As filed with the Securities and Exchange Commission on October 23, 1997
Registration Number 333-32241
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Compositech Ltd.
(Exact name of registrant as specified in its charter)
Delaware 11-2710467
(State of incorporation) (I.R.S. Employer Identification No.)
120 Ricefield Lane, Hauppauge, NY 11788 - (516) 436-5200
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Samuel S. Gross
Executive Vice President and Treasurer
120 Ricefield Lane, Hauppauge, NY 11788 - (516) 436-5200
(Address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Edward F. Cox, Esq.
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza, New York, New York 10112 (212) 632-3050
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Offering Registration
Registered Registered(1) Per Share (2) Price (2) Fee (2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 810,476 $6.5625 $ 5,318,749
($0.01 par value)(3) Shares
Common Stock 76,993 $6.5625 $ 505,267
($0.01 par value)(4) Shares
Common Stock 1,555,556 $6.5625 $10,208,336
($0.01 par value)(5) Shares
Common Stock 1,335,555 $6.125 $ 8,180,274
($0.01 par value)(5) Shares
Common Stock 98,000 $6.5625 $ 643,125
($0.01 par value)(6) Shares
Common Stock 84,140 $6.125 $ 515,358
($0.01 par value)(6) Shares
- ---------------------------------------------------------------------------------------------------------------------
Totals 3,960,720 $25,371,109 $7,689
=====================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, there are also being
registered hereunder such additional shares as may be issued to the
selling stockholders because of future dividends, stock distributions,
stock splits or similar capital adjustments.
(2) The maximum offering prices per share of $6.125 and 6.5625, respectively,
were based upon the average of the high and low prices of the Company's
Common Stock reported by The Nasdaq SmallCap(SM) Market for the
Registrant's Common Stock on each of August 6, 1997, a date within five (5)
days prior to the date of filing of the pre-effective Amendment No. 1 to
this Registration Statement, and July 22, 1997, a date within five (5) days
prior to the date of initial filing of this Registration Statement, since
they are higher than the exercise price of the applicable warrant or
debenture (in accordance with Section (g) of Rule 457 of Regulation C).
(3) Represents shares of Common Stock underlying Common Stock Purchase
Warrants, as amended, exercisable at $3.00 per share until dates ranging
from August 3, 2000 to February 15, 2001 issued in connection with the
Registrant's private placement which had a final closing on February 15,
1996.
(4) Represents shares of Common Stock underlying Common Stock Purchase
Warrants exercisable at $3.96 per share issued to Trautman Kramer &
Company, Inc., as partial compensation in connection with the Registrant's
private placement which had a final closing on February 15, 1996.
(5) Represents shares of Common Stock issuable upon the conversion of the
Registrant's 5% Convertible Debentures (the "Debentures") based upon the
maximum number of shares that could be issued pursuant to this
Registration Statement and the form of the Debentures with respect to the
conversion price.
(6) Represents shares of Common Stock underlying Common Stock Purchase
Warrants issued to Trautman Kramer & Company, Inc., as partial
compensation in connection with the Registrant's private placement of the
Debentures.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time this registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful, prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, dated October _____, 1997
PROSPECTUS
COMPOSITECH LTD.
3,960,720 Shares of Common Stock
---------------------------------------
This Prospectus relates to an offering (the "Offering") by certain Stockholders
named herein under the caption "Selling Stockholders" (collectively, the
"Selling Stockholders") or by pledgees, donees, transferees or other successors
in interest of the Selling Stockholders (the "Transferees") for sale to the
public of the following securities of Compositech Ltd., a Delaware corporation
("Compositech" or the "Company"): (i) 810,476 shares of Common Stock underlying
Common Stock Purchase Warrants, as amended, exercisable at $3.00 per share until
dates ranging from August 3, 2000 to February 15, 2001 (the "Warrants") (16,500
of such shares have been issued upon exercise of such warrants); (ii) 2,891,111
shares of Common Stock issuable upon the conversion of the Company's 5%
Convertible Debentures (the "Debentures"); (iii) 76,993 shares of Common Stock
underlying Common Stock Purchase Warrants issued to Trautman Kramer & Company,
Inc. as partial compensation in connection with the Company's private placement
of the Warrants and (iv) 182,140 shares of Common Stock underlying Common Stock
Purchase Warrants issued to Trautman Kramer & Company, Inc. as partial
compensation in connection with the Company's private placement of the
Debentures. The number of shares of Common Stock issuable upon exercise of the
Warrants is subject to adjustment in certain events. The number of shares shown
as issuable upon the conversion of the Debentures and to be offered for sale is
based on the number of shares to be registered according to the agreements with
the debentureholders. The actual number of shares to be issued on conversion and
to be offered for sale will be different depending on the conversion price as
defined in the Debentures. See "Recent Developments - Sale of Debentures."
---------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS
---------------------------------------
The Company will not receive any of the proceeds from the sale of shares of
Common Stock. The Registration Statement of which this Prospectus forms a part
is being filed pursuant to the terms of certain agreements between the Company
and the Selling Stockholders.
<PAGE>
The Selling Stockholders have advised the Company that they or the Transferees
may sell, directly or through brokers, all or a portion of the securities
offered hereby in negotiated transactions or in one or more transactions in the
market at the price prevailing at the time of sale. In connection with such
sales, the Selling Stockholders, the Transferees and any participating broker
may be deemed to be "underwriters" of the Common Stock within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
or Transferees in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company has informed the Selling Stockholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") may apply to the sales of their shares offered hereby. The
Company also has advised the Selling Stockholders of the requirement for
delivery of this Prospectus in connection with any sale of the shares offered
hereby. Certain Selling Stockholders may from time to time purchase shares of
Common Stock in the open market. The Selling Stockholders have been notified
that they should not commence any distribution of shares of Common Stock unless
they have terminated their purchasing and bidding for Common Stock in the open
market as provided in applicable securities regulations.
The Common Stock is listed and traded on The Nasdaq SmallCap Market(SM) under
symbol "CTEK." The closing price of the Common Stock on October 21, 1997 was $4
31/64 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October ___, 1997.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at
the Commission's Regional Offices at the 13th Floor, World Trade Center, New
York, New York, 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov that also contains such material regarding the registrant.
Such documents filed by the Company can also be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York, 10006.
The Company has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, which may be inspected and copied in the manner and at
the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996;
(2) The Company's Quarterly Report on Form 10-QSB/A for the quarter ended
March 31, 1997 and on Form 10-QSB for the quarter ended June 30, 1997;
(3) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 0-20701),
declared effective on July 2, 1996, by which the Company's shares of
Common Stock were registered under Section 12 of the Exchange Act and
any other amendments or reports filed for the purpose of updating such
description.
(4) The Company's Current Report on Form 8-K of October _____, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares of Common Stock shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
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<PAGE>
Any statement contained herein or in a document incorporated or deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which 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 a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Compositech Ltd., 120
Ricefield Lane, Hauppauge, NY 11788, Attention: Investor Relations. Telephone:
(516) 436-5200.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements set forth under the captions "Prospectus Summary",
"Recent Developments - Canadian Joint Venture", "Risk Factors" and "Use of
Proceeds" and set forth elsewhere in this Prospectus constitute "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, which are intended to be covered by the safe harbors from liability
created thereby. All such forward looking statements involve risks and
uncertainties. As a result, there can be no assurance that the forward looking
statements in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the information included elsewhere
in this Prospectus and the detailed information and financial statements
appearing in the documents incorporated in this Prospectus by reference.
