As filed with the Securities and Exchange Commission on June 26, 1998
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.
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas, New York, NY 10036-6710 (212) 336-2000
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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Offering Registration
Registered Registered(1) Per Share (2) Price (2) Fee (2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,675,887 $1.8755 $ 3,143,127
($0.01 par value)(3) Shares
Common Stock 125,000 $2.5000 $ 312,500
($0.01 par value)(4) Shares
- -----------------------------------------------------------------------------------------------------
Totals 1,800,887 $ 3,455,627 $1,020
=====================================================================================================
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, there are also being
registered hereunder such indeterminate number of additional shares as may
be issued to the selling stockholders because of future dividends, stock
distributions, stock splits or similar capital adjustments and conversion
or exercise price adjustments pursuant to the terms of the Registrant's 7%
Series B Convertible Preferred Stock (the "Preferred Stock") or the Common
Stock Purchase Warrants (the "Warrants").
(2) The maximum offering price per share for the 1,675,887 common shares
underlying the Preferred Stock of $1.8755, was based upon the average of
the high and low prices of the Common Stock of the Company, par value $.01,
reported by The Nasdaq SmallCapSM Market for the Registrant's Common Stock
on June 22, 1998, a date within five (5) days prior to the date of initial
filing of this Registration Statement (in accordance with Sections (c) and
(g) of Rule 457 of Regulation C). The maximum offering price per share for
the 125,000 common shares underlying the Warrants equals their exercise
price, since it is higher than the average of the high and low prices of
the Common Stock of the Company, par value $.01, reported by The Nasdaq
SmallCapSM Market for the Registrant's Common Stock on June 22, 1998, a
date within five (5) days prior to the date of initial filing of this
Registration Statement.
(3) Represents shares of Common Stock issuable upon the conversion of the
Registrant's Preferred Stock based upon the maximum number of shares that
could be issued pursuant to the terms of the Preferred Stock as of the date
hereof.
(4) Represents shares of Common Stock underlying the Warrants issued to
Trautman Kramer & Company, Inc., as compensation in connection with the
Registrant's private placement of the Preferred Stock.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time this registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful, prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, dated June 26, 1998
PROSPECTUS
COMPOSITECH LTD.
1,800,887 Shares of Common Stock
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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) 1,466,667 shares of Common Stock, par
value $.01 of the Company (the "Common Stock"), issuable upon the conversion of
shares of the Company's 7% Series B Convertible Preferred Stock, par value $.01,
(the "Preferred Stock"); (ii) 209,220 shares of Common Stock issuable as
dividends for the aforementioned Preferred Stock and (iii) 125,000 shares of
Common Stock underlying Common Stock Purchase Warrants issued to Trautman Kramer
& Company, Inc. as compensation in connection with the Company's private
placement of the Preferred Stock (the "Warrants"). The number of shares of
Common Stock issuable upon exercise of the Warrants is subject to adjustment in
certain events. The number of shares shown as issuable upon the conversion of
the Preferred Stock and to be offered for sale is based on the number of shares
to be registered according to the agreements with the stockholders. The actual
number of shares to be issued on conversion and to be offered for sale may be
different depending on the conversion price as defined in the Preferred Stock
Certificate of Designations. See "Recent Developments - Sale of Convertible
Preferred Stock."
---------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS
---------------------------------------
The Company will not receive any of the proceeds from the sale of shares of
Common Stock. The Company will receive the exercise price upon exercise of the
Warrants, if exercised. The Registration Statement of which this Prospectus
forms a part is being filed pursuant to the terms of certain agreements between
the Company and the Selling Stockholders.
<PAGE>
The Selling Stockholders have advised the Company that they or the Transferees
may sell, directly or through brokers, all or a portion of the securities
offered hereby in negotiated transactions or in one or more transactions in the
market at the price prevailing at the time of sale. In connection with such
sales, the Selling Stockholders, the Transferees and any participating broker
may be deemed to be "underwriters" of the Common Stock within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
or Transferees in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company has informed the Selling Stockholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") may apply to the sales of their shares offered hereby. The
Company also has advised the Selling Stockholders of the requirement for
delivery of this Prospectus in connection with any sale of the shares offered
hereby. Certain Selling Stockholders may from time to time purchase shares of
Common Stock in the open market. The Selling Stockholders have been notified
that they should not commence any distribution of shares of Common Stock unless
they have terminated their purchasing and bidding for Common Stock in the open
market as provided in applicable securities regulations.
