U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 29, 1998
COMPOSITECH LTD.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-20701 11-2710467
(Commissioner File Number) (IRS Employer Identification Number)
120 Ricefield Lane
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 436-5200
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Item 5. Other Events.
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 $1,900,000
will be used for working capital and equipment.
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 conditions requiring the payment 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 Preferred Stock does not have voting rights except in certain
circumstances.
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.
The underlying agreements provide for redemption in cash at the Company's
option 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 agreements also
provide for adjustment of the conversion prices 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 as a finder's fee in connection with the foregoing transactions.
1
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits. The following exhibits accompany this Report:
Exhibit
Number Exhibit Description
------ -------------------
3.1 Certificate of Designations for 7% Series B
Convertible Preferred Stock dated as of May 29, 1998.
10.1 Convertible Preferred Stock Purchase Agreement dated
as of May 29, 1998, between the Company and JNC
Opportunity Fund Ltd.
10.2 Registration Rights Agreement dated as of May 29,
1998, between the Company and JNC Opportunity
Fund Ltd.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPOSITECH LTD.
By: /s/ Samuel S. Gross
---------------
Samuel S. Gross
Executive Vice President
and Treasurer
Date: June 12, 1998
2
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<TABLE>
<CAPTION>
Index to Exhibits
- -----------------
Exhibit Sequentially
Number Description of Exhibit Numbered Page
------ ---------------------- -------------
<S> <C> <C>
3.1 Certificate of Designations for 7% Series B Convertible
Preferred Stock dated as of May 29, 1998.
10.1 Convertible Preferred Stock Purchase Agreement dated as
of May 29, 1998, between the Company and JNC
Opportunity Fund Ltd.
10.2 Registration Rights Agreement dated as of May 29, 1998,
between the Company and JNC Opportunity Fund Ltd.
</TABLE>
3
COMPOSITECH LTD.
CERTIFICATE OF DESIGNATIONS
------------------
Pursuant to Section 151
of the General Corporation Law of
the State of Delaware
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Compositech Ltd. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby Certifies
that, pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors, at a meeting duly held on May
20, 1998, adopted the following resolution:
BE IT RESOLVED, that pursuant to authority granted to the Board of
Directors by the Restated Certificate of Incorporation to issue preferred stock
in one or more classes or series and in connection with the creation of any
class or series to fix by the resolutions providing for the issuance of shares
the powers, designations, preferences and relative, participating, optional or
other rights of the class or series and the qualifications, limitations or
restrictions, there is hereby authorized a series of preferred stock on the
terms and with the provisions set forth on Annex A.
/s/ Jonas Medney
---------------------------
Jonas Medney
Chairman
<PAGE>
ANNEX A
Terms of Preferred Stock
Section 1. Designation, Amount and Par Value. The series of preferred stock
shall be designated as 7% Series B Convertible Preferred Stock (the "Preferred
Stock") and the number of shares so designated shall be 220 (which shall not be
subject to increase without the consent of the holders of the Preferred Stock
(each, a "Holder" and collectively, the "Holders")); Each share of Preferred
Stock shall have a par value of $.01 and a stated value of $10,000 (the "Stated
Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor, and
the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 7% per annum, payable on a
quarterly basis on March 31, June 30, September 30 and December 31 of each year
during the term hereof (each a "Dividend Payment Date"), commencing on June 30,
1998, in cash or shares of Common Stock (as defined in Section 8) at, subject to
the terms and conditions set forth herein, the option of the Company. Dividends
on the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Any dividends not paid on any
Dividend Payment Date shall continue to accrue and shall be due and payable upon
conversion of the Preferred Stock. A party that holds shares of Preferred Stock
on a Dividend Payment Date will be entitled to receive such dividend payment and
any other accrued and unpaid dividends which accrued prior to such Dividend
Payment Date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date. All overdue accrued and unpaid
dividends and other amounts due herewith shall entail a late fee at the rate of
15% per annum (to accrue daily, from the date such dividend is due hereunder
through and including the date of payment). Except as otherwise provided herein,
if at any time the Company pays less than the total amount of dividends then
accrued on account of the Preferred Stock, such payment shall be distributed
ratably among the Holders based upon the number of shares held by each Holder.
Payment of dividends on the Preferred Stock is further subject to the provisions
of Section 5(c)(i). The Company shall provide the Holders notice of its
intention to pay dividends in cash or shares of Common Stock not less than 10
Trading Days prior to the Dividend Payment Date for so long as shares of
Preferred Stock are outstanding. If dividends are paid in shares of Common
Stock, the number of shares of Common Stock issuable on account of such dividend
shall equal the cash amount of such dividend on such Dividend Payment Date
divided by the Conversion Price (as defined below) on such date.
(b) Notwithstanding anything to the contrary contained herein, the Company
may not issue shares of Common Stock in payment of dividends (and must deliver
cash in respect thereof) on the Preferred Stock if:
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(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) such shares of Common Stock are not registered for resale
pursuant to an effective registration statement that names the recipient of
such dividend as a selling stockholder thereunder and may not be sold
without volume restrictions pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to
the Company's transfer agent in the form and substance acceptable to the
Holders and such transfer agent;
(iii) the Common Stock is not then listed for trading on the Nasdaq
SmallCap Market (the "NASDAQ") or on the New York Stock Exchange, American
Stock Exchange or Nasdaq National Market (each a "Subsequent Market");
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(v) the issuance of such shares of Common Stock would result in the
recipient thereof beneficially owning, as determined in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), more than 4.999% of the then issued and
outstanding shares of Common Stock.
Payment of dividends hereunder in shares of Common Stock shall also be
subject to the provisions of Section 5(a)(iii).
(c) So long as any Preferred Stock shall remain outstanding, neither the
Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 8), nor
shall the Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not and shall cause its subsidiaries not to, without the affirmative vote
of the Holders of all of the shares of the Preferred Stock then outstanding, (i)
alter or change adversely the powers, preferences or rights given to the
Preferred Stock, (b) alter or amend this Certificate of Designation, (c)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 4) senior to or otherwise
pari passu with or senior to the Preferred Stock, except for any
<PAGE>
series of Preferred Stock issued and sold in accordance with the Purchase
Agreement, (d) amend its Certificate of Incorporation, bylaws or other charter
documents so as to affect adversely any rights of any Holders, (e) increase the
authorized number of shares of Preferred Stock, or (f) enter into any agreement
with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value plus all due but unpaid dividends per share, whether
declared or not, before any distribution or payment shall be made to the holders
of any Junior Securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to the
Holders of Preferred Stock shall be distributed among the Holders of Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 33% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record Holder of Preferred Stock.
Section 5. Conversion.
(a)(i) Optional Conversions. Each share of Preferred Stock shall be
convertible into shares of Common Stock (subject to reduction pursuant to
Section 5(a)(iii) hereof and Section 3.8 of the Purchase Agreement) at the
Conversion Ratio (as defined in Section 8) at the option of the Holder, at any
time and from time to time, from and after the earlier of (i) the date the
Underlying Securities Registration Statement (as defined in Section 8) is
declared effective by the Securities and Exchange Commission (the "Commission"),
or (ii) the 90th day following the Original Issue Date. Holders shall effect
conversions by surrendering the certificate or certificates representing the
shares of Preferred Stock to be converted to the Company, together with the form
of conversion notice attached hereto as Exhibit A (a "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that the Conversion
Notice is deemed delivered hereunder. If the Holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 5(b)) a
certificate for such number of shares as have not been converted.
