity to
use, exploit or commercialize the Intellectual Property; and
WHEREAS, the Cetoni License permits the Licensor to grant
sublicenses of the Intellectual Property and Licensor desires to grant the
exclusive, unrestricted license of the Intellectual Property to Licensee in the
Territory to exploit, commercialize and use the Patent Applications, the
Technologies, the Inventions, and
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<PAGE>
the proprietary information, formulae, engineering specifications, papers and
documents and other related proprietary technologies principally relating
thereto, and to convey to and vest in Licensee all of the rights of the Licensor
granted to it by the Cetoni License, with the right to grant sublicenses to
others, free and clear of all liabilities, charges, liens, mortgages,
obligations or encumbrances, subject completely to the rights of the Licensor as
defined, enumerated and elucidated in the Cetoni License; and
WHEREAS, Licensee is desirous of acquiring an exclusive,
unrestricted license to exploit, use, commercialize and market the Inventions
and the proprietary information, formulae papers and documents and other related
proprietary technologies principally relating to the Patent Applications and the
Technologies, on the terms and conditions and for the consideration set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and covenants contained herein the parties agree as follows:
ARTICLE I
LICENSE OF TECHNOLOGIES, PRODUCT AND INVENTIONS
Section 1.01. Exclusive License. Licensor hereby grants to the
Licensee, on the date hereof, free and clear of all liabilities, liens, claims,
mortgages, encumbrances, security
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<PAGE>
interests and any other restrictions whatsoever, subject completely to the
rights of the Licensor defined by and elucidated and enumerated in the Cetoni
License, the exclusive, unrestricted and irrevocable right and license to
commercialize, use, exploit and market the Intellectual Property.
Section 1.02. Necessary Information and Documents. Licensor shall
furnish and shall use its best efforts to cause Cetoni to furnish, to Licensee,
or its nominees and patent attorneys, all information and documents regarding
such inventions, including the apparatus, processes, engineering specifications,
technical information and formulae in respect of the Intellectual Property, to
enable Licensee to operate hereunder, it being agreed and understood that, if so
requested by Licensee, that Licensor shall collaborate with and provide full
cooperation, and shall use its best efforts to cause Cetoni to collaborate with
and provide full cooperation, in favor of Licensee in all operations pertaining
to the use and exploitation of the Intellectual Property.
Section 1.03. Rights to Improvements to the Product, the
Technologies and the Inventions. The exclusive right and license herein granted
shall include all inventions, improvements, enhancements and modifications and
all information now or hereafter developed, controlled or acquired by the
Licensor in respect of the Intellectual Property.
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<PAGE>
Section 1.04. Right to Receive Information Relating to Improvements,
Enhancements and Modifications. Licensor hereby covenants and agrees with
Licensee that it shall furnish to Licensee, or its nominees, immediately upon
receipt thereof from Cetoni, all information and documents relating to
improvements, enhancements and modifications hereafter developed, controlled or
acquired by the Licensor in respect of the Intellectual Property and the
Licensor shall provide the Licensee with such information, working drawings,
blueprints, formulae and all other data and information necessary to effect the
exploitation and use of such improvements, enhancements and modifications as
they relate to the Intellectual Property and Licensee shall be entitled to use
and exploit all such improvements, enhancements and modifications hereafter
developed, controlled or acquired by the Licensor in respect of the Intellectual
Property without additional charge hereunder.
Section 1.05. Sublicenses. Licensor hereby grants to Licensee the
right to grant sublicenses in respect of the Intellectual Property licensed by
this Agreement to third parties on terms consistent with this Agreement.
Section 1.06. Term. (a) This Agreement shall commence upon the
execution hereof and, subject to the provisions of this Agreement, the rights
and licenses granted hereby shall continue until the expiration of the term of
the Cetoni License, provided,
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<PAGE>
however, that if royalty payment due Licensor hereunder are in arrears for sixty
(60) days after the due date, or if the Licensee is adjudicated a bankrupt or
becomes insolvent, or enters into a composition with creditors or if a receiver
is appointed for it, then the Licensor shall have the right to terminate this
Agreement upon giving written notice to the Licensee thirty (30) days prior to
the effective date of the termination, and if the cause of such termination is
not cured within the thirty (30) days, then at the expiration of the thirty (30)
days the Agreement and all rights and licenses granted to the Licensee,
hereunder shall terminate, without prejudice to the Licensor's right to collect
monies due or to become due under the Agreement and without prejudice to any
other rights of the Licensor.
(b) Upon termination of this Agreement for any cause, the
Licensee shall duly account to the Licensor for all royalties within sixty (60)
days of such termination, and shall immediately transfer to Licensor all rights
that Licensee may possess in sub-licenses, patent's, information, and trademarks
relating to the Intellectual Property, transferred hereunder and all rights and
licenses granted to Licensee pursuant to this Agreement shall immediately
terminate.
Section 1.07. Intent of License. It is the intent of the Licensor to
grant to and vest and convey in the Licensee all of the rights acquired by the
Licensor pursuant to the Cetoni License. In
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<PAGE>
view thereof, all of the rights granted to the Licensor by said Cetoni License
are hereby granted to the Licensee and Licensee shall enjoy and be entitled to
all such rights and privileges as those enjoyed by the Licensor pursuant to the
Cetoni License and in the case of any question relating to the rights of the
Licensee to the Intellectual Property, the parties shall refer to and be bound
by the terms of the Cetoni License.
Section 1.08. Ownership of Improvements to Intellectual Property
Developed by Licensee. Licensor hereby agrees with Licensee that Licensee shall
be the outright and sole owner of any and all improvements, enhancements and
modifications hereafter developed, controlled or acquired by the Licensor in
respect of the Intellectual Property.
Section 1.09. Further Assurances. Licensor shall at any time and
from time to time after the date hereof upon the request of Licensee, execute,
acknowledge, and deliver, or cause to be delivered, any and all such deeds,
assignments, transfers, conveyances, and assurance as may be reasonably required
for assigning, transferring, granting, conveying, assuring, and confirming the
license to Licensee, or to its successors and assigns, or for aiding and
assisting in the use and exploitation of the Intellectual Property and the
manufacture and sale of the Product herein described or derived therefrom.
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<PAGE>
ARTICLE II
CONSIDERATION
Section 2.01. Consideration and Royalties. Licensee shall pay
Licensor the sum of four hundred ninety-five thousand dollars ($495,000) upon
the execution of this Agreement.
Section 2.02. Accounting. Licensee shall, at all times, maintain a
separate account of all Products sold, royalties received and all revenues
received by it or from its sub-licensees which are the subject of this Agreement
and render written statements hereof to Licensor within thirty (30) days after
the end of each calendar quarter during the term of this Agreement, together
with the amount of all royalties earned during the corresponding calendar
quarter. The Licensor or its authorized representatives or agent, shall have the
right, at its own expense, to examine the Licensee's financial records for the
purpose of verifying such royalty statements. In any and all sub-licensing
agreements, the Licensee shall procure for the Licensor a similar right to have
the financial records of the sub-licensee examined for the purpose of verifying
the royalty statements.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LICENSOR
Section 3. Licensor hereby represents, warrants and covenants to
Licensee as follows:
Section 3.01. Organization, Qualification, Power and Authority.
Licensor is an corporation duly and validly organized and existing in good
standing under the laws of International Business Companies Act of the British
Virgin Islands and has all requisite power and authority to execute and deliver
this Agreement and any of the documents provided for hereunder and to perform
its obligation and to consummate the transactions contemplated hereunder and has
all requisite power and authority and all material licenses and permits to carry
on its business as it has been and is now conducted, and to own, lease, and
operate the properties and assets issued in connection therewith. The execution,
delivery, and performance of this Agreement, the Exhibits, and any other
documents provided for hereunder by Licensor, and the consummation of the
transactions contemplated hereunder have been duly authorized by all necessary
requisite action of Licensor and do not violate or conflict with, constitute a
default under, any provision of Licensor's certificate of association, by-laws,
laws, orders, writings, injunctions, decrees, rules, or regulations of any
court, administrative agency, or any other governmental authority or any
agreement or other document or
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<PAGE>
instrument to which Licensor is a party or by which Licensor is, or may be,
bound. This Agreement has been duly and validly executed and delivered by
Licensor and constitutes a legal, valid, and binding obligation of Licensor
enforceable in accordance with its terms.
Section 3.02. Technological Data and Proprietary Information.
Exhibit A hereto sets forth and includes a true and complete copy of the license
agreement between the Licensor and Cetoni and all exhibits and appendices
thereto as referenced therein, including all of the Patent Applications, trade
secrets, formulae, processes, inventions, know-how, engineering specifications
and other proprietary information, papers and documents relating to the
Technology and the Inventions, representing all such documents currently in the
possession of the Licensor or in which Licensor has any rights or licenses or
which are used by Licensor in connection with the foregoing and which are being
licensed by Licensor to Licensee hereunder.
Section 3.03. Prior Disclosure of Intellectual Property. Licensor
has not revealed any proprietary information encompassing the Intellectual
Property to any one other than its employees, agents, representatives and others
to whom communication of said information was essential in the development
thereof. All such persons who have received or been privy to said information
have
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<PAGE>
agreed or will agree not to disclose any such information without first
obtaining the written consent of the Licensee.
Section 3.04. Finders and Brokers. No finder's fee, brokerage
payment, or other payment is payable by Licensor to any third party or parties
in connection with the origination or negotiation of this Agreement or the
consummation of the transactions contemplated by this Agreement.
Section 3.05. Full Disclosure. To the best of Licensor's knowledge
no representation or warranty by Licensor in this Agreement, in any Schedule or
Exhibit, or in any certificate or other document expressly provided for herein
contains any untrue statement of a material fact or omits to state any material
fact necessary to make any statement herein or therein not misleading.
Section 3.06. Right to Grant Sublicense. Licensor has the right to
grant this License and has not granted to any other person, firm, corporation or
other entity, any right, license or privilege thereunder.
ARTICLE IV
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<PAGE>
REPRESENTATIONS AND WARRANTIES OF LICENSEE
Section 4. Licensee represents and warrants to and covenants with
the Licensor as follows:
Section 4.01. Organization, Qualification, Power and Authority.
Licensee is a corporation duly and validly organized and existing in good
standing under the laws of the District of Columbia and has all requisite power
and authority to execute and deliver this Agreement and any other documents
provided for hereunder and to perform its obligations and to consummate the
transactions contemplated hereunder and thereunder and is duly qualified to do
business as a foreign corporation in all jurisdictions where such qualifications
are necessary. The execution, delivery, and performance of this Agreement, the
Exhibits, and any other documents provided for hereunder by Licensee, and the
consummation of the transactions contemplated hereunder, have been duly
authorized by all necessary corporate actions of Licensee, including, where
appropriate, shareholder approval, and do not violate or conflict with,
constitute a default under, any provision of Licensee's certificate of
incorporation, bylaws, laws, orders, writings, injunctions, decrees, rules, or
regulations of any court, administrative agency, or any other governmental
authority or any Agreement or other document or instrument to which Licensee is
a party, or by which Licensee is or may be bound. This Agreement has been duly
and validly executed
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<PAGE>
and delivered by Licensee and constitutes a legal, valid and binding obligation
of Licensee enforceable in accordance with its terms.
Section 4.02. Finders and Brokers. No finder's fee brokerage
payment, or other payment is payable by Licensee to any third party or parties
in connection with the origination or negotiation of this Agreement or the
consummation of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF LICENSOR
Section 5.01. Compliance with Cetoni License. Licensor hereby
covenants to and agrees with Licensee that it shall use its best efforts to act
in accordance and remain in full compliance with the terms, provisions and
conditions of the Cetoni License and will not take any action proscribed thereby
or omit to take any action required thereunder which in any way would constitute
a default thereunder or a breach thereof or in any way jeopardize the rights of
the Licensor thereunder or the rights of the Licensee hereunder. Licensor hereby
further covenants to and agrees with Licensee that it shall notify Licensee in
writing (in accordance with the notice provisions of Section 7.05 hereof) at
such time as Licensor shall become aware of any act or omission to act on the
part of the Licensor which could in any way be construed as a
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<PAGE>
default or breach of the Cetoni License by the Licensor or which in any way
impact negatively or jeopardize the Licensor's rights thereunder or Licensee's
rights hereunder.
Section 5.02. License of Patents, Patent Applications, Technologies
and Inventions Developed After the Date Hereof. Subject to the provisions of the
Cetoni License, Licensor hereby covenants to and agrees with Licensee to grant a
license to Licensee in respect of any and all patents, patent applications,
technologies, inventions, products, engineering specifications and proprietary
information in respect of the Technologies, inventions, Patent Applications and
proprietary information licensed hereby now or hereafter developed, controlled
or acquired by the Licensor in respect of the Intellectual Property and to
execute, deliver and file all such documents and papers necessary to perfect
Licensee's right thereto.
Section 5.03. Covenants to Interface with Cetoni. Licensor agrees to
establish and maintain all lines of communication with Cetoni in respect of the
Intellectual Property and to use its best efforts to cause Cetoni to collaborate
with and provide full cooperation to the Licensee as necessary to operate under
this License.
Section 5.04. Further Actions. Licensor agrees to execute and
deliver such instruments and take such other actions as
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<PAGE>
may be reasonably required to consummate the transactions contemplated by this
Agreement including executing consents necessary to identify Licensee as a
registered user of the Patents and Trademarks of Licensor used by Licensee.
ARTICLE VI
COVENANTS OF LICENSEE
Section 6.01. Payment of Taxes and Fees. Licensee agrees to pay all
transfer, sales, use and other taxes, fees, and charges incurred in connection
with the consummation of the transactions contemplated by this Agreement.
Licensee shall prepare and file any returns and other filings and remit payment
relating to such taxes, fees and charges on a timely basis to proper
governmental authorities.
Section 6.02. Further Actions. Licensee agrees to execute and
deliver such instruments and take such other actions as may be reasonably
required to consummate the transactions contemplated by this Agreement.
ARTICLE VII
GENERAL PROVISIONS
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<PAGE>
Section 7.01. Survival of Representations and Warranties. Each party
hereto covenants and agrees that its representations and warranties contained in
this Agreement, in any Schedule or Exhibit, or in any certificate delivered in
connection with the consummation of the transactions contemplated by this
Agreement shall survive the Closing for a period of one (1) year,
notwithstanding investigation by or on behalf of either party.
Section 7.02. Assignment. Licensee may assign its rights under this
Agreement to any affiliate of Licensee or any successor or purchaser of Licensee
which agrees to assume all of the obligations of Licensee pursuant to this
Agreement. Except for the foregoing, this Agreement may not be assigned by
either party hereto without prior written consent of the other party which shall
not be unreasonably withheld.
Section 7.03 Expenses. Licensee shall pay all expenses and fees
including but not limited to attorney's and accountants' fees and fees of other
experts incurred in connection with the consummation of the transactions
contemplated by this Agreement.
Section 7.04. Waiver. The failure of either party to act to enforce
rights hereunder shall not be deemed a waiver and shall not preclude enforcement
of any rights hereunder. No waiver of any term or condition of this Agreement on
the part of either
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<PAGE>
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
Section 7.05 Notices. Any notice, request, demand, waiver, consent,
approval, or other communication ("Notice") which is required to be or may be
given under this Agreement shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by telegram, telex, or
facsimile transmission, by courier, or by registered or certified mail, return
receipt requested, postage prepaid, to the parties as follows.
To Licensor: c/o Finbar F. Dempsey & Co.
Cockburn House, P.O. Box 70
Grand Turks, Turks & Caicos Islands
British West Indies
To Licensee: Eurotech, Ltd.
1200 Prospect Street
Suite 425
LaJolla, California 92037-3608
Section 7.06. Entire Agreement. This Agreement, the Exhibits,
Schedules, and the instruments referred to herein constitute the entire
Agreement between the parties and supersede all prior Agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof, and the parties are not bound by any Agreement,
understandings, or conditions other than expressly set forth herein or therein.
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<PAGE>
Section 7.07. Heading. The article and section headings contained in
this Agreement are for reference purposes only and shall not be deemed to be
part of this Agreement or to affect the construction or interpretation of this
Agreement.
Section 7.08. Exhibits and Schedule. All Exhibits and Schedules
referred to herein have been delivered by the parties hereto to each other prior
to or simultaneously with the execution of this Agreement, and such Exhibits and
Schedules shall be deemed to be a part of this Agreement as if set forth herein.