The Common Stock is listed and traded on The Nasdaq SmallCap MarketSM under
symbol "CTEK." The closing price of the Common Stock on June 23, 1998 was $1.844
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 June ___, 1998.
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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
Nasdaq SmallCap Market, 1735 K Street, NW, Washington, DC 20006-1500.
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, 1997;
(2) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998;
(3) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 0-20701),
declared effective on July 2, 1996, by which the Company's shares of
Common Stock were registered under Section 12 of the Exchange Act and
any other amendments or reports filed for the purpose of updating such
description.
(4) The Company's Current Report on Form 8-K of June 12, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares of Common Stock shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
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Any statement contained herein or in a document incorporated or deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Compositech Ltd., 120
Ricefield Lane, Hauppauge, NY 11788, Attention: Investor Relations. Telephone:
(516) 436-5200.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements set forth under the captions "The Company," "Recent
Developments," "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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This prospectus is qualified in its entirety by the detailed information and
financial statements appearing in the documents incorporated in this Prospectus
by reference.
THE COMPANY
General
Compositech Ltd. (the "Company" or "Compositech") was founded in 1984 by Jonas
Medney and Fred Klimpl, its Chairman and Vice Chairman, respectively, to develop
and market innovative superior copper-clad fiberglass epoxy laminates used to
make printed circuit boards required by the electronics industry. The Company
was incorporated in the State of New York on June 13, 1984 and was merged into a
newly formed Delaware corporation on January 29, 1988. The primary innovation of
Compositech was to replace the fiberglass cloth component of the laminate with a
more modern and structurally efficient fiberglass core resulting from a uniform,
orthogonally layered construction. The Company has received grants of 26 patents
covering its products, processes and apparatus, including five in the United
States, and has submitted eight additional patent applications. The most recent
patents granted were three in Japan and one in Hong Kong. The Company was a
development stage company through 1996. Based on the level of production and
sales for 1997, the Company has concluded it was no longer in the development
stage as of January 1, 1997. Based on its own benchmark testing and evaluations
by customers and other potential users, the Company believes that it has
succeeded in developing a laminate that is superior to competitive copper-clad
fiberglass epoxy laminates.
On July 9, 1996, the Company received net proceeds of approximately $9.9 million
from its initial public offering ("IPO"). Approximately $4.3 million was used to
reduce debt substantially and pay accrued interest. The Company used the
remaining proceeds to add production modules to its existing equipment and for
working capital.
From May through August 1997, the Company issued $6,505,000 of 5% Convertible
Debentures (the "Debentures") in a private placement and received net proceeds
of approximately $5.9 million for working capital and to obtain additional
production equipment. By April 23, 1998, the Debentures had been fully converted
into an aggregate of 4,586,957 shares of Common Stock.
The Company's innovative laminates are produced using proprietary processes and
machinery, designed by the Company's engineering staff. The patents on the
laminates, processes and apparatus are supplemented with other proprietary
technology unprotected by patents and considered by the Company to be of
substantial value.
Compositech's laminate construction is structurally more efficient than
competitive copper-clad fiberglass epoxy laminates designated "FR-4", which is
the industry standard, resulting in enhanced smoothness and greater dimensional
stability. The Company believes, based on results of customers' evaluations,
that its improved products can economically replace the fiberglass woven cloth
epoxy laminates currently used in the electronics industry. According to the
Institute for Interconnecting and Packaging Electronic Circuits (the "IPC"),
this market exceeded $3.2 billion in 1997.
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
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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 was completed in 1997. Throughout 1997 and continuing
into 1998, the Company worked on adjusting and enhancing its production
equipment and its manufacturing processes. The Company also worked on solving
problems with incoming raw materials and interior environment which affect
manufacturing yields. Sales consisted of qualifying orders and small production
runs.
On October 16, 1997, the Company closed a transaction with four Quebec
institutional investors (collectively, the "Quebec Investors") to form a 50/50
joint venture for the establishment of a plant in the greater Montreal area to
manufacture Compositech's laminates. The investor group is comprised of four
institutional investors: Societe generale de financement du Quebec, Fonds de
solidarite des travailleurs du Quebec (F.T.Q.), Societe Innovatech du Grand
Montreal and Fonds regional de solidarite Ile de Montreal. The project cost is
estimated to be approximately $24.5 million with an initial capitalization by
the parties of approximately $11 million with the balance to be in debt
financing for which firm commitments have been obtained from the National Bank
of Canada and governmental agencies. The Company's approximately $5.4 million
capital investment in the joint venture was funded by the Quebec Investors
purchasing 1,066,192 shares of the Company's Common Stock. The Quebec Investors
have an option to sell their 50% interest in the joint venture to the Company
for a like number of shares and, under certain circumstances, the Company has an
option to purchase the interest for the same number of shares. The plant is
planned to start production in 1999 with an anticipated annual production
capacity of approximately 10 million square feet.
