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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to___________________
Commission File Number 0-20701
COMPOSITECH LTD.
(Exact Name of Registrant as specified in its charter)
Delaware 11-2710467
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Ricefield Lane, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 436-5200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes |X| No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of August 13, 1999:
Common Stock $.01 par value 16,686,563
- --------------------------- ----------------
Class Number of shares
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<PAGE>
COMPOSITECH LTD.
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
----
<S> <C>
Item 1. Financial Statements
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998..........2
Statements of Operations (unaudited) for the three-month and six-month
periods ended June 30, 1999 and 1998.....................................3
Statements of Cash Flows (unaudited) for the six-month periods
ended June 30, 1999 and 1998.............................................4
Notes to Financial Statements (unaudited).....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................8
Part II - Other Information
Item 2. Changes in Securities........................................................12
Item 4. Submission of Matters to a Vote of Security Holders..........................13
Item 6. Exhibits and Reports on Form 8-K.............................................14
Signature.............................................................................15
</TABLE>
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
------------ ------------
ASSETS (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 176,820 $ 102,286
Accounts receivable trade - net 79,858 27,273
Accounts receivable from joint venture 142,038 103,696
Inventories 225,159 254,784
Prepaid expenses and other 220,940 165,827
------------ ------------
Total current assets 844,815 653,866
Property and equipment at cost - net 5,505,950 5,721,215
Investment in joint ventures - net of accumulated amortization
of $30,750 (1999) and $21,750 (1998) 5,721,818 5,562,090
Advance payments on construction-in-progress 16,753
Deferred debt expense - net of accumulated amortization of $132,298 (1999) 157,001 133,728
Other assets and other deferred charges, net of accumulated amortization
of $204,738 (1999) and $19,256 (1998) 493,324 151,110
------------ ------------
Total assets $ 12,722,908 $ 12,238,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 819,756 $ 637,861
Deferred salaries 173,287 194,739
Accrued interest - all (1998) to stockholders 13,440 5,880
Other accrued liabilities 525,141 413,982
Deferred licensing income 65,460 64,248
Loans and notes payable 1,386,417 438,917
Notes payable to directors/stockholders 50,000
------------ ------------
Total current liabilities 3,033,501 1,755,627
Non-current liabilities:
Notes payable to directors/stockholders 1,540,833 1,595,000
Deferred salaries - officers/directors 879,385 814,481
Accrued interest - directors/stockholders 341,502 248,948
Capital lease obligations 9,235
Deferred licensing income 627,370 713,001
Advances received on sale of common stock 500,000 500,000
------------ ------------
Total non-current liabilities 3,889,090 3,880,665
7% Series B convertible preferred stock, par value $0.01 ; stated value $10,000 per share;
authorized shares - 220, issued and outstanding shares - none (1999) and 220 (1998) 2,200,000
Commitments
Stockholders' equity :
Undesignated preferred stock; authorized 3,999,780 shares, none issued and outstanding
Series A convertible preferred stock, par value $3.00 per share; authorized shares - 714,161,
issued and outstanding shares - 477,661 (1999) and 550,995 (1998) 1,432,983 1,652,985
Common stock, par value $.01 per share; authorized shares - 50,000,000,
issued and outstanding shares - 16,307,072 (1999) and 13,150,128 (1998) 163,071 131,502
Additional paid-in capital 42,509,551 37,436,677
Cumulative foreign currency translation adjustment (336,097) (552,039)
Deficit (37,686,691) (33,954,155)
------------ ------------
6,082,817 4,714,970
Less notes receivable received for issuance of common stock (282,500) (312,500)
------------ ------------
Total stockholders' equity 5,800,317 4,402,470
------------ ------------
Total liabilities and stockholders' equity $ 12,722,908 $ 12,238,762
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $119,985 $75,752 $215,965 $162,153
Licensing 15,861 18,660 28,451 31,576
------------ ------------ ------------ ------------
Total revenues 135,846 94,412 244,416 193,729
Costs and expenses:
Manufacturing 1,370,465 1,055,002 2,573,307 2,015,564
Selling, general and administrative 418,924 330,762 788,503 623,014
Research and development 80,421 25,297 147,807 65,910
------------ ------------ ------------ ------------
Total operating expenses 1,869,810 1,411,061 3,509,617 2,704,488
------------ ------------ ------------ ------------
(Loss) from operations (1,733,964) (1,316,649) (3,265,201) (2,510,759)
Other income (expenses):
Interest income 8,927 14,178 20,579 30,960
Interest expense, net of interest capitalized (51,930) (51,681) (117,520) (147,160)
Amortization of debt discount and expenses (194,468) (189,471) (237,302) (497,603)
Loss on disposal of property and equipment (86) (8,360)
Other income (expense) (81,378) 5,450 (85,878) 55,796
------------ ------------ ------------ ------------
(318,849) (221,610) (420,121) (566,367)
------------ ------------ ------------ ------------
(Loss) from operations before equity in operations of joint venture (2,052,813) (1,538,259) (3,685,322) (3,077,126)
Equity in operations of joint venture (41,701) 10,368 (47,214) 51,247
------------ ------------ ------------ ------------
Net (loss) (2,094,514) (1,527,891) (3,732,536) (3,025,879)
Preferred stock dividends 3,841 265,118 15,692 265,118
------------ ------------ ------------ ------------
(Loss) attributable to common stockholders ($2,098,355) ($1,793,009) ($3,748,228) ($3,290,997)
============ ============ ============ ============
(Loss) per common share - basic and diluted ($0.13) ($0.15) ($0.25) ($0.31)
============ ============ ============ ============
Shares used in computing (loss) per common share 15,786,991 12,054,898 15,210,462 10,623,725
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($3,732,536) ($3,025,879)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 555,553 349,432
Loss on disposal of property and equipment 8,360
Amortization of debt discount and expenses 237,302 497,603
Equity in net (income) loss of joint venture 47,214 (51,247)
Changes in operating assets and liabilities:
Accounts receivable trade - net (52,585) 13,696
Accounts receivable from joint venture (38,342) 71,658
Inventories 29,625 31,425
Prepaid expenses and other (54,613) (4,724)
Other assets and other deferred charges 29,156
Accounts payable 181,895 (299,269)
Deferred salaries 43,452 171,462
Accrued interest 100,114 55,508
Deferred licensing income (84,419) 877,808
Other accrued liabilities 209,956 63,498
----------- -----------
Net cash and cash equivalents (used) in operating activities (2,528,228) (1,240,669)
Cash Flows from Investing Activities
Purchase of property and equipment - net (234,559) (487,689)
Investment in joint ventures (1,487)
Patent costs deferred (6,947) (7,929)
----------- -----------
Net cash and cash equivalents (used in) investing activities (241,506) (497,105)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 2,070,535 987,120
Net proceeds from exercise of warrants 1,282
Net proceeds from issuance of 7% Series B convertible preferred stock 1,900,000
Net proceeds from loans and notes payable 992,250
Payment of capital lease obligations (15,632) (21,415)
Payment of loans and notes payable (204,167)
----------- -----------
Net cash and cash equivalents provided by financing activities 2,844,268 2,865,705
----------- -----------
Increase in cash and cash equivalents 74,534 1,127,931
Cash and cash equivalents at beginning of period 102,286 624,254
----------- -----------
Cash and cash equivalents at end of period $ 176,820 $ 1,752,185
=========== ===========
Supplemental disclosures of cash flow information
Noncash financing activities:
Preferred Stock dividends on 7% Series B convertible preferred stock $ 15,692
===========
Issuance of common stock as compensation for bridge financing $ 30,000 $ 265,118
=========== ===========
Cash paid for:
Interest $ 36,498 $ 92,390
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
(Unaudited)
June 30, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Annual Report on
Form 10-KSB for the year ended December 31, 1998 of Compositech Ltd. (the
"Company"). In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month period ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999.
Reclassifications
Certain reclassifications have been made to the financial statements for
the three months and six months ended June 30, 1998 to conform to presentations
for the three months and six months ended June 30, 1999.
Note 2 - Common Stock Issuances and Stock Options
During the six months ended June 30, 1999, pursuant to Compositech's
Amended and Restated Stock Award Plan (the "Award Plan"), the Company granted to
selected officers and employees options to purchase 137,189 shares of common
stock at prices ranging from $1.406 per share to $2.50 per share, the market
value of the common stock on the date of the grant.
During the six months ended June 30, 1999, pursuant to the Award Plan, the
Company issued stock awards of 19,424 shares of its common stock to its
non-employee directors, vesting on a quarterly basis, as payment of the annual
$10,000 per year, per director, retainer approved by the Board of Directors on
January 22, 1999. The number of shares was determined using a price of $2.875,
the market value of the common stock on the date approved by the Board of
Directors.
During the six months ended June 30, 1999, 73,334 shares of the Series A
convertible preferred stock were converted at the existing conversion rate into
36,667 shares of common stock, resulting in a decrease in stockholders' equity
relating to Series A convertible preferred stock of $220,002, an increase in
stockholders' equity relating to common stock of $367 and an increase in
additional paid-in capital of $219,635.
5
<PAGE>
During the six months ended June 30, 1999, the Company issued 1,500,142
shares of common stock upon the conversion of all 220 shares of the Company's 7%
Series B convertible preferred stock ($2,200,000 face amount), resulting in an
increase in stockholders' equity relating to common stock of $15,001 and an
increase in additional paid-in capital of $2,184,999. The shares issued included
an accrued 7% dividend, paid in shares of common stock.
During the six months ended June 30, 1999, the Company sold 1,544,088
shares of its common stock, including 600,000 shares of its common stock issued
as a result of the exercise of a stock purchase option, in a private placement,
realizing approximately $2.1 million, net of expenses. In connection with this
private placement, the Company issued warrants to purchase 648,308 shares of
common stock at prices ranging from $1.125 to $2.125 per share.
During June 1999, warrants to purchase 2,250 shares of the Company's common
stock were exercised at $1.125 per share, resulting in proceeds of $2,531.
Note 3 - Loans and Notes Payable
In January 1999, the Company borrowed an additional $17,500, bringing the
total amount borrowed to $456,417, under the credit facility through Credit
Bancorp, which is collateralized by approximately 1.7 million shares of the
Company's common stock loaned to the Company by two of the Company's directors.
The loan is due on December 29, 1999 and bears interest at the rate of one
percent above the one year LIBOR rate (currently 6.84%), payable quarterly. A
default would occur if the Company fails to supplement the collateral or
partially repay the loan in the event the collateral falls in value by 25% or
more from the value as of the loan date. The Company has agreed with the two
directors to issue replacement shares to them in the event of any liquidation of
the collateral by the lender and provide them with registration rights, where
necessary.
In March 1999, the Company closed on the first tranche of $500,000, of a
$1.4 million term note series, which tranche is due on September 12, 1999,
payable at maturity in cash or common stock at the Company's option,
collateralized by certain equipment. In connection with this closing, the
Company issued warrants to purchase 125,000 shares of common stock at $2.372 per
share, 110% of the closing bid price of the stock on the date of the closing.
The warrants are exercisable until March 16, 2004. The fair market value of the
warrants has been estimated at $73,267 which is being amortized over the term of
the note. In April 1999, the Company closed on the second tranche of $430,000 of
the $1.4 million term note series, which tranche is due on October 18, 1999,
payable at maturity in cash or common stock at the Company's option,
collateralized by certain equipment. In connection with this closing, the
Company issued warrants to purchase 107,500 shares of common stock at $2.647 per
share, 110% of the closing bid price of the stock on the date of the closing.
The warrants are exercisable until April 21, 2004. The fair market value of the
warrants has been estimated at $88,688 which is being amortized over the term of
the note.
As part of a Retirement and Consulting Agreement entered into on May 28,
1999, between the Company and Fred E. Klimpl, the Company's former
Vice-Chairman, the Company has agreed to make payments at the rate of $50,000
per annum to Mr. Klimpl which will initially
6
<PAGE>
repay the $150,000 in loans due to Mr. Klimpl, followed in order by an agreed
upon severance payment and deferred compensation owed to Mr. Klimpl.
