As filed with the Securities and Exchange Commission on July 28, 1997
Registration Number 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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. |_|
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<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 Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 810,476 $ 6.5625 $ 5,318,749 $ 1,612
($0.01 par value)(3) Shares
Common Stock 76,993 $ 6.5625 $ 505,267 $ 154
($0.01 par value)(4) Shares
Common Stock 1,555,556 $ 6.5625 $10,208,336 $ 3,094
($0.01 par value)(5) Shares
Common Stock 98,000 $ 6.5625 $ 643,125 $ 195
($0.01 par value)(6) Shares
- ----------------------------------------------------------------------------------------------------------
Totals 2,541,025 $16,675,477 $ 5,055
==========================================================================================================
</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 price per share of $6.5625 is based upon the average
of the high and low prices of the Company's Common Stock reported by The
Nasdaq SmallCapSM Market for the Registrant's Common Stock on July 22, 1997
since it is 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.
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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 July 28, 1997
PROSPECTUS
- ----------
COMPOSITECH LTD.
2,541,025 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"); (ii)
1,555,556 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) 98,000 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 and Debentures are subject to adjustment in certain events.
---------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 10 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.
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
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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 MarketSM under
symbol "CTEK." The closing price of the Common Stock on July 22, 1997 was $6.75
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 July ___, 1997.
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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 Reports on Form 10-QSB and Form 10-QSB/A for
the quarter ended March 31, 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.
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.
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
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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 "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 and 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 22 patents
covering its products, processes and apparatus, including five in the United
States, and has submitted ten additional patent applications. 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.
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, 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 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.
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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 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,
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,
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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 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.
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. 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
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quantities because of working capital and production constraints. These
companies 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 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
In May, June and July 1997, the Company issued $3,500,000 of 5% Convertible
Debentures (the "Debentures") in a private placement for which the Company
received net proceeds of approximately $3,163,000. 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
collateralized by the equipment obtained with the proceeds. 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 MarketSM for the five
trading days prior to the date of conversion. The Company may repurchase the
Debentures at a 25% premium if the closing bid
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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 98,000 shares of the Company's Common Stock at $6.00 per share
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 date 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 expects to
recognize $411,000 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.
The Company is negotiating for the sale of additional convertible debentures of
$4-6 million.
Canadian Joint Venture
On February 6, 1997, following an earlier Memorandum of Understanding, the
Company agreed in principle 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 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 $5.5 million capital investment in the joint venture is to be funded
by the Quebec Investors purchasing shares of the Company's Common Stock. In July
1997, the parties agreed that the purchase price of the shares would be the
weighted average closing price for the 60 day trading period ending with the
closing of the agreements expected to be in early August. Based on the latest
market values, there would be an estimated 1,036,000 shares issued. The Quebec
Investors will 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 would have an option to purchase the interest for the same number of
shares. The establishment of the project is subject to the completion of
definitive agreements and certain other conditions. The Company is unable to
predict when, if ever, such conditions will be satisfied.
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THE OFFERING
Securities Offered............2,541,025 shares of Common Stock, par value $0.01
per share, offered by the Selling Stockholders.(1)
(2)
Common Stock Outstanding
prior to the Offering....6,153,939 shares as of July 28, 1997.(3)
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 985,469 shares of Common Stock underlying warrants.
(2) Includes 1,555,556 shares of Common Stock underlying the Debentures.
(3) Does not include 4,029,100 shares issuable upon exercise of outstanding
options and warrants at a weighted exercise price of $5.05 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.
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 March 31, 1997, an accumulated deficit of $21,646,161. 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. The Company
will require, and is negotiating for, additional financing to cover operating
expenses and expenditures for additional production equipment until revenues
from operations are sufficient for these purposes. The Company expects
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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.
Consequently, the Company is in the process of obtaining additional financing.
The Company recently closed on a private placement of convertible debentures of
$3,500,000 and is seeking additional financing. See "Recent Developments." Such
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.
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.
11
<PAGE>
Dependence on Single Manufacturing Facility
The Company's current laminate manufacturing operations are centralized in one
building in Hauppauge, New York, although a joint venture is planned to build an
additional and larger plant in Montreal. 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.
12
<PAGE>
Availability of 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. 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 also 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. Pursuant to the existing license
agreement with HT, 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.
Control by Existing Stockholders
As at July 28, 1997, officers, directors and other significant stockholders of
the Company owned approximately 48% 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
13
<PAGE>
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 will be an aggregate of 8,694,964
shares of Common Stock outstanding. In addition, an aggregate of 4,029,100
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. The Company has agreed in principle with four
Quebec institutional investors to form a 50/50 joint venture for the
establishment of a plant in the greater Montreal area to manufacture
Compositech's laminates and which contemplates the issuance of an estimated
1,036,000 shares of the Company's Common Stock in consideration for the
investors' capital investment in the project. As presently contemplated, the
investors would have an option to sell their interest in the project to the
Company for an estimated additional 1,036,000 shares of the Company's Common
Stock and the Company would have an option to purchase the investors' interest
in the project for a like number of shares under certain conditions. 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 July 28, 1997, 1,963,615 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 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
14
<PAGE>
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 2,881,235 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 MarketSM; Possible Loss of
Quotation of Securities
The Company's Common Stock and Redeemable Common Stock Warrants are quoted on
The Nasdaq SmallCap MarketSM. 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
MarketSM. The minimum listing requirements for The Nasdaq SmallCap MarketSM
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 MarketSM requires two market makers. Furthermore, The Nasdaq SmallCap
MarketSM 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 MarketSM. 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 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
15
<PAGE>
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 exercise of all
the foregoing warrants would result in total gross proceeds to the Company of
$3,324,320. In the event that any of the Warrants are exercised in the future,
net cash proceeds to the Company would be used for general working capital
purposes. Whether, how and to what extent any Warrants will be exercised cannot
be predicted by the Company.
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.
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 Shares Owned
Offering after the
(1) Offering (1)
------------------------------------- -----------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- ----------- ----------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Warrants
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) (6) 7,000 4,500 4,500 7,000 *
Amy Baratz (6) 10,000 2,500 2,500 10,000 *
Mark Barbera 8,250 8,250
Vincent Barbera 8,250 8,250
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Shares Owned
Offering after the
(1) Offering (1)
------------------------------------- -----------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- ----------- ----------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Richard Beard 8,250 8,250
Steven Beck 4,125 4,125
Winslow Bennett 8,250 8,250
Sidney Berger 8,250 8,250
Michael Bevilacqua 4,125 4,125
Paul Bloustein 8,250 8,250
Richard Bogen 4,125 4,125
Alex Booth Jr. 4,125 4,125
Michael Braverman 2,475 2,475
Robert Bray 2,000 1,650 1,650 2,000 *
John Broome 16,500 16,500
Marc Cannon 8,250 8,250
Kethe Cicconi 8,250 8,250
John Cornell 4,125 4,125
Robert Corwell (4) 5,000 9,000 9,000 5,000 *
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 3,333 9,000 9,000 3,333 *
Rose Free Trust,
John U. Free Jr. Trustee 6,600 6,600
Leonard Fuchs 8,250 8,250
Steven Galack 16,500 16,500
Harvey Glicker 8,250 8,250
Lawrence I. Glickman,
Rev. Trust 3,000 2,250 2,250 3,000 *
Mosdos Hachesed 33,000 33,000
Abraham Herbst 8,250 8,250
Jackie Herbst 16,500 16,500
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Shares Owned
Offering after the
(1) Offering (1)
------------------------------------- -----------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- ----------- ----------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Gerald Hilger 4,125 4,125
William Hoffman 4,125 4,125
HST Partners 24,750 24,750
Willard T. Jackson (5) (7) 462,000 100,800 100,800 462,000 5.0%
Michael Jones 4,125 4,125
Michael Kaplan 4,125 4,125
Mayeer Karkowsky 4,125 4,125
Harold Kenter 8,250 8,250
Prudential Securities IRA
FBO Leonard H. King (4) (8) 13,934 13,500 13,500 13,934 *
Robert Kinney 8,250 8,250
Ira Kirsch 8,250 8,250
Fred E. Klimpl (5) (9) 649,323 3,750 3,750 649,323 7.2%
Prudential Securities
FBO Fred Klimpl (5) (10) 9,000 9,000
Robert Kramer 4,125 4,125
Terry Lance 4,125 4,125
Brian Leader 20,625 20,625
Michael Leeds 6,667 9,000 9,000 6,667 *
Jon Lind 16,500 16,500
Keith Martin 4,125 4,125
MBCD Partnership,
c/o Chad Dubin 4,125 4,125
Jonas Medney (5) (11) 1,248,594 19,800 19,800 1,248,594 13.8%
Thelma Mendel 4,125 4,125
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
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Shares Owned
Offering after the
(1) Offering (1)
------------------------------------- -----------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- ----------- ----------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Alan Reis 2,063 2,063
Harold Reis 2,063 2,063
Michael & Philip Rhodes 9,000 9,000
Jules Roma 8,250 8,250
Paul Rosenberg (6) 2,000 1,500 1,500 2,000 *
Byron Rosenstein 16,500 16,500
Kenneth Rozenberg 4,125 4,125
Rodney Rush 4,125 4,125
Rick Alan Schafer 16,500 16,500
Lester Schupak 4,125 4,125
David Selin 8,250 8,250
Edward Shrawder 4,125 4,125
Newton Trust Company
FBO Seymour Siegal 4,500 4,500
Paul Solomon 5,400 5,400
Rima Spielman 4,500 4,500
Christopher Stowell 8,250 8,250
Sam Teitelbaum 8,250 8,250
Trautman Kramer &
Company, Inc. 174,993 174,993
Gregory Trautman 26,400 26,400
Lawrence Unger 8,250 8,250
Paula & Larry VonKuster 8,250 8,250
Randy Waldron 8,250 8,250
Richard Weisler 4,125 4,125
Smith Barney
c/f Joseph Williams IRA 16,500 16,500
Wayne & Eunice Williams 4,125 4,125
Samuel Willits 8,250 8,250
Stephen Wolfe 4,125 4,125
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Securities Owned Prior to the Shares Owned
Offering after the
(1) Offering (1)
------------------------------------- -----------------
Common Warrants Debentures Shares to
Name of Selling Stockholder Stock (2) (3) be Offered Shares %
--------------------------- ----------- ----------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Michael Wolfson (4) (12) 17,667 12,750 12,750 17,667 *
Jay Ziffer 2,475 2,475
Debentures
Shaar Advisory Services Ltd.(13) 240,000 240,000
Shaar Capital LLC (13) 426,667 426,667
The Shaar Fund (13) 888,889 888,889
--------- --------- --------- --------- --------- ----
Totals 2,430,518 985,469 1,555,556 2,541,025 2,430,518 26.0
</TABLE>
- ----------
(*) 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 98,000 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 1,555,556 shares of Common Stock underlying the Debentures are not
convertible until August 26, 1997, pursuant to the Debenture Agreements
between the Debenture holders 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) Subject to lock-up until July 2, 1998 under an agreement with the
representative of the underwriter of the Company's IPO.
(6) All shares listed are shares of Common Stock underlying warrants to
purchase the Company's Common Stock.
(7) Includes warrants to purchase 177,000 shares of Common Stock and options to
purchase 12,500 shares of Common Stock under the Company's Amended and
Restated Stock Award Plan.
(8) Includes 1,934 shares of Common Stock listed under the name of Leonard
King.
(9) Includes warrants to purchase 17,000 shares of Common Stock and options to
purchase 32,333 shares of Common Stock under the Company's Amended and
Restated Stock Award Plan.
(10) Warrants held by self directed retirement plan owned by Fred E. Klimpl, the
Company's President.
(11) Includes warrants to purchase 12,000 shares of Common Stock and options to
purchase 36,617 shares of Common Stock under the Company's Amended and
Restated Stock Award Plan.
20
<PAGE>
(12) Includes warrants to purchase 11,000 shares of Common Stock.
(13) Each entity is beneficially owned by a number of non-U.S. persons.
- ----------
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.
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 MarketSM; (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 MarketSM 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
21
<PAGE>
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 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.
22
<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 2,541,025 Shares of
information or representation must not be Common Stock ($0.01 Par Value)
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 COMPOSITECH LTD.