On February 9, 1998, the Company entered into a joint venture agreement and
patent, information and trademark agreement with a Taiwanese investor group led
by Fidelity Venture Capital Corp. of Taiwan ("Fidelity") to establish a joint
venture, under the name of Composite Technologies, Inc., to manufacture the
Company's laminates in Taiwan. The Company received $1 million as a license down
payment and it will receive additional up-front license payments of $1 million
and, will in turn, invest $500,000 in the joint venture, upon the achievement of
certain milestones. As part of the transaction, Composite Technologies, Inc.
acquired 587,372 shares of the Company's Common Stock for $1 million and agreed
to buy a like amount of shares for another $1 million within 30 days following
approval of the joint venture license by the science park where the joint
venture is proposed to be located. The Company will receive an approximate 10%
interest in the joint venture and royalty payments based on sales. A related
letter of intent with Fidelity provides for entering into a contract with the
Company for it to supply the joint venture with the requisite manufacturing
equipment.
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
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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 1997 the single- and double-sided
laminate market was approximately $1.1 billion and the multilayer/high
performance laminate market was approximately $2.1 billion, totaling $3.2
billion. In these two segments, the United States' share was approximately $988
million experiencing a growth rate of 25% for 1997.
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 wound in orthogonal layers of flat,
continuous parallel filaments. This construction creates the enhanced smoothness
and improved dimensional stability of Compositech's laminates.
High processing temperature tolerance is necessary for soldering components to
circuit boards. CL200+ uses a proprietary epoxy resin formulation that,
according to Company tests, results in a thermal rating over 200(degree)C,
principally because of the formulation, which is generally 20(degree)C to
80(degree)C higher than other copper-clad fiberglass epoxy laminates. Certain
laminates produced from materials other than fiberglass epoxy, addressing a
small, higher cost end of the market, have thermal ratings which equal or exceed
those of the Company's introductory CL200+ laminates.
Management believes that the benefits of Compositech's laminates should enable
the printed circuit board industry to:
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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 $2.1 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% of the world laminate market is outside
of North America. The Company plans to export its products and form strategic
alliances to manufacture and market its laminates internationally.
The foregoing strategic objectives represent anticipated accomplishments
dependent on future events. As in the case of all forward looking statements,
the Company can not ensure that it will achieve these goals.
Marketing and Customers
The Company's marketing efforts are directed to establishing good working
relations with leading-edge producers of circuit boards. According to the IPC,
there are over 670 manufacturers of printed circuit boards in North America with
9 companies comprising approximately one-third of the market. The Company has
sold its laminates principally on a test basis to a select group of these
companies considered to be the key companies for Compositech's growth. During
the past three years, Compositech has encouraged benchmark comparisons of its
laminates with current laminates which have included qualities such as
dimensional stability, smoothness, flatness and thermal processing. In virtually
all of these evaluations, CL200+ has proven superior to current laminates.
Customers benefit from increased production yield primarily by reducing waste
caused
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by circuitry misalignment. These results have led several manufacturers to begin
to use CL200+ for current production applications in limited quantities.
Recently, sales have been affected by delays in or cancellation of customers'
programs for which Compositech's laminates had been qualified.
During June 1998, the Company received orders from Teradyne, Inc. for its CL200+
copper-clad laminates. The orders will enable Teradyne to do extensive material
testing and product evaluation to be completed over the next two to three months
in backplane programs that will include circuit boards with as many as 60
circuit layers. The CL200+ laminates will be used for expanded production
testing and customer qualification of complex backplanes. A backplane, sometimes
known as a motherboard or backpanel, is a type of printed circuit board which
serves as the backbone of large electronic equipment and often utilizes 20-, 30-
and even 60-layer boards to which smaller printed circuit boards are connected.
Compositech's laminates are designed to be 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 supplemented by six independent sales
representatives. The Company's own sales force currently consists of its
President, its Vice President of Sales and a marketing associate. 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
1997, HADCO Corporation and Merix Corporation represented 75% and 18%
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 Preferred Stock
On May 29, 1998, Compositech Ltd. (the "Company") issued 220 shares of 7% Series
B Convertible Preferred Stock (the "Preferred Stock") aggregating $2.2 million
in a private placement. The net proceeds of approximately $1.9 million will be
used for working capital and equipment.