The Company
Compositech Ltd. (the "Company" or "Compositech") was founded in 1984 by Jonas
Medney and Fred Klimpl, its Chairman and President, respectively, to develop and
market innovative superior copper-clad fiberglass epoxy laminates used to make
printed circuit boards required by the electronics industry. The Company was
incorporated in the State of New York on June 13, 1984 and was merged into a
newly formed Delaware corporation on January 29, 1988. The primary innovation of
Compositech was to replace the fiberglass cloth component of the laminate with a
more modern and structurally efficient fiberglass core resulting from a uniform,
orthogonally layered construction. The Company has received grants of 25 patents
covering its products, processes and apparatus, including five in the United
States, and has submitted eight additional patent applications. The most recent
patents granted were three in Japan and one in Hong Kong. The Company has been a
development stage company through 1996. Based on the level of production and
sales anticipated for 1997, the Company has concluded it is no longer in the
development stage as of January 1, 1997. Based on its own benchmark testing and
evaluations by customers and other potential users, the Company believes that it
has succeeded in developing a laminate that is superior to competitive
copper-clad fiberglass epoxy laminates.
On July 9, 1996, the Company received net proceeds of approximately $9.9 million
from its initial public offering ("IPO"). Approximately $4.3 million was used to
reduce debt substantially and pay accrued interest. The Company used the
remaining proceeds to add production modules to its existing equipment and for
working capital.
The Company's innovative laminates are produced using proprietary processes and
machinery, designed by the Company's engineering staff. The patents on the
laminates, processes and apparatus are supplemented with other proprietary
technology unprotected by patents and considered by the Company to be of
substantial value.
Compositech's laminate construction is structurally more efficient than
competitive copper-clad fiberglass epoxy laminates designated "FR-4", which is
the industry standard, resulting in enhanced smoothness and greater dimensional
stability. The Company believes, based on results of customers' evaluations,
that its improved products can economically replace the fiberglass woven cloth
epoxy laminates currently used in the electronics industry. According to the
Institute for Interconnecting and Packaging Electronic Circuits (the "IPC"),
this market exceeded $2.9 billion in 1996.
The Company successfully constructed, debugged and operated its first pilot
plant production equipment for laminates with a panel size of 24" x 24" in 1991.
In 1991 and 1992, Compositech recruited an initial sales staff to develop the
market potential of its product, continued refining its product and designing
its production equipment to manufacture laminates with a panel size of 36" x 48"
and initiated a sampling program targeted at major potential customers. In 1994,
the Company started up and began debugging its first production module to
manufacture 36" x 48" laminates and, in 1995 and 1996, produced laminates on
this equipment in limited quantities for the
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<PAGE>
purpose of making modifications to the production processes constituting the
module and reformulating the laminates produced by the module. In the last
quarter of 1996, the Company began installation of advanced production equipment
which is now operational. The current capacity of the production equipment is
approximately 95,000 square feet a month. In January 1998, when additional
production equipment and other enhancements bought with the proceeds of the
convertible debentures become operational, it is anticipated that the capacity
will be initially about 325,000 square feet a month. The foregoing capacities
enable the Company to produce in commercial quantities.
The printed circuit board industry generally operates on a "just-in-time"
ordering basis. While the Company does not have a significant backlog of orders,
based on discussions with customers and potential customers, the Company
projects that sales for 1997 will be approximately $1.1 million and for 1998
approximately $18 million. The foregoing represent projected sales dependent on
future events. The Company can not ensure that it will achieve these sales. See
"Risk Factors".
Industry Overview
Initially, most circuit boards had circuits (traces) on one or two sides. In the
last ten years, rapid technological advances in both semiconductor design and
fabrication techniques have placed significant demands on the performance of
printed circuit boards. Greater circuit density, complexity and miniaturization
have increased demand for more sophisticated printed circuit boards. In response
to this demand, multilayer printed circuit boards were developed which
incorporate multiple layers of metallic traces. The several layers of circuitry
are aligned and bonded together in a stack to form a multilayer board with both
horizontal and vertical electrical interconnections. Further circuit board
sophistication is currently being achieved by decreasing the width and
separation of the traces, drilling and plating smaller holes to connect the
internal trace layers and precisely situating the traces and pads on the board
surface to accommodate surface mount components.
These trends in the printed circuit board industry have placed increasingly
rigorous demands on the electrical, thermal, chemical and mechanical properties
of laminates. Mechanical properties must be increasingly more uniform and
tightly controlled in order to align the various layers in a multilayer printed
circuit board. Electrical properties of laminates must be highly consistent and
predictable in order to avoid circuit timing malfunctions. Thermal stability is
also critical for attaching the components and for dense, high speed systems,
because of the heat generated.
Compositech's technology is targeted at the fiberglass laminate segment of the
laminate industry. According to the IPC, in 1996 the single- and double-sided
laminate market was approximately $1.2 billion and the multilayer/high
performance laminate market was approximately $1.7 billion, totaling $2.9
billion. In these two segments, the United States' share was approximately $790
million reflecting a growth rate of 20%.
Products
Printed Circuit Board Laminates. Printed circuit boards are the basic platforms
used to interconnect the microprocessors, integrated circuits and other
components essential to the functioning of electronic products. They consist of
a pattern of electrical circuitry resulting from etching copper foil laminated
to a composite made of insulating materials usually comprised of
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<PAGE>
fiberglass and epoxy. The laminate itself, therefore, is the copper-clad,
fiberglass and epoxy core from which printed circuit boards are produced.
Compositech's Laminates. CL200+ is the introductory Compositech laminate. This
laminate uses the same basic raw materials as conventional laminates: fiberglass
yarn, epoxy resin and copper foil. Compositech combines these materials into a
unique, more efficient laminate. Conventional laminates are made from woven
fiberglass cloth in which the yarn is twisted and crimped in the weaving
process. The resultant weave pattern is impressed into the copper foil, thereby
roughening the surface of the laminate. In the construction of Compositech's
laminates, the filaments of fiberglass are not twisted but are wound in
orthogonal layers of flat, continuous parallel filaments. This construction
creates the enhanced smoothness and improved dimensional stability of
Compositech's laminates.
High processing temperature tolerance is necessary for soldering components to
circuit boards. CL200+ uses a proprietary epoxy resin formulation that,
according to Company tests, results in a thermal rating over 200(degree)C,
principally because of the formulation, which is generally 20(degree)C to
80(degree)C higher than other copper-clad fiberglass epoxy laminates. Certain
laminates produced from materials other than fiberglass epoxy, addressing a
small, higher cost end of the market, have thermal ratings which equal or exceed
those of the Company's introductory CL200+ laminates.
Management believes that the benefits of Compositech's laminates should enable
the printed circuit board industry to:
o Decrease costs through reducing waste in the manufacture of existing
boards because the improved dimensional stability, temperature
tolerances and enhanced smoothness increase manufacturers' yields.
o Accelerate the development of new products requiring denser circuitry
by permitting finer lines and smaller pads. A pad is a portion of a
conductive pattern which is usually, but not exclusively, used for the
connection and/or attachment of components.