Available Information.................... 3
Incorporation of Certain
Documents by Reference................... 3
Prospectus Summary....................... 5 ________________
Recent Developments...................... 8 PROSPECTUS
________________
Risk Factors............................. 10
Use of Proceeds.......................... 16
Selling Stockholders..................... 16 July ___, 1997
Plan of Distribution..................... 21
Legal Opinions........................... 22
Experts.................................. 22
23
<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 $5,055
Printing Expenses 5,000
Accounting Fees and Expenses 5,000
Legal Fees and Expenses 20,000
Miscellaneous 2,000
-------
Total $37,055
=======
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 (see signature pages of Registration Statement)
- -------------
* Filed herewith.
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 City of Hauppauge, State of New York, on July 28, 1997.
COMPOSITECH LTD.
Date: July 28, 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. Each person whose signature appears below
constitutes and appoints each of Samuel S. Gross and Fred E. Klimpl his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and to take such actions in, and file with the appropriate
authorities in, whatever states said attorney-in-fact and agent shall determine,
such applications, statements, consents and other documents as may be necessary
or expedient to register securities of the Company for sale, granting unto said
attorney-in-fact and agent full power and authority to do so and perform each
and every act and thing requisite or 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 confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof and the Registrant hereby confers like authority on its behalf.
/S/ Jonas Medney July 28, 1997
- ------------------------------------------
Jonas Medney
Chairman of the Board; Director
(Principal Executive Officer)
/S/ Fred E. Klimpl July 28, 1997
- ------------------------------------------
Fred E. Klimpl
President, Secretary and Director
/S/ Samuel S. Gross July 28, 1997
- ------------------------------------------
Samuel S. Gross
Executive Vice President, Treasurer
and Director
(Principal Financial and Accounting Officer)
/S/ John F. Gahran July 28, 1997
- ------------------------------------------
John F. Gahran, Director
II - 4
<PAGE>
/S/ Willard T. Jackson July 28, 1997
- ------------------------------------------
Willard T. Jackson, Director
/S/ Heinz-Gerd Reinkemeyer July 28, 1997
- ------------------------------------------
Heinz-Gerd Reinkemeyer, Director
/S/ James W. Taylor July 28, 1997
- ------------------------------------------
James W. Taylor, Director
/S/ Robert W. Middleton July 28, 1997
- ------------------------------------------
Robert W. Middleton, Director
II-5
<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 (see signature pages of Registration Statement)
* Filed herewith.
II - 6
Exhibit 5.1
July 28, 1997
Compositech Ltd.
120 Ricefield Lane
Happauge, NY 11788
Re: Shelf Registration of Common Stock of Compositech
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") being filed by Compositech Ltd., a Delaware corporation
("Compositech" or the "Company"), with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the shelf registration of the following shares of Compositech
(the "Shares"): (a) 810,476 shares of Common Stock underlying Common Stock
Purchase Warrants, as amended, issued in connection with the Company's private
placement ("Private Placement") which had a final closing on February 15, 1996
(the "Placement Warrants"); (b) 1,555,556 shares of Common Stock issuable upon
conversion of the Company's 5% 1997 Convertible Debentures (the "Debentures");
(c) 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 (the "1996 TK & Co. Warrants") and (d)
98,000 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 "1997 TK & Co.
Warrants"). You have requested that we furnish our opinion as to the matters set
forth below.
In this connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have considered
necessary or advisable for the purpose of this opinion. We have relied as to
factual matters on certificates or other documents furnished by the Company or
its officers and directors and by governmental authorities and upon such other
documents and data as we have deemed appropriate. We have assumed the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies. We have not
independently verified such information and assumptions. We express no opinion
as to the
-1-
<PAGE>
Exhibit 5.1
law of any jurisdiction other than the laws of the State of New York and the
General Corporation Law of the State of Delaware.
Subject to the foregoing, we are of the opinion that the Shares have been
duly authorized and, upon delivery and payment therefor in accordance with the
terms of the Placement Warrants, Debentures, 1996 TK & Co. Warrants and 1997 TK
& Co. Warrants, respectively, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm which appears in the
Prospectus constituting a part thereof under the caption "Legal Opinions." In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Donovan Leisure Newton & Irvine
-2-
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of July 18, 1997, between
COMPOSITECH LTD., a Delaware corporation with principal executive offices
located at 120 Ricefield Lane, Hauppauge, New York 11788 (the "Company"), and
the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, the Company's 5% Convertible Debentures due May
31, 2000 (the "Debentures") which, upon the terms and subject to the conditions
of the Debentures, will be convertible into shares of the Company's common
stock, $.01 par value (the "Common Stock", and together with the Debentures, the
"Securities");
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. PURCHASE AND SALE OF DEBENTURES
a. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to the Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), $960,000
aggregate principal amount of the Debentures having the terms and conditions and
being in the form attached hereto as Annex I.
b. Purchase Price; Form of Payment. The purchase price for the Debentures
to be purchased by Buyer hereunder shall be U.S. $960,000 (the "Purchase
Price"). Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Joint Escrow Instructions of even date herewith, a copy of which is
attached hereto as Annex II (the "Joint Escrow Instructions"). Simultaneously
against receipt by the Escrow Agent of the Purchase Price, the Company shall
deliver one or more duly authorized, issued and executed certificates (I/N/O
Buyer or, if the Company otherwise has been notified, I/N/O Buyer's nominee)
evidencing the Debentures, to the Escrow Agent or its designated depository. By
executing and delivering this Agreement, Buyer and the Company each hereby
agrees to observe the terms and conditions of the Joint Escrow Instructions, all
of which are incorporated herein by reference as if fully set forth herein.
c. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of immediately available funds to:
-1-
<PAGE>
______________________
______________________
______________________
______________________
______________________
For the Account of:
______________________
______________________
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Debentures.
2. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
a. Buyer is purchasing the Debentures (and the shares of Common Stock
issuable upon conversion thereof) for its own account, for investment
purposes only and not with a view towards or in connection with the public
sale or distribution thereof in violation of the Securities Act.
b. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by
reason of its business and financial experience, of evaluating the relative
merits and risks of an investment in the Securities, and (iv) able to
afford the loss of its investment in the Securities.
c. Buyer understands that the Debentures (and the Common Stock
issuable upon conversion thereof) are being offered and sold by the Company
in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and
that the Company is relying upon the accuracy of, and Buyer's compliance
with, Buyer's representations, warranties and covenants set forth in this
Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Debentures;
d. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of
the Company, and all other materials requested by Buyer to enable it to
make an informed investment decision with respect to the Debentures.
-2-
<PAGE>
e. Buyer acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996 and all other reports and documents heretofore filed by the
Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") since December 31, 1996 (collectively the
"Commission Filings").
f. Buyer acknowledges that in making its decision to purchase the
Debentures it has (i) relied upon independent investigations made by it and
its professional advisors, (ii) visited the Company's principal executive
offices and been given access and the opportunity to examine all material
agreements, books and records of the Company and all documents relating to
the Company's private placement of the Debentures, and (iii) been given an
opportunity to ask questions of and to receive answers from the Company's
executive officers, directors and management personnel concerning the terms
and conditions of the private placement of the Debentures by the Company.
g. Buyer understands that the Securities have not been approved or
disapproved by the Commission or any state securities commission and that
the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
h. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally.
i. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to
the closing, any put option, short position or other similar instrument or
position with respect to the Common Stock and neither Buyer nor any of its
affiliates nor any person acting on its or their behalf will use at any
time shares of Common Stock acquired pursuant to this Agreement or the
Debentures to settle any put option, short position or other similar
instrument or position that may have been entered into prior to the
execution of this Agreement.
3. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
a. Capitalization. (i) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which 6,138,939 shares
are outstanding on the date hereof; 4,000,000 shares of undesignated
preferred stock, of which none are outstanding on the date hereof; 714,161
shares of Series A Convertible Preferred Stock, par value $3.00 per share,
of which 644,161 shares are outstanding on the date hereof; all of the
issued and outstanding shares of Common Stock and preferred stock have been
duly authorized and validly issued and are fully paid and non-assessable.
The Common Stock
-3-
<PAGE>
issuable upon conversion of the Debentures has been duly and validly
authorized and reserved for issuance by the Company, and when issued by the
Company upon conversion of, or in lieu of accrued interest on, the
Debentures, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason of
being such holder. There are no preemptive, subscription, "call" or other
similar rights to acquire the Common Stock (including Common Stock issuable
upon conversion of the Debentures) that have been issued or granted to any
person, except as disclosed in the Commission Filings or otherwise
previously disclosed in writing to Buyer.
(ii) Except as disclosed in the Commission Filings, the Company does
not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity. The
Company has no subsidiaries.
b. Organization; Reporting Company Status.
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly
qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "Material Adverse Effect").
(ii) The Company has registered the Common Stock pursuant to Section
12 of the Exchange Act and has timely filed with the Commission all reports
and information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 9-month period immediately preceding the date hereof. The
Common Stock is listed and traded on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") Small Capitalization Market
System and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
c. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion, in full, of the Debentures (assuming for purposes of this
Section 3.c. a conversion price of $1.50).
d. Terms of Debentures. The Debentures when issued to Buyer pursuant
to this Agreement shall be in the form of Annex I attached hereto.
e. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to enter into this Agreement, the
Registration Rights Agreement of even date herewith between the Company and
Buyer, a copy of which is annexed hereto as Annex III (the "Registration
Rights Agreement") and the Joint Escrow Instructions and to perform all of
its obligations hereunder and thereunder (including the issuance, sale and
delivery to Buyer of the Debentures and the Common Stock issuable upon
conversion thereof). The execution, delivery and performance by the Company
of this
-4-
<PAGE>
Agreement and the Registration Rights Agreement, and the consummation by
the Company of the transactions contemplated hereby and thereby, has been
duly authorized by all necessary corporate action on the part of the
Company. Each of this Agreement and the Registration Rights Agreement has
been duly and validly executed and delivered by the Company and constitutes
a valid and binding agreement of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. The Debentures have
been duly and validly authorized for issuance by the Company and, when
executed and delivered by the Company, will be valid and binding
obligations of the Company enforceable against it in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally.
f. Non-contravention. The execution and delivery by the Company of
this Agreement and the Registration Rights Agreement, the issuance of the
Debentures (and the Common Stock issuable upon conversion thereof), and the
consummation by the Company of the other transactions contemplated hereby
and thereby, do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default (or
an event which, with notice, lapse of time or both, would constitute a
default) under, the articles of incorporation or by-laws of the Company, or
any indenture, mortgage, deed of trust or other material agreement or
instrument to which the Company is a party or by which its properties or
assets are bound, or any law, rule, regulation, decree, judgment or order
of any court or public or governmental authority having jurisdiction over
the Company or any of its properties or assets, except such conflict,
breach or default which would not have a Material Adverse Effect.
g. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company
for the issuance and sale of the Debentures (and the Common Stock issuable
upon conversion thereof) to Buyer as contemplated by this Agreement, except
such authorizations, approvals and consents that have been obtained by the
Company prior to the date hereof.
h. Commission Filings. None of the Commission Filings contained at the
time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
i. Absence of Certain Changes. Since the Balance Sheet Date (as
defined in Section 3.m.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company, and there has not existed any condition having
or reasonably likely to have, a Material Adverse Effect.
j. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably
could be expected to have a Material Adverse Effect or (ii) reasonably
could be expected to materially and adversely affect the
-5-
<PAGE>
ability of the Company to perform its obligations pursuant to this
Agreement or the Registration Rights Agreement.
k. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority
which, if determined adversely to the Company or any of its subsidiaries,
would have a Material Adverse Effect.
l. Absence of Events of Default. No "Event of Default" (as defined in
any agreement or instrument to which the Company or any of its subsidiaries
is a party) and no event which, with notice, lapse of time or both, would
constitute an Event of Default (as so defined), has occurred and is
continuing, which could have a Material Adverse Effect.
m. Financial Statements; No Undisclosed Liabilities. Seller has
delivered to Buyer true and complete copies of its audited balance sheet as
at December 31, 1996 and the related audited statements of operations and
cash flows for the fiscal years ended December 31, 1996 and December 31,
1995 including the related notes and schedules thereto (collectively, the
"Financial Statements"), and all management letters, if any, from the
Company's independent auditors relating to the dates and periods covered by
the Financial Statements. Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with
United States General Accepted Accounting Principles ("GAAP") (subject, in
the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the
practices consistently applied by the Company without modification of the
accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company
as at the dates and for the periods indicated. For purposes hereof, the
audited balance sheet of the Company as at December 31, 1996 is hereinafter
referred to as the "Balance Sheet" and December 31, 1996 is hereinafter
referred to as the "Balance Sheet Date". The Company does not have any
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise
described in the Balance Sheet or the notes thereto or was not incurred in
the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
n. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively
"Laws") applicable to it or to the conduct of its business, except for such
non-compliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates
and consents from all public and governmental authorities which are
necessary to conduct its business, except for those the absence of which
would not have a Material Adverse Effect.