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Holders of the Preferred Stock are entitled to dividends on a cumulative basis,
payable quarterly in cash or Common Stock at the option of the Company except
under certain specified conditions which require the payment of dividends in
cash. In the event of any voluntary or involuntary liquidation of the Company,
holders of the Preferred Stock shall be entitled to receive the stated value of
$10,000 per share plus all due but unpaid dividends before any distribution or
payments are made to holders of the Company's Series A Convertible Preferred
Stock or Common Stock. The holders of the Preferred Stock do not have voting
rights except in certain limited circumstances in which their rights, powers or
preferences could be adversely affected.
Each share of the Preferred Stock is convertible at the option of the holder
into shares of the Company's Common Stock from the earlier of August 27, 1998 or
the date that a Registration Statement for the underlying shares of Common Stock
is declared effective by the SEC. The shares of the Preferred Stock are
convertible through May 29, 2000, at which time any remaining shares will be
automatically converted into Common Stock. The conversion price for each share
of the Preferred Stock is the lesser of $3.00 and 87 1/2% of the average five
lowest daily trade prices of the Company's Common Stock during the 20 trading
days preceding the conversion date, subject to a floor price of $1.50 per share,
subject to decrease in certain circumstances.
The Certificate of Designations of the Preferred Stock provide for redemption in
cash at the Company's option at any time and mandatory redemption at the holders
option under certain circumstances relating to, among others, the maintenance of
listing of shares of the Company's Common Stock on a major exchange. The
redemption price would be generally equivalent to the amount obtained if the
Preferred Stock was converted into Common Stock at the then existing conversion
price. The Certificate of Designations of the Preferred Stock also provides for
adjustment of the conversion price under certain circumstances.
In addition to a cash commission, the Company issued warrants to purchase
125,000 shares of its Common Stock at $2.50 per share exercisable until May 29,
2003 to Trautman Kramer & Company, Inc. as a finder's fee in connection with the
foregoing transactions.
Election of President and Chief Executive Officer
On June 23, 1998, Christopher F. Johnson was named President and Chief Executive
Officer of the Company and elected to the board of directors. Jonas Medney who
formerly was chief executive officer continues as chairman and in charge of
technology. Fred E. Klimpl who formerly was president assumed the newly created
position of vice chairman and will be responsible for business and market
development including the joint ventures in Canada and Taiwan.
Mr. Johnson, age 54, was with Dexter Corporation from 1993 to 1998, as vice
president and general manager of their printed wireboard group. He is a graduate
of Purdue University (BS Industrial Education).
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THE OFFERING
Securities Offered.......... 1,800,887 shares of Common Stock, par value $0.01
per share, offered by the Selling Stockholders. (1)
(2)
Common Stock Outstanding
prior to the Offering.. 12,457,706 shares as of June 23, 1998. (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 1,675,887 shares of Common Stock underlying the Preferred Stock.
(2) Includes 125,000 shares of Common Stock underlying the Warrants.
(3) Does not include 6,474,627 shares issuable upon exercise of outstanding
options and warrants and a stock purchase agreement at a weighted exercise
price of $4.81 per share and the outstanding shares of Series A Convertible
Preferred Stock, which are convertible into 283,827 shares of Common Stock
at the option of the stockholders. Also does not include 1,066,192 shares
which may be issuable under the terms of a Stock Exchange Agreement between
the Company and the Quebec Investors in the Montreal joint venture.
11
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby is speculative and involves a
high degree of risk. In analyzing the offering, prospective investors should
read this entire Prospectus and the information incorporated herein by reference
and carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus.
Development Stage Company Until December 31, 1996; Ability to Continue as Going
Concern; Uncertainty of Future Financial Results
The Company was 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, 1997, the Company had an accumulated deficit of $28,143,560 and as of March
31, 1998, an accumulated deficit of $29,641,548. The Company's independent
auditors have included an explanatory paragraph in their report covering the
December 31, 1997 financial statements, which expresses substantial doubt about
the Company's ability to continue as a going concern. The Company will require
additional funding to cover operating expenses and expenditures for additional
production equipment until revenues from operations are sufficient for these
purposes. The Company expects that significant operating losses will continue
for a substantial part, or all, of 1998. 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, is not sufficient to raise the Company's production level to
profitability or provide sufficient working capital for expansion of sales. The
Company raised approximately $1.9 million in the Preferred Stock issuance on May
29, 1998 and may need additional funding for operations in 1998. Such additional
funding may be raised through sources including license fees, sales of equipment
in connection with licensing operations, joint ventures or other collaborative
relationships, as well as equity or debt financing. There can be no assurance
that additional funding 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.