All information set forth in the Schedule is intended to be responsive to each
provision of the Section or requirement of this Agreement to which it can be
applied and is qualified by the contents of any documents to which reference is
made. The listing in the Schedules of any matter shall not be construed as an
admission that the matter is material or not in the ordinary course of business
or as establishing a standard of materiality.
Section 7.09. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
Section 7.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or
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<PAGE>
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
Section 7.11. Submission to Jurisdiction. Each of the Parties
submits to the jurisdiction of any state or federal court sitting in New York,
in any action or proceeding arising our of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising our of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto.
Section 7.12. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be construed to be only so broad as is
enforceable.
Section 7.13. No Benefit to Others. The representations, warranties,
covenants, and Agreements contained in this Agreement are for the sole benefit
of the parties hereto and
-19-
<PAGE>
their respective successors and assigns, and shall not be construed to confer
and are not intended to confer any rights on any other persons.
Section 7.14. Amendments and Waivers. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by the Licensor and the Licensee. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written.
ERBC HOLDINGS LTD.
Attest:
- ----------------------- ---------------------------------
EUROTECH, LTD.
Attest:
- ----------------------- ---------------------------------
-20-
Cooperation Agreement
between Forschungszentrum Julich GmbH
D-52425 Julich
Federal Republic of GERMANY
- hereinafter referred to as Julich -
and Eurotech Ltd
1200 Prospect Street
La Jolla, CA 92037
USA
- hereinafter referred to as Eurotech -
- both hereinafter referred to as the Parties -
concerning
Further development of a certain unique silicon organic foam-type elastomer
<PAGE>
PREAMBLE
WHEREAS, a certain unique silicon-organic foam-type elastomer, designed for
containment, isolation and handling of high and low active nuclear waste (the
"EKOR") has been developed by scientists associated with the Kurchatov Institute
and the State Research Centre for Chemistry and Technology for Elemento-Organic
Compositions (the "Developers"), for which patent applications have been filed
by respectively patents have been issued to the Euro-Asian Physical Society
located in the United States ("EAPS"); and
WHEREAS, Eurotech has been granted a license for the world-wide manufacturing,
marketing, distributing or otherwise exploiting of EKOR; and
WHEREAS, the Developers have subjected EKOR to extensive testing under certain
testing protocols (the"Testing Protocols") to ascertain the efficiency of EKOR
for its intended functions relating to the containment, transportation and
disposal of objects or structures contaminated with radio nuclides; the
description of such Testing Protocols and the result thereof being attached
hereto as Exhibit A; and
WHEREAS, the results of the testing being recognized and accepted in the Eastern
European countries need a further independent review for being recognized and
accepted in the Western European countries or in the United States; and
WHEREAS, Julich as an independent research centre possesses the facilities,
personnel and know how for such review with the aim to confirm the Testing
Protocols as well as to conduct research for other possible applications and
uses of EKOR wherein Eurotech is interested;
NOW, THEREFORE in consideration of the provisions and mutual covenants described
before, the Parties agree as follows:
O. Definitions
"know-how" = all pre-existing and arising know-how of the Parties
concerning the subject matter of cooperation (subject matter of the
agreement)
"work results" = all know-how arising for the Parties from the
implementation of the work programme according to Item 2 hereunder,
including inventions, relevant protective rights applied for, computer
programs
<PAGE>
2
"inventions" = proprietary inventions (patentable inventions, inventions
apt for utility model protection, topographies)
"joint inventions" = inventions hereunder involving both Parties according
to the contributions made by their employees, organ members or free-lance
staff
"protective rights" = patent applications filed or patents granted for
inventions
"publication" "to publish" = disclosure of work results including lectures
and papers at workshops or conferences
1. Subject matter of the contract
Eurotech desires and Julich is willing to review the Testing Protocols
with the purpose to confirm the results thereof as well as to work on
possible improvements or other applications of EKOR.
2. Special Agreements
2.1 This Agreement defines the framework for the cooperation on the matters
described in Par. 1.
2.2 For special work programs to be agreed later on the Parties will conclude
under this Agreement special agreements ("Special Agreement") which define
o scope and distribution of work
o time schedule
o bearing of costs
o coordination of work
o additional conditions.
<PAGE>
3
3. Exchange of know-how
The Parties will exchange their know-how inasmuch as such exchange is
required for the execution of the contracts and inasmuch as they can
legally dispose of such know-how.
4. Confidentiality
4.1 Either Party shall keep in confidence any know-how obtained from the other
Party under Item 3. and shall only publish such know-how if the other
Party has given its prior written consent.
4.2 The obligation to confidentiality does not exist or shall not be
applicable inasmuch as such know-how
a) can be taken from sources generally available;
b) was state of the art or knowledge of the receiving Party prior to
receipt;
c) is rightfully made available to the above Party from a third source
without any obligation of confidentiality.
Before either Party uses any such know-how of the other Party without
maintaining confidentiality, it will notify the other Party in writing
thereof and demonstrate that one of the above cases is applicable. Item 5.
of the Agreement shall not be affected by this provision.
5. Publications
5.1 Inasmuch as the Parties do not jointly publish the work results, any
publications by either Party on the other Party's work results shall
require the latter's prior written consent. Consent may only be refused
for good cause; it shall be deemed given unless the Party has objected
within one month from written inquiry. In all other respects, the Parties
shall reach agreement concerning publications.
5.2 Publications should refer to the Parties' cooperation and, at either
Party's request, should name said Party's staff members involved in
deriving the work results.
<PAGE>
4
6. Work Results
The following shall apply to work results:
6.1 Either Party shall own the work results arising on its side.
6.2 Either Party shall make provisions for being entitled to dispose of its
work results.
6.3 The Parties shall inform each other of their patent applications without
delay.
6.4 The Parties shall jointly seek patent protection for joint inventions. The
Parties shall come to an agreement concerning the costs, based on the
principle that costs are borne by the Parties according to their shares in
inventions.
6.5 Inasmuch as either Party is not interested in a protective right, it shall
offer its rights to the other Party for transfer, inasmuch as it is
legally and actually able to do so. The transfer of rights shall be
provided for in a separate agreement. Such offer should be made early
enough to enable the other Party to take any action required for
safeguarding such rights within given statutory periods, especially within
the 12-month period to be observed for patent applications claiming
priorities. The obligation to offer protective rights for transfer shall
expire 12 months after the end of the contract term.
7. Rights of use
7.1 Either Party may freely dispose of the work results derived without the
other Party's participation in compliance with the following rules:
7.2 The Parties shall grant each other a free, non-exclusive right to use
their know-how for the execution of the contract, inasmuch as they are
legally in a position to do so. Moreover, the Parties shall grant each
other a free, irrevocable, non-exclusive right to use work results for
research and development, including contract research. The Party using
such work results shall reimburse the employee inventor's compensation to
the Party granting such right of use.
<PAGE>
5
8. Copyright for computer programs
Computer programs evolved during cooperation may be duplicated and
processed by either Party for normal use in executing the contract. The
Parties will procure the information required for establishing
interoperabilities.
9. Willingness to grant licenses
For commercial purposes, the Parties shall grant each other an option for
the acquisition of non-exclusive rights to use their know-how under
licensing agreements to be separately concluded on reasonable terms and
conditions, inasmuch as they are legally in a position to do so. This
option may be exercised up to 12 months after the contract has expired.
In the case of justified interest, the Parties shall grant each other the
right to grant sublicenses unless this conflicts with either Party's
substantial economic interests.
10. Liability, warranty
10.1 The Parties shall not be mutually liable for and shall hold each other
harmless against any personal, material and property damage incurred by
the other Party, its staff members or agents in executing the contract,
unless such damage has been caused willfully or by gross negligence or
unless such damage is covered by insurance protection.
10.2 The Parties will not assume any mutual warranty that know-how, work
results, documents and items made available in executing the contract are
correct, useful and complete and can be used without infringing
third-Party rights.
11. Validity and termination
11.1 This Agreement shall have a term from the date of its signature to
December 31, 2000.
11.2 The provisions of Items 4., 5., 6., 7., 9. and 10. shall be effective
beyond the termination of this Agreement.
12. Alterations
<PAGE>
6
12.1 Any modifications and amendments to this Agreement shall be made in
writing.
12.2 Should any provision of this Agreement be ineffective or void, this shall
not affect the validity of the other contractual provisions. Such invalid
provision should rather be replaced by a valid provision as close as
possible to the invalid provision.
13. Transferability of rights and duties
13.1 Rights and duties under this Agreement cannot be transferred to third
parties, either in whole or in part, without the other Party's prior
written consent.
13.2 In the event of legal succession, the other Party can terminate the
Agreement without notice.
14. Jurisdiction, language and applicable law
14.1 The Dusseldorf Landgericht shall have original jurisdiction in the event
of any disputes arising in connection with this Agreement.
14.2 This Agreement is drawn up in English and all documents and notices and
meetings for its application or extension or amendment shall be in
English.
14.3 This Agreement shall be governed by the law of the Federal Republic of
Germany.
Julich, ______________________ La Jolla,
Forschungszentrum Julich GmbH Eurotech Ltd
/s/ Nieraad /s/ Jaek /s/ Randolph Graves, Jr.
- ----------------------- ----------------- --------------------------
- - Nieraad - - Dr. Jaek -
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
EUROTECH, LTD.,
JNC OPPORTUNITY FUND LTD.
and
DIVERSIFIED STRATEGIES FUND, L.P.
-----------------------------
November 27, 1997
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of November 27, 1997
(this "Agreement"), among Eurotech, Ltd., a corporation organized under the laws
of the District of Columbia (the "Company"), JNC Opportunity Fund Ltd., a
corporation organized under the laws of the Cayman Islands ("JNC"), and
Diversified Strategies Fund, L.P., an Illinois limited partnership ("DSF"). Each
of JNC and DSF is a "Purchaser" and, collectively JNC and DSF are the
"Purchasers."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers
severally and not jointly desire to purchase an aggregate principal amount of
$3,000,000 of the Company's 8% Convertible Debentures, due November 27, 2000
(the "Debentures"), which are convertible into shares of the Company's common
stock, par value $.00025 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall purchase the Debentures for an aggregate purchase price of
$3,000,000. The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP (the "Escrow Agent"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(ii) Prior to the Closing, the parties shall deliver or shall
cause to be delivered to the Escrow Agent such items as are required to be
delivered by them in accordance with and subject to the terms and conditions of
the Escrow Agreement, dated as of the date hereof, by and among the Company, the
Purchasers and the Escrow Agent (the "Escrow Agreement"), including the
following: (A) the Company shall deliver (1) Debentures, registered in the name
of DSF, with an aggregate principal amount of $500,000, (2) Debentures,
registered in the name of JNC, with an aggregate principal amount of $2,500,000,
<PAGE>
(3) the Warrants (as defined in Section 3.16), and (3) the legal opinions of
Ruffa & Ruffa, P.C. and Phillips Nizer Benjamin Krim & Ballon LLP, substantially
in the form of Exhibit C ("Legal Opinions"); (B) DSF shall deliver $500,000; (C)
JNC shall deliver $2,500,000; and (D) each party hereto shall deliver all other
executed instruments, agreements and certificates as are required to be
delivered hereunder by or on their behalf at the Closing.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall have
the meanings set forth in the Debentures; "Market Price" as at any date shall
mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date, and "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
District of Columbia, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
2.1(a) attached hereto (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of this Agreement, the Debentures, the Warrants or
the Registration
<PAGE>
Rights Agreement, dated the date hereof, among the Company and the Purchasers
(the "Registration Rights Agreement" and, together with this Agreement and the
Warrants, the "Transaction Documents"), (y) have a material adverse effect on
the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document (any of the foregoing, a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 2.1(c). No shares of Common Stock
are entitled to preemptive or similar rights, nor is any holder of the Common
Stock entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrants hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as determined
pursuant to
<PAGE>
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) or has the right to acquire by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the Common Stock. Except as specified in Schedule 6(b) to the Registration
Rights Agreement, there are no agreements or arrangements under which the
Company or any Subsidiary is obligated to register the sale of any of their
securities under the Securities Act. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of Debentures and Warrants. The Debentures and the
Warrants are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind (collectively,
"Liens"). The Company has and at all times while the Debentures and the Warrants
are outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrants and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date or the Filing Date (as defined in the
Registration Rights Agreement defined below), whichever yields a lower
Conversion Price, (ii) the number of shares of Common Stock as are issuable as
payment of interest on the Debentures, and (iii) the number of shares of Common
Stock as are issuable upon exercise in full of the Warrants. The shares of
Common Stock issuable upon conversion of the Debentures, as payment of interest
in respect thereof and upon exercise of the Warrants are sometimes referred to
herein as the "Underlying Shares," and the Debentures, Warrants and Underlying
Shares are, collectively, the "Securities." When issued in accordance with the
terms of the Debentures and the Warrants, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default)
<PAGE>
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a Company
debt or otherwise) to which the Company is a party or by which any property or
asset of the Company is bound or affected, or (iii) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company is bound or affected, except in the case of
each of clauses (ii) and (iii), as could not, individually or in the aggregate,
have or result in a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a registration statement covering the resale of the Underlying
Shares by the Purchasers (the "Underlying Securities Registration Statement")
with the Securities and Exchange Commission (the "Commission"), which shall be
filed in the time period set forth in the Registration Rights Agreement, (ii)
the application for the listing of the Underlying Shares on the OTC Bulletin
Board (and with any other national securities exchange or market on which the
Common Stock is then listed), (iii) notice filings required under applicable
state securities laws, and (iv) other than, in all other cases, where the
failure to obtain such consent, waiver, authorization or order, or to give or
make such notice or filing, could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 2.1(f), the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
<PAGE>
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Section 2.2(b)-(f), the issuance
and sale of the Securities to the Purchasers as contemplated hereby are exempt
from the registration requirements of the Securities Act. Neither the Company
nor any Person acting on its behalf has taken or will take any action which
might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(j) SEC Documents. Except as set forth in Schedule 2.1(j), since
April 14, 1997, the Company has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof
(such reports, the "SEC Documents" and, together with the Schedules to this
Agreement and other documents and information furnished by or on behalf of the
Company at any time prior to the Closing, the "Disclosure Materials") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting
<PAGE>
principles ("GAAP") applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, (a) there has been no event, occurrence or
development that has had or that could have or result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP, and (c) the
Company has not altered its method of accounting or the identity of its
auditors.
(k) Investment Company. The Company is not, and is not an Affiliate
of an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(l) Certain Fees. Except for fees payable to CDC Consulting, Inc.,
no fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the transactions
contemplated hereby. The Purchasers shall have no obligation with respect to
such fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated hereby. The Company shall indemnify and hold
harmless each Purchaser, its respective employees, officers, directors, agents,
and partners, and their respective Affiliates (as such term is defined under
Rule 405 promulgated under the Securities Act), from and against all claims,
losses, damages, costs (including the costs of preparation and attorney's fees)
and expenses suffered in respect of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell Debentures to
any Person other than the Purchasers, except as and to the extent permitted by
Section 3.15.
<PAGE>
(o) Listing and Maintenance Requirements Compliance. The Company has
not in the two years preceding the date hereof received written notice from any
stock exchange, market or trading facility on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in compliance with
the listing, maintenance or other requirements of such exchange, market, trading
or quotation facility. The Company has no reason to believe that it does not now
or will not in the future meet any such requirements.
(p) Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights which are necessary for use
in connection with its business and which the failure to so have would have a
Material Adverse Effect (collectively, the "Intellectual Property Rights"). To
the best knowledge of the Company, there is no existing infringement of any of
the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchasers or
their respective representatives and counsel in connection with the transactions
contemplated hereby is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. The Company confirms that it has not provided to any of the
Purchasers or any of their representatives, agents or counsel any information
that constitutes or might constitute material nonpublic information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representation in effecting transactions in securities of the Company.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, severally and not jointly, makes the following representations and
warranties to the Company.