o. Related Party Transactions. Except as set forth in the Commission
Filings, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is
-6-
<PAGE>
defined in Rule 12b-2 under the Exchange Act) has borrowed any moneys from
or has outstanding any indebtedness or other similar obligations to the
Company. Except as set forth in the Commission Filings, neither the Company
nor any of its officers, directors or Affiliates (i) owns any direct or
indirect interest constituting more than a one percent equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower
from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company or any of its subsidiaries, (y) engaged
in a business related to the business of the Company or any of its
subsidiaries, or (z) a participant in any transaction to which the Company
is a party or (ii) is a party to any contract, agreement, commitment or
other arrangement with the Company.
p. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued
any insurance policy to the Company) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section 2 hereof, the offer and sale
by the Company of the Debentures (and the Common Stock issuable upon
conversion thereof) is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations
of the Commission thereunder and (ii) the registration and/or qualification
provisions of all applicable state securities and "blue sky" laws. Other
than pursuant to an effective registration statement under the Securities
Act, the Company has not issued, offered or sold the Debentures or any
shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Debentures or Common Stock, or any
securities convertible into or exchangeable or exercisable for the
Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, except as disclosed in the
Commission Filings or otherwise previously disclosed in writing to Buyer,
and the Company shall not directly or indirectly take, and shall not permit
any of its directors, officers or Affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to
any person or entity of the Debentures or shares of Common Stock), so as to
make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Buyer of the
Debentures (and the Common Stock issuable upon conversion thereof) as
contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its
officers, directors or Affiliates in connection with the offer or sale of
the Debentures (and the Common Stock issuable upon conversion thereof) as
contemplated by this Agreement or any other agreement to which the Company
is a party.
r. Environmental Matters. (i) The operations of the Company are in
material compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
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(ii) to its knowledge, the Company has obtained or applied for
all material permits required under all applicable Environmental Laws
necessary to operate its business;
(iii) the Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person
respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any
Release or threatened Release of Hazardous Materials;
(iv) the Company has not received, since December 31, 1996, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental
Law, or may have any liability under any Environmental Law;
(v) the Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor
or outdoor environment (whether on-site or off-site);
(vi) except as set forth in the Commission Filings, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the
imposition of any liability pursuant to any Environmental Law;
(vii) to the Company's knowledge, there is not located at any of
the properties of the Company any (A) underground storage tanks, (B)
asbestos-containing material or (C) equipment containing
polychlorinated biphenyls; and,
(viii) the Company has provided to Buyer all environmentally
related audits, studies, reports, analyses, and results of
investigations that have been performed with respect to the currently
or previously owned, leased or operated properties of the Company.
For purposes of this Section 3.r.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter
in effect in any way relating to the protection of human health and safety
or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601
et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. ss.
1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss.
6901 et seq.), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean
Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the Occupational Safety and
Health Act (29 U.S.C. ss. 651 et seq.), and the regulations promulgated
pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any
state or local governmental authority including, without limitation,
petroleum and its by-products, asbestos, and any material or substance
which is defined as a "hazardous waste," "hazardous substance," "hazardous
material," "restricted hazardous waste," "industrial waste," "solid waste,"
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"contaminant," "pollutant," "toxic waste" or toxic substance" under any
provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching
into the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of
any Hazardous Material so it does not endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring
and care.
s. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such
employees has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the Company's knowledge, threatened to be brought
or filed, with the National Labor Relations Board or other labor relations
tribunal. There is no organizing activity involving the Company pending or
to the Company's knowledge, threatened by any labor organization or group
of employees of the Company. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other
labor disputes pending or, to the knowledge of the Company, threatened
against or involving the Company. There are no unfair labor practice
charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees
of the Company.
t. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable
to it. No Reportable Event has occurred, been waived or exists as to which
the Company or any ERISA Affiliate was required to file a report with the
Pension Benefits Guaranty Corporation, and the present value of all
liabilities under all Plans (based on those assumptions used to fund such
Plans) did not, as of the most recent annual valuation date applicable
thereto, exceed the value of the assets of all such Plans in the aggregate.
None of the Company or ERISA Affiliates has incurred any Withdrawal
Liability that could result in a Material Adverse Effect. None of the
Company or ERISA Affiliates has received any notification that any
Multiemployer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably
expected to be in reorganization or termination where such reorganization
or termination has resulted or could reasonably be expected to result in
increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section 3.t.:
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"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of
which the Company is a member and which is treated as a single employer
under ss. 414 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than
one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
ss. 414 of the Internal Revenue Code) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years
made or accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or ss. 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered
an ERISA Affiliate only pursuant to subsection (m) or (o) of ss. 414 of the
Internal Revenue Code.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
u. Tax Matters. (i) The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in
respect of which the failure to so file does not and could not have a
Material Adverse Effect; all such Tax Returns are true and accurate and
have been prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are required
to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other
third parties; and since the Balance Sheet Date, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions
for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax
year were treated as ending on the date hereof.
(ii) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or
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judicial proceedings pending or being conducted with respect to the Company
other than a New York State tax audit presently being conducted, the result
of which will not have a Material Adverse Effect; no information related to
Tax matters has been requested by any foreign, federal, state or local
taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by
the Company from any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its subsidiaries or
has any knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not
been a United States real property holding corporation within the meaning
of ss. 897(c)(2) of the Internal Revenue Code during the applicable period
specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
(iii) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as
a transferee or successor, (C) by contract or indemnity or (D) otherwise.
The Company is not a party to any tax sharing agreement. The Company has
not made any payments, is obligated to make payments or is a party to an
agreement that could obligate it to make any payments that would not be
deductible under ss. 280G of the Internal Revenue Code.
For purposes of this Section 3.u.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or
not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
v. Property. The Company does not own any real property. The Company
has good and marketable title to all personal property owned by it, free
and clear of all liens, encumbrances and defects except such as are
described in the Commission Filings or
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such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under
lease by the Company are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company.
w. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the conduct of its business as
now being conducted and as described in the Commission Filings. To the best
of the Company's knowledge, the Company is not infringing upon or in
conflict with any right of any other person with respect to any
Intangibles. Except as disclosed in the Commission Filings, no claims have
been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
x. [Reserved]
y. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by
which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or
by which its properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
z. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity;
(ii) made any direct or indirect unlawful payment of Company funds to any
foreign or domestic government official or employee; (iii) violated or is
in violation of any provision of the Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other similar payment to any person with respect to Company
matters.
aa. Customers. To the Company's knowledge, except as otherwise
provided to Buyer in writing by the Company, neither _________________ nor
________________ plan or intend to discontinue or decrease their purchases
of the Company's products and the Company's relationship with such
customers is strong and all accounts receivable of such customers are
current.
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bb. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any 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, not misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Debentures (and any shares of Common Stock
issued in conversion thereof) shall have endorsed thereon a legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Debentures and the shares of Common Stock issuable upon
conversion thereon):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
b. Filings. The Company shall make all necessary filings in connection with
the sale of the Debentures to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
c. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed by it with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Debentures (excluding amounts paid by the Company for legal fees and finder's
fees in connection with such sale) solely for working capital and to fund the
purchase of property, plant and equipment at its principal executive offices in
Hauppauge, New York.
e. Equipment. Within six months after the Closing Date, the Company shall
have purchased the equipment set forth on Schedule I and such equipment shall be
operational and fully functional as provided on Schedule I. It is understood
that the maximum conversion price of $6.00 provided in Section 3.1 of the
Debenture has been agreed to in reliance of the accuracy of the information set
forth on Schedule I as of the date of this Agreement. It is further understood
that any projection provided to the Buyer by the Company
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were prepared in good faith based upon the Company's most current internal
information and that, as projections, they will be subject to changes based on
actual results.
f. Listing. Except to the extent the Company becomes eligible to list its
Common Stock on The New York Stock Exchange or obtained authorization to include
the Common Stock for quotation on the NASDAQ National Market System, the Company
shall use its best efforts to maintain its listing of the Common Stock on the
NASDAQ Small Capitalization Market System.
g. Reserved Conversion Shares. The Company at all times from and after the
date hereof shall have a sufficient number of shares of Common Stock duly and
validly authorized and reserved for issuance to satisfy the conversion, in full,
of the Debentures (assuming for purposes of this Section 3.g., a conversion
price of $1.50).
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section 5 and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Debentures otherwise shall 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 contained in this Section 5.a.
shall affect in any way Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of such Common Stock. If, at any time,
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
b. The Company shall permit Buyer to exercise its right to convert the
Debentures by telecopying an executed and completed Notice of Conversion to the
Company and delivering to the Company by express courier within five business
days thereafter, the original Notice of Conversion and the Debentures being
converted. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company shall transmit the certificates evidencing the
shares of Common Stock issuable upon conversion of any Debentures (together with
certificates evidencing any principal amount of the Debentures not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the original Notice of
Conversion and the Debentures to be converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of the shares of
Common Stock upon such conversion beyond the Delivery Date could result in
economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees
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to pay to Buyer for late issuance of Common Stock upon conversion in accordance
with the following schedule (where "No. Business Days" is defined as the number
of business days beyond five (5) days from Delivery Date):
Compensation For Each
$10,000 Principal
Amount of Debentures
No. Business Days Not Converted Timely
----------------- --------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + $100 for each
Business Day Late beyond
10 days
The Company shall pay to Buyer the compensation described above by the
transfer of immediately available funds upon Buyer's demand. Nothing herein
shall limit Buyer's right to pursue actual damages for the Company's failure to
issue and deliver Common Stock to Buyer, and in addition to any other remedies
which may be available to Buyer, in the event the Company fails for any reason
to effect delivery of such shares of Common Stock within five business days
after the relevant Delivery Date, Buyer shall be entitled to rescind the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion.
For purposes of this Section 5.c., an act of God shall excuse the delay in
issuance of shares of Common Stock upon conversion beyond the Delivery Date in
the event that acts of war or terrorism, or some other catastrophic event not
encountered in business renders the Company's or its transfer agent's
performance impossible. Such delay in issuance of shares shall be excused only
for so long as the act of God in fact renders performance impossible but in no
event longer than seven (7) business days.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof on a "delivery-against-payment basis" at the
Closing.
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7. CLOSING DATE.
The date and time of the issuance and sale of the Debentures (the "Closing
Date") shall be the date hereof or such other as shall be mutually agreed upon
in writing. The issuance and sale of the Debentures shall occur on the Closing
Date at the offices of the Escrow Agent. Notwithstanding anything to the
contrary contained herein, the Escrow Agent shall not be authorized to release
to the Company the Purchase Price and to Buyer the certificate(s) (I/N/O Buyer)
evidencing the Debentures being purchased by Buyer unless the conditions set
forth in Section 8(c) and 9(g) hereof have been satisfied.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Debentures
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
a. Delivery by Buyer to the Escrow Agent of the Purchase Price;
b. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance
by Buyer in all material respects on or before the Closing Date of all
covenants and agreements of Buyer required to be performed by it pursuant
to this Agreement on or before the Closing Date;
c. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by
this Agreement.
9. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Debentures
on the Closing Date pursuant to this Agreement is conditioned upon:
a. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer) evidencing the Debentures to be purchased by
Buyer pursuant to this Agreement;
b. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the
performance by the Company in all material respects on or before the
Closing Date of all covenants and agreements of the Company required to be
performed by it pursuant to this Agreement on or before the Closing Date;
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c. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer, to the effect set forth in Annex IV attached hereto.
d. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on the NASDAQ Small
Capitalization Market System, (ii) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States,
(iii) the commencement of a war, armed hostilities or other international
or national calamity directly or indirectly involving the United States or
any of its territories, protectorates or possessions, or (iv) in the case
of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
e. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and forseeably could
have a Material Adverse Effect.
f. The Company shall have delivered to Buyer (as provided in the Joint
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement (including the fees and disbursements of Buyer's legal counsel
not to exceed $42,500), upon submission by Buyer to the Company of
appropriate documentary evidence of such out-of-pocket costs and expenses.
g. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by
this Agreement.