Liens on Assets and Patents
Notes payable to stockholders of $100,000 and notes payable to
stockholders/directors/officers in the amount of $675,000 due January 2, 1999
(as extended) are collateralized by a second lien on U.S. Patents and Patent
Applications. Notes payable to stockholders/directors/officers in the amount of
$745,000 due January 2, 1999 (as extended) are collateralized by a first lien on
the Company's patents, patent applications and certain production equipment.
12
<PAGE>
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, including Jonas Medney, its Chairman, and
Fred E. Klimpl, its Vice Chairman, 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.
Dependence on Single Manufacturing Facility
The Company's current laminate manufacturing operations are centralized in one
building in Hauppauge, New York, although the joint venture in Montreal plans to
build an additional larger plant in Montreal and the joint venture in Taiwan
plans to build a third plant. Because currently the Company does not operate
multiple facilities in different geographic areas, the ability to service large
orders may be affected. Further, 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
production-scale modules. 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
13
<PAGE>
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 raw materials. There can be no
assurance that additional 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.
Dependence on Significant Customers
Due to limited productive capacity, the Company has been focusing its efforts on
a few select accounts. During 1997, HADCO Corporation and Merix Corporation
accounted for 75% and 18%, 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.
Availability of Materials; Price Fluctuations of Raw Materials; Dependence Upon
Third-Party Supplier
Raw materials used by the Company to produce laminates are purchased by the
Company and in certain circumstances the Company bears the risk of price
fluctuations. In addition, shortages of and defects in certain types of
materials have occurred in the past and may occur in the future. The Company
experienced defects in incoming raw materials used to make laminates. 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
14
<PAGE>
proprietary information which is considered to be of substantial value is not
covered by patents and, along with the Company's other intellectual property, is
subject to misappropriation or obsolescence. In addition, the Company has
granted certain immunities on its product patents to potential competitors of
the Company, AMP and Akzo Electronics Products NV. The Company, under a license,
has granted HT Troplast AG ("HT"), a principal stockholder of the Company, the
exclusive right to produce and market Compositech's laminates in Europe, the
countries of the former Soviet Union and Turkey. HT has exited the laminate
business and no longer pursues an active role therein. However, the license
remains in effect and can only be assigned to entities in which HT's ultimate
parent company, Veba AG, has directly or indirectly an over 50% interest.
Pursuant to the agreement, the Company has the obligation to sell only through
HT in such territories.
Environmental Compliance
The Company uses copper and chemicals in its manufacturing process and limited
amounts of solvents for the sole purpose of cleaning its equipment. Although the
Company believes that its facility complies in all material respects with
existing environmental laws and regulations, there can be no assurance that
violations will not occur. In the event of any future violations of
environmental law and regulations, the Company could be held liable for damages
and for the cost of remedial actions. In addition, environmental laws could
become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with a violation.
Control by Existing Stockholders
As at June 23, 1998, officers, directors and certain other significant
stockholders of the Company owned approximately 43.0% of the Company's Common
Stock and voting Preferred Stock, including stock options and warrants
exercisable within 60 days. It is expected that these stockholders will continue
to control the management and policies of the Company, including, without
limitation, the power to elect and remove a majority of directors of the Company
and the power to approve any action requiring common stockholder approval. In
addition, some of these officers, directors and other stockholders, in
connection with certain outstanding loans, have a security interest in the
Company's manufacturing equipment and all of the Company's patents and patent
applications or in the Company's U.S.
patents and patent applications.
Quotation of the Common Stock on The Nasdaq SmallCap MarketSM; Possible Loss of
Quotation of the Common Stock
The Common Stock is quoted on The Nasdaq SmallCap MarketSM. There can be no
assurance that the Company will continue to meet the maintenance criteria for
continued listing of the Common Stock on The Nasdaq SmallCap MarketSM. The
minimum listing requirements for The Nasdaq SmallCap MarketSM include, among
other criteria, (i) net tangible assets of at least $2.0 million, or market
capitalization of $35 million, or net income of $500,000 (in the latest fiscal
year or two of the last three fiscal years), and (ii) a minimum bid price per
share of $1.00, a market value of the public float of $1.0 million, 300 round
lot shareholders and 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
in The Nasdaq SmallCap MarketSM. In such event, trading, if any, in the Common
Stock may continue to be conducted in non-Nasdaq over-the-counter markets and
investors may find it more difficult to dispose of, or to
15
<PAGE>
obtain accurate quotations as to the price of, the Common Stock. 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
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 Common Stock becomes subject to the penny stock rules,
investors may find it more difficult to sell their Common Stock.