Note 4 - Subsequent Events
During July 1999, the Company sold 100,000 shares of its common stock in a
private placement, realizing approximately $200,000, net of expenses. In
connection with this private placement, the Company issued warrants to purchase
40,000 shares of common stock at an exercise price of $2.25 per share.
In July 1999, the Company closed on the third and final tranche of $450,000
of the $1.4 million term note series, which tranche is due on January 24, 2000,
payable at maturity in cash or common stock at the Company's option,
collateralized by certain equipment. In connection with this closing, the
Company issued warrants to purchase 112,500 shares of common stock at $2.131 per
share, 110% of the closing bid price of the stock on the date of the closing.
The warrants are exercisable until July 28, 2004. The fair market value of the
warrants has been estimated at $62,635 which will be amortized over the term of
the note.
In August 1999, the Company obtained extensions on the due dates, to April
2, 2001, on $1,445,000 of loans and notes payable to stockholders and
officers/directors, $879,385 of deferred salaries due to officers and $341,502
in accrued interest due to officers, stockholders and directors. In exchange for
the extension of due dates on the notes and loans payable, and the accruable
interest as of December 31, 1999, the Company issued warrants to purchase
185,137 shares of common stock at an exercise price per share still to be
determined. The foregoing amounts have been reclassified as non-current
liabilities, as of June 30, 1999, in the accompanying balance sheet.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, in addition to the discussions below, please refer to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 and
Amendment No. 2 to its Registration Statement on Form S-3 declared effective by
the Securities and Exchange Commission on June 15, 1999 and the risk factors
listed therein.
Overview
The Company manufactures copper-clad fiberglass epoxy laminates used to
manufacture printed circuit boards required by the electronics industry. During
1997 and 1998, the Company produced and sold its laminates in limited quantities
through a highly focused sales effort to gain production experience and product
performance data. However, this highly focused sales effort left the Company
vulnerable to order volatility. Throughout 1997 and 1998, and continuing through
the first half of 1999, the Company worked on adjusting and enhancing its
production equipment and its manufacturing processes. Production ramp up issues,
defective incoming raw materials, necessitating a change in vendors, coupled
with order volatility, led to a slower than expected expansion in production
capacity. The Company continues to work on and is making progress on solving
issues with incoming raw materials, process enhancements and contamination which
affect manufacturing yields and production efficiencies.
In April 1999, the Company announced that Sun Microsystems, Inc. and
Praegitzer Industries Inc. have approved the use of Compositech's CL200+
filament wound laminates in the manufacture of printed circuit boards utilized
by those companies.
In June 1999, the Company announced the signing of a supply and joint
product development agreement with Teradyne, Inc.'s Connection Systems Division.
The electronic materials supply agreement, which is renewable, provides for a
minimum annual purchase commitment for the first year, a joint development
program for high performance laminates and documentation of CL200+ performance
in a high volume backplane manufacturing environment.
Results of Operations
Sales of laminates increased to $119,985 for the three months ended June
30, 1999 from $75,752 for the three months ended June 30,1998 and to $215,965
for the six months ended June 30, 1999 from $162,153 for the six months ended
June 30, 1998. Sales for the second quarter of 1999 included a small amount of
the initial order under the supply agreement with Teradyne. Sales for July 1999
were approximately $76,000 and the order backlog in mid-August 1999 was
approximately $150,000.
8
<PAGE>
Research and development expenses increased to $80,421 for the three months
ended June 30, 1999 from $25,297 for the three months ended June 30, 1998 and to
$147,807 for the six months ended June 30, 1999 from $65,910 for the six months
ended June 30, 1998, reflecting the company's increased development efforts on
improved manufacturing methods.
Manufacturing expenses increased to $1,370,465 for the three months ended
June 30, 1999 from $1,055,002 for the three months ended June 30, 1998 and to
$2,573,307 for the six months ended June 30, 1999 from $2,015,564 for the six
months ended June 30, 1998, reflecting the higher levels of direct expenditures
related to the increased level of sales and manufacturing activity, process
enhancements and improvements to process reliability as well as the addition of
manufacturing personnel and related expenses, in anticipation of increased
sales.
Selling, general and administrative expenses increased to $418,924 for the
three months ended June 30, 1999 from $330,762 for the three months ended June
30, 1998 and to $788,503 for the six months ended June 30, 1999 from $623,014
for the six months ended June 30, 1998. Increases in payroll related costs in
connection with the new chief executive officer, technical director and West
Coast sales manager were partially offset by a decrease in recruitment costs.
Other increases were experienced in travel and sales promotion costs, including
the costs of an industry trade show in March of 1999. Professional fees,
consulting costs and investor relations expense increased by approximately
$118,000 due primarily to higher financial public relations costs, which
included the amortization of approximately $67,000 of the estimated fair market
value of warrants given to a consulting firm in exchange for public relations
services for the calendar year 1999. During the first half of 1999,
approximately $243,000 of selling, general and administrative expenses were
charged to the Canadian joint venture, in accordance with the joint venture
agreements, compared with $214,000 of charges in the six months ended June 30,
1998.
Interest expense decreased to $117,520 for the six months ended June 30,
1999 from $147,160 for the six months ended June 30, 1998. The decrease is
related to the borrowing cost of the 5% convertible debentures, which were fully
converted by April 1998, which was not present in the first half of 1999.
Amortization of debt discount and expenses increased to $194,468 for the three
months ended June 30, 1999 from $189,471 for the three months ended June 30,
1998, but decreased to $237,302 for the six months ended June 30, 1999 from
$497,603 for the six months ended June 30, 1998. The expense for the six months
ended June 30, 1999 includes $209,503 of amortization of expenses and warrants
granted in connection with the $1.4 million term note series. The 1998 period
reflected the amortization of costs associated with the 5% convertible
debentures, including accelerated amortization of $473,325 as a result of
debenture conversions during the four months ended April 30, 1998.
Other expense increased to $81,378 for the three months ended June 30, 1999
from ($5,450) for the three months ended June 30, 1998 and to $85,878 for the
six months ended June 30, 1999 from ($55,796) for the six months ended June 30,
1998. The three and six-month periods ended June 30, 1999 include a provision of
approximately $74,000 related to severance pay due to a former officer. The
first half of 1998 included a property tax refund applicable to prior fiscal
periods as well as adjustments of prior period professional fee charges, both of
which were not present in the 1999 period.
9
<PAGE>
The equity in the operations of the Canadian joint venture decreased to a
loss of $41,701 for the three months ended June 30, 1999, from a profit of
$10,368 for the three months ended June 30, 1998 and to a loss of $47,214 for
the six months ended June 30, 1999 from a profit of $51,247 for the six months
ended June 30, 1998. These amounts represent the Company's 50% share of the net
profit or loss of the joint venture. The loss recognized in the first half of
1999 reflects the higher level of pre-opening costs incurred by the joint
venture. The first half 1998 profit resulted from a cumulative adjustment of
interest income recorded by the joint venture on its short term investments in
excess of administrative and marketing costs incurred.
The foregoing resulted in the Company having a net loss of $2,094,514 for
the three months ended June 30, 1999 compared with $1,527,891 for the three
months ended June 30, 1998 and a net loss of $3,732,536 for the six months ended
June 30, 1999 compared with $3,025,879 for the six months ended June 30, 1998.
The net loss included non-cash items of $523,084 for the 1999 three-month
period, $352,126 for the 1998 three-month period, $840,069 for the 1999
six-month period and $804,148 for the 1998 six-month period. The increased loss
was attributable primarily to the increases in manufacturing, process
development and selling and administrative expenses.
Liquidity and Capital Resources
The Company has incurred significant losses and has substantial negative
cash flow since its inception. The Company's independent auditors have included
an explanatory paragraph in their report covering the December 31, 1998
financial statements, which expresses substantial doubt about the Company's
ability to continue as a going concern. The Company expects significant
operating losses to continue in 1999. As of June 30, 1999, the Company had
approximately $177,000 of available cash resources. In July 1999, the Company
closed on the third and final tranche of $450,000 of the $1.4 million term note
series, which tranche is due on January 24, 2000, payable at maturity in cash or
common stock at the Company's option. However, the Company will require
additional funding to cover current operations and to fund additional production
equipment purchases, which will require an average of $500,000 per month based
on projected levels of production, sales and capital expenditure requirements,
until revenues from operations are sufficient.
The Company is negotiating currently for additional funding from financial
sources and strategic partners. Such additional funding may be raised through
sources including license fees, sales of equipment in connection with licensing
operations, joint ventures or other collaborative relationships, as well as
equity or debt financing. No assurance can be given that funding will be
sufficient and available or, if it is available, that it will be available on
acceptable terms. If adequate funds are not available to satisfy either
short-term or long-term capital requirements, the Company may be required to
limit its operations significantly. No assurance can be given that the Company
will successfully complete expansion and enhancement of its production
equipment, achieve broad commercial acceptance of its product or generate
sufficient revenues to achieve profitable operations. No assurance can be given
that management has identified and made appropriate assumptions regarding all
factors that may affect the Company's business in the future.
10
<PAGE>
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Net cash and cash equivalents used in operating activities increased to
$2,528,228 for the six months ended June 30, 1999 from $1,240,669 for the six
months ended June 30, 1998. Licensing fees received in cash from the Taiwan
joint venture totaling $930,000, net of expenses, was the primary source of
funds provided by operating activities for the six months ended June 30, 1998,
with $877,808 deferred to future periods for financial reporting purposes. The
increases in manufacturing and process development expenses, accounted for a
significant portion of the remainder of the increase in cash used in operating
activities. Increases in accounts payable, deferred salaries, accrued interest
and expenses for this same period were partially offset by a increase in
accounts receivable and accounts receivable due from the Canadian joint venture.
Net cash and cash equivalents used in investing activity decreased to
$241,506 for the six months ended June 30, 1999, compared with $497,105 for the
six months ended June 30, 1998, reflecting a decrease in the level of capital
expenditures for property and equipment, which included advance payments on
construction-in-progress.
Cash flows from financing activities decreased slightly to $2,844,268 for
the six months ended June 30, 1999, from $2,865,705 for the six months ended
June 30, 1998. The primary sources of the funds, net of expenses, provided by
financing activities in the first half of 1999 were the private placement of the
Company's common stock, totaling $2,070,535 and the closing of the first and
second tranches of the term notes series, totaling $779,000, net of expenses.
The payment of $200,000 of loans in 1999, relate to two bridge loans made to the
Company, which were repaid following the receipt of the funds from the private
placement. The sale of the 7% Series B convertible preferred stock, realizing
$1,900,000, net of expenses and the sale of stock to the Taiwanese joint venture
for $952,500, net of expenses, comprised the majority of funds provided by
financing activities in the first half of 1998.
11
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Part II - Other Information
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities.
During the month ended June 30, 1999, the Company sold 469,520 shares of
its common stock and warrants to purchase 43,750 shares of common stock at
prices ranging from $1.375 per share to $2.125 per share, exercisable until July
31, 2001, to certain accredited investors in a private placement, for an
aggregate offering of $750,962.
In connection with the private placement, Trautman Wasserman & Co. Inc.,
the placement agent, received cash commissions of $60,077 and warrants to
purchase 98,630 shares of common stock at exercise prices ranging from $1.375
per share to $2.125 per share, exercisable until July 31, 2001.
The sales of the shares of common stock and warrants in the private
placement were made in reliance upon the exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"), provided by Section
4(2) of the Securities Act as transactions not involving a public offering and
Rule 506 promulgated thereunder.