10. TERMINATION.
a. Termination by Mutual Written Consent. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned, for any reason and at
any time prior to the Closing Date, by the mutual written consent of the Company
and Buyer.
b. Termination by the Company or Buyer. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on July 25, 1997; provided, however, that the right to
terminate this Agreement pursuant to this Section 10.a.(i) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
c. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply in any material
respect with any of its
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covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, or (iii) there shall have occurred any event or
development, or there shall be in existence any condition, having or reasonably
and forseeably likely to have a Material Adverse Effect.
d. Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement or (ii) there shall have been a breach by Buyer with respect to any
representation or warranty made by it in this Agreement.
11. SURVIVAL; INDEMNIFICATION.
a. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
b. Indemnification of Buyer by the Company.
The Company hereby agrees to indemnify and hold harmless the Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement.
c. Indemnification of the Company by Buyer.
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Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by Buyer pursuant to this Agreement;
or
(ii) any failure by Buyer to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or
delivered by Buyer pursuant to this Agreement.
d. Third Party Claims. Promptly after receipt by either party hereto
seeking indemnification pursuant to this Section 11 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 11 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party by the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying
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Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
e. Other Claims.
In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
12. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
of such state. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York 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 conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. 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. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
13. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or seven business days after deposit in the United
States Postal Service, by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: COMPOSITECH LTD.
120 Ricefield Lane
Hauppauge, New York 11788
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Attention: Samuel S. Gross
Telephone: (516) 436-5200
Fax: (516) 436-5203
with a copy to:
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza
New York, New York 10112
Attention: Edward F. Cox, Esq.
Telephone: (212) 632-3000
Fax: (212) 632-3321
BUYER: ____________________________
____________________________
____________________________
Telephone:__________________
Fax:________________________
ESCROW
AGENT: ____________________________
____________________________
____________________________
Telephone:__________________
Fax:________________________
14. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
15. ASSIGNMENT. This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
2 hereof and otherwise agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
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COMPOSITECH LTD.
By:
----------------------------
Name:
Title:
--------------------------------
By:
----------------------------
Name:
Title:
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Exhibit 10.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
5% CONVERTIBLE DEBENTURE
Due May 31, 2000
July 21, 1997
$960,000
No. COMPO-1A
Compositech Ltd., a Delaware corporation with principal executive offices
located at 120 Ricefield Lane, Hauppauge, New York 11788 the ("Company"), for
value received, hereby promises to pay to the Holder (as defined below), or
order, on May 31, 2000 (the "Maturity Date") the principal sum of Nine Hundred
Sixty Thousand Dollars and No Cents ($960,000) and to pay interest thereon from
the date of original issuance (or the most recent interest payment date to which
interest has been paid), quarterly in arrears, on each February 28, May 31,
August 31 and November 30 of each year, commencing on August 31, 1997, at the
rate of 5% per annum (the "Debenture Interest Rate"), until the principal of
this Debenture has been paid in full or duly and irrevocably provided for. The
interest so payable and duly and punctually provided for on any interest payment
date shall be paid to the Person in whose name this Debenture is registered at
the close of business on the 15th day next preceding the applicable interest
payment date and all interest payable on the principal amount of this Debenture
shall be calculated on the basis of 365-day year for the actual number of days
elapsed.
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ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
3.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the state of New York are authorized or obligated to
close.
(d) "Capital Shares" means the Common Shares and any other shares of any
other class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Company.
(e) "Closing Date" means July 18, 1997.
(f) "Common Shares" or "Common Stock" means shares of the common stock,
$.01 par value, of the Company.
(g) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of this Debenture, means all Common Shares
now or hereafter Outstanding and securities of any other class or series into
which the Debenture hereafter shall have been changed or substituted, whether
now or hereafter created and however designated.
(h) "Company" means Compositech Ltd., a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Company's assets, or otherwise.
(i) "Conversion Date" means any day on which all or any portion of the
principal amount of this Debenture is converted in accordance with the
provisions hereof.
(j) "Conversion Notice" has the meaning set forth in Section 3.2.
(k) "Conversion Price" on any date means of determination the applicable
price for the conversion of this Debenture into Common Shares on such day as set
forth in Section 3.1.
(l) "Conversion Ratio" on any date means of determination the applicable
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percentage of the Market Price for conversion of this Debenture into Common
Shares on such day as set forth in Section 3.1.
(m) "Current Market Price" on any date of determination means the closing
bid price of a Common Share on such day as reported on the National Association
of Securities Dealers, Inc. Automated Quotation ("NASDAQ") Small Market System
or, if the Common Shares are listed on the NASDAQ National Market Capitalization
System or on an established United States national stock exchange, the closing
price of a Common Share on such day as reported by such system or exchange
(provided, that the NASDAQ quotation shall be utilized in the event of the dual
listing of the Common Shares).
(n) "Debenture" means this 5% Convertible Debenture due May 31, 2000 of the
Company or such other convertible debentures or Debentures exchanged therefor as
provided in Section 2.1.
(o) "Default Interest Rate" shall be equal to the Debenture Interest Rate
plus an additional 4% per annum.
(p) "Event of Default" has the meaning set forth in Section 6.1.
(q) "Holder" means _________________, any successor thereto, or any Person
to whom this Debenture is subsequently transferred in accordance with the
provisions hereof.
(r) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of Common Shares on NASDAQ.
(s) "Market Price" per Common Share means the average of the closing bid
prices of the Common Shares as reported on the NASDAQ Small Market
Capitalization System for the five Trading Days in any Valuation Period or, if
the Common Shares are listed on the NASDAQ National Market System or on an
established United States national stock exchange, the average of the closing
prices of the Common Shares for the five Trading Days in any Valuation Period as
reported by such system or exchange (provided, that the NASDAQ quotation shall
be utilized in the event of the dual listing of the Common Shares).
(t) "Maximum Rate" has the meaning set forth in Section 6.3.
(u) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Company or any Subsidiary of the Company shall
not be deemed "Outstanding" for purposes hereof.
(v) "Person" means an individual, a corporation, a partnership, an
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association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(w) "Registration Rights Agreement" means that certain registration rights
agreement dated July 18, 1997, between the Company and _______________________.
(x) "SEC" means the United States Securities and Exchange Commission.
(y) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(z) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated July 18, 1997, between the Company and _______________________.
(aa) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
(bb) "Trading Day" means any day on which purchases and sales of securities
authorized for quotation on the NASDAQ Small Market Capitalization System are
reported thereon and on which no Market Disruption Event has occurred.
(cc) "Valuation Event" has the meaning set forth in Section 3.1.
(dd) "Valuation Period" means the five Trading Day period immediately
preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
EXCHANGES AND TRANSFER
SECTION 2.1 Exchange and Registration of Transfer of Debentures. The Holder
may, at its option, surrender this Debenture at the principal executive offices
of the Company and receive in exchange therefor a Debenture or Debentures, each
in the denomination of $10,000 or integral multiples of $1,000 in excess
thereof, dated as of the date of this Debenture, and, subject to Section 4.2,
payable to such Person or order as may be designated by such Holder. The
aggregate principal amount of the Debenture or Debentures exchanged in
accordance with this Section 2.1 shall equal the aggregate unpaid principal
amount of this Debenture as of the date of such surrender; provided, however,
that upon any exchange pursuant to this Section 2.1 there shall be filed with
the Company the name and address for all purposes hereof of the Holder or
Holders of the Debenture or Debentures delivered in such
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exchange. This Debenture, when presented for registration of transfer or for
exchange or conversion, shall (if so required by the Company) be duly endorsed,
or be accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company duly executed, by the Holder duly authorized in
writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of this
Debenture, the Company shall make, issue and deliver, in lieu of such lost,
stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and
unpaid principal amount dated as of the date hereof. This Debenture shall be
held and owned upon the express condition that the provisions of this Section
2.2 are exclusive with respect to the replacement of a mutilated, destroyed,
lost or stolen Debenture and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the principal amount of this Debenture, for the
conversion of this Debenture and for all other purposes, and the Company shall
not be affected by any notice to the contrary. All such payments and such
conversion shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
so made.
Article 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder, this
Debenture may be converted, either in whole or in part, up to the full principal
amount hereof (in increments of not less than $10,000 principal amount) into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time, (i) from and after the 90th day
following May 28, 1997 until the 180th day following May 28, 1997 at a
Conversion Price equal to 85% of the Market Price and (ii) from and after the
181st day following May 28, 1997 until this Debenture is paid in full at
maturity, at a Conversion Price equal to 80% of the Market Price, but in no
event shall the Conversion Price be in excess of $6.00 per Common Share;
provided, however, that the Holder shall not have the right to convert any
portion of this Debenture to the extent that the issuance to the Holder of
Common Shares upon such conversion would result in the Holder being deemed the
"beneficial owner" of 5% or more of the then outstanding Common Shares within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended. At
the Company's option, the amount of accrued and unpaid interest as of the
Conversion Date shall not be subject to conversion but
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instead may be paid in cash as of the Conversion Date; if the Company elects to
convert the amount of accrued and unpaid interest at the Conversation Date into
Common Stock, the Common Stock issued to the Holder shall be valued at the
Conversion Price.
Notwithstanding anything to the contrary contained herein, if a Valuation
Event occurs during any Valuation Period, a new Valuation Period shall begin on
the Trading Day immediately following the occurrence of such Valuation Event and
end on the Conversion Date; provided that if a Valuation Event occurs on the
fifth day of any Valuation Period, then the Conversion Price shall be the
Current Market Price of the Common Shares on such day; and provided, further,
that the Holder may, in its discretion, postpone such Conversion Date to a
Trading Day which is no more than five Trading Days after the occurrence of the
latest Valuation Event. In the event that the Holder deems the Valuation Period
to be other than the five Trading Days immediately prior to the Conversion Date,
the Holder shall give written notice of such fact to the Company at the time of
conversion.
For purposes of this Section 3.1, a "Valuation Event" shall mean an event in
which the Company at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) pays a dividend in its Capital Shares or makes any other distribution
of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 3.1(a) and 3.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of
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all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing Sections 3.1(a) through 3.1(e)),
provided, in each case, that such distribution described in this Section 3.1(f)
does not constitute an Event of Default; or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 3.1(a) through
3.1(f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a material adverse effect upon
the rights of the Holder at the time of a conversion of this Debenture.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
Debenture may be exercised, in whole or in part, by the Holder by telecopying an
executed and completed notice of conversion in the form annexed hereto as Annex
I (the "Conversion Notice") to the Company and sending a manually signed
original Conversion Notice and this Debenture to the Company by express courier
not later than five (5) Business Days next following the date on which the
telecopied Conversion Notice has been transmitted to the Company; provided,
however, if for two or more Trading Days in any five Trading Day period (whether
or not consecutive), the Market Price per Common Share is less than $4.00, at
least 24 hours prior to the delivery of a Conversion Notice the Holder shall
notify the Company that it may deliver a Conversion Notice within 10 Business
Days from the date of the Company's receipt of such notification. Each date on
which a Conversion Notice is telecopied to and received by the Company in
accordance with the provisions of this Section 3.2 shall constitute a Conversion
Date. The Company shall convert the Debenture and issue the Common Stock Issued
at Conversion effective as of the Conversion Date. The Conversion Notice also
shall state the name or names (with addresses) of the persons who are to become
the holders of the Common Stock Issued at Conversion in connection with such
conversion. Upon surrender for conversion, this Debenture shall be accompanied
by a proper assignment hereof to the Company or be endorsed in blank. As
promptly as practicable after the receipt of the Conversion Notice and the
surrender of this Debenture as aforesaid, but in any event not more than five
Business Days after the Company's receipt of such Conversion Notice and
surrender of this Debenture, the Company shall (i) issue the Common Stock issued
at Conversion in accordance with the provisions of this Article 3, and (ii)
cause to be mailed for delivery by overnight courier to the Holder (X) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (Y) cash, as provided in
Section 3.4, in respect of any fraction of a Share issuable upon such conversion
and (Z) cash in the amount of accrued and unpaid interest as of the Conversion
Date to the extent payable in cash. Such conversion shall be deemed to have been
effected at the time at which the Conversion Notice indicates so long as this
Debenture shall have been surrendered as aforesaid at such time, and at such
time the rights of the Holder of this Debenture, as such, shall cease and the
Person and Persons in whose name or names the Common Stock Issued at Conversion
shall be issuable shall be deemed to have become the holder or holders of record
of the Common Shares represented thereby. The Conversion Notice shall constitute
a contract between the Holder and the Company, whereby the Holder shall be
deemed to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is
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entitled pursuant to Section 3.4), to surrender this Debenture and to release
the Company from all liability thereon. No cash payment aggregating less than
$1.50 shall be required to be given unless specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the Company
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2 or
(ii) any third party who is not and has never been an Affiliate of the Holder
commences any lawsuit or proceeding or otherwise asserts any claim before any
court or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares, then the Holder shall have
the right, by written notice to the Company, to require the Company to promptly
redeem this Debenture for cash at a redemption price equal to 125% of the
principal amount hereof together with all accrued and unpaid interest thereon
(the "Mandatory Purchase Amount"). Under any of the circumstances set forth
above, the Company shall be responsible for the payment of all costs and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
SECTION 3.3 [This Section Reserved]
SECTION 3.4 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
issuable upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
No cash payment of less than $1.50 shall be required to be given unless
specifically requested by the Holder.