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 Troplast AG,
a significant stockholder, may only so be removed for cause. These provisions
could have the effect of deterring unsolicited takeovers or other business
combinations or delaying or preventing changes in control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for the securities over then-current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests.
Possible Depressive Effect of Future Sales of Common Stock; Registration Rights
Immediately following this Offering, there would be an aggregate of 14,258,593
shares of Common Stock outstanding, if the amount of shares being registered
herewith are issued. However, the number of shares actually issued could be more
or less depending on the conversion price (as defined in the Preferred Stock
Certificate of Designations) on the dates of conversion. In addition, an
aggregate of 7,540,819 shares of Common Stock are issuable pursuant to
outstanding options, warrants and stock purchase and stock exchange agreements,
and 283,827 shares are
16
<PAGE>
issuable upon the conversion of Series A Convertible Preferred Stock. Subject to
restrictions on transfer referred to below, shares of Common Stock issued by the
Company in private transactions, are treated as "restricted securities" as
defined under the Securities Act and in the future may be sold in compliance
with Rule 144 under the Securities Act or pursuant to a registration statement
filed under the Securities Act. As of June 23, 1998, 1,523,059 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. 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. In addition, 2,746,854
shares (including shares which may be acquired upon conversion of Series A
Convertible Preferred Stock and exercise of outstanding warrants), are entitled
in certain cases, subject to certain restrictions, to include their shares in
any registration of securities by the Company (subject to the restrictions on
transfer set forth above). The sale of substantial numbers of such shares,
whether pursuant to Rule 144 or pursuant to a registration statement, may have a
depressive effect on the market price of the Common Stock. However, (i) the
Company's directors, executive officers and certain principal stockholders,
holding 3,949,159 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 and (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.
17
<PAGE>
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 received by Trautman Kramer & Company, Inc. in connection with the
Preferred Stock have an exercise price of $2.50 per share. The Warrants have to
be exercised to purchase shares of Common Stock prior to the resale of the
Common Stock offered by the Selling Stockholder pursuant to this offering. The
exercise of all the foregoing warrants would result in total gross proceeds to
the Company of $312,500. In the event that any of the Warrants are exercised in
the future, net cash proceeds to the Company would be used for working capital
or general corporate purposes. Whether, how and to what extent any Warrants will
be exercised cannot be predicted by the Company.
18
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock offered hereby by each of the Selling Stockholders and as
adjusted to reflect the ownership of shares of Common Stock after the offering,
assuming all of the shares being offered are sold. The number of shares of
Common Stock shown as securities owned prior to the offering for the Preferred
Stock and as shares to be offered is based on the number of shares to be
registered according to the agreements with the holders of the Preferred Stock.
The actual number of shares to be issued on conversion and to be offered for
sale may be different depending on the conversion price as defined in the
Preferred Stock Certificate of Designations. See "Recent Developments - Sale of
Convertible Preferred Stock." 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>
Shares Owned
Securities Owned Prior to the Offering (1) after the
---------------------------------------------- Offering (1)
-----------------
Name of Selling Common Preferred Shares to be
Stockholder Stock Warrants Stock Offered Shares %
----------- ------- -------- --------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Warrants
- --------
Trautman Kramer &
Company, Inc. 60,906(2) 467,433(3) 125,000 403,339 3.07
Preferred Stock
- ---------------
JNC Opportunity Fund
Ltd. 0(4) 1,466,667(5) 1,675,887(6) 0(4) 0
======= ======= ========= ========= ======= ====
Totals 60,906 467,433 1,466,667 1,800,887 403,339 3.07
</TABLE>
- ----------
(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) Represents shares of Common Stock, as of the close of business on June 24,
1998, held in the trading account of Trautman Kramer & Company, Inc., a
market maker of the Company's Common Stock. This total may fluctuate on a
daily basis depending on trading activity.