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(ii) Automatic Conversion. Subject to the provisions in this paragraph, all
outstanding shares of Preferred Stock for which conversion notices have not
previously been received or for which redemption has not been made or required
hereunder shall be automatically converted on the second anniversary of the
Original Issue Date at the Conversion Price on such date. The conversion
contemplated by this paragraph shall not occur if (a) (1) an Underlying
Securities Registration Statement that names the Holder as a selling stockholder
thereunder is not then effective or (2) the Holder is not permitted to resell
Underlying Shares pursuant to Rule 144(k) promulgated under the Securities Act,
without volume restrictions, as evidenced by an opinion letter of counsel
acceptable to the Holder and the transfer agent for the Common Stock; (b) there
are not sufficient shares of Common Stock authorized and reserved for issuance
upon such conversion; or (c) the Company shall have defaulted on its covenants
and obligations hereunder or under the Purchase Agreement or Registration Rights
Agreement. Further, the number of shares of Preferred Stock that are subject to
conversion pursuant to this section shall be limited to the number of Underlying
Shares which may be issued upon such conversion at the prevailing Conversion
Price in accordance with Section 5(a)(iii). Any shares (or part thereof) of
Preferred Stock which cannot be converted at the then Conversion Price as a
result of such rule shall be subject to the provisions of Section 5(a)(iii).
Notwithstanding the foregoing, the two-year period for conversion under this
Section shall be extended (on a day-for-day basis) for any Trading Days that the
Purchaser is unable to resell Underlying Shares under an Underlying Securities
Registration Statement due to (a) a delisting or suspension of the Common Stock
from trading on the NASDAQ (or any Subsequent Market), (b) the failure of an
Underlying Securities Registration Statement to be declared effective by the
Commission by the Filing Date (as defined in the Registration Rights Agreement),
or (c) if an Underlying Securities Registration Statement shall have been
declared effective by the Commission, (x) the failure of such Underlying
Securities Registration Statement to remain effective at all times thereafter as
to all Underlying Shares, or (y) the suspension of the Holder's ability to
resell Underlying Shares thereunder.
(iii) If on any Conversion Date (A) the Common Stock is listed for trading
on the NASDAQ or the Nasdaq National Market, (B) the Conversion Price then in
effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of all then outstanding shares of
Preferred Stock, together with any shares of the Common Stock previously issued
upon conversion of the shares of Preferred Stock and as payment of dividends
thereon, would equal or exceed 20% of the number of shares of the Common Stock
outstanding on the Original Issue Date (such number of shares as would not equal
or exceed such 20% limit, the "Issuable Maximum"), and (C) the Company shall not
have previously obtained the vote of shareholders (the "Shareholder Approval"),
if any, as may be required by the rules and regulations of The Nasdaq Stock
Market (or successor thereto) applicable to approve the issuance of Common Stock
in excess of the Issuable Maximum in a private placement whereby shares of
Common Stock are deemed to have been issued at a price that is less than the
greater of book or fair market value of the Common Stock, then the Company shall
issue to the Holder so requesting a conversion a number of shares of Common
Stock equal to the Issuable Maximum and, with respect to the remainder of the
aggregate Stated Value of the
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<PAGE>
shares of Preferred Stock then held by such Holder for which a conversion in
accordance with the Conversion Price would result in an issuance of Common Stock
in excess of the Issuable Maximum (the "Excess Stated Value"), the converting
Holder shall have the option to require the Company to either (1) use its best
efforts to obtain the Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 60th day after such request,
or (2)(i) issue and deliver to such Holder a number of shares of Common Stock as
equals (x) the Excess Stated Value, plus accrued dividends on all shares of
Preferred Stock being converted, divided by (y) the Initial Conversion Price (as
defined below), and (ii) cash in an amount equal to the product of (x) the Per
Share Market Value on the Conversion Date and (y) the number of shares of Common
Stock in excess of such Holder's pro rata portion of the Issuable Maximum that
would have otherwise been issuable to the Holder in respect of such conversion
but for the provisions of this Section (such amount of cash being hereinafter
referred to as the "Discount Equivalent"), or (3) pay cash to the converting
Holder in an amount equal to the Mandatory Redemption Amount (as defined in
Section 8) for the Excess Stated Value. If the Company fails to pay the Discount
Equivalent or the Mandatory Redemption Amount, as the case may be, in full
pursuant to this Section within seven (7) days after the date payable, the
Company will pay interest thereon at a rate of 15% per annum to the converting
Holder, accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full.
(b)(i) Not later than three (3) Trading Days after any Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock (subject to reduction pursuant to Section 5(a)(iii) and Section 3.8 of the
Purchase Agreement), (ii) one or more certificates representing the number of
shares of Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected to pay accrued
dividends in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued dividends in shares of Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1 (b) of the Purchase Agreement), representing such
shares of Common Stock; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Preferred Stock until certificates evidencing
such shares of Preferred Stock are either delivered for conversion to the
Company or any transfer agent for the Preferred Stock or Common Stock, or the
Holder of such Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the
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<PAGE>
third Trading Day after the Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, by the third (3rd) Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $2,500 for each day after such third (3rd) Trading
Day until such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Preferred Stock or as
payment of dividends thereon by the third (3rd) Trading Day after the Conversion
Date, the Holder may, by notice to the Company, require the Company to issue
Underlying Shares pursuant to Section 5(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion Price
on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such Underlying Shares will be subject to the provision of this
Section.
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 5(b)(i), including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid dividends
hereunder, by the third Trading Day after the Conversion Date, and if after such
third (3rd) Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the aggregate
stated value of the shares of Preferred Stock for which such conversion was not
timely honored. For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 aggregate stated value of the shares of
Preferred Stock, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In.