SECTION 3.5 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while this Debenture remains outstanding and any principal
amount hereof has not been converted, in case of any reclassification or change
of Outstanding Common Shares issuable upon conversion of this Debenture (other
than a change in par value, or from par value to no par value per share, or from
no par value per share to par value or as a result of a subdivision or
combination of outstanding securities issuable upon conversion of this
Debenture) or in case of any consolidation, merger or mandatory share exchange
of the Company with or into another corporation (other than a merger or
mandatory share exchange with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of this
Debenture), or in the case of any sale or transfer to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company, or such successor, resulting or purchasing corporation, as the case may
be, shall, without payment of any additional consideration therefor, execute a
new Debenture providing that the Holder shall have the right to convert such new
Debenture (upon terms and conditions not less favorable to
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the Holder than those in effect pursuant to this Debenture) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of this Debenture, the kind and amount of shares of stock, other securities,
money or property receivable upon such reclassification, change, consolidation,
merger, mandatory share exchange, sale or transfer by the holder of one Common
Share issuable upon conversion of this Debenture had this Debenture been
converted immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange or sale or transfer. The provisions of this
Section 3.5 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers.
SECTION 3.6 Adjustments to Conversion Ratio. For so long as this Debenture
is outstanding, if the Company (i) issues and sells pursuant to an exemption
from registration under the Securities Act (A) Common Shares at a purchase price
representing a percentage of the Current Market Price on the date of issuance
thereof that is lower than 75%, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price on the date of issuance of
the warrants or options that is lower than 75%, except for stock option
agreements or stock incentive agreements, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than 75% of the Current
Market Price on the Common Shares on the date of issuance or conversion, as
applicable, of such convertible, exchangeable or exercisable securities, except
for stock option agreements or stock incentive agreements; and (ii) grants the
right to the purchaser(s) thereof to demand that the Company register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower
percentages.
SECTION 3.7 Optional Redemption Under Certain Circumstances. If, for two or
more Trading Days in any five-Trading Day period (whether or not consecutive),
the Market Price per Common Share is less than $4.00, then the Company, upon
notice delivered to the Holder as provided in Section 3.8, may redeem this
Debenture (but only with respect to such principal amount as to which the Holder
has not theretofore furnished a Conversion Notice in compliance with Section
3.2), at 125% of the principal amount thereof, together with all accrued and
unpaid interest thereon to the date of redemption (the "Redemption Date") which
shall be no later than thirty (30) days following the expiration of such
five-Trading Day period. Except as set forth in this Section 3.7, the Company
shall not have the right to prepay or redeem this Debenture.
SECTION 3.8 Notice of Redemption. Notice of optional redemption pursuant to
Section 3.7 shall be provided by the Company to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Company's security registry) not less than seven nor more than 15 days prior
to the Redemption Date, which notice shall specify the Redemption Date and refer
to Section 3.7 (including a statement of the Market Price per Common Share) and
this Section 3.8.
SECTION 3.9 Surrender of Debentures. Upon any redemption of this Debenture
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pursuant to Section 3.7, the Holder shall either deliver this Debenture by hand
to the Company at its principal executive offices or surrender the same to the
Company at such address by express courier. Payment of the redemption price
specified in Section 3.7 shall be made by the Company to the Holder against
receipt of this Debenture (as provided in this Section 3.9) by wire transfer of
immediately available funds to such account(s) as the Holder shall specify to
the Company. If payment of such redemption price is not made in full by the
Redemption Date, the Holder shall again have the right to convert this Debenture
as provided in Article 3 hereof.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture is a secured obligation of
the Company, and constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms subject, as to enforceability,
to general principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to or
affecting creditors' rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common Shares
issuable according to the terms hereof, have not been registered under the
Securities Act. This Debenture and any Common Shares issued upon conversion may
not be offered or sold, directly or indirectly, except pursuant to an effective
registration statement under the Act, or pursuant to an available exemption
therefrom.
SECTION 4.3 Security Interest and License Agreement. To secure the due and
punctual payment of all obligations of the Company now or hereafter existing in
connection with this Debenture and the indebtedness of the Company evidenced
hereby (whether for principal, interest, fees, expenses, indemnification or
otherwise), the Company has (and hereby confirms) that, (i) pursuant to that
certain Security Agreement dated July 18, 1997 between the Company and the
Holder set forth as Annex II hereto, it has assigned, transferred, pledged and
set over unto the Holder, and has granted and created in favor of the Holder, a
first priority, perfected security interest in and lien on all of the Company's
right title and interest in, to and under all equipment, in any form, wherever
located, that are hereafter acquired with the proceeds of this Debenture, and
all proceeds of any and all of the foregoing and (ii) pursuant to that certain
License Agreement dated July 18, 1997 between the Company and the Holder set
forth as Annex III hereto, it has granted to the Holder a license to use the
Company's patents in conjunction with the equipment subject to the Security
Agreement in the event that the Holder enforces its rights and title to such
equipment pursuant to the terms of the Security Agreement.
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ARTICLE 5
COVENANTS
The Company covenants and agrees that so long as this Debenture shall be
outstanding:
SECTION 5.1 Conversion. The Company shall not later than five Business Days
after its receipt of the Conversion Notice, issue and deliver to the Holder the
requisite shares of common stock issuable upon conversion, according to the
terms hereof.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, or if the Holder shall demand the issuance of Common Shares or
take any other action permitted upon the occurrence of any such Event of
Default, the Company shall forthwith give notice to the Holder, specifying the
nature and status of the Event of Default or other event or of such demand or
action, as the case may be.
SECTION 5.3 Insurance. The Company shall carry and maintain in full force
and effect at all times with insurers that are financially sound and reputable
such insurance in such amounts as is customary in the industry of the Company.
SECTION 5.4 Payment of Obligations. Prior to conversion of the entire
principal amount of this Debenture, the Company shall pay, extend, or discharge
at or before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings.
SECTION 5.5 Compliance with Laws. The Company shall comply with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities, except for such noncompliance which would not have a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company.
SECTION 5.6 Inspection of Property, Books and Records. The Company shall
keep proper books of record and account in which full, true and correct entries
shall be made of all material dealings and transactions in relation to its
business and activities and shall permit representatives of the Holder at the
Holder's expense to visit and inspect any of its respective properties, to
examine and make abstracts from any of its respective books and records, not
reasonably deemed confidential by the Company, and to discuss its respective
affairs, finances and accounts with its respective officers and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
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ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) the Company shall default in the payment of principal of or interest on
this Debenture as and when the same shall be due and payable and, in the case of
an interest payment default, such default shall continue for five Business Days
after the date such interest payment was due, or the Company shall fail to
perform or observe any other covenant, agreement, term, provision, undertaking
or commitment under this Debenture, the Securities Purchase Agreement or the
Registration Rights Agreement and such default shall continue for a period of
ten Business Days after the delivery to the Company of written notice that the
Company is in default hereunder; or
(b) any of the representations or warranties made by the Company herein,
the Securities Purchase Agreement, the Registration Rights Agreement or in any
certificate or financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the execution and
delivery of this Debenture, the Securities Purchase Agreement or the
Registration Rights Agreement shall be false or misleading in any material
respect on the Closing Date; or
(c) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company or any subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the United
States Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), or any other
applicable Federal or state law, or appointing a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and any such decree or order continues and is unstayed and in
effect for a period of 60 calendar days; or
(d) the institution by the Company or any Subsidiary of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code or any other applicable federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as and when they become due, or the
taking of corporate action by the Company in furtherance of any such action; or
(e) a final judgment or final judgments for the payment of money shall have
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been entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution shall be
effectively stayed) of 30 days, provided that the aggregate amount of all such
judgments at any time outstanding (to the extent not paid or to be paid, as
evidenced by a written communication to that effect from the applicable insurer,
by insurance) exceeds $200,000; or
(f) it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture, the Securities Purchase Agreement or the
Registration Rights Agreement; or
(g) the Common Shares shall be delisted from the NASDAQ Small
Capitalization Market System (the "Trading Market," or, to the extent the
Company becomes eligible to list its Common Stock on The New York Stock Exchange
or obtain authorization to include the Common Stock for quotation on the NASDAQ
National Market System, upon official notice of listing on any such exchange or
system, as the case may be, it shall be the "Trading Market") or suspended from
trading on the Trading Market, and shall not be reinstated, relisted or such
suspension lifted, as the case may be, within ten (10) days; or
(h) the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually or in the
aggregate, of more than $200,000.
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case any Holder may
rescind the Conversion Notice and obtain payment for the entire outstanding
principal amount of the Debenture which remains unconverted, by a notice in
writing to the Company, and upon any such declaration the entire principal
amount of this Debenture shall become immediately due and payable by virtue of
such rescission; provided, however, in the case of any Event of Default
described in paragraphs (c), (d) or (f) above, the entire then outstanding
principal amount of this Debenture, together with all accrued and unpaid
interest thereon, automatically shall become immediately due and payable without
the necessity of any notice or declaration as aforesaid.
SECTION 6.3 Default Interest Rate. (a) If any portion of the principal
of or interest on the Debenture shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise) such principal of and interest on
the Debenture which is due and owing but not paid shall, without limiting the
Holder's rights under this Debenture, bear interest at the Default Interest Rate
until paid in full.
(b) Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate as provided for herein shall exceed the maximum lawful
rate which may be contracted for, charged, taken or received by the Lender in
accordance with applicable laws of the State of New York (the "Maximum Rate"),
the rate of interest applicable to the Debenture shall be limited to the Maximum
Rate.
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SECTION 6.4 Remedies Not Waived. No course of dealing between the Company
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
SECTION 6.5 Waiver. No recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any claim based hereon,
or otherwise in respect hereof, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 3.1, 3.5 or 3.6 of this Debenture, the Company shall
cause to be mailed to the Holder of this Debenture at its last address as it
appears in the Company's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
taken, the date as of which the holders of record of Common Stock to be entitled
to such dividend, distribution, issuance or granting of rights, options or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 7.2 Register. (a) The Company shall keep at its principal office a
register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Article 2 and
4 hereof, the Company shall register such transfer on the Debenture register.
(b) The Company may deem the person in whose name this Debenture shall be
registered upon the registry books of the Company to be, and may treat it as,
the absolute owner of this Debenture (whether or not this Debenture shall be
overdue) for the purpose of receiving payment of interest on or principal of
this Debenture, for the conversion of this Debenture and for all other purposes,
and the Company shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon this Debenture to the extent of the sum or sums so
paid or the conversion or conversions so made.
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SECTION 7.3 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.4 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS DEBENTURE, THE COMPANY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK AND HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. SUBJECT TO APPLICABLE LAW, THE COMPANY AGREES THAT FINAL
JUDGMENT AGAINST IT IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS DEBENTURE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A
CERTIFIED COPY OF WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF AND THE
AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY LAW.
SECTION 7.5 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Debenture.
COMPOSITECH LTD.
By:
-------------------------------
Name:
Title:
Attest
By: -------------------------------
Name:
Title:
INITIAL
HOLDER
By:
-----------------------------
Name:
Title:
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[FORM OF CONVERSION NOTICE]
TO: COMPOSITECH LTD.