(3) The shares listed above under Warrants include: (i) 76,993 shares
underlying Common Stock Purchase Warrants exercisable at $3.96 per share
issued as partial compensation for the Company's private placement which
had a final closing on February 15, 1996; (ii) 182,140 shares underlying
Common Stock Purchase Warrants exercisable at $6.00 per share issued as
partial compensation for the Company's private placement of its 5%
Convertible Debentures which had its final closing on August 26, 1997,
(iii) 125,000 shares underlying Common Stock Purchase Warrants exercisable
at $2.50 per share as compensation for the Company's private placement of
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<PAGE>
its 7% Series B Convertible Preferred Stock and (iv) 75,000 shares
underlying Common Stock Purchase Warrants exercisable at $2.6125 issued as
compensation for the Company's final conversion of its 5% Convertible
Debentures which occured on April 23, 1998 and (v) 8,300 shares underlying
Redeemable Common Stock Warrants as of June 24, 1998, held in the trading
account of Trautman Kramer & Company, Inc., a market maker of the Company's
Redeemable Common Stock Warrants. This total may fluctuate on a daily basis
depending on trading activity.
(4) JNC Strategic Fund Ltd., which is under common management with JNC
Opportunity Fund Ltd., owns 512,000 shares of Common Stock.
(5) Reflects shares of Common Stock issuable upon conversion of the Preferred
Stock, at an assumed conversion price of $1.50 per share (the "Floor
Price"), which, subject to decrease in certain circumstances, is the lowest
conversion price pursuant to the terms of the Preferred Stock. Because the
number of shares of Common Stock issuable upon conversion of the Preferred
Stock is dependent in part upon the market price of the Common Stock prior
to a conversion, the actual number of shares of Common Stock that will be
issued in respect of such conversions, and consequently the number of
shares of Common Stock that will be beneficially owned by the Selling
Stockholder, will fluctuate daily and cannot be determined at this time.
However, the Selling Stockholder has contractually agreed to restrict its
ability to convert Preferred Stock (and receive shares of Common Stock in
payment of dividends thereon) to the extent that the number of shares of
Common Stock held by it and its affiliates after such conversion exceeds
4.999% of the then issued and outstanding shares of Common Stock following
such conversion. The 1,466,667 shares of Common Stock shown as underlying
the Preferred Stock are not convertible until August 27, 1998, or the date
this registration statement is declared effective by the SEC.
(6) In addition to the 1,466,667 shares of Common Stock, the 1,675,887 shares
of Common Stock includes 209,220 shares of Common Stock issuable as a
payment of dividends on the Preferred Stock at the Floor Price and subject
to the other conditions described in footnote (5) above.
- -----------
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 Preferred Stock and the Warrants. 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 Selling Stockholder or Transferees may, from time to time, sell all or a
portion of the shares of Common Stock being registered hereunder (the "Shares")
in privately negotiated transactions or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices. The Shares may be sold by the
Selling Stockholders by one or more of the following methods, without
limitation: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus, (c) an exchange distribution in accordance with the rules of
the applicable exchange, (d) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, (e) privately negotiated transactions, (f)
short sales, (g) a combination of any such methods of sale and (h) any other
method permitted pursuant to applicable law.
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<PAGE>
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate in such sales. Brokers or
dealers may receive commissions or discounts from the Selling Stockholders (or,
if any such broker-dealer acts as agent for the purchaser of such shares, from
such purchaser) in amounts to be negotiated which are not expected to exceed
those customary in the types of transactions involved. Broker-dealers may agree
with the Selling Stockholders to sell a specified number of such Shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate with
the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
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 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 offered by them hereby.
21
<PAGE>
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and Selling Stockholders by Patterson, Belknap, Webb & Tyler
LLP, 1133 Avenue of the Americas, New York, New York, 10036-6710.
EXPERTS
The financial statements of Compositech Ltd. appearing in the Company's Annual
Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
(which contain an explanatory paragraph describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
22
<PAGE>
<TABLE>
<S> <C> <C>
No dealer, salesman or other person has been
authorized to give any information or to make any
representation not contained in this Prospectus,
and, if given or made, such information or 1,800,887 Shares of
representation must not be relied upon as having Common Stock ($0.01 Par Value)
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
The Company................................ 5 ____________________________
Recent Developments........................ 9 PROSPECTUS
----------------------------
The Offering............................... 11
Risk Factors............................... 12
Use of Proceeds............................ 18 June ___, 1998
Selling Stockholders....................... 19
Plan of Distribution....................... 20
Legal Opinions............................. 22
Experts.................................... 22
</TABLE>
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 $ 1,020
Printing Expenses 2,000
Accounting Fees and Expenses 2,000
Legal Fees and Expenses 13,500
Miscellaneous 2,000
-------
Total $20,520
=======
- ----------
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.