(c)(i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
$3.00 (the "Initial Conversion
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Price") and (b) 87.5% (the "Market Conversion Rate") multiplied by the average
of the five (5) lowest daily Trade Prices (as defined in Section 8) during the
twenty (20) Trading Days immediately preceding the applicable Conversion Date;
provided, however, that such twenty (20) Trading Day period shall be extended
for the number of Trading Days during such period in which (A) trading in the
Common Stock was suspended on the NASDAQ or on such Subsequent Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission, the Underlying Securities Registration Statement is not effective,
or (C) after the date declared effective by the Commission, the Prospectus
included in the Underlying Securities Registration Statement may not be used by
the Holder for the resale of Underlying Shares; provided further, except as
otherwise specifically set forth herein, the Conversion Price shall not be less
than the Floor (as defined in Section 8). The Floor (x) shall be decreased by
2.5% as of any Event Date (as defined below) and on each monthly anniversary
thereof until the applicable Event (as defined below) is cured, (y) shall
simultaneously be adjusted by the same ratio as the adjustments to the
Conversion Price as a result of the provisions of Section 5(c)(ii)-(v), and (z)
shall not apply in the event that the Common Stock is no longer listed on the
NASDAQ (unless the Common Stock is immediately thereafter listed on a Subsequent
Market). If (a) an Underlying Securities Registration Statement is not filed on
or prior to the Filing Date (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights Agreement), or (d)
such Underlying Securities Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the "Effectiveness
Period" (as defined in the Registration Rights Agreement), without being
succeeded within fifteen (15) days by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission, or
(e) trading in the Common Stock shall be delisted or suspended from trading on
the NASDAQ or on such Subsequent Market on which the Common Stock is then listed
for more than three Trading Days (which need not be consecutive days), or (f) if
the conversion rights of the Holders are suspended for any reason, or (g) if the
Company is required to convene a shareholders meeting pursuant to Section
5(a)(iii) and fails to convene a meeting of shareholders within the time periods
specified in Section 5(a)(iii) or does so convene a meeting of shareholders
within such time period but fails to obtain Shareholder Approval at such meeting
(any such failure or breach being referred to as an "Event," and for purposes of
clauses (a) and (c) the date on which such Event occurs, or for purposes of
clause (b) the date on which such five (5) day period is exceeded, or for
purposes of clause (d) the date which such 15 day-period is exceeded, or for
purposes of clause (e) the date on which such three (3) Trading Day-period is
exceeded, being referred to as "Event Date"), the Initial Conversion Price and
the Market Conversion Rate shall be
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<PAGE>
decreased by 2.5% on the Event Date and each monthly anniversary thereof until
the earlier to occur of the second month anniversary after the Event Date and
such time as the applicable Event is cured (i.e., by 2.5% as of the Event Date
and 5% as of the one month anniversary of such Event Date). Commencing on the
second month anniversary after the Event Date, the Holder shall have the option
to either (x) require further cumulative 2.5% decreases to the Initial
Conversion Price and the Market Conversion Rate to continue or (y) require the
Company to pay to the Holder 2.5% of the aggregate Stated Values of the shares
of Preferred Stock then held by such Holder, in cash, as liquidated damages and
not as a penalty, on the first day of each monthly anniversary of the Event
Date, until such time as the applicable Event is cured. Any decrease in the
Initial Conversion Price or the Market Conversion Rate pursuant to this Section
shall remain in effect notwithstanding the fact that the Event causing such
decrease has been subsequently cured and further monthly decreases have ceased.
The provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of Preferred Stock are
outstanding, shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities or pari passu securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 5(c)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred Stock are
outstanding, shall issue rights, warrants or options to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value at the record date
mentioned below, then the Initial Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not
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<PAGE>
have been exercised, the Conversion Price shall immediately upon such expiration
shall be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights, warrants, or options
been made on the basis of offering for subscription or purchase only that number
of shares of Common Stock actually purchased upon the exercise of such rights,
warrants or options actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable with respect
to Common Stock Equivalents (as defined below), at any time while any shares of
Preferred Stock are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that is convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock at a price per share less than the
Conversion Price, then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
(including any applicable exercise for any Common Stock Equivalents) for such
shares of Common Stock or Common Stock Equivalents would purchase at the
Conversion Price, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock so issued or issuable, provided, that for
purposes hereof, all shares of Common Stock that are issuable upon exercise or
exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such shares of Common Stock or Common Stock Equivalents are
issued; provided, however, that no adjustments will be required in respect of
the granting of options or warrants to employees, officers, consultants (other
than placement agents, securities bankers or finders) and directors, or the
issuance of shares upon the exercise thereof, or upon exercise of any currently
outstanding Common Stock Equivalents.
(v) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to Holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Initial Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, if
the Holders of a majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a nationally recognized
or
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<PAGE>
major regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holders
of Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(i), (ii), (iii), (iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock, or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property (other than compulsory share exchanges which
constitute Change of Control Transactions), the Holders of the Preferred Stock
then outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of Common Stock following such reclassification
or share exchange, and the Holders of the Preferred Stock shall be entitled upon
such event to receive such amount of securities, cash or property as a holder of
the number of shares of the Common Stock of the Company into which such shares
of Preferred Stock could have been converted immediately prior to such
reclassification or share exchange would have been entitled. This provision
shall similarly apply to successive reclassifications or share exchanges.
(ix) If (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, (c) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion
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<PAGE>
of Preferred Stock, and shall cause to be mailed to the Holders of Preferred
Stock at their last addresses as they shall appear upon the stock books of the
Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Holders are entitled to convert
shares of Preferred Stock during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(x) If the Company (i) makes a public announcement that it intends to enter
into a Change of Control Transaction or (ii) any person, group or entity
(including the Company, but excluding a Holder or any affiliate of a Holder)
publicly announces a bona fide tender offer, exchange offer or other transaction
to purchase 33% or more of the Common Stock (such announcement being referred to
herein as a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks to
convert shares of Preferred Stock on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction or
tender offer, exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lower of (x) the average Per Share Market Value
on the five Trading Days immediately preceding (but not including) the
Announcement Date and (y) the Conversion Price in effect on the Conversion Date
for such Preferred Stock. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph has been made, the date
upon which the Company (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this paragraph to become operative.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock and payment of dividends
hereunder. The Company covenants that all shares of
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Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and freely tradeable, subject
to the legend requirements of Section 3.1 (b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on conversion
of Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock shall be
canceled. The Company may not reissue any shares of Preferred Stock.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by overnight delivery by a nationally recognized overnight
courier service, addressed to the attention of the Chief Financial Officer of
the Company at the facsimile telephone number or address of the principal place
of business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Preferred Stock at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 8:00 p.m. (New York City Time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
8:00 p.m. (New York City Time) on any date and earlier than 11:59 p.m. (New York
City Time) on such date, (iii) upon receipt, if sent by a nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
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<PAGE>
Section 6. Optional Redemption.
(a) The Company shall have the right, exercisable at any time upon 20
Trading Days notice (an "Optional Redemption Notice") to the Holders of the
Preferred Stock given at any time after the Original Issue Date to redeem all or
any portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price equal to the Optional Redemption Price (as
defined below). The entire Optional Redemption Price shall be paid in cash.
Holders of Preferred Stock may convert (and the Company shall honor such
conversions in accordance with the terms hereof) any shares of Preferred Stock,
including shares subject to an Optional Redemption Notice, during the period
from the date thereof through the 20th Trading Day after the receipt of an
Optional Redemption Notice.
(b) If any portion of the Optional Redemption Price shall not be paid by
the Company by the 20th Trading Day after the delivery of an Optional Redemption
Notice, interest shall accrue thereon at the rate of 15% per annum until the
Optional Redemption Price plus all such interest is paid in full (any such
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the Optional Redemption Price remains unpaid after the date
due, the Holder of the Preferred Stock subject to such redemption may elect, by
written notice to the Company given at any time thereafter, to either (i) demand
conversion in accordance with the formula and the time frame therefor set forth
herein of all or any portion of the shares of Preferred Stock for which such
Optional Redemption Price, plus accrued liquidated damages thereof, has not been
paid in full (the "Unpaid Redemption Shares"), in which event the Per Share
Market Value for such shares shall be the lower of the Per Share Market Value
calculated on the date the Optional Redemption Price was originally due and the
Per Share Market Value as of the Holder's written demand for conversion, or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of Holder's notice of such election, return to the Holder all of
the Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of (i) the product
of (A) the number of shares of Preferred Stock to be redeemed and (B) the
product of (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (x) the date of the Optional Redemption Notice or (y) the
date of payment in full by the Company of the Optional Redemption Price,
whichever is greater, and (2) the Conversion Ratio calculated on the date of the
Optional Redemption Notice, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such shares of Preferred Stock.