120 Ricefield Lane
Hauppauge, New York 11788
Attention:________________________
The undersigned owner of this 5% Convertible Debenture due May 31, 2000
issued by Compositech Ltd. (the "Debenture") hereby irrevocably exercises its
option to convert $___________ principal amount of the Debenture into shares of
the common stock, $.01 par value, of Compositech Ltd. ("Common Stock"), in
accordance with the terms of the Debenture. The undersigned hereby instructs the
Company to convert the portion of the Debenture specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 3
of the Debenture. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Debenture recertificated
in the principal amount, if any, not being surrendered for conversion hereby,
together with any check in payment for fractional Common Stock, be issued in the
name of and delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture.
Dated:
------------------------------
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Signature
Fill in for registration of Debenture:
Please print name and address
(including zip code number) :
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- --------------------------------------------------------------------------------
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Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this 18th day of July 1997 (this
"Agreement"), between COMPOSITECH LTD., a Delaware Corporation, with principal
executive offices located at 120 Ricefield Lane, Hauppauge, New York 11788 (the
"Company"), and the undersigned (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated July 17, 1997, between the Initial Investor and the
Company (the "Securities Purchase Agreement"), the Company has agreed to issue
and sell to the Initial Investor $960,000 aggregate principal amount of its 5%
Convertible Debentures due May 31, 2000 (the "Debentures") which, upon the terms
and subject to the conditions thereof, are convertible into shares of the common
stock, $.01 par value, of the Company (the "Common Stock"); and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable upon conversion of the Debentures certain
registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the meanings:
(i) "Affiliate" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(ii) "Commission" means the Securities and Exchange Commission.
(iii) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
<PAGE>
(iv) "Investor" means the Initial Investor and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
(v) "Person" means any individual, partnership, corporation, limited
liability company, joint stock company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
(vi) "Prospectus" means the prospectus (including, without limitation,
any preliminary prospectus and any final prospectus filed pursuant to Rule
424(b) under the Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance on Rule 430A under the
Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(vii) "Registrable Securities" means the Common Stock issued or
issuable upon conversion of the Debentures; provided, however, a share of
Common Stock shall cease to be a Registrable Security for purposes of this
Agreement when it no longer is a Restricted Security.
(viii) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and forming
a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits and other material
incorporated by reference in such registration statement and Prospectus.
(ix) "Restricted Security" means any share of Common Stock issued or
issuable upon conversion of the Debentures except any such share that (i)
has been registered pursuant to an effective registration statement under
the Securities Act and sold in a manner contemplated by the Prospectus
included in the Registration Statement, (ii) has been transferred in
compliance with the resale provisions of Rule 144 under the Securities Act
(or any successor provision thereto) or is transferable pursuant to
paragraph (k) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new share
of Common Stock not subject to transfer restrictions under the Securities
Act has been delivered by or on behalf of the Company.
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(x) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the respective
meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission not later than the 60th day after the
Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities (provided however that if the Company files a
Registration Statement earlier than such date (the "Filing Date"), the Company
shall include in such Registration Statement the Registrable Securities) and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but not
later than 120 days after the Closing Date (as defined in the Securities
Purchase Agreement), assuming for purposes hereof a Conversion Price under the
Debentures of $2.25 per share.
(b) Underwritten Offering. If the offering pursuant to a Registration
Statement contemplated by Section 2(a) hereof involves an underwritten offering,
the Investors who hold a majority-in-interest of the Registrable Securities
subject to such underwritten offering shall have the right to select one legal
counsel to represent their interests, and an investment banker (or bankers) and
manager (or managers) to administer the offering, which investment banker (or
bankers) or manager (or managers) shall be reasonably satisfactory to the
Company. The Investors who hold the Registrable Securities to be included in
such underwriting shall pay all underwriting discounts and commissions of such
investment banker (or bankers) and manager (or managers) so selected in
accordance with this Section 2(b) with respect to their Registrable Securities.
(c) Registration Default. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not (i) filed with the Commission by the 60th day after the
Closing Date (or if earlier, by the Filing Date) or (ii) declared effective by
the Commission within 150 days after the Closing Date (either of which, an
"Initial Date"), then the Company shall make the payments to the Initial
Investor as provided in the next sentence. The amount to be paid by the Company
to the Initial Investor shall be determined as of each Computation Date, and
such amount shall be equal to 3% of the Purchase Price (as defined in the
Securities Purchase Agreement) from the Initial Date to the first Computation
Date and for each Computation Date thereafter, calculated on a pro rata basis to
the date on which the Registration Statement is filed with (in the event of an
Initial Date pursuant to (c)(i) above) or declared effective by (in the event of
an Initial Date pursuant to (c)(ii) above) the Commission (the "Periodic
Amount"). The full Periodic Amount shall be paid by the Company to the Initial
Investor by wire transfer of immediately available funds within three days after
each Computation Date.
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As used in this Section 2(c), "Computation Date" means the date which is 30
days after the Initial Date and, if the Registration Statement required to be
filed by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the previous
Computation Date until such Registration Statement is so declared effective.
(d) Eligibility for Use of Form S-3. The Company agrees that at such time
as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(e) In the event the Current Market Price under the Debentures declines to
$3.00, the Company shall file an additional Registration Statement with the
Commission for such additional number of Registrable Securities as would be
issuable upon conversion of the Debentures, in addition to those previously
registered, assuming a Conversion Price of $1.00 per share. The Company shall
prepare and file with the Commission not later than the 30th day thereafter, a
Registration Statement relating to the offer and sale of such Registrable
Securities and shall use its best efforts to cause the Commission to declare
such Registration Statement effective under the Securities Act as promptly as
practicable but not later than 60 days thereafter.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
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not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension.
(b) 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 Investors as set forth in the Prospectus forming
part of the Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii) furnish to each
Investor whose Registrable Securities are included in the Registration Statement
and its legal counsel identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus, and each
amendment or supplement thereto, and (B) such number of copies of the 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;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in
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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 promptly prepare an amendment to the
Registration Statement and supplement to the Prospectus to correct such untrue
statement or omission, and deliver a number of copies of such supplement and
amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, 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
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) (i) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered 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 reasonably may
request and registered in such names as the Investors may request; and, within
three business days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and 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;
(j) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances.
(k) Make generally available to its securityholders as soon as practicable,
but in any event not later than 18 months after (i) the effective date (as
defined in Rule 158(c) under the Securities Act) of the Registration Statement,
and (ii) the effective date of each post-effective amendment to the Registration
Statement, as the case may be, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
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(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) Enter into such customary agreements (including an underwriting
agreement in customary form in the event of an underwritten offering) and take
such other lawful and reasonable action to expedite and facilitate the
registration and disposition of the Registrable Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures substantially identical to
those set forth in this Agreement;
(n) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided further that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be coordinated
on behalf of the Investors and the other parties entitled thereto by one firm of
counsel designed by and on behalf of the Investors and other parties;
(o) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(p) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being
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agreed that the matters to be covered by such opinions shall include, without
limitation, as of the date of the opinion and as of the Effective Time of the
Registration Statement or most recent post-effective amendment thereto, as the
case may be, the absence from the Registration Statement and the Prospectus,
including any documents incorporated by reference therein, of an untrue
statement of a material fact or the omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, subject to customary limitations);
(q) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(r) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any.
(s) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
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
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<PAGE>
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. As least seven 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 its
Registrable Securities included in the Registration Statement. If at least two
business days prior to the anticipated filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"), then
the Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor and have no further obligations to
the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of its election to exclude all of its Registrable Securities from the
Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f), it
shall immediately discontinue its 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) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a
majority-in-interest of the Registrable Securities shall be borne by the
Company.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are
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based upon an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or an omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, not misleading, or arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
the Company hereby agrees to reimburse such Indemnified Person for all
reasonable legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when such expenses
are incurred; provided, however, that the Company shall not be liable to any
such Indemnified Person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an untrue
statement or alleged untrue statement made in, or an omission or alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person expressly for use therein or (ii) in the case of the occurrence of an
event of the type specified in Section 3(e), the use by the Indemnified Person
of an outdated or defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein 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, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses incurred by the Company in connection with investigating
or defending any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being
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<PAGE>
sought (each, a "Claim"), the Indemnified Party promptly shall notify the party
against whom indemnification pursuant to this Section 6 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so notify
the Indemnifying Party shall not relieve it from any liability that it otherwise
may have to the Indemnified Party, except to the extent that the Indemnifying
Party is materially prejudiced and forfeits substantive rights and defenses by
reason of such failure. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, costs and expenses, (y) the Indemnified Party and the
Indemnifying Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnifying Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnifying Party from all liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof); as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it
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would not be just and equitable if contribution pursuant to this Section 6(d)
were determined by pro rata allocation (even if the Investors or any
underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section 6(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission 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) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
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8. Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to any transferee of all or any portion of such securities (or all or
any portion of any Debenture of the Company which is convertible into such
securities) of Registrable Securities 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 securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, 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.
9. Amendment and Waiver. 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 a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be 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) If, after the date hereof, the Company grants to any Person any
registration Rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.
(c) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed) or sent
by certified mail, return receipt requested, properly addressed and with proper
postage pre-paid (i) if to the Company, to COMPOSITECH LTD., 120 Ricefield Lane,
Hauppauge, New York 11788, ATT: Samuel S. Gross, with a copy to Donovan Leisure
Newton & Irvine, 30 Rockefeller Plaza, New York, New York 10112, ATT: Edward F.
Cox, (ii) if to the Initial Investor, at the address set forth in the Securities
Purchase 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
10(b), and shall be effective,
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<PAGE>
when personally delivered, upon receipt and, when so sent by certified mail,
four calendar days after deposit with the United States Postal Service.
(d) 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.
(e) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York 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 conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in number of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(h) 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 undertakings among
the parties hereto with respect to the subject matter hereof.
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(i) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
COMPOSITECH LTD.
By:
--------------------------------
Name:
Title:
-----------------------------------
By:
--------------------------------
Name:
Title:
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Exhibit 10.4
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 18, 1997, made by Compositech Ltd., a
Delaware corporation (the "Grantor") in favor of __________________________ (the
"Secured Party").
W I T N E S S E T H :
WHEREAS, the Grantor has entered into a Securities Purchase Agreement,
dated as of July 18, 1997, with the Secured Party (said Agreement, as it may be
amended or otherwise modified from time to time, being the "Securities Purchase
Agreement" and all capitalized terms used but not defined having the respective
meanings assigned to them in the Securities Purchase Agreement); and
WHEREAS, it is a condition precedent to the purchase of the Debentures that
the Grantor shall have entered into this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Secured Party to purchase the Debentures the Grantor hereby agrees with the
Secured Party as follows:
1. Defined Terms. As used in this Agreement, the following terms have the
meanings specified below (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"Collateral" has the meaning assigned to such term in Section 2 of
this Agreement.
"Contracts" has the meaning assigned to such term in Section 3 of this
Agreement.
"Equipment" means any "equipment," as such term is defined in Section
9-109(2) of the UCC, hereafter acquired by the Grantor with the proceeds
from the sale by the Grantor to the Secured Party of the Debentures (as
shall be listed by the Grantor on an amendment to Schedule II of this
Agreement immediately upon Grantor's acquisition of such Equipment) and any
and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Proceeds" means "proceeds," as such term is defined in Section
9-306(1) of the UCC, and, in any event, includes, without limitation, (i)
any and all proceeds of or distributions pursuant to any insurance,
indemnity,
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surety, warranty or guaranty payable to the Grantor from time to time with
respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to the Grantor from time to time in
connection with any requisition, confiscation, replevin, condemnation,
seizure or forfeiture of all or any part of the Collateral by any public or
governmental authority (or any person acting under color of any public or
governmental authority), and (iii) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Secured Party and the Secured
Party's security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New
York, the term "UCC" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of the definitions
related to such provisions.
2. Grant of Security Interest.
As collateral security for the full and prompt payment when due (whether at
stated maturity, by acceleration or otherwise) of, and the performance of, all
the obligations under, and to induce the Secured Party to purchase, the
Debentures pursuant to the Securities Purchase Agreement, the Grantor hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers to the Secured
Party, and hereby grants to the Secured Party, a security interest in, all of
the Grantor's right, title and interest in, to and under the following (all of
which being hereinafter collectively referred to as the "Collateral"):
(i) all Equipment; and
(ii) all Proceeds of the foregoing including all accessions to,
substitutions and replacements for, and rents, profits and products of, the
foregoing.
