Compositech
LTD.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 23, 1998 AT 10:00 a.m.
To the Stockholders of Compositech Ltd.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Compositech Ltd. will be held at the Company's offices located at 120 Ricefield
Lane, Hauppauge, New York on Tuesday, June 23, 1998 at 10:00 a.m., for the
following purposes:
1. To elect a Board of Directors, eight in number, to hold office until
the next Annual Meeting of Stockholders and until their successors are
elected;
2. To approve an increase by 500,000 shares of the number of shares of
Common Stock authorized for issuance under Compositech's Amended and
Restated Stock Award Plan,
3. To ratify the appointment of Ernst & Young LLP as Compositech's
independent auditors for the fiscal year ended December 31, 1998, and
4. To transact such other business as may properly be presented at the
meeting and at any adjournments or postponements thereof.
Only holders of record of Compositech's Common Stock and Series A
Convertible Preferred Stock at the close of business on April 28, 1998 are
entitled to notice of, and to vote at, the meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors,
Fred E. Klimpl
Secretary
Hauppauge, New York
May 15, 1998
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ACCOMPANYING
POSTPAID ENVELOPE. YOUR DOING SO MAY SAVE COMPOSITECH THE EXPENSE OF A SECOND
MAILING.
- --------------------------------------------------------------------------------
<PAGE>
Compositech Ltd.
PROXY STATEMENT
----------
To the Stockholders of Compositech Ltd.:
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Compositech Ltd. ("Compositech" or the "Company"), a Delaware
corporation, for use at Compositech's 1998 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m. on Tuesday, June 23, 1998 at
Compositech's offices located at 120 Ricefield Lane, Hauppauge, New York, 11788;
telephone number (516) 436-5200.
Only holders of record of Compositech's Common Stock and Series A
Convertible Preferred Stock ("Series A Stock") as of the close of business on
April 28, 1998 are entitled to notice of, and to vote at, the Annual Meeting and
any adjournments or postponements thereof. At the close of business on that
date, Compositech had outstanding 12,451,206 shares of its Common Stock, par
value $.01 per share and 580,661 shares of Series A Stock, par value $3.00 per
share. Holders of Common Stock are entitled to one vote for each share of Common
Stock held. Holders of Series A Stock are entitled to one vote for each two
shares of Series A Stock held.
Any holder of Common Stock or Series A Stock giving a proxy in the form
accompanying this Proxy Statement has the power to revoke the proxy prior to its
use. A proxy can be revoked (i) by an instrument of revocation delivered prior
to the Annual Meeting to the Secretary of Compositech, (ii) by a duly executed
proxy bearing a later date or time than the date or time of the proxy being
revoked, or (iii) at the Annual Meeting if the stockholder is present and elects
to vote in person. Mere attendance at the Annual Meeting will not serve to
revoke a proxy.
Broker non-votes, and shares held by stockholders present in person or by
proxy at the meeting but abstaining on a vote, will be counted in determining
whether a quorum is present at the Annual Meeting. However, abstentions by
stockholders present in person or by proxy at the meeting are counted as votes
against a proposal for purposes of determining whether or not the proposal has
been approved, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
This Proxy Statement and the accompanying proxy card are being mailed to
Compositech stockholders on or about May 15, 1998. Directors, officers and other
employees of Compositech may solicit proxies by personal interview, telephone or
facsimile, without special compensation. Any costs of such solicitation will be
borne by Compositech.
ELECTION OF DIRECTORS
Nominees. There are eight nominees for election as directors of the Company
to hold office until the next Annual Meeting and until their successors have
been duly elected and qualified.
If the enclosed proxy is properly executed and received in time for the
meeting, it is the intention of the persons named in the proxy to vote the
shares represented thereby for the persons nominated for election as directors
unless authority to vote shall have been withheld. If any nominee
<PAGE>
should refuse or be unable to serve, an event not anticipated, the proxy will be
voted for such person as shall be designated by the Board of Directors to
replace such nominee.
All of the nominees were elected to the Board at the last Annual
Meeting except Mr. Laflamme who was elected on October 14, 1997 and all are
currently serving as directors of the Company.
Following are summaries of the background and business experience and
descriptions of the principal occupations of the nominees.
Name Age Position(s) With the Company
- ---- --- ----------------------------
Jonas Medney 69 Director, Chairman and Chief Executive
Officer
Fred E. Klimpl 63 Director, President and Secretary
Samuel S. Gross 71 Director, Executive Vice President,
Treasurer and Chief Financial Officer
Willard T. Jackson (1) (2) 70 Director
Pierre Laflamme 51 Director
Robert W. Middleton (2) 59 Director
Heinz-Gerd Reinkemeyer (1) 60 Director
James W. Taylor (1) (2) 79 Director
- -----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Jonas Medney, Director, Chairman and Chief Executive Officer, has over 40
years of experience in the composites industry and has more than 50 U.S.
patents. Mr. Medney has been a director and Chairman of the Company since its
inception in 1984. He co-founded Lamtex Industries, a public company which was a
pioneer in filament-wound composites, which was acquired by Koppers Company in
1963. He co-founded Fiberglass Resources Corporation, a manufacturer of filament
wound epoxy pipes and conduits, with Mr. Klimpl. This company was acquired by
Koch Industries in 1983. Mr. Medney is a graduate of the Massachusetts Institute
of Technology (B.S. Mechanical Engineering).
Fred E. Klimpl, Director, President and Secretary, has over 35 years of
experience in the composites industry and has over 25 U.S. patents. Mr. Klimpl
has been a director, President and Secretary of the Company since its inception
in 1984. He was co-inventor and a key manager in the development and marketing
of the fiberglass underground gasoline tank program for Owens-Corning Fiberglas
Corp. He was subsequently responsible for the start-up and marketing of a
fiberglass pipe business for Ciba-Geigy Corporation. Mr. Klimpl is a graduate of
Lowell University (B.S. Textile Engineering) and Stevens Institute of Technology
(M.S. Industrial Management).
Samuel S. Gross, Director, Executive Vice President, Treasurer and Chief
Financial Officer, is a certified public accountant and has been Executive Vice
President and Treasurer of the Company since 1990. He had been a consultant to
the Company and a director since 1987. He was previously a partner at Ernst &
Young LLP where he was responsible for the Fiberglass Resources Corporation
account. Mr. Gross was affiliated with Ernst & Young LLP and its predecessors
for 39 years. He is a director and Secretary/Treasurer of the National Mental
Health Association, Chairman of the Board of Directors of the Mental Health
Association in New York State, Inc., and a director and
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former president of Long Island Transportation Management, Inc. Mr. Gross is a
graduate of City College of New York (B.B.A.).
Pierre Laflamme was elected a director in October 1997. He has been Vice
President Development, High Technology at Societe generale de financement du
Quebec since May 1997. From 1985 to May 1997, he was with the Solidarity Fund in
Montreal, Canada, most recently as Senior Vice President, Economic Development
and Strategic Investments. From 1994 to 1996, he was on loan as Deputy Minister
at Executive Council of the Province of Quebec. He is a graduate of the
Universite de Sherbrooke (B.A.) and the Universite de Montreal (B.A.
Architecture). Mr. Laflamme is the designee of the Quebec Investors ( see
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ) to the Board pursuant to terms
of agreements in connection with the joint venture in the greater Montreal area.
Willard T. Jackson, private investor, retired in 1988 as a partner of
Brundage, Story and Rose, a New York investment counseling firm in which he
became a partner in 1969. He has been a director since January 1988. Mr. Jackson
is a graduate of Middlebury College (A.B.) and Columbia University (M.B.A.). He
is a trustee emeritus of Middlebury College.
Robert W. Middleton was elected as a director in March 1996 and has acted
as an investment banker to the Company in its prior financings and with respect
to the initial public offering ("IPO") in July 1996. He has been Managing
Director-Corporate Finance of Trautman Kramer & Company, Inc., an investment
banking firm, since 1993. From 1985 to October 1993, Mr. Middleton was,
successively, Director of Corporate Finance of Barclay Investments, Inc., and a
Vice President at C.L. King & Associates, Inc. Prior to that time, he was
associated with Fahnestock & Company from 1983 to 1985 and was a general partner
from 1984-1985. From 1974 to 1983, Mr. Middleton held various positions with
Burgess & Leith, Inc., including Senior Vice President and Director, while
serving as Manager of the New York office. He attended Princeton University. Mr.
Middleton is the designee of Trautman Kramer & Company, Inc. to the Board
pursuant to the terms of a financing agreement.
Heinz-Gerd Reinkemeyer has been a director since 1990. He had been Director
of the Industrial Plastics Division of HT Troplast AG ("HT"), a German
manufacturer and subsidiary of the Rutgers Group, which is an affiliate of the
Veba Group. Currently, he is a consultant for the Rutgers Group. Mr. Reinkemeyer
has a degree in mechanical engineering and from 1961 he had been with Dynamit
Nobel, a manufacturer of laminates, until it was acquired by HT in 1988. Mr.
Reinkemeyer is the designee of HT to the Board.
James W. Taylor has been a director since 1987. He has been President of
Reuter Manufacturing Inc. since 1992. He is a certified management consultant.
He was a director from 1967 to 1973 and President from 1970 to 1973 of the
international management consulting firm, Booz Allen & Hamilton. Mr. Taylor was
President and a director of Bradford Trust from 1973 to 1975. He has served as a
director of Insilco Corporation, Times Fiber Communications, Inc., The
Enterprise Companies, Techalloy, Inc., Amphenol Inc. and Knogo Corporation. He
is a life trustee of Carnegie Mellon University. He was a trustee of Beaver
College and was a vice president and director of the Association of Consulting
Management Engineers and of the Institute of Management Consultants. He holds a
B.S. from Carnegie Mellon University.
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Board Recommendation and Vote Required. The Board recommends that the
stockholders vote "FOR" the election of each of the above named nominees. The
affirmative vote of a majority of the shares of Common Stock and Series A Stock
present or represented and entitled to vote at the meeting is required for the
election of each director.
Meetings and Committees of the Board. There were four meetings of the full
Board and the Board took action by unanimous written consent six times during
fiscal 1997. The Board currently has two standing committees: the Compensation
Committee and the Audit Committee. The Compensation Committee, which met three
times during fiscal 1997, approves all of Compositech's compensation plans,
including the awarding of options under Compositech's stock award plan and the
compensation arrangements for Compositech's senior management. The Audit
Committee, which met once during fiscal 1997, consults with Compositech's
independent auditors concerning their auditing plan, the results of their audit,
the appropriateness of accounting principles used by Compositech and the
adequacy of Compositech's general accounting controls.
During 1997, each director attended all of the meetings of the full Board
and the committees of the Board on which he served.
Compensation of Directors. The Company has not provided, and does not
presently have a policy of providing, cash compensation to its directors, but
may consider such a policy in the future. Additionally, all non-employee
directors are eligible for stock option grants under the Company's Amended and
Restated Stock Award Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by the
Company to Jonas Medney, the Company's Chairman and Chief Executive Officer, and
to each of Fred E. Klimpl, President and Secretary, and Samuel S. Gross,
Executive Vice President, Treasurer and Chief Financial Officer, for services
rendered to the Company in all capacities during the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
--------------------------------- -------------
Securities
Underlying
Name and Principal Position Year Salary ($)(1) Bonus ($) Options
- --------------------------- ---- ------------- --------- -------
<S> <C> <C> <C> <C>
Jonas Medney 1997 130,000 -- --
Chairman and Chief Executive Officer 1996 130,000 -- --
1995 130,000 -- 42,050
Fred E. Klimpl 1997 100,000 -- --
President and Secretary 1996 100,000 -- --
1995 100,000 -- 36,500
Samuel S. Gross 1997 100,000 -- 4,000
Executive Vice President, Treasurer and Chief 1996 100,000 -- 100,000
Financial Officer 1995 100,000 -- 75,250
</TABLE>
(1)Mr. Medney's salary of $130,000 in 1997, 1996 and 1995 includes $5,500,
$17,500 and $107,500, respectively, which had been deferred by agreement of Mr.
Medney with the Company. Mr. Klimpl's salary of $100,000 in 1997, 1996 and 1995
includes $1,932, $13,692 and $82,692,
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respectively, which had been deferred by agreement of Mr. Klimpl and the
Company. Mr. Gross' salary of $100,000 in 1997, 1996 and 1995 includes $4,231,
$13,692 and $82,692, respectively, which had been deferred by agreement of Mr.
Gross with the Company.
1997 OPTION GRANTS
The following table sets forth information relating to options granted in
1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted To
Options Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/sh) Date
---- ------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Jonas Medney -- -- -- --
Fred E. Klimpl -- -- -- --
Samuel S. Gross 4,000 2% $2.375 12/05/2007
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table provides information concerning the value of
unexercised options held as of December 31, 1997 by the Named Executive Officers
(no options were exercised during such year). The fair market value of the
shares of Common Stock underlying such options (with an exercise price per share
ranging from $2.375 to $7.50) has been calculated based upon December 31, 1997
closing price of $1.531 per share.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Name Options at Fiscal Year-End Options at Fiscal Year-End
- ---- -------------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jonas Medney 39,333 2,717 -- --
Fred E. Klimpl 34,417 2,083 -- --
Samuel S. Gross 174,333 84,417 -- --
</TABLE>
Salary Deferrals. As of December 31, 1997, all of the Named Executive
Officers and certain other employees had deferred an aggregate of approximately
$744,000 of their salaries. The salary deferrals have been voluntarily
undertaken by each of the respective persons based upon oral agreements and have
been in consideration of the cash position of the Company. These deferred
salaries can only be paid with the prior approval of the Compensation Committee.
Additionally, the Named Executive Officers have each agreed with the Company
that in no event will they receive their respective amount of deferred salaries
(i) prior to the date such amounts can be paid from cash flow from operations,
or (ii) if prior to January 2, 1999, with the consent of the Compensation
Committee.
Employment Agreements. The Company entered into employment agreements on
May 24, 1996 with Messrs. Medney, Klimpl and Gross. Each agreement is for a term
of three years commencing as of January 1, 1996. Mr. Medney's agreement provides
for an annual salary of $130,000 for each year of its term and each of Messrs.
Klimpl's and Gross' agreements provide for annual salaries of $100,000. Each of
the agreements further provides that in the event of a change in
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control (defined to occur if (a)(i) any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), or persons acting as a group, become(s)
after January 1, 1996 the "beneficial owner" (as defined in Rule 13d-2 under the
Exchange Act), directly or indirectly, of voting shares (or shares convertible
into voting shares) representing twenty percent or more of the Company's then
outstanding voting shares (or shares convertible into voting shares), and (ii)
within one year after such date the individuals who at the time of such
acquisition constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof; or (b) there occurs a merger,
consolidation or sale of all or substantially all of the business and/or assets
of the Company) the officer may terminate his agreement and be entitled to
receive from the Company a lump-sum amount equal to twice his annual salary then
in effect. Each agreement also provides that each officer shall be entitled to
receive from the Company a lump-sum amount equal to his annual salary in the
event that the Company terminates his employment other than for cause or in the
event that the officer terminates his employment because he has not been elected
to serve on the Board of Directors of the Company or because of a material
diminution in the officer's duties, position or authority. The agreements
contain provisions protecting the confidentiality information concerning the
Company's business, provide for assignments to the Company of discoveries by the
officers which relate to the business of the Company and provide that the
officers will not engage in any business activity in competition with the
Company during the term of the agreement and for two years thereafter. In
addition, each of such agreements provides for certain benefits for the officers
during their employment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Compositech's
directors and executive officers, and persons who own more than 10% of
Compositech's Common Stock, to file reports of ownership and changes in
ownership of such stock with the SEC. Directors, executive officers and greater
than 10% stockholders are required by SEC regulations to furnish Compositech
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
Compositech or written representations that no Forms 5 were required,
Compositech believes that during 1997, its directors, executive officers and
greater than 10% stockholders complied with all Section 16(a) filing
requirements.
BENEFICIAL STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting capital stock as of April 24, 1998, by (i)
each director of the Company, (ii) each person known to the Company to be the
beneficial owner of more than 5% of the Common Stock of the Company, (iii) the
executive officers named in the Summary Compensation Table, and (iv) all
executive officers and directors as a group. Except as otherwise indicated, the
address of each person is care of Compositech Ltd., 120 Ricefield Lane,
Hauppauge, New York 11788.
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<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address Beneficial Ownership (1) Class (1)
- ----------------------------------------------------------- ------------------------ ----------------
<S> <C> <C>
Jonas Medney (2) 1,275,276 10.0%
Fred E. Klimpl (3) 664,157 5.2%
Willard T. Jackson (4) 569,467 4.4%
Samuel S. Gross (5) 167,333 1.3%
Robert W. Middleton (6) 18,399 *
Heinz-Gerd Reinkemeyer (7) 9,667 *
James W. Taylor (8) 8,667 *
Pierre Laflamme (9) --- *
All executive officers and directors as
a group (8 persons) (10) 2,712,966 20.3%
HT Troplast AG (11) 828,834 6.5%
Kaiserstrasse
53840 Troisdorf
Federal Republic of Germany
Industries Devma Inc. (12) 710,795 5.6%
600, de la Gauchetiere Street West
Suite 1700
Montreal, Quebec H3B 4L8
Societe Innovatech du Grand Montreal (12) 710,795 5.6%
2020 University Avenue
Suite 1527
Montreal, Quebec H3A 2A5
Fonds de Solidarite des Travaileurs du Quebec (13)
8717 Berri Street 710,794 5.6%
Montreal, Quebec H2M 2T9
</TABLE>
- -----------
* Indicates less than 1%
(1) The shares of Common Stock and voting rights owned by each person or by all
directors and executive officers as a group, and the shares included in the
total number of shares of Common Stock and votes outstanding used to
determine the percentage of shares of Common Stock and voting rights owned
by each person and such group, have been adjusted in accordance with Rule
13d-3 under the Securities Exchange Act of 1934 to reflect the ownership of
shares issuable upon exercise of outstanding options, warrants or other
common stock equivalents which are exercisable within 60 days. As provided
in such Rule, such shares issuable to any holder are deemed outstanding for
the purpose of calculating such holder's beneficial ownership but not any
other holder's beneficial ownership.
(2) Includes warrants to purchase 31,800 shares of Common Stock and options to
purchase 39,333 shares of Common Stock under the Company's stock option
plans. Includes Series A Stock convertible into 4,166 shares of Common
Stock held by Mr. Medney's wife, as to all of which shares Mr. Medney
disclaims beneficial ownership.
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(3) Includes warrants to purchase 29,750 shares of Common Stock and options to
purchase 34,417 shares of Common Stock under the Company's stock option
plans.
(4) Includes Series A Stock convertible into 37,500 shares of Common Stock,
warrants to purchase 277,800 shares of Common Stock and options to purchase
19,167 shares of Common Stock under the Company's stock option plans.
Includes securities held as nominee and trustee of Trust created for the
benefit of Willard T. Jackson and members of his family.
(5) Includes warrants to purchase 6,000 shares of Common Stock and options to
purchase 158,833 shares of Common Stock under the Company's stock option
plan.
(6) Robert W. Middleton is the designee of Trautman Kramer & Company, Inc.
("TK") on the Board of Directors. He has disclaimed beneficial ownership of
all securities owned by other employees or principals of TK. Includes
warrants to purchase 16,732 shares of Common Stock and options to purchase
1,667 shares of Common Stock under the Company's stock option plans.
(7) Heinz-Gerd Reinkemeyer is the designee of HT on the Board of Directors. He
has disclaimed beneficial ownership of all shares held by HT. Includes
options to purchase 6,667 shares of Common Stock under the Company's stock
option plans.
(8) Includes options to purchase 6,667 shares of Common Stock under the
Company's stock option plans.
(9) Pierre Laflamme is the designee of each of Industries Devma, Inc., Societe
Innovatech du Grand Montreal, Fonds Regional de Solidarite Ile de Montreal
and Fonds de Solidarite des Travailleurs du Quebec on the Board of
Directors. He has disclaimed ownership of all securities held by each
entity.
(10) Consists of all the shares of Series A Stock and Common Stock (or shares of
Common Stock underlying options and warrants) held by Messrs. Medney,
Klimpl, Jackson, Gross, Laflamme, Middleton, Reinkemeyer and Taylor as
described in notes (2)-(9) above.
(11) Includes warrants to purchase 30,000 shares of Common Stock.
(12) For each of Industries Devma, Inc. and Societe Innovatech du Grand
Montreal, includes the right to exchange 177,700 shares held in the
Canadian joint venture for an equal number of the Company's common stock
shares, in accordance with the terms of an agreement between the Company
and the Quebec Investors.
(13) For Fonds de Solidarite des Travailleurs du Quebec ("F.S.T.Q."), includes
F.S.T.Q.'s right to exchange 639,714 shares held in the Canadian joint
venture, and Fonds Regional de Solidarite Ile de Montreal's ("Fonds
Regional") right to exchange 71,078 shares held in the Canadian joint
venture, for an equal number of the Company's common stock shares in
accordance with the terms of an agreement between the Company and the
Quebec Investors. Based upon an arrangement between F.S.T.Q. and Fonds
Regional, each of them may be deemed to beneficially own one another's
shares ; however, they have each disclaimed beneficial ownership in the
other's shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 10, 1998, the due dates on 10% Secured Notes totaling $470,000
held by Messrs. Medney, Klimpl and Jackson were extended to January 2, 1999. The
notes are collateralized by a first priority lien on patents and certain
equipment.
On October 7, 1996, Mr. Jackson received a warrant to purchase 45,000
shares of Common Stock at $3.00 per share in consideration of the underwriters
of the Company's initial public offering not allowing the repayment of notes
totaling $550,000 held by him. On March 10, 1998, the due dates of the notes
were extended to January 2, 1999. The notes are collateralized by a second
priority lien on U.S. Patents.
On October 16, 1997, the Company closed its transaction with four Quebec
investors ("the Quebec Investors"), consisting of Industries Devma, Inc.
("Devma"), Fonds de Solidarite des Travailleurs du Quebec ("F.S.T.Q."), Societe
Innovatech du Grand Montreal ("Innovatech") and Fonds Regional de Solidarite Ile
de Montreal ("Fonds Regional"), to form a 50/50 joint venture for the
establishment of a plant in the greater Montreal area to manufacture
Compositech's laminates. The project cost is estimated to be approximately $24.5
million with an initial capitalization by the parties of approximately $11
million with the balance to be in debt financing for which firm
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commitments have been obtained from the National Bank of Canada and governmental
agencies. The Company's approximately $5.4 million capital investment in the
joint venture was funded out of the proceeds of the Quebec Investors' purchase
of 1,066,192 shares of the Company's Common Stock. The Quebec Investors have an
option to sell their 50% interest in the joint venture to the Company for a like
number of shares and, under certain circumstances, the Company has an option to
purchase the interest for the same number of shares. The Company, the Quebec
Investors, Fred Klimpl and Jonas Medney agreed that the Company would use its
best efforts to elect one person designated by the Quebec Investors, and each of
Messrs. Klimpl and Medney agreed, subject to certain limitations and solely in
his capacity as a shareholder of the Company, to vote his shares to give effect
to such agreement. Pierre Laflamme, a director of Devma, was elected a director
of the Company in October 1997 and is the Quebec Investors' designee to the
Board of Directors of the Company.
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APPROVAL OF INCREASE IN
THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
UNDER THE COMPOSITECH LTD. AMENDED AND
RESTATED STOCK AWARD PLAN BY 500,000 SHARES
Background. Since 1988, Compositech has granted options to employees to
purchase shares of its Common Stock. Compositech considers its option program to
be an important tool to help Compositech attract, retain and motivate employees,
directors and consultants. The program also generates cash for Compositech when
options are exercised and, in the case of nonqualified stock options ("NSOs") or
disqualifying dispositions of incentive stock options ("ISOs"), tax deductions
and possible tax credits. The Amended and Restated Stock Award Plan (the "Award
"Plan"), which provides for the grant of options and restricted stock, was first
approved by the stockholders in 1994 to supplement the then-existing
Nonqualified Stock Option Plan, which terminated April 12, 1998. Since the
inception of the Award Plan, a total of 1,175,000 shares have been authorized
for issuance under the Award Plan. As of April 24, 1998, employees, directors
and consultants held unexercised options (granted under both the Award Plan and
the Nonqualified Stock Option Plan) covering 954,871 shares of Common Stock,
with an exercise price per share ranging from $1.375 to $5.75. As of that date,
a total of 329,129 shares remained available for the grant of options under the
Award Plan.
Proposal. Subject to stockholder approval, on April 24, 1998, the Board
approved an amendment to the Award Plan to increase the number of shares
available for issuance under the Award Plan by 500,000 shares of Compositech
Common Stock. Without this increase, only 329,129 shares remain available for
the grant of options under the Award Plan. The purpose of the increase in the
shares available for issuance under the Award Plan is to assure continuity of
Compositech's option program to help Compositech attract, retain and motivate
employees, directors and consultants. In this connection, the Company is engaged
in recruiting a chief executive officer and will recruit additional executives
to improve its capability and to provide for succession. Compositech uses its
stock option program as a critical tool in motivating and retaining employees by
aligning their long term interests with those of the stockholders. Options
generally are granted annually, each grant generally vesting at the end of each
of the three years after the date of grant.
Description of Stock Award Plan. The Board of Directors of the Company and
the stockholders of the Company adopted the Stock Award Plan in 1994. The Award
Plan was amended by the Board of Directors and the stockholders of the Company
effective December 31, 1995 to increase the number of shares as to which awards
may be granted from 250,000 to 575,000 and was further amended by the Board of
Directors on January 31, 1997, and approved by the stockholders on June 24, 1997
to increase the number of shares as to which awards may be granted from 575,000
to 1,175,000 and to permit compensation committee members to receive awards. The
Award Plan permits the granting of restricted stock awards and stock options to
employees, directors and consultants of the Company. Stock options granted under
the Award Plan may be ISOs, meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, or NSOs which do not meet the
requirements of Section 422. The Award Plan is administered by the Compensation
Committee of the Board of Directors. The Award Plan gives broad powers to the
Compensation Committee to administer and interpret the Award Plan, including the
authority to select the individuals to be granted options, and to prescribe the
particular form and conditions of each option granted. The above description is
qualified in its entirety by reference to the specific provisions of the Award
Plan, the full text of which is set forth as Exhibit 1 to this Proxy Statement.
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Federal Income Tax Consequences of Options. The following is a general
summary of the typical federal income tax consequences of the issuance and
exercise of options under the Award Plan. It does not describe state or other
tax consequences of the issuance and exercise of options or the tax consequences
of a grant of restricted stock.
The grant of an ISO has no federal income tax effect on the optionee. Upon
exercise, the optionee does not recognize income for "regular" tax purposes;
however, the excess of the fair market value of the stock subject to an option
over the exercise price of such option (the "option spread") is includable in
the optionee's "Alternative Minimum Taxable Income" for purposes of the
Alternative Minimum Tax. If the optionee does not dispose of the stock acquired
upon exercise of an ISO until more than two years after the option grant date
and more than one year after exercise of the option, any gain upon sale of the
shares will be a capital gain. If shares are sold or otherwise disposed of
before both of these periods have expired (a "disqualifying disposition"), the
option spread at the time of exercise of the option (but not more than the
amount of the gain on the sale or other disposition) is ordinary income in the
year of such sale or other disposition. If gain on a disqualifying disposition
exceeds the amount treated as ordinary income, the excess is taxable as capital
gain. Compositech is not entitled to a federal income tax deduction in
connection with ISOs, except to the extent that the optionee has taxable
ordinary income on a disqualifying disposition.
The grant of a NSO has no federal income tax effect on the optionee. Upon
the exercise of a NSO, the optionee has taxable ordinary income (and Compositech
is entitled to a corresponding deduction) equal to the option spread on the date
of exercise. Upon the disposition of stock acquired upon exercise of a NSO, the
optionee recognizes either long-term or short-term capital gain or loss,
depending on how long such stock was held.
In the case of both ISOs and NSOs, special federal income tax rules apply
if Compositech Common Stock is used to pay all or part of the option price.
Special rules may also apply when a transferable option is transferred.
Board Recommendation and Vote Required. The Board believes that approval of
the proposal to amend the Award Plan will allow Compositech to continue to
provide incentives to attract, retain and motivate personnel through the grant
of stock options. Accordingly, the Board recommends that stockholders vote "FOR"
the amendment of the Award Plan. The affirmative vote of a majority of the
shares of Common Stock and Series A Stock present or represented and entitled to
vote at the meeting is required to approve the proposal.
RATIFICATION OF INDEPENDENT AUDITORS
The Board recommends that the stockholders ratify its appointment of Ernst
& Young LLP as independent auditors to audit the financial statements of
Compositech for the year ending December 31, 1998. Ernst & Young LLP (and its
predecessor company) has acted as Compositech's auditor since Compositech's
inception. A representative of Ernst & Young LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if he or she desires to do
so, and will be available to respond to appropriate questions. A affirmative
vote of a majority of the shares of Common Stock and Series A Stock present or
represented and entitled to vote at the meeting is required to ratify the
appointment of Ernst & Young LLP.
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ANNUAL REPORT TO STOCKHOLDERS
Compositech's Annual Report to Stockholders for the year ended December 31,
1997, containing the audited balance sheets as of December 31, 1996 and 1997 and
the related statements of operations, stockholders' equity and cash flows for
the years then ended is being mailed with this Proxy Statement to stockholders
entitled to notice of the Annual Meeting.
STOCKHOLDER PROPOSALS
Compositech will, in future proxy statements of the Board, include stockholder
proposals complying with the applicable rules of the SEC and the procedures set
forth in Compositech's Bylaws. In order for a proposal by a stockholder to be
included in the proxy statement of the Board relating to the annual meeting of
stockholders to be held in the spring of 1999, that proposal must be received in
writing by the Secretary of Compositech no later than January 15, 1999.
OTHER MATTERS
The Board know of no other matters that will be presented at the Annual Meeting.
If, however, any other matter is properly presented at the Annual Meeting, the
proxy solicited hereby will be voted in accordance with the judgment of the
proxyholders.
By Order of the Board of Directors,
FRED E. KLIMPL
Secretary
Hauppauge, New York
May 15, 1998
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Exhibit 1
COMPOSITECH LTD.
AMENDED AND RESTATED STOCK AWARD PLAN
1. Purpose
The purpose of this Stock Award Plan (the "Plan") is to provide to selected
officers, directors, employees and consultants and other non-employee
individuals providing or expected to provide valuable services contributing to
the growth and success of Compositech Ltd. (the "Company"), an opportunity to
obtain or increase a proprietary interest in the Company, or to benefit from the
appreciation in the value of the Company's Common Stock, par value $0.01 per
share (the"Common Stock"), as an incentive to such persons to continue and to
increase their efforts to benefit the Company and to continue their relationship
with the Company.
2. Administration
The Plan shall be administered by, and all decisions and determinations
concerning the Plan shall be made solely by, the Award Committee or any
successor committee (the "Committee") appointed by the Board of Directors of the
Company (the "Board"). The Committee shall consist of no less than three
"non-employee directors," as such term is defined in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
may establish, modify or rescind any rules or regulations for the conduct of its
business and the administration of the Plan, in any case, not inconsistent with
the express provisions of the Plan, the By-laws or the Restated Certificate of
Incorporation of the Company or any resolutions of the Board. Any decision of
the Committee in the administration of the Plan, shall be final, conclusive and
binding on all persons. Any action of the Committee shall be taken by a vote or
written consent of a majority of its members except that the members of the
Committee may authorize any one or more of their number to execute and deliver
documents on behalf of the Committee. No member of the Committee shall be liable
for any action taken, or determination made, in good faith.
3. Eligibility and Participation
Officers, directors and employees of the Company shall be eligible for
selection to participate in the Plan. Non-employee individuals, providing or
expected to provide valuable services to the Company, as the Committee may
determine, also shall be eligible for selection to participate in the Plan.
Notwithstanding the foregoing, only persons employed by the Company (or any
subsidiary thereof) shall be eligible to receive options intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options" or "ISOs"), hereunder.
4. Awards under the Plan
(a) "Awards" under the Plan shall mean and include any one or a combination
of ISOs, nonqualified stock options ("NQSOs," and together with ISOs, "Options")
and shares of Common Stock subject to restrictions ("Restricted Stock"). Awards
shall be represented by, or issued pursuant to, agreements in such form as the
Committee may from time to time approve, which agreements need not contain
uniform terms and conditions but shall comply with and be subject to all the
terms, conditions and restrictions of the Plan ("Award Agreements"). The
Committee shall have the authority to accelerate the vesting periods for all
Options granted by the Committee under the Plan.
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(b) Subject to adjustment as provided in paragraph 7 below, there may be
issued under the Plan pursuant to Awards an aggregate of not more than One
Million Six Hundred Seventy-Five Thousand (1,675,000) shares of Common Stock;
provided, however, that if an Option shall expire or terminate without having
been exercised in full, or if any shares of Restricted Stock shall be forfeited
by a recipient thereof, any unissued shares of Common Stock which were covered
by that Award may be added to the shares otherwise available for Awards to be
granted pursuant to the Plan. The Company hereby reserves One Million Six
Hundred Seventy-Five Thousand (1,675,000) shares of Common Stock for issuance
under the Plan.
(c) A participant who has been awarded an Option hereunder (an "Optionee")
(and any person succeeding to the Optionee's rights pursuant hereto) shall not
have any rights as a stockholder with respect to any shares of Common Stock
issuable pursuant to any Option until the date of the issuance of a stock
certificate to the Optionee for the shares. Except as provided in paragraph 7
below, no adjustment shall be made for dividends, distributions or other rights
(whether ordinary or extraordinary, and whether in cash, securities or other
property) for which the record date is prior to the date a stock certificate is
issued. A participant who has been awarded Restricted Stock hereunder shall,
except for the restrictions on transfer, be the owner of such Restricted Stock
and shall have all the rights of a stockholder.
5. Options
Each Option granted under the Plan shall comply with the following terms
and conditions:
(a) An Option exercise price shall be determined by the Committee in
its sole discretion, but in the case of an ISO, such exercise price shall
be not less than the Fair Market Value, as hereinafter defined, of the
Common Stock on the date of grant.
(b) The term of an Option shall be determined by the Committee, but in
no event shall any ISO be exercisable more than ten years after the date on
which it was granted.
(c) An Option shall not be transferable by the Optionee otherwise than
by will or the applicable laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee.
(d) An Option shall not be exercisable:
(i) prior to six months from the date it is granted;
(ii) unless payment in full is made for the shares of Common
Stock being acquired thereunder at the time of exercise (A) in United
States dollars by cash or check, (B) by tendering to the Company
shares of Common Stock owned by the person exercising the Option and
having a Fair Market Value equal to the cash price applicable to the
Option, (C) by a combination of United States dollars and shares of
Common Stock as aforesaid, or (D) with the prior approval of the
Committee, by tendering to the Company a promissory note on which such
person exercising the Option is personally liable and which is in a
form satisfactory to the Committee; and
(iii) unless the person exercising the Option fulfills the
eligibility requirements in paragraph 3 above at all times during the
period beginning with the date of grant of the Option and ending on
the date of such exercise, except that each Award Agreement with
respect to an Option may specify the
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conditions and circumstances under which an unexercised Option may or
may not be exercised in the event that the relationship between the
Company and the Optionee is terminated prior to the expiration date of
the Option.
(e) An outstanding, unexercised and unexpired Option shall become
exercisable in full in the event of a "change in control" of the Company
and the Committee may in its discretion provide that in such event such
outstanding, unexercised and unexpired Options may be surrendered for cash
in the amount by which the fair market value of the Company's Common Stock
subject to such Options immediately prior to the "change in control" as
determined by the Committee exceeds the exercise price of such Common Stock
at such time. The Committee also has the discretion to provide that Options
will continue to be exercisable following the change in control for the
consideration that would have been receivable at the time of the change in
control if the options had been exercised immediately prior thereto. A
"change in control" means generally (i) the merger or consolidation of the
Company as a result of which the Company is not the surviving entity, (ii)
the sale of all or substantially all of the assets of the Company, (iii)
the acquisition by another person of 80% or more of the then outstanding
shares of Common Stock or (iv) the recapitalization, reorganization,
dissolution or liquidation of the Company.
For purposes hereof "Fair Market Value" shall mean the fair market value
per share of the Company's Common Stock as determined by the Committee in good
faith; provided, however, that if the Company's Common Stock is listed or
admitted to trading on a securities exchange registered under the Exchange Act,
or as a national market security on the National Association of Securities
Dealers, Inc., Automated Quotations System ("NASDAQ") or any similar system then
in use, the Fair Market Value per share shall be the average of the reported
high and low sales price on the date in question (or if there was no reported
sale on such date, on the last preceding date on which any reported sale
occurred) on the principal securities exchange or system on which such share is
listed or admitted to trading, or if a share is not listed or admitted to
trading on any such exchange and is not listed as national market security on
NASDAQ but is quoted on NASDAQ or any similar system then in use, the Fair
Market Value per share shall be the average of the closing high bid and low
asked quotations on such system for such share on the date in question.
6. Restricted Stock
An Award of Restricted Stock hereunder shall entitle the holder thereof to
receive shares of Common Stock which shall be forfeited if the relationship
between the Company and such holder terminates during the Restricted Period, as
defined below, for any reason other than those set forth in the related Award
Agreement. For purposes hereof, "Restricted Period" shall mean that period as
determined by the Committee during which the shares of Restricted Stock awarded
to a participant may be forfeited. The Committee may at any time provide that a
Restricted Period shall terminate upon the attainment of any performance
objective established by the Committee. Upon termination of the Restricted
Period, the shares of Restricted Stock shall be delivered to the recipient free
and clear of all such restrictions.
7. Dilution and Other Adjustment
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event, the number or kind of shares issued, or that may be issued under
the Plan pursuant to paragraph 4 above shall be automatically adjusted to give
effect to the occurrence of such event (and, in the case of an Option, the
number or kind of shares subject to, or the Option price per share under, any
outstanding Option shall be automatically adjusted) so that the
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proportionate interest of the participant shall be maintained as before the
occurrence of such event. Any adjustment in outstanding Options pursuant to this
paragraph 7 shall be made without change in the total Option exercise price
applicable to the unexercised portion of such Options and with a corresponding
adjustment in the Option exercise price per share. No fractional shares of
Common Stock shall be issued pursuant to any adjustment referred to herein, and
any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share. Any adjustment made
pursuant to this paragraph 7 shall be conclusive and binding for all purposes of
the Plan.
8. Miscellaneous
(a) No person shall have any claim or right to be granted an Award under
the Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any person any right to be retained in any way in the service of the
Company.
(b) No shares of Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied, that such issuance will be in compliance with
applicable federal, state and other securities laws.
(c) It shall be a condition to the obligation of the Company to issue
shares of Common Stock upon exercise of an Option, or deliver shares upon
termination of a Restricted Period, as the case may be, that the participant (or
any beneficiary or person entitled to act under paragraph 9 below) pay to the
Company, upon its demand, any taxes required to be withheld.
(d) The expenses of the Plan shall be borne by the Company.
(e) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company or the Committee.
9. Total Disability or Death
(a) Except as otherwise provided in the Award Agreement, if an employee
Optionee terminates employment with the Company as the result, in the sole
judgment of the Committee, of his becoming totally disabled, the Optionee shall
be entitled to exercise any Option to the extent his right to exercise such
Option had accrued at the date of termination of employment and had not
previously been exercised, for a period of three months after such termination,
subject, in any case, to all other provisions of the Plan.
(b) Except as otherwise provided in the Award Agreement, if the employee
Optionee should die either (i) while employed by the Company, or (ii) during any
period in which the Optionee may exercise the Option following termination of
employment, then the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the applicable laws of descent and distribution
(including, without limitation, the executors, administrators or other personal
representatives of the Optionee or his or her estate) shall be entitled to
exercise the Option to the extent his right to exercise such Option had accrued
at the date of termination of employment and had not previously been exercised,
for a period of twelve months from the date of such death, subject, in any case,
to all other provisions of the Plan.
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10. Amendment or Termination
The Plan may be terminated at any time or amended at any time or from time
to time by the Committee as the Committee shall deem advisable; provided,
however, that except as provided in paragraph 7 above, the Committee may not,
without further approval by the stockholders of the Company, increase the
maximum number of shares of Common Stock as to which Options may be granted, or
awarded as Restricted Stock, under the Plan, materially increase the benefits
accruing to participants under the Plan or change the class of persons eligible
to receive Awards under the Plan. No amendment or termination of the Plan shall
materially and adversely affect any right of any participant with respect to any
Award theretofore granted without such participant's written consent. No ISO may
be granted after the tenth anniversary of the effective date of the Plan.
11. Effectiveness
The Plan shall not be effective and no Award granted hereunder shall have
effect unless and until the Plan has been approved and adopted by a majority in
voting power of the stockholders of the Company.
Amended June 23, 1998
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