Section 7. Redemption Upon Triggering Events.
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition
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<PAGE>
to all other rights it may have hereunder or under applicable law), have the
right, exercisable at the sole option of such Holder, to require the Company to
redeem all or a portion of the Preferred Stock then held by such Holder for a
redemption price, in cash, equal to the sum of (i) the Mandatory Redemption
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions or as payment of dividends hereunder and then held by the
Holder and (B) the Per Share Market Value on the date such redemption is
demanded or the date the redemption price hereunder is paid in full, whichever
is greater. If the Company fails to pay the redemption price hereunder in full
pursuant to this Section within seven (7) days after the date of a demand
therefor, the Company will pay interest thereon at a rate of 15% per annum,
accruing daily from such seventh day until the redemption price, plus all such
interest thereon, is paid in full. For purposes of this Section, a share of
Preferred Stock is outstanding until such date as the Holder shall have received
Underlying Shares upon a conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities Registration Statement to
be declared effective by the Commission on or prior to the 180th day after
the Original Issue Date; provided, however, that the 180 day period shall
be extended on a per diem basis for each day, beyond the date which is 30
days after the Company first files the Underlying Securities Registration
Statement, that the Commission fails to provide the Company with initial
comments thereto, or indicate that there will be no review thereof;
(ii) if, during the Effectiveness Period, the effectiveness of the
Underlying Securities Registration Statement lapses for any reason for more
than seven (7) Business Days (which need not be consecutive days), or the
Holder shall not be permitted to resell Registrable Securities under the
Underlying Securities Registration Statement for more than seven (7)
Business Days (which need not be consecutive days);
(iii) the delisting of the Common Stock, or the suspension of the
Common Stock from trading, on the NASDAQ or on a Subsequent Market for more
than three (3) Trading Days (which need not be consecutive days);
(iv) the Company shall fail for any reason to deliver certificates
representing Underlying Shares issuable upon a conversion hereunder that
comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder,
including by way of public announcement, at any time, of its intention not
to comply with requests for conversion of any Preferred Stock in accordance
with the terms hereof;
(v) the Company shall be a party to any Change of Control Transaction,
shall agree to sell (in one or a series of related transactions) all or
substantially all of its assets
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<PAGE>
(whether or not such sale would constitute a Change of Control Transaction)
or shall redeem more than a de minimis number of shares of Common Stock or
other Junior Securities (other than redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction of the
Holders prior to the expiration of thirty (30) days from the Event Date
relating thereto;
(vii) the Company shall fail for any reason to deliver the certificate
or certificates required pursuant to Section 5(b)(iii) or the cash pursuant
to a Buy-In within seven (7) days after notice is deemed delivered
hereunder; or
(viii) the Company shall fail to have available a sufficient number of
authorized and unreserved shares of Common Stock to issue to such Holder
upon a conversion hereunder; Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 33% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof) in one or a series of related transactions, (iii)
the merger of the Company with or into another entity, consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions, unless following such transaction, the holders of the
Company's securities continue to hold at least 33% of such securities following
such transaction or (iv) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the events
set forth above in (i), (ii) or (iii).
"Common Stock" means the Company's common stock, par value $.01 per share,
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator of which
is Stated Value plus accrued but unpaid dividends (including any accrued but
unpaid late fees thereon) but only to the extent not paid in shares of Common
Stock in accordance with the terms hereof, and the denominator of which is the
Conversion Price at such time.
"Floor" means $1.50.
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<PAGE>
"Junior Securities" means the Common Stock and all other equity securities
of the Company.
"Mandatory Redemption Amount" for each share of Preferred Stock means the
sum of (i) the product of (a) the Per Share Market Value on the Trading Day
immediately preceding (x) the date of the Triggering Event or the Conversion
Date, as the case may be, or (y) the date of payment in full by the Company of
the applicable redemption price, whichever is greater, and (b) the Conversion
Ratio calculated on the date of the Triggering Event, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such shares of
Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the NASDAQ or on such
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on which the Common Stock is then listed or quoted on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on the NASDAQ or on a Subsequent Market, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
Agreement, dated as of the Original Issue Date, among the Company and the
original Holder of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, by and among the Company and the original
Holder of the Preferred Stock.
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<PAGE>
"Trade Price" means (a) a sales price for a share of the Common Stock on
the NASDAQ or on such Subsequent Market as the Common Stock is then listed or
quoted, or (b) if the Common Stock is not then listed or quoted on the NASDAQ or
on a Subsequent Market, a sales price of a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices), or (c) if the Common Stock is not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded, Trade Price
shall mean, at the option of the Holder, either (x) the last Trade Price
reported under clauses (a), (b), (c) or (d) above, or (y) the fair market value
of a share of Common Stock as determined by an Appraiser selected in good faith
by the Holders of a majority of the shares of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NASDAQ or on such Subsequent Market on which the Common Stock is then listed or
quoted, as the case may be, or (b) if the Common Stock is not listed on the
NASDAQ or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Securities Registration Statement" means a registration
statement that meets the requirement of the Registration Rights Agreement and
requires the resale of all Underlying Shares by the recipient thereof, who shall
be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock into
which the Shares are convertible and the shares of Common Stock issuable upon
payment of dividends thereon in accordance with the terms hereof.
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 7% Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "Common Stock"), of Compositech Ltd. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
_________________________________________________________
Date to Effect Conversion
_________________________________________________________
Number of shares of Preferred Stock to be Converted
_________________________________________________________
Number of shares of Common Stock to be Issued
_________________________________________________________
Applicable Conversion Price
_________________________________________________________
Signature
_________________________________________________________
Name
_________________________________________________________
Address
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================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
COMPOSITECH LTD.
and
JNC OPPORTUNITY FUND LTD.
Dated as of May 29, 1998
================================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as
of May 29, 1998, between Compositech Ltd., a Delaware corporation (the
"Company"), and JNC Opportunity Fund Ltd., a Cayman Islands corporation (the
"Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase from the Company, shares of the Company's 7% Series B Convertible
Preferred Stock, par value $.01per share (the "Preferred Stock"), which is
convertible into shares of the Company's common stock, par value $.01 per share
(the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy are hereby
acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 The Closing
(a) The Closing. (i) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase, 220 shares of Preferred Stock (the "Shares") for an aggregate
purchase price of $2,200,000. The closing of the purchase and sale of the Shares
(the "Closing") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP (the "Escrow Agent"), 1290 Avenue of the Americas, New
York, New York 10104, immediately following the execution hereof or such later
date as the parties shall agree. The date of the Closing is hereinafter referred
to as the "Closing Date."