3. Rights of the Secured Party; Limitations on Secured Party's Obligations.
(a) It is expressly agreed by the Grantor that, anything herein to the
contrary herein notwithstanding, the Grantor shall remain liable under every
contract relating to the Collateral (the "Contracts") to observe and perform all
the conditions and obligations to be observed and performed by it thereunder,
and the Grantor shall duly and punctually perform all of its duties and
obligations
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<PAGE>
thereunder, all in accordance with and pursuant to the terms and provisions of
each such Contract. The Secured Party shall not have any obligation or liability
under any Contract by reason of or arising out of this Agreement or the receipt
by the Secured Party of any payment relating to any Contract pursuant hereto,
nor shall the Secured Party be required or obligated in any manner to perform or
fulfill any of the obligations of the Grantor under or pursuant to any Contract,
or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any Contract, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(b) If required by the Secured Party at any time during the continuance of
any Event of Default, any Proceeds, when first collected by the Grantor, (as
such term is defined in the Debenture) received in payment for or on account of
the Equipment, shall be promptly deposited by the Grantor in precisely the form
received (with all necessary endorsements) in a special bank account for the
benefit of and maintained by the Secured Party and subject to withdrawal only by
the Secured Party, as hereinafter provided, and until so deposited shall be
deemed to be held in trust by the Grantor for and as the Secured Party's
property and shall not be commingled with any of the Grantor's other funds or
properties. Such Proceeds, when deposited, shall continue to be collateral
security for all amounts due on and in respect of the Debentures and shall not
constitute payment thereof until applied as hereinafter provided. The Secured
Party may apply all or a part of the funds on deposit in said special account to
the principal of or interest on or both in respect of the Debentures in
accordance with the provisions of Section 8(d) hereof and any part of such funds
which the Secured Party elects not to so apply and deem not required as
collateral security for the Debentures shall be paid over from time to time by
the Secured Party in its discretion to the Grantor.
4. Representations and Warranties. The Grantor hereby represents and
warrants to the Secured Party as follows:
(a) The Grantor is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Grantor of this
Agreement are within the Grantor's corporate powers, have been duly authorized
by all necessary corporate action, do not contravene the Grantor's certificate
of incorporation or by-laws, any requirement of law or any order or decree of
any court, or any contractual obligation of the Grantor, and do not result in or
require the creation of any lien (other than pursuant to the Securities Purchase
Agreement) upon or with respect to any of its properties.
(c) No consent, authorization, approval or other action by, and no
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<PAGE>
notice to or filing with, any public or governmental authority is required for
the due execution, delivery and performance by the Grantor of this Agreement.
(d) This Agreement has been duly executed and delivered by the Grantor and
is the legal, valid and binding obligation of the Grantor, enforceable against
the Grantor in accordance with its terms.
(e) There are no pending and, to the Grantor's knowledge, there are no
threatened actions, investigations or proceeding affecting the Grantor before
any court, public or governmental authority or arbitrator other than those that
in the aggregate, if adversely determined, would not have a have Material
Adverse Effect.
(f) The Grantor is (and shall continue to be on each subsequent date on
which the Grantor acquires Collateral with the proceeds from the sale by the
Grantor to the Secured Party of the Debentures) the sole owner of each item of
the Collateral in which it purports to grant (or theretofore shall have granted)
a security interest hereunder, having good title thereto, free and clear of any
and all liens, except for the security interest granted pursuant to this
Agreement.
(g) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral exists or is on file or of record in any public office, except
such as may have been filed by the Grantor in favor of the Secured Party
pursuant to this Agreement.
(h) The Grantor has provided appropriate financing statements to the
Secured Party to file in the jurisdictions listed on Schedule I hereto, this
Agreement is effective to create in favor of the Secured Party a valid and
continuing first priority lien on and prior to all other liens and security
interests in respect of the Collateral. Upon the request of the Secured Party,
the Grantor will take all action necessary or desirable to protect and perfect
such security interest in each item of the Collateral.
(i) The Grantor's principal place of business and the place where its
records concerning the Collateral are kept and the contemplated location of the
Equipment are set forth on Schedule II hereto.
5. Covenants. The Grantor covenants and agrees with the Secured Party that
from and after the date of this Agreement and until the Debentures are fully
satisfied:
(a) Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of the Secured Party, and at the sole expense
of the Grantor, the Grantor shall promptly and duly execute and deliver
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<PAGE>
any and all such further instruments and documents and take all such further
action as the Secured Party may reasonably deem desirable to obtain the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, any amendments to Schedule II to this Agreement
to identify the Collateral, the filing of any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereby (including, without limitation, any amendments to identify the
Collateral), and transferring Collateral to the Secured Party's possession (if a
security interest in such Collateral can only be perfected by possession). The
Grantor also hereby authorizes the Secured Party to file any such financing or
continuation statement without the signature of the Grantor to the extent
permitted by applicable law.
(b) Maintenance of Records. The Grantor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Collateral and all other transactions in and dealings with
the Collateral. The Grantor will mark its books and records pertaining to the
Collateral to evidence this Agreement and the lien and security interests
granted hereby. For the Secured Party's further security, the Grantor agrees
that upon the occurrence and during the continuance of any Event of Default, the
Grantor shall deliver and turn over any such books and records to the Secured
Party or to its representatives at any time on demand of the Secured Party.
Prior to the occurrence of an Event of Default and upon reasonable notice from
the Secured Party, the Grantor shall permit any representative of the Secured
Party to inspect such books and records and will provide photocopies thereof to
the Secured Party.
(c) Indemnification. In any suit, proceeding or action brought against the
Secured Party relating to any Contract or for any sum owing thereunder, or to
enforce any provision of any Contract, the Grantor will save, indemnify and keep
the Secured Party harmless from and against all expense, loss or damage suffered
by reason of any defense, set-off, counterclaim, recoupment or reduction of
liability whatsoever of the obligor thereunder, arising out of a breach by the
Grantor of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such obligor or
its successors from the Grantor, and all such obligations of the Grantor shall
be and remain enforceable against and only against the Grantor and shall not be
enforceable against the Secured Party; provided, however, that in no event shall
the Grantor be liable for incidental damages to the Secured Party under this
Section 5(c).
(d) Compliance with Laws, Etc. The Grantor will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and directions of
every public and governmental authority applicable to the Collateral, any part
thereof and/or to the operation of the Grantor's business; provided, however,
that the Grantor may contest any act, regulation, order, decree or direction in
any
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<PAGE>
reasonable manner which shall not, in the sole judgment of the Secured Party,
adversely affect the Secured Party's rights hereunder or adversely affect the
first priority of its lien on and security interest in the Collateral.
(e) Payment of Obligations. The Grantor will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom and all claims of
any kind (including, without limitation, claims for labor, materials and
supplies); provided, however, that the Grantor may contest any taxes,
assessments and governmental changes or levies so imposed in any reasonable
manner which shall not, in the reasonable judgment of the Secured Party,
adversely affect the first priority of its lien on the security interest in the
Collateral.
(f) Compliance with Terms of Contracts. In all material respects, the
Grantor will comply with and perform with all obligations, covenants, conditions
and agreements with respect to every Contract unless, in the reasonable judgment
of the Secured Party, the non-compliance or non-performance of the Grantor shall
not adversely affect the first priority of its lien on the security interest in
the Collateral.
(g) Limitation on Liens on Collateral. The Grantor will not create, permit
or suffer to exist, and will defend the Collateral against and take all such
other action as is necessary to remove, any lien on the Collateral, and will
defend the right, title and interest of the Secured Party in and to any of the
Grantor's rights to the Collateral and in and to the Proceeds thereof against
the claims and demands of all Persons whomsoever.
(h) Maintenance of Insurance. The Grantor will maintain, with financially
sound and reputable companies, insurance policies (i) insuring the Collateral
against loss by fire, explosion, theft and such other casualties as are usually
insured against by companies engaged in the same or similar businesses and (ii)
insuring the Grantor and the Secured Party against liability for personal injury
and property damage relating to such Collateral, such policies to be in such
amounts and against at least such risks as are usually insured against in the
same general area by companies engaged in the same or a similar business, naming
the Secured Party as an additional insured with a lender loss payable clause in
favor of the Secured Party on behalf and for the ratable benefit of the Secured
Party. The Grantor shall, if so requested by the Secured Party, deliver to the
Secured Party as often as the Secured Party may reasonably request, a report of
a reputable insurance broker satisfactory to the Secured Party with respect to
the insurance on its Equipment.
(i) Limitations on Disposition. In each case, without the prior consent of
the Secured Party the Grantor will not sell, lease, transfer or otherwise
dispose of any of the Collateral, or attempt or contract to do so.
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<PAGE>
(j) Further Identification of Collateral. The Grantor will, if so requested
by the Secured Party, furnish to the Secured Party, as often as the Secured
Party reasonably requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable
detail.
(k) Notices. The Grantor will advise the Secured Party promptly, in
reasonable detail, (i) of any material lien or claim made or asserted against
any of the Collateral, (ii) of any material change in the composition of the
Collateral, and (iii) of the occurrence of any other event which would have a
material adverse effect on the aggregate value of the Collateral or in the
security interests created hereunder.
(l) Right of Inspection. Upon reasonable notice to the Grantor (unless a
Default or an Event of Default has occurred and is continuing, in which case no
notice is necessary), the Secured Party and its representatives shall also have
the right to enter into and upon any premises where any of the Equipment is
located for the purpose of inspecting the same, observing its use or otherwise
protecting its interests therein. It is understood and agreed that the
confidentiality provision set forth in Section 14 of the Securities Purchase
Agreement shall apply to any such inspection.
(m) Maintenance of Equipment. The Grantor will keep and maintain the
Equipment in good operating condition sufficient for the continuation of the
business conducted by the Grantor on a basis consistent with past practices, and
the Grantor will provide all maintenance and service and all repairs necessary
for such purpose.
(n) Continuous Perfection. The Grantor will not change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless the Grantor shall have given the Secured Party at
least 30 days' prior written notice thereof and shall have taken all action (or
made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by the Secured Party to amend such financing statement or
continuation statement so that it is not seriously misleading. The Grantor will
not change its principal place of business or remove its records or change the
location of the Equipment, as set forth on Schedule II hereto, unless it gives
the Secured Party at least 30 days' prior written notice thereof and has taken
such action as is necessary to cause the security interest of the Secured Party
in the Collateral to continue to be perfected.
6. The Secured Party's Appointment as Attorney-in-Fact.
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(a) The Grantor hereby irrevocably constitutes and appoints the Secured
Party and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Grantor and in the name of the Grantor or in its own
name, from time to time in the Secured Party's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which the
Secured Party may deem necessary or desirable to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, hereby gives
the Secured Party the power and right, on behalf of the Grantor, without notice
to or assent by the Grantor to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any Collateral
and, in the name of the Grantor or in its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by the
Secured Party for the purpose of collecting any and all such moneys due
under any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Secured Party for the purpose of collecting any
and all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to the Secured Party or as the Secured Party shall
direct; (B) to receive payment of and receipt for any and all moneys,
claims and other amounts due, and to become due at any time, in respect of
or arising out of any Collateral; (C) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce
any other right in respect of any Collateral; (D) to defend any suit,
action or proceeding brought against the Grantor with respect to any
Collateral; (E) to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Secured Party may deem appropriate; (F)
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generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes, and to
do, at the Secured Party's option and the Grantor's expense, at any time,
or from time to time, all acts and things which the Secured Party
reasonably deems necessary to protect, preserve or realize upon the
Collateral and the Secured Party's lien therein, in order to effect the
intent of this Agreement, all as fully and effectively as the Grantor might
do.
(b) The Secured Party agrees that, except upon the occurrence and during
the continuance of any Event of Default, it will forbear from exercising the
power of attorney or any rights granted to the Secured Party pursuant to this
Section 6. The Grantor hereby ratifies, to the extent permitted by law, all that
any said attorney shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 6, being coupled with an
interest, shall be irrevocable until the obligations under the Debenture are
indefeasibly paid in full.
(c) The powers conferred on the Secured Party hereunder are solely to
protect the Secured Party's interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Secured Party shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Grantor for any act or failure to act, except for
its own gross negligence or willful misconduct.
(d) The Grantor also authorizes the Secured Party, at any time and from
time to time upon the occurrence and during the continuance of an Event of
Default, to execute, in connection with the sale provided for in Section 8
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
7. Performance by the Secured Party of the Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Secured Party, as provided for by the terms of this Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the reasonable expenses of the Secured Party incurred in
connection with such performance or compliance shall be payable by the Grantor
to the Secured Party on demand and shall constitute obligations secured hereby.
8. Remedies, Rights Upon an Event of Default.
(a) If any Event of Default shall occur and be continuing, the Secured
Party may exercise in addition to all other rights and remedies granted to it in
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the obligations pursuant to the Debentures, all rights and remedies
of a
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secured party under the UCC. Without limiting the generality of the foregoing,
the Grantor expressly agrees that in any such event the Secured Party, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon the Grantor or any other Person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the maximum extent
permitted by the UCC and other applicable law), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange or broker's board or any of the Secured Party's offices or elsewhere at
such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Secured Party shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of said
Collateral so sold, free of any right or equity of redemption, which equity of
redemption the Grantor hereby releases. The Grantor further agrees, at the
Secured Party's request to assemble the Collateral and make it available to the
Secured Party at places which the Secured Party shall reasonably select, whether
at the Grantor's premises or elsewhere. The Secured Party shall apply the net
proceeds of any such collection, recovery receipt, appropriation, realization or
sale, as provided in Section 8(d) hereof, the Grantor remaining liable for any
deficiency remaining unpaid after such application, and only after so paying
over such net proceeds and after the payment by the Secured Party of any other
amount required by any provision of law, including Section 9-504(1)(c) of the
UCC, need the Secured Party account for the surplus, if any, to the Grantor. To
the maximum extent permitted by applicable law, the Grantor waives all claims,
damages, and demands against the Secured Party arising out of the repossession,
retention or sale of the Collateral. The Grantor agrees that the Secured Party
need not give more that ten days' notice of the time and place of any public
sale or of the time after which a private sale may take place and that such
notice is reasonable notification of such matters. The Grantor shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which the Secured Party are
entitled, the Grantor also being liable for the fees and expenses of any
attorneys employed by the Secured Party to collect such deficiency.
(b) The Grantor also agrees to pay all costs of the Secured Party,
including, without limitation, attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(c) The Grantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral.
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(d) The Proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be distributed by the Secured Party in the
following order of priorities:
First, to the payment of the costs and expenses of such sale, including,
without limitation, all expenses of the Secured Party and its agents including
the fees and expenses of its counsel, and all expenses, liabilities and advances
made or incurred by the Secured Party in connection therewith or pursuant to
Section 7 hereof;
Next, to the Secured Party, for the payment in full of all amounts owed to
the Secured Party by the Grantor and
Finally, after payment in full of all amounts owed to the Secured Party by
the Grantor to the payment of the Grantor, or its successors or assigns, or to
whomsoever may be lawfully entitled to receive the same as a court of competent
jurisdiction may direct.
9. Limitation on the Secured Party's Duty in Respect of Collateral. The
Secured Party shall not have any duty as to any Collateral in its possession or
control or in the possession or control of any agent or nominee of it or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except that the Secured Party shall use
reasonable care with respect to the Collateral in its possession or under its
control. Upon request of the Grantor, the Secured Party shall account for any
moneys received by it in respect of any foreclosure on or disposition of the
Collateral.
10. Notices. All notices and other communications provided for hereunder
shall be in writing (including telegraphic, telex, telecopy, or cable
communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered
by hand, if to the Grantor or to the Secured Party at the address of such party
specified in the Securities Purchase Agreement, or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party complying as to delivery with the terms of this Section. All such
notices and other communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective when deposited in the mails,
delivered to the telegraph company, confirmed by telex answerback, telecopied
with confirmation or receipt, delivered to the cable company, or delivered by
hand to the addressee or its agent, respectively.
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11. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Grantor therefrom shall in any
event be effective unless the same shall be in writing, approved and signed by
the Secured Party, and then any such waiver or consent shall only be effective
in the specific instance and for the specific purpose for which given.
12. No Waiver; Remedies. (a) No failure on the part of any Secured Party to
exercise, and no delay in exercising any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative, may be exercised singly or
concurrently, and are not exclusive of any remedies provided by law, the
Securities Purchase Agreement or the Debentures.
(b) Failure by the Secured Party at any time or times hereafter to require
strict performance by the Grantor or any other person of any of the provisions,
warranties, terms or conditions contained in the Securities Purchase Agreement
or the Debentures now or at any time or times hereafter executed by the Grantor
or any such other person and delivered to any of the Secured Party shall not
waive, affect or diminish any right of any of the Secured Party at any time or
times hereafter to demand strict performance thereof, and such right shall not
be deemed to have been modified or waived by any course of conduct or knowledge
of the Secured Party, or any agent, officer or employee of the Secured Party.
13. Release of Liens. Upon payment in full of the principal amount of and
all accrued and unpaid interest on the Debentures or upon the earlier conversion
of the Debentures in full and the full and indefeasible satisfaction of all
other obligations to the Secured Party, the Secured Party agrees, upon the
written request of the Grantor and at the Grantor's sole expense, to execute,
record and file such instruments and perform such acts as are necessary to
effect or evidence the release of the Collateral from the security interests of
this Security Agreement and from any assignment or other security document
entered into pursuant hereto.
14. Successors and Assigns. This Agreement and all obligations of the
Grantor hereunder shall be binding upon the successors and assigns of the
Grantor, and shall, together with the rights and remedies of the Secured Party
hereunder, inure to the benefit of the Secured Party and its successors and
assigns.
15. Governing Law. This Agreement shall be governed by, and be construed
and interpreted in accordance with, the law of the State of New York. Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity and
without invalidating the remaining provisions of this Agreement.
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<PAGE>
16. Waiver of Jury Trial. The Grantor waives any right it may have to trial
by jury in any action or proceeding to enforce or defend any rights or remedies
hereunder, under the Securities Purchase Agreement, the Debentures or any other
document relating to any of the foregoing.
17. Further Indemnification. The Grantor agrees to pay, and to save the
Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
18. Section Titles. The Section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of this Agreement.
IN WITNESS WHEREOF, The Grantor has caused this Agreement to be executed
and delivered by its duly authorized officer on the date first above written.
COMPOSITECH LTD.
By:
------------------------------------
Name:
Title:
Accepted and acknowledged by:
- ----------------------------------------
By:
-------------------------------------
Name:
Title:
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<PAGE>
SCHEDULE I TO SECURITY AGREEMENT
FILINGS
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JURISDICTION FILING OFFICE
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<PAGE>
Exhibit 10.4
SCHEDULE II
SCHEDULE II TO SECURITY AGREEMENT
LOCATION OF RECORDS AND CERTAIN COLLATERAL
------------------------------------------
Principal Place of
Business and
Location of Records
- -------------------
Location and
Description of
Equipment
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Exhibit 10.5
LICENSE SECURITY AGREEMENT
License Security Agreement effective as of July 21, 1997, by and between
Compositech Ltd. ("Compositech"), a corporation of the State of Delaware having
an office and place of business at 120 Ricefield Lane, Hauppauge, New York
11788-2008, and ___________________ having an office and place of business at
___________________________________________________.
WHEREAS, the parties hereto have entered into a series of agreements
pursuant to which ___________________ has loaned Compositech certain monies
secured by certain Equipment of Compositech in accordance with the terms of that
certain Security Agreement by and between Compositech and ____________________
of even date herewith (the "Equipment Security Agreement"); and
WHEREAS, _____________________ wishes to secure the necessary rights and
licenses under Compositech's patents to use the Equipment for the manufacture of
Laminates in the Event of Default under and as defined in the Equipment Security
Agreement leaving _______________ in possession of the Equipment;
NOW, THEREFORE, in consideration of the mutual promises made herein and in
the Equipment Security Agreement the parties hereto do hereby agree as follows:
I. DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1. "Collateral" and "Equipment" shall have the meanings set forth in the
Equipment Security Agreement;
2. "Event of Default" shall have the meaning set forth in the Equipment
Security Agreement;
3. "Integral Circuits" shall mean laminates or printed circuit boards with
integral circuits as described by the following claims, or parts of such claims,
set forth in Compositech's U.S. Patents 4,943,334, 5,037,691 and 4,478,421;
(i) claims 70-73 of U.S. Patent 4,943,334;
(ii) claims 15 and 26-30 of the U.S. Patent 4,943,334, provided that
the conductive surface is in the form of a circuit and further provided
that the circuit is formed on the tooling and transferred to the laminate
or printed circuit board during the molding process;
(iii) claims 7, 8, 36, 37, 42 and 43 of U.S. Patent 5,037,691,
provided that the metal or metallic coating is in the form of a circuit;
and
(iv) claims 4, 5, 8-11, 50, 64 and 73 of U.S. patent 4,478,421,
provided that the metal or conductive surface is in the form of a circuit
and further provided that the circuit is
-1
<PAGE>
formed on the tooling and transferred to the laminate or printed circuit
board during the molding process.
4. "Laminate" shall mean a wound base material for printed circuit board
produced using the Equipment and in accordance with the Patents, but excluding
Multilayer Printed Circuit Boards and Integral Circuits.
5. "Multilayer Printed Circuit Boards" shall mean the circuit boards
defined in one or more of claims 18-26 and 63-68 of U.S. Patent 5,037,691 or the
circuit boards produced using the process described in any of the claims of U.S.
Patents 5,347,326 and 5,512,224.
6. "Licensed Patents" shall mean all United States patents issued to
Compositech upon applications filed in the U.S. Patent and Trademark Office with
an effective filing date prior to the effective date of this Agreement, provided
that the Licensed Patents shall not include the subject matter of any claims of
any patents or applications to the extent that they relate to Multilayer Printed
Circuit Boards or Integral Circuits.
II. GRANT OF LICENSE
Effective upon the occurrence of an Event of Default (as defined in the
Equipment Security Agreement), Compositech grants to ____________________ a
nonexclusive, royalty-free right and license, under the Licensed Patents, to
manufacture, use, sell and offer to sell Laminates for a period of ten years
from the Event of Default using the Equipment. This license may be transferred
by ___________________ only to an entity which acquires the Equipment from
__________________________ or with Compositech's prior written consent. Nothing
herein shall be deemed to imply any right or license under the Licensed Patents
to manufacture Laminate on any equipment other than that constituting the
Collateral, or to manufacture or acquire any additional equipment, or any other
right or permission beyond that which is expressly granted herein. No right is
granted to ___________________________ (or anyone in possession of the Equipment
from _________________________) to sublicense the rights herein granted.
Compositech expressly represents and warrants to _________________________ that
the Licensed Patents constitute all of the U.S. Patents necessary to
manufacture, use and sell Laminates with the Equipment, as such Equipment is
intended to be used.
III. MARKING
______________________________ and anyone who acquires the Equipment from
_____________________________ shall mark all Laminate in accordance with the
marking requirements of 35 USC Sec. 287 and, prior to selling any such Laminate,
shall submit samples of the Laminate so marked to Compositech for its approval
that the form of marking complies with applicable law, which approval shall not
be unreasonably withheld.
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<PAGE>
IV. MISCELLANEOUS PROVISIONS
a. In the event either party breaches any term or condition of this
Agreement and fails to cure the same upon thirty (30) days written notice to the
other, the party giving such notice may terminate the Agreement forthwith.
b. _______________________ shall not transfer the Equipment to anyone who
shall not first have agreed to be bound by the terms of this Agreement by
executing a copy thereof and sending the same to Compositech. Any such transfer
shall not relieve ____________________ from its obligations hereunder.
c. ________________________ and anyone in possession of the Equipment
pursuant to this Agreement shall maintain the Equipment in confidence and shall,
to that end, (1) not disclose the design, structure or function of, or any other
particulars of, the Equipment to anyone except its employees having a need to
know the same in order to operate it to produce Laminate and who have signed
written confidentiality agreements undertaking to keep all aspects of the
Equipment confidential, (2) not use any information relating to the design,
structure or function of, or any other particular of, the Equipment for any
purpose other than its operation to produce Laminate.
d. This Agreement and all questions relating to or arising under it shall
be determined in accordance with the laws of the State of New York and the
parties hereby submit themselves to the jurisdiction of the courts sitting in
the State of New York to resolve any such questions, service of process to be
deemed sufficient if made by certified mail, return receipt or its equivalent.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
COMPOSITECH LTD.
By:
---------------------------------
Name:
Title:
---------------------------------
By:
---------------------------------
Name:
Title:
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Compositech Ltd.,
and for the registration of 2,541,025 shares of its Common Stock and to the
incorporation by reference therein of our report dated January 22, 1997, with
respect to the financial statements of Compositech Ltd. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Melville, New York
July 28, 1997