3.1 Certificate of Designations for 7% Series B Convertible Preferred Stock
dated as of May 29, 1998 (1)
5.1* Opinion of Patterson, Belknap, Webb & Tyler LLP, special counsel for the
Registrant, as to the legality of the securities being offered
10.1 Convertible Preferred Stock Purchase Agreement dated as of May 29, 1998,
between the Company and JNC Opportunity Fund Ltd. (1)
10.2 Registration Rights Agreement dated as of May 29, 1998, between the
Company and JNC Opportunity Fund Ltd. (1)
23.1* Consent of Ernst & Young LLP
23.2* Consent of Patterson, Belknap, Webb & Tyler LLP (contained in Exhibit 5.1)
24* Power of Attorney (see signature pages of Registration Statement)
- -------------
* Filed herewith.
(1) Incorporated by reference to a previously filed Exhibit to the Company's
Form 8-K dated June 12, 1998.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration Statement:
(i) to include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set
forth in the Registration Statement;
(iii) to include any material information with respect to the Plan of
Distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
Provided, however, that paragraphs (i) and (ii) do not apply to this
Registration Statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
Registration Statement;
II-2
<PAGE>
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 (a) or Section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in the first paragraph of
Item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange commission such indemnification is against public
policy as expressed in said Securities Act and is, therefore, unenforceable. In
the event that as claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Hamlet of Hauppauge, State of New York, on June 26, 1998.
COMPOSITECH LTD.
Date: June 26, 1998 By: /S/ Jonas Medney
------------------------
Jonas Medney
Chairman
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 June 26, 1998
- -----------------------------------------------
Jonas Medney
Chairman of the Board and Director
Principal Executive Officer
/S/ Fred E. Klimpl June 26, 1998
- -----------------------------------------------
Fred E. Klimpl
Vice Chairman, Secretary and Director
/S/ Samuel S. Gross June 26, 1998
- -----------------------------------------------
Samuel S. Gross
Executive Vice President, Treasurer and Director
(Principal Financial and Accounting Officer)
II-4
<PAGE>
/S/ Willard T. Jackson June 26, 1998
- -----------------------------------------------
Willard T. Jackson, Director
/S/ Pierre Laflamme June 26, 1998
- -----------------------------------------------
Pierre Laflamme, Director
/S/ Robert W. Middleton June 26, 1998
- -----------------------------------------------
Robert W. Middleton, Director
/S/ Heinz-Gerd Reinkemeyer June 26, 1998
- -----------------------------------------------
Heinz-Gerd Reinkemeyer, Director
/S/ James W. Taylor June 26, 1998
- -------------------------------------------
James W. Taylor, Director
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Designations for 7% Series B Convertible Preferred Stock
dated as of May 29, 1998 (1)
5.1* Opinion of Patterson, Belknap, Webb & Tyler LLP, special counsel for the
Registrant, as to the legality of the securities being offered
10.1 Convertible Preferred Stock Purchase Agreement dated as of May 29, 1998,
between the Company and JNC Opportunity Fund Ltd. (1)
10.2 Registration Rights Agreement dated as of May 29, 1998, between the
Company and JNC Opportunity Fund Ltd. (1)
23.1* Consent of Ernst & Young LLP
23.2* Consent of Patterson, Belknap, Webb & Tyler LLP (contained in Exhibit 5.1)
24* Power of Attorney (see signature pages of Registration Statement)
- -------------
* Filed herewith.
(1) Incorporated by reference to a previously filed Exhibit to the Company's
Form 8-K dated June 12, 1998.
II-6
Exhibit 5.1
June 25 1998
Compositech Ltd.
120 Ricefield Lane
Hauppauge, NY 11788
Dear Sirs:
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 Common
Stock, par value $.01 per share (the "Shares"), of the Company: (a) 1,466,667
Shares issuable upon the conversion of 220 shares of the 7% Series B Convertible
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the
Company; (b) 209,220 Shares which may be issuable as dividends in respect of the
Preferred Stock and (c) 125,000 Shares underlying Common Stock Purchase Warrants
issued to Trautman Kramer & Company, Inc., as compensation in connection with
the Company's private placement of the Preferred Stock (the "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 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 Warrants and the Preferred Stock or issuance as a dividend 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.
PATTERSON, BELKNAP, WEBB & TYLER LLP
BY: /s/ John E. Schmeltzer, III
---------------------------------
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. for
the registration of 1,800,887 shares of its Common Stock and to the
incorporation by reference therein of our report dated February 13, 1998, with
respect to the financial statements of Compositech Ltd. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Melville, New York
June 26, 1998