Compositech's Strategy
The Company's objective is to be the leading manufacturer of copper-clad
fiberglass epoxy laminates for electronics equipment. The Company expects to
achieve this position through the effective exploitation of its patented and
proprietary products and processes.
Management has targeted the $1.7 billion multilayer laminate market sector for
its initial sales efforts to establish its laminates as the leading-edge
technology for current and future economical production of printed circuit
boards.
Management believes that the strategic value of the Company's products to its
prospective customers is to enable them economically to produce increasingly
sophisticated circuit boards in a shorter time cycle. This combination of
benefits is a basic element of Compositech's product technology thrust.
The Company has patented and developed a flexible manufacturing process that it
believes can be exceptionally responsive to the ever-changing product iterations
required by the rapid introduction
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of new designs into the electronics market. The manufacturing capacity can be
expanded incrementally in response to increased market demand.
Management believes that the Company's technology has global potential.
According to IPC data, approximately 70 percent of the world laminate market is
outside of North America. The Company plans to export its products and form
strategic alliances to manufacture and market its laminates internationally.
The foregoing strategic objectives represent anticipated accomplishments
dependent on future events. As in the case of all forward looking statements,
the Company can not ensure that it will achieve these goals.
Marketing and Customers
The Company's marketing efforts are directed to establishing good working
relations with leading-edge producers of circuit boards. According to the IPC,
there are over 670 manufacturers of printed circuit boards in North America with
18 companies comprising over one-third of the market. The Company has sold its
laminates principally on a test basis to a select group of these companies
considered to be the key companies for Compositech's growth. During the past
three years, Compositech has encouraged benchmark comparisons of its laminates
with current laminates which have included qualities such as dimensional
stability, smoothness, flatness and thermal processing. In virtually all of
these evaluations, CL200+ has proven superior to current laminates. These
results have led several manufacturers to begin to use CL200+ for current
production applications, but such use has been limited by the Company's
inability to supply laminates in large quantities because of working capital and
production constraints. Recently, sales have been affected by delays in
customers' programs for which Compositech's laminates had been qualified. These
companies, part of the 18 companies mentioned above, include AMP Incorporated
("AMP"), VIASYSTEMS Technologies Corp., successor to Lucent Technologies, Inc.
(formerly part of AT&T Corp.), HADCO Corporation, Merix Corporation and North
American Printed Circuits (a division of TYCO International Ltd.). Customers
benefit from increased production yield primarily by reducing waste caused by
circuitry misalignment.
Compositech's laminates are designed and have proven to be directly
substitutable for conventional laminates in the circuit board production process
as demonstrated by their use in production by customers. This compatibility
enables the circuit board manufacturer to substitute Compositech's laminates
without the need for additional equipment or new process technology.
The Company markets to circuit board manufacturers in the United States and
Canada with its own direct sales force recently supplemented by two independent
sales representatives. The Company's own sales force currently consists of its
President, its Vice President of Sales and a marketing assistant. The Company
plans to use additional independent sales representatives and distributors to
expand sales.
Although the Company does not believe that ultimately its business will be
dependent upon a single customer, in view of limited production capacity the
Company currently is focusing its efforts on a number of select accounts. In
1996, HADCO Corporation and Merix Corporation represented 50.8% and 46.4%
respectively, of the Company's net sales. The printed circuit board industry
generally follows a "just-in-time" strategy by purchasing laminates only as they
are required for production runs. Accordingly, the Company currently does not
have a significant backlog of sales
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commitments as the orders are matched to the Company's present production
capacity. The Company expects the backlog to increase in relation to its planned
production expansion.
------------------------------
The Company's offices are at 120 Ricefield Lane, Hauppauge, New York 11788 and
its telephone number is (516) 436-5200.
RECENT DEVELOPMENTS
Sale of Convertible Debentures
From May 28 through August 5, 1997, the Company issued $6,505,000 of 5%
Convertible Debentures (the "Debentures") in a private placement for which the
Company received net proceeds of approximately $5,900,000. The Debentures were
issued to provide funds to obtain additional production equipment and for
working capital. Interest is payable quarterly. The Debentures are due May 31,
2000 and are partially collateralized either by the equipment to be obtained
with the proceeds or certain existing production equipment. The Debentures are
convertible into shares of Common Stock commencing August 26, 1997 at the lesser
of (i) $6.00 per share or (ii) (a) from August 26, 1997 to November 24, 1997,
85% and (b) from November 25, 1997 to maturity, 80%, of the closing bid price of
the Common Stock as reported on The Nasdaq SmallCap Market(SM) for the five
trading days prior to the date of conversion. The Company may repurchase any of
the individual Debentures at a 25% premium if the closing bid price of the
Common Stock is less than $4.00 for any two days out of a five day trading
period. Trautman Kramer & Company Inc., the placement agent, received warrants
to buy 182,140 shares of the Company's Common Stock at $6.00 per share as
partial compensation in connection with the sale of Debentures.
Based on a recent SEC pronouncement, due to the difference between the fair
market value of the Common Stock on the dates the Debentures were sold and the
earliest discounted conversion price, the Company recognized a deferred
financing cost of $ 114,000 in the second quarter of 1997 and will recognize
$861,750 of such costs in the third quarter of 1997. The deferred financing cost
is being amortized over the periods from issuance to August 26, 1997, the date
on which the Debentures become convertible.
Canadian Joint Venture
On October 16, 1997, the Company closed its previously announced transaction
with four Quebec institutional investors (collectively, the " Quebec Investors")
to form a 50/50 joint venture for the establishment of a plant in the greater
Montreal area to manufacture Compositech's laminates. The investor group is
comprised of four institutional investors: Societe Generale de Financement du
Quebec, Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Societe
Innovatech du Grand Montreal and Fonds regional de solidarite Ile de Montreal.
The project cost is estimated to be approximately $24.5 million with an initial
capitalization by the parties of approximately $11 million with the balance to
be in debt financing for which firm commitments have been obtained from the
National Bank of Canada and governmental agencies. The Company's approximately
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$5.4 million capital investment in the joint venture was funded by the Quebec
Investors purchasing 1,066,192 shares of the Company's Common Stock at $5.09 per
share (representing the weighted average closing price for the 60 day trading
period ending two days before the closing.) The Quebec Investors have an option
to sell their 50% interest in the joint venture to the Company for a like number
of shares and, under certain circumstances, the Company has an option to
purchase the interest for the same number of shares. The plant is planned to
start production late in 1998 with an anticipated annual production capacity of
approximately 10 million square feet.
THE OFFERING
Securities Offered.................3,960,720 shares of Common Stock, par value
$0.01 per share, offered by the Selling
Stockholders.(1) (2) (3)
Common Stock Outstanding
prior to the Offering........7,236,631 shares as of October 23, 1997.(4)
Plan of Distribution...............The Common Stock offered hereby may be sold
from time to time in one or more transactions
at market prices prevailing at the time of
the sale, at prices related to such
prevailing market prices or at negotiated
prices.