(ii) Prior to the Closing, the parties shall deliver or shall cause to be
delivered to the Escrow Agent such items as are required to be delivered by them
in accordance with and subject to the terms and conditions of the Escrow
Agreement, dated as of the date hereof, by and among the Company, the Purchaser
and the Escrow Agent, in the form of Exhibit E (the "Escrow Agreement"),
including the following: (A) the Company shall deliver (1) stock certificates
representing the Shares, registered in the name of the Purchaser, (2) the legal
opinion of Patterson, Belknap, Webb & Tyler LLP outside counsel to the Company,
substantially in the form of Exhibit C, and (3) all other documents, instruments
and writings required to have been delivered at or prior to the Closing Date by
the Company pursuant to this Agreement, including an executed Registration
Rights Agreement, dated the date hereof, between the Company and the Purchaser,
in the form of Exhibit B (the "Registration Rights Agreement"), and the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D, delivered to
and acknowledged by the Company's transfer agent (the "Transfer Agent
Instructions"); and (B) the Purchaser shall deliver (1) $2,200,000 in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing Date by the Purchaser pursuant
<PAGE>
to this Agreement, including an executed Registration Rights Agreement; and (C)
each party hereto shall deliver all other executed instruments, agreements and
certificates as are required to be delivered hereunder by or on their behalf at
the Closing.
1.2 Form of Preferred Stock. The Preferred Stock shall have the rights
preferences and privileges set forth in Exhibit A, and shall be incorporated
into a Certificate of Designation ("Certificate of Designation"), in form and
substance approved by the Purchaser.
For purposes of this Agreement, "Conversion Price," "Original Issue Date,"
"Conversion Date" and "Trading Day" shall have the meanings set forth in Exhibit
A; "Business Day" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries. The Company is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of
this Agreement, the Certificate of Designation, the Registration Rights
Agreement or the Escrow Agreement (collectively, the "Transaction
Documents"), (y) have or result in a material adverse effect on the results
of operations, assets, prospects, or condition (financial or otherwise) of
the Company, or (z) adversely impair the Company's ability to perform fully
on a timely basis its obligations under any of the Transaction Documents
(any of (x), (y) or (z), a "Material Adverse Effect").
(b) The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents, and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
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<PAGE>
enforceable against the Company in accordance with its terms. The Company
is not in violation of any of the provisions of its certificate of
incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising
out of any agreement or understanding with the Company by virtue of any of
the Transaction Documents. Except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Shares, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock. To the
knowledge of the Company, except as specifically disclosed in the SEC
Documents (as defined below) or Schedule 2.1(c), no Person or group of
related Persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or has the right to acquire by agreement with or by
obligation binding upon the Company beneficial ownership of in excess of 5%
of the Common Stock. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares. The Shares are duly authorized, and, when
issued and paid for in accordance with the terms hereof, shall have been
validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively,
"Liens"). The Company has on the date hereof and will, at all times while
the Shares are outstanding, maintain an adequate reserve of duly authorized
shares of Common Stock, reserved for issuance to the holders of the Shares,
to enable it to perform its conversion and other obligations under this
Agreement and the Certificate of Designation. Such number of reserved and
available shares of Common Stock is not less than the sum of (i) subject to
the application of any floor to the Conversion Price set forth in the
Certificate of Designation, 200% of the number of shares of Common Stock
which would be issuable upon conversion in full of the Shares, assuming
such conversion occurred on the Original Issue Date or the Filing Date (as
defined in the Registration Rights Agreement), whichever yields a lower
Conversion Price, and (ii) the number of shares Common Stock which would be
issuable upon payment of dividends on the Shares, assuming each Share is
outstanding for two years and all dividends are paid in shares of Common
Stock. The shares of Common Stock issuable upon conversion of the Shares
and as payment of dividends thereon are collectively referred to herein as
the "Underlying Shares." The Shares and Underlying Shares are,
collectively, the "Securities." When issued in accordance with the
Certificate of Designation, the Underlying Shares shall have been duly
authorized, validly issued, fully paid and nonassessable, free and clear of
all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of its certificate of incorporation,
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<PAGE>
bylaws or other charter documents (each as amended through the date
hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, indenture or instrument (evidencing a Company debt or otherwise)
to which the Company is a party or by which any property or asset of the
Company is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which
any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), as could not, individually or in
the aggregate, have or result in a Material Adverse Effect. The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, could not have or result in a Material
Adverse Effect.
(f) Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other Federal, state, local or
other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing of the Certificate of Designation with
the Secretary of State of Delaware, (ii) the filing of the Underlying
Securities Registration Statement with the Securities and Exchange
Commission (the "Commission") pursuant to the Registration Rights
Agreement, (iii) the application to the Nasdaq SmallCap Market ("NASDAQ")
for the listing of the Underlying Shares with the NASDAQ, (iv) the filing
of a Form D with the Commission, and (v) in all other cases where the
failure to obtain such consent, waiver, authorization or order, or to give
such notice or make such filing or registration could not have or result
in, individually or in the aggregate, a Material Adverse Effect (the
consents, waivers, authorizations, orders, notices and filings referred to
in (i)-(v) of this Section are, collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
SEC Documents, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its properties before or by any
court, governmental or administrative agency or regulatory authority
(Federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) No Default or Violation. The Company is not (i) in default under
or in violation of (and no event has occurred which has not been waived
which, with notice or lapse of time or both, would result in a default by
the Company under), nor has the Company received notice of a claim that it
is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) in violation
of any order of any court, arbitrator or governmental body, or (iii) in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, have or result in a
Material Adverse Effect.
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<PAGE>
(i) Private Offering. Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby
are exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"). Neither the Company nor any Person
acting on its behalf has taken any action could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law to
file such material) (the foregoing materials being collectively referred to
herein as the "SEC Documents" and, together with the Schedules to this
Agreement the "Disclosure Materials") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Documents
prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. All material agreements to
which the Company is a party or to which the property or assets of the
Company are subject have been filed as exhibits to the SEC Documents. The
financial statements of the Company included in the SEC Documents comply in
all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements were prepared by the Company in
accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. The
financial statements for the years ended December 31, 1996 and December 31,
1997 were audited and reported upon by the Company's independent auditors
in accordance with generally accepted accounting standards. Since December
31, 1997, except as specifically disclosed in the SEC Documents, (a) there
has been no event, occurrence or development that could have or result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the
ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not
declared or made any payment or distribution of cash or other property to
its stockholders or officers or directors (other than in compliance with
existing Company stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial
statements with the Commission on March 31, 1998, and has not received any
comments from the Commission in respect thereof.
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<PAGE>
(k) Investment Company. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) ) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(l) Certain Fees. Except for certain fees payable by the Company to
CDC Consulting, Inc. and to Trautman Kramer & Company, Inc., no fees or
commissions will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The Purchaser
shall have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify
and hold harmless the Purchaser, its employees, officers, directors,
agents, and partners, and their respective Affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting
on the Company's behalf has (i) distributed any offering materials in
connection with the offering and sale of the Securities other than the
Disclosure Materials, or (ii) solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under
the Securities Act.
(o) Exclusivity. The Company shall not issue and sell the Shares to
any Person other than the Purchaser other than with the specific prior
written consent of the Purchaser.
(p) Seniority. No class of equity securities of the Company is senior
to the Shares in right of payment, whether upon liquidation or dissolution,
or otherwise.