The following warrants were issued in reliance upon the exemption from
registration under the Securities Act, provided by Section 4(2) of the
Securities Act as transactions not involving a public offering:
a) On April 21, 1999, in connection with the closing of the second
tranche of a $1.4 million term note series, the Company issued
warrants to purchase:
(i) 86,000 shares of its Common Stock for $2.647 per share,
exercisable until April 21, 2004 as investor warrants to
SovCap Equity Partners, Ltd., Correllus International Ltd.
and Arab Commerce Bank; and
(ii) 21,500 shares of its Common Stock for $2.647 per share,
exercisable until April 21, 2004 as compensation warrants to
Sovereign Capital Advisors, LLC, the placement agent.
b) On June 11, 1999, the Company issued warrants to purchase 114,103
shares of its common stock for $1.134 per share, 110% of the market
price the date of the loan from Credit Bancorp, exercisable until
December 29, 2003, to certain directors of the Company, in exchange
for the pledging of their shares of the Company, in order to secure
the loan obtained from Credit Bancorp.
c) On June 11, 1999, the Company issued warrants to purchase 400,000
shares of its common stock for $2.20 per share, representing 110% of
the market price on the date of the agreement, exercisable until June
3, 2002, to The J.B. Sutton Group LLC, in exchange for investment
banking services for a two year period.
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Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1999 Annual Meeting of Stockholders was held on June 22,
1999. The following actions were taken:
1. Nine directors were elected to serve for one-year terms on the Company's
Board of Directors, by the following votes:
For Withheld
---------- --------
Jonas Medney 14,067,151 161,566
Samuel S. Gross 14,064,262 164,455
Robert W. Middleton 14,068,262 160,455
Fred E. Klimpl 14,049,762 178,955
Willard T. Jackson 14,071,262 157,455
Heinz-Gerd Reinkemeyer 14,070,141 158,566
Christopher F. Johnson 14,071,262 157,455
Pierre Laflamme 14,070,151 158,566
James W. Taylor 14,071,262 157,455
2. The selection of Ernst & Young LLP as auditors for the Company for the year
1999 was ratified by a vote of 14,025,837 shares in favor and 63,855 shares
opposed. A total of 139,025 shares abstained from voting.
3. The amendment of Compositech's Amended and Restated Stock Award Plan to
increase by 1,000,000 shares the number of shares of Common Stock authorized for
issuance thereunder, was approved by a vote of 5,487,313 shares in favor and
699,413 shares opposed. A total of 81,024 shares abstained from voting. The
broker non-votes totaled 7,960,967.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.14.2 Compositech Ltd. Amended and Restated Stock Award Plan
10.45 First Amendment to Bridge Note Purchase Agreement, dated April
21, 1999, between the Company and Purchasers of the Second
Closing Bridge Notes
10.46 Second Amendment to Bridge Note Purchase Agreement, dated July
28, 1999, between the Company and Purchasers of the Third
Closing Bridge Notes
10.47 Second Amendment to the Registration Rights Agreement, dated July
28, 1999, between the Company and the Purchasers of the First,
Second and Third Closing Bridge Notes
10.48 Retirement and Consulting Agreement, dated May 28, 1999, between
the Company and Fred E. Klimpl
10.49 Supply and Joint Product Development Agreement, dated June 1,
1999, between the Company and Teradyne, Inc. *
27 Financial Data Schedules ( Edgar version only )
* Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment which has been filed separately with the Securities
and Exchange Commission.
(b) Reports on Form 8-K
Financial
Date of Report Item Reported Statements Filed
-------------- ------------- ----------------
June 22, 1999 Item 5 - Other Events No
(Announcing supply and joint development
agreement with Teradyne, Inc.'s
Connection System Division )
All other items required in Part II have been filed previously or are not
applicable for the quarter ended June 30, 1999.
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Signature
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 thereunto duly authorized.
COMPOSITECH LTD.
Dated: August 16, 1999 /s/ Samuel S. Gross
--------------------------
Executive Vice President, Secretary and
Treasurer
(Principal Accounting Officer and officer
duly authorized to sign this report on
behalf of the registrant)
Exhibit 10.14.2
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.
<PAGE>
(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 Two
Million Six Hundred Seventy-Five Thousand (2,675,000) 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 Two Million Six
Hundred Seventy-Five Thousand (2,675,000) 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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<PAGE>
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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<PAGE>
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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<PAGE>
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 22, 1999
Exhibit 10.45
FIRST AMENDMENT
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY
AGREEMENT (the "First Amendment") is made and entered into as of this 21st day
of April, 1999, between COMPOSITECH LTD., a Delaware corporation (the "Company")
and the Purchasers hereto (each of whom is individually referred to as a
"Purchaser" and all of whom collectively are referred to as the "Purchasers"),
in connection with an Additional Closing as contemplated in the Purchase
Agreement (defined below). Capitalized terms used and not otherwise defined in
this First Amendment shall have the meanings ascribed to them in the Purchase
Agreement.
Background
The Company has previously authorized the issuance, sale, and delivery of
up to $1,500,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes (the "Bridge Notes") in the Series 1 Bridge
Note Purchase And Security Agreement (the "Purchase Agreement") dated March 16,
1999, by and among the Company and the Purchasers. The First Closing under the
Purchase Agreement for the sale of $500,000 in original principal amount of
Bridge Notes took place pursuant to the terms of the Purchase Agreement on that
date, and the parties now wish to conduct an Additional Closing under the
Purchase Agreement (the "Second Closing") for the issuance, sale, and delivery
of $430,000 in original principal amount of Bridge Notes (the "Second Closing
Bridge Notes") contemporaneously herewith, and to amend the Purchase Agreement
to, inter alia, provide for additional Collateral as security for the Second
Closing Bridge Notes and to appoint a Purchaser as representative for all other
Purchasers with respect to certain actions that may be taken in the future with
respect to the Collateral.
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Purchaser hereby agree as
follows:
Article 1. Amendments to Purchase Agreement
Section 1.1. General Amendments. The Purchase Agreement shall hereby be
amended as follows:
(a) Section 2.1 shall be amended to change the term "Bridge Notes" in
the third line thereof to read "Bridge Notes issued on the First Closing
Date."
(b) Section 2.2 shall be amended such that the first three lines of
the first sentence read "Upon the occurrence or existence of an "Event of
Default" as defined in Section 10 of the Bridge Notes issued at the First
Closing, each such Purchaser of such Bridge Notes, subject to the
provisions of this Article 2, as amended, shall have the right to pursue
all available remedies at law or in equity, including without limitation:"
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(c) Section 2.3 shall be amended by deleting in its entirety the text
of such section and replacing it with the following:
"On, before, or as soon as practicable after each Closing, the Company
shall execute and deliver or cause to be executed and delivered for filing
one or more Financing Statements with each of the Secretary of State of New
York and the Clerk of Suffolk County, New York to perfect the security
interest granted in connection with each such Closing."
(d) Section 3.2(a) shall be amended by inserting into the second line
thereof, after the phrase "perform each of this Agreement," the phrase "all
amendments thereto," so that all amendments to the Purchase Agreement are
included in the defined term "Transaction Agreements."
(e) Section 3.3 shall be amended by inserting into the eighth line
thereof, after the word "outstanding" and before the period at the end of
such sentence, the phrase ", all as adjusted for issuances or
authorizations of such stock subsequent to the First Closing Date."
(f) Section 7.6 shall be amended by deleting in its entirety the text
of such section and replacing it with the following:
"The Company will maintain or cause to be maintained a perfected first
priority security interest in favor of each group of Purchasers purchasing
Bridge Notes at a Closing, with each such first priority security interest
granted at each Closing having a value of approximately 200% of the
aggregate principal amount of Bridge Notes purchased at each such Closing
and then outstanding."
(g) Article 7 "Affirmative Covenants" shall be amended by adding at
the end of the first sentence in Section 7.17, before the period at the end
of such sentence, as follows:
", provided however, that the Company at its option may secure the
listing of all such shares required by this Section 7.17 at any time up to
but not later than fifteen (15) days prior to the Registration Deadline (as
defined in Section 2(a) of the Registration Rights Agreement)."
Article 2. Second Closing Grant of Security Interest and Provision of
Collateral.
Section 2.1. Additional Equipment as Security. In order to secure the
obligations of the Company due to the Purchasers under the Second Closing Bridge
Notes, in addition to the general credit of the Company, the Company hereby
grants to Purchasers of the Second Closing Bridge Notes, effective on the
Additional Closing Date established therefor, a continuing first priority
security interest in and a general lien upon the equipment listed and related
proceeds described on Exhibit A hereto and incorporated herein by reference (the
"Second Closing Collateral"). The Company and all Purchasers of Second Closing
Bridge Notes acknowledge and agree that the Equipment (and any proceeds related
thereto) pledged as collateral pursuant to the First Closing does not provide
security for the Second Closing Bridge Notes, and that such Bridge Notes are
secured solely by the Second Closing Collateral.
Section 2.2. Remedies Upon Default under the Second Closing Bridge Notes.
Upon the occurrence or existence of an "Event of Default" as defined in Section
10 of the Second Closing Bridge Notes, and subject to the terms of Article 2 of
the Purchase Agreement, as specifically amended by this First Amendment, each
Purchaser of the Second Closing Bridge Notes shall have the right to pursue all
available remedies at law or in equity, including without limitation:
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(a) all of the rights and remedies available to a secured party under
the Uniform Commercial Code as adopted in the State of New York and any
other applicable law, all of which shall be cumulative and none of which
shall be exclusive to the fullest extent permitted by law, and all other
legal and equitable rights under this First Amendment and the Transaction
Agreements which may be available to such Purchasers, all of which shall be
cumulative;
(b) the right to take possession of the Second Closing Collateral upon
receipt by the Company of 24 hours' written notice of Purchasers' intention
to do so, and to enter the offices of the Company during normal business
hours to take possession of the Second Closing Collateral; the right of the
Purchaser to (a) enter upon the premises of the Company or any of its
subsidiaries, or any other place or places where the Second Closing
Collateral is located and kept, through self-help and without judicial
process, without first obtaining a final judgment or giving Company or any
of its subsidiaries notice and opportunity for a hearing on the validity of
the Purchaser's claim and without any obligation to pay rent to Company or
any of its subsidiaries, and remove the Second Closing Collateral therefrom
to the premises of Purchaser or any agent of Purchaser, for such time as
Purchaser may desire, in order to effectively collect or liquidate the
Second Closing Collateral; and/or (b) require Company to assemble the
Second Closing Collateral and make it available to Purchaser at a place to
be designated by the Purchaser, in its sole discretion.
(c) the right to sell or otherwise dispose of all or any part of the
Second Closing Collateral in its then condition, at public or private sale
or sales, with such notice as may be required by law, in lots or in bulk,
for cash or on credit, all as such Purchaser may deem advisable, and
purchase all or any part of the Second Closing Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against the Company
obligations under the Second Closing Bridge Notes, and to apply the
proceeds realized from such sale, after allowing two (2) business days for
collection, first to the reasonable costs, expenses, and attorneys' fees
and expenses incurred by such Purchaser for collection and for acquisition,
storage, sale, and delivery of the Second Closing Collateral, secondly to
interest due upon the Company obligations under the Second Closing Bridge
Notes, and thirdly to the principal of the Company obligations under the
Second Closing Bridge Notes; and
(d) the right to proceed by an action or actions at law or in equity
to obtain possession of the Second Closing Collateral, to recover the
Company obligations under the Second Closing Bridge Notes and amounts
secured hereunder or thereunder or to foreclose under this Agreement or the
other Transaction Agreements and sell the Second Closing Collateral or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction, all without the necessity of posting any bond.
Section 2.3. Legal Opinion of Company Counsel. The opinion of legal counsel
to the Company in substantially the form of Exhibit B attached hereto is issued
in connection with the Second Closing.
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Article 3. Appointment of Representative.