Use of Proceeds....................The Company will not receive any of the
proceeds from the sale of the shares of
Common Stock offered hereby. The proceeds, if
any, from the exercise of Warrants will be
used for working capital and general
corporate purposes.
Symbol for Common Stock............CTEK
------------------------------
(1) Includes 1,053,109 shares of Common Stock underlying warrants.
(2) Includes 2,891,111 shares of Common Stock underlying the Debentures.
(3) Includes 16,500 shares of Common Stock resulting from warrant exercises in
September 1997.
(4) Does not include 4,026,683 shares issuable upon exercise of outstanding
options and warrants at a weighted exercise price of $6.20 per share and
the outstanding shares of Series A Convertible Preferred Stock, which are
convertible into 307,077 shares of Common Stock at the option of the
stockholders
10
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby is speculative and involves a
high degree of risk. In analyzing the offering, prospective investors should
read this entire Prospectus and the information incorporated herein by reference
and carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus.
Development Stage Company Until December 31, 1996; Ability to Continue as Going
Concern; Uncertainty of Future Financial Results
The Company has been a development stage company through December 31, 1996 and
has had limited revenues from the sale of laminates, has incurred significant
losses and has had substantial negative cash flow since its inception. As of
December 31, 1996, the Company had an accumulated deficit of $20,573,767 and as
of June 30, 1997, an accumulated deficit of $23,364,701. The Company's
independent auditors have included an explanatory paragraph in their report
covering the December 31, 1996 financial statements, which expresses substantial
doubt about the Company's ability to continue as a going concern. As of
September 30, 1997, the Company had approximately $2.6 million of available cash
resources which the Company believes will be necessary to meet its cash needs
for operations and equipment purchases for the remainder of its fiscal year.
However, the Company will require additional financing thereafter to cover
operating expenses and expenditures for additional production equipment until
revenues from operations are sufficient for these purposes. The Company expects
significant operating losses to continue in 1997. There can be no assurance that
the Company will successfully complete expansion of its production equipment,
achieve broad commercial acceptance of its product or generate sufficient
revenues to achieve profitable operations.
Need for Additional Financing
The Company's available funds, without giving effect to alternative sources of
revenue, may not be sufficient to raise the Company's production level to
profitability or provide sufficient working capital for expansion of sales. The
Company recently closed a private placement of convertible debentures of
$6,505,000. See "Recent Developments." The net proceeds of the debentures were
approximately $5.9 million of which approximately $2.5 million was to be used
for the purchase of equipment and $3.4 million was to be used for working
capital and general corporate purposes. The preceding allocations are subject to
change based upon actual rather than estimated expenses as well as changes in
business conditions and plans. The Company will need additional financing for
increasing operations in 1998. Such additional financing may be raised through
additional equity offerings, joint ventures or other collaborative
relationships, borrowings or other financings. There can be no assurance that
additional financing will be sufficient and available or, if it is available,
that it will be available on acceptable terms. If additional funds are raised
through the issuance of equity securities or securities convertible into
equities, the percentage ownership of then current stockholders of the Company
will be reduced and such securities may have rights, preferences or privileges
senior to those of the holders of Common Stock. If adequate funds are not
available to satisfy either short-term or long-term capital requirements, the
Company may be required to limit its operations significantly.
11
<PAGE>
Liens on Assets and Patents
Notes payable to stockholders of $100,000 due January 2, 1999 (as extended) and
notes payable to stockholders/directors/officers in the amount of $675,000 due
March 31, 1998 (as extended) are collateralized by a second lien on U.S. Patents
and Patent Applications. Notes payable to stockholders/directors/officers in the
amount of $745,000 are collateralized by a first lien on the Company's patents,
patent applications and certain production equipment. In connection with the
issuance of 5% Convertible Debentures (the "Debentures"), the Company granted
security interests as follows: Debentures in the amount of $2 million are
collateralized by certain existing production equipment (two vacuum molding
presses and one winding machine) and Debentures in the amount of $4,255,000 are
partly collaterialized by capital equipment being bought with the proceeds of
the Debentures. The Company intends to ask the holders of the notes due March
31, 1998 to further extend the due date until sufficient funds are available for
payment from cash flows or refinancing. If there is a default under the
Debentures or the notes, the Company could lose all or most of its patents and
equipment thus causing it to cease operations.
Competition
The laminate manufacturing business is highly competitive. The Company's
competitors include major corporations, such as General Electric Company and
AlliedSignal Inc., which have substantial financial, marketing and technical
resources. In 1994, the Company granted patent immunity on its product patents
to AMP and Akzo Electronics Products NV, which, at the time, were operating a
joint venture which was developing a new process to make linear laminates. The
Company may need to raise substantial additional resources to compete
effectively. There is no assurance that the Company will be able to compete
successfully in the future.
Management of Growth
The Company intends to expand significantly its overall level of operations. Any
such expansion, however, is expected to strain the Company's management,
technical, financial and other resources. To manage growth effectively, the
Company must add manufacturing capacity and additional personnel while
maintaining a high level of quality and achieving good manufacturing efficiency
and while expanding, training and managing its employee base. The Company's
failure to add capacity and manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Reliance Upon Key Personnel
The Company believes that its success will depend to a significant extent upon
the efforts of its senior management, in particular Jonas Medney, its Chairman
and Chief Executive Officer, and Fred E. Klimpl, its President and Chief
Marketing Officer, who together invented its technology and founded the Company.
The Company maintains and is the beneficiary of $2 million key person life
insurance policies on each of Messrs. Medney and Klimpl. The loss or
unavailability of either Mr. Medney or Mr. Klimpl or other senior management
could have a material adverse effect on the Company's business, financial
condition and results of operations.
12
<PAGE>
Dependence on Single Manufacturing Facility
The Company's current laminate manufacturing operations are centralized in one
building in Hauppauge, New York, although the joint venture in Montreal plans to
build an additional larger plant in Montreal. See "Recent Developments". Because
the Company currently does not operate multiple facilities in different
geographic areas, a disruption of the Company's manufacturing operations
resulting from sustained process abnormalities, human error, government
intervention or a natural disaster such as fire, earthquake or flood could cause
the Company to cease or limit its manufacturing operations and consequently have
a material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainty of Production Quality and Production Costs; Process Disruption
The Company has had limited experience in producing laminates on its first
production-scale module. The Company recently added production modules to
achieve higher quantity levels and economies of scale. This expansion is the
first production-scale expansion undertaken by the Company, and consequently no
assurances can be made that the Company's production facilities will meet the
Company's production targets in a timely way or that the resultant product will
meet the high commercial standard needed for successful market penetration.
Furthermore, the expanded production facilities may not be able to provide
adequate efficiencies and produce high yields. In addition, the costs of
production may not be as low as management expects, in which case the Company
may not achieve profitable operations. The Company's business involves highly
complex manufacturing processes which are subject to disruption. Process
disruptions have occurred, resulting in delays in product shipments. Process
disruptions were due to machine breakdowns, lack of adequate interior
atmospheric control of temperature and humidity, electric utility power
failures, problems of breaking in an expanded workforce, contamination generated
during installation of equipment and development of processes, and defective
incoming copper foil. There can be no assurance that disruptions will not occur
in the future. The loss of revenue and earnings to the Company from such a
disruption could have a materially adverse effect on its results of operations.