(q) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(r) Listing and Maintenance Requirements Compliance. Except as set
forth on Schedule 2.1(r), the Company has not in the two years preceding
the date hereof received notice (written or oral) from the NASDAQ or any
other stock exchange, market or trading facility on which the Common Stock
is or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company has provided the
Purchaser with complete copies of all notices described on Schedule 2.1(r).
The Company is in compliance with all such maintenance requirements.
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<PAGE>
(s) Registration Rights; Rights of Participation. Except as set forth
on Schedule 6(b) to the Registration Rights Agreement, (i) the Company has
not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which
has not been satisfied and (ii) no Person, has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
(t) Regulatory Permits. The Company possesses all certificates,
authorizations and permits issued by the appropriate Federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("Material Permits"), and the Company
has not received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(u) Disclosure. The Company confirms that it has not provided the
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands
and confirms that the Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchaser regarding the Company, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations
thereunder. The purchase by the Purchaser of the Securities hereunder has
been duly authorized by all necessary action on the part of the Purchaser.
Each of this Agreement, the Registration Rights Agreement and the Escrow
Agreement has been duly executed and delivered by the Purchaser and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to
the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the
Securities Act and in compliance with applicable state securities laws or
under an exemption from such registration.
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<PAGE>
(c) Purchaser Status. At the time the Purchaser was offered the
Shares, it was, and at the date hereof, it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. The Purchaser
is able to bear the economic risk of an investment in the Securities and,
at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with
respect to the investment and to verify the accuracy and completeness of
the information contained in the Disclosure Materials.
(g) General Solicitation. The Purchaser is not purchasing the Shares
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
(h) Certain Trading Activities. On the date of this Agreement the
Purchaser does not have a short position on any shares of Common Stock, and
from the date of this Agreement to the Closing Date the Purchaser will not
establish a short position in the Common Stock.
(i) Reliance. The Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such
exemption, depends in part on, and the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and the Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
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ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by the Purchaser to an Affiliate of the
Purchaser or to a fund under common management with the Purchaser, and any
transfer among any such Affiliates or funds, provided that transferee certifies
to the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and that it is acquiring the Securities solely for
investment purposes. Any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON CONVERSION SET FORTH IN A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT, DATED AS OF MAY 29, 1998, BETWEEN COMPOSITECH LTD.
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Shares, the payment of dividends thereon, or
other issuances of Underlying Shares as contemplated hereby or by the
Certificate of Designation occurs at any time while an Underlying Securities
Registration Statement is effective under the Securities Act or, in the event
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there is not an effective Underlying Securities Registration Statement at such
time, if in the opinion of counsel to the Company such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the day that the
Underlying Securities Registration Statement is declared effective by the
Commission. The Company agrees that it will provide the Purchaser, upon request,
with a certificate or certificates representing Underlying Shares, free from
such legend at such time as such legend is no longer required hereunder. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Underlying Shares upon conversion of the Shares and payment of dividends
thereon in accordance with the terms of the Certificate of Designation may
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon conversion of the Shares and
payment of dividends thereon in accordance with the terms of the Certificate of
Designation is unconditional and absolute, subject to the limitations set forth
herein and in the Certificate of Designation (including any floor to the
Conversion Price set forth therein), regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchaser and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify or exempt the issuance and sale of the Underlying
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchaser may reasonably request and shall continue such qualification or
exemption at all times until the Purchaser notifies the Company in writing that
it no longer owns Securities; provided, however, that the Company shall not be
required in connection therewith to qualify as a foreign corporation it is not
now so qualified or to take any action that
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would subject the Company to general service of process in any such jurisdiction
where it is not then subject.
3.5 Integration. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
3.6 Increase in Authorized Shares. At such times as the Company would be,
if a notice of conversion were to be delivered on such date, precluded from
converting 200% of the Shares outstanding (and paying any earned and unpaid
dividends in respect thereof in shares of Common Stock) that remain unconverted
at such date (subject to the application of any floor to the Conversion Price
that may be set forth in the Certificate of Designation) due to the
unavailability of a sufficient number of shares of authorized but unissued or
reserved Common Stock, the Board of Directors of the Company shall promptly (and
in any case, within 30 Business Days from such date) prepare and mail to the
stockholders of the Company proxy materials requesting authorization to amend
the Company's Certificate of Incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least such number of
shares as reasonably requested by the Purchaser in order to provide for such
number of authorized and unissued shares of Common Stock to enable the Company
to comply with its conversion and reservation of shares obligations as set forth
in this Agreement and the Certificate of Designation (the sum of (x) the number
of shares of Common Stock then authorized, (y) the number of shares of Common
Stock then outstanding plus all shares of Common Stock issuable upon exercise of
all outstanding options, warrants and convertible instruments, and (z) (subject
to the application of any floor to the Conversion Price that may be set forth in
the Certificate of Designation) 200% of the number of Underlying Shares as are
then issuable upon a conversion in full of all Shares and as payment of
dividends thereon, shall be a reasonable number). In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
Certificate of Incorporation to evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company shall (i)
not later than the 20th day following the Closing Date, prepare and file with
the NASDAQ (as well as any other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) an
additional shares listing application covering a number of shares of Common
Stock which is at least equal to the number of shares required to be reserved
pursuant to Section 2.1(d), (ii) take all steps necessary to cause the such
shares to be approved for listing in the NASDAQ (as well as on any other
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares as are issuable upon conversion in full of the number of Shares then
outstanding and as payment of dividends thereon exceeds 85% of the number of
Underlying
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Shares previously listed on account thereof with NASDAQ (and other required
exchanges), the Company shall take the necessary actions to immediately list a
number of Underlying Shares as equals 200% of the number of Underlying Shares
then issuable upon conversion of the Shares and as payment of dividends thereon
(subject to the application of any floor to the Conversion Price that may be set
forth in the Certificate of Designation).
(b) The Company shall maintain a reserve of Common Stock for issuance upon
conversion of the Shares (and for payment of dividends thereon in shares of
Common Stock) in such amount as may be required to perform its obligations in
full under the Transaction Documents, which reserve shall include a number of
shares of Common Stock equal to (subject to the application of any floor to the
Conversion Price that may be set forth in the Certificate of Designation) no
less than two times the number of shares of Common Stock as would be issuable
upon conversion in full of the Shares and upon payment of dividends thereon.
3.8 Purchaser Ownership of Common Stock. The Purchaser agrees not to
convert Shares to the extent such conversion would result in the Purchaser
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the shares of
Common Stock then issued and outstanding, including shares issuable upon
conversion of the Shares held by such Purchaser after application of this
Section. To the extent that the limitation contained in this Section applies,
the determination of whether Shares are convertible (in relation to other
securities owned by a Purchaser) and of which Shares are convertible shall be in
the sole discretion of the Purchaser, and the submission of Shares for
conversion shall be deemed to be such Purchaser's determination of whether such
Shares are convertible (in relation to other securities owned by a Purchaser)
and of which portion of such Shares are convertible, in each case subject to
such aggregate percentage limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of the Purchaser to convert Shares
at such time as such conversion will not violate the provisions of this Section.