Section 3.1. Further Amendment of Article 2 of Purchase Agreement. Article
2 "Security Agreement" shall be further amended by adding at the end of that
Article 2 the following sections, numbered and containing the text as follows:
"Section 2.5 Appointment of Purchaser Representative. Each Purchaser hereto
hereby irrevocably appoints SovCap Equity Advisors, Ltd., a corporation
organized under the laws of the Bahamas and a Purchaser hereunder, to act as the
sole and exclusive agent and representative (the "Representative") of such
Purchaser to act on behalf of such Purchaser and in such Purchaser's name,
place, and stead, to (i) exercise all rights of such Purchaser, and (ii) take
all action on behalf of Purchaser that may be taken by Purchaser with respect to
the collateral under this Agreement, the Bridge Notes, and the other Transaction
Agreements. Without limiting the generality of the foregoing:
(a) The Representative shall, on behalf of all Purchasers, send all
notices which shall or may be given by Purchasers, under the Transaction
Agreements, declare Events of Default under this Agreement, the Bridge
Notes, and the other Transaction Agreements, accelerate the Bridge Notes,
rescind acceleration of the Bridge Notes, and enforce the Bridge Notes,
this Agreement, and the other Transaction Agreements. The Representative
reserves the right, in its sole discretion, in each instance without prior
notice to the Purchasers, (i) to agree to the modification, waiver, or
release of any of the terms of any of the Transaction Agreements,
including, without limitation, the waiver or release of any of the
conditions precedent for the purchase and sale of the Bridge Notes; (ii) to
consent to any action or failure to act by the Company; and (iii) to
exercise or refrain from exercising any powers, rights, or remedies that
the Purchasers have or may have with respect to collateral under the
Transaction Agreements; provided however, that the Representative shall
not, without obtaining the prior written consent of each Purchaser (which
consent shall not be unreasonably withheld or delayed), exercise any of
such rights so as to knowingly release or waive any claim against the
Company or any other person who may be liable with respect to the Bridge
Notes if such action would have a materially adverse effect on the
collection of the indebtedness evidenced by the Bridge Notes or the
enforcement of the Transaction Agreements.
If any Purchaser shall refuse to consent to any amendment,
modification, waiver, release, or subordination requiring the written
consent of the Purchasers, the Purchasers who consent to such amendment,
modification, waiver, release, or subordination may, at their option, at
any time thereafter (but shall not be obligated to) purchase the Bridge
Note or Bridge Notes held by the non-consenting Purchaser or Purchasers by
paying to such non-consenting Purchaser or Purchasers an amount equal to
the unpaid principal and accrued but unpaid interest on the Bridge Note
held by such non-consenting Purchaser or Purchasers.
(b) The Representative shall collect, enforce, and bring any action on
the Transaction Agreements and any collateral granted therein in the name
of the Representative for the benefit of all Purchasers.
Section 2.6 Assurances.
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(a) Each Purchaser hereby authorizes third parties with whom
Representative deals in carrying out the responsibilities of Representative
hereunder, to rely conclusively on the instructions and decisions of the
Representative as to any action taken pursuant to and in accordance with
the terms of this Agreement and the other Transaction Agreements without
any further or additional approval or authorization from such Purchaser,
including without limitation, the execution and delivery of any documents
or instruments, or any other actions required to be taken by the
Representative under this Agreement and the other Transaction Agreements,
and no Purchaser shall have any cause of action against third parties with
whom Representative deals in carrying out the responsibilities of
Representative hereunder or under the other Transaction Agreements for any
action taken by such third parties in reliance upon the instructions or
decisions of the Representative;
(b) All actions, decisions, and instructions of the Representative
shall be conclusive and binding upon all of the Purchasers, and no
Purchaser shall have any cause of action against the Representative for any
actions taken, decision made or instruction given by the Representative
under this Agreement, except for fraud or willful misconduct by
Representative acting in such capacity hereunder.
Section 2.7 Default and Acceleration Procedures.
(a) Each Purchaser acknowledges and agrees that its respective rights
in, to, and under any collateral granted in the Transaction Agreements are
limited to the specific collateral securing the Bridge Notes purchased by
each such Purchaser as granted by the Company pursuant to the Closing at
which such Bridge Notes are purchased.
(b) The Representative shall give all Purchasers written notice of any
Event of Default under the Bridge Notes, this Agreement, or the other
Transaction Agreements which, in the judgment of the Representative,
adversely affects the respective interests of the Purchasers under any of
the Transaction Agreements. In the event of any Event of Default
thereunder, the Representative shall pursue any remedies available to
Purchasers under the Transaction Agreements which the Representative in its
sole discretion shall deem advisable, and Representative may also elect to
postpone the pursuit of remedies if in its sole discretion and judgment it
is appropriate under the circumstances to do so.
(c) In the event proceedings are instituted for a sale under power of
sale or a judicial foreclosure of the collateral provided under the
Transaction Agreements, the provisions of the New York UCC, absent written
agreement to the contrary, shall govern such proceedings and the actions
taken pursuant thereto, as among the Representative and the Purchasers.
(d) In the event the Representative acquires title to any of the
collateral provided under the Transaction Agreements pursuant to a
foreclosure or conveyance in lieu of foreclosure, title shall be taken in a
form acceptable to the Representative and shall be held by or on behalf of
the Representative for the benefit of only the Purchasers holding Bridge
Notes which were secured by such collateral, in their Proportionate Share.
The Representative shall manage such collateral in its ordinary course of
business and in accordance with its customary practices and procedures for
as long as such title is held in whole or in part in the name of or on
behalf of the Representative. The Representative shall contemporaneously
endeavor to sell such collateral on terms and conditions reasonably
acceptable to the Representative.
-5-
<PAGE>
(e) If the Representative receives a payment after acceleration of the
Bridge Notes, whether pursuant to a demand for payment or as a result of
legal proceedings against the Company, or from any source whatsoever, such
payment in respect of the specific Bridge Notes so paid shall be applied in
the following order (unless mandated otherwise by the Transaction
Agreements or validly by the express terms of such payment):
(1) To the expenses incurred in effecting such recovery or in
enforcing any right or remedy under the Transaction Agreements, and
any other expenses theretofore incurred by the Representative and not
previously reimbursed by the Company;
(2) To accrued interest, payable by the Company, according to
Purchaser's Proportionate Share of such accrued interest in respect of
such Bridge Notes; and
(3) To the unpaid principal of such Bridge Notes with each
Purchaser receiving such Purchaser's Proportionate Share of such
principal.
(f) The term "Proportionate Share" shall mean the amount of each
Purchaser's Bridge Note purchased at a specific Closing divided by the
total amount of Bridge Notes purchased at such Closing.
Section 2.8 Standard of Care of the Representative.
(a) The Representative shall endeavor in good faith to perform all
services and duties and exercise all powers hereunder specifically assigned
and delegated to the Representative, and the Representative shall perform
and exercise, and shall have the right and power to perform and exercise,
such other services and powers as are reasonably incidental thereto. The
Representative shall not be liable to the Purchasers, however, for any
action or failure to act or any error of judgment, negligence, mistake, or
oversight by it or any of its agents, officers, employees, or attorneys,
with respect to the Transaction Agreements, provided the Representative has
acted in good faith and has not been guilty of willful misconduct or gross
negligence. Without limiting the generality of the foregoing, the
Representative may consult with counsel or other advisors selected by it,
and the Representative shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such
counsel or other advisors. In performing its obligations hereunder and
under the Transaction Agreements, the Representative may rely in good faith
on written and telephonic communications received by the Representative
without investigating the genuineness thereof or the power and authority of
the author of such communications. Each Purchaser acknowledges and agrees
that the Representative's duties and obligations under this Agreement are
administrative and ministerial in nature, and that the Representative has
no fiduciary obligation to the Purchasers.
(b)The Representative does not assume, and shall not have, any
responsibility or liability, express or implied, for the adequacy,
sufficiency, validity, collectability, genuineness, or enforceability of
any of the Transaction Agreements, for the financial condition of the
Company, for compliance by the Company with the terms and conditions of the
Transaction Agreements, or for the accuracy of any financial or other
information furnished to the Purchaser by the Representative or by any
other party. The Representative shall not be required to ascertain or
inquire as to the performance or observance by the Company of any of the
terms, conditions, provisions, covenants, or agreements contained in any of
the Transaction Agreements or as to the
-6-
<PAGE>
use of the proceeds of the offering of the Bridge Notes or of the existence
or possible existence of any Event of Default thereunder.
(c) The Representative may accept deposits from, lend money to, and
generally engage in any kind of banking, trust, financial advisory, or
other business with the Company or any affiliate thereof as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Company or affiliate for services in connection with
such services, without having to account for the same to the Purchasers."
Section 3.2. Provision for Updated Disclosure Schedule. In connection with
the Second Closing and this First Amendment executed pursuant thereto, the
Company may in its discretion update its disclosure to Purchasers of certain
information required under Article 3 of the Purchase Agreement, by attaching to
this First Amendment an updated Disclosure Schedule, as indicated on Schedule 1
attached hereto and incorporated herein by reference.
Section 3.3. No Further Amendment. Except as specifically provided in this
First Amendment, the Purchase Agreement and all its original terms, covenants,
conditions, and agreements, including without limitation the Company's
representations and warranties therein, shall remain in full force and effect as
originally executed by the parties thereto, including the Purchasers executing
Purchaser signature pages to this First Amendment, such execution being deemed
to be execution of the Purchase Agreement.
Article 4. Miscellaneous.
Section 4.1. Entire Agreement. Amendments. This Agreement supersedes all
other prior oral or written agreements between the Purchasers under this Second
Closing, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this First Amendment and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant, or undertaking with respect to
such matters other than those contained in the Purchase Agreement, which remain
in full force and effect as if made on the date hereof. No provision of this
First Amendment may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 4.2. Governing Law. This First Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties agree that any appropriate
State court located in New Castle County, Delaware or the Federal courts located
in the District of Delaware, shall have jurisdiction of any case or controversy
arising under or in connection with this First Amendment and shall be the proper
forum in which to adjudicate such case or controversy, and the parties further
agree to submit to the personal jurisdiction of such court.
Section 4.3. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this First
Amendment must be in writing and given as more fully provided for in Section 9.5
of the Purchase Agreement.
[Remainder of page intentionally left blank; signatures begin on next page]
-7-
<PAGE>
COMPANY SIGNATURE PAGE
TO
FIRST AMENDMENT
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
COMPANY
COMPOSITECH, LTD.
By: /s/ Samuel S. Gross
----------------------------------------------
Samuel S. Gross, Executive Vice President
-8-
<PAGE>
PURCHASER SIGNATURE PAGE
TO
FIRST AMENDMENT TO SERIES 1 BRIDGE NOTE
PURCHASE AND SECURITY AGREEMENT
AND
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
ARAB COMMERCE BANK, LTD.
By:/s/ A. De Nazareth
-------------------------
Name: A. De Nazareth
Title: Secretary
================================================================================
Arab Commerce Bank, Ltd.
Purchaser Name Address and P.O. Box 309, Grand Cayman
Facsimile Number Cayman Islands
London Fax No.: 0171-437-2413
- --------------------------------------------------------------------------------
Principal Amount of Second USD$100,000.00
Closing Bridge Notes Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
<PAGE>
PURCHASER SIGNATURE PAGE
TO
FIRST AMENDMENT TO SERIES 1 BRIDGE NOTE
PURCHASE AND SECURITY AGREEMENT
AND
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
CORRELLUS INTERNATIONAL LTD.
By: /s/ Jan Lander
------------------------
Name: Jan Lander
Title: Director
================================================================================
Correllus International Ltd.
Purchaser Name Address and Calle Azucera 37
Facsimile Number Torreblanca Del Sol
296 40 Fuengirola
Spain
Fax No.: (34) 95 2477043
- --------------------------------------------------------------------------------
Principal Amount of Second USD$200,000.00
Closing Bridge Notes Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
<PAGE>
PURCHASER SIGNATURE PAGE
TO
FIRST AMENDMENT TO SERIES 1 BRIDGE NOTE
PURCHASE AND SECURITY AGREEMENT
AND
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
SOVCAP EQUITY PARTNERS LTD.
By: /s/ Barry W. Herman
----------------------------
Name: Barry W. Herman
Title: President
================================================================================
SOVCAP EQUITY PARTNERS LTD.