Significant Customers
Due to limited productive capacity, the Company has been focusing its efforts on
a few select accounts. During 1996, HADCO Corporation and Merix Corporation
accounted for 50.8% and 46.4%, respectively, of sales. Loss of these customers
could have a material adverse effect on the Company's business.
Technological Change
The Company's laminates are used in the electronic printed circuit board
industry which could encounter competition from new technologies in the future
and reduce the number of circuit boards required in electronic equipment or
render existing interconnect technology less competitive or obsolete.
13
<PAGE>
Availability of Materials; Price Fluctuations of Raw Materials; Dependence Upon
Third-Party Supplier
Raw materials used by the Company to produce laminates are purchased by the
Company and in certain circumstances the Company bears the risk of price
fluctuations. In addition, shortages of and defects in certain types of
materials have occurred in the past and may occur in the future. The Company has
recently experienced defects in incoming copper foil used to make laminates. The
Company has obtained an alternate source of supply and also has explored
solutions with the previous supplier. Future shortages, defects or price
fluctuations in raw materials could have a material adverse effect on the
Company's business, financial condition and results of operations. Owens Corning
a major fiberglass manufacturer, has developed and continues to develop products
to meet the Company's processing and product requirements. Should this
manufacturer not continue supplying the Company's quality and quantity needs,
the Company would have to secure another supplier. Such event could have a
material adverse effect on the Company's ability to supply customers and could
reduce expected sales and increase the costs of manufacture. No assurances can
be given that an alternative supplier could meet the Company's quality and
quantity needs on satisfactory terms.
Patents and Intellectual Property Protection
The Company believes that its patent estate and its know-how are important for
the protection of its technology. No assurance can be given that any patents
issued to the Company will not be challenged, invalidated or circumvented or
that such patents will provide substantial protection with respect to the
Company's product, process or competitive position. In addition, certain
proprietary information which is considered to be of substantial value is not
covered by patents and, along with the Company's other intellectual property, is
subject to misappropriation or obsolescence. In addition, the Company has
granted certain immunities on its product patents to potential competitors of
the Company, AMP and Akzo Electronics Products NV. The Company, under a license,
has granted HT Troplast AG ("HT"), a principal stockholder of the Company, the
exclusive right to produce and market Compositech's laminates in Europe, the
countries of the former Soviet Union and Turkey. HT has exited the laminate
business and no longer pursues an active role therein. However, the license
remains in effect and can only be assigned to entities in which HT's ultimate
parent company, Veba AG, has directly or indirectly an over 50% interest.
Pursuant to the agreement, the Company has the obligation to sell only through
HT in such territories.
Environmental Compliance
The Company uses copper and chemicals in its manufacturing process and limited
amounts of solvents for the sole purpose of cleaning its equipment. Although the
Company believes that its facility complies in all material respects with
existing environmental laws and regulations, there can be no assurance that
violations will not occur. In the event of any future violations of
environmental law and regulations, the Company could be held liable for damages
and for the cost of remedial actions. In addition, environmental laws could
become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with a violation.
14
<PAGE>
Control by Existing Stockholders
As of October 23, 1997, officers, directors and other significant stockholders
of the Company owned approximately 55% of the Company's Common Stock and voting
preferred stock, including stock options and warrants exercisable within 60
days. It is expected that these stockholders will continue to control the
management and policies of the Company, including, without limitation, the power
to elect and remove a majority of directors of the Company and the power to
approve any action requiring common stockholder approval. In addition, some of
these officers, directors and other stockholders, in connection with certain
outstanding loans, have a security interest in the Company's manufacturing
equipment and all of the Company's patents and patent applications or in the
Company's U.S. patents and patent applications.
Certain Restrictive Charter and Bylaw Provisions
The Company's Certificate of Incorporation and Bylaws empower the Board of
Directors, without approval of the stockholders, to issue shares of preferred
stock and to fix the rights and preferences thereof, and to prohibit
stockholders of the Company from calling a special meeting unless requested by
at least a majority of the outstanding voting shares. The certificate does not
provide for cumulative voting for election of directors. In addition, the Bylaws
of the Company provide that while the removal of a director or the entire board
of directors, with or without cause, may be accomplished by the holders of the
majority of shares entitled to vote, any director designated by HT may only so
be removed for cause. These provisions could have the effect of deterring
unsolicited takeovers or other business combinations or delaying or preventing
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for the securities over
then-current market prices. In addition, these provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests.
Possible Depressive Effect of Future Sales of Common Stock; Registration Rights
Immediately following this Offering, there would be an aggregate of 11,180,851
shares of Common Stock outstanding, if the amount of shares being registered
herewith are issued. However, the amount of shares to be issued could be more or
less depending on the conversion price (as defined in the debentures) on the
dates of conversion. In addition, an aggregate of 4,026,683 shares of Common
Stock will be issuable pursuant to outstanding warrants and options and 307,077
shares will be issuable upon the conversion of Series A Convertible Preferred
Stock. Subject to restrictions on transfer referred to below, shares of Common
Stock issued by the Company in private transactions, are treated as "restricted
securities" as defined under the Securities Act and in the future may be sold in
compliance with Rule 144 under the Securities Act or pursuant to a registration
statement filed under the Securities Act. As of October 23, 1997, 1,980,115
shares (including shares which may be acquired upon conversion of Series A
Convertible Preferred Stock) are eligible for sale under Rule 144 subject to the
restrictions on transfer agreed to between certain stockholders and the
Representative of the Underwriters in the Company's Initial Public Offering, as
set forth below. In addition, 286,500 shares (including shares which may be
acquired upon conversion of Series A Convertible Preferred Stock and exercise of
outstanding warrants), are entitled, subject to certain restrictions, to include
their shares in any registration of securities by the Company (subject to the
restrictions on transfer set forth below). Rule 144 generally provides that a
person holding restricted securities for a period of one year may sell every
three months in brokerage transactions or market-maker transactions an
15
<PAGE>
amount equal to the greater of (i) one percent (1%) of the Company's issued and
outstanding Common Stock or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of shares without any quantity limitation
by a person who is not an affiliate of the Company and who has satisfied a
two-year holding period. The sale of substantial numbers of such shares, whether
pursuant to Rule 144 or pursuant to a registration statement, may have a
depressive effect on the market price of the Securities. However, (i) the
Company's directors, executive officers and certain principal stockholders,
holding 3,947,427 shares of Common Stock (assuming conversion of Series A
Convertible Preferred Stock), in the aggregate, have agreed not to sell, assign
or transfer any of their shares until July 2, 1998, (ii) three holders of an
aggregate of 158,080 shares of Common Stock have agreed not to sell, assign or
transfer any of their shares until July 2, 1998 without the prior written
consent of the Company, and (iii) 85 of the Company's other holders of Common
Stock (or Series A Convertible Preferred Stock convertible into Common Stock)
holding 581,784 shares of Common Stock (assuming conversion of Series A
Convertible Preferred Stock) have agreed not to sell, assign or transfer any of
their securities until January 2, 1998, without the prior written consent of the
Representative.