The provisions of this Section will not apply to any conversion pursuant to
Section 5(a)(ii) of the Certificate of Designation, and may be waived by the
Purchaser upon not less than 75 days prior notice to the Company, and the
provisions of this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3.9 Conversion Procedures. The Transfer Agent Instructions and Conversion
Notice (as defined in Exhibit A) set forth the totality of the procedures with
respect to the conversion of the Shares, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to convert its Shares as contemplated in the Certificate of
Designation.
3.10 Notice of Breaches. (a) Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
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(b) Notwithstanding the generality of Section 3.10(a), the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Shares a copy of any written statement in support of or relating to such
claim or notice.
3.11 Conversion Obligations of the Company. The Company shall honor
conversions of the Shares and shall deliver Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Certificate of
Designation.
3.12 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of Encore
Capital Management, L.L.C. ("Encore"), offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its or its Affiliates' equity or
equity-equivalent securities in a transaction intended to be exempt or not
subject to registration under the Securities Act (a "Subsequent Placement") for
a period of 180 days after the Closing Date, except (i) the granting of options
or warrants to employees, officers, consultants (other than placement agents,
securities bankers or finders) and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in Schedule
2.1(c), (iii) shares of Common Stock issued upon conversion of Preferred Stock
and as payment of dividends thereon in accordance with the Certificate of
Designation, and (iv) securities of Composite Technologies, Inc. and Lamines
CTEK Inc.(provided such securities are not convertible into or exchangeable for
Common Stock), unless (A) the Company delivers to Encore a written notice (the
"Subsequent Placement Notice") of its intention to effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) Encore shall not have notified the Company by 5:00 p.m.
(New York City time) on the tenth (10th) Business Day after its receipt of the
Subsequent Placement Notice of its willingness to cause the Purchaser to provide
(or to cause its sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on substantially the terms
set forth in the Subsequent Placement Notice. If Encore shall fail to notify the
Company of its intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided, that the Company shall provide Encore
with a second Subsequent Placement Notice, and Encore shall again have the right
of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Business Days after the date of the initial Subsequent
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<PAGE>
Placement Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, and (z) Common Stock to be
registered for resale in connection with financings permitted pursuant to
paragraph (a)(i) and (ii) of Section 3.12(a), the Company shall not, without the
prior written consent of the Purchaser (i) issue or sell any of its or any of
its Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register for resale any securities
of the Company, both in the case of (i) and (ii) for a period of not less than
90 Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that a Purchaser is
not permitted to sell Underlying Securities under the Underlying Securities
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.13 Certain Securities Laws Disclosures; Publicity. The Company shall: (i)
issue a press release acceptable to the Purchaser disclosing the transactions
contemplated hereby on the Closing Date, (ii) file with the Commission a Report
on Form 8-K disclosing the transactions contemplated hereby within ten (10)
Business Days after the Closing Date, and (iii) timely file with the Commission
a Form D promulgated under the Securities Act as required under Regulation D
promulgated under the Securities Act and provide a copy thereof to the Purchaser
promptly after the filing thereof. The Company shall, no less than two (2)
Business Days prior to the filing of any disclosure required by clauses (ii) and
(iii) above, provide a copy thereof to Encore. No such filing or disclosure may
be made that mentions the Purchaser or Encore by name without the prior consent
of Encore.
3.14 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and for the purchase of
equipment and not for the satisfaction of any portion of Company debt or to
redeem any Company equity or equity-equivalent securities. Pending application
of the proceeds of this placement in the manner permitted hereby, the Company
will invest such proceeds in interest bearing accounts and/or short-term,
investment grade interest bearing securities.
3.15 Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company or in
connection with licensing transactions approved by the Company's Board of
Directors, the Company shall not transfer, sell or otherwise dispose of any
Intellectual Property Rights, or allow any of the Intellectual Property Rights
to become subject to any Liens, or fail to renew such Intellectual Property
Rights (if renewable and it would otherwise lapse if not renewed), without the
prior written consent of the Purchaser.
3.16 Reimbursement. If the Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred.
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<PAGE>
In addition, other than with respect to any matter in which the Purchaser is a
named party, the Company will pay the Purchaser the charges, as reasonably
determined by the Purchaser, for the time of any officers or employees of the
Purchaser devoted to appearing and preparing to appear as witnesses, assisting
in preparation for hearings, trials or pretrial matters, or otherwise with
respect to inquiries, hearings, trials, and other proceedings relating to the
subject matter of this Agreement. The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Purchaser who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchaser and any such Affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchaser and any such
Affiliate and any such Person. The Company also agrees that neither the
Purchaser nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the Purchaser
or an Affiliate of Purchaser in connection with the transactions contemplated by
this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall (i) pay $15,000 to
Escrow Agent in connection with the preparation and negotiation of the
Transaction Documents, and (ii) pay to $10,000 to Encore for its due diligence
expenses and disbursements in connection with the transactions contemplated
hereby. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificate of Designation and the Escrow Agreement contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or
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<PAGE>
communication is delivered via facsimile at the facsimile telephone number
specified in the Purchase Agreement later than 8:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the Business Day following the date of mailing, if sent by overnight delivery by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Compositech Ltd.
120 Ricefield Lane
Hauppauge, NY 11788
Facsimile No.: (516)436-5203
Attn: Chief Financial Officer
With copies to: Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036
Facsimile No.: 212-336-2222
Attn: Edward F. Cox
If to the
Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
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<PAGE>
4.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder without the consent of the Company. This provision
shall not limit the Purchaser's right to transfer securities or transfer or
assign rights hereunder or under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and, other with respect to Encore who is an intended beneficiary of, and
entitled to enforce, Sections 3.12 and 4.11, is not for the benefit of, nor may
any provision hereof be enforced by, any other Person.
4.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion of
the Shares.
4.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being
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<PAGE>
understood that both parties need not sign the same counterpart. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
4.11 Publicity. The Company and the Purchaser shall consult with each other
in issuing any press releases or otherwise making public statements or filings
and other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law or by the Commission or the Nasdaq Stock Market (as the case may
be), in which such case the disclosing party shall provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser or Encore, or include the name of the Purchaser or Encore in
any filing with the Commission, or any regulatory agency, trading facility or
stock market without the prior written consent of Encore, except to the extent
such disclosure (but not any disclosure as to the controlling Persons thereof)
is required by law, in which case the Company shall provide the Purchaser and
Encore with prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
COMPOSITECH LTD.
By:_________________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:_________________________________
Name:
Title:
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of May 29, 1998, between Compositech Ltd., a Delaware corporation (the
"Company"), and JNC Opportunity Fund Ltd., a Cayman Islands corporation (the
"Purchaser").
This Agreement is made pursuant to the Convertible Preferred Stock Purchase
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Effectiveness Date" means the 90th day following the Closing Date;
provided, however, that the Effectiveness Date shall be extended by the number
of days, if any, beyond 30
<PAGE>
for which the Commission shall have failed to provide the Company with initial
comments to, or indicate that there will be no review of, the initial filing of
a Registration Statement .