(a) Organization; Authority. Such Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the Securities to be
acquired hereunder by such Purchaser has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement has been duly executed and delivered
by such Purchaser and constitutes the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency,
<PAGE>
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the Securities to
be acquired hereunder by such Purchaser for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities to be acquired hereunder by such Purchaser, it was, at the date
hereof, it is, and at the Closing Date, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. Such Purchaser either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and such Purchaser is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by such Purchaser, and, at
the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and
<PAGE>
to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) Reliance. Such Purchaser understands and acknowledges that (i)
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register (i) any transfer of Securities by one Purchaser to another Purchaser,
and agrees that no documentation other than executed transfer documents shall be
required for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
transfers among any such Affiliates provided in each case of clauses (i) and
(ii) the transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act and that it is acquiring any
such Securities in accordance with the
<PAGE>
representation provided by the original Purchaser in Section 2.2(b). Any such
Purchaser or Affiliate transferee shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE
AGREEMENT, DATED AS OF NOVEMBER 27, 1997, BETWEEN EUROTECH, LTD. (THE
"COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above if
the conversion of Debentures, exercise of Warrants or other issuances of
Underlying Shares in as contemplated hereby, as the case may be, occurs at any
time while an Underlying Securities Registration Statement is effective under
the Securities Act or, in the event there is not an effective Underlying
Securities Registration Statement at such time, if in the opinion of counsel to
the Company such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company agrees that it will provide each
Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section 3.1(b).
3.2 Acknowledgement of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain
<PAGE>
market conditions. The Company further acknowledges that its obligation to issue
Underlying Shares in accordance with the Debentures and the Warrants is
unconditional and absolute regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchasers may
resell all of their Underlying Shares without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act (as determined by counsel to
the Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and enforceable by
the Purchasers) the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in this Section. Upon the request of any such
Person, the Company shall deliver to such Person a written certification of a
duly authorized officer as to whether it has complied with such requirements. In
connection with any future access or diligence of the Company by the Purchasers,
the Company agrees that its will not furnish to any Purchaser any non-public
information unless it first discloses in writing that such information is of
such character and such Purchaser thereafter agrees to receive such information.
3.4 Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials (which for purposes of the non-Sec Document Disclosure
Materials shall take into account any amendments and supplements thereto) and
any information provided by or on behalf of the Company pursuant to Section 3.3
by the Purchasers in connection with resales of the Securities other than
pursuant to an effective registration statement.
<PAGE>
3.5 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may request and shall continue such
qualification at all times until the Purchasers notify the Company in writing
that they no longer own Securities; provided, however, that neither the Company
nor its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchasers.
3.7 Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Debentures (and paying any accrued but unpaid interest in respect
thereof in shares of Common Stock) that remain unconverted at such date or (b)
honoring the exercise in full of the Warrants due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 30 Business Days from such date) prepare and mail to the shareholders of
the Company proxy materials requesting authorization to amend the Company's
restated certificate of incorporation to increase the number of shares of Common
Stock which the Company is authorized to issue to at least such number of shares
as reasonably requested by the Purchasers in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its conversion, exercise and reservation of shares obligations as set forth
in this Agreement, the Debentures and the Warrants. In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of obtaining
such shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
<PAGE>
3.8 Purchaser Ownership of Common Stock. Neither Purchaser shall convert
Debentures or exercise its Warrant to the extent such conversion or exercise
would result in such Purchaser beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder) in excess of
4.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of the Debentures held by such Purchaser after
application of this Section. To the extent that the limitation contained in this
Section applies, the determination of whether Debentures are convertible (in
relation to other securities owned by a Purchaser) and of which portion of the
principal amount of such Debentures are convertible shall be in the sole
discretion of such Purchaser, and the submission of Debentures for conversion
shall be deemed to be such Purchaser's determination of whether such Debentures
are convertible (in relation to other securities owned by a Purchaser) and of
which portion of such Debentures are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained herein
shall be deemed to restrict the right of a Purchaser to convert Debentures at
such time as such conversion will not violate the provisions of this Section.
The provisions of this Section may be waived by a Purchaser as to itself (and
solely as to itself) upon not less than 75 days prior notice to the Company, and
the provisions of this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3.9 Listing of Underlying Shares. The Company will use its best efforts to
list the Common Stock for trading on the Nasdaq SmallCap Market or Nasdaq
National Market as soon as possible after the Closing Date. If the Common Stock
hereafter is listed for trading on the Nasdaq National Market, Nasdaq SmallCap
Market (or on the American Stock Exchange or New York Stock Exchange, or any
other national securities market or exchange), then the Company shall (1) take
all necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing application therefor covering at
least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount of
Debentures (plus all Underlying Shares are issuable as payment of interest
thereon, assuming all such interest were paid in shares of Common Stock) and
upon exercise in full of the then unexercised portion of the Warrants and (2)
provide to the Purchasers evidence of such listing, and the Company shall
thereafter maintain the listing of its Common Stock on such exchange or market
as long as Underlying Shares are issuable and/or outstanding.
3.10 Conversion Procedures. Exhibit E sets forth the procedures with
respect to the conversion of the Debentures,
<PAGE>
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to exercise its right of
conversion smoothly and expeditiously which are not set forth in the Debentures.
3.11 Purchasers' Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while any Purchaser (or any assignee thereof) owns any
Securities, less than $400,000 of the Common Stock trades on the OTC Bulletin
Board in any one week or there are fewer than six (6) market makers actively
making a market in the Common Stock (or, if after the Closing Date the Common
Stock is listed on any of the exchange, markets or trading facilities
contemplated in Section 3.9, if the Common Stock is delisted or suspended from
trading on such exchange, market or trading facility, other than as a result of
the suspension of trading in securities on such market or exchange generally, or
temporary suspensions pending the release of material information) for more than
three (3) Trading Days, then, notwithstanding anything to the contrary contained
in any Transaction Document, at a Purchaser's option exercisable by five (5)
Business Days prior written notice to the Company, the Company shall repay the
entire principal amount of then outstanding Debentures (and all accrued and
unpaid interest thereon) and redeem all then outstanding Underlying Shares then
held by such Purchaser, at an aggregate purchase price equal to the sum of (I)
the aggregate outstanding principal amount of Debentures then held by such
Purchaser divided by the Conversion Price on (a) the day prior to the date of
such suspension or delisting, (b) the day of such notice or (c) the date of
payment in full of the repurchase price calculated under this Section, whichever
is less, and multiplied by the Market Price preceding (x) the day prior to the
date of such suspension or delisting, (y) the day of such notice and (z) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, (II) the aggregate of all accrued but unpaid interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures to be repaid, (III) the number of Underlying Shares
then held by such Purchaser multiplied by the Market Price immediately preceding
(x) the day prior to the date of such suspension or delisting, (y) the date of
the notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest on
the amounts set forth in I - III above accruing from the 5th day after such
notice until the repurchase price under this Section is paid in full at the rate
of 15% per annum. If after the Original Issue Date the Common Stock shall be
listed for trading or quoted on the Nasdaq SmallCap Market, Nasdaq National
Market or any other national
<PAGE>
securities exchange or market, this provision shall similarly apply to any
delistings or suspensions therefrom.
3.12 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of in excess of $1,000,000 of Company debt or to redeem any equity or
equity-equivalent securities of the Company. Pending application of the proceeds
of this placement in the manner permitted hereby the Company will invest such
proceeds in interest bearing accounts and/or short-term, investment grade
interest bearing securities.
3.13 Notice of Breaches. Each of the Company and each Purchaser shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Document to be incorrect
or breached as of such Closing Date. However, no disclosure by either party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Debentures a copy of any written statement in support of or relating to such
claim or notice.
3.14 Conversion Obligations of the Company. The Company shall honor
conversions of the Debentures and exercises of the Warrants and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrants.
3.15 Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (a) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holder thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market
<PAGE>
price of the Common Stock at the time of issuance of such security or investment
(a "Subsequent Financing") for a period of 180 days after the Closing Date,
except (i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), (iii) shares issued in connection with one or more
subsequent placements of Debentures in an aggregate principal amount not to
exceed $4,000,000 to Persons other than the Purchasers (which placements and
Debentures shall be on terms identical to those set forth in the Transaction
Documents), and (iv) shares of Common Stock issued upon conversion of
Debentures, as payment of interest thereon, or upon exercise of the Warrants in
accordance with their respective terms, unless (A) the Company delivers to
Encore a written notice (the "Subsequent Financing Notice") of its intention to
effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be affected, and attached to which shall be a
term sheet or similar document relating thereto and (B) Encore shall not have
notified the Company by 5:00 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause either or both of the Purchasers to provide (or to cause
its sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Financing Notice. If Encore shall fail to notify the Company of
its intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Financing substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Financing Notice; provided, that the Company shall provide Encore with a second
Subsequent Financing Notice, and Encore shall again have the right of first
refusal set forth above in this paragraph (a), if the Subsequent Financing
subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Financing Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Financing Notice.
(b) Except Underlying Shares and other "Registrable Securities" (as
such term is defined in the Registration Rights Agreement) to be registered in
accordance with the Registration Rights Agreement, and other than Company
securities to be registered for resale in connection with financings permitted
<PAGE>
pursuant to paragraph (a)(i) through (iii) of this Section, the Company shall
not, without the prior written consent of the Purchasers, (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for a period of not less than 90 Trading
Days after the date that the Underlying Securities Registration Statement is
declared effective by the Commission. Any days that a Purchaser is unable to
sell Underlying Shares under the Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
(c) As long as there are Debentures outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the holders
of the Debentures, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.16 The Warrants. At the Closing, the Company shall issue (a) to JNC, a
Common Stock purchase warrant, in the form of Exhibit D (the "JNC Warrant"),
pursuant to which JNC shall have the right at any time and from time to time
thereafter through the second anniversary of the date of issuance thereof, to
acquire 50,000 shares of Common Stock at an exercise price per share equal to
110% of the Market Price on the Closing Date and (b) to DSF, a Common Stock
purchase warrant, in the form of Exhibit D (the "DSF Warrant," and, collectively
with the JNC Warrant, the "Warrants"), pursuant to which DSF shall have the
right at any time and from time to time thereafter through the second
anniversary of the date of issuance thereof, to acquire 10,000 shares of Common
Stock at an exercise price per share equal to 110% of the Market Price on the
Closing Date.
3.17 Certain Securities Laws Disclosures; Publicity. (a) The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to each Purchaser promptly after the filing thereof. The Company
shall file with the Commission (i) a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby within three (3) Business Days
after the Closing Date and (ii) a Report on Form 8-K disclosing this Agreement
and the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
<PAGE>
(b) In furtherance and in addition to the obligation of the Company
set forth in Section 3.18(a) above, the Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. The Company shall pay the Purchasers at the
Closing (i) $15,000 for their legal fees and disbursements in connection with
the preparation and negotiation of the Transaction Documents and (ii) $7,000 for
their due diligence expenses and disbursements in connection with the
transactions contemplated hereby. Other than the amounts contemplated by the
immediately preceding sentence, and except as set forth in the Registration
Rights Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Debentures pursuant
hereto. The Purchasers shall be responsible for their own respective tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures and the Warrants contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile
<PAGE>
telephone number specified in the Purchase Agreement later than 4:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Alan Brown
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite
460
either Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
<PAGE>
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), neither Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
4.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each
<PAGE>
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
EUROTECH, LTD.
By:
---------------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
---------------------------------------
Alan Brown
Director
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:
-----------------------------------
Neil T. Chau
Director
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of November 27, 1997,
by and among Eurotech, Ltd. (the "Company"), JNC Opportunity Fund Ltd. ("JNC"),
Diversified Strategies Fund, L.P. ("DSF") (each of JNC and DSF, a "Purchaser"
and collectively the "Purchasers"), and Robinson Silverman Pearce Aronsohn &
Berman LLP (the "Escrow Agent").
Recitals
A. Simultaneously with the execution of this Agreement, the Company
and the Purchasers have entered into a Convertible Debenture Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), pursuant to which the
Company is selling to the Purchasers certain 8% Convertible Debentures Due
November 27, 2000 (the "Debentures") and certain of the Company's common stock
purchase warrants (the "Warrants"). Capitalized terms that are used and not
otherwise defined in this Agreement that are defined in the Purchase Agreement
shall have the meaning set forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to
the terms of this Agreement with respect to the receipt and then delivery of the
Purchase Price (as described in Section 1.1 of the Purchase Agreement) to be
paid for the Debentures pursuant to Section 1.1 of the Purchase Agreement less
any amounts the Purchasers are to be reimbursed by the Company under the
Purchase Agreement (the "Purchase Price") and the delivery of the Debentures and
the Warrants, together with the Ancillary Closing Documents (as defined below)
and the Purchase Price, the "Consideration").
C. Upon the closing of the transaction contemplated by the Purchase
Agreement (the "Closing") and the occurrence of an event described in Section 2
below, the Escrow Agent shall cause the distribution of the Consideration in
accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration.
a. Concurrently with the execution of this Agreement, each
Purchaser shall deposit with the Escrow Agent the portion of the Purchase Price
due for the Debentures and the Warrant to be purchased by it at the Closing in
accordance with Section 1.1(a)(ii) of the Purchase Agreement and the Company
shall deliver to the Escrow Agent the Debentures and the Warrants, registered in
the name of the appropriate Purchaser, in accordance with Section 1.1(a)(ii) of
the Purchase Agreement and
<PAGE>
wiring instructions for transfer of the Purchase Price by the Escrow Agent into
an account specified by the Company for such purpose. In addition, the
Purchasers and the Company shall deposit with the Escrow Agent all other
certificates and other documents required under the Purchase Agreement to be
delivered by them at the Closing (such certificates and other documents being
hereinafter referred to as the "Ancillary Closing Documents").
(i) The Purchase Price shall be delivered by the
Purchasers to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Trust Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: Eurotech, Ltd. (10849-6)
(ii) The Debentures, Warrants and the Ancillary
Documents shall be delivered to the Escrow Agent at its address for notice
indicated in Section 5(a).
b. Until termination of this Agreement as set forth in Section
2, all additional Consideration paid by or which becomes payable between the
Company and the Purchasers shall be deposited with the Escrow Agent.
c. The Purchasers and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall be
held in escrow in the Escrow Agent's interest bearing business account until the
Closing. After the Purchase Price has been received by the Escrow Agent and all
other conditions of Closing are met, the parties hereto hereby authorize and
instruct the Escrow Agent to promptly effect the Closing.
d. At the Closing, Escrow Agent is authorized and directed to
deduct from the Purchase Price (i) $300,000 which will be paid to CDC
Consulting, Inc. ("CDC") in accordance with the engagement letter between the
Company and CDC relating to the transactions contemplated by the Purchase
Agreement (the "Engagement Letter"), for remittance to CDC in accordance with
its instructions, (ii) $15,000 which will be retained by the Escrow Agent in
accordance with the Purchase Agreement and (iii)
<PAGE>
$7,000, which will be remitted to or as directed by the Purchasers pursuant to
the Purchase Agreement. In addition, the portion of the Purchase Price released
to the Company hereunder shall be reduced by all wire transfer fees incurred
thereupon.
2. Terms of Escrow.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrants and the Ancillary Closing Documents
and a writing instructing the Closing and (ii) the receipt by the Escrow Agent
of a written notice, executed by the Company or the Purchasers, stating that the
Purchase Agreement has been terminated in accordance with its terms and
instructing the Escrow Agent with respect to the Purchase Price, the Debentures,
the Warrants and the Ancillary Closing Documents.
b. If the Escrow Agent receives the items referenced in clause
(i) of Section 2(a) prior to its receipt of the notice referenced in clause (ii)
of Section 2(a), then, promptly thereafter, the Escrow Agent shall deliver (i)
the Debentures, the Warrants, any interest earned on account of the Purchase
Price through the Closing and the amounts payable to the Purchasers pursuant to
Section 1(d) on the Consideration to the Purchasers entitled to the same, (ii)
the Purchase Price (net of amounts described under Section 1(d)) to the Company,
(iii) the amounts payable to CDC under the Engagement Letter to CDC or in
accordance with its instructions and (iv) the Ancillary Closing Documents to the
party entitled to receive the same. In addition, the Escrow Agent shall retain
$15,000 of the Purchase Price on account of its fees pursuant to the Purchase
Agreement.
c. If the Escrow Agent receives the notice referenced in
clause (ii) of Section 2(a) prior to its receipt of the items referenced in
clause (i) of Section 2(a), then the Escrow Agent shall promptly upon receipt of
such notice return (i) the Purchase Price (together with any interest earned
thereon through such date) to the Purchasers, (ii) the Debentures and Warrants
to the Company and (iii) the Ancillary Closing Documents to the party that
delivered the same.
d. If the Escrow Agent, prior to delivering or causing to be
delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold the Consideration
until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Purchasers and the Company, directing distribution of
such Consideration, or (ii) a certified copy of a
<PAGE>
judgment, order or decree of a court of competent jurisdiction, final beyond the
right of appeal, directing the Escrow Agent to distribute said Consideration to
any party hereto or as such judgment, order or decree shall otherwise specify
(including any such order directing the Escrow Agent to deposit the
Consideration into the court rendering such order, pending determination of any
dispute between any of the parties). In addition, the Escrow Agent shall have
the right to deposit any of the Consideration with a court of competent
jurisdiction pursuant to Section 1006 of the New York Civil Practice Law and
Rules without liability to any party if said dispute is not resolved within 30
days of receipt of any such notice of objection, dispute or otherwise.