Quotation of Securities on The Nasdaq SmallCap Market(SM); Possible Loss of
Quotation of Securities
The Company's Common Stock and Redeemable Common Stock Warrants are quoted on
The Nasdaq SmallCap Market(SM). However, there can be no assurance that a liquid
and active trading market will be sustained. In addition, there can be no
assurance that the Company will continue to meet the maintenance criteria for
continued listing of the Common Stock and the Warrants on The Nasdaq SmallCap
Market(SM). The minimum listing requirements for The Nasdaq SmallCap Market(SM)
include, among other criteria, assets of at least $2.0 million, capital and
surplus of at least $1.0 million, and a minimum bid price per share of $1.00 or,
alternatively, a market value of the public float of $1.0 million and $2.0
million in capital and surplus. In addition, continued inclusion on The Nasdaq
SmallCap Market(SM) requires two market makers. Furthermore, The Nasdaq SmallCap
Market(SM) listing and maintenance criteria may become more stringent over time
and thus more difficult for the Company to meet. Failure to meet the maintenance
criteria may result in the discontinuance of the inclusion of the Common Stock
and the Warrants in The Nasdaq SmallCap Market(SM). In such event, trading, if
any, in the Common Stock and the Warrants may continue to be conducted in
non-Nasdaq over-the-counter markets and investors may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Common
Stock and the Warrants. The Common Stock would then be subject to the risk that
it could become characterized as low-priced or "penny stock," which
characterization could severely affect market liquidity.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide
16
<PAGE>
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Securities become subject to the penny stock rules,
investors in this Offering may find it more difficult to sell their Securities.
USE OF PROCEEDS
The Company will not receive any proceeds resulting from the sale of the shares
of Common Stock by the Selling Stockholders. See "Selling Stockholders."
The Warrants except for the Warrants held by Trautman Kramer & Company Inc.
entitle the holder to purchase one share of Common Stock from the Company at an
exercise price of $3.00 per share. The Warrants held by Trautman Kramer &
Company, Inc. have an exercise price of $3.96 per share. The Common Stock
Purchase Warrants received by Trautman Kramer & Company, Inc. in connection with
the Debentures have an exercise price of $6.00 per share. The Warrants have to
be exercised to purchase shares of Common Stock prior to the resale of the
Common Stock offered by the Selling Stockholder pursuant to this offering. The
exercise of all the foregoing warrants would result in total gross proceeds to
the Company of $3,779,660. In the event that any of the Warrants are exercised
in the future, net cash proceeds to the Company would be used for working
capital or general corporate purposes. Whether, how and to what extent any
Warrants will be exercised cannot be predicted by the Company.
17
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock offered hereby by each of the Selling Stockholders and as
adjusted to reflect the ownership of shares of Common Stock after the offering,
assuming all of the shares being offered are sold. The number of shares of
Common Stock shown as securities owned prior to the offering for the debentures
and as shares to be offered is based on the number of shares to be registered
according to the agreements with the debentureholders. The actual number of
shares to be issued on conversion and to be offered for sale will be different
depending on the conversion price as defined in the debentures. See "Recent
Developments - Sale of Convertible Debentures." The footnotes to the Selling
Stockholder table below indicates those Selling Stockholders which disclosed to
the Company their ultimate control persons pursuant to filings under the
Exchange Act.
<TABLE>
<CAPTION>
Securities Owned Prior to the Offering Shares Owned after
(1) the Offering (1)
---------------------------------------- --------------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- --------- --------- ---------- ---------- --------- --------
Warrants
- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph & Diana Anzollitto 4,125 4,125
Jan Arnett 12,375 12,375
Artform NV
c/o Robert Kleinschmidt 16,500 16,500
Richard H. Bailey (4) 14,833 4,500 4,500 14,833 *
Amy Baratz (4) 10,000 2,500 2,500 10,000 *
Mark Barbera IRA, Oppenheimer &
Co. Custodian 9,700 8,250 8,250 9,700 *
Vincent Barbera 4,000 8,250 8,250 4,000 *
Richard Beard 8,000 8,250 8,250 8,000 *
Steven Beck 4,125 4,125
Winslow Bennett 10,000 8,250 8,250 10,000 *
Sidney Berger 2,000 8,250 8,250 2,000 *
Michael Bevilacqua 4,125 4,125
Paul Bloustein (5) 107,650 8,250 99,400 *
Richard Bogen 3,000 4,125 4,125 3,000 *
Alex Booth Jr. 7,000 4,125 4,125 7,000 *
Michael Braverman 2,475 2,475
Robert Bray (4) 2,000 1,650 1,650 2,000 *
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Offering Shares Owned after
(1) the Offering (1)
---------------------------------------- --------------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- --------- --------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
John Broome 15,000 16,500 16,500 15,000 *
Marc Cannon 8,250 8,250
Kethe A. Cicconi IRA,
Oppenheimer & Co. Custodian 2,200 8,250 8,250 2,200 *
John Cornell 4,125 4,125
Robert Corwell (4) 10,000 9,000 9,000 10,000 *
Michael Dinstein 4,500 4,500
Joachim Felten 9,000 9,000
Albert I. Feuerstein 4,500 4,500
Donaldson, Lufkin & Jenrette FBO
Alexander Fisher (4) 3,333 9,000 9,000 3,333 *
Rose Free Trust,
John U. Free Jr. Trustee 19,200 6,600 6,600 19,200 *
Leonard Fuchs 3,000 8,250 8,250 3,000 *
Steven Galack 16,500 16,500
Harvey Glicker (5) 8,250 8,250
Lawrence I. Glickman,
Rev. Trust (4) 3,000 2,250 2,250 3,000 *
Mosdos Hachesed 33,000 33,000
Abraham Herbst 12,500 8,250 8,250 12,500 *
Jackie Herbst 2,000 16,500 16,500 2,000 *
Gerald Hilger 3,000 4,125 4,125 3,000 *
Dr. William J. Hoffman 119,000 4,125 4,125 119,000 1.0%
HST Partners 24,750 24,750
Willard T. Jackson (6) (7) 462,000 100,800 100,800 462,000 4.0%
Dr. H. Michael Jones (8) 23,000 4,125 4,125 23,000 *
Michael Kaplan 4,000 4,125 4,125 4,000 *
Mayeer Karkowsky 3,900 4,125 4,125 3,900 *
Harold Kenter 30,000 8,250 8,250 30,000 *
Prudential Securities IRA
FBO Leonard H. King (4) (9) 15,934 13,500 13,500 15,934 *
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Offering Shares Owned after
(1) the Offering (1)
---------------------------------------- --------------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- --------- --------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert Kinney 12,000 8,250 8,250 12,000 *
Ira Kirsch 8,250 8,250
Fred E. Klimpl (6) 649,323 3,750 3,750 649,323 5.6%
Prudential Securities
FBO Fred Klimpl (6) (10) 9,000 9,000
Robert Kramer 2,200 4,125 4,125 2,200 *
Terry Lance 141,000 4,125 4,125 141,000 1.2%
Brian Leader 2,500 20,625 20,625 2,500 *
Michael Leeds (4) 6,667 9,000 9,000 6,667 *
Jon Lind 15,000 16,500 16,500 15,000 *
Keith Martin 4,125 4,125
MBCD Partnership,
c/o Chad Dubin 4,125 4,125
Jonas Medney (6) 1,248,594 19,800 19,800 1,248,594 10.8%
Thelma Mendel 5,000 4,125 4,125 5,000 *
Allen Notowitz 8,250 8,250
Robert Paterno 4,125 4,125
Paul Radziwon 8,250 8,250
Joseph Ratner 4,125 4,125
Michael Reiner 4,125 4,125
Alan Reis 4,000 2,063 2,063 4,000 *
Harold Reis 2,063 2,063
Michael & Philip Rhodes 9,000 9,000
Jules Roma IRA, Oppenheimer &
Co. Custodian (11) 23,600 8,250 8,250 23,600 *
Paul Rosenberg (4) (9) 2,000 1,500 1,500 2,000 *
Byron Rosenstein 23,000 16,500 16,500 23,000 *
Kenneth Rozenberg 8,250 8,250
Rodney Rush 4,125 4,125
Rick Alan Schafer 16,500 16,500
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Offering Shares Owned after
(1) the Offering (1)
---------------------------------------- --------------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- --------- --------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Leslie Schupak 4,125 4,125
David Selin 8,000 8,250 8,250 8,000 *
Edward Shrawder 4,125 4,125
Newton Trust Company,
IRA No. 2 FBO Seymour Siegal 4,500 4,500
Paul Solomon 5,000 5,400 5,400 5,000 *
Rima Spielman (4) 5,000 4,500 4,500 5,000 *
Christopher Stowell 8,250 8,250
Sam Teitelbaum 4,125 4,125
Trautman Kramer &
Company, Inc. 259,133 259,133
Gregory Trautman 26,400 26,400
Lawrence Unger 8,250 8,250
Paula & Larry VonKuster 16,250 8,250 8,250 16,250 *
Randy Waldron 24,000 8,250 8,250 24,000 *
Richard Weisler 4,125 4,125
Smith Barney
c/f Joseph Williams IRA 16,500 16,500
Wayne & Eunice Williams 19,600 4,125 4,125 19,600 *
Samuel Willits 8,250 8,250
Stephen Wolfe 23,600 4,125 4,125 23,600 *
Michael Wolfson (4) 22,667 12,750 12,750 22,667 *
Jay Ziffer 5,000 2,475 2,475 5,000 *
Debentures
- ----------
Pyramid Estates Limited (12) 888,889 888,889
Shaar Advisory Services Ltd. (12) 284,444 284,444
Shaar Capital LLC (13) 717,778 717,778
The Shaar Fund (12) 888,889 888,889
Bracia Ltd. 10,000 111,111 111,111 10,000 *
--------- --------- --------- --------- --------- ----
Totals 3,191,501 1,053,109 2,891,111 3,960,720 3,175,001 27.0%
</TABLE>
21
<PAGE>
- ----------
(*) Represents, after the sale of all shares of Common Stock encompassed by
this Prospectus, less than 1% of the outstanding Common Stock.
(1) The shares of Common Stock and voting rights owned by each person, and the
shares included in the total number of shares of Common Stock and votes
outstanding used to determine the percentage of shares of Common Stock and
voting rights owned by each person and such group, have been adjusted in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934 to
reflect the ownership of shares issuable upon exercise of outstanding
options, warrants or other common stock equivalents which are exercisable
within 60 days of the date of this Prospectus. As provided in such Rule,
such shares issuable to any holder are deemed outstanding for the purpose
of calculating such holder's beneficial ownership but not any other
holder's beneficial ownership.
(2) The shares listed above under Warrants, except for Trautman Kramer &
Company, Inc., represent shares of Common Stock underlying Common Stock
Purchase Warrants, as amended, exercisable at $3.00 per share issued in
connection with the Company's private placement which had a final closing
on February 15, 1996. The shares listed above for Trautman, Kramer &
Company, Inc. include (i) 76,993 shares underlying Common Stock Purchase
Warrants exercisable at $3.96 per share issued as partial compensation for
the aforementioned private placement and 182,140 shares underlying Common
Stock Purchase Warrants exercisable after August 25, 1997, at $6.00 per
share issued as partial compensation for the private placement of the
Debentures.
(3) The 2,891,111 shares of Common Stock shown as underlying the Debentures are
not convertible until August 26, 1997, pursuant to the agreements between
the Debentureholders and the Company.
(4) Subject to lock-up until January 2, 1998 under an agreement with the
representative of the underwriter of the Company's IPO.
(5) Included in Common Stock are 8,250 shares which are the result of warrant
exercises in September 1997.
(6) Subject to lock-up until July 2, 1998 under an agreement with the
representative of the underwriter of the Company's IPO.
(7) Includes securities held as nominee and trustee of Trust created for the
benefit of Willard T. Jackson and members of his family.
(8) Includes 13,000 shares of Common Stock held by a self directed retirement
plan owned by Dr. H. Michael Jones.
(9) Includes 2,934 shares of Common Stock held by Leonard H. King.
(10) Represents warrants held by a self directed retirement plan owned by Fred
E. Klimpl, the Company's President.
(11) Includes 600 shares of Common Stock held by Jules Roma.
(12) Each entity is beneficially owned by a number of non-U.S. persons or
entities.
(13) Shaar Capital LLC is beneficially owned by a number of accredited
investors.
- -----------
The shares of Common Stock are being registered under the Securities Act
pursuant to the terms of certain registration rights agreements between the
Selling Stockholders and the Company entered into at the time the Selling
Stockholders acquired the Warrants and Debentures. Each Selling Stockholder will
be entitled to receive all of the proceeds from the future sale of his, her or
its shares of Common Stock. Except for the costs of including such shares of
Common Stock within the registration statement of which this Prospectus forms a
part, which costs are borne by the Company, the Selling Stockholders will bear
all expenses of any offering by them of their shares of Common Stock, including
the costs of their counsel and any sales commissions incurred.
22
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock may be sold by the Selling Stockholders or
Transferees from time to time in one or more transactions at market prices
prevailing at the time of the sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders or Transferees may sell
the shares of Common Stock offered hereby (i) through brokers and dealers; (ii)
on The Nasdaq SmallCap Market(SM); (iii) any other exchanges upon which the
shares are listed; (iv) "at the market" to or through a market maker or into an
existing trading market; or (v) in other ways not involving exchanges, market
makers or established trading markets, including direct sales to purchasers.
Additionally, the shares may also be publicly offered through agents,
underwriters or dealers. In such event the Selling Stockholders or Transferees
may enter into agreements with respect to any such offering.
The Selling Stockholders or Transferees and any dealers or agents that
participate in the distribution of shares of the Common Stock may be deemed to
be underwriters, and any profit on the sale of shares of Common Stock by the
Selling Stockholders or Transferees and any discounts, commissions or
concessions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
The sale of the shares of Common Stock by the Selling Stockholders or
Transferees may also be effected from time to time by selling shares directly to
purchasers or to or through certain broker-dealers. In connection with any such
sale, any such broker-dealer may act as agent for the Selling Stockholders or
may purchase from the Selling Stockholders or Transferees all or a portion of
the shares as principal and thereafter may resell any shares so purchased. Sales
by any such broker-dealer, acting as agent or as principal, may be made pursuant
to any of the methods described below. Such sales may be made on The Nasdaq
SmallCap Market(SM) or other exchanges on which the Company's Common Stock is
then traded, in the over-the-counter market, in negotiated transactions or
otherwise at prices and at terms then prevailing or at prices related to the
then-current market prices or at negotiated prices.