Purchaser Name Address and Cumberland House
Facsimile Number #27 Cumberland Street
P.O. Box CB 13016
Nassau, New Providence, The Bahamas
- --------------------------------------------------------------------------------
Principal Amount of Second USD$130,000.00
Closing Bridge Notes Purchased
- --------------------------------------------------------------------------------
Balboni Law Group LLC
Purchaser's Legal Counsel 3475 Lenox Road, NE, Suite 990
Address and Atlanta, Georgia 30326 USA
Facsimile Number Fax No.: (404) 812-3101
================================================================================
Exhibit 10.46
SECOND AMENDMENT
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY
AGREEMENT (the "Second Amendment") is made and entered into as of this 28th day
of July, 1999, between COMPOSITECH LTD., a Delaware corporation (the "Company")
and the Purchasers of the Third Closing Bridge Notes, as hereinafter defined
(each of whom is individually referred to as a "Purchaser" and all of whom
collectively are referred to as the "Purchasers"), in connection with an
Additional Closing as contemplated in the Purchase Agreement (defined below).
Capitalized terms used and not otherwise defined in this Second Amendment shall
have the meanings ascribed to them in the Purchase Agreement.
Background
The Company has previously authorized the issuance, sale, and delivery of
up to $1,500,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes (the "Bridge Notes") in the Series 1 Bridge
Note Purchase And Security Agreement (the "Purchase Agreement") dated March 16,
1999, by and among the Company and the Purchasers. The First Closing under the
Purchase Agreement for the sale and issuance of $500,000 in original principal
amount of Bridge Notes took place pursuant to the terms of the Purchase
Agreement on that date, the Second Closing for the sale and issuance of $430,000
in original principal amount of Bridge Notes took place, pursuant to the terms
of the Purchase Agreement and the First Amendment to Series 1 Bridge Note
Purchase and Security Agreement dated April 21, 1999 (the "First Amendment")
executed in connection with the Second Closing, on April 21, 1999, and the
parties now wish to conduct an Additional Closing under the Purchase Agreement
(the "Third Closing"), to provide for the issuance, sale, and delivery of up to
$570,000 in original principal amount of Bridge Notes (the "Third Closing Bridge
Notes") contemporaneously herewith, and to amend the Purchase Agreement to,
inter alia, provide for additional Collateral as security for the Third Closing
Bridge Notes.
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Purchasers under this Second
Amendment hereby agree as follows:
Article 1. Third Closing Grant of Security Interest and Provision of
Collateral.
Section 1.1. Additional Equipment as Security. In order to secure the
obligations of the Company due to the Purchasers of the Third Closing Bridge
Notes, in addition to the general credit of the Company, the Company hereby
grants to Purchasers of the Third Closing Bridge Notes, effective on the
Additional Closing Date established therefor, a continuing first priority
security interest in and a general lien upon the equipment listed and related
proceeds described on Exhibit A hereto and incorporated herein by reference (the
"Third Closing Collateral"). The Company and all Purchasers of Third Closing
Bridge Notes acknowledge and agree that the Equipment (and any proceeds related
thereto) pledged as collateral pursuant to the First Closing and Second Closing,
respectively, does not provide security for the Third Closing Bridge Notes, and
that such Third Closing Bridge Notes are secured solely by the Third Closing
Collateral.
1
<PAGE>
Exhibit 10.46
Section 1.2. Remedies Upon Default under the Third Closing Bridge Notes.
Upon the occurrence or existence of an "Event of Default" as defined in Section
10 of the Third Closing Bridge Notes, and subject to the terms of Article 2 of
the Purchase Agreement, as specifically amended by the First Amendment to Series
1 Bridge Note Purchase and Security Agreement dated April 21, 1999, and as
further amended by this Second Amendment, each Purchaser of the Third Closing
Bridge Notes shall have the right to pursue all available remedies at law or in
equity, including without limitation:
(a) all of the rights and remedies available to a secured party under
the Uniform Commercial Code as adopted in the State of New York and any
other applicable law, all of which shall be cumulative and none of which
shall be exclusive to the fullest extent permitted by law, and all other
legal and equitable rights under this Second Amendment and the Transaction
Agreements which may be available to such Purchasers, all of which shall be
cumulative;
(b) the right to take possession of the Third Closing Collateral upon
receipt by the Company of 24 hours' written notice of Purchasers' intention
to do so, and to enter the offices of the Company during normal business
hours to take possession of the Third Closing Collateral; the right of the
Purchaser to (a) enter upon the premises of the Company or any of its
subsidiaries, or any other place or places where the Third Closing
Collateral is located and kept, through self-help and without judicial
process, without first obtaining a final judgment or giving Company or any
of its subsidiaries notice and opportunity for a hearing on the validity of
the Purchaser's claim and without any obligation to pay rent to Company or
any of its subsidiaries, and remove the Third Closing Collateral therefrom
to the premises of Purchaser or any agent of Purchaser, for such time as
Purchaser may desire, in order to effectively collect or liquidate the
Third Closing Collateral; and/or (b) require Company to assemble the Third
Closing Collateral and make it available to Purchaser at a place to be
designated by the Purchaser, in its sole discretion.
(c) the right to sell or otherwise dispose of all or any part of the
Third Closing Collateral in its then condition, at public or private sale
or sales, with such notice as may be required by law, in lots or in bulk,
for cash or on credit, all as such Purchaser may deem advisable, and
purchase all or any part of the Third Closing Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against the Company
obligations under the Third Closing Bridge Notes, and to apply the proceeds
realized from such sale, after allowing two (2) business days for
collection, first to the reasonable costs, expenses, and attorneys' fees
and expenses incurred by such Purchaser for collection and for acquisition,
storage, sale, and delivery of the Third Closing Collateral, secondly to
interest due upon the Company obligations under the Third Closing Bridge
Notes, and thirdly to the principal of the Company obligations under the
Third Closing Bridge Notes; and
(d) the right to proceed by an action or actions at law or in equity
to obtain possession of the Third Closing Collateral, to recover the
Company obligations under the Third Closing Bridge Notes and amounts
secured hereunder or thereunder or to foreclose under this Agreement or the
other Transaction Agreements and sell the Third Closing Collateral or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction, all without the necessity of posting any bond.
Section 1.3. Agreement to Appointment of Purchaser Representative. Each
Purchaser hereto hereby acknowledges and agrees to the irrevocable appointment
of Representative, as defined in the Purchase Agreement as amended by the First
Amendment, to act as the sole and exclusive agent and
2
<PAGE>
Exhibit 10.46
representative of such Purchaser to act on behalf of such Purchaser and in such
Purchaser's name, place, and stead, to exercise all rights of such Purchaser,
and take all action on behalf of Purchaser that may be taken by Purchaser with
respect to the collateral granted under this Second Amendment, the First
Amendment, the Purchase Agreement, the Bridge Notes, and the other Transaction
Agreements, all as more fully set forth in the Purchase Agreement and the First
Amendment.
Section 1.4. Legal Opinion of Company Counsel. The opinion of legal counsel
to the Company in substantially the form of Exhibit B attached hereto is issued
in connection with the Third Closing.
Section 1.5. Provision for Updated Disclosure Schedule. In connection with
the Third Closing and this Second Amendment executed pursuant thereto, the
Company may in its discretion update its disclosure to Purchasers of certain
information required under Article 3 of the Purchase Agreement, by attaching to
this Second Amendment an updated Disclosure Schedule, as indicated on Schedule 1
attached hereto and incorporated herein by reference.
Section 1.6. No Further Amendment. Except as specifically provided in this
Second Amendment, the Purchase Agreement, as amended by the First Amendment, and
all its original terms, covenants, conditions, and agreements, including without
limitation the Company's representations and warranties therein, shall remain in
full force and effect as originally executed by the parties thereto, including
the Purchasers executing Purchaser signature pages to this Second Amendment,
such execution being deemed to be execution of the Purchase Agreement.
Article 2. Miscellaneous.
Section 2.1. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Purchasers under this Third
Closing, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Second Amendment and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant, or undertaking with respect to
such matters other than those contained in the Purchase Agreement, which remain
in full force and effect as if made on the date hereof. No provision of this
Second Amendment may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 2.2. Governing Law. This Second Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties agree that any appropriate
State court located in New Castle County, Delaware or the Federal courts located
in the District of Delaware, shall have jurisdiction of any case or controversy
arising under or in connection with this Second Amendment and shall be the
proper forum in which to adjudicate such case or controversy, and the parties
further agree to submit to the personal jurisdiction of such court.
Section 2.3. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Second
Amendment must be in writing and given as more fully provided for in Section 9.5
of the Purchase Agreement.
[Remainder of page intentionally left blank; signatures begin on next page]
3
<PAGE>
Exhibit 10.46
COMPANY SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
COMPANY
COMPOSITECH LTD.
By: /s/ Samuel S. Gross
-----------------------
Samuel S. Gross, Executive Vice President
4
<PAGE>
Exhibit 10.46
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT TO SERIES 1 BRIDGE NOTE
PURCHASE AND SECURITY AGREEMENT
AND
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
BRONIA GmbH
By: /s/ Bernard Muller
----------------------
Name: Bernard Muller
Title: President
================================================================================
Bronia GmbH
Purchaser Name Address and Baarerstrasse 73, Postfach 2515
Facsimile Number 6302 Zug
Switzerland
- --------------------------------------------------------------------------------
Principal Amount of Third USD$250,000.00
Closing Bridge Notes Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
<PAGE>
Exhibit 10.46
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT TO SERIES 1 BRIDGE NOTE
PURCHASE AND SECURITY AGREEMENT
AND
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
SOVCAP EQUITY PARTNERS LTD.
By: /s/ Barry W. Herman
-----------------------
Name: Barry W. Herman
Title: President
================================================================================
SOVCAP EQUITY PARTNERS LTD.
Purchaser Name Address and Cumberland House
Facsimile Number #27 Cumberland Street
P.O. Box CB 13016
Nassau, New Providence, The Bahamas
- --------------------------------------------------------------------------------
Principal Amount of Second USD$200,000.00
Closing Bridge Notes Purchased
- --------------------------------------------------------------------------------
Balboni Law Group LLC
Purchaser's Legal Counsel 3475 Lenox Road, NE, Suite 990
Address and Atlanta, Georgia 30326 USA
Facsimile Number Fax No.: (404) 812-3101
================================================================================
Exhibit 10.47
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Second
Amendment") is made and entered into as of this 28th day of July, 1999, between
COMPOSITECH LTD., a Delaware corporation (the "Company") and the Purchasers
thereto (each of whom is individually referred to as a "Purchaser" and all of
whom collectively are referred to as the "Purchasers"), pursuant to an
Additional Closing as contemplated in the Purchase Agreement (defined below).
Capitalized terms used and not otherwise defined in this Second Amendment shall
have the meanings ascribed to them in the Registration Rights Agreement or the
Purchase Agreement, as amended.
Background
The Company has previously authorized the issuance, sale, and delivery of
up to $1,500,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes (the "Bridge Notes") in the Series 1 Bridge
Note Purchase And Security Agreement (the "Purchase Agreement") dated March 16,
1999, by and among the Company and the Purchasers. In connection with the sale
and issuance of the Bridge Notes that may be converted into shares of common
stock ("Common Stock") of the Company, the Company has also issued warrants to
Purchasers of the Bridge Notes that may also be converted into Common Stock
under certain circumstances. As part of its obligations under the Purchase
Agreement, the Company and Purchasers executed a Registration Rights Agreement
(the "Registration Rights Agreement") dated March 16, 1999, providing for the
registration of the Common Stock, as amended by that certain First Amendment to
Registration Rights Agreement dated April 21, 1999 and executed by the Company
and certain Purchasers in connection with the Second Closing. The parties now
wish to conduct an Additional Closing under the Purchase Agreement
contemporaneously herewith, are further amending the Purchase Agreement in
accordance therewith, and also wish to further amend the Registration Rights
Agreement to provide for a change in timing for the filing of a Registration
Statement.
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Purchaser hereby agree as
follows:
Article 1. Amendment of Section 2.
Section 1.1. Amendment of Text to Article 2 of Registration Rights
Agreement. Article 2 "Registration" shall be amended by deleting the first
sentence in its entirety and replacing it with the following:
"The Company shall prepare and file with the SEC a Registration Statement
or Registration Statements (as is necessary) on Form S-3 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration, subject to the consent of each Purchaser and the provisions of
Section 2(e), which consent will not be unreasonably withheld), covering the
resale of all of the Registrable Securities, on or before the thirtieth (30th)
day following the Third Closing Date (the "Filing Deadline")."