3. Duties and Obligations of the Escrow Agent.
a. The parties hereto agree that the duties and obligations of
the Escrow Agent are only such as are herein specifically provided and no other.
The Escrow Agent's duties are as a depositary only, and the Escrow Agent shall
incur no liability whatsoever, except as a direct result of its willful
misconduct.
b. The Escrow Agent may consult with counsel of its choice,
and shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the terms
of any other agreement to which the Purchasers and the Company are parties,
whether or not it has knowledge thereof, and the Escrow Agent shall not in any
way be required to determine whether or not any other agreement has been
complied with by the Purchasers and the Company, or any other party thereto. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement unless the same shall
be in writing and signed by each of the Purchasers and the Company, and agreed
to in writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or demands
which, in its opinion, are in conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely, all Considerations held in escrow until it shall jointly be
directed otherwise in writing by the Purchasers and the Company or by a final
judgment of a court of competent jurisdiction.
<PAGE>
e. The Escrow Agent shall be fully protected in relying upon
any written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
f. The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
g. If the Escrow Agent at any time, in its sole discretion,
deems it necessary or advisable to relinquish custody of the Consideration, it
may do so by giving five (5) days written notice to the parties of its intention
and thereafter delivering the consideration to any other escrow agent mutually
agreeable to the Purchasers and the Company and, if no such escrow agent shall
be selected within three days of the Escrow Agent's notification to the
Purchasers and the Company of its desire to so relinquish custody of the
Consideration, then the Escrow Agent may do so by delivering the Consideration
(a) to any bank or trust company in the Borough of Manhattan, City and State of
New York, which is willing to act as escrow agent thereunder in place and
instead of the Escrow Agent, or (b) to the clerk or other proper officer of a
court of competent jurisdiction as may be permitted by law within the State,
County and City of New York. The fee of any such bank or trust company or court
officer shall be borne one-half by the Purchasers and one-half by the Company.
Upon such delivery, the Escrow Agent shall be discharged from any and all
responsibility or liability with respect to the Consideration and the Company
and the Purchasers shall promptly pay to the Escrow Agent all monies which may
be owed it for its services hereunder, including, but not limited to,
reimbursement of its out-of-pocket expenses pursuant to paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on the
Escrow Agent's part to the Purchasers or the Company, nor disqualify the Escrow
Agent from representing either party hereto in any dispute with the other,
including any dispute with respect to the Consideration. The Company understands
that the Escrow Agent has acted and will continue to act as counsel to the
Purchasers.
<PAGE>
i. The reasonable out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including, but
not limited to, all counsel and advisors' and agents' fees and all taxes or
other governmental charges, if any, shall be paid by one-half by the Purchasers
and one-half by the Company.
4. Indemnification. The Purchasers and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent, its employees, partners,
members and representatives harmless from and against any and all losses,
damages, taxes, liabilities and expenses that may be incurred, directly or
indirectly, by the Escrow Agent and/or any such person, arising out of or in
connection with its acceptance of appointment as the Escrow Agent hereunder
and/or the performance of its duties pursuant to this Agreement, including, but
not limited to, all legal costs and expenses of the Escrow Agent and any such
person incurred defending itself against any claim or liability in connection
with its performance hereunder and the costs of recovery of amounts pursuant to
this Section 4.
5. Miscellaneous.
a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
<PAGE>
Facsimile No.: (441) 295-2305
Attn: Alan Brown
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
either Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
If to the Escrow Agent Robinson Silverman Pearce Aronsohn
(the Escrow Agent shall & Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in
accordance with the law of the State of New York applicable to contracts entered
into and performed entirely within New York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
EUROTECH, LTD.
By:
--------------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
--------------------------------------
Alan Brown
Director
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:
---------------------------------
Neil T. Chau
Director
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By:
--------------------------------------
A Member of the Firm
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of November 27, 1997, by and among Eurotech, Ltd. a company
organized under the laws of the District of Columbia (the "Company"), JNC
Opportunity Fund Ltd., a Cayman Islands corporation ("JNC"), and Diversified
Strategies Fund, L.P., an Illinois limited partnership ("DSF"). JNC and DSF are
each a "Purchaser" and are, collectively the "Purchasers."
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Common Stock" means the Company's Common Stock, par value $.00025
per share.
"Debentures" means Company's 8% Convertible Debentures due November
27, 2000 issued to the Purchasers pursuant to the Purchase Agreement.
"Effectiveness Date" means the 90th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 45th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"New York Courts" shall have the meaning set forth in Section 7(j).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
<PAGE>
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
upon (a) conversion in full of the Debentures, (b) exercise of the Warrants and
(c) payment of interest in respect of the Debentures; provided, however that in
order to account for the fact that the number of shares of Common Stock that are
issuable upon conversion of Debentures is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
contemplated by clause (a) of this definition shall be deemed to include not
less than 200% of the number of shares of Common Stock into which the Debentures
are convertible, assuming such conversion occurred on the Closing Date or the
Filing Date (whichever date yields a lower Conversion Price, as such term is
defined in the Debentures). The initial Registration Statement shall cover at
least such number of shares of Common Stock as equals the sum of (x) 200% of the
number of shares of Common Stock into which the Debentures are convertible,
assuming such conversion occurred on the Closing Date or the Filing Date
(whichever date yields a lower Conversion Price), (y) interest thereon and (z)
127,500 shares of Common Stock in respect of the Warrants. The Company shall be
required to file additional Registration Statements to the extent the actual
number of shares of Common Stock into which Debentures are convertible (together
with interest thereon) and Warrants are exercisable exceeds the number of shares
of Common Stock initially registered in accordance with the immediately prior
sentence. The Company shall have 10 Business Days to file such additional
Registration Statement after notice of the requirement thereof, which the
Holders may give at such time when the number of shares of Common Stock as are
issuable upon conversion of Debentures exceeds 180% of the number of shares of
Common Stock into which Debentures are convertible, assuming such conversion
occurred on the Closing Date or the Filing Date (whichever yields a lower
Conversion Price. In the event that the filing of any such additional
registration statements requires the preparation of updated financial
statements, (1) the Company shall use its best efforts to cause such financial
statements to be prepared as soon as possible and (2) the 10 Business Day period
specified in the immediately prior sentence shall be extended to up to 30
Business Days or such lesser number of days as the Company shall, using its best
efforts, require for such preparation and filing.
"Registration Statement" means the registration statement
contemplated by Section 2(a) (covering such number of Registrable Securities and
any additional Registration Statements
<PAGE>
contemplated in the definition of Registrable Securities), including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be incorporated
by reference in such registration statement.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the Common Stock purchase warrants issued to the
Purchasers and CDC Consulting, Inc. on the Closing Date.
2. Shelf Registration
(a) On or prior to the Filing Date the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-1 (or, if the Company
is not permitted to register the resale of the Registrable Securities on Form
S-1, the Registration Statement shall be on such other appropriate form in
accordance herewith as the Holders of a majority in interest of the Registrable
Securities may consent). The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is three
<PAGE>
years after the date that such Registration Statement is declared effective by
the Commission or such earlier date when all Registrable Securities covered by
such Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period"); provided, however, that the Company shall not be deemed
to have used its best efforts to keep the Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that would
result in the Holders not being able to sell the Registrable Securities covered
by such Registration Statement during the Effectiveness Period, unless such
action is required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the Commission has
not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
<PAGE>
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement (and any additional Registration Statements as
may be required) in accordance with Section 2(a), and cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act (subject to customary
confidentiality arrangements in the event that any such investigation requests
the release of material non-public information concerning the Company, its
business or operations). The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities, their Special Counsel, or
any managing underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the
<PAGE>
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
<PAGE>
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent reasonably requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any
<PAGE>
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) In the case of an Underwritten Offering, enter into such
customary agreements on terms which are customary in connection with such
transactions (including an underwriting agreement in form, scope and substance
as is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each
<PAGE>
selling Holder and each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special Counsel to
the selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior to
the effectiveness of the Registration Statement or at the time of delivery of
any Registrable Securities sold pursuant thereto (at the option of the
underwriters), obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each Person and in such form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 7 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering; and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of
<PAGE>
regulatory authorities; (ii) disclosure of such information, in the opinion of
counsel to such Person, is required by law; (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such Person; or (iv) such information becomes available
to such Person from a source other than the Company and such source is not known
by such Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery
<PAGE>
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(c), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with The Nasdaq Stock Market, Inc. and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
underwriters or Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons
<PAGE>
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, settlements, judgments, costs (including, without
limitation, costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to
<PAGE>
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and
<PAGE>
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent
<PAGE>
it is finally judicially determined that such Indemnified Party is not entitled
to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), the Purchasers shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchasers from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Purchasers have otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
<PAGE>
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
Schedule 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration
<PAGE>
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such holder shall so request in writing, the Company shall include in such
registration statement all or any part of the Registrable Securities such holder
requests to be registered. No right to registration of Registrable Securities
under this Section shall be construed to limit any registration otherwise
required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized
<PAGE>
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Alan Brown
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite
460
either Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
<PAGE>
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchasers may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of a Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by such Purchaser to any assignee or transferee of all
or a portion of the Debentures, the Warrants and other Common Stock warrants
referenced in the definition of Registrable Securities or Registrable Securities
without the consent of the Company if: (i) such Purchaser agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to such registration rights are
being transferred or assigned, (iii) at or before the time the Company receives
the written notice contemplated by clause (ii) of this Section, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, and (iv) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchasers' (and to subsequent)
successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
<PAGE>
(j) Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court sitting in the Borough of Manhattan, the state and federal courts sitting
in the City of New York or any federal court sitting in the Borough of Manhattan
in the City of New York (collectively, the "New York Courts") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such Proceeding brought in
any New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by receiving a copy thereof sent to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified
<PAGE>
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or its Affiliates (other than the Purchasers or
transferees or successors or assigns thereof if such Persons are deemed to be
Affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
EUROTECH, LTD.
By:
----------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
----------------------------------
Alan Brown
Director
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:
----------------------------------
Neil T. Chau
Director
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH
IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
NOVEMBER 27, 1997, BETWEEN EUROTECH, LTD. (THE "COMPANY") AND THE ORIGINAL
HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
No. 1 U.S. $250,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 27, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1200 Prospect Street, Suite
425, LaJolla, California 92037 (the "Company"), designated as its 8% Convertible
Debentures, due November 27, 2000 (the "Debentures"), in an aggregate principal
amount of $7,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC OPPORTUNITY FUND
LTD., or registered assigns (the "Holder"), the principal sum of Two Hundred
Fifty Thousand Dollars ($250,000), on or prior to November 27, 2000 or such
earlier date as the Debentures are required to be repaid as provided hereunder
(the "Maturity Date") and to pay interest to the Holder on the principal sum at
the rate of 8% per annum, payable quarterly in arrears commencing March 31,
1998, but in no event later than the earlier to occur of a Conversion Date (as
defined in Section 4(a)(i)) for such principal amount or the Maturity Date.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Interest shall be calculated on the basis of a 360-day year and for the
actual number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
<PAGE>
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; (iii) such shares are not actively traded on the OTC
Bulletin Board (listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")); or (iv) the issuance of such shares would result
in the recipient thereof beneficially owning more than 4.999% of the issued and
outstanding shares of Common Stock as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. The Common Stock shall be
deemed to be "actively traded" on the OTC Bulletin Board under this Debenture if
(a) no less than $400,000 of the Common Stock trades on the OTC Bulletin Board
in any one week and (b) there are no fewer than six (6) market makers actively
making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only
<PAGE>
in compliance with the Purchase Agreement. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
<PAGE>
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been remedied
within 10 days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
<PAGE>
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 180th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the 90th day after the Original Issue Date).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in
<PAGE>
respect of conversions or as payment of interest hereunder and then held by the
Holder and (B) the Per Share Market Value (as defined in Section 6) on the date
prepayment is demanded or the date the full prepayment price is paid, whichever
is greater. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
<PAGE>
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder in whole or in part at any time and
from time to time upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the Commission and
(2) the 90th day after the Original Issue Date, and prior to the close of
business on the Maturity Date. The number of shares of Common Stock as shall be
issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below), each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder Conversion Notice shall
specify the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that such Holder
Conversion Notice is deemed delivered hereunder. Subject to Section 4(b) hereof
and Section 3.8 of the Purchase Agreement, each Holder Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Holder Conversion Notice, or if a conversion hereunder cannot be effected in
full for any reason, the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to such Holder (in the manner
and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price (which for such purpose
shall not be subject to the Floor (as defined in Section 6)) at the option of
the Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of issuing any press
release or other public statement relating to such conversion or at any time
when the Underlying Securities Registration Statement is not then effective or
shares of Common Stock are not actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and
<PAGE>
accrued but unpaid interest thereon) to be converted. The Company shall deliver
such Company Conversion Notice at least two (2) Trading Days, but not more than
five (5) Trading Days before the Maturity Date or earlier date of intended
conversion (the date that the Company intends to effect such conversion is
hereinafter referred to as the "Company Conversion Date"). Upon its receipt of a
Company Conversion Notice, the Holder shall surrender the principal amount of
Debentures subject thereto to the office of the Company or of any transfer agent
of the Common Stock. If the Company is converting less than the aggregate
principal amount of all Debentures, the Company shall, upon conversion of the
principal amount of Debentures subject to such Company Conversion Notice and
receipt of the Debentures surrendered for conversion, deliver to the Holder, a
replacement Debenture for such principal amount of Debentures as have not been
converted in the manner and within the time period set forth in Section 4(b).
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a Holder Conversion
Date and a Company Conversion Date is sometimes referred to herein as a
"Conversion Date."
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures
(subject to reduction pursuant to Section 3.8 of the Purchase Agreement), (ii)
Debentures in a principal amount equal to the principal amount of Debentures not
converted; (iii) a bank check in the amount of all accrued and unpaid interest
(if the Company has elected and is permitted hereunder to pay accrued interest
in cash), together with all other amounts then due and payable in accordance
with the terms hereof, in respect of Debentures tendered for conversion and (iv)
if the Company has elected to pay accrued interest in shares of the Common
Stock, certificates, which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement), representing such number of shares of the Common Stock as equals
such interest divided by the Conversion Price calculated on the Conversion Date;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until Debentures are delivered for conversion to
the Company or the Holder notifies the Company that such Debenture has been
mutilated, lost, stolen or destroyed and complies with Section 9 hereof. If in
the case of any Conversion Notice such certificate or certificates, including
for purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, are not
delivered to or as directed by the Holder by the third Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before
<PAGE>
its receipt of such certificate or certificates thereafter, to rescind such
conversion (whether subject to a Holder or a Company Conversion Notice), in
which event the Company shall immediately return the Debentures tendered for
conversion. If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section, including for purposes hereof, any shares
of the Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, prior to the fourth Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $1,500 for each day thereafter until the Company
delivers such certificates (such amount shall also be due for each Trading Day
after the date that the Holder may rescind such conversion until such date as
the Holder shall have received the return of the principal amount of Debentures
relating to such rescission). If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section prior to the 20th day after
the Conversion Date, the Company shall, upon notice from the Holder, prepay such
portion of the aggregate of the principal amount of Debentures then held by such
Holder, as requested by such Holder, for the Mandatory Prepayment Amount, in
cash. If any portion of the Mandatory Prepayment Amount pursuant to this Section
is not paid within seven days after notice therefor is deemed delivered
hereunder, the Company will pay interest on the Mandatory Prepayment Amount at a
rate of 15% per annum (to accrue daily), in cash to such Holder, accruing from
such seventh day until the Mandatory Prepayment Amount, plus all accrued
interest thereon, is paid in full.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (A) $5.38 (the "Initial
Conversion Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price calculated on the Conversion Date; provided,
that, except as otherwise specifically set fort herein, the Conversion Price
shall not be less than the Floor. Notwithstanding the foregoing, the Floor shall
not apply to any conversions pursuant to Section 4(a)(ii), to any adjustments of
the Conversion Price pursuant to the immediately following sentence or to
adjustments to the Initial Conversion Price as a result of the provisions of
Section 4(c)(ii)-(v). If (a) an Underlying Securities Registration Statement is
not filed on or prior to the 45th day after the Original Issue Date, or (b) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) the Underlying
Securities Registration Statement is not declared effective by the Commission on
or prior to the 90th day after the Original Issue Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
<PAGE>
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within ten (10) days, or (e) trading in the Common
Stock shall fail to be actively traded on the OTC Bulletin Board or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for any reason for more than three (3) Trading Days, or (f) the
conversion rights of the Holders of Debentures are suspended for any reason or
if the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (any such failure being referred
to as an "Event," and for purposes of clauses (a), (c) and (f) the date on which
such Event occurs, or for purposes of clause (b) the date on which such five (5)
days period is exceeded, or for purposes of clauses (d) and (g) the date which
such ten (10) day period is exceeded, or for purposes of clause (e) the date on
which such three (3) Trading Day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and not as a
penalty, on the Event Date and on the first day of each month thereafter until
the triggering Event is cured, 1.0% of the aggregate principal amount of
Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all
<PAGE>
holders of the Common Stock (and not to Holders of Debentures) entitling them to
subscribe for or purchase shares of the Common Stock at a price per share less
than the Per Share Market Value of the Common Stock at the record date mentioned
below, the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of the Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any such
right or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 4 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional
<PAGE>
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of Debentures then outstanding; and provided,
further, that the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in good faith, in which
case the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of the Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
<PAGE>
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to
<PAGE>
convert Debentures during the 30-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
1200 Prospect Street, Suite 425, LaJolla, California 92037 (facsimile number
(619) 551-6840), attention Chief Financial
<PAGE>
Officer, or such other address or facsimile number as the Company may specify
for such purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder of
the Debentures at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holders of the Debentures
to be prepaid (the "Optional Prepayment Notice"), to prepay, from funds legally
available therefor at the time of such prepayment, all or any portion of the
outstanding principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been delivered
hereunder, at a price equal to the Optional Prepayment Price (as defined below).
Any such prepayment by the Company shall be in cash and shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the
<PAGE>
principal amount of Debentures for which the Optional Prepayment Price, plus
accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Prepayment Principal Amount"), in which event the applicable Per Share Market
Value shall be the lower of the Per Share Market Value calculated on the
Optional Prepayment Date and the Per Share Market Value as of the Holder's
written demand for conversion, or (ii) invalidate ab initio such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (i) above, the Company shall, within three (3) Trading Days
of the date such election is deemed delivered hereunder, deliver to the Holder
the shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Amount subject to such conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of notice of such election, return to the Holder new Debentures for
the full Unpaid Prepayment Principal Amount. If, upon an election under option
(i) above, the Company fails to deliver the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount within four (4) Trading
Days of the date that such election is deemed delivered hereunder, the Company
shall pay to the Holder in cash, as liquidated damages and not as a penalty,
$1,500 per day until the Company delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
<PAGE>
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.00025 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Floor" initially means $2.00, provided, that, the Floor shall be
reset if at any time after the Original Issue Date the Average Price calculated
on any date shall be equal to or less than $2.00 for 30 consecutive Trading
Days. In such event, the Floor shall be reset to 75% of the average Per Share
Market Value for the ten (10) Trading Days commencing the 21st day of the 30-day
period contemplated by the immediately preceding sentence.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Original Issue Date" shall mean the date of the first issuance of
any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
<PAGE>
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend,
<PAGE>
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if
<PAGE>
such next succeeding Business Day falls in the next calendar month, the
preceding Business Day in the appropriate calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
EUROTECH, LTD.
By:
-------------------------
Name:
Title:
Attest:
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. 1 into shares of Common
Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH, LTD. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Number of shares of Common Stock
to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture No. 1 into shares of Common Stock, par
value $.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Amount of Interest due on the Principal Amount of
Debentures to be Converted
--------------------------------------------------
Number of Shares of Common Stock outstanding at
close of trading on Conversion Date
--------------------------------------------------
Signature
--------------------------------------------------
Name:
--------------------------------------------------
Address:
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH
IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
NOVEMBER 27, 1997, BETWEEN EUROTECH, LTD. (THE "COMPANY") AND THE ORIGINAL
HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
No. 12 U.S. $250,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 27, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1200 Prospect Street, Suite
425, LaJolla, California 92037 (the "Company"), designated as its 8% Convertible
Debentures, due November 27, 2000 (the "Debentures"), in an aggregate principal
amount of $7,000,000.
FOR VALUE RECEIVED, the Company promises to pay to DIVERSIFIED STRAGEGIES
FUND, L.P., or registered assigns (the "Holder"), the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000), on or prior to November 27, 2000 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 8% per annum, payable quarterly in arrears
commencing March 31, 1998, but in no event later than the earlier to occur of a
Conversion Date (as defined in Section 4(a)(i)) for such principal amount or the
Maturity Date. Interest shall accrue daily commencing on the Original Issue Date
(as defined in Section 6) until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall be calculated on the basis of a 360-day
year and for the actual number of days elapsed. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum (to accrue daily)
from the date such interest is due
<PAGE>
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; (iii) such shares are not actively traded on the OTC
Bulletin Board (listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")); or (iv) the issuance of such shares would result
in the recipient thereof beneficially owning more than 4.999% of the issued and
outstanding shares of Common Stock as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. The Common Stock shall be
deemed to be "actively traded" on the OTC Bulletin Board under this Debenture if
(a) no less than $400,000 of the Common Stock trades on the OTC Bulletin Board
in any one week and (b) there are no fewer than six (6) market makers actively
making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only
<PAGE>
in compliance with the Purchase Agreement. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
<PAGE>
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been remedied
within 10 days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
<PAGE>
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 180th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the 90th day after the Original Issue Date).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in
<PAGE>
respect of conversions or as payment of interest hereunder and then held by the
Holder and (B) the Per Share Market Value (as defined in Section 6) on the date
prepayment is demanded or the date the full prepayment price is paid, whichever
is greater. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
<PAGE>
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder in whole or in part at any time and
from time to time upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the Commission and
(2) the 90th day after the Original Issue Date, and prior to the close of
business on the Maturity Date. The number of shares of Common Stock as shall be
issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below), each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder Conversion Notice shall
specify the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that such Holder
Conversion Notice is deemed delivered hereunder. Subject to Section 4(b) hereof
and Section 3.8 of the Purchase Agreement, each Holder Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Holder Conversion Notice, or if a conversion hereunder cannot be effected in
full for any reason, the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to such Holder (in the manner
and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price (which for such purpose
shall not be subject to the Floor (as defined in Section 6)) at the option of
the Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of issuing any press
release or other public statement relating to such conversion or at any time
when the Underlying Securities Registration Statement is not then effective or
shares of Common Stock are not actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and
<PAGE>
accrued but unpaid interest thereon) to be converted. The Company shall deliver
such Company Conversion Notice at least two (2) Trading Days, but not more than
five (5) Trading Days before the Maturity Date or earlier date of intended
conversion (the date that the Company intends to effect such conversion is
hereinafter referred to as the "Company Conversion Date"). Upon its receipt of a
Company Conversion Notice, the Holder shall surrender the principal amount of
Debentures subject thereto to the office of the Company or of any transfer agent
of the Common Stock. If the Company is converting less than the aggregate
principal amount of all Debentures, the Company shall, upon conversion of the
principal amount of Debentures subject to such Company Conversion Notice and
receipt of the Debentures surrendered for conversion, deliver to the Holder, a
replacement Debenture for such principal amount of Debentures as have not been
converted in the manner and within the time period set forth in Section 4(b).
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a Holder Conversion
Date and a Company Conversion Date is sometimes referred to herein as a
"Conversion Date."
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures
(subject to reduction pursuant to Section 3.8 of the Purchase Agreement), (ii)
Debentures in a principal amount equal to the principal amount of Debentures not
converted; (iii) a bank check in the amount of all accrued and unpaid interest
(if the Company has elected and is permitted hereunder to pay accrued interest
in cash), together with all other amounts then due and payable in accordance
with the terms hereof, in respect of Debentures tendered for conversion and (iv)
if the Company has elected to pay accrued interest in shares of the Common
Stock, certificates, which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement), representing such number of shares of the Common Stock as equals
such interest divided by the Conversion Price calculated on the Conversion Date;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until Debentures are delivered for conversion to
the Company or the Holder notifies the Company that such Debenture has been
mutilated, lost, stolen or destroyed and complies with Section 9 hereof. If in
the case of any Conversion Notice such certificate or certificates, including
for purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, are not
delivered to or as directed by the Holder by the third Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before
<PAGE>
its receipt of such certificate or certificates thereafter, to rescind such
conversion (whether subject to a Holder or a Company Conversion Notice), in
which event the Company shall immediately return the Debentures tendered for
conversion. If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section, including for purposes hereof, any shares
of the Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, prior to the fourth Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $1,500 for each day thereafter until the Company
delivers such certificates (such amount shall also be due for each Trading Day
after the date that the Holder may rescind such conversion until such date as
the Holder shall have received the return of the principal amount of Debentures
relating to such rescission). If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section prior to the 20th day after
the Conversion Date, the Company shall, upon notice from the Holder, prepay such
portion of the aggregate of the principal amount of Debentures then held by such
Holder, as requested by such Holder, for the Mandatory Prepayment Amount, in
cash. If any portion of the Mandatory Prepayment Amount pursuant to this Section
is not paid within seven days after notice therefor is deemed delivered
hereunder, the Company will pay interest on the Mandatory Prepayment Amount at a
rate of 15% per annum (to accrue daily), in cash to such Holder, accruing from
such seventh day until the Mandatory Prepayment Amount, plus all accrued
interest thereon, is paid in full.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (A) $5.38 (the "Initial
Conversion Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price calculated on the Conversion Date; provided,
that, except as otherwise specifically set fort herein, the Conversion Price
shall not be less than the Floor. Notwithstanding the foregoing, the Floor shall
not apply to any conversions pursuant to Section 4(a)(ii), to any adjustments of
the Conversion Price pursuant to the immediately following sentence or to
adjustments to the Initial Conversion Price as a result of the provisions of
Section 4(c)(ii)-(v). If (a) an Underlying Securities Registration Statement is
not filed on or prior to the 45th day after the Original Issue Date, or (b) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) the Underlying
Securities Registration Statement is not declared effective by the Commission on
or prior to the 90th day after the Original Issue Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
<PAGE>
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within ten (10) days, or (e) trading in the Common
Stock shall fail to be actively traded on the OTC Bulletin Board or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for any reason for more than three (3) Trading Days, or (f) the
conversion rights of the Holders of Debentures are suspended for any reason or
if the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (any such failure being referred
to as an "Event," and for purposes of clauses (a), (c) and (f) the date on which
such Event occurs, or for purposes of clause (b) the date on which such five (5)
days period is exceeded, or for purposes of clauses (d) and (g) the date which
such ten (10) day period is exceeded, or for purposes of clause (e) the date on
which such three (3) Trading Day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and not as a
penalty, on the Event Date and on the first day of each month thereafter until
the triggering Event is cured, 1.0% of the aggregate principal amount of
Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all
<PAGE>
holders of the Common Stock (and not to Holders of Debentures) entitling them to
subscribe for or purchase shares of the Common Stock at a price per share less
than the Per Share Market Value of the Common Stock at the record date mentioned
below, the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of the Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any such
right or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 4 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional
<PAGE>
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of Debentures then outstanding; and provided,
further, that the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in good faith, in which
case the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of the Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
<PAGE>
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to
<PAGE>
convert Debentures during the 30-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
1200 Prospect Street, Suite 425, LaJolla, California 92037 (facsimile number
(619) 551-6840), attention Chief Financial
<PAGE>
Officer, or such other address or facsimile number as the Company may specify
for such purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder of
the Debentures at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holders of the Debentures
to be prepaid (the "Optional Prepayment Notice"), to prepay, from funds legally
available therefor at the time of such prepayment, all or any portion of the
outstanding principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been delivered
hereunder, at a price equal to the Optional Prepayment Price (as defined below).
Any such prepayment by the Company shall be in cash and shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the
<PAGE>
principal amount of Debentures for which the Optional Prepayment Price, plus
accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Prepayment Principal Amount"), in which event the applicable Per Share Market
Value shall be the lower of the Per Share Market Value calculated on the
Optional Prepayment Date and the Per Share Market Value as of the Holder's
written demand for conversion, or (ii) invalidate ab initio such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (i) above, the Company shall, within three (3) Trading Days
of the date such election is deemed delivered hereunder, deliver to the Holder
the shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Amount subject to such conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of notice of such election, return to the Holder new Debentures for
the full Unpaid Prepayment Principal Amount. If, upon an election under option
(i) above, the Company fails to deliver the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount within four (4) Trading
Days of the date that such election is deemed delivered hereunder, the Company
shall pay to the Holder in cash, as liquidated damages and not as a penalty,
$1,500 per day until the Company delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
<PAGE>
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.00025 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Floor" initially means $2.00, provided, that, the Floor shall be
reset if at any time after the Original Issue Date the Average Price calculated
on any date shall be equal to or less than $2.00 for 30 consecutive Trading
Days. In such event, the Floor shall be reset to 75% of the average Per Share
Market Value for the ten (10) Trading Days commencing the 21st day of the 30-day
period contemplated by the immediately preceding sentence.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Original Issue Date" shall mean the date of the first issuance of
any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
<PAGE>
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend,
<PAGE>
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if
<PAGE>
such next succeeding Business Day falls in the next calendar month, the
preceding Business Day in the appropriate calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
EUROTECH, LTD.
By:
-------------------------
Name:
Title:
Attest:
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. 1 into shares of Common
Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH, LTD. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Number of shares of Common Stock
to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture No. 1 into shares of Common Stock, par
value $.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Amount of Interest due on the Principal Amount of
Debentures to be Converted
--------------------------------------------------
Number of Shares of Common Stock outstanding at
close of trading on Conversion Date
--------------------------------------------------
Signature
--------------------------------------------------
Name:
--------------------------------------------------
Address:
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EUROTECH, LTD.
WARRANT
Warrant No. 1 Dated November 27, 1997
EUROTECH, LTD., a corporation organized and existing under the laws of the
District of Columbia (the "Company"), hereby certifies that, for value received,
JNC Opportunity Fund Ltd., or its registered assigns ("Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company up to a total
of 50,000 shares of Common Stock, $.00025 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $4.73 per share (as adjusted
from time to time as provided in Section 8, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
November 27, 1999 (the "Expiration Date"), and subject to the following terms
and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing
<PAGE>
the portion of this Warrant so transferred shall be issued to the transferee and
a New Warrant evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S- 4, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Peace Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this
-3-
<PAGE>
Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
-4-
<PAGE>
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per
-5-
<PAGE>
share less than the Exercise Price then in effect, then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price (calculated to
the nearest cent) determined by dividing (i) an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Exercise Price, and (B) the consideration, if any,
received or receivable by the Company upon such issue or sale by (ii) the total
number of shares of Common Stock outstanding immediately after such issue or
sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
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<PAGE>
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
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<PAGE>
X = Y (A-B)/A where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 1200 Prospect Street, Suite
425, LaJolla, California 92037, or to Facsimile No.: (619) 551-6840 Attention:
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
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<PAGE>
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EUROTECH, LTD.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To EUROTECH, LTD.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.00025 par value per share, of
Eurotech, Ltd. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
------------------ ----
(Print)
(By:)
---------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Eurotech, Ltd. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Eurotech, Ltd. with full power of
substitution in the premises.
Dated:
,
- --------------- ----
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EUROTECH, LTD.
WARRANT
Warrant No. 2 Dated November 27, 1997
EUROTECH, LTD., a corporation organized and existing under the laws of the
District of Columbia (the "Company"), hereby certifies that, for value received,
Diversified Strategies Fund, L.P., or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 10,000 shares of Common Stock, $.00025 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $4.73 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including November 27, 1999 (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing
<PAGE>
the portion of this Warrant so transferred shall be issued to the transferee and
a New Warrant evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Peace Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this
-3-
<PAGE>
Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
-4-
<PAGE>
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per
-5-
<PAGE>
share less than the Exercise Price then in effect, then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price (calculated to
the nearest cent) determined by dividing (i) an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Exercise Price, and (B) the consideration, if any,
received or receivable by the Company upon such issue or sale by (ii) the total
number of shares of Common Stock outstanding immediately after such issue or
sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
-6-
<PAGE>
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
-7-
<PAGE>
X = Y (A-B)/A where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 1200 Prospect Street, Suite
425, LaJolla, California 92037, or to Facsimile No.: (619) 551-6840 Attention:
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
-8-
<PAGE>
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EUROTECH, LTD.
By:
-------------------------------
Name:
-----------------------------
Title:
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To EUROTECH, LTD.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.00025 par value per share, of
Eurotech, Ltd. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: , Name of Holder:
------------------ ----
(Print)
-------------------------------
(By:)
---------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Eurotech, Ltd. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Eurotech, Ltd. with full power of
substitution in the premises.
Dated:
,
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---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
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Address of Transferee
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In the presence of:
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NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EUROTECH, LTD.
WARRANT
Warrant No. 3 Dated November 27, 1997
EUROTECH, LTD., a corporation organized and existing under the laws of the
District of Columbia (the "Company"), hereby certifies that, for value received,
Diversified Strategies Fund, L.P., or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 10,000 shares of Common Stock, $.00025 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $4.73 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including November 27, 1999 (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing
<PAGE>
the portion of this Warrant so transferred shall be issued to the transferee and
a New Warrant evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
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<PAGE>
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Peace Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this
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<PAGE>
Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
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<PAGE>
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per
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<PAGE>
share less than the Exercise Price then in effect, then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price (calculated to
the nearest cent) determined by dividing (i) an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Exercise Price, and (B) the consideration, if any,
received or receivable by the Company upon such issue or sale by (ii) the total
number of shares of Common Stock outstanding immediately after such issue or
sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
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<PAGE>
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
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<PAGE>
X = Y (A-B)/A where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 1200 Prospect Street, Suite
425, LaJolla, California 92037, or to Facsimile No.: (619) 551-6840 Attention:
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
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<PAGE>
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EUROTECH, LTD.
By:
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Name:
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Title:
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To EUROTECH, LTD.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.00025 par value per share, of
Eurotech, Ltd. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
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(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
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(Please print name and address)
Dated: , Name of Holder:
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(Print)
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(By:)
---------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Eurotech, Ltd. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Eurotech, Ltd. with full power of
substitution in the premises.
Dated:
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(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
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Address of Transferee
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In the presence of:
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
EUROTECH, LTD.
and
JNC OPPORTUNITY FUND LTD.
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February 23, 1998
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<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of February 23, 1998
(this "Agreement"), between Eurotech, Ltd., a corporation organized under the
laws of the District of Columbia (the "Company"), and JNC Opportunity Fund Ltd.,
a corporation organized under the laws of the Cayman Islands (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $3,000,000 of the Company's 8%
Convertible Debentures, due February 23, 2001 (the "Debentures"), which are
convertible into shares of the Company's common stock, par value $.00025 per
share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase the Debentures for an aggregate purchase price of
$3,000,000. The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP (the "Escrow Agent"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(ii) Prior to the Closing, the parties shall deliver or shall
cause to be delivered to the Escrow Agent such items as are required to be
delivered by them in accordance with and subject to the terms and conditions of
the Escrow Agreement, dated as of the date hereof, by and among the Company, the
Purchaser and the Escrow Agent (the "Escrow Agreement"), including the
following: (A) the Company shall deliver (1) Debentures, registered in the name
of the Purchaser, with an aggregate principal amount of $3,000,000, (2) the
Warrant (as defined in Section 3.16), and (3) the legal opinions of Ruffa &
Ruffa, P.C. and Phillips Nizer Benjamin Krim & Ballon LLP, substantially in the
form of Exhibit C ("Legal Opinions"); (B)
<PAGE>
the Purchaser shall deliver $3,000,000; and (C) each party hereto shall deliver
all other executed instruments, agreements and certificates as are required to
be delivered hereunder by or on their behalf at the Closing.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
For purposes of this Agreement, "Average Price," "Business Day,"
"Conversion Price," "Original Issue Date," "Conversion Date" and "Trading Day"
shall have the meanings set forth in the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
District of Columbia, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
2.1(a) attached hereto (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of this Agreement, the Escrow Agreement, the
Debentures, the Warrant or the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchaser (the "Registration Rights Agreement"
and, together with this Agreement, the Escrow Agreement, the Debentures and the
Warrant, the "Transaction Documents"), (y) have a material adverse effect on the
results of operations, assets, prospects, or financial condition of the Company
and the Subsidiaries, taken as a whole, or (z) adversely impair the Company's
ability to perform fully on a timely basis
<PAGE>
its obligations under any Transaction Document (any of the foregoing, a
"Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 2.1(c). No shares of Common Stock
are entitled to preemptive or similar rights, nor is any holder of the Common
Stock entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrant hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or has the right to acquire by agreement with or
by obligation binding upon the Company, beneficial ownership of in excess of 5%
of the Common Stock. Except as specified in Schedule 6(b) to the Registration
Rights Agreement, there are no agreements or arrangements under which the
Company or any Subsidiary is obligated to register the sale
<PAGE>
of any of their securities under the Securities Act of 1933, as amended (the
"Securities Act"). A "Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
(d) Issuance of Debentures and Warrant. The Debentures and the
Warrant are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind (collectively,
"Liens"). The Company has and at all times while the Debentures and the Warrant
are outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrant and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date or the Filing Date (as defined in the
Registration Rights Agreement), whichever yields a lower Conversion Price, (ii)
the number of shares of Common Stock as are issuable as payment of interest on
the Debentures, and (iii) the number of shares of Common Stock as are issuable
upon exercise in full of the Warrant. The shares of Common Stock issuable upon
conversion of the Debentures, as payment of interest in respect thereof and upon
exercise of the Warrant are sometimes referred to herein as the "Underlying
Shares," and the Debentures, Warrant and Underlying Shares are, collectively,
the "Securities." When issued in accordance with the terms of the Debentures and
the Warrant, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or
<PAGE>
other restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), as could not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental authority, except for violations which, individually or in
the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other Federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a pre-effective amendment to the Company's Registration
Statement on Form S-1 promulgated under the Securities Act (Registration
Statement No. 333-26673) (the "Initial Registration Statement"), previously
filed with the Securities and Exchange Commission (the "Commission"), which
amendment shall register for resale by the Purchaser of the Underlying Shares
(such pre-effective amendment, the "Underlying Securities Registration
Statement"), provided, however that in the event the Initial Registration
Statement has been declared effective by the Commission on or prior to the
Filing Date (as such term is defined in the Registration Rights Agreement), the
term Underlying Securities Registration Statement shall mean a registration
statement on Form S-1 to be filed with the Commission which shall register the
Underlying Shares for resale by the Purchaser, (ii) the application for the
listing of the Underlying Shares on any national securities exchange or market
on which the Common Stock is then listed and (iii) in all other cases, where the
failure to obtain such consent, waiver, authorization or order, or to give or
make such notice or filing, could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 2.1(f), the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or
<PAGE>
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Section 2.2(b)-(f), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(j) SEC Documents. Except as set forth in Schedule 2.1(j), since
April 14, 1997, the Company has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof
(such reports, the "SEC Documents" and, together with the Schedules to this
Agreement and other documents and information furnished by or on behalf of the
Company at any time prior to the Closing, the "Disclosure Materials") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have
<PAGE>
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved, except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, (a) there has been no event, occurrence or development that
has had or that could have or result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP, and (c) the Company has not altered its
method of accounting or the identity of its auditors.
(k) Investment Company. The Company is not, and is not an Affiliate
of an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(l) Certain Fees. Except for fees payable to CDC Consulting, Inc.,
no fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the transactions
contemplated hereby. The Purchaser shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated hereby. The Company shall indemnify and hold
harmless the Purchaser, its respective employees, officers, directors, agents,
and partners, and its respective Affiliates (as such term is defined under Rule
405 promulgated under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell Debentures to
any Person other than the Purchaser.
<PAGE>
(o) Listing and Maintenance Requirements Compliance. The Company has
not in the two years preceding the date hereof received written notice from any
stock exchange, market or trading facility on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in compliance with
the listing, maintenance or other requirements of such exchange, market, trading
or quotation facility. The Company has no reason to believe that it does not now
or will not in the future meet any such requirements.
(p) Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights which are necessary for use
in connection with its business and which the failure to so have would have a
Material Adverse Effect (collectively, the "Intellectual Property Rights"). To
the best knowledge of the Company, there is no existing infringement of any of
the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives and counsel in connection with the transactions
contemplated hereby (including, without limitation, the letter, dated February
18, 1998, of Ruffa & Ruffa to the Purchaser regarding the use of the proceeds
from the issuance and sale of the Company's 8% Convertible Debentures due
November 27, 2000) is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. The Company confirms that it has not provided to the Purchaser or
any of its representatives, agents or counsel any information that constitutes
or might constitute material nonpublic information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representation in
effecting transactions in securities of the Company.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
makes the following representations and warranties to the Company.
(a) Organization; Authority. The Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the Securities to be
acquired hereunder by the Purchaser has been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement has been duly executed and
<PAGE>
delivered by the Purchaser and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it will
be, an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by the Purchaser, and, at
the present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities, and the merits and risks of investing in the
Securities, (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment, and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or
<PAGE>
expense that is necessary to make an informed investment decision with respect
to the investment and to verify the accuracy and completeness of the information
contained in the Disclosure Materials. Neither such inquiries nor any other
investigation conducted by or on behalf of the Purchaser or its representatives
or counsel shall modify, amend or affect the Purchaser's right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) Reliance. The Purchaser understands and acknowledges that (i)
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and the
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by the Purchaser to an Affiliate of the Purchaser, or any
transfers among any such Affiliates provided in such case the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and that it is acquiring any such Securities in
accordance with the representation provided by the original Purchaser in Section
2.2(b). Each such transferee shall have the rights of the
<PAGE>
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE
AGREEMENT, DATED AS OF FEBRUARY 23, 1998, BETWEEN EUROTECH, LTD. (THE
"COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain any legend if conversion of
Debentures, exercise of Warrant or other issuances of Underlying Shares in as
contemplated hereby, as the case may be, occurs at any time while an Underlying
Securities Registration Statement is effective under the Securities Act or, in
the event there is not an effective Underlying Securities Registration Statement
at such time, if in the opinion of counsel to the Company such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required hereunder. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company which enlarge the restrictions of transfer set forth in
this Section 3.1(b).
3.2 Acknowledgement of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrant may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares in accordance with the
<PAGE>
terms of the Debentures and the Warrant is unconditional and absolute regardless
of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may resell
all of their Underlying Shares without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act (as determined by counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and enforceable by
the Purchaser) the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchaser
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in this Section. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements. In
connection with any future access or diligence of the Company by the Purchaser,
the Company agrees that its will not furnish to the Purchaser any non-public
information unless it first discloses in writing that such information is of
such character and the Purchaser thereafter agrees to receive such information.
3.4 Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials (which for purposes of the non-SEC Document Disclosure
Materials shall take into account any amendments and supplements thereto) and
any information provided by or on behalf of the Company pursuant to Section 3.3
by the Purchaser in connection with resales of the Securities other than
pursuant to an effective registration statement.
3.5 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify and obtain exemptions
<PAGE>
for the Underlying Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may request and shall continue such qualification
or exemption at all times until the Purchaser notify the Company in writing that
it no longer owns Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.7 Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Debentures (and paying any accrued but unpaid interest in respect
thereof in shares of Common Stock) that remain unconverted at such date or (b)
honoring the exercise in full of the Warrant due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 30 Business Days from such date) prepare and mail to the shareholders of
the Company proxy materials requesting authorization to amend the Company's
certificate of incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchaser in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its conversion, exercise and reservation of shares obligations as set forth
in this Agreement, the Debentures and the Warrant. In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of obtaining
such shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
<PAGE>
3.8 Purchaser Ownership of Common Stock. The Purchaser agrees not to
convert Debentures or exercise the Warrant to the extent such conversion or
exercise would result in the Purchaser beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Debentures held by the
Purchaser after application of this Section. To the extent that the limitation
contained in this Section applies, the determination of whether Debentures are
convertible (in relation to other securities owned by the Purchaser) and of
which portion of the principal amount of such Debentures are convertible shall
be in the sole discretion of the Purchaser, and the submission of Debentures for
conversion shall be deemed to be the Purchaser's determination of whether such
Debentures are convertible (in relation to other securities owned by the
Purchaser) and of which portion of such Debentures are convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of the Purchaser to
convert Debentures at such time as such conversion will not violate the
provisions of this Section. The provisions of this Section may be waived by the
Purchaser upon not less than 75 days prior notice to the Company, and the
provisions of this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3.9 Listing of Underlying Shares. The Company will use its best efforts to
list the Common Stock for trading on the Nasdaq SmallCap Market or Nasdaq
National Market as soon as possible after the Closing Date. If the Common Stock
hereafter is listed for trading on the Nasdaq National Market, Nasdaq SmallCap
Market (or on the American Stock Exchange or New York Stock Exchange, or any
other national securities market or exchange), then the Company shall (1) take
all necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing application therefor covering at
least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount of
Debentures (plus all Underlying Shares are issuable as payment of interest
thereon, assuming all such interest were paid in shares of Common Stock) and
upon exercise in full of the then unexercised portion of the Warrants and (2)
provide to the Purchaser evidence of such listing, and the Company shall
thereafter maintain the listing of its Common Stock on such exchange or market
as long as Underlying Shares are issuable and/or outstanding.
3.10 Conversion Procedures. Exhibit E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be
<PAGE>
rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchaser to exercise
its right of conversion smoothly and expeditiously which are not set forth in
the Debentures.
3.11 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, less than $400,000 of the Common Stock trades on the OTC Bulletin
Board in any one week or there are fewer than six (6) market makers actively
making a market in the Common Stock (or, if after the Closing Date the Common
Stock is listed on any of the exchange, markets or trading facilities
contemplated in Section 3.9, if the Common Stock is delisted or suspended from
trading on such exchange, market or trading facility, other than as a result of
the suspension of trading in securities on such market or exchange generally, or
temporary suspensions pending the release of material information) for more than
three (3) Trading Days, then, notwithstanding anything to the contrary contained
in any Transaction Document, at the Purchaser's option exercisable by five (5)
Business Days prior written notice to the Company, the Company shall repay the
entire principal amount of then outstanding Debentures (and all accrued and
unpaid interest thereon) and redeem all then outstanding Underlying Shares then
held by the Purchaser, at an aggregate purchase price equal to the sum of (I)
the aggregate outstanding principal amount of Debentures then held by the
Purchaser divided by the Conversion Price on (a) the day prior to the date of
such suspension or delisting, (b) the day of such notice or (c) the date of
payment in full of the repurchase price calculated under this Section, whichever
is less, and multiplied by the Average Price preceding (x) the day prior to the
date of such suspension or delisting, (y) the day of such notice and (z) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, (II) the aggregate of all accrued but unpaid interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures to be repaid, (III) the number of Underlying Shares
then held by the Purchaser multiplied by the Average Price immediately preceding
(x) the day prior to the date of such suspension or delisting, (y) the date of
the notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest on
the amounts set forth in I - III above accruing from the 5th day after such
notice until the repurchase price under this Section is paid in full at the rate
of 15% per annum. If after the Original Issue Date the Common Stock shall be
listed for trading or quoted on the Nasdaq SmallCap Market, Nasdaq National
Market or any other national securities exchange or market, this provision shall
similarly apply to any delistings or suspensions therefrom.
<PAGE>
3.12 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of Company debt or to redeem any equity or equity-equivalent securities of the
Company, except that the Company may apply up to $2,000,000 of the proceeds from
the sale of the Securities to repay debt evidenced by the Company's promissory
notes dated as of December 18, 1996. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.13 Notice of Breaches. The Company and the Purchaser shall give prompt
written notice to the other of any breach by it of any representation, warranty
or other agreement contained in any Transaction Document, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation or warranty or other agreement of such party, as the
case may be, contained in the Transaction Document to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Debentures a copy of any written statement in support of or relating to such
claim or notice.
3.14 Conversion Obligations of the Company. The Company shall honor
conversions of the Debentures and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrant.
3.15 Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (a) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holders thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market
<PAGE>
price of the Common Stock at the time of issuance of such security or investment
(a "Subsequent Financing") for a period of 180 days after the Closing Date,
except (i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), (iii) shares of Common Stock issued upon
conversion of Debentures, as payment of interest thereon, or upon exercise of
the Warrant in accordance with their respective terms, unless (A) the Company
delivers to Encore a written notice (the "Subsequent Financing Notice") of its
intention to effect such Subsequent Financing, which Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing shall be affected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Encore shall
not have notified the Company by 5:00 p.m. (New York City time) on the tenth
(10th) Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide Encore with a second Subsequent
Financing Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice.
(b) Except for Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall not,
without the prior written consent of the Purchaser, (i) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for resale
any securities of the Company for a period of not less than 90 Trading Days
after the date that the Underlying Securities Registration Statement is
<PAGE>
declared effective by the Commission. Any days that the Purchaser is unable to
sell Underlying Shares under the Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
(c) As long as there are Debentures outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the holders
of the Debentures, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.16 The Warrant. At the Closing, the Company shall issue to the
Purchaser, a Common Stock purchase warrant, in the form of Exhibit D (the
"Warrant"), pursuant to which the Purchaser shall have the right at any time and
from time to time thereafter through the second anniversary of the date of
issuance thereof, to acquire 60,000 shares of Common Stock at an exercise price
per share equal to 110% of the Average Price on the Closing Date.
3.17 Certain Securities Laws Disclosures; Publicity. (a) The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to each Purchaser promptly after the filing thereof. The Company
shall file with the Commission (i) a press release acceptable to the Purchaser
disclosing the transactions contemplated hereby within three (3) Business Days
after the Closing Date and (ii) a Report on Form 8-K disclosing this Agreement
and the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
(b) In furtherance and in addition to the obligation of the Company
set forth in Section 3.17(a) above, the Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
ARTICLE IV
<PAGE>
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall pay $10,000
to the Escrow Agent for the legal fees and disbursements incurred by the
Purchaser in connection with the preparation and negotiation of the Transaction
Documents. Other than the amounts contemplated by the immediately preceding
sentence, and except as set forth in the Registration Rights Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Debentures pursuant hereto. The Purchaser
shall be responsible for its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures and the Warrant contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
<PAGE>
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
the Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign
<PAGE>
this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchaser. Except as set forth in Section 3.1(a), neither
Purchaser may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Company. The assignment by a party of
this Agreement or any rights hereunder shall not affect the obligations of such
party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect Encore, who is an intended beneficiary of
the provisions of Section 3.15, entitled to enforce such provisions against the
parties hereto and permitted assignees under Section 4.6, is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
4.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and Federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrant.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create
<PAGE>
a valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
EUROTECH, LTD.
By:
-------------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
-------------------------------------
Name:
Title:
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of February 23, 1998,
between Eurotech, Ltd. (the "Company"), JNC Opportunity Fund Ltd. (the
"Purchaser") and Robinson Silverman Pearce Aronsohn & Berman LLP (the "Escrow
Agent").
Recitals
A. Simultaneously with the execution of this Agreement, the Company
and the Purchaser have entered into a Convertible Debenture Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), pursuant to which the
Company is selling to the Purchaser certain 8% Convertible Debentures Due
February 23, 2001 (the "Debentures") and certain of the Company's common stock
purchase warrants (the "Warrants"). Capitalized terms that are used and not
otherwise defined in this Agreement that are defined in the Purchase Agreement
shall have the meaning set forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to
the terms of this Agreement with respect to the receipt and then delivery of the
Purchase Price (as described in Section 1.1 of the Purchase Agreement) to be
paid for the Debentures pursuant to Section 1.1 of the Purchase Agreement less
any amounts the Purchaser is to be reimbursed by the Company under the Purchase
Agreement (the "Purchase Price") and the delivery of the Debentures, the
Warrants, the Ancillary Closing Documents (as defined below) and the Purchase
Price (collectively, the "Consideration").
C. Upon the closing of the transaction contemplated by the Purchase
Agreement (the "Closing") and the occurrence of an event described in Section 2
below, the Escrow Agent shall cause the distribution of the Consideration in
accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration.
a. Concurrently with the execution of this Agreement, the
Purchaser shall deposit with the Escrow Agent the Purchase Price in accordance
with Section 1.1(a)(ii) of the Purchase Agreement and the Company shall deliver
to the Escrow Agent the Debentures and the Warrants, registered in the name of
the Purchaser, in accordance with Section 1.1(a)(ii) of the Purchase Agreement
and wiring instructions for transfer of the
<PAGE>
Purchase Price by the Escrow Agent into an account specified by the Company for
such purpose. In addition, the Purchaser and the Company shall deposit with the
Escrow Agent all other certificates and other documents required under the
Purchase Agreement to be delivered by them at the Closing (such certificates and
other documents being hereinafter referred to as the "Ancillary Closing
Documents").
(i) The Purchase Price shall be delivered by the
Purchaser to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Trust Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: Eurotech, Ltd. (10849-6)
(ii) The Debentures, Warrants and the Ancillary Closing
Documents shall be delivered to the Escrow Agent at its address for notice
indicated in Section 5(a).
b. Until termination of this Agreement as set forth in Section
2, all additional Consideration paid by or which becomes payable between the
Company and the Purchaser shall be deposited with the Escrow Agent.
c. The Purchaser and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall be
held in escrow in the Escrow Agent's interest bearing business account until the
Closing. After the Purchase Price has been received by the Escrow Agent and all
other conditions of Closing are met, the parties hereto hereby authorize and
instruct the Escrow Agent to promptly effect the Closing.
d. At the Closing, Escrow Agent is authorized and directed to
deduct from the Purchase Price (i) $225,000 which will be paid to CDC
Consulting, Inc. ("CDC") in accordance with the engagement letter between the
Company and CDC relating to the transactions contemplated by the Purchase
Agreement (the "Engagement Letter"), for remittance to CDC in accordance with
its instructions, and (ii) $10,000 which will be retained by the Escrow Agent in
accordance with the Purchase Agreement. In addition, the portion of the Purchase
Price released to the
<PAGE>
Company hereunder shall be reduced by all wire transfer fees incurred thereupon.
2. Terms of Escrow.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrants and the Ancillary Closing Documents
and a writing instructing the Closing and (ii) the receipt by the Escrow Agent
of a written notice, executed by the Company or the Purchaser, stating that the
Purchase Agreement has been terminated in accordance with its terms and
instructing the Escrow Agent with respect to the Purchase Price, the Debentures,
the Warrants and the Ancillary Closing Documents.
b. If the Escrow Agent receives the items referenced in clause
(i) of Section 2(a) prior to its receipt of the notice referenced in clause (ii)
of Section 2(a), then, promptly thereafter, the Escrow Agent shall deliver (i)
the Debentures, the Warrants and any interest earned on account of the Purchase
Price through the Closing, (ii) the Purchase Price (net of amounts described
under Section 1(d)) to the Company, (iii) the amounts payable to CDC under the
Engagement Letter to CDC or in accordance with its instructions and (iv) the
Ancillary Closing Documents, to the party entitled to receive the same. In
addition, the Escrow Agent shall retain $10,000 of the Purchase Price on account
of its fees pursuant to the Purchase Agreement.
c. If the Escrow Agent receives the notice referenced in
clause (ii) of Section 2(a) prior to its receipt of the items referenced in
clause (i) of Section 2(a), then the Escrow Agent shall promptly upon receipt of
such notice return (i) the Purchase Price (together with any interest earned
thereon through such date) to the Purchaser, (ii) the Debentures and Warrants to
the Company and (iii) the Ancillary Closing Documents to the party that
delivered the same.
d. If the Escrow Agent, prior to delivering or causing to be
delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold the Consideration
until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Purchaser and the Company, directing distribution of
such Consideration, or (ii) a certified copy of a judgment, order or decree of a
court of competent jurisdiction, final beyond the right of appeal, directing the
Escrow Agent to distribute said Consideration to any party hereto or as such
judgment, order or decree shall otherwise specify (including any
<PAGE>
such order directing the Escrow Agent to deposit the Consideration into the
court rendering such order, pending determination of any dispute between any of
the parties). In addition, the Escrow Agent shall have the right to deposit any
of the Consideration with a court of competent jurisdiction pursuant to Section
1006 of the New York Civil Practice Law and Rules without liability to any party
if said dispute is not resolved within 30 days of receipt of any such notice of
objection, dispute or otherwise.
3. Duties and Obligations of the Escrow Agent.
a. The parties hereto agree that the duties and obligations of
the Escrow Agent are only such as are herein specifically provided and no other.
The Escrow Agent's duties are as a depositary only, and the Escrow Agent shall
incur no liability whatsoever, except as a direct result of its willful
misconduct.
b. The Escrow Agent may consult with counsel of its choice,
and shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the terms
of any other agreement to which the Purchaser and the Company are parties,
whether or not it has knowledge thereof, and the Escrow Agent shall not in any
way be required to determine whether or not any other agreement has been
complied with by the Purchaser and the Company, or any other party thereto. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement unless the same shall
be in writing and signed by the Purchaser and the Company, and agreed to in
writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or demands
which, in its opinion, are in conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely, all Considerations held in escrow until it shall jointly be
directed otherwise in writing by the Purchaser and the Company or by a final
judgment of a court of competent jurisdiction.
e. The Escrow Agent shall be fully protected in relying upon
any written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
<PAGE>
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
f. The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
g. If the Escrow Agent at any time, in its sole discretion,
deems it necessary or advisable to relinquish custody of the Consideration, it
may do so by giving five (5) days written notice to the parties of its intention
and thereafter delivering the consideration to any other escrow agent mutually
agreeable to the Purchaser and the Company and, if no such escrow agent shall be
selected within three days of the Escrow Agent's notification to the Purchaser
and the Company of its desire to so relinquish custody of the Consideration,
then the Escrow Agent may do so by delivering the Consideration (a) to any bank
or trust company in the Borough of Manhattan, City and State of New York, which
is willing to act as escrow agent thereunder in place and instead of the Escrow
Agent, or (b) to the clerk or other proper officer of a court of competent
jurisdiction as may be permitted by law within the State, County and City of New
York. The fee of any such bank or trust company or court officer shall be borne
one-half by the Purchaser and one-half by the Company. Upon such delivery, the
Escrow Agent shall be discharged from any and all responsibility or liability
with respect to the Consideration and the Company and the Purchaser shall
promptly pay to the Escrow Agent all monies which may be owed it for its
services hereunder, including, but not limited to, reimbursement of its
out-of-pocket expenses pursuant to paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on the
Escrow Agent's part to the Purchaser or the Company, nor disqualify the Escrow
Agent from representing either party hereto in any dispute with the other,
including any dispute with respect to the Consideration. The Company understands
that the Escrow Agent has acted and will continue to act as counsel to the
Purchaser.
i. The reasonable out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including, but
not limited to, all counsel and advisors' and agents' fees and all taxes or
other governmental charges, if any, shall be paid by one-half by the Purchaser
and one-half by the Company.
<PAGE>
4. Indemnification. The Purchaser and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent, its employees, partners,
members and representatives harmless from and against any and all losses,
damages, taxes, liabilities and expenses that may be incurred, directly or
indirectly, by the Escrow Agent and/or any such person, arising out of or in
connection with its acceptance of appointment as the Escrow Agent hereunder
and/or the performance of its duties pursuant to this Agreement, including, but
not limited to, all legal costs and expenses of the Escrow Agent and any such
person incurred defending itself against any claim or liability in connection
with its performance hereunder and the costs of recovery of amounts pursuant to
this Section 4.
5. Miscellaneous.
a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
the Purchaser): Reston, VA 20191
<PAGE>
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
If to the Escrow Agent Robinson Silverman Pearce Aronsohn &
(the Escrow Agent shall Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in
accordance with the law of the State of New York applicable to contracts entered
into and performed entirely within New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
EUROTECH, LTD.
By:
------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
------------------------------
Name:
Title:
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By:
------------------------------
A Member of the Firm
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 23, 1998, between Eurotech, Ltd., a company
organized under the laws of the District of Columbia (the "Company"), and JNC
Opportunity Fund Ltd., a Cayman Islands corporation (the "Purchaser").
WHEREAS, the Company and the Purchaser are parties to a Registration
Rights Agreement, dated as of November 27, 1997 (the "Initial Agreement"),
pursuant to which the Company granted to the Purchaser certain registration
rights in respect of the shares of Common Stock issuable upon conversion of, and
as payment of interest on, the Company's 8% Convertible Debentures due November
27, 2000 (the "Initial Debentures") and shares of Common Stock issuable upon
exercise of a Common Stock purchase warrant issued to the Purchaser on November
27, 1997 (the "Initial Warrant" and, together with the shares of Common Stock
issuable upon conversion of the Initial Debenture, the "Initial Registrable
Securities");
WHEREAS, pursuant to the Initial Agreement, the Company filed with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-1 promulgated under the Securities Act (as defined below)
(Registration Statement No. 333-26673), registering the resale of the Initial
Registrable Securities (the "Initial Registration Statement"); and
WHEREAS, concurrently herewith, the Company and the Purchaser are
entering into a Convertible Debenture Purchase Agreement ("Purchase Agreement"),
pursuant to which, among other things, the Company is issuing Debentures and a
Warrant (each as defined below) to the Purchaser.
NOW, THEREFORE, the Company and the Purchaser hereby agree as
follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
<PAGE>
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.00025
per share.
"Debentures" means Company's 8% Convertible Debentures due February
23, 2001 issued to the Purchaser pursuant to the Purchase Agreement.
"Effectiveness Date" means March 15, 1998.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means March 2, 1998.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Initial Agreement" shall have the meaning set forth in the recitals
to this Agreement.
<PAGE>
"Initial Registrable Securities" shall have the meaning set forth in
the recitals to this Agreement.
"Initial Registration Statement" shall have the meaning set forth in
the recitals to this Agreement.
"Initial Warrant" shall have the meaning set forth in the recitals
to this Agreement.
"Losses" shall have the meaning set forth in Section 5(a).
"New York Courts" shall have the meaning set forth in Section 7(j).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Purchase Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Registrable Securities" means the shares of Common Stock issuable
upon (a) conversion in full of the Debentures, (b) exercise of the Warrant and
(c) payment of interest in respect of the Debentures; provided, however that in
order to account for the fact that the number of shares of Common Stock that are
issuable upon conversion of Debentures is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
contemplated by clause (a) of this definition shall be deemed to include not
less than 200% of the number of shares of Common Stock into which the Debentures
are convertible, assuming
<PAGE>
such conversion occurred on the Closing Date or the Filing Date (whichever date
yields a lower Conversion Price, as such term is defined in the Debentures). The
initial Registration Statement shall cover at least such number of shares of
Common Stock as equals the sum of (x) 200% of the number of shares of Common
Stock into which the Debentures are convertible, assuming such conversion
occurred on the Closing Date or the Filing Date (whichever date yields a lower
Conversion Price), (y) interest thereon and (z) 60,000 shares of Common Stock in
respect of the Warrant. The Company shall be required to file additional
Registration Statements to the extent the actual number of shares of Common
Stock into which Debentures are convertible (together with interest thereon) and
the Warrant are exercisable exceeds the number of shares of Common Stock
initially registered in accordance with the immediately prior sentence. The
Company shall have 10 Business Days to file such additional Registration
Statement after notice of the requirement thereof, which the Holders may give at
such time when the number of shares of Common Stock as are issuable upon
conversion of Debentures exceeds 180% of the number of shares of Common Stock
into which Debentures are convertible, assuming such conversion occurred on the
Closing Date or the Filing Date (whichever yields a lower Conversion Price). In
the event that the filing of any such additional registration statements
requires the preparation of updated financial statements, (1) the Company shall
use its best efforts to cause such financial statements to be prepared as soon
as possible and (2) the 10 Business Day period specified in the immediately
prior sentence shall be extended to up to 30 Business Days or such lesser number
of days as the Company shall, using its best efforts, require for such
preparation and filing.
"Registration Statement" means the amendment to the Initial
Registration Statement contemplated by Section 2(a) (covering the Initial
Registrable Securities and such number of Registrable Securities and any
additional Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement, provided,
however, that in the event the Initial Registration Statement has been declared
effective by the Commission on or prior to the Filing Date, the term
"Registration Statement" shall mean the registration statement contemplated by
Section 2(a) (covering such number of Registrable Securities and any additional
Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material
<PAGE>
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" shall have the meaning set forth in the recitals to
this Agreement.
"Special Counsel" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrant" means the Common Stock purchase warrant issued to the
Purchaser pursuant to the Purchase Agreement on the Closing Date.
2. Amendment to Shelf Registration/New Registration Statement
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a pre-effective amendment to the Initial Registration
Statement registering the resale by the holders of Registrable Securities all of
the Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415, provided, however, that in the event the Initial
Registration Statement has been declared effective by the Commission on or prior
to the Filing Date, the Company shall prepare and file with the Commission a
Registration Statement registering the resale by the holders of Registrable
Securities all of the Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-1 (or, if the Company is not permitted to register the resale of the
Registrable Securities on Form S-1, the Registration Statement shall be on such
other appropriate form in accordance herewith as the Holders of a majority in
interest of the Registrable Securities may consent). The Company shall use its
best efforts to cause the Registration
<PAGE>
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the Effectiveness
Date, and shall use its best efforts to keep such Registration Statement
continuously effective under the Securities Act until the date which is three
years after the date that such Registration Statement is declared effective by
the Commission or such earlier date when all Registrable Securities covered by
such Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period"); provided, however, that the Company shall not be deemed
to have used its best efforts to keep the Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that would
result in the Holders not being able to sell the Registrable Securities covered
by such Registration Statement during the Effectiveness Period, unless such
action is required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the Commission has
not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
<PAGE>
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement (and any additional Registration Statements as
may be required) in accordance with Section 2(a), and cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than two (2) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act (subject to customary
confidentiality arrangements in the event that any such investigation requests
the release of material non-public information concerning the Company, its
business or operations). The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities, their Special Counsel, or
any managing underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by
<PAGE>
the Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
<PAGE>
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent reasonably requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any
<PAGE>
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) In the case of an Underwritten Offering, enter into such
customary agreements on terms which are customary in connection with such
transactions (including an underwriting agreement in form, scope and substance
as is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in
<PAGE>
opinions requested in Underwritten Offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) immediately
prior to the effectiveness of the Registration Statement or at the time of
delivery of any Registrable Securities sold pursuant thereto (at the option of
the underwriters), obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each Person and in such form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 7 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering; and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a
<PAGE>
source other than the Company and such source is not known by such Person to be
bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities
<PAGE>
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(j), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with The Nasdaq Stock Market, Inc. and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
underwriters or Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
<PAGE>
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, settlements, judgments, costs (including, without
limitation, costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any
<PAGE>
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
<PAGE>
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted
<PAGE>
in such Losses as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), the Purchaser shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Purchaser have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific
<PAGE>
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
Schedule 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Registrable Securities such holder requests to be registered. No right to
registration of Registrable Securities under this Section shall be construed to
limit any registration otherwise required hereunder.
<PAGE>
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Eurotech, Ltd.
1200 Prospect Street, Suite 425
LaJolla, California 92037
Facsimile No.: (619) 551-6840
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
<PAGE>
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
the Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer
books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of the Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchaser to any assignee or transferee of all
or a portion of the Debentures, the Warrant and other Common Stock warrants
referenced in the definition of Registrable Securities or Registrable Securities
without the consent of the Company if: (i) the Purchaser agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to such registration rights are
being transferred or assigned, (iii) at or
<PAGE>
before the time the Company receives the written notice contemplated by clause
(ii) of this Section, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions of this Agreement, and (iv) such
transfer shall have been made in accordance with the applicable requirements of
the Purchase Agreement. The rights to assignment shall apply to the Purchaser's
(and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court sitting in the Borough of Manhattan, the state and federal courts sitting
in the City of New York or any federal court sitting in the Borough of Manhattan
in the City of New York (collectively, the "New York Courts") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such Proceeding brought in
any New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by receiving a copy thereof sent to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set
<PAGE>
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
EUROTECH, LTD.
By:
------------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
------------------------------
Name:
Title:
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH
IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
FEBRUARY 23, 1998, BETWEEN EUROTECH, LTD. (THE "COMPANY") AND THE ORIGINAL
HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
No. 1 U.S. $250,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE FEBRUARY 23, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1200 Prospect Street, Suite
425, LaJolla, California 92037 (the "Company"), designated as its 8% Convertible
Debentures, due February 23, 2001 (the "Debentures"), in an aggregate principal
amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC OPPORTUNITY FUND
LTD., or registered assigns (the "Holder"), the principal sum of Two Hundred
Fifty Thousand Dollars ($250,000), on or prior to February 23, 2001 or such
earlier date as the Debentures are required to be repaid as provided hereunder
(the "Maturity Date") and to pay interest to the Holder on the principal sum at
the rate of 8% per annum, payable quarterly in arrears commencing March 31,
1998, but in no event later than the earlier to occur of a Conversion Date (as
defined in Section 4(a)(ii)) for such principal amount or the Maturity Date.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Interest shall be calculated on the basis of a 360-day year and for the
actual number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
<PAGE>
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; (iii) such shares are not actively traded on the OTC
Bulletin Board (listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")); or (iv) the issuance of such shares would result
in the recipient thereof beneficially owning more than 4.999% of the issued and
outstanding shares of Common Stock as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. The Common Stock shall be
deemed to be "actively traded" on the OTC Bulletin Board under this Debenture if
(a) no less than $400,000 of the Common Stock trades on the OTC Bulletin Board
in any one week and (b) there are no fewer than six (6) market makers actively
making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to
<PAGE>
such Holder. No service charge will be made for such registration of transfer or
exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which notice
of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
<PAGE>
proceeding is entered; or the Company or any subsidiary thereof suffers
any appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a period
of 60 days; or the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to pay,
or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or the Company or any subsidiary
thereof shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 90th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the
<PAGE>
expiration of thirty (30) days from the Event Date (as hereinafter
defined) relating thereto (other than an Event resulting from a failure of
an Underlying Securities Registration Statement to be declared effective
by the Commission on or prior to the Effectiveness Date (as defined in the
Registration Rights Agreement).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. The Holder need
not provide and the Company hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder in whole or in part at any time and
from time to time upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the Commission and
(2) the 90th day after the Original Issue Date, and prior to the close of
business on the Maturity Date. The number of shares of Common Stock as shall be
issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below), each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder Conversion Notice shall
specify the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that such Holder
Conversion Notice is deemed delivered hereunder. Subject to Section 4(b) hereof
and Section 3.8 of the Purchase
<PAGE>
Agreement, each Holder Conversion Notice, once given, shall be irrevocable. If
the Holder is converting less than all of the principal amount represented by
the Debenture(s) tendered by the Holder with the Holder Conversion Notice, or if
a conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set forth in
Section 4(b)) a new Debenture for such principal amount as has not been
converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price (which for such purpose
shall not be subject to the Floor (as defined in Section 6)) at the option of
the Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of issuing any press
release or other public statement relating to such conversion or at any time
when the Underlying Securities Registration Statement is not then effective or
shares of Common Stock are not actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion is hereinafter
referred to as the "Company Conversion Date"). Upon its receipt of a Company
Conversion Notice, the Holder shall surrender the principal amount of Debentures
subject thereto to the office of the Company or of any transfer agent of the
Common Stock. If the Company is converting less than the aggregate principal
amount of all Debentures, the Company shall, upon conversion of the principal
amount of Debentures subject to such Company Conversion Notice and receipt of
the Debentures surrendered for conversion, deliver to the Holder, a replacement
Debenture for such principal amount of Debentures as have not been converted in
the manner and within the time period set forth in Section 4(b). Each of a
Holder Conversion Notice and a Company Conversion Notice is sometimes referred
to herein as a "Conversion Notice," and each of a Holder Conversion Date and a
Company Conversion Date is sometimes referred to herein as a "Conversion Date."
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by
<PAGE>
Section 3.1(b) of the Purchase Agreement) representing the number of shares of
the Common Stock being acquired upon the conversion of Debentures (subject to
reduction pursuant to Section 3.8 of the Purchase Agreement), (ii) Debentures in
a principal amount equal to the principal amount of Debentures not converted;
(iii) a bank check in the amount of all accrued and unpaid interest (if the
Company has elected and is permitted hereunder to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion and (iv) if the
Company has elected to pay accrued interest in shares of the Common Stock,
certificates, which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement), representing such number of shares of the Common Stock as equals
such interest divided by the Conversion Price calculated on the Conversion Date;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until Debentures are delivered for conversion to
the Company or the Holder notifies the Company that such Debenture has been
mutilated, lost, stolen or destroyed and complies with Section 9 hereof. If in
the case of any Conversion Notice such certificate or certificates, including
for purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, are not
delivered to or as directed by the Holder by the third Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion (whether subject to a Holder or a Company
Conversion Notice), in which event the Company shall immediately return the
Debentures tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, prior to the fourth
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $1,500 for each day thereafter
until the Company delivers such certificates (such amount shall also be due for
each Trading Day after the date that the Holder may rescind such conversion
until such date as the Holder shall have received the return of the principal
amount of Debentures relating to such rescission). If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this Section
prior to the 20th day after the Conversion Date, the Company shall, upon notice
from the Holder, prepay such portion of the aggregate of the principal amount of
Debentures then held by such Holder, as requested by such Holder, for the
Mandatory Prepayment Amount, in cash. If any portion of the Mandatory Prepayment
Amount pursuant to this Section is not paid within seven days after notice
therefor is deemed delivered hereunder, the Company will pay interest on the
Mandatory Prepayment Amount at a rate of 15% per annum (to accrue daily), in
<PAGE>
cash to such Holder, accruing from such seventh day until the Mandatory
Prepayment Amount, plus all accrued interest thereon, is paid in full.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (A) $2.62 (the "Initial
Conversion Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price calculated on the Conversion Date; provided,
that, except as otherwise specifically set fort herein, the Conversion Price
shall not be less than the Floor (as defined in Section 6). Notwithstanding the
foregoing, the Floor shall not apply to any conversions pursuant to Section
4(a)(ii), to any adjustments of the Conversion Price pursuant to the immediately
following sentence or to adjustments to the Initial Conversion Price as a result
of the provisions of Section 4(c)(ii)-(v). If (a) an Underlying Securities
Registration Statement is not filed on or prior to the Filing Date (as defined
in the Registration Rights Agreement) (if the Company files such Underlying
Securities Registration Statement without affording the Holder the opportunity
to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)) or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) Business Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) the Underlying Securities Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within ten (10) days, or (e) trading in the Common
Stock shall fail to be actively traded on the OTC Bulletin Board or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for any reason for more than three (3) Trading Days, or (f) the
conversion rights of the Holder are suspended for any reason or if the Holder is
not permitted to resell Registrable Securities under the Underlying Securities
Registration Statement, or (g) an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission within
ten (10) days of the Commission's notifying the Company that such amendment is
required in order for the Underlying Securities Registration Statement to be
declared effective (any such failure being referred to as an "Event," and for
purposes of clauses (a), (c) and (f) the date on
<PAGE>
which such Event occurs, or for purposes of clause (b) the date on which such
five (5) days period is exceeded, or for purposes of clauses (d) and (g) the
date which such ten (10) day period is exceeded, or for purposes of clause (e)
the date on which such three (3) Trading Day period is exceeded, being referred
to as "Event Date"), the Company shall pay, in cash, as liquidated damages and
not as a penalty, on the Event Date and on the first day of each month
thereafter until the triggering Event is cured, 1.0% of the aggregate principal
amount of Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) entitling them to subscribe for or purchase shares of
the Common Stock at a price per share less than the Per Share Market Value of
the Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of the Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price
<PAGE>
pursuant to this Section, if any such right or warrant shall expire and shall
not have been exercised, the Initial Conversion Price shall immediately upon
such expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its
<PAGE>
option, (A) convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture could have been
converted immediately prior to such reclassification or share exchange would
have been entitled or (B) require the Company to prepay, from funds legally
available therefor at the time of such prepayment, the aggregate of its
outstanding principal amount of Debentures, plus all interest and other amounts
due and payable thereon, at a price determined in accordance with Section 3(b).
The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
<PAGE>
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as it shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is entitled
to convert the Debentures during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
<PAGE>
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, including, without limitation, any Conversion Notice,
shall be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at 1200 Prospect Street, Suite 425,
LaJolla, California 92037 (facsimile number (619) 551- 6840), attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder of
the Debentures at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by nationally
<PAGE>
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the Company
shall be in cash and shall be free of any claim of subordination. The Holder
shall have the right to tender, and the Company shall honor, Conversion Notices
delivered prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Prepayment Notice for such Debentures (such
date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for conversion,
or (ii) invalidate ab initio such optional redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option (i) above, the
Company shall, within three (3) Trading Days of the date such election is deemed
delivered hereunder, deliver to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of notice of such
election, return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company fails
to deliver the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount within four (4) Trading Days of the date that such
election is deemed delivered hereunder, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty,
<PAGE>
$1,500 per day until the Company delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the common stock, $.00025 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Floor" initially means $1.625, provided, that, the Floor shall be
reset if at any time after the Original Issue Date the Average Price calculated
on any date shall be equal to or less than $1.625 for 30 consecutive Trading
Days. In such event, the Floor shall be reset to 75% of the average Per Share
Market Value for the ten (10) Trading Days commencing the 21st day of the 30-day
period contemplated by the immediately preceding sentence.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price
<PAGE>
on (x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Original Issue Date" shall mean the date of the first issuance of
any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
<PAGE>
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means an amended
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Initial
Registrable Securities (as defined in the Registration Rights Agreement ) and
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder, provided, however, that in the event that the Initial Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective by the Commission on or prior to the Filing Date (as defined in the
Registration Rights Agreement), the term "Underlying Securities Registration
Statement" shall mean a registration statement meeting the requirements set
forth in the Registration Rights Agreement, covering the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the
<PAGE>
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. The Company hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by receiving a copy thereof sent to the Company
at the address in effect for notices to it under this instrument and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if such next succeeding Business Day falls in
the next calendar month, the preceding Business Day in the appropriate calendar
month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
EUROTECH, LTD.
By:
------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. 1 into shares of Common
Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH, LTD. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Number of shares of Common Stock
to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture No. 1 into shares of Common Stock, par
value $.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures
to be Converted
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Amount of Interest due on the Principal Amount of
Debentures to be Converted
--------------------------------------------------
Number of Shares of Common Stock outstanding at
close of trading on Conversion Date
--------------------------------------------------
Signature
--------------------------------------------------
Name:
--------------------------------------------------
Address:
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EUROTECH, LTD.
WARRANT
Warrant No. 3 Dated February 23, 1998
EUROTECH, LTD., a corporation organized and existing under the laws of the
District of Columbia (the "Company"), hereby certifies that, for value received,
JNC Opportunity Fund Ltd., or its registered assigns ("Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company up to a total
of 60,000 shares of Common Stock, $.00025 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $2.30 per share (as adjusted
from time to time as provided in Section 8, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
February 23, 2000 (the "Expiration Date"), and subject to the following terms
and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer,
<PAGE>
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the
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<PAGE>
number of Warrant Shares so indicated by the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice to each
of the Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention
Eric L. Cohen, notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder pursuant
to this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
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<PAGE>
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this
-4-
<PAGE>
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
-5-
<PAGE>
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the
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<PAGE>
Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
available funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless
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<PAGE>
exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y (A-B)/A where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 1200 Prospect Street, Suite
425, LaJolla, California 92037, or to Facsimile No.: (619) 551-6840 Attention:
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
-8-
<PAGE>
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EUROTECH, LTD.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To EUROTECH, LTD.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.00025 par value per share, of
Eurotech, Ltd. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
------------------ ----
(Print)
-------------------------------
(By:)
---------------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Eurotech, Ltd. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Eurotech, Ltd. with full power of
substitution in the premises.
Dated:
,
- --------------- ----
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
[Letterhead of Tabb, Conigliaro & McGann, P.C.]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Eurotech, Ltd. on Form
S-1 of our report dated March 12, 1998 appearing in the Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Registration Statement.
/s/ Tabb, Conigliaro & McGann, P.C.
TABB, CONIGLIARO & MCGANN, P.C.
New York, New York
March 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EUROTECH,
LTD. BALANCE SHEET AS OF DECEMBER 31, 1997 AND STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 618
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 645
<PP&E> 17
<DEPRECIATION> 6
<TOTAL-ASSETS> 952
<CURRENT-LIABILITIES> 2,802
<BONDS> 3,000
0
0
<COMMON> 5
<OTHER-SE> (4,955)
<TOTAL-LIABILITY-AND-EQUITY> 952
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,779
<INCOME-PRETAX> (12,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,441)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