The shares of Common Stock offered under the Registration Statement (of which
this Prospectus is part) may also be sold in one or more of the following
transactions (i) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (ii) purchases by any such broker-dealer for its own account
pursuant to this Prospectus; (iii) a special offering, and exchange distribution
or a secondary distribution in accordance with applicable stock exchange rules;
or (iv) ordinary brokerage transactions and transactions in which broker-dealers
solicit purchasers. In effecting sales, broker-dealers engaged by the Selling
Stockholders or Transferees may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the Selling
Stockholders or Transferees in amounts to be negotiated immediately prior to the
sale that will not exceed those customary in the types of transactions involved.
Broker-dealers may also receive compensation from purchasers of the shares,
which is not expected to exceed that which is customary in the types of
transactions involved.
The Selling Stockholders and Transferees will pay all of the expenses incident
to the offering and sale of the shares of the Common Stock offered under this
Prospectus, including commissions and fees of dealers or agents. The Company has
paid or will pay all expenses related to the
23
<PAGE>
Registration Statement, including registration fees and the fees of counsel or
other experts retained by the Company in connection with the registration.
The Company has informed the Selling Stockholders that the anti-manipulation
provisions of Regulation M under the Exchange Act may apply to the sales of
their shares offered hereby. The Company also has advised the Selling
Stockholders of the requirement for delivery of this Prospectus in connection
with any sale of the shares offered hereby.
Certain Selling Stockholders may from time to time purchase shares of Common
Stock in the open market. These Selling Stockholders have been notified that
they should not commence any distribution of shares of Common Stock unless they
have terminated their purchasing and bidding for Common Stock in the open market
as provided in applicable securities regulations.
There is no assurance that the Selling Stockholders or the Transferees will sell
any or all of the shares of Common Stock offered by them hereby.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and Selling Stockholders by Donovan Leisure Newton & Irvine, 30
Rockefeller Plaza, New York, New York, 10112.
EXPERTS
The financial statements of Compositech Ltd. appearing in the Company's Annual
Report (Form 10-KSB) for the year ended December 31, 1996 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
(which contains an explanatory paragraph with respect to a going concern
uncertainty mentioned in Note 1 to the financial statements) included therein
and included herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
24
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or the Selling Stockholders. This Prospectus does not
constitute an offer to buy any of these securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
CONTENTS
Page
----
Available Information.............................. 3
Incorporation of Certain
Documents by Reference............................. 3
Prospectus Summary................................. 5
Recent Developments................................ 9
The Offering....................................... 10
Risk Factors....................................... 11
Use of Proceeds.................................... 17
Selling Stockholders............................... 18
Plan of Distribution............................... 23
Legal Opinions..................................... 24
Experts............................................ 24
3,960,720 Shares of
Common Stock ($0.01 Par Value)
COMPOSITECH LTD.
____________________________
PROSPECTUS
----------------------------
October ___, 1997
25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All such expenses will be borne by the Registrant.
Item Amount of Expenses
---- ------------------
Commission Registration Fees $ 7,689
Printing Expenses 11,000
Accounting Fees and Expenses 7,500
Legal Fees and Expenses 30,000
Miscellaneous 5,000
-------
Total $61,189
-------
- ----------
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware and
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation contain provisions for indemnification of officers, directors,
employees and agents of the Company. The Amended and Restated Certificate of
Incorporation requires the Company to indemnify such persons to the full extent
permitted by Delaware Law. Each person will be indemnified in any proceeding if
he acted in good faith and in a manner which he reasonably believed to be in ,
or not opposed to, the best interest of the Company. Indemnification would cover
expenses, including attorney's fees, judgments, fines and amounts paid in
settlement.
The Company has directors' and officers' liability insurance. Such
insurance may cover liabilities asserted against any present or past director or
officer incurred in the capacity of director or officer arising out of such
status, whether or not the Company would have the power to indemnify such
person.
<PAGE>
Item 16. Exhibits.
5.1* Opinion of Donovan Leisure Newton & Irvine, special counsel for the
Registrant, as to the legality of the securities being offered
10.1* Form of Securities Purchase Agreement
10.2* Form of 5% Convertible Debenture
10.3* Form of Registration Rights Agreement
10.4* Form of Security Agreement
10.5* Form of License Security Agreement
23.1 Consent of Ernst & Young LLP
23.2* Consent of Donovan Leisure Newton & Irvine (contained in Exhibit 5.1)
24* Power of Attorney
- ----------
* Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration Statement:
(i) to include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set
forth in the Registration Statement;
(iii)to include any material information with respect to the Plan of
Distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
Provided, however, that paragraphs (i) and (ii) do not apply to this
Registration Statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
Registration Statement;
II-2
<PAGE>
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 (a) or section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in the first paragraph of
Item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange commission such indemnification is against public
policy as expressed in said Securities Act and is, therefore, unenforceable. In
the event that as claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Hamlet of Hauppauge, State of New York, on October 23, 1997.
COMPOSITECH LTD.
Date: October 23, 1997 By: /S/ Jonas Medney
------------------------
Jonas Medney
Chairman and Chief Executive Officer
In accordance with the Securities Act of 1933, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated
/S/ Jonas Medney October 23, 1997
- -------------------------------------------
Jonas Medney
Chairman of the Board; Director
(Principal Executive Officer)
* October 23, 1997
- -------------------------------------------
Fred E. Klimpl
President, Secretary and Director
/S/ Samuel S. Gross October 23, 1997
- ----------------------------------------
Samuel S. Gross
Executive Vice President, Treasurer
and Director
(Principal Financial and Accounting Officer)
* October 23, 1997
- -------------------------------------------
John F. Gahran, Director
* October 23, 1997
- -------------------------------------------
Willard T. Jackson, Director
* October 23, 1997
- -------------------------------------------
Robert W. Middleton, Director
* October 23, 1997
- -------------------------------------------
Heinz-Gerd Reinkemeyer, Director
* October 23, 1997
- -------------------------------------------
James W. Taylor, Director
* By /S/ Samuel S. Gross
- -------------------------------------------
Samuel S. Gross
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
- ------ -----------
5.1* Opinion of Donovan Leisure Newton & Irvine, special counsel for the
Registrant, as to the legality of the securities being offered
10.1* Form of Securities Purchase Agreement
10.2* Form of 5% Convertible Debenture
10.3* Form of Registration Rights Agreement
10.4* Form of Security Agreement
10.5* Form of License Security Agreement
23.1 Consent of Ernst & Young LLP
23.2* Consent of Donovan Leisure Newton & Irvine (contained in Exhibit 5.1)
24* Power of Attorney
- ----------
* Previously filed.
II-5
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-32241) and related
Prospectus of Compositech Ltd. for the registration of 3,960,720 shares of its
Common Stock and to the incorporation by reference therein of our report dated
January 22, 1997.
/S/ Ernst & Young LLP
Melville, New York
October 23, 1997