-1-
<PAGE>
Section 1.2. No Further Amendment. Except as provided above in this Second
Amendment, the Purchase Agreement and all its original terms, covenants,
conditions, and agreements shall remain in full force and effect as originally
executed by the parties thereto all of whom shall continue to be bound by the
terms thereof.
Article 2. Miscellaneous.
Section 2.1. Entire Agreement. Amendments. This Agreement supersedes all
other prior oral or written agreements between the Purchasers under this Third
Closing, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Second Amendment to
Registration Rights Agreement, and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant, or undertaking with respect to such matters other than those
contained in the Registration Rights Agreement, as amended, or the Purchase
Agreement, as amended, as applicable, both of which remain in full force and
effect as if made on the date hereof. No provision of this Second Amendment may
be waived or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
Section 2.2. Governing Law. This Second Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties agree that any appropriate
State court located in New Castle County, Delaware or the Federal courts located
in the District of Delaware, shall have jurisdiction of any case or controversy
arising under or in connection with this Second Amendment and shall be the
proper forum in which to adjudicate such case or controversy, and the parties
further agree to submit to the personal jurisdiction of such court.
Section 2.3. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Second
Amendment must be in writing and given as more fully provided for in Section 11
of the Registration Rights Agreement.
[Remainder of page intentionally left blank; signatures begin on next page]
-2-
<PAGE>
COMPANY SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
COMPANY
COMPOSITECH, LTD.
By: /s/ Samuel S. Gross
-----------------------------------------
Samuel S. Gross, Executive Vice President
-3-
<PAGE>
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER
SOVCAP EQUITY PARTNERS LTD.
By: /s/ Barry W. Herman
-----------------------
Name: Barry W. Herman
Title: President
================================================================================
SOVCAP EQUITY PARTNERS LTD.
Purchaser Name Address and Cumberland House
Facsimile Number #27 Cumberland Street
P.O. Box CB 13016
Nassau, New Providence, The Bahamas
- --------------------------------------------------------------------------------
Principal Amount of Bridge Notes USD$830,000.00
Purchased
- --------------------------------------------------------------------------------
Balboni Law Group LLC
Purchaser's Legal Counsel 3475 Lenox Road, NE, Suite 990
Address and Atlanta, Georgia 30326 USA
Facsimile Number Fax No.: (404) 812-3101
================================================================================
<PAGE>
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER
ARAB COMMERCE BANK, LTD.
By:/s/ A. De Nazareth
---------------------
Name: A. De Nazareth
Title: Secretary
================================================================================
Arab Commerce Bank, Ltd.
Purchaser Name Address and P.O. Box 309, Grand Cayman
Facsimile Number Cayman Islands
London Fax No.: 0171-437-2413
- --------------------------------------------------------------------------------
Principal Amount of Bridge Notes USD$100,000.00
Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
<PAGE>
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER
CORRELLUS INTERNATIONAL LTD.
By: /s/ Jan Lander
------------------------
Name: Jan Lander
Title: Director
================================================================================
Correllus International Ltd.
Purchaser Name Address and Calle Azucera 37
Facsimile Number Torreblanca Del Sol
296 40 Fuengirola
Spain
Fax No.: (34) 95 2477043
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Principal Amount of Bridge Notes USD$200,000.00
Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
<PAGE>
PURCHASER SIGNATURE PAGE
TO
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER
BRONIA GmbH
By: /s/ Bernard Muller
----------------------
Name: Bernard Muller
Title: President
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Bronia GmbH
Purchaser Name Address and Baarerstrasse 73, Postfach 2515
Facsimile Number 6302 Zug
Switzerland
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Principal Amount of Bridge Notes USD$250,000.00
Purchased
- --------------------------------------------------------------------------------
Purchaser's Legal Counsel
Address and
Facsimile Number
================================================================================
Exhibit 10.48
RETIREMENT AND CONSULTING AGREEMENT AND MUTUAL RELEASES
This Retirement and Consulting Agreement and Mutual Releases (the
"Agreement"), entered into as of the 28th day of May, 1999, by and between
Compositech Ltd., a Delaware corporation (the "Company"), and Fred E. Klimpl
("Mr. Klimpl");
W I T N E S S E T H:
THAT WHEREAS, Mr. Klimpl has been employed by the Company since its
inception;
WHEREAS, the Company and Mr. Klimpl had an employment agreement which
expired December 31, 1998 (the "Employment Contract");
WHEREAS, Mr. Klimpl has announced that he will retire from the Company
effective May 28, 1999 (the "Retirement Date");
WHEREAS, the parties have had negotiations concerning, and have now agreed
upon, the terms of Mr. Klimpl's retirement from the Company;
NOW, THEREFORE, Mr. Klimpl and the Company, in consideration of the mutual
covenants and undertakings set forth herein, agree as follows:
1. Commencing as of the Retirement Date, the Company agrees to pay Mr.
Klimpl all monies owed Mr. Klimpl and his Individual Retirement Account by the
Company in the amount of $150,000 (the "Loans") all deferred compensation owed
to Mr. Klimpl in the amount of $239,807 (the "Deferred Compensation") and a
severance payment of $100,000 (the "Severance Payment" and together with the
Loans and the Deferred Compensation, the "Total Payment Amount"). In addition,
from the Effective Date (as defined below) until the Total Payment Amount has
been paid in full, Mr. Klimpl shall receive proportionally any benefits
regarding payment of deferred compensation granted to the executive officers as
a class to which the Company owes deferred compensation as of the date of this
Agreement, which shall include, but not be limited to, any accelerated payments
made by the Company (the "Deferred Compensation Benefits"). Until the Loans plus
all interest accrued thereon have been satisfied in
<PAGE>
full, Mr. Klimpl or his Individual Retirement Accounts, as the case may be,
shall retain their respective interests in the collateral related thereto and
shall receive periodic interest payments in accordance with the terms thereof.
Payments with respect to Total Payment Amount shall be made each month in
accordance with the Company's usual payroll practices at a rate of $50,000 per
year. Monthly payments will initially pay back the Loans followed in order by
the Severance Payment and the Deferred Compensation and shall continue until the
Total Payment Amount and any Deferred Compensation Benefits are paid in full to
Mr. Klimpl. All monthly payments made pursuant to this paragraph 1 other than
payments made to pay back the Loans shall be subject to applicable withholding
and payroll taxes. The first payment shall be made at the end of the month in
which this Agreement has become final, pursuant to paragraph 14 (the "Effective
Date").
2. Commencing as of June 1, 1999, the Company agrees to engage Mr. Klimpl
as an independent consultant to the Company for a period of one year, which term
shall be automatically renewed for additional one year terms unless written
notice of termination of the consulting relationship is given by either party at
least sixty (60) days prior to the end of the then current term, to provide the
Company with services (the "Consulting Services") primarily to assist in the
completion of the Taiwan joint venture agreements. As payment for the Consulting
Services, Mr. Klimpl will receive $500 for each day he performs at least 8 hours
of Consulting Services prorated for partial days (subject to a minimum of $1,000
a month regardless of days worked). Mr. Klimpl will also be reimbursed for any
expenses he incurs in performing Consulting Services under this Agreement.
3. The option to purchase 36,500 shares of common stock, par value $.01 of
the Company (the "Common Stock"), granted to Mr. Klimpl in an Award Agreement -
NQSO dated December 31, 1995 and the option to purchase 22,827 shares of Common
Stock granted to Mr. Klimpl in an Award Agreement-NQSO dated March 10, 1999
shall remain outstanding and shall vest in accordance with their terms.
4. The Company shall indemnify Mr. Klimpl for threatened or pending legal
proceedings that arise out of his service as an officer or director of the
Company as provided in
<PAGE>
Article Eighth, Section B of the Restated Certificate of Incorporation of the
Company, as may be amended from time to time.
5. Mr. Klimpl agrees to keep strictly confidential and not to disclose to
anyone, directly or indirectly, all information relating to the Company which is
not currently available to the public (collectively, the "Confidential
Information"), except that Mr. Klimpl may during interviews with prospective
employers or legal or arbitration proceedings, describe his employment at the
Company (subject to the non-disparagement provisions set forth in paragraph 6).
Confidential Information shall not include information which is (i) obtained by
Mr. Klimpl outside the scope of his employment with the Company or duties as a
director of the Company; (ii) obtained from a third party, not in violation of
any confidentiality obligation of such third party; or (iii) required to be
disclosed by law or court order; provided, that notice is promptly delivered to
the Company in order to provide it an opportunity to seek a protective order or
similar order with respect to such information and Mr. Klimpl thereafter
discloses the minimum information required to be disclosed in order to comply
with the request. Mr. Klimpl acknowledges that these confidentiality obligations
include the obligation not to communicate any Confidential Information to any
person or entity in any manner. If asked any question regarding any Confidential
Information, Mr. Klimpl will respond only that he does not want to discuss the
matter. The Company agrees that all requests for references from the Company in
respect of Mr. Klimpl shall be responded to by Mr. Jonas Medney or Mr. Samuel S.
Gross in their capacity as officers and directors of the Company, and that any
letter of reference provided by such persons shall be substantially in the form
set forth as Exhibit A to this Agreement. In the absence of Mr. Medney or Mr.
Gross as an officer or director of the Company, the Company and Mr. Klimpl shall
mutually agree on a designated official of the Company to provide such reference
letter and respond to reference inquiries in respect of Mr. Klimpl. Any public
announcement of the retirement of Mr. Klimpl from the Company shall be subject
to the prior written approval of Mr. Klimpl.
<PAGE>
6. Mr. Klimpl and the Company agree that neither will, directly or
indirectly, on his or its own or through another individual acting on his or its
behalf or at his or its request or with his or its authorization and knowledge,
orally or in writing or through any other medium of communication, disparage to
any other person or entity the other and, in the case of the Company, any of its
respective officers, directors, employees, products or services.
7. Mr. Klimpl hereby acknowledges and agrees that all personal property and
equipment furnished to Mr. Klimpl in the course of or incident to Mr. Klimpl's
employment, except a laptop computer currently in Mr. Klimpl possession which
the Company has agreed to allow Mr Klimpl to retain, belong exclusively to the
Company and shall be returned to the Company by personal delivery to Mr. Samuel
S. Gross, Executive Vice President and Treasurer of the Company. Mr. Klimpl
shall return all originals of any documents relating to that Company in his
possession but may retain copies of documents which are necessary for the
performance of his duties as a director of the Company.
8. In connection with the pledge by Mr. Klimpl of 599,990 shares of Common
Stock (the "Pledged Shares") to Credit Bancorp Limited ("CBL") in connection
with the CBL Insured Credit Facility Agreement, dated December 17, 1998 (the
"CBL Facility"), the Company shall issue to Mr. Klimpl a warrant to purchase
40,213 shares of Common Stock, which shall be exercisable for a period of five
years commencing on December 29, 1999, which is the closing date of the initial
loan under the CBL Facility (the "Closing Date") and terminating on the fifth
anniversary of the Closing Date at an exercise price of $1.134 per share.
9. Subject to the provisions of the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, and the Delaware General
Corporation Law, the Company shall indemnify Mr. Klimpl for any loss, including,
without limitation, any net tax liability incurred as a result of the sale of
the Pledged Shares (as defined below) by CBL, in connection with the pledge by
Mr. Klimpl of 599,990 shares of Common Stock (the "Pledged Shares") to CBL in
connection with the CBL Facility. The Company may satisfy its obligation to
indemnify Mr. Klimpl for the loss of the Pledged Shares, by issuing Mr. Klimpl
the number of
<PAGE>
shares of Common Stock equal to the number of Pledged Shares lost by Mr. Klimpl
(the "Replacement Shares"). In addition, at the request of Mr. Klimpl, or his
heirs, executors, administrators or legal representatives, the Company agrees to
use its best efforts to register the offer and sale of any Replacements Shares
pursuant to the Securities Act of 1933, as amended.
10. With respect to the loan outstanding under the CBL Facility which is
collateralized in part by the Pledged Shares (the "CBL Loan"), the Company
further agrees that:
(i) It will use its best efforts to repay the CBL Loan or the
portions thereof related to the Pledged Shares, on the earliest
possible date that the Board of Directors of the Company
determines that sufficient funds, which are not contractually
restricted, are available for repayment of the CBL Loan.
(ii) If the CBL Loan or the portion thereof related to the Pledged
Shares is repaid prior to the December 30, 1999 termination of
the CBL Facility, it will use its best efforts to have the
Pledged Shares returned to Mr. Klimpl as soon as practicable
after such termination. In any event, it will return the Pledged
Shares to Mr. Klimpl as soon as practicable after the December
30, 1999 termination of the CBL facility.
(iii) It shall promptly remit to Mr. Klimpl his pro rata share of all
dividends received from CBL or its trustee pursuant to the terms
of the CBL Facility.
(iv) It shall use its best efforts to cause CBL to divide the CBL Loan
into two separate loans one of which will represent the portion
of the CBL Loan which is collateralized by the Pledged Shares.
11. In the event that Mr. Klimpl determines it is in his best interest to
repay the portion of the CBL Loan collateralized by the Pledged Shares, the
amounts repaid shall be considered a loan to the Company on the same terms as
the CBL Loan including an interest rate
<PAGE>
of LIBOR plus 1% and a maturity date of December 29, 1999. The Company shall use
its best efforts to repay the amounts loaned to it by Mr. Klimpl pursuant to
this paragraph 11 on the earliest possible date that the Board of Directors of
the Company determines that sufficient funds, which are not contractually
restricted, are available to repay such amounts.
12. Mr. Klimpl accepts the payments and benefits provided to him under this
Agreement in full payment and satisfaction of all of his claims, rights and
interests as against the Company. In consideration for the payments and benefits
provided for by this Agreement, Mr. Klimpl hereby releases and forever
discharges the Company, and its officers, directors, employees, representatives
and agents, from all claims and liabilities of any nature that he now has, ever
has had or will ever have based on, by reason of or arising out of any event,
occurrence, action, inaction, transaction or thing of any kind or nature
occurring prior to or on the effective date of this Agreement ("Claims").
Without limiting the generality of the above, Mr. Klimpl specifically releases
and discharges any and all Claims at common law, in contract (including but not
limited to under the Employment Contract), tort, or pursuant to statute,
including but not limited to any and all Claims arising under Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Equal
Pay Act, the Rehabilitation Act, the Americans with Disabilities Act, the New
York State Human Rights Law, the New York City Human Rights Law, and the New
York Labor Law, and all similar laws, rules and regulations under New York law
or any other state the Company does business in, and all applicable amendments,
or any other law, statute, ordinance, rule, regulation, decision or order
pertaining to employment or pertaining to discrimination on the basis of sex,
age, alienage, race, color, creed, sex, national origin, religion, physical or
mental disability, marital status, citizenship, sexual orientation or non-work
activities. Notwithstanding anything contained in this paragraph 12 to the
contrary, Mr. Klimpl shall be entitled to the rights and benefits provided in
paragraph 4 of this Agreement
13. Mr. Klimpl represents and warrants that he has not heretofore assigned
or transferred, or purported to have assigned or transferred to any entity or
person, any Claims or cause of action released in paragraph 12, or any amount of
money related thereto.
<PAGE>
14. Pursuant to the Older Workers Benefit Protection Act and the Age
Discrimination in Employment Act, the Company hereby advises Mr. Klimpl that he
should consult an attorney regarding this Agreement, that he is entitled to
twenty-one (21) days from the date of his receipt of this Agreement to consider
it and that he may have seven (7) days from the date he signs this Agreement to
revoke it. At the conclusion of that seven (7) day period, this Agreement will
become final and Mr. Klimpl's right to revoke this Agreement will have expired.
15. Mr. Klimpl and the Company each acknowledge that they are entering into
this Agreement knowingly and voluntarily and with the advice of counsel.
16. This Agreement may not be amended or canceled, nor may any of its
provisions be waived, except in a suitable writing signed by the parties.
17. Except as expressly provided otherwise herein, any dispute, controversy
or claim arising out of or in relation to or in connection with this Agreement
shall be exclusively and finally settled by arbitration. The arbitration
proceeding shall be held in New York County and shall be governed by the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA")
as amended from time to time.
A single arbitrator shall be appointed by mutual agreement of the parties.
If the parties cannot reach agreement on an arbitrator within forty-five (45)
days of the submission of a notice of arbitration, the appointing authority for
the implementation of such procedure shall be the AAA, who shall appoint an
independent arbitrator who does not have any financial or conflicting interest
in the dispute, controversy or claim.
The decision of the arbitrators shall be final and binding upon the
parties. Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the party owing the judgment or
application may be made to such court for a judicial acceptance of the award and
an order of enforcement, as the case may be. Unless otherwise determined by the
arbitrator, each party involved in the arbitration shall bear the expense of its
own counsel, experts and presentation of proof, and the expense of the
arbitrator and the AAA (if any) shall be divided equally among the parties to
the arbitration.
<PAGE>
18. This Agreement constitutes the entire agreement between the Company and
Mr. Klimpl concerning its subject matter, supersedes any and all prior oral or
written agreements or understandings between those parties regarding the same
subject matter, including but not limited to the Employment Contract and may not
be modified except by the written consent of the affected parties.
19. This Agreement shall be binding upon all of Mr. Klimpl's and the
Company's heirs, executors, administrators, legal representatives, successors
and assigns, as applicable.
20. Each of the parties hereto, without further consideration, hereby
covenants and agrees to execute such documents, and to take such further action,
as may be necessary to further the purposes of this Agreement and to otherwise
act in good faith and deal fairly hereunder.
21. In the event that any provision of this Agreement, as applied to any
party or to any circumstance, shall be adjudged by a court to be void,
unenforceable or inoperative as a matter of law, then the same shall in no way
affect any other provision of this Agreement, the application of such provision
in any other circumstance or with respect to any other party, or the validity or
enforceability of this Agreement as a whole.
/s/ Fred E. Klimpl
------------------
Fred E. Klimpl
COMPOSITECH LTD.
By: /s/ Samuel S. Gross
-------------------
Name: Samuel S. Gross
Title: ExecutiveVice President, Secretary and
Treasurer
EXHIBIT 10.49
AGREEMENT, made as of the 1st day of May, 1999, by and between COMPOSITECH
LTD., a Delaware corporation having its principal place of business at 120
Ricefield Lane, Hauppauge, New York ("Compositech") and TERADYNE, INC., a
Massachusetts corporation having its principal place of business at 321 Harrison
Avenue, Boston, Massachusetts ("Teradyne").
W I T N E S S E T H :
WHEREAS, Compositech is engaged in the manufacture and sale of laminates
for printed circuit boards; and
WHEREAS, Compositech has developed a product designated as CL200+
("CL200+") for use in its business; and
WHEREAS, Teradyne is engaged in the manufacture and sale of backplanes; and
WHEREAS, the product of Compositech designated as CL200+ is suitable for
use by Teradyne in the backplanes manufactured by it; and
WHEREAS, the parties hereto are desirous of entering into an agreement for
the sale to, and purchase by, Teradyne of the product designated as CL200+ and
for the exchange of information and development of the products of each of the
parties hereto;
NOW, THEREFORE, upon the terms and conditions set forth herein, it is
mutually agreed by the parties hereto as follows:
1. Definitions: As used herein, the term:
(a) "Products" shall mean the backplanes manufactured and sold by Teradyne.
(b) "Contract Year" shall be the twelve (12) consecutive month period
commencing on June 1, 1999, and ending May 31, 2000.
(c) "CL200+" shall mean the descriptive name of the product being
manufactured and sold by Compositech.
2. Purchase and Sale of CL200+:
(a) Compositech shall manufacture, sell and deliver to Teradyne, and
Teradyne shall purchase and accept from Compositech, CL200+ in such quantities
as Teradyne shall require and in accordance with the quantities set forth in
Exhibit "A" annexed to this Agreement. Such purchases and sales shall be for the
selling prices shown on Exhibit "B".
(b) Teradyne shall order the CL200+ in the quantities set forth in Exhibit
"A" for delivery pursuant to the purchase order (each of which shall be in the
form of the purchase order annexed hereto as Exhibit "D"). In the event Teradyne
seeks to order CL200+ in quantities in excess of one hundred fifty (150%)
percent of the minimum requirement, it shall notify Compositech as to the
quantity desired and Compositech shall be afforded five (5) business days within
which it would be required to respond as to the availability of such quantities
and if it responds in an affirmative manner, purchase orders shall be placed for
the additional quantities under the terms and conditions set forth in Exhibit
"D".
(c) In order to permit an orderly availability of CL200+ for Teradyne,
Compositech shall furnish Teradyne with a two (2) week supply of CL200+
commencing on September 1, 1999, which shall be delivered and maintained at
Teradyne's facility in Nashua, New Hampshire, on a consignment basis and shall
be utilized by Teradyne as needed within the minimum and maximum levels to be
agreed upon before July 1, 1999, and to be annexed to this Agreement and set
forth on Exhibit "C".
3. Price and Terms:
(a) The initial price for CL200+ sold to Teradyne shall be as set forth on
Exhibit "B", which shall include cost of delivery to Teradyne's facility in
Nashua, New Hampshire.
1
<PAGE>
(b) Payment for CL200+ sold by Compositech to Teradyne shall be on a net
basis within thirty (30) days from the date of delivery.
(c) Pricing may be adjusted upwards or downwards upon agreement of the
parties and pricing is to be negotiated in good faith by the parties with
respect to any renewal periods based upon a review by the parties of
Manufacturing Part Cost Comparison Data (MPCCD), provided by Teradyne. * .
Compositech shall not use this information for any other purpose without the
written consent of Teradyne.
(d) In the event Teradyne fails to order or Compositech fails to deliver
the minimum requirements in any month as set forth in Exhibit "A", each party
shall have the right to make up the shortage within the following three (3)
months. Teradyne orders and Compositech deliveries in excess of the minimum
requirements set forth in Exhibit "A" may be used to offset shortages on a
cumulative basis during the Contract Year.
4. Joint Efforts: It is expressly understood and agreed between the parties
that they shall use their best efforts to optimize the suitability for the use
of CL200+ for the manufacture of the Product by Teradyne and, toward that end,
the following shall occur:
(a) Each of the parties hereto will document and verify CL200+ performance
in Teradyne's Product fabrication process and share such findings with the
other.
(b) Compositech shall provide technical interface to optimize the
production use of CL200+ at Teradyne and, in furtherance thereof, each of the
parties shall designate a primary technical contact to work with the other.
Teradyne will furnish the technical representative of Compositech with office
space and communication systems access at the Teradyne facility in Nashua, New
Hampshire. Such technical representative will devote at least fifty (50%)
percent of his time in connection with the Teradyne Product development.
(c) Technical review meetings will be held on a monthly basis with
attendance by appropriate technical people designated by each of the parties.
(d) Regular management meetings will be held to review product performance,
monitor progress and evaluation of sales and marketing monthly for the first six
(6) months following the commencement of this Agreement and quarterly
thereafter.
(e) Teradyne may, at its discretion, provide Compositech with customer
contacts in its Product market. Compositech will provide Teradyne with detailed
information regarding Compositech's prior contact with such customers and will
schedule joint meetings where Teradyne deems it appropriate in order to support
the conversion of use of CL200+ in the Product.
(f) The actions described in this section do not constitute a commitment or
obligation for Teradyne to continue purchasing CL200+.
5. Claims, Warranties and Limitations of Liability:
(a) Compositech expressly warrants that CL200+ sold hereunder shall be of
merchantable quality, free from defects in materials and workmanship, and fit
for their intended use for the Product and that CL200+ will be manufactured in
accordance with applicable federal, state and local laws, regulations and orders
and specifications.