"Effectiveness Period" shall have the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 7% Series B Preferred
Stock, $.01 par value, to be issued to the Purchaser pursuant to the Purchase
Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable upon (i)
conversion in full of the Preferred Stock and (ii) payment of dividends in
respect of the Preferred Stock, assuming all such dividends are paid in shares
of Common Stock, provided, however that in order to account for the fact that
the number of shares of Common Stock issuable upon conversion of the Preferred
Stock is determined in part upon the market price of the Common Stock prior to
the time of conversion, Registrable Securities shall include a number of shares
of Common Stock equal to no less than the sum of (1) (subject to any floor
applicable to the
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<PAGE>
Conversion Price) 200% of the number of shares of Common Stock into which the
shares of Preferred Stock are convertible, assuming such conversion occurred on
the Closing Date or the Filing Date, whichever yields a lower Conversion Price,
and (2) the number of shares of Common Stock issuable on payment of dividends on
the Preferred Stock assuming all dividends in respect of the Preferred Stock are
paid in shares of Common Stock and that the Preferred Stock remains outstanding
for two years. If the Commission does not permit the Registration Statement to
become effective with a statement regarding Rule 416 as described in Section
2(a), or if, after such effectiveness, Rule 416 is no longer permitted to have
the effect contemplated in Section 2(a), then the Company shall be required to
file additional Registration Statements to the extent the actual number of
shares of Common Stock into which the Preferred Stock is convertible (together
with the payment of dividends thereon) exceeds the number of shares of Common
Stock initially registered in accordance with the immediately prior sentence. If
the Commission does not permit the Registration Statement to become effective
with a statement regarding Rule 416 as described in Section 2(a), or if, after
such effectiveness, Rule 416 is no longer permitted to have the effect
contemplated in Section 2(a), then the Company shall have fifteen (15) days to
file such additional Registration Statements after notice of the requirement
thereof, which the Holders may give at such time when the number of shares of
Common Stock as are issuable upon conversion of Preferred Stock and the number
of shares of Common Stock issuable as dividends thereon, exceeds 85% of the
number of shares of Common Stock to be registered in a Registration Statement
hereunder.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 416" means Rule 416 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
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<PAGE>
"Special Counsel" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith). The Registration Statement shall state, to the extent permitted by
Rule 416, that it also covers such indeterminate number of shares of Common
Stock as may be required to effect conversion of the Preferred Stock to prevent
dilution resulting from stock splits, stock dividends or similar events, or by
reason of changes in the Conversion Price in accordance with the terms of the
Certificate of Designation (as defined in the Purchase Agreement). The Company
shall use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and shall use its
best efforts to keep such Registration Statement continuously effective under
the Securities Act until the date which is three years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period"), provided, however, that the Company shall not be deemed
to have used its best efforts to keep the Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that would
result in the Holders not being able to sell the Registrable Securities covered
by such Registration Statement during the Effectiveness Period, unless such
action is required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the Commission has
not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so elect, an
offering of Registrable Securities pursuant to the Registration Statement may be
effected in the form of an Underwritten Offering. In such event, and, if the
managing underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of such
managing underwriters can be sold, and such amount shall be allocated pro rata
among the Holders proposing to sell Registrable Securities in such Underwritten
Offering.
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(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering upon consultation with the Company. No Holder may
participate in any Underwritten Offering hereunder unless such Holder (i) agrees
to sell its Registrable Securities on the basis provided in any underwriting
agreements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form S-3 (or if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3 such registration
shall be on another appropriate form in accordance herewith, or, in connection
with an Underwritten Offering hereunder, such other form agreed to by the
Company and by the Holders of Registrable Securities) in accordance with the
method or methods of distribution thereof as specified by the Holders (except if
otherwise directed by the Holders), and cause the Registration Statement to
become effective and remain effective as provided herein; provided, however,
that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide
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the Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their Special
Counsel and any managing underwriters as promptly as reasonably possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing)
and (if requested by any such Person) confirm such notice in writing no later
than one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a majority
in interest of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification
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of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law, rule or regulation,
or be materially detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by applicable law, of
all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters or
Holders may request at least two Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such
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Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the Nasdaq SmallCap Market (the
"NASDAQ") and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(ii) in the case of an Underwritten Offering obtain and deliver copies thereof
to each Holder and the managing underwriters, if any, of opinions of counsel to
the Company and updates thereof addressed to each Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any such
managing underwriters and Special Counsel to the selling Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, use its best reasonable
efforts to obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent auditors of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data is, or
is required to be, included in the Registration Statement), addressed to the
Company in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 5
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where
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<PAGE>
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case reasonably
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided, however,
that any information that is determined in good faith by the Company in writing
to be of a confidential nature at the time of delivery of such information shall
be kept confidential by such Persons, unless (i) disclosure of such information
is required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality agreement with the
Company.
(n) Comply with all applicable rules and regulations of the Commission.
(o) The Company may require each selling Holder to furnish to the Company
such information regarding the distribution of such Registrable Securities and
the beneficial ownership of Common Stock held by such Holder as is required by
law to be disclosed in the Registration Statement, and the Company may exclude
from such registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that
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the use of the applicable Prospectus may be resumed, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or Registration
Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company, except as and to the extent specified in Section
4(b), shall be borne by the Company whether or not pursuant to an Underwritten
Offering and whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ or each other securities exchange or market
on which Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdiction as the managing underwriters, if any, or the
Holders of a majority of Registrable Securities may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders (in
the case of Special Counsel for the Holders, such fees and disbursements shall
not exceed $7,500), (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the terms
hereof, the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants. By way of illustration which is not intended to diminish from
the provisions of Section 4(a), the Holders shall not be responsible for, and
the Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
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5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, (i) that such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto, or (ii) in the case of the occurrence of an
event of the type specified in Section 3(c)(ii) - (vi), the use by the Holder or
such Indemnified Party of an outdated or defective Prospectus after the Company
has notified such Person in writing that the Prospectus is outdated or defective
and prior to the receipt by such Person of the Advice contemplated in Section
3(o). The Company shall notify the Holders promptly of the institution, threat
or assertion of any Proceeding of which the Company is aware in connection with
the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgement not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
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upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnifica-
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tion hereunder; provided, that the Indemnifying Party may require such
Indemnified Party to undertake to reimburse all such fees and expenses to the
extent it is finally judicially determined that such Indemnified Party is not
entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
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Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(b) hereto, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to the Common Stock or any
securities that are convertible into or exchangeable for Common Stock to any
Person except for registration rights which are no longer in effect. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent specified in
Schedule 6(b) hereto, neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not after the date hereof enter into any agreement providing
any such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when there is not an effective
Registration Statement covering all of the Registrable Securities and the
Underlying Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission.
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities; provided,
however, that, for the purposes of this sentence, Registrable Securities that
are owned, directly or indirectly, by the Company, or an Affiliate of the
Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from
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the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
overnight delivery by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: Compositech Ltd.
120 Ricefield Lane
Hauppauge, NY 11788
Facsimile No.: (516) 436-5203
Attn: Chief Financial Officer
With copies to: Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Facsimile No.: (212) 336-2222
Attn: Edward F. Cox
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<PAGE>
If to the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer books of
the Company or such other address as may be designated in writing hereafter, in
the same manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the shares of Preferred Stock or the Registrable Securities
if: (i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time
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the Company receives the written notice contemplated by clause (ii) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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(n) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
COMPOSITECH LTD.
By:_____________________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:_____________________________________
Name:
Title:
