As filed with the Securities and Exchange Commission on February 3, 2000
Registration No. 333-26673
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
------------------------------
EUROTECH, LTD.
(Exact name of registrant as specified in its charter)
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C
District of Columbia 873-8731 33-066435
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.
</TABLE>
1216 16th Street, N.W., Washington, DC 20036
(202) 466-5448
(Address and telephone number of principal executive offices)
-------------------------------
Don V. Hahnfeldt Copies of communications to:
President and Chief Executive Officer Max A. Stolper, Esq.
1216 16th Street, N.W. Leonard Hurt Frost & Lilly PC
Washington, DC 20036 1701 K Street, N.W.
(202) 466-5448 Suite 300
(Name, address and telephone Washington, DC 20006-1522
number of agent for service) (202) 223-2500
------------------------------
Approximate dates of proposed sales to the public: From time to time after
this Post-Effective Amendment to the Registration Statement becomes effective
-------------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuing 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. |_|
If this Form is a post-effective amendment filed pursuant to Rule 426(d)
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. |_|.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<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 Outside Front Cover of Prospectus ..... Facing page of 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
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;
Certain Recent Transactions;
Our Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Our Business;
Market for Our Common Stock;
Management; Transactions with
Major Shareholders, Directors
and Officers; 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
- ----------
* Not Applicable
<PAGE>
11,867,626 SHARES OF COMMON STOCK
OF
EUROTECH, LTD.
This prospectus relates to the possible resale of shares of our common
stock by some of our existing shareholders. We will not receive any proceeds
from the sale of these shares.
Our common stock is traded on the NASDAQ Bulletin Board under the symbol
"EURO." The last sale price for our common stock, as reported on the Bulletin
Board on January 31, 2000, was $2.625.
We will bear all expenses, other than selling commissions and fees, in
connection with the registration and sale of the shares being offered by this
prospectus.
----------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" STARTING ON PAGE 6.
Some of the Risks you face in investing in our common stock are:
o We have a limited operating history and have not generated revenues
to date.
o We have a high level of debt and a significant accumulated
Stockholders' deficit.
o Our marketing and sales program is highly dependent on receiving
orders from or negotiating and entering into agreements with third
parties. To date, we have not received any orders for product for
which we will be paid or entered into any revenue-generating
agreements with third parties.
o Because of our limited operating history and because we have not so
far been paid for product or entered into revenue-generating
agreements, we cannot yet assure you that our technologies and
products will be accepted in the marketplace.
o We will not receive the proceeds from the sale of these shares.
----------------------
NEITHERTHE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OUR SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE.
IT'S ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.
----------------------
February 3, 2000
The information in this prospectus might change. This prospectus isn't an offer
to sell our common stock - and doesn't solicit offers to buy - in any state
where the offer or sale isn't permitted.
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about EUROTECH and this
prospectus. It likely does not contain all the information that is important to
you. For a more complete understanding, we encourage you to read the entire
document and the documents referred to in this prospectus, including the
financial statements and related notes.
In this prospectus, the words "EUROTECH," "Company," "we," "our," and "us"
refer to EUROTECH, Ltd.
The Company
EUROTECH is a development stage technology, transfer, holding, marketing
and management company formed to commercialize new, existing but previously
unrecognized or classified technologies. Our current emphasis is on technologies
developed by prominent research institutes and individual researchers in the
former Soviet Union and Israel.
Since our formation, we have acquired selected technologies through equity
investments, assignments and licensing arrangements. While we intend to continue
identifying, monitoring, reviewing and assessing new technologies, our primary
focus will be on commercializing EKOR and the other technologies described in
the "Our Business" section of this prospectus. EKOR is a silicon-based material
for the conservation and containment of ecologically hazardous radioactive
materials.
Currently, we are devoting our business focus and resources primarily to
the marketing of our technologies. To that end, we have entered into discussions
and, in some cases, written letters of intent or other agreements in principle
with a number of prominent potential users of the technologies. Our objective is
to obtain orders for the delivery of product, in which cases we would enter into
suitable arrangement for manufacture and installation, or, alternatively, to
enter into licensing or joint venture, marketing or other agreements with
potential users. To date, we have not generated any revenues from our operations
and have not yet received any orders for products, for which we will be paid or
entered into any definitive revenue-generating agreements for the sale or
licensing of any of our technologies.
Our executive office is located at 1216 16th Street, N.W., Suite 200
Washington, D.C. 20036.
The Offering
Capital Stock Offered by the
Selling Shareholders.............. 11,916,942 shares of common stock.
Capital Stock Outstanding
Before Offering (1)............... 36,948,139 shares of common stock.
Capital Stock Outstanding
After Offering (2)................ 44,661,433 shares of common stock.
Use of Proceeds..................... We will not receive any proceeds from
the sale of any of these shares.
Risk Factors........................ The common stock offered by this
Prospectus is speculative and very
risky. You should carefully consider
the risk factors contained in this
prospectus before investing. See the
Risk Factors section for a more
complete discussion of the risks
associated with investment in Eurotech
stock.
(for notes see next page)
2
<PAGE>
(1) Common shares outstanding as of January 31, 2000, 36,948,139
Add: Common shares issued to Kurchatov Research
Holdings Ltd. as part of transaction to relating
to our rights to EKOR 2,000,000
Add: Common shares issued to settle claims of Spinneret
Financial Systems, Inc. assumed as part the EKOR
transaction with Kurchatov Research Holdings Ltd. 1,000,000
Total Shares Outstanding Before Offering 39,948,139
----------
(2) Total common shares outstanding before offering 39,948,139
Add: Common shares registered for exercise of warrants. 1,396,250
Add: Common shares registered for holders of convertible
debentures, for future Debt & Interest conversations 4,290,000
Add: Common Shares Registered for Future Sales under Equity
Line of Credit 1,200,000
Total Common Shares Outstanding After Offering 46,834,389
- -------------------
The above table does not include the following: 1,250,000 shares under the 1995
and 1999 Option Plan, 1,400,000 shares issuable upon exercise of warrants over 5
years to Directors and our Chief Executive Officer.
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1997 and 1998 and for the
years ended December 31, 1996, 1997 and 1998 are derived from and should be read
in conjunction with our audited financial statements and notes thereto included
elsewhere in the prospectus. The selected financial data for the nine months
ended September 30, 1999 are derived from and should be read in conjunctions
with our unaudited financial statements included elsewhere in the prospectus. In
the opinion of management, the unaudited financial statements include all
material adjustments, consisting of only normal, recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for the period. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
appearing elsewhere in the prospectus.
3
<PAGE>
Statement of Operations Data
<TABLE>
<CAPTION>
For the Nine
Months
For the Years Ended December 31, Ended
September 30, 1999
1996 1997 1998 (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 0 $ 0 $ 0 $ 0
OPERATING EXPENSES:
Research and development 1,170,782 1,007,671 1,039,591 690,190
Consulting fees 277,353 553,295 293,323 403,233
Compensatory element of stock
issuance pursuant to
consulting agreements 1,209,477 839,550 422,200 1,267,828
Other general and administrative
expenses 547,447 1,262,067 1,263,174 843,736
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 3,205,059 3,662,583 3,018,288 3,204,987
------------ ------------ ------------ ------------
OPERATING LOSS (3,205,059) (3,662,583) (3,018,288) (3,204,987)
------------ ------------ ------------ ------------
OTHER EXPENSES:
Interest expense 43,422 270,740 552,971 522,760
Amortization of deferred
and unearned
financing costs 228,502 8,507,919 4,242,884 292,413
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES: 271,924 8,778,659 4,795,855 815,173
------------ ------------ ------------ ------------
NET LOSS $ (3,476,983) $(12,441,242) $ (7,814,143) $ (4,020,160)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.23) $ (0.71) $ (0.40) $ (0.18)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES USED IN BASIC AND
DILUTED LOSS PER SHARE 14,808,000 17,581,711 19,323,098 22,333,601
============ ============ ============ ============
</TABLE>
For the
Period from
Inception
May 6, 1995 to
September 30,1999
(unaudited)
REVENUES $ 0
------------
OPERATING EXPENSES:
Research and development 4,120,295
Consulting fees 1,794,104
Compensatory element of stock issuance pursuant
to consulting agreements 3,739,055
Other general and administrative expenses 3,950,689
------------
TOTAL OPERATING EXPENSES 13,604,143
------------
OPERATING LOSS (13,604,143)
------------
OTHER EXPENSES:
Interest expense 1,389,893
Amortization of deferred and unearned financing
costs 13,271,718
------------
TOTAL OTHER EXPENSES: 14,661,611
------------
NET LOSS $ 28,265,754
4
<PAGE>
Balance Sheet Data
<TABLE>
<CAPTION>
At December 31 At September 30
-------------------------------------------- (unaudited)
1996 1997 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Working Capital (deficiency) $ (1,809,237) $ (2,156,753) $ (1,933,751) $ (3,318,151)
Total assets $ 617,492 $ 952,243 $ 76,403 $ 5,220,026
Total liabilities $ 2,292,316 $ 5,801,966
$ 8,911,809 $ 10,296,251
Deficit accumulated during the
development stage $ (3,990,209) $(16,431,451) $(24,245,594) $(28,265,754)
Total stockholders' (deficiency) $ (1,674,824) $ (4,849,723) $ (8,835,406) $ (5,076,225)
</TABLE>
RISK FACTORS
Please consider carefully the following risk factors before deciding to
invest in our common stock:
We have a limited operating history and incurred significant losses through
1999.
Our limited operations to date have consisted primarily of identifying,
monitoring, reviewing and assessing technologies for their commercial
applicability and then attempting to market them. We are subject to all of the
business risks associated with a new enterprise, including,
o risks of unforeseen capital requirements,
o failure of the market to accept our products and technologies,
o competitive disadvantages as against larger and more established
companies,
o the fact that we have incurred significant operating losses through
the end of 1999 and may incur further losses during the current
year,
o our not having so far obtained any orders for product for which we
will be paid or to enter into revenue-producing contracts with third
parties,
o possible financial failure of any projects on which we and our
potential working partners may embark.
We have had no revenues to date. While our management believes that we
will recognize revenues during 2000, based on expressions of interest from third
parties to order product from us or to acquire licenses and enter into
agreements to use some of our technologies, there can be no assurance as to when
or whether we will be able to commercialize our products and technologies and
realize any revenues. Our products and technologies have never been utilized on
a large-scale commercial basis. Our ability to operate the business successfully
will depend on a variety of factors, many of which are outside our control,
including:
o competition,
o cost and availability of raw material supplies,
o changes in governmental (including foreign governmental) initiatives
and requirements,
o changes in domestic and foreign regulatory requirements, and
o costs associated with equipment development, repair and maintenance.
5
<PAGE>
Our independent public accountants and the notes to our financial
statements included in this prospectus stated that at December 31, 1998 the
continuation of our business as a going concern depended on, among other things:
o obtaining of additional funds to complete the commercialization of
our present technologies,
o the generation of significant future revenues and income, and
o market acceptance of our technologies.
At the end of 1999 we succeeded in achieving a significant increase in our
resources on terms that we describe elsewhere in this prospectus. It is
nevertheless possible that we will need still more money to continue in
business. Raising additional money, if achievable at all, may require the
issuance of additional equity securities and thus further dilute your percentage
ownership interest in us.
Our future capital requirements could vary significantly depending on a
number of factors. Many of these factors are not within our control. These
include the:
o existence and terms of any collaborative, licensing or joint venture
arrangements with third parties;
o ongoing development and testing of our products; and
o existence and terms of agreements for the marketing and sale of our
technologies.
No assurance can be given that the working capital that we have obtained
is going to be enough to tide us over until we bring in some revenues, that we
will be able to bring in revenues soon enough and in sufficient amounts to avoid
the need for more financing, or that, if necessary, we will in the future be
able to arrange more financing on any terms or on terms that it will not cause
further substantial dilution to you. Bringing in revenues depends on our ability
to market our technologies, and we can't assure you that we will be successful
in doing that.
We have a significant level of debt which we may have difficulty paying.
As of September 30, 1999 we had $6,660,000 of long term debt outstanding,
consisting of the unpaid principal amounts of our $3,000,000, $3,000,000 and
$1,000,000 8% Convertible Debentures due March 20, 2000, February 23, 2001 and
July 20, 2001, respectively.
You face substantial dilution of your equity ownership percentage if our
convertible debentures are converted or if the stock issued at year-end is
re-priced.
As part of the convertible debenture financing, we issued warrants to
purchase shares of our common stock. Also, as part of our July 1998 Convertible
Debentures financing, we modified certain of our prior financing agreements to
eliminate the conversion price "floor" attendant to the debentures. Without the
conversion price "floor", we were not able to determine the number of shares the
debentures may be converted into. Accordingly, there existed a possibility of
substantial dilution of your equity ownership upon conversion of all or any
portion of the debentures. For an illustration of that potential dilution,
please see note 11 to the financial statements included in this prospectus. In
January 2000, however, we reached an agreement with the holders of the
convertible debentures pursuant to which we paid all interest arrearages in cash
and the holders agreed to freeze the conversion price at $2.00 per share. As a
result, we are now able to determine precisely the numbers of shares that the
debentures may be converted into. The numbers are shown below in the table under
the caption "Principal and Selling Shareholders."
The agreements pursuant to which, on December 31, 1999, an investor
invested $3,000,000 for 1,882,353 newly issued shares of common stock includes
provisions for "re-pricing" in the event that the market price of our
outstanding shares drops significantly below the price paid by the investor.
Accordingly, there exists the possibility of further dilution of your equity
ownership.
6
<PAGE>
We face substantial risk in attempting to do business in Russia 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, the Russian and Ukrainian political
and economic systems are characterized by a proliferation of political parties.
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 these events could have a materially adverse effect on us.
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, because of lack of experience in
enforcing these provisions, and because of the potential political changes that
could occur in the future, we can't assure you that these protections will be
enforced in the event of an attempted expropriation or nationalization of the
EKOR intellectual property rights would have a material adverse effect on us. In
particular, the EKOR compound technology was developed by the I.V. Kurchatov
Institute ("Kurchatov"), a Russian, scientific research and development
institute, and the Euro-Asian Physical Society ("EAPS"), a professional society
in Russia, which through a series of assignments have, ultimately, assigned the
EKOR compound intellectual property rights to us. 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 us.
Also, the relative political instability of Russia and the Ukraine could
result in major changes in their respective governments, present reform policies
or rejection of the same, any of which may have a material adverse effect on us.
We can't assure you that such developments will not occur either in Russia or
Ukraine.
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 Presidents of Russia and Ukraine have instituted anti-crime and
anti-corruption programs, such measures are of recent origin and have achieved
minimal and uncertain results. We can't assure you 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 us.
In both Ukraine and Russia state-controlled and, more recently,
privately-owned enterprises have often failed to pay full salaries or wages to
their employees, and in some instances have not paid wages or salaries at all
for extended periods of time. Non-payment of workers, 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. Unrest could
have political, social and economic consequences including 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 us.
7
<PAGE>
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, we can't
assure you that they or similar policies will continue to be supported and
pursued, or that, if supported and pursued, they 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. We can't assure
you that either Russia or Ukraine in the future will remain receptive to foreign
investment or market-oriented economies. We can't assure you that the economy of
either country will improve.
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. Our expected near-term revenues substantially depend upon
technology transfer and consulting fees memorialized in written contracts with
Ukrainian and Russian entities. We can't assure you 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.
We can't assure you that we will enter into joint venture agreements, licenses,
collaborative agreements or contracts.
Presently, our primary business strategy is entering into joint ventures
and licenses for the marketing and sale of our Principal Technologies. Also, we
anticipate entering into collaborative agreements that allow us to bid on
nuclear waste and contamination remediation projects. Apart from a teaming
agreement that we have entered into with a major engineering firm to submit a
bid for a nuclear waste containment project at Hanford, Washington, there can be
no assurance that we will enter into any definitive project agreements, licenses
or joint ventures for the marketing and sale of any of our technologies.
Because we have a limited operating history, we don't know if the market will
accept our products and technologies.
Many potential users of the EKOR compound have already committed
substantial resources to other forms of radioactive contaminant remediation and
environmentally clean energy production. Our 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 over alternative products and technologies.. The same can be
said for our other technologies.
8
<PAGE>
We face unknown environmental liability risks and we don't carry environmental
liability insurance.
Our radioactive containment material 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 material. There is
always the risk that such material might be mishandled, or that there might be
equipment or technology failures; the failures could result in significant
claims for personal injury, property damage, and clean-up or remediation. While
we believe that any such claims would be asserted in the first instance against
the actual producer or installer of the material, we cannot be absolutely sure
that such claims might never be asserted against us. Any claims against us could
have a material adverse effect on us. We do not presently carry any
environmental liability insurance, and we may be required to obtain such
insurance in the future in amounts that we can't presently determine. We can't
assure you that such insurance, even if obtained, will provide coverage against
all claims. Also, we can't assure you that claims made against us will not be
greater than our insurance coverage. These types of events could have a material
adverse effect on us.
We are subject to significant competition and the existence or development of
preferred technologies.
The near term, primary markets for our products and technologies are
principally chemical manufacturing and radioactive contamination containment,
remediation and transportation. Mid-term markets are expected to continue in
these industries. We have limited experience in marketing our products and
technologies and, other than in connection with the remediation of Reactor 4 at
the Chernobyl Nuclear Power Plant, intend to rely on licenses and joint ventures
with major international chemical and other companies for the marketing and sale
of our technologies. In contrast, other private and public sector companies and
organizations have substantially greater financial and other resources and
experience than we do. Competition in our business segments is typically based
on product recognition and acceptance, price, and marketing and sales expertise
and resources. Any one or more of our competitors or other enterprises not
presently known to us may develop technologies or products that are superior to
ours, significantly underprice our products and technologies, or more
successfully market existing or new competing products and technologies. To the
extent that our competitors are able to accomplish any of the foregoing, our
ability to compete could be materially and adversely affected.
We can't be sure that resources will be made available to fund remediation of
Reactor 4.
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").
Contractors, as well as the technology to be used in connection with the
remediation project will be determined on the basis of submitted bids, to be
passed on by EBRD and management of the ChNPP. EBRD has appointed a consortium
of Bechtel, Electricite de France and Batelle, to review the technical aspects
and feasibility of the various proposals and bids received. (Batelle is a not
for profit U.S. company which operates Pacific Northwest National Laboratories,
a research entity located in the State of Washington and funded, in part, by the
U.S. Department of Energy.) At this time, we expect EBRD, with funds made
available by the G-7 governments, to provide the financing for the actual
remediation project. We can't assure you that these funds will actually be made
available. In the meantime, the Ukrainian management of ChNPP Reactor 4 is
permitting us to join with them in a demonstration project for the validation of
EKOR application techniques in the containment of fuel containing masses and
radioactive dust suppression.
We can't predict whether our proprietary technology and patents will be
protected.
Of our present technologies, U.S. patent protection has been sought for
the EKOR compound material; for HNIPU, modified polyurethane; for LEM, a
synthetic rubber; and for a powdered metallurgy technology. Foreign patent
protection has been sought for a coatings and a continuous combustion synthesis
technology. On March 23, 1999, EAPS received a patent on the process for the
manufacture of the EKOR compound from the US Patent and Trademark Office, Patent
No. 5,936,000. The Company also owns Patent No. 5,880,203 issued on May 28, 1998
for adhesive composition. We can't assure you that:
o any of our pending or future patent applications will be approved;
9
<PAGE>
o we will develop additional proprietary technology that is
patentable;
o any patents issued to us will provide us with competitive
advantages;
o patents, if obtained, will not be challenged by third parties;
o other people's patents will not have an adverse effect on our
ability to conduct our business; or
o one or more of our technologies will not infringe on the patents of
others.
We can't assure you that others will not independently develop similar or
superior technologies, duplicate any of our processes, or design around any
technology that is patented by us.
It is possible that we may need to acquire licenses to, or to contest the
validity of, issued or pending patents of third parties relating to our
products. There can be no assurance that any license under such patents would be
made available to us on acceptable terms, if at all, or that we would prevail in
any contest involving our patents. We could incur substantial costs in defending
ourselves in suits brought against us on our patents or in bringing patent suits
against other parties.
We also rely on trade secrets, proprietary know-how and technology that we
seek to protect, in part, by confidentiality agreements with our prospective
working partners and collaborators, employees and consultants. We can't assure
you that these agreements will not be breached, that we would have adequate
remedies for any breach, or that our trade secrets and proprietary know-how will
not otherwise become known or be independently discovered by others.
The price of our common stock is influenced by many factors.
Prices for our common stock will be influenced by many factors, including
the depth and liquidity of the market for the common stock, investor perception
of us and our products, and general economic and market conditions. The market
price of our common stock may also be significantly influenced by factors such
as the announcement of new projects by us or our competitors and
quarter-to-quarter variations in our results of operations.
Because our common stock price is below $5.00, brokers dealing in our stock are
subject to additional rules and regulations.
The SEC has adopted regulations which generally define a "penny stock" to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Our common stock is at this time a "penny stock."
As such, it is subject to rules that impose additional sales practice
requirements on broker/dealers who sell our securities to other than established
customers and accredited investors. The "penny stock" rules may restrict the
ability of broker/dealers to sell our common stock and accordingly affect
adversely its liquidity in the hands of investors.
We will not receive any money from the sale of these shares
We will not receive any proceeds from the sale of shares offered by this
prospectus.
We may be subject to substantial regulations
We are not aware of any U.S. or foreign laws or regulations that govern
the marketing, sale or use of any of our 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. Based on the results of tests conducted at
Kurchatov, we believe that the EKOR compound meets applicable U.S. and German
regulatory standards. However, we can't assure you that more stringent standards
may not in the future be adopted, which may materially increase our cost of
licensing and using the EKOR compound, or prevent its use altogether. Moreover,
we can't assure you that any or all jurisdictions in which we presently or in
the future
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conduct our business will not enact laws or adopt regulations that increase the
cost of or prevent us from licensing our other technologies or otherwise doing
business.
We are dependent on key personnel and consultants
We are substantially dependent upon the services of our three full-time
executive employees and our consultants. The loss of the services of an
executive employee or consultant without adequate replacement could have a
material adverse effect upon our business. We do not have "key man" insurance.
USE OF PROCEEDS
The selling shareholders are offering the shares covered by this
prospectus for their own accounts. We will not receive any proceeds from the
sale.
DIVIDENDS
To date we have not declared or paid any dividends on our common stock and
do not anticipate doing so in the foreseeable future.
CAPITALIZATION
The following table sets forth our capitalization (capital deficiency) as
of September 30, 1999. Please read this with the financial statements and notes
to the financial statements appearing elsewhere in this prospectus.
As of
September 30, 1999
(unaudited)
------------
CONVERTIBLE DEBENTURES $ 6,660,000
------------
STOCKHOLDERS' DEFICIENCY:
Preferred stock - $0.001 par value; 1,000,000
shares authorized; -0- shares
issued and outstanding --
Common stock - $.00025 par value;
50,000,000 shares authorized;
30,577,344 shares issued and outstanding
at September 30, 1999 7,644
Additional paid-in capital 23,186,758
Unearned financing costs (4,873)
Deficit accumulated during the development stage (28,265,754)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (5,076,225)
------------
TOTAL CAPITALIZATION $ 1,583,775
============
Under the immediately following caption "Certain Recent Transactions", we
describe the major changes in our capitalization that occurred in the fourth
quarter and at the end of 1999.
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CERTAIN RECENT TRANSACTIONS
Acquisition of Remaining Rights in EKOR
Around the same time as the organization of EUROTECH, our organizers also
created another company called Kurchatov Research Holdings, Ltd. ("KRHL"). In
the organization of KRHL, one of our organizers, Mr. Peter Gulko, a former
director or ours and at one time our President who continues to be one of our
major shareholders and a consultant to our company, was acting on behalf of the
Russian scientists who had developed EKOR and whose continued collaboration in
the implementation of our EKOR program was and continues to be considered by us
as fundamentally important. Accordingly, on August 26, 1996 we entered into an
agreement with KRHL pursuant to which we assigned to KRHL a 50% interest in the
net profits (after deducting development costs and related expenses attributable
to EKOR) derived by us from the sale or licensing of EKOR
Subsequently, KRHL obtained financing from public and private investors
and became involved in other technologies and ventures, in some of which we also
became involved. As a result, our directors became increasingly concerned about
the adverse effects on management and or public investor perception of divided
ownership of our most important technology and conflicting objectives between
the two companies. Two possible solutions were explored: one was for us to
acquire control of KRHL and the other was to reacquire undivided ownership of
the license to EKOR. In the direction of the first approach, we acquired from
Mr. Gulko the scientists' shares, representing an interest of about 40%, in
KRHL, in exchange for which we issued Mr. Gulko, for the benefit of the
scientists, 4,530,000 shares of our own common stock. We were, however, unable
to acquire privately any other KRHL shares. We thus turned to negotiations with
KRHL's Board and influential shareholders with a view to reacquiring undivided
ownership of the EKOR license.
These negotiations resulted in an agreement, dated as of November 30,
1999, pursuant to which KRHL released to us all of its rights in EKOR. For this
release, we
o Released to KRHL all of our interest in the Resealable
Container Systems and TetraPak Container technologies, for
which we had previously received a $150,000 deposit, for
additional consideration of $350,000 payable on or before
September 1, 2000 and a royalty of 6% of related sales;
o Surrender to KRHL the shares in that we had acquired from Mr.
Gulko;
o Issue to KRHL 2,000,000 shares of our own stock;
o Agreed to pay to KRHL a royalty of 2% of gross sales of EKOR
products and services; and
o Assumed KRHL's obligations to Spinneret Financial Systems,
Inc.
Spinneret had previously lent to KRHL $750,000 against convertible notes
on which KRHL was in default and on which interest and penalties had accrued.
Spinneret expressly consented to our assumption of this liability. Subsequently
and before year-end, Spinneret agreed to release us from this liability in
exchange for the issuance to Spinneret of 1,000,000 of our common stock. The
sole owner, director and officer of Spinneret is the brother of our President
and Chief Executive Officer.
Issuance of Shares and Warrants
On December 31, 1999, we issued to Woodward LLC, a Cayman Islands
investment fund, 1,882,353 shares of our common stock, together with a five-year
warrant to purchase an additional 200,000 shares, for a total consideration of
$3,000,000. In connection with that investment, we entered with Woodward a
series of
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agreements, copies of which are filed as an Exhibit to the registration
statement of which this prospectus is a part, which in summary provide for the
following:
o Our shares issued to Woodward are subject to repricing, which
means that if the stock market price of our shares during
certain periods following the effectiveness of this amendment
to our registration statement drops significantly below the
prices prevailing at the time our original shares were issued
to Woodward, we may be required to issue additional shares to
compensate for such decline.
o We are required to register the shares, and the shares
underlying the warrant, issued to Woodward. We are issuing
this prospectus in order, among other things, to comply with
that obligation.
o We have the right, exercisable from time to time within, each
time, to certain limits, to require Woodward to purchase from
us additional shares of common stock for up to a total
consideration of an additional $22,000,000, at prices
determined in accordance with a formula related to market
quotations for our outstanding shares.
In connection with this financing, there was paid to Spinneret a
consulting fee of $150,000,and $18,000 of the investor's counsels fees so that
the net proceeds to us from this financing was $2,832,000.
OUR MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of our financial condition, results of our
operations and liquidity. Please read the following together with our financial
statements and notes contained in this prospectus.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed here.
Our Results of Operations
Comparison of the Nine Months Ended September 30, 1999 and the Nine Months Ended
September 30, 1998
We have had no revenues since inception. Consulting expenses increased
from $930,000 for the nine months ended September 30, 1998 to $1,671,000 for the
nine months ended September 30, 1999. The increase in consulting expense is
principally the result of our increase in non-cash compensation issued to
consultants and our Board of Directors. Other general and administrative
expenses decreased to $842,000 for the nine months ended September 30, 1999,from
$844,000 for the nine months ended September 30, 1998.
Research and development expenses decreased for the nine months ended
September 30, 1999 to $690,000 from $875,000 for the nine months ended September
30, 1998. During 1998, we paid $187,500 to Professor Oleg L. Figovsky, Ph.D., in
connection with four technology purchase agreements. These payments were charged
to research and development expenses during the first quarter of 1998. Research
and development expenditures for the nine months ended September 30, 1999
included $311,000 related to our continuing investment in seven Israeli
technology companies and $379,000 for our German and Russian technologies.
For the nine months ended September 30, 1999 and 1998, we incurred
operating losses of $4,020,000 and $6,922,000, respectively. The losses are
principally due to expenses incurred in the acquisition and development of our
technologies, consulting costs, general and administrative expenses and the lack
of revenues.
Other expenses, consisting of interest expense and amortization of
deferred and unearned financing costs, decreased from $4,275,000 for the nine
months ended September 30, 1998 to $815,000 for the nine months ended September
30, 1999. Amortization of deferred and unearned financing costs decreased from
$3,643,000 for the
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nine months ended September 30, 1998 to $292,000 for the nine months ended
September 30, 1999. The decrease in the amortization of deferred and unearned
financing costs is attributable principally to portions of unearned financing
costs having been fully amortized during 1998.
We expect the financial statements for the full year 1999 to continue to
show significant losses. We have reason to believe that we will begin to earn
revenues in 2000, but such revenues, if recognized, may be offset to a
considerable extent by expenses incurred by us in our continuing efforts to
commercialize, sell and market our technologies, as well as the amortization of
intangible assets.
Comparison of 1998 and 1997
We have had no revenues since our inception. Consulting expenses decreased
from $1,393,000 for the year ended December 31, 1997 to $716,000 for the year
ended December 31, 1998. The decrease in consulting expense is principally the
result of our reduction in the number of consultants engaged during the period
and the reduction in consulting fees paid by issuances of shares of our common
stock. Other general and administrative expenses for 1997 compared to 1998
remained constant.
Research and development expenses increased during 1998 to $1,040,000,
from $1,008,000, during 1997. The increase was principally attributable to (i)
$187,500 paid by us to Professor Oleg L. Figovsky, Ph.D. in connection with the
four technology purchase agreements, dated January 1, 1998 and April 1, 1998,and
(ii) the purchase of technology from Israeli scientists in April of 1998 for
$40,000. Each of these items was charged to research and development expenses
during 1998. Further, we increased our funding for development of EKOR and our
other technologies. During 1998, development expenditures for the Israeli and
Russian technologies aggregated $408,000 and $510,000, respectively, exclusive
of consulting fees reported under operating expenses.
For 1998 and 1997, we have incurred operating losses of $3,018,000 and
$3,663,000, respectively. The losses are principally due to the lack of revenues
and to the following expenses incurred:
o the acquisition and development of technologies,
o consulting costs, and
o general and administrative expenses.
Other expenses, consisting of interest expense and amortization of
deferred and unearned financing costs, decreased from $8,779,000 during 1997 to
$4,796,000 during 1998. However, interest expense increased during this period.
The increase in interest expense was attributable to an increase in the amount
of debt outstanding. Amortization of deferred and unearned financing costs
decreased from $8,508,000 during 1997 to $4,243,000 during 1998. The decrease in
the amortization of deferred and unearned financing costs is principally
attributable to the issuance of shares of our common stock in 1997 valued at
$4,725,000 to the unit holders of the bridge financing in connection with our
failure to have our S-1 Registration Statement declared effective by the SEC by
April 1, 1998. The S-1 Registration Statement became effective in July 1998.
Comparison of 1997 and 1996
During 1997, consulting expenses decreased to $1,392,845 compared to
$1,486,830 during 1996. Other general and administrative expenses during 1997
increased to $1,262,067 from $547,447 during 1996. The increase is principally
the result of an increase of $469,000 in legal fees, recording a charge against
operations of $75,000 in connection with our abandoned initial public offering,
and a $90,000 increase in salaries from additions to our staff in the 1997
period as compared to the 1996 period.
Research and development expenses during 1997 decreased to $1,007,671 from
$1,170,782 during 1996. The decrease is attributable to our having completed the
initial stages of research and development related to the EKOR compound
technology.
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For 1997 and 1996, we incurred operating losses of $3,662,583 and
$3,205,059, respectively. These losses are principally the result of expenses
incurred by us in developing the EKOR technology and our lack of revenues.
Interest expense and amortization of deferred and unearned finance costs
increased from $271,924 for 1996 to an aggregate of $8,778,659 for 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 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.
Liquidity and Capital Resources
Since our inception, our primary sources of working capital have been the
net proceeds of:
o $842,000 from a limited offering of our common stock;
o $2,000,000 from a bridge financing completed in 1996 and
subsequently repaid;
o $3,000,000, $3,000,000 and $1,000,000 from private placements of our
8% Convertible Debentures due November, 2000, February, 2001 and
July, 2001, respectively;
o $975,000 from a private offering of 3,900,000 shares of our common
stock.
o $3,000,000 from the issuance on December 31, 1999 of 1,882,353
shares, and of warrants to buy an additional 200,000 shares, of our
common stock to a single investor on December 31, 1999.
The debentures may be converted into shares of our common stock at
beneficial conversion rates based on timing of conversions. During the nine
months ended September 30, 1999 a debenture holder exercised the conversion
right under the November 27, 1997 Convertible Debenture agreement and converted
principal of $310,000 and accrued interest of $31,276 into 987,201 shares of our
common stock. During the year ended December 31, 1998, a debenture holder
exercised the conversion right under the November 27, 1997 Convertible Debenture
agreement and converted principal of $30,000 and accrued interest of $2,194 into
100,002 shares of our common stock. Based on the bid price of our common stock
at September 30, 1999, the debentures' principal currently outstanding could be
converted into approximately 8 million shares of our common stock. In January
2000, we reached an agreement with the holders of the convertible debentures
pursuant to which we paid all interest arrearages and the holders agreed to a
$2.00 per share conversion price floor. See "Risk Factors".
On January 6, 1999, our then Chairman and the majority convertible debt
holder provided $450,000 of short-term financing to us, evidenced by a $50,000
and a $400,000 secured promissory notes, respectfully. Each secured promissory
note bore interest at 13% per annum and was due January 6, 2000. The promissory
notes were collateralized by our intangible assets and could be exchanged for 8%
convertible debentures under terms similar to the current outstanding
debentures. We repaid the $400,000 note on its due date from the proceeds of the
December 31, 1999 $3,000,000 stock and warrant issue. Our former chairman has
agreed to convert his $50,000 note plus accrued interest into 200,000 shares of
our common stock.
During the nine months ended September 30, 1999, we received a deposit of
$150,000 in connection with the proposed sale to Kurchatov Research Holdings Ltd
(KRHL) of our sublicensing rights to Resealable Container Systems and TetraPak
Containers technologies. Our November 30, 1999 agreement with KRHL provided
among other things that KRHL would pay us an additional $350,000 by September 1,
2000 for a complete release of all our rights, except a 6% royalty interest, in
these technologies.
During 1998, our principal sources of cash were the February 1998 and July
1998 Debenture Offerings from which we derived net proceeds of approximately
$3,740,000. Of this amount, $2,000,000 was used to repay a
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bridge financing that we had received during the previous year, $227,500 was
applied to the acquisition of technologies and the remaining funds were used for
working capital.
We have agreed in principle to fund the commercialization of certain
technologies developed in the former Soviet Union by scientists and researchers
at Kurchatov and members of EAPS. Kurchatov will provide the materials,
facilities and personnel to complete the necessary work to commercialize the
technologies. We also have agreed in principle to provide funding in connection
with the marketing and sale of three of our other technologies. Total
expenditures under these programs approximated $1,200,000 during 1998. Our
principal source of funding for these expenditures during the year 1998 was the
proceeds from the debenture offerings.
During 1998, we paid $187,500 to Professor Oleg L. Figovsky, Ph.D. in
connection with four technology purchase agreements dated January 1, 1998 and
April 1, 1998. In addition, during 1998, we purchased for $40,000 the rights to
certain anticorrosive additive technology from Israeli scientists.
On January 20, 1999, we entered into an agreement to invest $300,000 in
exchange for an additional 16% interest in Chemonol, an Israeli research and
development company, to give us a total interest in its equity of 36%. The
agreement obligated us to make four equal payments of $75,000 on March 1, 1999,
July 1, 1999, October 1, 1999 and January 1, 2000. As of the date of this
prospectus, all of these payments have been made. Later in 1999 we agree to
invest during 2000 a further $150,000, which would bring our interest in
Chemonol's equity to 52%
As part of the December 31, 1999 transaction pursuant to which we issued
1,882,353 shares, and a warrant to buy an additional 200,000 shares, of our
common stock for $3,000,000, the investor agreed to permit us to sell to it
additional shares of common stock, over time and subject to certain conditions,
for up to a total of an additional $22,000,000. We believe that this commitment
provides us with sufficient resources to launch us on a revenue-producing track.
As of September 30, 1999, we had a working capital deficiency and
stockholders' deficiency of $3,318,000 and $5,076,000, respectively. We believe
that the transactions that we entered into during the latter part of 1999 and
which we have summarized briefly above have substantially eliminated both these
deficits. The report of our independent certified public accountants on our 1998
financial statements contained a paragraph that expressed substantial doubts as
to our ability to continue as a going concern.
OUR BUSINESS
General
We are a development stage, technology transfer, holding marketing and
Management Company formed to commercialize new, existing but previously
unrecognized or classified technologies. Our current emphasis is on technologies
developed by prominent research institutes and individual researchers in the
former Soviet Union and Israel.
Since our formation, we have acquired selected technologies through equity
investments, assignments and licensing arrangements. While we intend to continue
identifying, monitoring, reviewing and assessing new technologies, our primary
focus will be on commercializing four of our present technologies.
In the following sections, we will briefly describe the technologies on
which we are working and will attempt to provide you with a picture of where we
stand on each of them.
We are not a subsidiary of another corporation, entity or other person. We
do not have any subsidiaries except to the extent that Israeli research and
development companies in which we have invested and in the equity of which we
hold a greater than 50% interest may be deemed to be subsidiaries.
Our executive office is located at 1216 16th Street, N.W., Suite 200,
Washington, DC 20036.
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EKOR - Silicon Geopolymers
Pursuant to agreements among us, the Ukrainian State Construction Company
("Ukrstroj"), I.V. Kurchatov Institute ("Kurchatov") and the Euro-Asian Physical
Society ("EAPS"), we have provided financing for and have successfully completed
demonstration testing of EKOR for the purpose of remediating the severe
radioactive contamination problems that persist from the 1986 explosion of
Chernobyl Nuclear Power Plant Reactor 4 in Chernobyl, Ukraine. We believe the
EKOR compound is the most effective existing technology and material for
containing and facilitating the disposal of radioactive dust and waste
materials. Toward the end of 1999, we initiated a joint project with Ukrstroj to
validate application techniques by actually encapsulating a fuel containing mass
on the floor of ChNPP Reactor 4 and by radioactive dust suppression. The
necessary equipment, including robots to carry the hose and nozzle on its final
approach to the fuel containing mass, is currently en route from Russia to
ChNPP.
EKOR was jointly developed by scientists at Kurchatov Institute in Moscow
and members of EAPS for the conservation and containment of ecologically
hazardous radioactive materials. EKOR is based on radiation-resistant compounds
produced from silicon 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, we are 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. On March 23, 1999, EAPS was issued a
patent on the process for manufacturing the EKOR compound from the U.S. Patent
and Trademark Office, Patent No. 5,886,060.
In testing conducted at Kurchatov, EKOR has been shown to be highly
resistant to radiation and structural degradation from exposure to radiation. It
has also proven to be highly fire-resistant, waterproof, and capable of being
formulated in densities that display considerable structural strength and
weight-bearing properties of 100 lbs. per square inch. In high-dosage radiation
tests EKOR has met or exceeded all specifications for containment materials
developed by theChernobyl authorities. We believe that EKOR 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, EKOR has adhesive properties that allow it
to stick to a wide variety of surfaces and materials. When applied, EKOR
surrounds and "glues down" nuclear debris ranging from fine dust to broken fuel
rods, and in combination with its fire-resistant and water-proof properties,
prevents such debris from migrating by water or as air-borne particles. EKOR 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.
We expect that one of the first commercial uses of EKOR 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, 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 meltdown may
occur. To this end, the G-7 group of industrialized nations (the United States,
United Kingdom, Italy, France, Canada, Japan and Germany) and Russia have
pledged
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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.
Based on the properties demonstrated by the EKOR compound, Ukrstroj,
Kurchatov and the Company entered into a Memorandum of Intent that 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 Ukrstroj and EAPS entered into a co-operation
Agreement whereby we have 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 (an industrial
almalgamation of the State Committee of Ukraine on Atomic Energy) entered into
an agreement, the Ukrstroj-ChNPP Agreement, to conduct such demonstration 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 our participation in and financing of the first EKOR
demonstration.
On April 24, 1997, demonstration of 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 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 applied in connection with the
remediation project. On June 30, 1998, EUROTECH and EAPS finalized the design
specifications for the application machinery. The use of such equipment has been
approved by the management of the ChNPP Reactor 4's Shelter Project. We have
paid for the construction of industrial scale machinery for application of the
EKOR compound at ChNPP Reactor 4, based on the application machinery
successfully demonstrated on April 24, 1997, and, as mentioned above, such
machinery is currently on it way to the site with a view to a demonstration
application of the EKOR compound. Our receipt of revenues from the ChNPP Reactor
4 project remains subject to the selection of a general contractor for the
project, the negotiation of satisfactory arrangements for the release of funds
from the European Bank of Reconstruction and Development ("EBRD") to the general
contractor and our selection by the general contractor as a sub-contractor.
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 EBRD. Contractors, as well as the technology to be used in
connection with the remediation project, will be determined on the basis of
submitted bids, to be passed on by EBRD and management of the ChNPP Reactor 4.
EBRD has appointed a consortium of Bechtel, Electricite de France and Batelle to
review the technical aspects and feasibility of the various proposals and bids
received. (Batelle is a not for profit U.S. company which operates Pacific
Northwest National Laboratories, a research entity located in the State of
Washington that is funded in part by the U.S. Department of Energy.) It is
presently expected that EBRD, with G-7 funds, will provide the financing for the
actual remediation project. Additionally, ChNPP Reactor 4 management is
authorized to initiate further, independent studies. Management of the ChNPP
Shelter Project has designated EKOR as a preferred technology for the
remediation project.
In addition to remediation of Reactor 4, our near- and mid-term
commercialization and marketing efforts relative to the EKOR compound
principally are directed at nuclear waste remediation projects throughout the
U.S., Europe and Japan. Separately from our contemplated ChNPP bid, we are
bidding on U.S. nuclear waste transportation, containment, storage and burial
projects utilizing the EKOR compound technology. In this connection, we have
entered into a teaming agreement with a major U.S. engineering firm with a view
to submitting a joint bid to perform a first-round demonstration project on the
U.S. Department of Energy's ("DOE") reactor decommissioning technology program
at a DOE, facility, utilizing the EKOR compound. Additionally, bids are
presently being prepared for other DOE demonstration projects. In anticipation
of being awarded these projects, we have entered into negotiations with a U.S.
chemical company to arrange for the manufacture of the EKOR compound in this
country. Visas have been obtained for several of the Russian scientists to
travel to the U.S. for the purpose of assisting in this process. We also have
entered into an agreement with the Research Center Julich, a German governmental
research institution, to provide for its assistance with certifying the EKOR
compound for use in Germany.
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Also in Germany, the EKOR material is currently being tested by Research
Center Karlsruhe, which needs to dispose of a material to fill cavities that
does not develop gases as a result of corrosion and which, if EKOR passes the
tests, is planning to apply EKOR to about 4,000 final disposal containers for
radioactive waste at its central decontamination department.
In addition, we are also in the process of identifying potential licensees
of the EKOR technology and have 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 DOE demonstration will be successful or
that if successful it will result in a project contract being awarded to us and
our partner, or that such licensing discussions will successfully result in the
execution of an EKOR license.
On December 16, 1998, at the request of EAPS, the EKOR compound was
officially approved by the Russian authorities for use in voice recorders (known
as "black boxes") which are contained in airplanes and record relevant in-flight
voice and other in-flight data relative to the to aircraft and its performers.
Approval was granted based on test reports compiled by the Russian authorities.
EAPS is currently fabricating black boxes incorporating EKOR for delivery to the
Russian governmental authorities. We do not have any rights to EKOR in Russia,
but we receive 50% of the net profits from these sales.
Hybrid Non-isocyanate Polyurethane ("HNIPU")
HNIPU is a modified polyurethane that does not contain the toxic
isocyanates contained in the production of conventional polyurethane, and has
lower permeability and greater chemical resistance qualities as compared to
conventional polyurethane. We believe that these advanced characteristics make
HNIPU 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 sealant, 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. HNIPU was developed by
Prof. Oleg Figovsky, one of our consultants and additional application uses are
being developed by Chemonol Ltd., an Israeli company. We purchased initially a
20% participation in Chemonol's equity, then an additional 16% , and are
currently committed to purchase a further 16%, making a total ownership interest
of 52% for a total investment of $630,000, with a view to Chemonol's
establishing its own research and production base in Israel for potential joint
ventures for HNIPU. Pursuant to a voting agreement with us, Chemonol's principal
shareholder has agreed to vote his remaining 48% of Chemonol's equity as
directed by us.
In November 1998, we presented our HNIPU technology at the International
Exhibition for Ideas, Inventions and New Products ("IENA"), a conference in
Nuremberg, Germany. We were awarded the two highest awards for our HNIPU at the
exhibition.
We are marketing and selling HNIPU through one or more license or joint
venture agreements with major chemical companies in the United States, Europe
and Japan. Several major chemical companies have requested, and have been
supplied with, sample HNIPU for evaluation and applications testing. We are
currently in the final stages of discussions regarding HNIPU with several
prospective business and joint venture partners, though of course until an
agreement is actually signed we cannot assure you that any HNIPU deals will in
fact be made.
A patent application for HNIPU was filed with the US Patent and Trademark
Office on May 28, 1998 and is pending.
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
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physical and chemical properties of LEM, and on such tests, we believe 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.
Discussions of the potential licensing of LEM are in progress with five
companies to the point where samples have been provided to three companies in
Germany and two in the U.S. for testing and evaluation.
LEM was independently developed by Prof. Figovsky and was acquired by us
pursuant to a Technology Purchase Agreement dated January 1, 1998 for a purchase
price of $15,000, plus royalties equal to 49% of our 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, we have not derived any revenues from
LEM. Prof. Figovsky one of our consultants.
A patent application for LEM was filed with the US Patent and Trademark
Office on July 28, 1998 and is pending.
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. We believe 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.
Discussions about the manufacture and sale of RubCon are ongoing with
seven companies, five European and one in Luxembourg and one in the U.S. company
are studying samples while additional companies are being contacted. Preliminary
contacts in the U.S. chemical transportation industry indicate a possible
interest by the Association of American Railroads to test this material for
railroad ties. Other applications may be for pads in vibration-sensitive
machinery such as compressors and pumps.
RubCon was independently developed by Prof. Figovsky, and was acquired by
us pursuant to a Technology Purchase Agreement dated January 1, 1998 for a
purchase price of $35,000, plus royalties equal to 49% of our net revenues from
sales or licenses of any products incorporating Rubcon, payable for a period of
15 years commencing on January 1, 1998. To date, we have not derived any such
revenues from RubCon.
Anticorrosive Additives for Polymers -Upgrades chemical resistance
characteristics of base polymers
Anticorrosive Additives (AAdd) are an innovative approach to creating
highly chemical resistant polymer materials. Anticorrosive Additives are
specially designed to upgrade the chemical resistance characteristics of base
polymers to achieve optimal performance capabilities of materials operating in
aggressive environments. AAdd can be mixed into a wide range of polymer
materials offering a significant increase in product life and reducing product
permeability.
These custom-made specialty formulations are designed to meet specific
client requirements. When cured with polymer-based materials, AAdd can
dramatically improve the capabilities of poly-based materials by upgrading their
chemical resistance properties. The additives are inorganic powders that react
with aggressive environments into which they are introduced, forming a new phase
of high-strength hydrate complexes. This enhanced bonding occurs upon the
penetration of aggressive media into the AAdd-containing polymer material. The
chemical resistant properties of AAdd are activated by harsh environmental
conditions where polymer systems without additives remain defenseless to
chemical corrosion.
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AAdd can be mixed into a wide range of polymer materials such as epoxies,
polyurethanes, glues, nylons, polyolephines, synthetic rubbers and PVC offering
performance-enhancing attributes that increase the value of the end product. We
have developed an extensive product range of additives for upgrading the most
common polymers against a wide variety of aggressive media including acids, sea
water, fluorine, alkalies, and more. AAdd are an effective solution for many
applications. More than 80 products have been tested for use in the chemical
industry.
Advantages of Anticorrosive additives provide a number of distinct
enhancements for polymers offering manufacturers products with stronger,
corrosion resistant products. Chemical resistance tests were conducted on
polymer systems over a period of one year. The results revealed that
AAdd-containing polymer systems significantly outperform those systems without
the additive. Furthermore, extensive testing has shown that AAdd can increase
product life by some 20 times. This extended life offers substantial savings for
users who can extend the life of their polymer-based products whether it is
pipes, flooring, or other materials that are exposed to specific corrosive
environments.
Products that have been enhanced with AAdd yield a higher impact strength
than products without the additive. In addition, material permeability is
reduced significantly 15-20 times. The percentages of AAdd mixed with a polymer
matrix is relatively low, requiring only a small amount to obtain upgraded
resistance characteristics of polymer materials
AAdd was independently developed by Prof. Figovsky, and was acquired by us
pursuant to a Technology Purchase Agreement dated January 1, 1998 for a purchase
price of $15,000, plus royalties equal to 49% of our net revenues from sales or
licenses of any products incorporating , payable for a period of 15 years
commencing on January 1, 1998. To date, we have not derived any such revenues
from AAdd
Israeli IncubatorTechnologies
We have developed arrangements with three Israeli technology companies:
(i) the Technion Entrepreneurial Incubator Co., Ltd. ("Technion"), (ii) Ofek
Le-Oleh Foundation, and (iii) the Incubator for Technological
Entrepreneurship-Kiryat Weizmann, Ltd., to participate in certain technology
research and development projects sponsored by each company. Under such informal
arrangements, we provide all or a portion on the financing for, and receive a
20% or greater equity interest in, research and development projects selected by
us and the corporations. To this end, we have opened a representative office in
the premises of Technion in Haifa, Israel. Pursuant to these arrangements, we
have made investments in the following companies:
o Chemonol, which has developed materials and processes for
manufacturing hybrid non-isocyanate polyurethane industrial coatings
("HNIPU" , which was discussed above);
o Rademate, which has developed biodegradable hydrophobic materials;
o Remptech, which has developed processes for the production of
extra-fine cobalt and nickel powders;
o Comsyntech, which is developing a process for the continuous
combustion synthesis of ceramic, composite and intermetallic
powders.
o Sorbtech, which has developed a new inorganic sorbent for petroleum
product removal; and
o Amsil, which is developing high-thermostable organomineral polymers.
Under those agreements, we received initially 20% of each company's common
equity, in exchange for an initial investment of U.S. $60,000. Subsequently we
made, and are committed to make, further investments in each of them. The
current status of our investment in each of these companies is discussed in
connection with our further description of the respective technologies.
Powdered Metallurgy Technology
We are participating in the further research and development of a process,
developed by Remptech, to produce extra fine cobalt and nickel powders by
recycling materials containing cobalt and nickel. Powdered metallurgy is
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generally acknowledged as being capable of yielding a product with superior
structural, physical and mechanical properties. We believe 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. We
believe 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.
We currently hold 50% of Remptech's common equity, which we acquired for
investments aggregating $180,000. We are committed to invest a further $120,000
in 2000, which will bring our interest in Remptech's equity to 57%.
To market the powdered metallurgy technology, we are at this time in
technical discussions with three European companies whose combined share of the
world market in cobalt and nickel recovery exceeds 90%. Two companies in Israel
and one in Canada have received samples for testing.
A patent application for powdered metallurgy technology was filed with the
US Patent and Trademark Office on July 30, 1998 and is pending.
Continuous Combustion Synthesis ("CCS") Technology
We are participating in the further research and development of a process
for the CCS of ceramic, composite and intermetallic powders, including titanium
carbide powder, developed by Comsyntech. 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. We believe 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, we believe
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.
We currently hold a 20% share in the equity of Comsyntech, which we
acquired for our initial investment of $60,000. We are committed to invest in
2000 a further $120,000, which will bring out share of the equity to 50%.
A patent application for continuous combustion synthesis technology was
filed with the Israeli Patent Office on November 17, 1998 and is pending.
Continuous Action Reactor - Method for Continuous Combustion Synthesis of
ceramic, composite and intermetallic powders
Generally various ceramic and composite powders are batch-manufactured
using electrical and melting furnaces, different high-temperature sprayers, and
equipment for crushing and grinding. Synthesis conventionally occurs in a closed
reactor by the cyclical technique of loading, synthesis, cooling and unloading.
While effective, this technique has limitations that negatively affect
productivity. Not only is the cyclical process time consuming, the process
requires additional grinding of the end product. Where high-temperatures are
involved, a closed reactor has the added danger of an accidental pressure
increase that could ultimately result in destruction of the apparatus.
The Continuous Action Reactor offers the competitive advantage of
increased productivity and lower production costs relative to conventional
high-temperature furnace reactors and powder production processes. One apparatus
replaces high-temperature furnaces as well as spraying and grinding equipment.
Furthermore, this method offers additional significant advantages including,
rapid production -- large quantities of materials can be produced quickly; lower
manufacturing costs -- expensive high-temperature furnaces, complex processing
and equipment are eliminated; reduced energy -- energy consumption is greatly
reduced offering cost and environmental
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improvements; unique materials -- materials with new technological properties
may be generated as a result of high-temperature and shorter synthesis time;
improved properties -- purification of admixtures during synthesis enables high
purity materials to be obtained; various materials -- the synthesis process
enables the direct production of different multicomponent materials,
nonstoichiometric compounds, solid solutions, etc. Smaller clearance limits --
The synthesizing process involves small clearance limits; and reduced treatments
- -- final powder products are produced without additional treatments such as
crushing and grinding.
Applications for materials produced from the continuous reaction reactor
exhibit excellent high-thermomechanical properties such as high strength, thermo
and wear resistance and good corrosion stability that can be used in a broad
range of applications. The following highlights only a fraction of the powder
applications possible in several different industries: metal working industry --
metal-cutting tools and abrasives; metallurgy industry -- alloying additions;
aircraft and automotive construction industry -- parts of combustors, nozzles,
turbines, etc.; energy industry -- turbine blade coatings; electronics industry
- -- piezo- and ferro- electronics, etc.
The continuous action reactor-method is another product of Comsymtech.
Rapidly Biodegradable Hydrophobic Material (RHBM)
RADEMATE Ltd developed cellulose-based a rapid biodegradable hydrophobic
material (RBHM). RBHM is a new, hydrophobic, strong, cheap and completely
biodegradable composite material that is environmentally friendly. RBHM has
shown great promise in improving the properties of both paper and plastics
packaging materials. Due to its biodegradable nature, Rapid Biodegradable
Hydrophobic Material is ideal to be applied for the disposable loose fill bags
and packages. The material can be used as a commodity in trade, industry and
agriculture for a wide range of applications.
To date, most attempts to produce biodegradable products for consumers
focused on developing plastics that could biodegrade. RBHM approaches
biodegradable products from the other direction -- making cellulose-based
material with the same physical properties as plastic, except the material
biodegrades completely in the same time as regular paper bags.
RBHM consists of cellulose (paper) and biodegradable organic additives.
Biodegradation of RBHM occurs in wet soil under normal enzymatic action of
various microorganisms -- fungi and bacteria
The main advantages of RBHM are:
o High Strength -- RBHM's strength characteristics, especially
combined with low elongation and acquired water resistance of the
material, make RBHM unique and highly desirable for packaging
applications.
o Water Resistance -- the RBHM keeps water resistance for one week.
Thus it has excellent prospects for many packaging applications.
Most of the existing biodegradable packaging products are not
hydrophobic at all and will fail if wetted during use.
o Full Degradation in the Environment -- Enzymes begin breaking down
RBHM in the presence of moisture in natural environments such as
soil. Then microorganisms decompose the material with
rapidly-occurring metabolic reactions. RBHM is completely converted
into carbon dioxide, water and biomass in 2 - 3 months in wet soil.
Thus this process completely coincides with the definition of
biodegradability given by most experts.
o RBHM Uses Reproducible Natural Raw Materials -- The cheapest raw
material, as well as the most widespread organic material in nature,
is cellulose. Cellulose is renewable, reproducing itself through the
natural cycle. Sound environmental management balances resources,
recycles whenever possible and uses the in a renewable cycle.
Cellulose is present widely on the planet -- in trees, bushes, grass
and other plants.
o Relatively Low Cost -- The main obstacle to widespread use of
biodegradable polymers is cost. Biodegradable polymers are
significantly more expensive ($10 - $1000) than commodity polymers
($2 -$5). The high costs involved in the production of biodegradable
polymers means that they cannot compete
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favorably with conventional polymers. RBHM has no such cost
barriers, characteristic of all the other biodegradable plastics.
This high cost blocked the widespread adoption of biodegradable
plastics in major consumer application. As RBHM is a cellulose-based
material, it can be manufactured with the existing paper and pulp
industry equipment using existing technologies. This means that it
is only insignificantly more expensive to produce than to produce
paper itself. Currently available degradable materials on the other
hand can cost twice as much.
The number of potential applications for RBHM is immense. Because RBHM can be
applied on sheets, films and fibers, it is suitable for a range of single-use
products, including, grocery and waste bags, the top and back sheets of
disposable diapers, packs and disposable eating utensils. It can be used to
create agricultural films and bags that cover ripening fruit. RBHM products such
as disposable plates and cups, films for food packaging, miscellaneous everyday
items and sanitary products are but a few of the possible applications. Box and
bag consumers are generally commercial and industrial users requiring a
particular packaging container for a specific product. Below is the list of
possible applications for RBHM:
Everyday Itemssuch as trash bags, grocery bags, cups, plates, tablecloths and
other household goods; Packaging Materials such as carton boxes, disposable
containers for food processing, bags for industrial products; Agricultural Use
such as mulch material, pots, composting bags for agriculture wastes; Textile
and Other Industry such as biodegradable textile materials, synthetic leather,
biodegradable membranes; Sanitary Products such as protection layer for
disposable hygienic materials - diapers, sanitary napkins, panties, towels, etc.
We have performed an in-plant demonstration of RHBM at a large paper company and
are engaged in discussions with a paper coatings manufacturer for production of
the material in the U.S. Samples have been sent to more than 30 companies
worldwide that have indicated an interest in RHBM.
For a total investment to date of $90,000, we currently hold a 44%
interest in Rademate, the Israeli company that developed RHBM.
Sorbtech SB-1 -High Capacity Mineral Composite Sorbent for Oil Spill Removal
Many oil spill sorbents are already on the market. Sorbtech is an
innovative new product that can be used to sorb oil from oil spills, harbors,
industries and storage areas.
Sorbtech is composed of basalt non-woven fabric -- an ultra-fine basalt
filament. The special thermal vacuum and chemical treatment creates the
extremely high sorption capacity as compared to products currently on the
market. The mineral fiber material has a low production cost thus it has a good
market price.
The major advantages of Sorbech SB-1 are:
o The extremely high sorption capacity. -- Regular sorption capacity
for products currently on the market is in the range of 0.8 - 30.0
grams of petroleum products per gram of sorbent weight (gr/gr). The
new SB-1 sorption capacity is in the range of 40.0 - 70.0 gr/gr,
depending on oil viscosity.
o Reuse -- Extracted petroleum products may be reused. SB-1 may be
used for multiple oil extractions.
o Low market cost -- Because material manufacturing costs are low,
SB-1 is highly competitive with products already on the market.
o Low cost / non-hazardous waste disposal -- SB-1 can be used as an
auxiliary component in roads construction after multiple uses as an
oil spill sorbent.
o Naturally-occurring mineral -- SB-1 is an environmentally clean
material.
o Nonflammable -- SB-1 is thermally resistant (up to 700(degree)C).
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Applications of SB-1 can be easily machined into different forms to
facilitate the clean up of petroleum products for different types of oil
spills:sea water open surfaces, soil contamination, industrial areas, machinery,
gas stations, etc.
Manufactured SB-1 takes many forms: pillows, booms, sleeves, and mats --
according to the specific user requirements. Mats with dimensions of 1.0 x 1.0 x
0.007m are possible for large spill areas.
When the SB-1 is applied over polluted water, oil is sorbed, but no water
is incorporated into the SB-1 bulk, thus improving the sorbent floating ability.
SB-1 will absorb only oil from emulsions -- eliminating the need for detergents
or other chemicals to break the emulsion.
Oil release from saturated SB-1 uses simple mechanical treatment such as
wringers, centrifuges, etc. The extracted oil products can be reused with little
if any reprocessing.
Extracted SB-1 is used as a foundation for asphalt roads for noise
reduction. This reuse is more economical than if it were recycled as sorbent.
Because the material and the petroleum product residual on the sorbent is
totally compatible with asphalt, there is no additional environmental stress
added by the reused material.
To date we have invested $60,000 in Sorbtech and are committed to invest
additional $150,000, for an eventual 50% of Sorbtech's equity. A manufacturer in
the U.S. has already indicated an interest in Sorbtech.
Highly Stable Organomineral Polymers - Quaternary Ammonium Silicates (QAS)
Organomineral polymers based on quaternary ammonium silicates (QAS) are a
new kind of silicate material with excellent adhesion properties to hydrophilic
and hydrophobic surfaces, high chemical resistance against water and acids,
fire-resistance, and are environmentally compatible.
QAS have superior properties in comparison to epoxy resins and traditional
silicates, including: qhigh adhesion to metallic and concrete surfaces; extreme
stability in water; thermostability to 2000(degree) K; resistance to corrosion
and erosion; and excellent mechanical characteristics.
QAS may be used, as ammonia compounds; nas biocides; in textiles (if two
long chains) - as textile ofteners for home use; as the final rinse in the
washing machine; as a rinse after shampooing, mulsifiers; in metal working - as
additives to acid used in the cleaning and pickling of steel to prevent hydrogen
corrosion; in road building, bentonite treatment, oilfields; as antistatic in
polymers - e.g., in PVC belting; for the preparation of excellent quality toner;
as components in special systems of water purification; as components in
self-setting aqueous mixtures for the manufacture of chemically resisting
materials as additives in concrete and coatings; in structure-directing agents,
e.g., for the synthesis of molecular sieves with high-modulus silica; in
silicate salts - for blends of hydrophilic medical use; as raw material for
preparation of organosilanes; with aggregated titanium pigment products
containing QAS - for pigment preparation. As silicates, anti-corrosion coating
of different surfaces (metals, concrete, wood, etc.); fire-protection coating;
specific application; as glue .
To date we have invested $60,000To date we have invested $60,000 in Amsil,
the Israeli entity that is developing QMS, and are committed to invest
additional $150,000, for an eventual 50% of Amsil's equity.
Employees
We have three full-time officers and one clerical employee in our office
in Washington, DC. We also have various consulting arrangements with seventeen
persons in the United States, Germany, Russia and Israel.
None of our employees is covered by a collective bargaining agreement. We
consider our employee relations to be satisfactory and have not experienced any
labor problems.
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Competition and Marketing
The near-term primary markets for our products and technologies are
chemical manufacturing and radioactive contamination containment, remediation
and transportation. We have limited experience in marketing our products and
technologies and, other than in connection with the remediation of Reactor 4 at
Chernobyl, Ukraine, intend to rely on licenses to or joint ventures with major
international chemical, engineering or other companies for the marketing and
sale of our technologies. In the case of the EKOR compound, we have entered into
a teaming agreement with a major engineering company to submit a bid for a
remediation project to apply EKOR, and we have retained a consultant to market
EKOR to other facilities of the U.S. government and to private companies. In
contrast, other private and public sector companies and organizations have
substantially greater financial and other resources and experience than we do.
Competition in our business segments is typically based on product recognition
and acceptance, price, and marketing and sales expertise and resources. Any one
or more of our competitors or other enterprises not presently known to us may
develop technologies or products that are superior to ours, significantly
underprice our products and technologies, or more successfully market existing
or new competing products and technologies. To that extent our ability to
compete could be materially and adversely affected.
Regulation
We are not aware of any U.S. or foreign laws or regulations that govern
the marketing, sale or use of any of our present technologies, other than U.S.,
Russian and 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). Based on the results of tests conducted at Kurchatov, we believe that
the EKOR compound meets applicable U.S. and German regulatory standards.
However, there can be no assurance that more stringent or different standards
may not in the future be adopted or applied depending on EKOR's intended use, or
that, if adopted or applied, will not materially increase the cost to us 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 we presently or
in the future conduct our business will not enact laws or adopt regulations that
increase the cost of or prevent us from licensing our other technologies or
otherwise doing business therein. Particularly in Russia and Ukraine, the
enactment of such laws or the adoption of such regulations may have a presently
unquantifiable, substantial adverse impact on our financial condition, business
and business prospects.
Intellectual Property
Of our present technologies, US patent protection has been sought for the
EKOR compound material; HNIPU, a modified polyurethene; LEM, a synthetic rubber;
and a powdered metallurgy technology. Foreign patent protection has been sought
for a coatings and a continuous combustion synthesis technology. On March 23,
1999, EAPS received a patent on the EKOR compound from the US Patent and
Trademark Office, Patent No. 5,836,000. There can be no assurance that any of
our pending or future patent applications will be approved, that we will develop
additional proprietary technology that is patentable, that any patents issued to
us will provide us with competitive advantages or will not be challenged by
third parties, that the patents of others will not have an adverse effect on our
ability to conduct our business or that one or more of our technologies will not
infringe on the patents of others. Furthermore, there can be no assurance that
others will not independently develop similar or superior technologies,
duplicate any of our processes, or design around any technology that is patented
by us. It is possible that we may need to acquire licenses to, or to contest the
validity of, issued or pending patents of third parties relating to our
products. There can be no assurance that any license acquired under such patents
would be made available to us on acceptable terms, if at all, or that we would
prevail in any such contest. In addition, we could incur substantial costs in
defending suits brought against us on our patents or in bringing patent suits
against other parties.
In addition to patent protection, we also rely on trade secrets,
proprietary know-how and technology that we seek to protect, in part, by
confidentiality agreements with our prospective working partners and
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that we would
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have adequate remedies for any breach, or that our trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others.
Description of Property
Since mid-1999 our headquarters have been located at 1216 16th Street, NW,
Washington, DC 20036 in a small office suite for which we pay monthly rent of
$1,900. We believe that our current facilities are sufficient to meet our
requirements.
We also occupy office space in the premises of Technion Entrepreneurial
Incubator, Ltd., in Haifa, Israel, on a month-to-month tenancy basis at the rate
of $300 per month. We use that office for our Israeli technology development and
marketing activities.
Legal Proceedings
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 us for breach of contract, seeking injunctive relief, specific
performance and monetary damages of nearly $5 million. The Dirks litigation
arises from an agreement between us and National Securities Corporation 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. We 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 our 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. This litigation was settled in October 1999 with an agreement by us
to issue to the plaintiffs 186,446 shares of our common stock in twelve equal
monthly installments. On the other hand, the warrant for 470,000 shares was
cancelled.
In the meantime, our former President Mr. Wilkie brought an action against
us in the Superior Court of the District of Columbia, seeking monetary damages
of $360,000 plus pre-judgment interest for alleged wrongful termination under a
purported employment agreement between him and us. We take the position that
this purported employment contract is not valid or binding and intend to defend
vigorously against this claim.
MARKET FOR OUR COMMON STOCK
Trading Market
Our common stock trades on the NASD Electronic Bulletin Board.
Principal Market Makers
The principal market makers of our common stock are Cantor Fitzgerald
Securities, Grady & Hatch, Olson & Company, Sherwood Securities, Fahnstock &
Co., Paragon Capital Corporation, and Nash Weiss & Co.
Number of Shareholders of Record
As of January 31, 2000, we had 295 shareholders of record.
Dividends.
To date we have not declared or paid dividends on our common stock. We
presently plan to retain earnings, if any, for use in our business.
27
<PAGE>
Market Price.
The following table sets forth the quarterly high and low closing bid and
closing ask prices (in U.S. dollars) for the common stock for 1997, 1998 and
1999.
1997 Clonging Bid
---- ------------
High Low
---- ---
JAN. 2 THRU MAR. 31 12.25 5.625
APR. 1 THRU JUNE 30 9.625 4.000
JULY 1 THRU SEPT. 30 6.875 5.000
OCT. 1 THRU DEC. 31 5.4375 1.875
1998
----
JAN. 2 THRU MAR. 31 3.3125 2.000
Apr. 1 THRU June 30 2.18 .25
JULY 1 THRU SEPT. 20 1.291 .975
OCT. 1 THRU DEC. 31 .975 .21375
1999
----
JAN. 1 THRU MAR. 31 1.125 .30
APR. 1 THRU JUNE 30 1.00 .62
JULY 1 THRU SEPT.29 1.56 .75
OCT 1 THRU DEC 31
Source: National Quotation Bureau, LLC
The foregoing data represent prices between dealers and does not include
retail mark-ups, mark-downs or commissions, nor do such data represent actual
transactions or adjustments for stock-splits or dividends.
MANAGEMENT
Executive Officers and Directors
Name Age Position with the Company
---- --- -------------------------
Chad A. Verdi 33 Chairman of the Board of Directors,
Consultant
Dr. Randolph A. Graves, Jr. 60 Director, Consultant
Don V. Hahnfeldt 55 Director, President and Chief Executive
Officer
Dr. Geraldine V. Cox 55 Vice President
Michael L. Thomas 38 Vice President, Finance and Administration,
and Secretary
Mr. Chad A. Verdi is presently the President and CEO of Coastal Food
Services & Provisions Inc. and Coastal Food Service Companies located in
Cranston, Rhode Island. Under Mr. Verdi's direction, Coastal Food Service
Company has grown since 1991 from sales of $2 million to a projected 1999
estimate of $30 million. Under the management of Mr. Verdi, the Coastal
Companies have made two major diversified acquisitions and started an additional
horizontal growth company with estimated sales in 1999 of four million dollars.
In addition to Mr. Verdi's successful business operations and management
experience he has been an advisor and shareholder for several public and private
companies, including Wild Heart Ranch and Evergreen Communications
Dr. Randolph A. Graves, Jr., serves as a consultant to the Aerospace,
Computing and Small Business communities through Graves Technology, a company he
founded in 1991. Prior to founding Graves Technology, Dr. Graves held various
positions in small start-up companies. He currently serves on the Business
Advisory Board of Bortder Logic, Inc., a start-up Internet game development
company.
Dr. Graves has over thirty years experience in managing scientific and
engineering programs with a focus on technology development, validation and
application. He was employed by NASA's Langley Research Center in a number of
research and research management positions before moving to NASA Headquarters
where he served as
28
<PAGE>
Director of Aerodynamics. He served on numerous managerial and technical
panels/committees including the Aerodynamics Panel of the Workshop on
Aeronautical Technology for the Year 2000 sponsored by the National Academy of
Science's National Research Council, served as a member of the American
Institute of Aeronautics and Astronautics Applied Aerodynamics Technical
Committee, served as a member of the White House's Federal Coordinating Council
on Science Engineering and Technology Subcommittee on High Performance Computing
and was NASA's member of NATO's Advisory Group on Aerospace Research and
Development Fluid Dynamics Panel where he also served as the Chairman of the
Subcommittee on Computational Fluid Dynamics.
Dr. Graves is an Associate Fellow of the American Institute of Aeronautics
and Astronautics, is a member of the American Society of Mechanical Engineers,
was the recipient of a Sican Fellowship at Stanford University's Graduate School
of Business and is listed in Oxford's Who's Who - The Elite Registry of
Extraordinary Professionals. Dr. Graves has written or co-authored over sixty
formal scientific and technical reports, articles and conference papers, written
some three dozen technology identification reports for clients, written
comprehensive in-depth reports on specialized topics for clients and developed,
coordinated and prepared numerous business plans and investment overview
documents for small business clients.
Mr. Don V. Hahnfeldt joined the Company on July 7, 1999 following a
twenty-nine year career in public and government service, including a strong
background in nuclear technology. His areas of expertise are strategic planning
and financial management.
Mr. Hahnfeldt recently served as City Manager of Sunnyside, Washington.
Prior to that he served in the U.S. Navy, where he rose through the ranks to
become Commodore of a Trident Submarine squadron with eight nuclear powered
ballistic missile subs, 4,000 personnel and an annual budget of $100 million. He
was awarded numerous citations for effective leadership and his commands were
repeatedly cited for outstanding efficiency and combat readiness. He was awarded
the Navy's highest peacetime personnel award, the Legion of Merit, four times.
Mr. Hahnfeldt received a B.S. in Business Administration from Roosevelt
University, an equivalent M.S. in Nuclear Engineering from the U.S. Navy Nuclear
Power School, an M.S. in Operations Research from the Navy Post Graduate School,
and an M.P.A. from Valdosta State University.
Dr. Geraldine V. Cox has 18 years experience in senior management in
industry and trade associations representing basic industries. While Dr. Cox was
trained as an environmental scientist, she has worked with the chemical and
petrochemical, transportation electronics and allied industries. She is chairman
and Chief Executive Officer of AMPOTECH Corporation, a technology transfer
company focusing on power generation, and she was a Vice President of Fluor
Daniel reporting directly to the President of Sales. She was Vice President and
Technical Director of the Chemical Manufacturers Association for 12 and one-half
years, where she reorganized and restructured the industry advocacy and research
programs for the association. She also served as primary media spokesman for the
industry on many issues, including the accident in Bophal, India. She was a
White House Fellow, serving as the Special Assistant to the Secretary of Labor
(1976-1977). She has received numerous national awards, including the highest
civilian award from the United States Coast Guard for her work on maritime
industrial hygiene, and the Society of Women Engineers top Award for engineering
achievement in 1984.
Mr. Michael L. Thomas has more than ten years experience in marketing,
sales, accounting and management including: product development; financial and
budget planning; administrative management; fund-raising; grant writing and
volunteer resources. He was president and publisher of Health and Wellness
Publishing where he edited Health Educator. Mr. Thomas was an account manager
for RDP Development. He served as research analyst working on management
planning.
We have a Board of Directors comprised of three persons. Under our
By-Laws, directors are supposed to be elected at annual meetings of shareholders
and hold offices until the next annual meeting of shareholders or until their
successors have been elected. In practice, we have never held a shareholders
meeting for the election of directors. We are, however, planning for an Annual
Meeting in the spring of the current year.
29
<PAGE>
On November 30, 1998, Adm. James D. Watkins resigned as a director. On
December 10, 1998 Maxwell Rabb and Lawrence McQuade resigned as directors.
On December 10, 1998, the departing directors elected Dr. David Wilkes,
Dr. Randolph A. Graves, Jr. and Joseph Gatti to the Board of Directors. On April
8, 1999, Joseph Gatti resigned as a director and on the same date the remaining
directors elected Chad A. Verdi as his replacement.
Dr. Wilkes retired from the Board on January 15, 2000. The remaining
directors replaced him as a director by Mr. Hahnfeldt and as Chairman by Mr.
Verdi.
On April 1, 1999 the Company entered into an Employment Agreement with
Frank X. Fawcett to serve as our President and Chief Executive Officer. On July
6, 1999 the Company and Mr. Fawcett entered into a Disengagement Agreement
terminating the Employment Agreement for personal reasons, and on July 7, 1999,
Mr. Hahnfeldt took office as our President and Chief Executive Officer.
Key Consultants
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. As mentioned above
in the description of our business, we have from time to time purchased
technologies conceived by Prof. Figovsky. We are paying him for his services as
a consultant monthly $5,000 in cash and shares of our common stock having a
market value of $6,000.
Peter Gulko was one of our organizers, served us for a time as a director
and briefly in 1998 as President, and is a major shareholder. He provides
liaison between us and our associates in Russia, Ukraine and Israel. Mr. Gulko
has more than twenty years experience in business development, foreign
(representative) office management, client relations, supervision, engineering
project management and technology transfer. We are currently paying Mr. Gulko
for his services as a consultant $6,000 per month.
Alex Trossman is a founding partner and general manager of Polymate, Ltd.
- - Israeli Research Center, which supervises our investments in Israeli
technology companies. He was previously the technical manger of Galam, Ltd., an
Israeli starch, glucose and fructose producer, and prior thereto he was
successively project manager with Elbit Computer, Ltd., assistant chief engineer
of Automotive Industries, Ltd. and the head of engineering for Rotem
Fertilizers, Ltd., all Israeli companies. Mr. Trossman attained the rank of
major in the Israeli Defense Forces, serving as head of the military vehicle
rebuilding program. He was also a senior designer for the Israeli Armaments
Development Authority. Educated in the former Soviet Union, Mr. Trossman earned
a bachelor of science, mechanical engineering degree from the Automotive and
Highway Institute, Kiev, Ukraine, and a master of science, mechanical
engineering degree from the Israeli Institute of Technology (Technion), Haifa,
Israel. We are paying Mr. Trossman for his services as a consultant monthly
$5,000 in cash and shares of our common stock having a market value of $6,000.
Eugene P. Kotchick, through his company E.P. Kotchick Consultant,
functions as our principal marketing consultant, mainly in the United States.
For its services as a consultant, we are paying to E.P. Kotchick Consultant
$1,675 per week and will pay commissions of 3% of gross sales booked by us to
contacts identified by E.P. Kotchick Consultant.
30
<PAGE>
In addition to the forgoing, we are making support payments, in amounts
that are not material individually or in the aggregate, to 5 scientists in
Russia and 6 scientists in Israel.
Chad A. Verdi and Randolph A. Graves, Jr., the two members of our Board of
Directors who are not employed by us, have entered into agreements with us
render services to us consultants - Mr. Verdi in the area of corporate finance
and Dr. Graves in the area of technology evaluation. For these services, they
are each compensated at the rate of $1,000 per week and are to be issued
warrants to purchase up to an aggregate of 375,000 shares of our common stock: a
five-year warrant issued on October 1, 1999 to purchase 75,000 shares at $1.00
per share; a five-year warrant to be issued on October 1, 2000 to purchase
75,000 shares at $2.00 per share; a five-year warrant to be issued on October 1,
2001 to purchase 75,000 shares at $3.00 per share; a five-year warrant to be
issued on October 1, 2002 purchase 75,000 shares at $4.00 per share; and a
five-year warrant to be issued on October 1, 2003 to purchase 75,000 shares at
$5.00 per share. This compensation is in addition to the compensation that has
been paid to Messrs. Verdi and Graves for their services as directors
Executive Compensation.
The following Summary Compensation Table sets forth the compensation paid
by us for services rendered in all capacities during the calendar years 1996,
1997 and 1998 to Randolph A. Graves, Jr., who was the Chief Executive Officer
through January 23, 1998. The table also set forth the compensation paid by us
for services rendered in all capacities during 1998 to Peter Gulko and John
McNeil Wilkie, who also served as the Chief Executive Officers during 1998. No
other executive officer or key employee was compensated in excess of $100,000
during 1996, 1997 or 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
------------------- ------------------------------
Salary Bonus Restricted Stock Awards
Name and Principal Position Year ($) ($) ($)
<S> <C> <C> <C> <C>
Randolph A. Graves, Jr., President and 1996 $ 77,374 $20,000 $243,109(1)
Chief Executive Officer 1997 $ 77,374 0 0
1998 5,000 0 0
Peter Gulko, President and Chief
Executive Officer 1998 $ 15,000 0 0
John McNeil Wilkie, Chief Financial
Officer; President and Chief
Executive Officer 1998 $ 70,000 0 $100,000(2)
Frank X. Fawcett, President and Chief
Executive Officer 1999 $ 44,000 42,600(3)
Don V. Hahnfeldt, President and Chief
Executive Officer 1999 $ 50,000 0(4)
</TABLE>
(1) Reflects the value of common stock issued as partial compensation
for services rendered in 1996.
(2) Reflects the value of common stock issued as partial compensation
for services rendered in 1998
(3) Reflects the value of common stock issued as partial compensation
for services rendered in 1999
(4) Mr. Hahnfeldt was initially paid a salary at the rate of $104,000
per year, beginning on the date on which he was employed by us and
took office as President. He also received a 5-year warrant to
purchase 50,000 shares of our common stock at $1.00 per share On
September 1, 1999 Mr Hahanfedt was awarded under the 1999 stock
option plan an option on 150,000 shares at .71. Effective November
5, 1999, Mr. Hahnfeldt entered into a three-year employment contract
with us that provides for base compensation in the first contract
year of $104,000; in the second contract year, the sum of that
amount plus the bonus awarded to him in the first contract year; and
in the third contract year, that amount plus the bonus awarded to
him in the second contract year. The bonus to which Mr. Hahnfeldt is
entitled in each contract year is an amount, not to exceed 50% of
base salary, determined by applying to that year's base salary the
percentage by which the market price of our common stock had
increase between the beginning and the end of the contract year. In
addition, for each contract year Mr. Hahnfeldt will be issued a
five-year warrant to purchase 100,000 shares of our common stock for
$1.00, $2.00 and $3.00 per share, successively.
Compensation of Directors and Secretary
Each of the directors, including Dr. Wilkes who retired from the Board on
January 15, 2000, and not including Mr. Hahnfeldt, who was not a director during
1999, received 2,500 shares per month for January through May 1999 and 5,000
shares per month for June through August. For the balance of their term as
directors, the Board awarded
31
<PAGE>
to each director, including Dr. Wilkes, a ten-year option to purchase 150,000
shares of common stock at $0.71 per share under our 1995 stock option plan,
which is currently administered by the Board. Under the terms of the plan, Dr.
Wilkes' option will lapse unless he exercises it by April 15, 2000. In the cases
of Mr. Verdi and Dr. Graves, this compensation is in addition to their
compensation as consultants. The Secretary, who had previously been awarded an
incentive stock option under the 1995 stock option plan on 50,000 shares, was
also compensated with 2,500 shares per month for January through May 1999 and
5,000 shares per month and a salary at the rate of $68,000 per year thereafter.
1995 Incentive Stock Option Plan
In 1995 we adopted the 1995 Incentive Stock Option Plan (the "Plan"). The
Board of directors 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.
The Plan is currently administered by the Board, 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 is determined by the Board
provided that the exercise price of incentive stock options 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
incentive stock option if the optionee owns more than 10% of our common stock.)
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, we 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 and five years in the case
of incentive stock options. Options may be exercised only while the original
grantee has a relationship with us 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
us 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 our common
stock, in the discretion of the Committee, each option may become fully and
immediately exercisable. Incentive stock options are not transferable other than
by will or the laws of descent and distribution. Non-qualified 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 incentive stock
options ("ISO"), with the attendant tax benefits provided under Sections 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 incentive stock options exercisable for the first time
by an employee during any calendar year under all our plans and our 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.
An option to purchase 50,000 shares has been granted to one employee
pursuant to the Plan. In addition, as mentioned above, the directors granted
themselves options to purchase an aggregate of 450,000 shares.
32
<PAGE>
1999 Incentive Stock Option Plan
In August 1999, the Board of Directors adopted the 1999 Plan, which
provides for the issuance of options on a further 750,000 shares and is in other
respects identical to the 1995 Plan. Under the 1999 Plan, which is subject to
approval by the shareholders options to purchase 150,000 shares have been
awarded to Mr. Hahnfeldt.
Limitation on Officers' and Directors' Liability
Our Articles of Incorporation provides that we 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, indemnify any and all persons
we have the power to indemnify under said section. Section 29-304 of the
Business Corporation Act grants to us the power to indemnify any and all of our
directors or officers or former directors or officers or any person who may have
served at our request as a director or officer of another corporation in which
we own shares of capital stock or of which we are 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 By-Law, agreement, vote of stockholders or otherwise. The
foregoing provisions of our Articles of Incorporation may reduce the likelihood
of derivative litigation against our directors and officers for breaches of
their fiduciary duties, even though such action, if successful, might otherwise
benefit us and our stockholders.
Additionally, our 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 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.
We have obtained an officers' and directors' liability insurance policy
that will indemnify officers and directors for losses arising from any claim by
reason of a wrongful act under certain circumstances where we do not indemnify
such officer or director, and will reimburse us for any amounts where we may by
law indemnify any of our officers or directors in connection with a claim by
reason of a wrongful act.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock at the date of this prospectus by (i)
each person known by us to own beneficially more than 5% of our common stock,
(ii) each of our directors, (iii) each of our executive officers, (iv) all
officers and directors as a group, and (v) each of the beneficial owners of the
11,971,942 shares of common stock registered in the Registration Statement
covering shares being offered. The shares offered will be sold, if at all,
solely by and at the
33
<PAGE>
discretion of the selling shareholders. We will not receive any proceeds from
any sales. Except as otherwise indicated, we believe that the beneficial owners
of the common stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
With respect to the number of shares listed as beneficially owned by
certain selling shareholders prior to the offering, we have relied on statements
filed by the selling shareholders with the SEC pursuant to Sections 13(d)under
the Securities Exchange Act. We have no reason to believe that such filings are
inaccurate.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Shares Beneficially
Prior to Offering Registered Owned After Offering
-------------------------- ------------ -------------------------
Percent Percent
Name and Address of If Greater If Greater
Beneficial Owner Number than 1(1) Number Number Than 1(2)
- -------------------------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Peter Gulko
CIS Development Corp
976 Rock Haven Drive
Rockville, MD 20852 5,430,000 13.59 500,000 4,930,000 10.52
David Wilkes(4)
15 Sommerset Dr., South
Great Neck, NY 11020 391,790 -- 9,750(4) 391,790 --
Jeffrey Markowitz(5)
7 Kensington Road
Scarsdale, NY 10583 50,000 -- 25,000(5) 50,000 --
Richard Friedman(6)
49 Fort Royal Isle
Fort Lauderdale, FL. 33308 50,000 -- 25,000(6) 50,000 --
ECON Investor Releations, Inc
AIM Corporate Relations Inc.
5540 14B Avenue
Tsawwassen, British Columbia
V4M 2G6 Canada 19,500 -- 9,500 10,000 --
JNC-Opportunity Fund Ltd.
c/o Olympia Capital
(Bermuda) Ltd.
Williams House, 20 Reid St
Hamilton HM 11, Bermuda 941,898 3.01 5,714,362 -- --
JNC Strategic Fund Ltd.
c/o Olympia Capital
(Bermuda) Ltd.
Williams House, 20 Reid St
Hamilton HM 11, Bermuda 262,464 -- (8) -- --
CDC Consulting,
19476 Dorado Dr.
Trabuco Canyon, CA 92679 -- -- 67,500(13) -- --
Diversified Strategies
Fund, L.P.
c/o Encore Capital
Management, L.L.C
12007 Sunrise Valley Dr.
Suite 460
Reston, VA 20191 27,252 -- 327,252 -- --
John McNeil Wilkie
P.O. Box 1723
126 W. Colorado Avenue
Telluride, CO 81435 50,000 -- 50,000 -- --
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Shares Beneficially
Prior to Offering Registered Owned After Offering
-------------------------- ------------ -------------------------
Percent Percent
Name and Address of If Greater If Greater
Beneficial Owner Number than 1(1) Number Number Than 1(2)
- -------------------------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Randolph Graves, Jr.(3)
3299 Villanova Avenue
San Diego, CA 92122 637,500 1.59 -- 637,500 1.42
Chad A. Verdi(3)(10)
100 Pheasant Drive
East Greenwich, RI 02818 156,353 -- 145,605 45,748 --
Michael L. Thomas(11)
1326 Girard Street, NW
Unit 2 Washington, DC 20009 97,304 -- 97,304(11) -- --
D.K Rogers
20 W. 86th Street *5A
New York, NY 10024 100,000 -- 100,000 -- --
Woodward LLC
Corporate Center
West Bay Road
Grand Cayman, Cayman Island 1,882,353 4.71 3,282,353
Richard Wall(11)
95 Hartford Way
Beverley Hills, CA 90210 -- -- 364,000(11) -- --
Don V. Hahnfeldt(3)(13)
1130 Riva Ridge DR
Great Falls VA 22066 200,000 -- 50,000(13) 200,000 --
Spinneret Financial Systems
C/o Joseph B. Lrocco, Esq
49 Locust Avenue, Suite 107
New Canaan, CT 06840 1,000,000 2.50 1,100,000(15) -- --
- ----------------------------------------------------------------------------------------------------
Directors and Officers
As a Group
(4 Persons) 1,091,157 2.73 292,909 883,248 1.88
</TABLE>
(1) Based upon (i) 39,948,139 shares of common stock outstanding as on
January 31, 1999; ii including 2,000,000 shares for Kurchatov
Research Holdings; iii including 1,000,000 shares of common stock
for Spinneret Financial Systems;
(2) Gives effect to: (i) 1,278,750 shares of common stock issuable upon
the exercise of warrants, (ii) up to 4,000,000 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 (iii) the sale by the selling shareholders of all of
the shares registered under the registration statement of which this
prospectus is a part. Does not give effect to 1,250,000 shares of
common stock reserved for issuance under our 1995 and 1999 stock
option plan.
(3) Director
(4) Share issuable upon exercise of warrants
(5) Shares issuable upon exercise of warrants.
(6) Shares issuable upon exercise of warrants.
(7) Includes 510,000 shares issuable upon exercise of warrants;
4,000,000 shares issuable upon conversion of convertible debentures
of which 1,204,362 have been previously issued for debt and interest
conversions in 1998 and 1999. With respect to the number of shares
listed as beneficially owned by JNC Opportunity Fund,. Encore
Capital Management L.L.C. ("Encore"), a registered investment
manager under the Investment Advisers Act of 1940, acts as
investment adviser to JNC Opportunity Fund, JNC Strategic Fund, and
Diversified Strategies Fund.
(8) Shares included in Footnote (6)
(9) Includes 10,000 shares issuable upon exercise of warrants; 290,000
shares issuable upon conversion of convertible debentures of which
27,252 have been issued in conversation of interest. Encore acts as
investment adviser to Diversified, JNC Strategic Fund and JNC
Opportunities Fund. Encore and Diversified are parties to an
Investment Advisory Agreement, included as an Exhibit to
35
<PAGE>
the Schedule 13D filed by Diversified, pursuant to which, among
other things, Encore has the right to make certain investment
decisions and exercise certain voting rights with respect to the
shares beneficially owned by Diversified.
(10) Includes 35,000 shares of common stock issuable upon the exercise of
warrants.
(11) Vice President of Finance and Administration and Secretary. Does
not include 50,000 shares of common stock issuable upon the exercise
of stock options.
(12) Shares issuable upon exercise of warrants
(13) President and Chief Executive Officer effective July 7, 1999,
Includes 50,000 shares of common stock issuable upon exercise of
warrants
(14) Includes 200,000 shares of common stock issuable upon exercise of
warrants, 1,200,000 for use of equity line of credit.
(15) Includes 100,000 shares of common stock issuable upon exercise of
warrants.
TRANSACTIONS WITH MAJOR SHAREHOLDERS, DIRECTORS AND OFFICERS
Shareholder and Other Loans
In April 1997 ERBC Holdings, Limited, which is wholly owned by Kurt
Seifman, one of our shareholders, made us a loan of $30,000, which remains
outstanding.
Issuance of Common Stock to Consultants and Advisors
During 1996, we 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. Of such shares issued in 1996, 2,628,000 shares of common stock
were issued for start-up services rendered principally during 1995. Such shares
were assigned a value of $164,250, which represented the fair market value for
these services rendered at such time.
During 1997 and 1998, we issued 205,000 and 468,044 shares of common
stock, respectively, as consideration for consulting services performed by
various consultants, including related parties. During July 1998, we and a
consultant mutually agreed to cancel 375,000 shares of common stock that were
issued for past consulting services valued at $93,750. The value of the
cancelled shares of $93,750 has been recorded as a reduction of consulting
expense for the year December 31, 1998. Shares issued, net of cancelled shares,
under these arrangements were valued at $839,550 and $422,200, which was all
charged to operations during 1997 and 1998, respectively.
During the nine months ended September 1999 we issued 1,355,681 shares of
common stock with a value of $1,144,348 as consideration for consulting services
performed by various consultants, including related parties.
Acquisition of Technologies from Consultant
Prof. Figovsky, who is a consultant, is the originator and developer of
three technologies, INP, LEM and RubCon, all right, title and interest in which
was 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.
Common Directors, Officers and Shareholders
ERBC Holdings, Ltd. ("ERBC")
ERBC, which sublicensed to us the EKOR technology licensed to it by EAPS,
is the beneficial owner of 255,000 shares of our common Stock. Hans-Joachim
Skrobanek, who is a shareholder (331,875 shares), was until recently an officer
of ours and at one time served as one of our directors, is also an employee of
ERBC and now the president of KRHL. Peter Gulko, who is a major shareholder of
ours (5,430,000 shares), was one of our original directors, briefly in 1998
served as our President and currently serves as a consultant, at one time also
worked for
36
<PAGE>
ERBC. Kurt Seifman, the chief executive officer and sole shareholder of ERBC, is
the beneficial owner of 712,810 shares of our common stock, after having
recently sold 533,490 shares.
Kurchatov Research Holdings, Ltd ("KRHL").
Please refer to the information detailed above under the heading "Certain
Recent Transactions".
Dr. Graves, one of our directors who until January 23, 1998 served as our
President and Chief Executive Officer, served as a director and officer of KRHL
from June 1997 through February 13, 1998. We did not enter into any material
transactions, agreements or commitments with KRHL during Dr. Graves' incumbency
as a director or officer of KRHL.
DESCRIPTION OF SECURITIES
Our 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,
par value $0.001. As of December 31, 1999 there were outstanding 36,590,507
shares of common stock and no shares of blank check preferred stock. Below is a
summary description of certain provisions relating to our capital stock
contained in our Articals of Incorporation and By-Laws and under the District of
Columbia Business Corporation Act. The summary is qualified in its entirety by
reference to our Articles of Incorporation and By-laws and the District of
Columbia Business Corporation Act.
Common Stock
We are 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. In the event of a
voluntary or involuntary liquidation, 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 our
offerings of shares of our common stock. Holders of common stock are entitled to
dividends if, as and when declared by the Board out of the funds legally
available therefor. It is our present intention to retain earnings, if any, for
use in our business. Dividends are, therefore, unlikely in the foreseeable
future.
Blank Check Preferred Stock
Pursuant to our Certificate of Incorporation, our Board is authorized to
issue, without any action on the part of our stockholders, an aggregate of
1,000,000 shares of "blank check" preferred stock. The Board 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. The 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 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 in opposing a takeover bid that the Board determines not to be in our best
interest. In addition, our 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 we have no plans to issue any shares of blank check
preferred stock.
Transfer Agent
The Transfer Agent for the common stock is Interwest Transfer Co., Inc.,
1981 East Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117, Phone
801-272-9294, Fax 801-277-3174
37
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
A. Freely Tradeable Shares
Once this offering is complete, we will have a total of 46,834,389 shares
of common stock outstanding assuming the exercise of the warrants and the
conversion of the debentures and the sale of 1,200,000 shares for the Equity
Line of Credit.(1) Of these outstanding shares, upon the exercise of the
warrants and the conversion of the convertible debentures registered by us
herein, 27,992,584 shares will be freely tradeable, without restriction by or
further registration under the Securities Act.
B. Restricted Shares
18,841,805 shares of common stock shares outstanding are "restricted
securities", as defined in Rule 144 under the Securities Act. However, most of
these shares have been sold in compliance with Rule 144 and are, therefore,
freely tradeable by their purchasers.
- -------------
(1) In arriving at this number, we assumed the issuance of: (i) 1,276,250
shares under certain warrants; and (ii) up to 3,936,144 shares upon the
conversion of our convertible debentures registered by us under the registration
statement of which this prospectus is a part. Does not give effect to the
issuance of up to 1,250,000 shares of common stock reserved for issuance under
our 1995 and 1999 stock option plans.
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 our securities 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 of 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.
We have 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.
EXPERTS
Our audited balance sheets at December 31, 1997 and 1998 and the related
statements of operations for the years ended December 31, 1996, 1997 and 1998
included in this prospectus have been audited by Tabb, Conigliaro & McGann,
P.C., independent certified public accountants, as set forth in their report
contained herein. These financial statements have been included in reliance upon
the report of Tabb, Conigliaro & McGann, P.C., given upon the authority of such
firm as experts in accounting and auditing.
38
<PAGE>
ADDITIONAL INFORMATION
We are subject to the informational reporting requirements of
theSecurities Exchange Act of 1934, as amended, and file reports, proxy
statements and other information with the Securities and Exchange Commission.
The 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; at 5757
Wilshire Boulevard, Los Angeles, California 90036; and at the New York Regional
Office of the Commission, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of the materials can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, 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, which are
incorporated 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 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.
Our 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 we have 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 us.
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
referenced 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., 1216 16th Street, N.W., Washington, D.C. 20036, phone
(202) 466-5448 fax (202) 466-5591 or by email [email protected]
39
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Note 2)
<TABLE>
<CAPTION>
At December 31, At Sept. 30, 1999
1998 (Unaudited)
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,940 $ 311,982
Receivable from related parties 5,918 5,918
Prepaid expenses and other current assets 200 200
------------ ------------
TOTAL CURRENT ASSETS 8,058 318,100
PROPERTY AND EQUIPMENT - net of accumulated depreciation 31,846 25,700
OTHER ASSETS:
Investment in Kurchatov Research Holdings, Ltd. -- 4,841,438
Organization and patent costs - net of accumulated amortization 26,587 25,038
Deferred financing costs 2,361 --
Other assets 7,551 9,750
------------ ------------
TOTAL ASSETS $ 76,403 $ 5,220,026
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Notes payable $ -- $ 570,509
Accrued liabilities 1,716,809 2,690,742
Deferred revenue 225,000 375,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,941,809 3,636,251
------------ ------------
CONVERTIBLE DEBENTURES 6,970,000 6,660,000
------------ ------------
CONTINGENCIES AND OTHER MATTERS (Notes 1, 2, 5 and 6)
STOCKHOLDERS' DEFICIENCY:
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;
19,621,882 and 30,577,344 shares issued and outstanding at
December 31,1998 and September 30, 1999, respectively 4,905 7,644
Additional paid-in capital 15,452,783 23,186,758
Unearned financing costs (47,500) (4,873)
Deficit accumulated during the development stage (24,245,594) (28,265,754)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (8,835,406) (5,076,225)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 76,403 $ 5,220,026
DEFICIENCY ============ ============
</TABLE>
See notes to financial statements
F-1
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
from Inception
For the Nine Months Ended Sept. 30, (May 26, 1995) to
1998 1999 Sept. 30, 1999
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
OPERATING EXPENSES:
Research and development 875,416 690,190 4,120,295
Consulting fees 589,133 403,233 1,794,104
Compensatory element of stock issuances
pursuant to consulting agreements 340,656 1,267,828 3,739,055
Other general and administrative expenses 841,777 843,736 3,950,689
------------ ------------ ------------
TOTAL OPERATING EXPENSES 2,646,982 3,204,987 13,604,143
------------ ------------ ------------
OPERATING LOSS (2,646,982) (3,204,987) (13,604,143)
------------ ------------ ------------
OTHER EXPENSES:
Interest expense 632,270 522,760 1,389,893
Amortization of deferred and unearned
financing costs 3,642,884 292,413 13,271,718
------------ ------------ ------------
TOTAL OTHER EXPENSES 4,275,154 815,173 14,661,611
------------ ------------ ------------
NET LOSS $ (6,922,136) $ (4,020,160) $(28,265,754)
============ ============ ============
NET LOSS PER COMMON SHARE $(0.36) $(0.18)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,288,291 22,333,601
============ ============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended Sept. 30,
------------------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ -- $ --
------------ ------------
OPERATING EXPENSES:
Research and development 314,905 197,041
Consulting fees 83,786 85,747
Compensatory element of stock issuances pursuant to consulting
agreements 13,785 607,740
Other general and administrative expenses 286,979 446,184
------------ ------------
TOTAL OPERATING EXPENSES 699,455 1,336,712
------------ ------------
OPERATING LOSS (699,455) (1,336,712)
------------ ------------
OTHER EXPENSES:
Interest expense 202,550 181,653
Amortization of deferred and unearned financing costs 593,223 --
------------ ------------
TOTAL OTHER EXPENSES 795,773 181,653
------------ ------------
NET LOSS $ (1,495,228) $ (1,518,365)
============ ============
NET LOSS PER COMMON SHARE $ (0.08) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 19,371,206 25,755,399
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional Unearned
Date of Common Stock 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)
========== ====== =========== ======= ===========
Deficit
Accumulated
During the
Development
Period Ended December 31, 1995: Stage Total
- ------------------------------- ----------- -----------
<S> <C> <C>
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)
=========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
F-4
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional Unearned
Date of Common Stock Paid-in Due from Financing
Year 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)
========== ====== =========== ======= ===========
Deficit
Accumulated
During the
Development
Year Ended December 31, 1997: Stage Total
- ------------------------------- ----------- -----------
<S> <C> <C>
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)
============ ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to 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, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional Unearned
Date of Common Stock Paid-in Due from Financing
Year Ended December 31, 1998: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------- ----------- ----------- ------- ----------- ------------ ---------
(1)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 18,928,836 $4,732 $12,892,313 $ -- $(1,315,317)
Issuance of stock for consulting fees
($2.58 per share) 03/98 43,000 11 110,930 -- --
Issuance of stock for consulting fees
($0.85 per share) 06/98 143,000 35 215,895 -- --
Issuance of stock for consulting fees
($0.32 per share) 09/98 126,617 32 107,503 -- --
Issuance of stock for consulting fees 12/98 155,427 39 81,505 -- --
Issuance of stock pursuant to penalty
provision of bridge financing
($1.0625 per share) 04/98 500,000 125 531,124 -- (531,249)
Value assigned to conversion feature of
Convertible Debentures and 60,000
warrants issued as additional interest 02/98 -- -- 1,100,000 -- (1,100,000)
Value assigned to conversion feature of
Convertible Debentures and 125,000 warrants
issued as additional interest 07/98 -- -- 475,000 -- (475,000)
Cancellation of stock issued for consulting
fees 07/98 (375,000) (94) (93,656) -- --
Issuance of stock for conversion of debenture
note payable ($0.32 per share) 9/98, 11/98 100,002 25 32,169 -- --
Amortization of unearned financing costs -- -- -- -- 3,374,066
Net loss -- -- -- -- --
---------- ------ ----------- ------- -----------
Balance - December 31, 1998 19,621,882 $4,905 $15,452,783 $ -- $ (47,500)
========== ====== =========== ======= ===========
Deficit
Accumulated
During the
Development
Year Ended December 31, 1998: Stage Total
- ------------------------------- ----------- -----------
<S> <C> <C>
Balance - December 31, 1997 $(16,431,451) $(4,849,723)
Issuance of stock for consulting fees
($2.58 per share) -- 110,941
Issuance of stock for consulting fees
($0.85 per share) -- 215,930
Issuance of stock for consulting fees
($0.32 per share) -- 107,535
Issuance of stock for consulting fees -- 81,544
Issuance of stock pursuant to penalty
provision of bridge financing
($1.0625 per share) -- --
Value assigned to conversion feature of
Convertible Debentures and 60,000
warrants issued as additional interest -- --
Value assigned to conversion feature of
Convertible Debentures and 125,000 warrants
issued as additional interest -- --
Cancellation of stock issued for consulting
fees -- (93,750)
Issuance of stock for conversion of debenture
note payable ($0.32 per share) -- 32,194
Amortization of unearned financing costs -- 3,374,066
Net loss (7,814,143) (7,814,143)
----------- -----------
Balance - December 31, 1998 $(24,245,594) $(8,835,406)
============ ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
F-6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional Unearned
Date of Common Stock Paid-in Due from Financing
Nine Months Ended September 30, 1999: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------------- ----------- ----------- ------- ----------- ------------ ---------
(1)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1998 9,621,882 $4,905 $15,452,783 $ -- $ (47,500)
Issuance of stock for consulting fees
($0.77 per share) 03/99 116,039 $ 29 $ 89,871 -- $ --
Issuance of stock for consulting fees
($0.72 per share) 06/99 624,332 156 446,532 -- --
Issuance of stock for consulting fees
($0.98 per share) 09/99 615,310 154 607,586 -- --
Issuance of stock for conversion of debenture
note payable ($0.35 per share) 02/99 987,201 247 341,029 -- --
Issuance of stock for finder's fee
($0.77 per share) 09/99 82,580 20 63,727 -- --
Value assigned to conversion feature of
Convertible Debentures and 84,750 warrants
issued as additional interest 01/99 -- -- 175,425 -- (175,425)
Value assigned to additional consideration for
financing activities ($0.72 per share) 05/99 100,000 25 71,975 -- (72,000)
Acquisition of 6,795,000 shares of Kurchatov
Research Holdings, Ltd. ($1.07 per share) 09/99 4,530,000 1,133 4,840,305 -- --
Issuance of stock ($0.25 per share) 06/99 1,900,000 475 474,525 -- --
Issuance of stock ($0.25 per share) 09/99 2,000,000 500 499,500 -- --
Modification of warrants issued 06/99 -- -- 123,500 -- --
Amortization of unearned financing costs -- -- -- -- 290,052
Net loss -- -- -- -- --
---------- ------ ----------- ------- -----------
Balance - September 30, 1999 30,577,344 $7,644 $23,186,758 $ -- $ (4,873)
========== ====== =========== ======= ===========
Deficit
Accumulated
During the
Development
Nine Months Ended September 30, 1999: Stage Total
- ------------------------------------- ----------- -----------
<S> <C> <C>
Balance - December 31, 1998 $(24,245,594) $(8,835,406)
Issuance of stock for consulting fees
($0.77 per share) $ -- $ 89,900
Issuance of stock for consulting fees
($0.72 per share) -- 446,688
Issuance of stock for consulting fees
($0.98 per share) -- 607,740
Issuance of stock for conversion of debenture
note payable ($0.35 per share) -- 341,276
Issuance of stock for finder's fee
($0.77 per share) -- 63,747
Value assigned to conversion feature of
Convertible Debentures and 84,750 warrants
issued as additional interest -- --
Value assigned to additional consideration for
financing activities ($0.72 per share) -- --
Acquisition of 6,795,000 shares of Kurchatov
Research Holdings, Ltd. ($1.07 per share) -- 4,841,438
Issuance of stock ($0.25 per share) -- 475,000
Issuance of stock ($0.25 per share) -- 500,000
Modification of warrants issued -- 123,500
Amortization of unearned financing costs -- 290,052
Net loss (4,020,160) (4,020,160)
----------- -----------
Balance - September 30, 1999 $(28,265,754) $(5,076,225)
============ ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
F-7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
from Inception
For the Nine Months Ended Sept. 30, (May 26, 1995) to
1998 1999 Sept. 30, 1999
------------ ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,922,136) $ (4,020,160) $(28,265,754)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 7,046 7,695 21,593
Amortization of deferred and unearned financing costs 3,642,884 292,413 13,271,718
Stock issued for license -- -- 37,500
Consulting fees and other compensation satisfied by stock
issuances 340,656 1,331,575 3,802,802
Cash provided by (used in) the change in assets and
liabilities:
(Decrease) increase in advances to related parties -- -- (5,918)
Increase in prepaid expenses (4,708) -- (200)
Increase in other assets (4,400) (2,200) (9,751)
Increase in deferred revenue -- 150,000 375,000
Increase in accrued liabilities 955,662 1,125,719 2,494,720
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,984,996) (1,114,958) (8,278,290)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization and patent costs -- -- (31,358)
Capital expenditures (23,628) -- (40,972)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (23,628) -- (72,330)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options -- -- 150
Proceeds from issuance of common stock -- 975,000 1,816,500
Offering costs -- -- (2,898)
Repayment by stockholders -- -- 3,000
Net proceeds from notes payable -- 450,000 450,000
Proceeds from convertible debentures 4,000,000 -- 7,000,000
Proceeds from bridge notes -- -- 2,000,000
Repayment of bridge notes (2,000,000) -- (2,000,000)
Borrowings from stockholders -- -- 561,140
Repayment to stockholders -- -- (561,140)
Deferred financing costs (260,000) -- (604,150)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,740,000 1,425,000 8,662,602
------------ ------------ ------------
(DECREASE) INCREASE IN CASH (268,624) 310,042 311,982
CASH - BEGINNING 617,756 1,940 --
------------ ------------ ------------
CASH - ENDING $ 349,132 $ 311,982 $ 311,982
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,630 $ 526 $ 316,447
============ ============ ============
Income taxes $ -- $ -- $ --
============ ============ ============
Interest converted to common stock $ -- $ 31,276 $ 31,276
============ ============ ============
</TABLE>
See notes to financial statements.
F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are unaudited. These
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ( the "SEC").
Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to state fairly
the financial position and results of operations as of and for the
periods indicated. These financial statements should be read in
conjunction with the Company's financial statements and notes
thereto for the year ended December 31, 1998, included in the
Company's Form 10K as filed with the Securities and Exchange
Commission.
The preparation of financial statements in conformity with general
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 statement and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2- 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, marketing 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.
F-9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 2 - BUSINESS AND CONTINUED OPERATIONS (Continued)
The accompanying unaudited 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 September 30,
1999, the Company has a stockholders' deficiency of $5,076,225, a
working capital deficiency of $3,318,151 and an accumulated deficit
since inception of $28,265,754. 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 and $1,000,000
completed during February and July 1998, respectively. Proceeds from
the February 1998 Convertible Debenture financing were used to
retire the $2,000,000 bridge note. In January 1999, the Company
borrowed $450,000 from two stockholders and issued a secured
promissory note (see Note 3). In May 1999, the Company borrowed
$50,000 from an unrelated party, which was repaid in June 1999.
During the nine months ended September 30, 1999, the Company raised
$975,000 from the sale of restricted common stock, of which $500,000
was raised during the quarter ended September 30, 1999. The Company
is exploring additional sources of working capital, which include a
private offering of common stock, private borrowings and joint
ventures (see Note 7).
While no assurance can be given, management believes the Company can
raise adequate capital to keep the Company functioning during 1999.
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.
F-10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 3 - NOTES PAYABLE
Secured Promissory Notes
On January 6, 1999, the Company's Chairman and the majority
convertible debt holder provided $450,000 of short-term financing to
the Company, evidenced by two secured promissory notes. Each secured
promissory note bears interest at 13% per annum and is due January
6, 2000. The promissory notes are collateralized by the Company's
intangible assets and can be exchanged for 8% Convertible Debentures
under terms similar to the current outstanding debentures. As
additional consideration for the financing, the Company issued to
the secured promissory note holders warrants to purchase 84,750
shares of the Company's common stock at an exercise price of $0.36
per share. The warrants expire five years from January 6, 1999.
The Company has assigned a value to the debt's beneficial conversion
feature and warrants amounting to $175,425, and such amount is being
amortized over 180 days commencing January 6, 1999.
NOTE 4 - STOCKHOLDERS' DEFICIENCY
Significant Common Stock Issuances During 1999
During the nine months ended September 30, 1999, a debenture holder
converted $310,000 of principal and $31,276 of accrued interest into
987,201 shares of common stock.
During the nine months ended September 30, 1999, the Company issued
1,355,681 shares of common stock as consideration for consulting
services performed by various employees and consultants, including
related parties, through September 30, 1999. Shares issued under
these arrangements were valued at $1,144,328, which was all charged
to operations during the nine months ended September 30, 1999.
During the nine months ended September 30, 1999, the Company sold
3,900,000 shares of its restricted common stock for $975,000.
During the quarter ended September 30, 1999, the Company issued
82,580 shares to two directors and an employee as a finders fee
valued at $63,747. This fee was in connection with the above
3,900,000 sale of restricted common stock.
During September 1999, the Company acquired from CIS Development
Corp. 6,795,000 shares of the voting capital stock of Kurchatov
Research Holdings, Ltd. ("KRHL"). In exchange for the KRHL shares,
the Company issued 4,530,000 shares of its own common stock. The
KRHL shares were valued at $4,841,438.
F-11
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 4 - STOCKHOLDERS' DEFICIENCY (Continued)
Significant Common Stock Issuances During 1999 (Continued)
In connection with a January 28, 1997 agreement with KRHL, the
Company had agreed to pay KRHL 50% of the net profits derived from
the sale, license or commercialization of any technologies or
products based upon technologies developed by its scientists and
transferred to the Company or supplied by the scientists to the
Company.
Warrants
During the three months ended September 30, 1999, an officer was
granted warrants to purchase 50,000 common shares at an exercise
price of $0.75 per share. The warrants may be exercised over a
three-year period. The warrants were assigned a value of $61,500,
which was all charged to operations during the three months ended
September 30, 1999.
Stock Option Plans
The Company has a 1995 Stock Option Plan and on August 13, 1999,
1999 Stock Option Plan was adopted by the Board of Directors of the
Company. Under the Option Plans, 1,250,000 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 Plans 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 Plans 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, or, if applicable,
the Board) 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 Plans are 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 Plans, 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.
F-12
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 4 - STOCKHOLDERS' DEFICIENCY (Continued)
Stock Option Plans
During the nine months ended September 30, 1999, 500,000 options
were granted under the 1995 Plan and 150,000 options were granted
under the 1999 Plan. No options were exercised as of September 30,
1999.
Earnings Per Share
Securities that could potentially dilute basic earnings per share
("EPS") in the future that were not included in the computation of
diluted EPS because to do so would have been anti-dilutive for the
periods presented consist of the following:
Common stock reserved for warrants to purchase common stock 1,746,250
Common stock reserved for Convertible Debentures (assumed
conversion at September 30, 1999 market value price and at
largest discount) 9,963,421
Common stock reserved for options to purchase common stock 650,000
----------
Total as of September 30, 1999 12,359,671
==========
Substantial issuance after September 30, 1999:
Proposed sale of 12,355,270 common shares for $20 million,
issuable over 10-month period commencing December 1999
NOTE 5 - TECHNOLOGY INVESTMENTS AND LICENSING AGREEMENT
Investments in Israeli Technology Companies
During 1997 and 1998, the Company agreed to acquire a 20% interest
in seven separate Israeli technology, research and development
companies ("incubators"). 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 Company had, as of December 31, 1998, a 20% interest in
Chemonol, Ltd., an Israeli research and development company. On
January 20, 1999, the Company entered into an agreement to invest
$300,000 in exchange for an additional 16% of Chemonol's voting
stock. The agreement provides for the Company to make four (4) equal
payments of $75,000 commencing March 1, 1999, July 1, 1999, October
1, 1999 and January 1, 2000. During the nine months ended September
30, 1999, the Company paid $150,000 under the agreement, which was
charged to research and development costs.
F-13
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 5 - TECHNOLOGY INVESTMENTS AND LICENSING AGREEMENT (Continued)
Investments in Israeli Technology Companies (Continued)
During the nine months ended September 30, 1999, an additional
$161,000 was invested in the seven Israeli technology incubators.
The Company is currently in negotiations to acquire an additional
25% of three of the seven Israeli technology incubators voting
stock.
The amount charged to research and development expenses related to
these investments for the nine months ended September 30, 1999
approximated $311,000, which reduced the carrying value of the
Company's investment in these seven companies to $-0- at September
30, 1999.
Proposed Sale of Technology
The Company received a deposit on a proposed sale of its
sublicensing rights to Resealable Container Systems and TetraPak
containers. The proposed transaction is presently in the discussion
stage and to-date, no agreements have been signed. Included in
unearned revenue is the $150,000 deposit related to the proposed
sale.
During the three quarters ended September 30, 1999, the Company has
hired a marketing company for services in connection with its
sublicensing rights to Resealable Container Systems and TetraPak
containers.
NOTE 6 - CONTINGENCIES AND OTHER MATTERS
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.
F-14
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 6 - CONTINGENCIES AND OTHER MATTERS (Continued)
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 widespread 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.
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.
In October 1999, this litigation was settled by the Company agreeing
to issue to the plaintiffs a total of 186,446 shares of the
Company's common stock, payable in twelve equal monthly
installments. As a result of this litigation, all 470,000 warrants
to purchase Eurotech's common stock were cancelled.
F-15
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 6 - CONTINGENCIES AND OTHER MATTERS (Continued)
Litigation (Continued)
The former president has advised the Company that he believes that
he was wrongfully terminated under the provisions of a certain
employment agreement allegedly executed by the Company in his
behalf, and has made demand for certain payments, as provided in the
employment agreement in his possession. The Company has taken the
position that there is no valid employment agreement with the former
president and that he is not entitled to the payments demanded and
is attempting to negotiate a settlement of the matter. Subsequently,
the former President filed suit against the Company in the Superior
Court of the District of Columbia seeking a monetary judgement in
the amount of $360,000, plus prejudgement interest. The former
President claims that this amount is due to him as severance pay
under a purported employment agreement dated as of September 1,
1998. The Company believes that the purported employment agreement
is not valid or binding and intends to defend vigorously against the
claim.
NOTE 7 - SUBSEQUENT EVENT
Proposed Financing
On October 25, 1999, the Company has entered into an agreement to
sell 28% of its authorized and unissued voting common stock for
$20,000,000. A total of 12,355,270 shares shall be delivered into
escrow upon the approval of the Board of Directors of Eurotech, Ltd.
and upon notice that the purchaser has available in its account
$20,000,000. The funds are to be paid in 10 monthly increments with
one-tenths of the shares being released with each payment. The
closing of this agreement is subject to the completion of a
definitive purchase agreement.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below are the expenses heretofore incurred and 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, the amounts set forth below are estimates.
Securities and Exchange Commission registration fee .......... $11,256.52
Printing and engraving expenses .............................. 5,000.00
Legal fees and expenses ...................................... 70,000.00
Accounting fees and expenses ................................. 15,000.00
Transfer Agent fees and expenses ............................. 1,000.00
Miscellaneous expenses ....................................... 500.00
-----------
Total ......................................... $102,756.52
We will bear all expenses listed above.
Item 14. Indemnification of Directors and Officers
Our Articles of Incorporation provide that we 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, indemnify any and all persons
we have the power to indemnify under said section. Section 29-304 of the Act
grants to us the power to indemnify any and all of our directors or officers or
former directors of officers or any person who may have served at our request as
a director or officer of another corporation in which we own shares of capital
stock or of which we are 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 ours,
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 our
Articles of Incorporation may reduce the likelihood of derivative litigation
against our directors and officers for breach of their fiduciary duties, even
though such action, if successful, might otherwise benefit us and our
stockholders.
Additionally, our Bylaws provide for the indemnification of directors and
officers. The specific provisions of the Bylaws related to such indemnifycation
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
II-1
<PAGE>
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 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.
We have 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 we do not indemnify
such officer or director, and will reimburse us for any amounts where we may by
law indemnify any of our officers or directors in connection with a claim by
reason of a wrongful act.
Item 15. Recent Sales of Unregistered Securities
In December, 1996, we completed a private placement of 40 Units, each
consisting of a one-year promissory note in the principal amount of $50,000 and
25,000 shares of our 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 were 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 we completed a private placement of $3,000,000 principal
amount of our 8% convertible debentures due November 27, 2000 and of warrants to
purchase up to 60,000 shares of our common stock. The warrants were issued as
additional consideration for the purchase of the debentures. The proceeds of
such offering were be used as follows:
Purpose Amount
------- ------
Technology acquisition and development $1,000,000
Interest on debt 678,000
Working capital 1,000,000
In February 1998, we completed a private placement of $3,000,000 principal
amount of our 8% convertible debentures due February 23, 2001 and of warrants to
purchase up to 60,000 shares of our common stock. The warrants were issued as
additional consideration for the purchase of the debentures. The proceeds of
such offering were used as follows:
Purpose Amount
------- ------
Retirement of debt $1,000,000
Working capital 678,000
In July 1998, we completed a private placement of $1,000,000 of our
II-2
<PAGE>
convertible debentures due July 20, 2001 and warrants to purchase up to 125,000
and shares of our common stock. The proceeds of such offering were used as
follows:
Purpose Amount
------- ------
Working capital $975,000
Legal and accounting fees 25,000
As part of the July, 1998 convertible debentures financing, we modified
our prior Convertible Debenture agreements to eliminate the conversion price
"floor" attendant to the Debentures. Without the conversion price "floor", the
Company is not able to determine the number of shares that the convertible
debenture may be converted into. Accordingly, there existed a possibility of
substantial dilution to the shareholders of the Company upon conversion of all
or any portion of the convertible debentures. In January, 2000, we reached a
further agreement with the holders of the convertible debentures pursuant to
which we paid them all overdue interest in cash and reestablished the conversion
price "floor" at $2.00 per share. Thus we are again able to calculate with
precision the maximum numbers of shares into which the several outstanding
convertible debentures may be converted, and shares in those numbers are among
the shares included in this registration statement.
In September 1999 we completed a private placement of 3,900,000 shares of
our common stock for an aggregate offering price of $975,500. The Units were
offered and sold only to accredited investors and were not registered in
reliance on section 4(2) of the Act, and within the meaning of Rule 501 of
Regulation D under the Act. :
Purpose Amount
------- ------
Accounting Fees 30,000
Legal Fees 25,000
Consulting Fees 97,500
Working Capital 822,500
In September, 1999, we issued to CIS Development controlled by Mr.
Peter Gulko,for the benefit of the EKOR scientist one of our organizers,
formerly a director and officer of ours, and currently a consultant to us,
4,530,000 shares of our common stock in exchange for 6,795,000 shares of the
common stock (amounting to about 40% of the outstanding stock) of Kurchatov
Research Holdings, Ltd., a Delaware corporation ("KRHL"). Mr. Gulko has informed
us that he held the KRHL shares that he sold to us, and is holding our shares
that we issued to him, for the benefit of certain scientists in the former
Soviet Union who invented and are assisting us in the commercialization of our
most important technology. Pursuant to our agreement with the investor, however,
500,000 shares so issued are included this registration statement. As of January
31, 2000, we have reserved 2,000,000 shares of our common stock to be issued to
KRHL as part of a transaction that involved, in addition, (once KRHL complies
with final requirements).
o The release by KRHL to us of its profit interest in the EKOR
technology, subject to a 2% royalty on sales and service of EKOR;
o The release by us to KRHL of resealing can technology, subject to a
6% royalty on gross sales, for which an affiliate of KRHL had
already paid us $150,000 on account;
o KRHL's agreement to pay to us on September 1, 2000 an additional
$350,000 for the resealing can technology;
II-3
<PAGE>
o The surrender by us to KRHL of KRHL's own shares that we had
acquired from Mr. Gulko; and (once KRHL complies with final
requirements).
o The assumption by us, with the express consent of Spinneret
Financial Services, Inc. of KRHL's obligations to that organization.
This transaction is described in more detail in the prospectus. We did not
register the 2,000,000 shares that we issued to KRHL in this transaction in
reliance on Section 4(2) of the Act.
As of December 15, 1999, we issued to Spinneret Financial Systems, Inc.
1,000,000 shares of our common stock in consideration of the release by
Spinneret of all obligations to it that we had assumed from KRHL. The sole
owner, director and officer of Spinneret is the brother of our President and
Chief Executive Officer. Pursuant to our agreement with the investor, however,
the shares so issued and the shares purchasable upon the exercise of the
warrants are included this registration statement.
On December 31, 1999, we placed privately with a single institutional
investor 1,882,353 shares of our common stock for $3,000,000. As additional
consideration, we issued to the investor five-year warrants to purchase up to
200,000 additional shares at the bid price of the outstanding shares on the date
of issue. We did not register these issues in reliance on Section 4(2) of the
Act. Pursuant to our agreement with the investor, however, the shares so issued
and the shares purchasable upon the exercise of the warrants are included this
registration statement. The proceeds of this placement were or are expected to
be used as follows:
Purpose Amount
------- ------
Consulting fee paid to Spinneret Financial Systems, Inc. $ 150,000
Legal Fees $ 18,000
Working Capital $2,832,000
The terms of this transaction include (1) an obligation to issue additional
shares to the investor as a result of "repricing" if the market value of our
outstanding shares declines during certain periods after the effectiveness of
this Post-Effective Amendment No. 2.; and (2) our right to sell additional
shares to the investor in discrete installments for aggregate proceeds of up to
$22,000,000. We would have an obligation to register any and all such additional
shares, if so issued.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description of Exhibit
------- ----------------------
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Form of Common Stock Certificate(1)
10.1 Material Contracts(2)
10.2 Technology Purchase Agreement between the Company and
Oleg L. Figovsky(2)
II-4
<PAGE>
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 Form of Agreement between the Company, V. Rosenband and
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)
10.11.1 Cooperation Agreement between the Company and
Forschungszentrum Julich GmbH(2)
10.11.2 Four Party agreement with the three entities in Germany,
for EKOR Germany testing
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. and 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,
II-5
<PAGE>
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
and 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(2)
10.14.1 Debenture Purchase Agreement between the Company and
JNC Strategic Fund Ltd.(3)
10.14.2 Form of 8% Convertible Debenture No.1 Due July 20, 2001
between the Company and JNC Strategic Fund Ltd.(3)
10.14.3 Form of 8% Convertible Debenture No.2 Due
February 23, 2001 between the Company and JNC
Opportunity Fund, Ltd.(3)
10.14.4 Warrant No. 4 between the Company and JNC Strategic
Fund Ltd.(3)
10.14.5 Registration Rights Agreement between the Company and
JNC Strategic Fund Ltd.(3)
10.14.6 Amended and Revised 8% Convertible Debenture No.1 Due
February 23, 2001 between the Company and JNC
Opportunity Fund, Ltd.(3)
10.14.7 Amended and Revised 8% Convertible Debenture No.2 Due
July 20, 2001 between the Company and JNC Strategic F
Fund Ltd.(3)
10.14.8 Amended and Revised 8% Convertible Debenture No.13 Due
November 27, 2000 between the Company and JNC
Opportunity Fund, Ltd.(3)
II-6
<PAGE>
10.14.9 Amended and Revised 8% Convertible Debenture No.14 due
November 27, 2000 between the Company and Diversified
Strategies Fund, L.P.(3)
10.15.1 Agreement between the Company and David Wilkes(3)
10.15.2 Secured Promissory Note between the Company as Maker
And JNC Strategic Fund Ltd. as Payee(3)
10.15.3 Secured Promissory Note between the Company as Maker
and David Wilkes as Payee(3)
10.15.4 Secured Promissory Note between the Company as Maker
and David Wilkes as Payee(3)
10.15.5 Escrow Agreement among the Company, JNC Strategic Fund
Ltd. and Encore Capital Management, L.L.C.(3)
10.15.6 Security Agreement by the Company in favor of JNC
Strategic Fund Ltd. and David Wilkes(3)
10.15.7 Warrant between the Company and JNC Strategic Fund
Ltd.(3)
10.15.7 Warrant issued by the Company to David Wilkes(3)
10.15.8 Form of 8% Convertible Debenture Due Three Years from
Original Issue Date between the Company and JNC
Strategic Fund Ltd.(3)
10.15.9 Employment Agreement between the Company and Frank
Fawcett(4)
10.15.10 Disengagement Agreement between the Company and Frank
Fawcett(4)
10.16.1 Letter Agreement between the Company and Don V.
Hahnfeldt(4)
10.16.2 Revised employment agreement between the Company and
Don V. Hahnfeldt(7)
10.17 Agreement dated September 9, 1999 between the Company
and Peter Gulko(5)
10.18 Agreement dated as of November 30, 1999 between the
Company and Kurchatov Research Holdings, Ltd.(6)
10.19 Agreement dated as of December 15, 1999 between the
Company and Spinneret Financial Services, Inc.(7)
10.20.1 Common Stock Purchase Agreement dated December 31, 1999
between the Company and Woodward LLC(7)
10.20.2 Warrant issued by the Company to Woodward LLC(7)
10.20.3 Registration Rights Agreement between the Company and
Woodward LLC(7)
10.20.4 Commitment Agreement ($22,000,000) between the Company
and Woodward LLC(7)
II-7
<PAGE>
10.20.5 Escrows Agreement among the Company, Woodward LLC and
Krieger & Prager(7)
23.1 Consent of Tabb, Conigliaro & McGann(4)
- -------------------
(1) Previously filed
(2) Incorporated by reference to such Exhibits filed with our
registration statement on Form 10 on File with the Commission, file
number 000-22129
(3) Incorporated by reference to such Exhibits filed with the Company's
Current Report on Form 8-K under the Securities Exchange Act of
1934, on file with the Commission
(4) Filed with Post-Effective Amendment No. 1 to this Registration
Statement on Form S-1
(5) Incorporated by reference to such Exhibit filed by Peter Gulko with
his Statement on Schedule 13D
(6) Incorporated by reference to such Exhibit filed with the Company's
Current Report on Form 8-K under the Securities Exchange Act of
1934, on file with the Commission
(7) Filed herewith
(b)(1) See Audited Financial Statements and supplementary data
index which appears on page F-1 herein.
(2) Schedules have been omitted because they are either not
applicable or the required information is shown in the
financial statements or notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers or
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities 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 us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
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
II-8
<PAGE>
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
We hereby further undertake:
(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; and
(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.
(3) That, for the purpose of determining any liability under the
Securities Act, each 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.
(4) 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.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post Effective Amendment No. 2 to its Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Washington, District of Columbia, on January 31, 2000.
EUROTECH, LTD.
By: /s/ Don V. Hahnfeldt
------------------------------------
Don V. Hahnfeldt
President and CEO
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Don V. Hahnfeldt his true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution, for him and in
his place and stead, in any and all capacities, to sign any and all further
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 attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
comfirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to registration statement has been signed by the following
persons in the capacities on the dates indicated:
Person Capacity Date
------ -------- ----
/s/ Chad A. Verdi Chairman of the Board January 31, 2000
- ------------------------------- of Directors
Chad A. Verdi
/s/ Randolph A. Graves, Jr. Director January 31, 2000
- -------------------------------
Randolph A. Graves, Jr.
/s/ Don V. Hahnfeldt Director, President, January 31, 2000
- ------------------------------- Chief Executive Officer
Don V. Hahnfeldt
/s/ Michael L. Thomas Vice President, Chief January 31, 2000
- ------------------------------- Administrative Officer
Michael L. Thomas and Corporate Secretary
Chief Financial and
Accounting Officer
<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. 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 2
Selected Financial Data 3
Risk Factors 5
Use of Proceeds 11
Dividends 11
Capitalization 11
Certain Recent Transactions 12
Our Management's Discussion and Analysis
of Results of Operations and
Financial Condition 13
Our Business 16
Market for Our Common Stock 27
Management 28
Principal and Selling Shareholders 33
Transactions with Major Shareholders, Directors and Officers 36
Description of Securities 37
Shares Eligible for Future Sale 38
Plan of Distribution 38
Experts 38
Additional Information 39
Index to Financial Statements F-1
-----------------
================================================================================
================================================================================
EUROTECH, LTD.
11,916,942 Shares of Common Stock
--------------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------------
================================================================================
Exhibit 10.16.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") entered into as of 11-30, 1999
("Effective Date") by and between EUROTECH, Ltd., a District of Columbia
corporation (the "Company"), and Don V. Hahnfeldt (the "Executive").
WHEREAS, the Company desires to retain the services of the Executive as the
President and Chief Executive Officer of the Company on the terms and conditions
provided in this Agreement; and
WHEREAS, the Executive desires to render such services to the Company on the
terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of their mutual promises, the parties hereby
agree as follows:
1. EMPLOYMENT: During the Term of this Agreement, the Executive agrees to serve
as President and Chief Executive Officer of the Company, performing such duties
and services during the Term and such other duties and services as the Board of
Directors of the Company (the "Board") may reasonably request. The Executive
hereby accepts such engagement, all upon and subject to the terms and conditions
hereinafter set forth. The Executive shall serve as a member of the Board of
Directors of the Company at the next opportunity or expansion of the Board.
2. TERM: Subject to earlier terminate as provided for in Section 7, the term of
the Executive's employment under this agreement shall be for the period
commencing on the Effective Date and ending the third anniversary of the
Effective Date. On the third and each successive anniversary of the Effective
Date, the Term shall be automatically extended for an additional one year period
unless either party give the other party ninety days' prior written notice of
such party's intent not to extend the Term of the Agreement.
3. DUTIES: During the Term, the Executive shall devote reasonable attention,
time during normal business hour and energy to providing the services requested
by the Company pursuant to Section 1. During the Term it shall not be a
violation of this Agreement for the Executive to serve on corporate boards or
committees, or in a management role of a technology being commercialized by the
Company.
4. COMPENSATION:
A. Base Salary. The Executive shall be entitled to receive an annual
base salary ("Base Salary") of $104,000 1st year; 2nd and 3rd year
bases, equal to the base salary plus annual bonus of the previous
year.
B. Annual bonus. The Executive will receive up to 50% of base salary,
equal to the percentage increase of EURO stock price from the close
of trading 5 days prior to the start date or anniversary of this
contract, or as determined by the Board based upon the successful
achievement of performance in Company
<PAGE>
goals and objectives. The Executive may elect to defer receipt of
such Annual Incentive Compensation as deferred compensation.
C. Stock incentive. The Executive will receive warrants for 100,000
shares at the commencement of each contract year, with 1st, 2nd, and
3rd year exercise prices respectively at $1.00, $2.00 and $3.00 per
share.
5. BENEFITS: The Executive will participate in the Employee stock option plan in
as determined by the Board. The Executive will participate in medical, dental,
health, insurance, retirement, profit-sharing programs adopted by EUROTECH,
Ltd., plus disability insurance equivalent to base salary. The Executive is
allowed membership and dues at the University Club for the principal purpose of
business meetings and luncheons. He may take up to four weeks vacation per year.
6. EXPENSES: The Executive is authorized reimbursement for annual and monthly
expenses for travel and business expenses conducted in the interest of EUROTECH,
Ltd. and an automobile monthly allowance of $400.
7. TERMINATION: The Agreement is naturally terminated by time and terms of the
Agreement, or by mutual agreement between the Executive and the Board.
Termination prior to three years will result in compensation equivalent to
6-months base pay, unless not by mutual agreement, in which case, compensation
will be equivalent to 12-months base pay.
IN WITNESS WHEREOF, the Executive has signed his name and the Company, by the
signature of its duly authorized officer, has executive this Agreement, as of
the day and year first written above.
EUROTECH, Ltd. EXECUTIVE
David Wilkes, Chairman Don V. Hahnfeldt
Randolph A. Graves, Jr., Board Member
/S/ Chad A. Verdi
Chad A. Verdi, Board Member
Exhibit 10.18
STOCK PURCHASE AND CROSS-RELEASE AGREEMENT
THIS AGREEMENT, made as of this 30 day of November, 1999, by and between
EUROTECH, LTD., a District of Columbia corporation, the principal place of
business of which is 1216 16th Street, NW, Suite 200, Washington, D.C. 20036
("Eurotech") and KURCHATOV RESEARCH HOLDINGS, LTD., a Delaware corporation, the
principal place of business of which is Wiesbadener Street, 17A, DD-12309
Berlin, Germany ("Kurchatov")
W I T N E S S E T H:
WHEREAS, Eurotech is the exclusive world-wide licensee except for the
territory comprised of Russian Federation of the family of technologies
evidenced by United States patent 5,886,060, issued March 23, 1999; and Russian
patent number 2111982 received May 27, 1998; and applications numbers:
PCT/RU98/00009, application date January 1998; PCT/RU98/000073, application date
March 12, 1998, PTC/RU98/000429, application date December 23, 1998 and
subsequent developments, collectively known as EKOR (such technologies
hereinafter collectively, EKOR); and
WHEREAS, pursuant to a letter agreement, dated January 28, 1997, between
Eurotech and Kurchatov, Kurchatov is entitled to receive from Eurotech one-half
(1/2) of the net operating profits derived by Eurotech from the operation,
licensing, sale or other exploitation by Eurotech of EKOR and whereas Kurchatov
paid for certain EKOR equipment (hereinafter, the EKOR Operating Interests); and
WHEREAS, Eurotech has provided Kurchatov a complete description of the
commercial applications of EKOR as known to Eurotech; and
WHEREAS, Eurotech is the owner, of record and beneficially, of six million
seven hundred ninety-five thousand (6,795,000) shares of the common stock of
Kurchatov (the "Kurchatov Shares"); and
WHEREAS, Kurchatov acquired from Eurotech that certain technology of the
resealable can evidenced by German patent numbers (i) Behaelter sowie
Verschluiss fuer einen solchen Behaelter" sasnle Registreation 296 16 133.0 and
(ii) patent registration 196 46 437.4 and Wiederverschliessbare
Weicvhverpackung, die unter anderem fuer <Tetra Pak> geeignet is (reclosing
soft-material packaging suited, e.g., for TetraPak) application-number for
patent registration 197 21 408.2 dated 5-21-1997m plus amendment number 197 29
194.5 dated 7-8-1997 (such technology hereinafter, the "Resealable Can")
pursuant to which acquisition transaction Kurchatov owes Eurotech a six percent
(6%) royalty interest with respect to Kurchatov's commercial
1
<PAGE>
exploitation of the Resealable Can; and
WHEREAS, Kurchatov is indebted in the principal amount of Seven Hundred
Fifty Thousand Dollars ($750,000.00) in addition to accrued interest, penalties
and conveyances of common stock, to Spinneret Financial Systems, Inc.
("Spinneret"); and
WHEREAS, it is in the best interests of both Eurotech and Kurchatov to
simplify their business relationship in the manner hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
conveyances and promises set forth hereinafter and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Purchase of Stock.
Subject to the terms and conditions of this Agreement, Kurchatov
hereby agrees to purchase and purchases from Eurotech, and Eurotech hereby
agrees to sell and sells to Kurchatov, two million (2,000,000) authorized and
unissued shares of the common stock, par value $0.00025 per share ("Common
Stock") of Eurotech (the "Eurotech Shares") Eurotech is delivering to Kurchatov
herewith a certificate or certificates representing the Eurotech Shares sold
pursuant to this Section 1 to Kurchatov.
2. Consideration.
In full consideration for the Eurotech Shares and subject to the
terms and conditions of this Agreement, Eurotech is paying concurrently herewith
the amount of five million Dollars ($5,000,000.00), which amount is deemed by
the parties hereto to be comprised in and constituted by part, but not all, of
the fair value to Eurotech of the release by Kurchatov of the EKOR Operating
Interest as hereinafter set forth.
3. Representations, Warranties and Agreements of Eurotech.
Eurotech hereby represents and warrants to Kurchatov as follows:
3.1 Status of Eurotech. Eurotech is a corporation duly organized,
validly existing and in good standing under the laws of the District of
Columbia, and has all requisite corporate power and authority to own its
properties and to conduct its business as presently conducted, and is duly
qualified to do business as either a foreign or domestic corporation in each
state in which it is deemed to transact business under applicable law.
3.2 The Eurotech Shares. The authorized capital stock of Eurotech
consists of fifty million (50,000,000) shares of
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Common stock, of which the Eurotech Shares constitute four per cent, (4%) of all
such shares which are issued, outstanding and obligated after giving effect to
such issuance. All of the Eurotech Shares are validly issued, fully paid and
non-assessable. There are outstanding subscriptions, options, warrants,
convertible securities or other agreements or commitments obligating Eurotech to
issue or to transfer from its treasury additional shares of its capital stock to
bring the total of issued shares, fifty million (50,000,000). No Capital Event
(as defined in Section 6 hereof) shall occur prior to the expiration date (as
defined in Section 5.1 hereof) unless authorized by a duly called and held
meeting of the shareholders of Eurotech.
3.3 Good Title Transferred. Upon delivery to Kurchatov of the stock
certificate or certificates referred to in Section 1 above, Kurchatov will
receive good and marketable title to four per cent. (4%) of all of the issued,
obligated and outstanding common stock of Eurotech in addition to such common
stock as Kurchatov has already acquired prior to the date hereof, all of which
such securities acquired by Kurchatov pursuant to this Agreement shall be
received by Kurchatov as validly issued, fully paid and non-assessable, free and
clear of all liens, encumbrances, security interests, equities, options, claims,
charges, limitations on voting rights or rights to receive dividends, or other
restrictions of any kind (other than any generally imposed by federal or state
securities laws).
3.4 Subsidiaries. Eurotech does not own, directly or indirectly, any
interest or investment, whether debt or equity, in any corporation, partnership,
business trust or other entity, except securities listed on a national
securities exchange or traded in the over-the-counter market not exceeding in
market value for any issue five per cent. (5%) of the total outstanding market
value of such issue listed or traded.
3.5 Liabilities. Eurotech has no debt, liability or obligation or
any nature, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, that is not reflected or reserved against in Eurotech
financial statements previously furnished to Kurchatov or set forth in
Eurotech's most recent periodic filing on Form 8-K, 10-Q or 10-K with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended, except for those previously disclosed to
Kurchatov (i) that may have been incurred since the date of the most recent
balance sheet included therein or (ii) that are not required by generally
accepted accounting principles to be included in a balance sheet. All debts,
liabilities and obligations incurred after such date were incurred in the
ordinary course of business, and are usual and normal in amount both
individually and in the aggregate.
3.6 Taxes. Within the times and in the manner
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prescribed by law, Eurotech has filed all federal, state and local tax returns
required by law and has paid all taxes, assessments and penalties due and
payable. The provisions for taxes reflected in Eurotech's most recent balance
sheet furnished to Kurchatov are adequate for any and all federal, state, county
and local taxes for the period ending on such date and for all prior periods,
whether or not disputed. There are no present disputes as to taxes of any nature
payable by Eurotech.
3.7 Authority to Consummate Transactions. The execution and delivery
of this Agreement and the consummation of the transactions contemplated herein
are within the corporate powers of Eurotech and have been duly authorized by all
necessary corporate proceedings. No approval or material consent of any person
or entity (other than Kurchatov) must be obtained by Eurotech prior to
consummating the within transactions, or such approval or material consent has
been or will be obtained.
3.8 Compliance with Other Instruments, etc. Neither the execution of
this Agreement nor the consummation of the transactions contemplated herein will
(i) require Eurotech to obtain the consent of any governmental agency not
already obtained; (ii) result in any violation or breach of any term or
provision of the articles of incorporation or by-laws of Eurotech; (iii)
constitute a material default under any indenture, mortgage, deed of trust or
other contract or agreement to which Eurotech is a party or to which it or any
of its properties may be subject; or (iv) cause the creation or imposition of
any lien, charge or encumbrance on any of the assets or the business of
Eurotech.
3.9 Binding Obligation. This Agreement, when executed and delivered,
will constitute the valid and binding obligation of Eurotech, assuming due
authorization, execution and delivery by Kurchatov.
3.10 Brokerage and Finder's Fee. Neither Eurotech nor any officer,
director or agent of Eurotech has incurred any liability to any broker, finder
or agent for any brokerage fees, finder's fees or commissions with respect to
the transactions contemplated by this Agreement.
3.11 Business Assets. Except as previously disclosed to Kurchatov ,
Eurotech has good and marketable title to all of its assets, including, but not
limited to, EKOR.
3.12 Compliance with Law. Except as previously disclosed to
Kurchatov, the business of Eurotech is not in violation of any applicable
federal, state or local statutes, laws or regulations (including, without
limitation, building, health, nuisance, zoning and other laws, ordinances and
regulations).
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3.13 Litigation and Other Proceedings. Except as previously
disclosed to Kurchatov, there is no known suit, action, arbitration or legal,
administrative or other proceeding or governmental investigation pending,
threatened or likely to be asserted against or affecting the business of
Eurotech. Eurotech is not in default with respect to any order, writ, injunction
or decree of any federal, state, local or foreign court, department, agency or
instrumentality affecting such business. Eurotech will assume responsibility and
liability for all suits, actions, arbitrations or other proceedings so disclosed
to Kurchatov to the extent it would be liable under Section 9.1.
3.14 EKOR Technologies. The information provided by Eurotech to
Kurchatov concerning the commercial applications of EKOR is complete and
accurate in all material respects as of the date of this Agreement.
3.15 Adverse Changes. Except as previously disclosed to Kurchatov,
there has not been any material adverse change affecting Eurotech's business,
financial condition or prospects since the date of its financial statements
referred to in Section 3.5, including, but not limited to, any of the following:
(a) any transaction by Eurotech not in the ordinary course of
business as conducted on such date;
(b) any capital expenditure by Eurotech exceeding $25,000.00;
(c) the destruction, damage to or loss of any assets of
Eurotech (whether or not covered by insurance) that materially and adversely
affects the financial condition, business or prospects of Eurotech;
(d) labor trouble or other event or condition of any character
materially and adversely affecting the financial condition, business, assets or
prospects of Eurotech;
(e) any change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) by Eurotech;
(f) any revaluation by Eurotech of any of its assets;
(g) any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock of Eurotech, or any other
direct or indirect redemption, purchase or other acquisition by Eurotech of any
of its shares of capital stock;
(h) any increase in the salary or the
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compensation payable or to become payable by Eurotech to any of its officers,
directors or employees; or the declaration of, payment of or commitment to pay
by Eurotech of any bonus or other additional salary or compensation to any such
person;
(i) the sale or transfer of any assets of Eurotech, except
sales of inventories in the ordinary course of business;
(j) the amendment or termination of any contract, agreement or
license to which Eurotech is or was a party, except in the ordinary course of
business;
(k) any loan by Eurotech to any person or entity (other than
normal extensions of trade credit to customers), or guarantee by Eurotech of any
loan;
(l) any mortgage, pledge or other encumbrance of any asset of
Eurotech;
(m) the waiver or release of any right or claim of Eurotech,
except in the ordinary course of business;
(n) any other event or condition of any character that has or
might reasonably have a material or adverse effect on the financial condition,
business, assets or prospects of Eurotech;
(o) the issuance or sale by Eurotech (except as contemplated
by this Agreement and the agreement for sale of shares to Horizon Capital of
America) of any shares of its capital stock of any class, or of any other of its
securities; or
(p) the agreement by Eurotech to do any of the things
described in the preceding clauses (a) through (o).
4. Representations, Warranties And Agreements of Kurchatov.
Kurchatov hereby represents and warrants to Eurotech as follows:
4.1 Status of Kurchatov. Kurchatov is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and to
conduct its business as presently conducted.
4.2 Kurchatov's Authority to Consummate Transactions. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein are within the corporate powers of Kurchatov and have been
duly authorized by all necessary corporate proceedings. No approval or material
consent of any person or entity (other than Eurotech) must be obtained by
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Kurchatov prior to consummating the within transactions, or such approval or
material consent has been or will be obtained.
4.3 Compliance with Other Instruments, etc. Neither the execution of
this Agreement nor the consummation of the transactions contemplated herein and
therein will (i) require Kurchatov to obtain the consent of any governmental
agency not already obtained; (ii) result in any violation or breach of any term
or provision of Kurchatov's articles of incorporation or by-laws; or (iii) will
constitute a material default under any indenture, mortgage, deed of trust or
other contract or agreement to which Kurchatov is a party or to which it or any
of its properties may be subject.
4.4 Binding Obligations. This Agreement when executed and delivered
will constitute the valid and binding obligation of Kurchatov, assuming due
authorization, execution and delivery by Eurotech.
4.5 Brokerage and Finder's Fees. Neither Kurchatov nor any officer,
director or agent of Kurchatov has incurred any liability to any broker, finder
or agent for any brokerage fees, finder's fees or commissions with respect to
the transactions contemplated by this Agreement.
4.6 Restricted Securities. Kurchatov understands and hereby
acknowledges that the Eurotech Shares will be issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Act") and the Rules and Regulations of the Commission promulgated
thereunder; that the Eurotech Shares will be "Restricted Securities" as defined
in Rule 144(a)(3) promulgated under the Act; and that the stock certificate or
certificates to be issued to Kurchatov in respect of such securities may bear a
legend of a form satisfactory to counsel for Eurotech reflecting the status of
such Eurotech Shares as "Restricted Securities" under Rule 144(a)(3) promulgated
under the Act. Kurchatov further acknowledges that the transfer agent or
registrar for Eurotech may be instructed to restrict the transfer of such
securities in accordance with the legend mentioned herein and any other
applicable restrictions, and Kurchatov hereby agrees not to sell, transfer,
hypothecate, pledge, assign or otherwise dispose of any of the Eurotech Shares
except pursuant to a registration statement filed under the Act, a favorable
no-action or interpretative letter received from the Commission or an opinion of
counsel satisfactory to Eurotech that such sale, transfer, hypothecation,
pledge, assignment or other disposition is exempt from the registration
requirements of the Act.
5. Registration Rights.
5.1 Piggy-Back Registration Rights. If at any time on or before the
fifth (5th) anniversary of the execution and
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delivery of this Agreement (the "Expiration Date") Eurotech shall file a
registration statement on Form S-1 or any form substituted therefore, with
respect to any shares of its Common Stock under the Act, or files a
post-effective amendment to any registration statement on Form S-1 or any form
substituted therefore, which post-effective amendment contains a prospectus
complying with Section 10(a) of the Act, Eurotech will give to Kurchatov timely
notice of its intention to file such registration statement or post-effective
amendment, as the case may be, and promptly after receipt of a written request
made by Kurchatov within fifteen (15) days after the giving of such notice,
Eurotech will register under the Act all Eurotech Shares held by Kurchatov and
covered by any such request, and will maintain the prospectus included in any
registration statement which may be so filed current for a period of ninety (90)
days subsequent to the effective date of such registration statement; provided,
however, that Eurotech's obligations to register shares of Common Stock and to
maintain prospectuses hereunder shall be subject to the approval of any
underwriters engaged by Eurotech in connection with any such registration, which
approval by any such underwriters may be unreasonably withheld, in such
underwriters' absolute discretion. The obligations of Eurotech under this
Section 5.1 shall be fully satisfied upon the effective date of the first such
registration statement or post-effective amendment to which this Section 5.1 is
applicable, and notwithstanding a delay in Kurchatov's ability to sell such
shares by reason of applicable securities regulations; provided, however, that
in the event of any such delay, Kurchatov shall be entitled to offer such shares
for sale within a reasonable time not exceeding nine (9) months after the said
effective date; and provided, further, in the event any underwriters engaged by
Eurotech in connection with such registration statement or post-effective
amendment withhold approval pursuant to the preceding sentence of this Section
5.1, the obligations of Eurotech under this Section 5.1 shall continue in full
force and effect.
5.2 Demand Registration Rights. Upon receipt by Eurotech, at any
time during the period from the date of the execution and delivery of this
Agreement by each of the parties to and including the Expiration Date, of a
written request by Kurchatov to register the Eurotech Shares under the Act,
Eurotech will, as promptly as practicable, at Kurchatov's sole cost and expense
(including, but not limited to, printing, legal and accounting fees), (i)
prepare and file under the Act a registration statement relating to such
Eurotech Shares (the term "registration statement") as used in this Section 5.2
being deemed to include any form which may be used to register a distribution of
securities to the public for cash or a post-effective amendment to a
registration statement); (ii) prepare and file with the appropriate state
securities regulatory ("Blue Sky") authorities the necessary documents to
register or qualify such Eurotech Shares; provided, however, that Eurotech shall
not be required to qualify as a foreign corporation in any jurisdiction or to
give a
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general consent to service of process in any jurisdiction except in connection
with matters arising from the sale of Common Stock in such jurisdiction; and
(iii) use its best efforts to cause such registration statement to become
effective and to keep such registration statement and Blue Sky filings current
and effective until such time as an amendment is required to be filed pursuant
to the provisions of Section 10(a)(3) of the Act. Eurotech shall not be
obligated to prepare and file more than two (2) registration statements under
this Section 5.2 during the effectiveness of this Agreement and not more than
one (1) in any year, and, in any year in which a request for registration is
made pursuant to this Section 5.2, Eurotech may postpone the preparation and
filing of such registration statement, if necessary, until its year-end
financial statements required for use in such registration statements become
available.
5.3 Amendments. If at any time within nine (9) months after a
post-effective amendment or a new registration statement covering the Eurotech
Shares as provided in Section 5.1 or 5.2 hereof shall have become effective, to
the knowledge of Eurotech any event occurs as a result of which a prospectus
included therein relating to the Eurotech Shares as then amended or supplemented
would include any untrue statement of a material fact, or would not state a
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, Eurotech will promptly notify
Kurchatov and, if such event occurs within ninety (90) days (excluding any
period during which a stop order suspending the effectiveness of the
registration statement or post-effective amendment to a registration statement
of which such prospectus forms a part), Eurotech will at its own cost and
expense amend or supplement such prospectus in order to correct such statement
or omission in order that the prospectus as so amended or supplemented will
comply with the requirements of Section 10(a) of the Act. In case Kurchatov is
required to deliver a prospectus after such 90-day period, Eurotech will, at
Kurchatov's expense, prepare promptly such prospectus or prospectuses and
thereafter amend or supplement the same as may be necessary to permit compliance
with Section 10(a) of the Act.
5.4 Compliance. In connection with any registration statement or
post-effective amendment pursuant to Section 5.1 or 5.2:
(a) Eurotech will comply with all applicable rules and
regulations of the Commission or any similar Federal commission and will make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) covering a period of at least twelve (12) months,
but no more than eighteen (18) months, beginning with the first month after the
effective date of the registration statement or post-effective amendment, as the
case may be, which earnings statement will satisfy the provisions of Section
11(a) of the Securities
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Act;
(b) Each holder of the shares of Common Stock covered by such
post-effective amendment or registration statement, as the case may be, shall
furnish in writing to Eurotech such information regarding such holder and its
proposed plan of distribution of such shares as Eurotech shall request in order
to have such post-effective amendment or registration statement declared
effective;
(c) Eurotech agrees to furnish to Kurchatov a prospectus (in
such reasonable quantities as Kurchatov shall request) containing certified
financial statements and other information meeting the requirements of the Act
and the rules and regulations thereunder and relating to the Eurotech Shares.
The furnishing of such prospectus shall be at the expense of the party or
parties bearing the cost and expense of the registration statement or
post-effective amendment, as the case may be, of which such prospectus is a part
as provided for in Section 5.1 or 5.2 above, as the case may be; and
(d) Eurotech will use its best efforts to qualify the shares
of Common Stock covered by any registration statement or post-effective
amendment for public offering or sale on the effectiveness thereof in such
jurisdictions as the holders offering the same shall reasonably request;
provided, however, that Eurotech shall not be required to qualify as a foreign
corporation in any jurisdiction or to give a general consent to service of
process in any jurisdiction except in connection with matters arising from the
sale of shares of Common Stock in such jurisdiction. The filing fees and
reasonable fees and expenses of counsel in connection with such qualification
shall be paid for by the party or parties bearing the cost and expense of the
registration statement or post-effective amendment, as the case may be, covering
the shares being qualified as provided for in Section 5.1 or 5.2 above, as the
case may be.
5.5 Indemnification. In the event of any such registration of any
Eurotech Shares, Eurotech will indemnify and hold harmless each holder of shares
of Common Stock being offered and each person, if any, who may be deemed to
control such holder within the meaning of Section 15 of the Act against any
losses, claims, damages or liabilities, joint or several, to which any of them
may become subject under the Act, or otherwise, in so far as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any registration statement or
post-effective amendment under which such shares of Common Stock were registered
under the Act, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated
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therein or necessary to make the statements therein not misleading, and will
reimburse each of them for any legal or any other expenses reasonably incurred
by them in connection with investigating, defending or settling any such loss,
claim, damage, liability or action; provided, however, that Eurotech will not be
liable in any such case to any of them to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon any untrue statement
of any material fact contained, on the effective date thereof, in such
registration statement or post-effective amendment, such preliminary prospectus
or such final prospectus or any such amendment or supplement in reliance upon
and in conformity with information furnished in writing by such persons to
Eurotech expressly for use in the preparation thereof, or arises out of or is
based upon any omission or alleged omission to state a material fact in
connection with such written information required to be stated in such
registration statement, such post-effective amendment, such preliminary
prospectus or such final prospectus or any such amendment or supplement, or
necessary to make such information when used in such registration statement or
post-effective amendment, such preliminary prospectus or such final prospectus
or any such amendment or supplement, in the light of the circumstances under
which it is used, not misleading. For purposes of this Section 5.5, "information
furnished in writing by such persons" shall include such post-effective
amendment, such preliminary prospectus or such final prospectus or any such
amendment or supplement which has been expressly identified and approved in
writing in a letter signed by the person or persons involved. Each such person
shall promptly give notice to Eurotech after such person has actual knowledge of
any such claim as to which indemnity may be sought hereunder, or of the
commencement of any legal proceedings against such person as to such claim,
whichever shall first occur, and shall permit Eurotech to assume the defense of
any such claim or any litigation resulting from such claim; provided, however,
that (i) counsel satisfactory to Eurotech and each such person involved shall
act as counsel for Eurotech and shall conduct the defense of such claim or
litigation, and (ii) each such person may participate in such defense at the
expense of such person; and provided, further, that the omission by any such
person to give notice to Eurotech as provided in this sentence or the failure to
permit Eurotech to conduct such defense shall relieve Eurotech of its
obligations to conduct such defense under this Section 5.5, but shall not
relieve Eurotech of its obligations otherwise than under this Section 5.5.
Eurotech shall notify each such person involved within fifteen (15) days after
Eurotech shall have received such notice. If Eurotech shall elect to defend such
claim or litigation resulting therefrom, the obligation of Eurotech under this
Section 5.5 shall be limited to taking all steps necessary in holding the person
involved harmless from and against any losses, damages or liabilities caused by
or arising out of any settlement approved by Eurotech or from any judgment on
such claim or litigation arising therefrom; provided, however, that in defending
such claim or litigation resulting therefrom, Eurotech shall not consent to
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entry of any judgment except with the consent of each such person involved or
enter into any settlement (except with the consent of each such person involved)
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such person of a release from all liability in respect
of such claim or litigation.
6. Changes in Capital Structure.
In the event that prior to the Expiration Date there is any change
in the Common Stock by reason of a stock dividend issued with respect to the
Common Stock, or a recapitalization, reclassification, stock split or
combination of shares with respect to the Common Stock, or if the outstanding
Common Stock should, by reason of a merger, consolidation, acquisition of stock
or property, reorganization or liquidation, be exchanged for other shares of
capital stock of Eurotech or of another corporation which is a party to such
transaction, (each of foregoing hereinafter "Capital Events") the Eurotech
Shares to be issued and delivered to Kurchatov under this Agreement shall not be
affected differently than any other Common Stock shares.
7. Cross-Releases.
7.1 Release of the EKOR Operating Interest. In consideration of the
issuance to Kurchatov of the Eurotech Shares to the extent of the consideration
set forth in Section 2 hereof, as well as further set forth herein, Kurchatov
hereby releases, except to the extent hereinafter specified, all interest,
ownership or title it has in the EKOR Operating Interest.
7.2 Surrender of Kurchatov Shares. In further consideration of
Kurchatov's release of the EKOR Operating Interest, Eurotech hereby surrenders
to Kurchatov all of its certificates evidencing the Kurchatov Shares, which
certificates are duly endorsed by Eurotech for transfer or accompanied by stock
powers duly endorsed in blank by Eurotech, with signatures guaranteed by a
member of the New York Stock Exchange or by a bank or trust company.
Consideration in the amount of Four million eight-hundred-forty-one thousand,
four-hundred-thirty-eight dollars ($4,841,438) is deemed by the parties to be
allocated to the Kurchatov Shares out of and comprised in the release by
Kurchatov of the EKOR Operating Interest.
7.3 Release of Resealable Can Obligations. In further consideration
of Kurchatov's release of the EKOR Operating Interest, Eurotech hereby
surrenders its six per cent. (6%) royalty interest therein. Consideration in the
amount of one million dollars ($1,000,000) is deemed by the parties to be
allocated to Eurotech's release of Kurchatov's obligations with respect to the
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Resealable Can out of and comprised in the release by Kurchatov of the EKOR
Operating Interest.
7.4 Assumption of the Spinneret Debt. In further consideration of
Kurchatov's release of the EKOR Operating Interest, Eurotech hereby assumes and
agrees to pay and perform on a timely basis all of Kurchatov's obligations to
Spinneret. Consideration in the amount of two million five hundred thousand
dollars ($2,500,000.00) is deemed by the parties to be allocated to Eurotech's
assumption of the Spinneret debt out of and comprised in the release by
Kurchatov of the EKOR Operating Interest, with approving concurrence of
Spinneret.
8. Overriding Royalty Interest.
8.1 Retention of Overriding Royalty Interest by Kurchatov. So long
as the patents, or any of them, listed in the first recital to this Agreement
shall remain valid, enforceable and unexpired, Eurotech shall pay to Kurchatov
an overriding royalty interest (the "ORR") of two per cent. (2%) of gross sales
(hereinafter, "Gross Sales"), defined as the gross selling price as received by
Eurotech of all products or services arising out of the commercial exploitation
of EKOR established in bona fide, arm's length transactions between Eurotech and
an individual or entity (a "Purchaser") not related to Eurotech by reason of
material stock ownership or direct or indirect participation in Eurotech's
management, f.o.b. factory, after deducting any quantity, quality and customary
trade discounts (other than cash) or rebates, whether indicated on the invoice
or compiled for a given period, such as a calendar quarter, but not deducting
packing, freight, insurance, customs duties and federal, state and local taxes
and fees (such as sales taxes) directly applied to such price, unless separately
itemized on the invoice and charged directly to the Purchaser; provided,
however, that freight and insurance may be deducted for c.i.f. sales and f.o.b.
customer sales although not separately stated.
8.2 Payment. Payment of the ORR shall be converted into U.S. dollars
at the rate of exchange applicable to the currency in which the Gross Sales are
made as established by the trustee New York City bank as Kurchatov may from time
to time designate (the "Trustee"). All payments of the ORR shall be made in U.S.
dollars to be deposited to Kurchatov's credit at the Trustee. Such payments
shall be paid to Kurchatov within thirty (30) days after the end of each
calendar quarter, accompanied by a written royalty report, certified as accurate
by Eurotech's Chief Financial Officer, setting forth in as much detail as
possible the basis of calculation of the amount of ORR paid with respect to the
calendar quarter just ended.
8.3 Monetary Controls. In the event that the United States shall
impose any law, rule or regulation prohibiting or limiting Eurotech's right to
comply with Sections 8.1 and 8.2, Eurotech shall be deemed to fulfill its
obligations under those sections if it pays the royalty due into the Trustee,
or, if that shall not then be permissible, in the name of a nominee for and on
behalf of Kurchatov.
8.4 Compliance With U.S. Regulation. Eurotech shall be responsible
for compliance with applicable United States regulations concerning payments and
for the preparation, filing and securing, where required, of approval of all
applications, reports and other documents and services which may be required by
the United States of America in connection with this Agreement and remittances
to be made under this Agreement.
8.5 Records. Eurotech shall keep true and accurate books of account
and shall keep and maintain all records, documents
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and other instruments relating to Gross Sales in such detail as shall enable
Kurchatov to ascertain the ORR due under this Agreement and compliance with
payment. Kurchatov shall have the right to designate a firm of certified public
accountants, reasonably acceptable to Eurotech, to inspect Eurotech's books of
accounts, records, documents and instruments and to make copies thereof, at any
time during Eurotech's regular business hours, but not more than one (1) time
annually, during the term of this Agreement and for a period of one hundred
eighty (180) days immediately after its termination, to ascertain the accuracy
of such report. The expense of such audit shall be Kurchatov's unless the audit
shall demonstrate a discrepancy (in Eurotech's favor) greater than five per
cent. (5%) between the amount of ORR reported and paid by Eurotech and that
which was actually due, in which event the audit expenses shall be borne by
Eurotech.
9. Indemnification.
9.1 Indemnity by Eurotech. Eurotech agrees to defend, indemnify and
hold harmless Kurchatov against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies (including reasonable attorney's fees), arising, resulting from or
relating to any misrepresentation by Eurotech made or contained in this
Agreement or Eurotech's breach of any warranty, covenant or agreement made or
contained in this Agreement.
9.2 Indemnity by Kurchatov. Kurchatov agrees to defend, indemnify
and hold harmless Eurotech against and in respect of any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies (including reasonable attorney's fees), arising, resulting from
or relating to any misrepresentation by Kurchatov made or contained in this
Agreement or Kurchatov's breach of any warranty, covenant or agreement made or
contained in this Agreement.
9.3 Survival of Representations and Warranties. The representations
and warranties made in this Agreement shall survive the date of this Agreement
for a period of five (5) years thereafter.
9.4 Defense of Claims. Kurchatov, on the one hand, and Eurotech, on
the other hand, will give each other prompt notice of any claims for which the
other may be liable under this Section 9, and each will permit the other at its
sole expense the opportunity to assist in the defense of any such claims.
9.5 Construction. It is understood and agreed that in the event of a
conflict between the terms and provisions of this Section 9 and those of Section
5.5 should such latter provision be applicable, Section 5.5 shall control. It is
further understood and agreed that nothing in this Section 9 shall be construed
as a limitation or waiver of any right of indemnification, subrogation
14
<PAGE>
or similar right accruing to any party independent of this Agreement under any
applicable statute, rule, code or common law principle.
10. Miscellaneous.
10.1 Governing Law. This Agreement and the other agreements attached
hereto shall be construed in accordance with, and governed by, the laws of the
State of New York.
10.2 Notices. All communications under this Agreement shall be in
writing, shall be mailed by first class mail, postage prepaid to the addresses
specified in the preamble to this Agreement, or to such other address as any
party hereto may have furnished in writing to the other parties, and shall be
deemed to be given four (4) days after being so mailed.
10.3 Amendment and Waiver. This Agreement may be amended, and
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
10.4 Duplicate Originals; Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute but one and the same instrument.
10.5 Severability. In the event that any particular provision or
provisions of this Agreement shall for any reason hereafter be determined to be
unenforceable, or in violation of any law, governmental order or regulation,
such unenforceability or violation shall not affect the remaining provisions of
this Agreement, which shall continue in full force and effect and be binding
upon the respective parties hereto.
10.6 Assignment. Unless otherwise provided, the rights and
obligations of Eurotech and Kurchatov under this Agreement shall be binding upon
and inure to the benefit of the parties and their respective representatives,
administrators, heirs, successors and assigns, but may not be assigned by either
party without the prior written consent of the other party.
10.7 Announcements. Eurotech and Kurchatov agree that except in
accordance with applicable laws, neither will make any public announcement
concerning the consummation of the transactions provided herein without first
obtaining the written permission of the other.
10.8 Expenses. Except as otherwise provided herein, Eurotech and
Kurchatov agree that each of the parties hereto shall
15
<PAGE>
bear its own expenses incurred in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
10.9 Headings. All headings in this Agreement are for convenience
only and shall not affect the meaning of any provision hereof.
10.10 Entirety of Agreement. This Agreement states the entire
agreement of the parties, merges all prior negotiations, agreements and
understandings, if any, and states in full the representations and warranties
which have induced this Agreement, there being no representations or warranties
other than those herein stated.
10.11 Benefit of Agreement. This Agreement is for the benefit of the
parties hereto only, and there is no intent to create benefits, rights or
remedies in any other persons or entities.
10.12 No Strict Construction. The language of this Agreement shall
be construed as a whole, according to its fair meaning and intendment, and not
strictly for or against either party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or any specific term or
condition thereof.
10.13 Execution Knowing and Voluntary. In executing this Agreement,
Eurotech and Kurchatov severally acknowledge and represent that each (a) has
fully and carefully read and considered this Agreement, (b) has been or has had
the opportunity to be fully apprised by his, her or its attorneys of the legal
effect and meaning of this document and all terms and conditions hereof, (c) has
been afforded the opportunity to negotiate as to any and all terms hereof and
(d) is executing this Agreement voluntarily, free from any influence, coercion
or duress of any kind.
10.14 Attorneys' Fees. In any action at law or in equity to enforce
or construe any provisions or rights under this Agreement, the unsuccessful
party or parties to such litigation, as determined by a court pursuant to a
final order, judgment or decree, shall pay to the successful party or parties
all costs, expenses and reasonable attorneys' fees incurred by such successful
party or parties (including, without limitation, such costs, expenses and fees
on any appeal), which costs, expenses and attorneys' fees shall be included as
part of any order, judgment or decree.
10.15 Confidential Information. All confidential, financial or
business information (except publicly available or freely usable material
otherwise obtained from another source) respecting the parties hereto will be
used solely by any party in connection with the within transaction, will be
revealed only to
16
<PAGE>
employees or contractors of the other parties who are necessary to the conduct
of such transactions, and will be otherwise held in strict confidence. In the
event the transactions contemplated by this Agreement are not consummated, all
confidential information received by any party thereto shall be returned to the
party delivering such confidential information. The terms of this Section 10.15
shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be dully executed by their authorized representatives as of the day and year
first above written.
"EUROTECH"
ATTEST: EUROTECH, LTD.,
a District of Columbia Corporation
By: ______________________________ By: /s/ Don V. Hahnfeldt
______________________________ ----------------------------------
Secretary Don V. Hahnfeldt,
(Seal) President
"KURCHATOV"
ATTEST: KURCHATOV RESEARCH
HOLDINGS, LTD.,
a Delaware Corporation
By: ______________________________ By:
______________________________
Secretary _________________________________,
(Seal) President
"SPINNERET"
ATTEST: SPINNERET FINANCIAL SYSTEMS, INC.,
a Delaware Corporation
By: ______________________________ By:
______________________________
Secretary
(Seal) President (Seal)
17
<PAGE>
employees or contractors of the other parties who are necessary to the conduct
of such transactions, and will be otherwise held in strict confidence. In the
event the transactions contemplated by this Agreement are not consummated, all
confidential information received by any party thereto shall be returned to the
party delivering such confidential information. The terms of this Section 10.15
shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be dully executed by their authorized representatives as of the day and year
first above written.
"EUROTECH"
ATTEST: EUROTECH, LTD.,
a District of Columbia Corporation
By: ______________________________ By:
______________________________
Secretary Don V. Hahnfeldt,
(Seal) President
"KURCHATOV"
ATTEST: KURCHATOV RESEARCH
HOLDINGS, LTD.,
a Delaware Corporation
By: ______________________________ By:
______________________________
Secretary _________________________________,
(Seal) President
"SPINNERET"
ATTEST: SPINNERET FINANCIAL SYSTEMS, INC.,
a Delaware Corporation
By: ______________________________ By: /s/ Alfred Hahnfeldt
______________________________ ----------------------------------
Secretary Alfred Hahnfeldt,
(Seal) President
17
<PAGE>
employees or contractors of the other parties who are necessary to the conduct
of such transactions, and will be otherwise held in strict confidence. In the
event the transactions contemplated by this Agreement are not consummated, all
confidential information received by any party thereto shall be returned to the
party delivering such confidential information. The terms of this Section 10.15
shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be dully executed by their authorized representatives as of the day and year
first above written.
"EUROTECH"
ATTEST: EUROTECH, LTD.,
a District of Columbia Corporation
By: ______________________________ By: /s/ Don V. Hahnfeldt
______________________________ ----------------------------------
Secretary Don V. Hahnfeldt,
(Seal) President
"KURCHATOV"
ATTEST: KURCHATOV RESEARCH
HOLDINGS, LTD.,
a Delaware Corporation
By: /s/ Jacques J. Sanders By: /s/ Jacques J. Sanders
------------------------------ ----------------------------------
Secretary President
(Seal)
"SPINNERET"
ATTEST: SPINNERET FINANCIAL SYSTEMS, INC.,
a Delaware Corporation
By: _____________________________ By:
Secretary
President (Seal)
17
Exhibit 10.20.1
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT ("Agreement") by and between EUROTECH,
LTD., a District of Columbia corporation (the "Company"), WOODWARD LLC (
"Purchaser" or"Investor"), dated as of December 31, 1999.
Recitals
A. Purchaser desires to purchase, and the Company desires to issue and
sell shares of the Company's common stock (the "Shares") on the terms and
conditions as are set forth below.
B. The parties intend that the issuance of the Shares as anticipated by
this Agreement shall be accomplished without registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and without
registration or qualification under the securities laws of any state or other
jurisdiction, in reliance on exemptions from the registration requirements of
the Securities Act, including without limitation Regulation D under the
Securities Act and Section 4(2) of the Securities Act, provided, however, that
nothing in this Agreement shall act or be construed as a limitation on
Purchaser's right to sell any of the Shares to be acquired pursuant to this
Agreement pursuant to the Registration Statement contemplated by the
Registration Rights Agreement, or other provisions of the Registration Rights
Agreement or in accordance with applicable laws.
THEREFORE, in consideration of the mutual promises and covenants set forth
below and for other good and valuable consideration, the receipt and sufficiency
of which the parties acknowledge by their signatures below, the parties agree as
follows:
AGREEMENT
1. Purchase of Common Stock. Subject to the terms and conditions of this
Agreement, the Company agrees to issue and sell, and Purchaser agrees to
acquire, One Million Eight Hundred Eighty-Two Thousand Three Hundred Fifty Three
(1,882,353) fully paid and non-assessable shares (the "Initial Common Shares")
of the Company's common stock, par value $.00025 per share (the "Common Stock")
at a price per share equal to the Initial Closing Price as defined herein.
1.1 Form of Payment. The Purchaser shall pay the purchase price for
the Initial Shares by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the Joint
Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions"). No later than the Closing Date (as defined below), the Company
shall deliver one or more certificates representing the Initial Shares duly
executed on behalf of the Company (collectively, the "Certificate") to the
Escrow Agent. By signing this Agreement, the Purchaser and the Company, and
subject to acceptance by the Escrow Agent, each agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
1.2 Method of Payment. Payment into escrow of the Purchase Price for
the Shares shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: 637-1660567
<PAGE>
Not later than 1:00 p.m., New York time, on the date which is one (1) New York
Stock Exchange trading day after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Purchaser shall deposit with the Escrow Agent the aggregate
purchase price for the Initial Shares in immediately available funds. Time is of
the essence with respect to such payment, and failure by the Purchaser to make
such payment shall allow the Company to cancel this Agreement.
1.3 Escrow Property. The purchase price and the Certificate
delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof
are referred to as the "Escrow Property."
2. Closing.
2.1 Initial Closing. Upon execution of this Agreement (the "Initial
Closing") and on the date set forth above (the "Initial Closing Date") Purchaser
shall pay Three Million Dollars ($3,000,000). At the Initial Closing, the
parties shall execute and deliver the Registration Rights Agreement in the form
attached to this Agreement as Exhibit "A", the Escrow Agreement attached as
Exhibit "B", the Warrant attached as Exhibit "C", and the Additional Agreement
attached as Exhibit "D" (the "Transaction Documents"), and incorporated herein
by reference.
2.2 Repricing Shares. Definitions:
(a) As used herein, "Closing Bid Price" shall mean the closing
bid price of the Common Stock as reported, at the option of the Purchaser, by
Bloomberg, LP or the National Association of Securities Dealers.
(b) "Initial Closing Price" shall mean 75% of the average of
the five (5) lowest Closing Bid Prices of the Common Stock during the twenty
(20) Business Days prior to the Initial Closing Date.
(c) "Business Day" shall mean a day on which the New York
Stock Exchange is open for business.
(d) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Shares (as defined in the
Registration Rights Agreement).
(e) "Shares" shall mean the Initial Shares and the Repricing
Shares.
2.3 "First Repricing Period" shall commence on the Effective Date
and end twenty (20) Business Days thereafter. If the Average Closing Bid Price
of the Company's Common Stock for a period of twenty (20) Business Days after
the Effective Date (the "First Repricing Price") is not equal to or greater than
the Initial Closing Price, the Company shall issue to the Purchaser Repricing
Shares in such number as shall be determined according to the following formula:
((Initial Closing Price - First Repricing Price)*(# of Shares) /
First Repricing Price
2.4 The "Second Repricing Period" shall commence immediately on the
end of the First Repricing Period and end twenty (20) Business Days thereafter.
If the Average Closing Bid Price of the Company's Common Stock, for a period of
twenty (20) Business Days after the commencement of the Second Repricing Period
(the "Second Repricing Price") is not equal to or greater than the Initial
Closing Price, the Company shall issue Repricing Shares in such number as shall
be determined according to the following formula:
((Initial Closing Price - Second Repricing Price)*(# of Shares) /
Second Repricing Price
2
<PAGE>
2.5 The "Third Repricing Period" shall commence on the conclusion of
the Second Repricing Period and end twenty (20) Business Days thereafter. If the
Average Closing Bid Price of the Company's Common Stock, for a period of twenty
(20) Business Days after the commencement of the Third Repricing Period (the
"Third Repricing Price") is not equal to or greater than the Initial Closing
Price, the Company shall issue Repricing Shares in such number as shall be
determined according to the following formula:
((Initial Closing Price - Third Repricing Price)* (#of Shares) /
Third Repricing Price
2.6 "Final Repricing Period" shall commence on the conclusion of the
Third Repricing Period and end twenty (20) business days thereafter. If the
Average Closing Bid of the Company's Common Stock, for a period of twenty (20)
business days after the commencement of the Final Repricing Period (the "Final
Repricing Price") is not equal to or greater than the Initial Closing Price, the
Company shall issue Repricing Shares in such number as shall be determined
according to the following formula:
((Initial Closing Price - Final Repricing Price)* (# of Shares) /
Final Repricing Price
2.7 The following provisions shall apply during each Repricing
Period.
(a) The Company must be notified by facsimile (202-466-5591) within
five (5) business days after the end of each Repricing Period, as to the number
of Initial Common Shares that Purchaser wishes to be repriced during each
period, subject to the following limitation:
No more than one-fourth (1/4th) of the Shares may be repriced in
each of the First Repricing Period, the Second Repricing Period, the Third
Repricing Period or the Final Repricing Period.
(b) The Purchaser expressly agrees that from the Effective Date
until the conclusion of the Final Repricing Period, the Purchaser shall not
engage in short sales of the Common Stock of the Company. The Purchaser
acknowledges that purchases, sales and other transactions may be subject to
various federal and state securities laws and agrees to comply with all such
applicable securities laws.
3. Representations and Warranties of Purchaser. To induce the Company's
acceptance of this Agreement, Purchaser hereby certifies, represents and
warrants to the Company and its agents and attorneys as follows, which
representations and warranties are solely for the benefit of the Company and may
be waived in whole or in part at any time prior to the Initial Closing by the
Company:
3.1 Intent. Purchaser will be acquiring the Shares for its own
account, and Purchaser has no present arrangement (whether or not legally
binding) to sell any of such Shares to or through any person or entity;
provided, however, that by making the representations herein, Purchaser does not
agree to hold any of the Shares for any minimum or other specific term and
reserves the right to dispose of the Shares at any time in accordance with U.S.
federal and state securities laws applicable to such disposition and any
restrictions imposed on such transfer by this Agreement or the Transaction
Documents. Purchaser understands that the Shares must be held indefinitely
unless such Shares are subsequently registered under the Securities Act or an
exemption from registration is available. Purchaser has been advised or is aware
of the provisions of Rule 144 promulgated under the Securities Act.
3.2 Sophisticated Investor. Purchaser is a "sophisticated investor"
(as described in Rule 506(b)(2)(ii) of Regulation D) and an "accredited
investor" (as defined in Rule 501(a) of Regulation D), and Purchaser has such
knowledge and experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Company.
3.3 Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Shares 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 Shares, and, at the present time, is able to afford a complete
loss of such investment.
3
<PAGE>
3.4 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Purchaser and (assuming due authorization and
valid execution by the Company) is a legal, valid and binding agreement of such
Purchaser enforceable against the Purchaser in accordance with its terms,
subject to general principles of equity and to bankruptcy, insolvency or similar
laws relating to, or affecting generally the enforcement of creditors' rights
and remedies or by other equitable principles of general application. The person
or persons executing this Agreement and all exhibits to this Agreement and the
Transaction Documents have all requisite authority to do so on behalf of
Purchaser.
3.5 Brokers, Finders. Except with respect to Spinneret Financial
Systems, Inc., Purchaser has taken no action which would give rise to any claim
by any person for brokerage commission, finder's fees or similar payments by the
Company relating to this Agreement or the transactions contemplated hereby. The
Company 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 3.5 that may be due in connection with the transactions
contemplated hereby. Purchaser shall indemnify and hold harmless the Company,
its respective employees, officers, directors, agents, and partners, and their
respective affiliates, 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, as and when incurred. See
Section 4.14.
3.6 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 this Agreement and to carry out its
obligations thereunder. The acquisition of the Shares and the payment of the
purchase price therefor by such Purchaser have been duly authorized by all
necessary action on the part of such Purchaser.
3.7 Absence of Conflicts. The execution and delivery of this
Agreement and the Transaction Documents, and the consummation of the
transactions contemplated by this Agreement and such other documents and
instruments, and compliance with the requirements thereof, will not violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on such Purchaser, or the provision of any indenture, instrument or
agreement to which such Purchaser is a party or is subject, or by which such
Purchaser or any of its assets is bound, or conflict with or constitute a
material default thereunder, or require the approval of any third-party pursuant
to any material contract, agreement, instrument, relationship or legal
obligation to which such Purchaser is subject or to which any of its assets,
operations or management may be subject.
3.8 Disclosure; Access to Information. Each Purchaser has received
copies of or has had access to all documents, records, books and other
information pertaining to such Purchaser's investment in the Company and the
Shares that have been requested by such Purchaser. The Purchaser or its
representative has been afforded the opportunity to ask questions of the Company
and its management. Such Purchaser further acknowledges that it understands that
the Company is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such Purchaser has
reviewed or received copies of any such reports that have been requested by it.
3.9 Manner of Sale. At no time was Purchaser presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to the Shares.
3.10 Accuracy of Other Materials. To the extent Purchaser has
received from the Company documents or other materials which constitute
summaries, projections, forecasts or estimates, Purchaser acknowledges the
following with respect to such documents or other materials. Such documents or
other materials are intended to illustrate projected financial and other results
based upon a set of assumptions (in some cases based on information obtained by
the Company from outside sources) the Company views as reasonable and
obtainable. All such summaries, projections, forecasts or estimates pertaining
to revenue growth, profitability and other similar
4
<PAGE>
financial or market data are forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. No representations or warranties of
future performance by or market trends for the Company are intended, and such
are expressly disclaimed.
3.11 Accuracy of Representations and Information. All
representations made by Purchaser in this Agreement and the Transaction
Documents, and all information provided by Purchaser to the Company concerning
Purchaser are correct and complete in all material respects as of the date
hereof.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows, which representations and
warranties are solely for the benefit of Purchaser and may be waived in whole or
in part by Purchaser at any time prior to the Initial Closing:
4.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act, is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing of its Common Stock, and such Common
Stock is currently listed on the Nasdaq Bulletin Board.
4.2 Current Public Information. The Company has furnished or made
available to Purchaser true and correct copies of all registration statements,
reports and documents filed with the Securities and Exchange Commission (the
"SEC") by or with respect to the Company since December 31, 1997 and prior to
the date of this Agreement, pursuant to the Securities Act or the Exchange Act
(collectively, the "SEC Documents"). The SEC Documents are the only filings made
by or with respect to the Company since December 31, 1997 pursuant to Sections
13(a) and 15(d) of the Exchange Act or pursuant to the Securities Act. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed under Sections 13(a) and 15(d) of the Exchange Act since
January 1, 1996 and prior to the date of this Agreement.
4.3 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Shares.
4.4 Valid Issuance of Common Stock. The Company has an authorized
capitalization consisting of 50,000,000 shares of common stock, par value of
$.00025 per share, and 1,000,000 shares of preferred stock, par value of $.001
per share. As of the date of this Agreement, the Company has issued and
outstanding 34,641,990 shares of Common Stock. 10,827,695 shares of Common Stock
are subject to issuance upon conversion of debentures and 2,031,500 shares of
Common Stock are subject to issuance upon the exercise of presently issued and
outstanding warrants and options, including options issued pursuant to an
existing stock option plan. No shares of the preferred stock are outstanding or
have been authorized for issuance for any purpose. All of the shares of Common
Stock of the Company issued to date have been duly and validly authorized and
issued and are fully paid and non-assessable. Except as set forth above, there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem or issue additional shares of capital stock of the
Company or options, warrants, scrip, rights to subscribe to, or securities or
rights convertible into, and shares of capital stock of the Company. There are
no securities or instruments containing any anti-dilution, right of first
refusal, preemptive rights or similar provisions that will be triggered by the
issuance of the Shares pursuant to this Agreement. Upon the issuance of such
Shares, they will be duly and validly issued, fully paid and non-assessable.
4.5 Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of the District
of Columbia and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on Schedule 4.5 attached to this Agreement
(the "Subsidiaries"). The Company and each of
5
<PAGE>
the Subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect. "Material Adverse Effect" means any effect on the business, operations,
properties, prospects, or financial condition of the entity or entities with
respect to which such term is used and which is material and adverse to such
entity or to other entities controlling or controlled by such entity, and/or any
condition or situation which would prohibit or otherwise interfere with the
ability of the entity or entities with respect to which said term is used to
enter into and perform its obligations under the Transaction Documents.
4.6 Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform under the Transaction
Documents and to issue the Shares and Warrants in accordance with the terms of
the Transaction Documents, (ii) the execution, issuance and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action, and no further consent or authorization of
the Company or its board of directors or stockholders is required, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents (assuming due authorization and valid and legal
execution by the Purchaser) constitute legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
4.7 [Intentionally Omitted]
4.8 No Conflicts. Except as set forth in Schedule 4.8, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby,
including without limitation the issuance of the Shares, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or Bylaws, or
(ii) conflict with, or result in a breach of or forfeiture of any rights (or
result in an event which with notice or lapse of time or both would become a
breach of or forfeiture of any rights) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of the Subsidiaries is a
party, or (iii) result in a violation of any federal or state law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of the Subsidiaries or by
which any property or asset of the Company or any of the Subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). To the best of its knowledge, the
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Shares and Warrants in accordance with the terms
of this Agreement (other than any SEC, NASD or state securities filings which
may be required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed in furtherance of this Agreement);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Purchaser herein. Neither the Company nor any
of the Subsidiaries is in violation of any material term of or in material
default under its Articles of Incorporation, of any outstanding series of
preferred stock or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree of order or any statute, rule or
regulation applicable to the Company or is subsidiaries, which has not been duly
waived as of the date of this Agreement.
4.9 SEC Documents. The Company has not provided to the Purchaser any
information which according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by
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the Company but which has not been so disclosed. As of their respective dates,
the SEC Documents complied, and all similar documents filed with the SEC prior
to the Initial Closing Date will comply, in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained, nor will any similar document filed with the SEC
prior to the Initial Closing Date contain, 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, as of the dates thereof, complied, and
all similar documents filed with the SEC prior to the Initial Closing Date will
comply, as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC and other
applicable rules and regulations with respect thereto. Such financial statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements as permitted by Form 10-Q of
the SEC) and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.10 No Undisclosed Liabilities. Except as set forth in Schedule
4.10, the Company and the Subsidiaries have no liabilities or obligations of a
financial nature (whether accrued, absolute, contingent or otherwise), which are
material, individually or in the aggregate, and are not disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
the Subsidiaries' respective businesses consistent with past practice since
December 31, 1998, and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.
4.11 Litigation and Other Proceedings. Except as may be set forth in
the SEC Documents or set forth in Schedule 4.11, there are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which might have a Material Adverse
Effect on the Company or which might materially adversely affect the
transactions contemplated by this Agreement. Except as set forth in the SEC
Documents no judgment, order, writ, injunction or decree or award has been
issued by or, to the best knowledge of the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect or which might materially adversely affect the transactions contemplated
by this Agreement.
4.12 Other Documents or Materials. With respect to any document or
other materials received by Purchaser from the Company or its representatives
other than the Transaction Documents and the SEC Documents, (i) the Company has
no reason to believe any of such documents and materials or any projections
contained therein, as of the date of such other documents or materials,
contained errors or misstatements or do not adequately describe the status of
the development of the Company's technologies or its business as of such date,
and (ii) such documents, materials and projections were prepared by the Company
and its management in good faith.
4.13 Nature of Company. The Company is not an open ended investment
company or a unit investment trust, registered or required to be registered, or
a closed end investment company required to be registered, but not registered,
under the Investment Company Act of 1940.
4.14 Brokers, Finders. Except for payment of consulting fees in the
amount of $150,000 to Spinneret Financial Systems, Inc. , payment of which is
the sole responsibility of the Company, the Company has taken no action which
would give rise to any claim by any person for brokerage commission, finder's
fees or similar payments by Purchaser relating to this Agreement or the
transactions contemplated hereby. 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 4.14 that may be due in
connection with the transactions contemplated hereby.
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The Company shall indemnify and hold harmless each of Purchaser, their
respective employees, officers, directors, agents, and partners, and their
respective affiliates, 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, as and when incurred. See
Section 3.5.
4.15 Absence of Certain Changes. Except as set forth in Schedule
4.15, since December 31, 1998, no Material Adverse Effect has been suffered by,
and no material adverse development has occurred in the business, properties,
operations, financial condition, results of operations or prospects of, the
Company or the Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of the Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
4.16 Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, there is no claim, action or proceeding being made or brought
against, or to the best knowledge of the Company, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patent, patent
rights, invention, copyright, license, service name, service mark, service mark
registration, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
4.17 Internal Accounting Controls. The Company is aware of no
respect in which its system of internal accounting controls is not sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
managements's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.18 Tax Status. Except as set forth in Schedule 4.18, the Company
and the Subsidiaries have made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports, declarations, except those being contested in good faith and
has set aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports, or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
4.19 Certain Transactions. Except as set forth in the SEC Documents
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options, none of the officers, directors, or employees of the Company (or any
spouse or relative of any such person) is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental
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of real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the Company,
any corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
4.20 Dilution. The number of shares of Common Stock issuable as
Repricing Shares may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines during the period between the Effectiveness Date and
the end of the Final Repricing Period. The Company's executive officers and
directors have studied and fully understand the nature of the transactions
contemplated by this Agreement and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Repricing
Shares is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
4.21 Nasdaq Listing. The Company's Common Stock is presently quoted
on the Nasdaq Bulletin Board Market under the symbol "EURO". The Company is not
in receipt of any written notice from any stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it is or
has been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such stock exchange, market or trading
facility or that the Common Stock will be delisted from such stock exchange,
market or trading facility.
4.22 No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since June 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Shares as contemplated
hereby.
5. Use and Disposition of Proceeds. The Company will use the proceeds from
the sale of the Initial Shares (excluding amounts paid by the Company for legal
fees, finder's fees and escrow agent fees in connection with the sale of the
Initial Shares) for general capital purposes and acquisition, but shall not,
directly or indirectly, use such proceeds for investment in any other affiliate
or to repay debt to affiliates.
6. Company Reliance on Purchaser's Representations. Purchaser understands
that the Company is relying on the truth and accuracy of the representations and
warranties made herein by Purchaser in offering the Shares for sale and in
relying upon applicable exemptions available under the Act and applicable state
securities laws.
7. Restricted Shares. Purchaser understands and acknowledges that the
Shares have not been, and will not as of the time they are issued be, registered
under the Securities Act and that they will be issued in reliance upon
exemptions from the registration requirements of the Securities Act, and thus
cannot be resold unless they are included in an effective registration statement
filed under the Securities Act or unless an exemption from registration is
available for such resale. With regard to the restrictions on resales of the
Shares, Purchaser is aware (a) that the Company will issue stop transfer orders
to its stock transfer agent in the event of attempts to improperly transfer any
such Shares; and (b) that a restrictive legend will be placed on certificates
representing the Shares, which legend will read substantially as follows:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
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The legend set forth above shall be promptly removed, and the Company shall
issue a certificate without such legend to the holder of any such Shares upon
which such legend is stamped, if, unless otherwise required by state securities
laws, (i) such Shares are registered for resale under the Securities Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Shares may be made without registration
under the Securities Act, or (iii) such holder provides the Company with
reasonable assurances that such Shares can be sold pursuant to Rule 144
promulgated under the Securities Act without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold.
Notwithstanding the removal of the legend set forth above in the event the
Shares are registered for resale on an effective registration statement, the
Company reserves the right to affix a legend on certificates representing such
Shares that any selling shareholder must comply with the prospectus delivery
requirements of the Securities Act in connection with any resale. The Company
shall bear the cost of the removal of any legend as anticipated by this Section
7.
8. Other Covenants of the Company.
8.1 Furnishing of Information. As long as Purchaser owns Shares, 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 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 Purchaser) the Company is
not required to file reports pursuant to such sections, 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 Shares may reasonably request,
all to the extent required from time to time to enable such Person to sell
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act.
8.2 Listing of Shares. The Company shall, if required by any
applicable listing agreement, and (a) not later than the Effective Date, prepare
and file with any national securities exchange, market or trading facility on
which the Common Stock is then listed an additional shares listing application
covering the Shares, (b) take all steps necessary to cause such Shares to be
approved for listing on any other national securities exchange, market or
trading facility on which the Common Stock is then listed as soon as possible
thereafter, and (c) provide to Purchaser evidence of such listing, and the
Company shall maintain the listing of its Common Stock on such exchange or
market.
8.3 First Right. The Company shall not, directly or indirectly,
without the prior written consent of Purchaser, 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 Common Stock or securities
convertible into Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of three hundred sixty (360) days after the
Effective 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 or options and upon conversion of any currently outstanding convertible
Debenture, in each case disclosed in Section 4.4 or Schedule 4.4, (iii)
securities issued in connection with the capitalization or creation of a joint
venture with a strategic partner, (iv) shares issued to pay part or all of the
purchase price for the acquisition by the Company of a Person (which, for
purposes of this clause (iv), shall not include an individual or group of
individuals) and (v) shares issued in a bona
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fide public offering by the Company of its securities, unless (A) the Company
delivers to Purchaser a written notice (the "Subsequent Financing Notice") of
its intention 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 effected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Purchaser
shall not have notified the Company by 5:00 p.m. (New York time) on the tenth
(10th) trading day after its receipt of the Subsequent Financing Notice of its
willingness to cause all or any of the Purchaser 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
Purchaser 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 Purchaser with a second Subsequent Financing Notice, and
Purchaser shall again have the right of first refusal set forth above in this
subsection 8.3, 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. The
rights granted to Purchaser in this subsection 8.4 are not subject to any prior
right of first refusal given to any other person.
8.4 Certain Agreements. (a) The Company covenants and agrees that it
will not, without the prior written consent of the Purchaser, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until the date which is one hundred
eighty (180) days after the Effective Date.
(b) The provisions of subparagraph (a) will not apply to (w) Common
Stock issued pursuant to Rule 144, provided the holder thereof is required to
hold such Common Stock for at least one year from the date of issuance; (x) a
secondary public offering of shares of Common Stock at market; (y) an offering
of convertible debentures at market or above; or (z) the issuance of securities
(other than for cash) in connection with a merger, consolidation, sale of
assets, disposition or the exchange of the capital stock for assets, stock or
other joint venture interests; and further provided, such securities would not
be included in the Registration Statement relating to the Shares and a
registration statement in respect of such stock shall not be filed prior to
sixty (60) days after the Effective Date.
8.5 Limitation on Issuance of Shares. The Company may be limited in
the number of shares of Common Stock it may issue by the "Cap Regulations".
Without limiting the other provisions thereof, (i) the Company will take all
steps reasonably necessary to be in a position to issue Shares upon exercise of
the Warrants without violating the Cap Regulations and (ii) if, despite taking
such steps, the Company still can not issue such Shares without violating the
Cap Regulations, the holder of Initial Shares and Warrants shall have the
option, exercisable in such holders' sole and absolute discretion, to elect
either of the following remedies:
(x) require the Company to issue Repricing Shares at a price equal
to the average of the closing bid price per share of Common Stock for the
last five (5) consecutive trading days during a Repricing Period (subject
to certain equitable adjustments for certain events occurring during such
period); or
(y) require the Company to redeem each Repricing Share for an amount
in cash (the "Redemption Amount") at the Initial Closing Price.
8.6 Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the number of shares of Common Stock issuable as may be
required to issue the Repricing Shares.
8.7 Warrants. The Company agrees to issue to Purchaser at the
Closing, transferable
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divisible warrants (the "Warrants") for 200,000 shares of Common Stock. Such
Warrants shall bear an exercise price per share of Common Stock as follows: 125%
of the Closing Bid Price on the Initial Closing Date, and shall be exercisable
immediately upon issuance, and for a period of five (5) years thereafter, in the
form annexed hereto as Exhibit VI, together with [cashless exercise]
registration rights under the Registration Rights Agreement.
8.8 Reimbursement. If (i) Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by Transaction Documents, or if such Purchaser is impleaded in any
such action, proceeding or investigation by any Person, or (ii) any Purchaser,
other than by reason of its gross negligence or willful misconduct or by reason
of its trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the Commission against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if such Purchaser is impleaded in
any such action, proceeding or investigation by any Person, then in any such
case, the Company will reimburse such Purchaser for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which such Purchaser is a named party,
the Company will pay such Purchaser the charges, as reasonably determined by
such Purchaser, for the time of any officers or employees of such Purchaser
devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or otherwise with respect
to inquiries, hearing, trials, and other proceedings relating to the subject
matter of this Agreement. The reimbursement obligations of the Company under
this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Purchasers who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchasers and any such Affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
Affiliate and any such Person. The Company also agrees that neither any
Purchaser nor any such Affiliate, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of such
Purchaser.
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. The Company will irrevocably instruct
its transfer agent to issue Repricing Shares from time to time in such amounts
as shall be specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 7 of this Agreement prior to
registration of the Shares under the Securities Act, registered in the name of
the Purchaser or its nominee and in such denominations to be specified by the
Purchaser in connection with each Closing. The Company warrants that no
instruction other than such instructions referred to in this Section 9 and stop
transfer instructions to give effect to Section 7 hereof prior to registration
and sale of the Shares under the Securities Act will be given by the Company to
the transfer agent and that the securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section 9 shall affect in any way the Purchaser's
obligations and agreement to comply with all applicable securities laws upon
resale of the Shares.
9.2 [Intentionally Omitted]
9.3 Transmission of Certificates. The Company will transmit the
certificates representing the unlegended securities subsequent to receipt of
notice of a prospectus sale or otherwise exempt sale ("Unlegended Shares") to be
issued to the Purchaser pursuant via express courier, by electronic transfer or
otherwise, within three (3) business days after receipt by the Company of the
certificate representing the legended Common Stock, and a
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representation by the Purchaser that such Shares have been sold in accordance
with the provisions of the Securities Act of 1933 (the "Delivery Date").
9.4 Delay. The Company understands that a delay in the issuance of
the Unlegended Shares beyond the Delivery Date could result in economic loss to
the Purchaser. As compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of Unlegended
Shares in accordance with the following schedule (where "No. of Days Late" is
defined as the number of days beyond five (5) business days from Delivery Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver the Unlegended Shares to the Purchaser.
9.5 Cover. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Unlegended Shares and after such Delivery Date, the
holder of the Shares (a "Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Holder (the "Sold
Shares"), which delivery such Holder anticipated to make using the Shares to be
issued upon such conversion (a "Buy-In"), the Company shall pay to the Holder,
in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Company in
immediately available funds immediately upon demand by the Holder. By way of
illustration and not in limitation of the foregoing, if the Holder purchases
shares of Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock
it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company
will be required to pay to the Holder will be $1,000.
9.6 Electronic Transfer. In lieu of delivering physical certificates
representing the unlegended Shares issuable upon conversion, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of the
Purchaser and its compliance with the provisions contained in this paragraph, so
long as the certificates therefor do not bear a legend and the Purchaser thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Purchaser by crediting the account of Purchaser's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission system.
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9.7 The Company will authorize its transfer agent to give
information relating to the Company directly to the Purchaser or the Purchaser's
representatives upon the request of the Purchaser or any such representative, to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Purchaser, or (ii) the number of
outstanding shares of Common Stock of all stockholders as of a current or other
specified date. The Company will provide the Purchaser with a copy of the
authorization so given to the transfer agent.
10. Closing Date.
10.1 The closing of the issuance and sale of the Initial Shares
shall occur on the date (the "Closing Date") which is the first NYSE trading day
after the fulfillment or waiver of all closing conditions pursuant to Sections
11 and 12 hereof or such other date and time as is mutually agreed upon by the
Company and the Purchaser.
10.2 Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 11 and 12 hereof.
11. Conditions To The Company's Obligation To Sell
The Purchaser understands that the Company's obligation to sell the
Shares on the Closing Date to the Purchaser pursuant to this Agreement is
conditioned upon:
11.1 The receipt and acceptance by the Purchaser of this Agreement
as evidenced by execution of this Agreement by the Purchaser.
11.2 Delivery by the Purchaser to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Shares in
accordance with Section 1(c) hereof;
11.3 The accuracy on the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Closing Date, and the performance by the Purchaser on or before the Closing Date
of all covenants and agreements of the Purchaser required to be performed on or
before the Closing Date;
11.4 There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
12. Conditions To The Purchaser's Obligation To Purchase.
The Company understands that the Purchaser's obligation to purchase
the Common Stock on the Closing Date is conditioned upon:
12.1 Acceptance by the Company of this Agreement for the sale of
Common Stock, as indicated by execution of this Agreement;
12.2 Delivery by the Company to the Escrow Agent of the appropriate
Common Stock in accordance with this Agreement;
12.3 The accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained in this Agreement as
if made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date; and
14
<PAGE>
12.4 On the Closing Date, the Purchaser having received an opinion
of counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Purchaser, to the effect set forth hereto, the
Registration Rights Agreement hereto, the Warrants annexed hereto, and the
Additional Agreements.
12.5 No statute, rule, regulation, executive order, decree, ruling
or injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
12.6 From and after the date hereof to and including the initial
Closing Date and each Additional Closing Date, the trading of the Common Stock
shall not have been suspended by the SEC, or the NASD and trading in securities
generally on the New York Stock Exchange or NASDAQ shall not have been suspended
or limited, nor shall minimum prices have been established for securities traded
on NASDAQ, nor shall there be any outbreak or escalation of hostilities
involving the United States or any material adverse change in any financial
market that in either case in the reasonable judgment of the Purchaser makes it
impracticable or inadvisable to purchase the Shares, as the case may be.
13. General Provisions.
13.1 Assignment. Neither this Agreement nor any rights of Purchaser
hereunder may be assigned by either party to any other person without the prior
written consent of the Company.
13.2 Attorneys' Fees. In the event any dispute arises under this
Agreement or the documents or instruments executed and delivered in connection
with this Agreement, and the parties hereto resort to litigation to resolve such
dispute, the prevailing party in any such litigation, in addition to all other
remedies at law or in equity, shall be entitled to an award of costs and fees
from the other party, which costs and fees shall include, without limitation,
reasonable attorneys' fees and legal costs.
13.3 Choice of Law; Venue. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of Delaware
and the federal law of the United States without reference to principles of
conflicts of law. The parties agree that, in the event of any dispute arising
out this Agreement or the transactions contemplated thereby, venue for such
dispute shall be in the state or federal courts located in Wilmington, and that
each party hereto waives any objection to such venue based on forum non
conveniens.
13.4 Costs and Expenses. The parties shall be responsible for and
shall pay their own costs and expenses, including without limitation attorneys'
fees and accountants' fees and expenses, in connection with the conduct of the
due diligence inquiry, negotiation, execution and delivery of this Agreement and
the instruments, documents and agreements executed in connection with this
Agreement.
13.5 Counterparts/Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument. In lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original.
13.6 Entire Agreement: Amendment. This Agreement, together with the
exhibits to this Agreement and the other instruments and documents delivered in
connection with this Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither
15
<PAGE>
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
13.7 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
13.8 Notices. All notices or other communications provided for under
this Agreement shall be in writing, and mailed, telecopied or delivered by hand
delivery or by overnight courier service, as follows:
If to the Company:
EUROTECH, LTD.
1216 16th Street, N.W.
Washington, D.C. 20036
Tel No.: (202) 466-5448
Fax No.: (202) 466-5591
With a copy to:
Leonard Hurt Frost & Lilly
Suite 300
1701 K Street, N.W.
Washington, D.C. 20006
Tel No.: (202) 223-2500
Fax No.: (202) 223-2501
ATT: Max A. Stolper, Esq.
16
<PAGE>
If to Purchaser:
Woodward LLC
Corporate Center
West Bay Road
Grand Cayman, Cayman Islands
Fax No.: (284) 494-4771
With a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
ATT: Samuel M. Krieger, Esq.
Tel: 212-689-3322
Fax: 212-213-2077
All notices and communications shall be effective as follows: When mailed, upon
three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next business
day after deposit of the notice with the overnight courier.
13.9 Publicity. The Company and Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, 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 parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of such Purchaser, except to the
extent required by law. Purchaser acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the Exchange Act.
Purchaser further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
13.10 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
13.11 Survival Of Representations And Warranties. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Shares and the Purchase Price, and
shall inure to the benefit of the Purchaser and its successors and assigns.
IN WITNESS WHEREOF, the parties named below have caused this Agreement to
be executed, as of the date first above written.
PURCHASER:
WOODWARD LLC
17
<PAGE>
By:
Its:
THE COMPANY:
EUROTECH, LTD.
By: /s/ Don V. Hahnfeldt
-------------------------
Its President
18
<PAGE>
SCHEDULE 4.4
CAPITALIZATION
1. Schedule 6(a) to the Registration Rights Agreement is incorporated herein
by reference and made part hereof as if it were set out below in its
entirety.
First Refusal, Preemptive Rights or Similar Provisions
_____________ NONE
<PAGE>
SCHEDULE 4.5
SUBSIDIARIES
NONE
<PAGE>
SCHEDULE 4.10
UNDISCLOSED FINANCIAL LIABILITIES
NONE
Exhibit 10.20.2
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
EUROTECH, LTD.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration,
the receipt of which is hereby acknowledged by, Eurotech, LTD. a District of
Columbia corporation (the "Company"), Woodward LLC or registered assigns (the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on December 31,2004 (the "Expiration Date"), 200,000 fully
paid and nonassessable shares of the Company's Common Stock, par value $.00025
per share (the "Common Stock") at an initial exercise price of $3.125 per share
(the "Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.
2. Exercise of Warrants. This Warrant is exercisable in whole or in
part at the Exercise Price per share of Common Stock payable hereunder, payable
in cash or by certified or official bank check. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise Form duly executed, together
with payment of the Exercise Price for the shares of Common Stock purchased, the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased.
3. Reservation of Shares. The Company hereby agrees that at all
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
<PAGE>
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company hereby grants to the Holder registration rights with
respect to the Warrant Shares in accordance with a Registration Rights Agreement
between the Company and Holder of even date herewith..
(c) In addition to the registration rights referred to in the
preceding provisions of Section (b), effective after the expiration of the
effectiveness of the Registration Statement as contemplated by this Warrant, the
Holder shall have demand piggy-back registration rights with respect to the
Warrant Shares then held by the Holder or then subject to issuance upon exercise
of this Warrant (collectively, the "Remaining Warrant Shares"), subject to the
conditions set forth below. If, at any time after the Registration Statement has
ceased to be effective, the Company participates (whether voluntarily or by
reason of an obligation to a third party) in the registration of any shares of
the Company's stock, the Company shall give written notice thereof to the Holder
and the Holder shall have the right, exercisable within ten (10) business days
after receipt of such notice, to demand inclusion of all or a portion of the
Holder's Remaining Warrant Shares in such registration statement.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
EUROTECH, Ltd
1216 16th Street
Washington , D.C. 20036
Attn: Chief Financial Officer
(ii) if to the Holder, to:
Woodward LLC
Corporate Center
West Bay Road
Grand Cayman, Cayman Islands
Fax No.: (284) 494-4771
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such
2
<PAGE>
State applicable to contracts to be made and performed entirely within such
State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the __th day of _____________ 1999.
EUROTECH, Ltd.
By: /s/ Don V. Hahnfeldt
--------------------------------
Name: Don V. Hahnfeldt
Title: President & CEO
Attest:
/s/ Michael L. Thomas
- ------------------------------
Michael L. Thomas
Secretary & Chief Administrative Officer
3
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of __________, 1999, to purchase
__________ shares of the Common Stock, par value $.00025 per share, of and
tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
Woodward LLC
By:__________________________________
4
Exhibit 10.20.3
ANNEX
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 31, 1999
(this "Agreement"), is made by and between EUROTECH, LTD., a District of
Columbia corporation, with headquarters located at 1216 16th Street, N.W.,
Washington, D.C. 20036 (the "Company"), and each entity named on a signature
page hereto (each, an "Initial Investor") (each agreement with an Initial
Investor being deemed a separate and independent agreement between the Company
and such Initial Investor, except that each Initial Investor acknowledges and
consents to the rights granted to each other Initial Investor under such
agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Common
Stock Purchase Agreement, dated as of December 31, 1999, between the Initial
Investor and the Company (the "Common Stock Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the Common
Stock Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor, 1,882,353 shares of Common Stock (the "Initial Shares") ,
together with certain Repricing Rights ("Repricing Shares") (collectively the
"Shares") of the Company; and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Common Stock Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Common Shares, the Repricing Shares and
the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Shares or Warrants.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
<PAGE>
under the Securities Act or any successor rule providing for offering securities
on a continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(d) "Registrable Securities" means the Shares, the Repricing Shares
and the Warrant Shares issued on the Initial Closing Date and the Other
Registrable Securities as set forth in Schedule 5 hereto.
(e) "Registration Statement" means a registration statement of the
Company under the Securities Act, or an amendment to an existing registration
statement.
2. Registration.
(a) Mandatory Registration.
The Company shall prepare and file with the SEC, as soon as
possible after the Initial Closing and no later than a date (the "Required
Filing Date") which is thirty (30) days following the Initial Closing Date,
either a Registration Statement on Form S-1 or an amendment to an existing
Registration Statement, in either event registering for resale by the Investor a
sufficient number of shares of Common Stock for the Initial Investors to sell
the Registrable Securities (or such lesser number as may be required by the SEC
(assuming for such purposes that such Warrants had been eligible to be exercised
and had been exercised in accordance with their terms, whether or not such
eligibility or exercise had in fact occurred as of such date). The Registration
Statement (X) shall also state that, in accordance with Rule 416 and 457 under
the Securities Act, it also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon repricing of the Common Stock
and the exercise of the Warrants to prevent dilution resulting from stock splits
or stock dividends. The Company will use its reasonable best efforts to cause
such Registration Statement to be declared effective on a date (a "Required
Effective Date") which is no later than is the earlier of (Y) five (5) days
after notice by the SEC that it may be declared effective or (Z) ninety (90)
days after the Initial Closing Date or thirty (30) days after the relevant
Additional Closing Date, as the case may be.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC by the Required Filing Date,
the Company will make payment to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable
Securities is not effective by thirty (30) days after the relevant Required
Effective Date or if the Investor is restricted from making sales of Registrable
Securities covered by a previously effective Registration Statement at any time
(the date such restriction commences, a "Restricted Sale Date") after the
Effective Date other than during a Suspension Period (as defined below), then
the Company will make payments to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all the Initial Shares
for the period from the date following the relevant Required Filing Date,
Required Effective Date or Restricted Sale Date, as the case may be, to the
first relevant Computation Date, and thereafter to each subsequent Computation
Date. The "Periodic Amount Percentage" means (A) two percent (2%) of the
Purchase Price for the period from the date following the relevant Required
Filing Date, Required Effective Date or Restricted Sale Date, as the case may
be, to the first relevant Computation Date (prorated on a daily basis if such
period is less than thirty [30] days), and (B) two percent (2%) of the Purchase
Price to each Computation Date thereafter (prorated on a daily basis if such
period is less than thirty [30] days). By way of illustration and not in
limitation of the foregoing, if the Registration Statement for the Registrable
Securities relating to the Common Stock and Warrants issued on the Initial
Closing Date is timely filed
2
<PAGE>
but is not declared effective until one hundred sixty-five (165) days after the
Initial Closing Date, the Periodic Amount will aggregate six percent (6%) of the
Purchase Price of the Initial Common Stock (4% for days 90-150, plus 2% for days
151-165).
(iv) Each Periodic Amount will be payable by the Company in
cash or other immediately available funds to the Investor monthly, without
requiring demand therefor by the Investor.
(v) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amounts represent a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable to the extent any delay
in the effectiveness of the Registration Statement occurs because of an act of,
or a failure to act or to act timely by the Initial Investor or its counsel, or
in the event all of the Registrable Securities may be sold pursuant to Rule 144
or another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. Obligations of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by the Required Filing
Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the last day of the calendar month following the month in which
the closing at the end of the Final Repricing Period, (ii) the date when the
Investors may sell all Registrable Securities under Rule 144 or (iii) the date
the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any 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 in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by
the Initial Investors to
3
<PAGE>
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects.
(d) Notify each Investor, such Investor's legal counsel identified
to the Company (which, until further notice, shall be deemed to be Krieger &
Prager, ATTN: Samuel Krieger, Esq.; each, an "Investor's Counsel") (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) whenever the SEC notifies the Company whether there will be a
"review" of such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC 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 SEC 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 or
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 to the best knowledge of the Company 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. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon.
(e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, two (2) copies of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits 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, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
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<PAGE>
(h) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is required
to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board Market" of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") within the meaning of
Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
NASDAQ Bulletin Board Market; and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(j) Provide a transfer agent for the Registrable Securities not
later than the effective date of the Registration Statement;
(k) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. Obligations of the Investors. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company
need not file the Registration Statement until receiving the response of such
Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening
5
<PAGE>
of any event of the kind described in Section 3(e) or 3(f), above, such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(e) or 3(f).
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investors (as a group and not
individually) not exceeding $3,500 for the Registration Statement covering the
Registrable Securities applicable to the Common Stock and Warrants issued on the
Closing Date shall be borne by the Company.
(b) Except as otherwise provided for in Schedule 5 hereto, neither
the Company nor any of its subsidiaries has, as of the date hereof, nor shall
the Company nor 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 Investors in this Agreement or otherwise
conflicts with the provisions hereof. Except as otherwise provided for in
Schedule 5 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. Except as otherwise provided for in this
Section 5, and without limiting the generality of the foregoing, without the
written consent of the Investors holding a majority of the 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 Investors set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement and the other Transaction
Agreements.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Party expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or
6
<PAGE>
cause to be delivered the prospectus made available by the Company; or (III)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Each Investor will indemnify the Company and its
officers, directors and agents (each, an "Indemnified Party") against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Party, as
the case may be. In case any such action is brought against any Indemnified
Party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
Indemnified Party under this Section 6 for any legal or other reasonable
out-of-pocket expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the Indemnified
Party. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the
7
<PAGE>
Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unexercised Warrant) only if: (a) the
Investor 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof arising from such delay.
10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. Rule 144 Requirements. The Company shall make publicly available
and available to the Investor of Registrable Securities, pursuant to Rule 144 of
the Commission under the Securities Act, such information as shall be necessary
to enable the Investors of Registrable Securities to make sales of Registrable
Securities pursuant to that Rule. The Company will furnish to any Investor of
Registrable Securities, upon request made by such Investor at any time, a
written statement signed by the Company, addressed to such Investor, describing
briefly the action the Company has taken or proposes to take to comply with the
current public information requirements of Rule 144. The Company will, at the
request of any Investor of Registrable Securities, upon receipt from such
Investor of a certificate certifying (i) that such Investor has held such
Registrable Securities for a period of not less than one (1) year, (ii) that
such Investor has not been an affiliate (as defined in Rule 144) of the Company
for more than the ninety (90) preceding days, and (iii) as to such other matters
as may be appropriate in accordance with such Rule, remove from the stock
certificates representing such Registrable Securities that portion of any
restrictive legend which relates to the registration provisions of the
Securities Act, provided, however, counsel to Investor may provide such
instructions and opinion to the transfer agent regarding the removal of the
restrictive legend.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be
given in the manner
8
<PAGE>
contemplated by the Agreement, (i) if to the Company or to the Initial Investor,
to their respective address contemplated by the Agreement, and (iii) if to any
other Investor, at such address as such Investor shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 12(b).
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of
Wilmington or the state courts of the State of Delaware sitting in the City of
Wilmington in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Purchaser for any reasonable legal fees and
disbursements incurred by the Purchaser in enforcement of or protection of any
of its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance, could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
COMPANY:
EUROTECH, LTD.
By: /s/ Don V. Hahnfeldt
--------------------
Name: Don V. Hahnfeldt
Title: Predident
WOODWARD LLC
By: s/
--------------------
Name:
Title:
<PAGE>
SCHEDULE 5
OTHER REGISTRABLE SECURITIES
EXHIBIT 10.20.4
WOODWARD LLC
Corporate Center
West Bay Road
Grand Cayman, Cayman Islands
December 31, 1999
EUROTECH, Ltd.
1216 16th Street, N.W.
Washington, D.C. 20036
Re: EUROTECH, Ltd. (the "Company")
Gentlemen:
Reference is made to the Common Stock Purchase Agreement (the
"Purchase Agreement"), of even date hereof, between the Company and the
undersigned (the "Purchaser").
The Purchasers additionally commit, subject to and upon the terms
and conditions hereof, to purchase from the Company, and the Company may sell to
the Purchaser shares of Common Stock (the "Additional Shares") for an aggregate
purchase price of up to $22,000,000 at a price equal to 90% of the five (5)
lowest closing bid price as reported by Bloomberg LP of the Common Stock (not
necessarily consecutive) for the fifteen (15) trading days prior to each
Additional Closing.
The commitment of the Purchaser set forth in this letter is subject
to the terms, conditions and qualifications set forth below:
1. Additional Documentation. In order to effectuate a purchase and
sale of the Additional Shares, prior to their issuance, the Company and the
Purchasers shall enter into the following agreements: (a) a securities purchase
agreement (the "Additional Purchase Agreement") setting forth the terms and
conditions of the purchase and sale, and (b) a registration rights agreement
substantially identical to the Registration Rights Agreement (the "Additional
Registration Rights Agreement", and together with the Additional Purchase
Agreement, collectively the "Additional Transaction Documents"). The Purchaser
shall prepare the Additional Transaction Documents.
2. The Additional Closing. (i) The Company shall have the right to
deliver one or more written notices to the Purchaser (the "Additional Financing
Notice") requiring such party to buy the Additional Shares for an aggregate
purchase price of $22,000,000 (the "Additional Purchase Price"), but not less
than $800,000 or to exceed $4,000,000 per Additional Financing Notice. An
Additional Financing Notice may be delivered no earlier than twenty (20) Trading
Days following the Effective Date or thirty (30) Trading Days following the
prior Additional Financing Notice. The closing of the purchase and sale of the
Additional Securities (the "Additional Closing") shall take place at the offices
of Krieger & Prager, LLP, Suite 1440, 39 Broadway, New York, New York 10006, on
the fifteenth (15) Business Day after the Additional Financing Notice is
received by the Purchasers or the Company, as the case may be, or on such other
date as otherwise agreed to by the parties hereto; provided, however, that in no
case shall the Additional Closing take place unless and until all of the
conditions listed in Section 3 of this letter and the Additional Purchase
Agreements shall have been satisfied by the Company or waived by the Purchasers.
The date of the Additional Closing is hereinafter referred to as the "Additional
Closing Date." Notwithstanding anything to the contrary contained in this
letter. Purchaser may designate an Affiliate thereof to acquire all or any
portion of the Additional Shares.
(ii) At the Additional Closing, the parties shall deliver or
shall cause to be delivered the following: (a) the Company shall deliver to (x)
Purchaser or its designated Affiliate, (1) the number of Additional Shares
registered in the name of Purchaser or its
<PAGE>
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.
Please indicate your agreement with the foregoing by executing a
countersigned copy of this letter and returning the same to our attention,
whereupon effective immediately thereafter this letter shall become a legally
valid and binding agreement between the Purchaser and the Company.
We look forward to our continuing relationship.
Sincerely,
WOODWARD LLC
By: /s/
----------------------------
Name:
Title:
Agreed and accepted
December 31, 1999
EUROTECH, LTD.
By: /s/ Don V. Hahnfeldt
--------------------------
Name: Don V. Hahnfeldt
Title: President & CEO
2
Exhibit 10.20.5
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Securities Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both EUROTECH LTD., a District of Columbia corporation
(the "Company"), and the Buyer (the "Buyer") of Common Stock (the "Common
Stock") of the Company, who is named in the Common Stock Purchase Agreement
between the Company and the Buyer to which a copy of these Joint Escrow
Instructions is attached as Annex II (the "Agreement"), you (hereafter, the
"Escrow Agent") are hereby authorized and directed to hold the documents and
funds (together with any interest thereon, the "Escrow Funds") delivered to the
Escrow Agent pursuant to the terms of the Agreement in accordance with the
following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company of
receipt of the purchase price for the Common Stock and from, or on behalf of
the, Buyer (the "Purchase Price"), and notify the Buyer (or such agent as the
Buyer may designate in writing) of receipt of the certificates representing the
Common Stock (the "Certificates"). As promptly as feasible upon receipt of
notice (whether oral or in written form) from the Company and the Buyer that the
respective conditions precedent to the purchase and sale have been satisfied
(which notice shall not be unreasonably withheld), the Escrow Agent shall, after
reduction by the amounts referred to in the next succeeding sentence of this
paragraph, release the Escrow Funds to or upon the order of the Company, and
shall release the Certificates to the Buyer. After receipt of such notice, an
amount equal to (i) $150,000 of the Purchase Price as the aggregate cash fees
due to Spinneret Financial Systems, Inc. (the "Placement Agent") shall be
released to or upon the order of the Escrow Agent and (i) $18,000 of the
Purchase Price in legal and escrow fees for such tranche to the Escrow Agent
shall be released to or upon the order of the Escrow Agent. If the Certificates
are not deposited with the Escrow Agent within ten (10) days after receipt by
the Company of notice of receipt by the Escrow Agent of the Purchase Price funds
from the Buyer, the Escrow Agent shall notify the Buyer and the Buyer shall be
entitled to cancel the purchase and demand repayment of the funds. If such funds
are not deposited with the Escrow Agent within ten (10) days after receipt by
the Buyer of notice of receipt by the Escrow Agent of the Certificates from the
Company, the Escrow Agent shall notify the Company and the Company shall be
entitled to cancel the purchase and demand return of such Certificates. If the
Company or the Buyer notifies the Escrow Agent that on the Closing Date (as
defined in the Agreement) the conditions precedent to the obligations of the
Company or the Buyer, as the case may be, under the Agreement were not satisfied
or waived, then the Escrow Agent shall return the Escrow Funds to the Buyer and
shall return the Certificates to the Company. Prior to return of the Escrow
Funds to the Buyer, the Buyer shall furnish such tax reporting or other
information as shall be appropriate for the Escrow Agent to comply with
applicable United States laws. The Escrow Agent shall deposit all funds received
hereunder in the Escrow Agent's attorney escrow account at The Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, the Buyer and the Escrow
Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set
<PAGE>
forth herein and may rely and shall be protected in relying or refraining from
acting on any instrument reasonably believed by the Escrow Agent to be genuine
and to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be personally liable for any act the Escrow Agent may do or omit
to do hereunder as the Escrow Agent while acting in good faith, and any act done
or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's
attorneys-at-law shall be conclusive evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Buyer, and may continue to act as legal counsel for the Buyer, from time to
time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent acting in such capacity as legal counsel for the
Buyer and waives any claim that such representation represents a conflict of
interest on the part of the Escrow Agent. The Company understands that the Buyer
and the Escrow Agent are relying explicitly on the foregoing provision in
entering into these Joint Escrow Instructions.
7. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Buyer. In the event of any such resignation, the Buyer and the Company shall
appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or the
Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or the Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Funds and any other property and documents held by the Escrow Agent
hereunder to a state or federal court having competent subject matter
jurisdiction and located in the State and City of New York in accordance with
the applicable procedure therefor.
10. The Company and the Buyer agree jointly and severally to indemnify and
hold harmless the Escrow Agent from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the duties or performance of the
Escrow Agent hereunder other than any such claim, liability, cost or expense to
the extent the same shall (a) have been tax obligations in connection with
Escrow Agent's fee hereunder, or (b) have been determined by final, unappealable
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent, or (c) be a liability, or
arise from liability, to either the Company or the Buyer.
11. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed "NOTICES" in the Agreement, the terms of which
are incorporated herein by reference.
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12. By signing these Joint Escrow Instructions, the Escrow Agent becomes a
party hereto only for the purpose of these Joint Escrow Instructions; the Escrow
Agent does not become a party to the Agreement. The Company and the Buyer have
become parties hereto by their execution and delivery of the Agreement, as
provided therein.
13. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
14. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided in the Agreement.
15. The rights and obligations of any party hereto are not assignable
without the written consent of the other parties hereto. These Joint Escrow
Instructions constitute the entire agreement amongst the parties with respect to
the subject matter hereof.
ACCEPTED BY ESCROW AGENT:
KRIEGER & PRAGER
By: _______________________________________
Date: _____________________________________
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