(b) Compositech warrants that CL200+ does not infringe on any United States
or foreign patent, or on any other right of any other person. Compositech shall
indemnify and hold Teradyne harmless against any claim of infringement of patent
or such other rights relating to the manufacture, sale or use of CL200+ and
shall bear all costs and expenses, including reasonable attorneys' fees, arising
from or related to any such claim. As used herein, the term "claim" includes,
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed with the Securities and Exchange
Commission.
2
<PAGE>
without limitation, any claim for temporary or permanent injunctive relief in
any action for such infringement of patent or other rights.
(c) Teradyne shall give Compositech written notice of any breach of
warranty promptly after Teradyne's discovery thereof.
(d) Compositech makes no indemnity, representation or warranty, either
express or implied, with respect to the CL200+, except for the warranties and
indemnities expressly set forth in this paragraph 5 and in no event shall
Compositech be liable to Teradyne for special or consequential damages beyond
the replacement cost of the CL200+, except as provided for in the Terms and
Conditions set forth in Exhibit "D".
6. Joint Projects:
(a) The parties hereto shall explore joint projects on a shared cost basis
commencing June 1, 1999, or thereafter. Joint projects may result in either
Jointly Designed Technology or Solely Designed Technology
(b) Jointly Designed Technology (including all rights to patent such
Technology) shall be jointly owned by the designing parties and Solely Designed
Technology (including all rights to patent such Technology) shall be solely
owned by the designing party. Jointly Designed Technology is that architecture,
product, part, core, cell or element (Technology) created when both parties
participate in the invention and Solely Designed Technology is Technology
created when only one party participates in the invention. Implementing (such as
processing a design), funding or defining requirements for the Technology does
not constitute participation in the invention of that Technology. Compositech
and Teradyne shall cooperate in obtaining protection for intellectual property
rights related to Jointly Designed Technology but neither Compositech nor
Teradyne shall patent Jointly Designed Technology without the prior written
consent of the other party.
(c) For a period of ten (10) years after the date that (i) Jointly Designed
Technology; or (ii) Compositech Solely Designed Technology which is funded by
Teradyne, is available for shipment to Teradyne as released Technology,
Compositech grants to Teradyne all rights which Compositech owns or has in the
Jointly Designed Technology and/or Compositech Solely Designed Technology, on an
exclusive basis, for use only within the backplane marketplace. During this ten
(10) year exclusivity period, Compositech retains all rights which it owns or
has in the Jointly Designed Technology and Compositech Solely Designed
Technology for use in any area outside the backplane marketplace.
(d) In the event a joint project is terminated prior to availability of
shipment of the Jointly Designed Technology or Compositech Solely Designed
Technology to Teradyne as released Technology, the ten (10) year exclusivity
period in (c) above shall still apply, commencing on the date of project
termination.
(e) Compositech agrees to manufacture and/or sell to Teradyne, on
reasonable terms, products developed for Teradyne, regardless of whether they
contain Jointly Designed Technology or Solely Designed Technology.
(f) Compositech and Teradyne agree that each will not, without the prior
written consent of the other party, disclose results of Jointly Designed
Technology to third parties. The parties will negotiate a form of nondisclosure
agreement for each joint project, which will include a provision restricting
each party from disclosing the other party's proprietary information or Solely
Designed Technology.
3
<PAGE>
7. Security of Supply: In the event Compositech and its Canadian joint
venture, Lamines CTEK, Inc., cease to produce CL200+ or fail to produce the
minimum commitment of CL200+ or in the event Compositech shall file a petition
in bankruptcy, make an assignment for the benefit of creditors or fail within
ninety (90) days from the date of the filing of an involuntary petition in
bankruptcy against Compositech to have such petition dismissed within ninety
(90) days of the date of filing such involuntary petition, then, if Teradyne
desires to manufacture CL200+, the following shall occur:
(a) Compositech shall grant a non-exclusive license to Teradyne to use
patents, know-how and all other information and rights owned by Compositech in
connection with CL200+. Such license shall be limited to the internal use by
Teradyne or a subcontractor of Teradyne in the manufacture of the Product and
Teradyne shall not have the right to sublicense any or all of such patents
without the express written consent of Compositech.
(b) Compositech will sell to Teradyne the custom equipment required to
produce CL200+ at *, Compositech shall furnish Teradyne with a schedule showing
cost of equipment within sixty (60) days from the date of this Agreement.
(c) At the request of Teradyne, Compositech will furnish Teradyne with
persons knowledgeable in the manufacturing technology at an hourly fee of *
Dollars plus out-of-pocket expenses.
(d) In order to further secure the supply of CL200+ to be delivered
pursuant to this Agreement, Compositech shall deliver to Testa, Hurwitz &
Thibeault, LLP, as Escrow Agent, an engineering and operation data package with
respect to CL200+. It is expressly agreed and understood that such engineering
and operation data package will be released to Teradyne only in the event of a
breach of this Agreement insofar as supply of CL200+ is concerned and in the
further event that such breach shall not be cured within the cure period set
forth in this Agreement. In the event Teradyne claims such a breach exists and
seeks access to the engineering and operation data package, it shall furnish
notice in writing to the Escrow Agent and Compositech setting forth the details
and basis for such claimed breach. Compositech shall have a period of ten (10)
days to object to the turnover of the engineering and operation data package. In
such event, the Escrow Agent shall continue to hold same in escrow until such
time as it receives instructions to release same by both Teradyne and
Compositech or until it receives direction by a court order or a determination
by findings from an arbitration proceeding. In the event such objection is not
given by Compositech within such ten (10) day period, the Escrow Agent shall
turn over the engineering and operation data package to Teradyne, Teradyne
agrees that in such event, it shall utilize the said package for its own use and
shall not license others or sell to others or disclose to others the data
contained in such package. Upon termination of this Agreement, other than by
reason of a breach of this Agreement by Compositech, the Escrow Agent shall
return to Compositech the engineering and operation data package and Teradyne
shall have no right to use same.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed with the Securities and Exchange
Commission.
4
<PAGE>
(e) As consideration for the granting of the license to utilize the patents
and know-how of Compositech, Teradyne shall pay to Compositech a royalty of *
cents per square foot of CL200+ produced by Teradyne. Teradyne shall furnish
Compositech with a statement as to the quantity of CL200+ produced each quarter
and shall make payment of the royalty reflected on such statement at the time of
the delivery of the statement. Compositech shall have the right to inspect the
books and records of Teradyne to verify the accuracy of the statements and the
royalty due to it.
(f) Notwithstanding the termination of this Agreement at the end of the
Contract Year or any renewal term, the rights of Teradyne pursuant to the
license provided for in paragraph "7" of this Agreement shall continue for a
period of ten (10) years following the termination of this Agreement upon
condition that Teradyne pay royalties to Compositech pursuant to this paragraph
"7" hereof.
Notwithstanding anything contained in this paragraph "7", the failure to
deliver the minimum quantities of the Product as set forth in Exhibit "A" and
delivery under this Agreement shall not initiate Teradyne's right to a license
in the event Compositech does cure such shortfall and deliveries within three
(3) months following such shortfall.
8. Restriction on Exclusive License: Compositech expressly agrees that
prior to December 31, 1999, it shall not grant an exclusive license to permit
the use of CL200+ for the manufacture of backplanes by any printed circuit board
manufacturer. Compositech agrees to discuss an exclusive license with Teradyne
for CL200+ for the manufacture of backplanes following the conclusion of the
first year of this Agreement.
9. Term: The initial term of this Agreement shall be for the Contract Year.
10. Renewal Periods:
This Agreement shall be renewed annually upon the written consent of each
of the parties, which consent shall be evidenced by written notice at least
sixty (60) days prior to the expiration of a Contract Year. Such election to
renew shall be conditioned upon agreement being reached between the parties as
to the pricing and volume of the sales to Teradyne during such renewal term,
which agreement as to pricing and volume must be determined within thirty (30)
days following the date the election to renew is given by the parties.
11. Confidentiality and Disclosure of Information: From the date of the
execution of this Agreement, the parties expressly agree that the terms and
conditions of a certain Confidentiality Agreement, a copy of which is annexed
hereto as Exhibit "E" shall be incorporated into, and be a part of, this
Agreement throughout the term of this Agreement and a period of five (5) years
beyond the termination of this Agreement.
12. Assignability: This Agreement may not be assigned by either party
without the prior written consent of the other party, which consent may not be
unreasonably withheld. Notwithstanding the foregoing, Compositech may assign the
Agreement to a third party who purchases substantially all of the assets of
Compositech and who is not competitive with Teradyne. For purposes of this
provision, the word "competitive" shall mean engaged in the manufacture and/or
fabrication of backplanes.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed with the Securities and Exchange
Commission.
5
<PAGE>
13. Benefit: This Agreement shall be binding upon and inure to the benefit of
each of the parties, their successors and assigns. In the event that the assets
and business of a party shall be transferred to some other corporation or
entity, the rights of the party hereunder may be enforced by such other entity
in its own name.
14. Construction: This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
15. Notices: All notices, request, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested, or by overnight
service or by facsimile, if to Compositech, at 120 Ricefield Lane, Hauppauge,
New York 11788, with copy to Berkman, Henoch, Peterson & Peddy, P.C., 777
Zeckendorf Boulevard, Garden City, New York 11530, Attention: Jack M. Steingart,
Esq., or at such other address as may be furnished to the other party in
writing, or, if to Teradyne, at 321 Harrison Avenue, Boston, Massachusetts
02118, with copy to Teradyne Legal Department, 321 Harrison Avenue, Boston,
Massachusetts 02118, or at such other address as it may have furnished to the
other party in writing.
16. Arbitration. By execution hereof, the parties hereto expressly agree
that upon the request of any party, whether made before or within thirty (30)
days after the institution of any legal proceeding, any action, dispute, claim
or controversy of any kind, whether in contract or in court, statutory or common
law, legal or equitable, arising between the parties in any way, arising out of
any of the provisions contained in this Agreement shall be resolved by binding
arbitration administered by the American Arbitration Association (the "AAA").
Judgment upon the award of the arbitrators may be entered in any court having
competent jurisdiction. No provision of this Agreement nor the exercise of any
agreements hereunder shall limit the right of any party, and any party shall
have the right, during any dispute, to seek, use, and employ ancillary or
preliminary remedies, such as, injunctive relief, from a court having
jurisdiction before, during or after the pendency of any arbitration. The
institution and maintenance of any action for judicial relief or pursuit of
provisional or ancillary remedies shall not constitute a waiver of the right of
any party to submit any dispute to arbitration and render inapplicable the
compulsory arbitration provisions hereof within the time limits set forth
herein. The arbitrator shall resolve all disputes in accordance with the
applicable substantive law. The arbitrator's finding of fact shall be binding
upon all parties and shall not be subject to further review except as otherwise
allowed by applicable law.
17. Counterparts: This Agreement may be executed simultaneously in four (4)
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year first above written.
COMPOSITECH LTD.
By: /s/ Samuel S. Gross
-----------------------
TERADYNE, INC.
By: /s/ Ronald J. Dias
-----------------------
6
<PAGE>
EXHIBIT A
Purchase Quantities - Minimum
July 1999 *
August 1999 *
September 1999 *
October 1999 *
November 1999 *
December 1999 *
January 2000 *
February 2000 *
March 2000 *
April 2000 *
May 2000 *
June 2000 *
Minimum quantities - The quantity Teradyne is obligated to purchase. However
Teradyne and Compositech will work together to accommodate fluctuations in the
conversion process flexibly responding to Teradyne or Compositech issues.
Additional purchase quantities - Compositech Ltd. will respond to a written
request for product in excess of the minimum purchase quantities plus 50%
provided for herein within 30 days. Purchase quantities, if any, in excess of *
are subject to specific price negotiation.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed with the Securities and Exchange
Commission.
<PAGE>
COMPOSITECH LTD.
EXHIBIT B - CONFIDENTIAL
Teradyne Development Contract *
Laminate Price List CL 200+
================================================================================
Effective January 1, 1999 -December 31, 1999 U.S. Dollars per square foot
Thickness Tolerance H/H 1/1 2/1 2/2
================================================================================
0.002 +|- 0.00025 * * * *
0.0025 +|- 0.0005 * * * *
0.0028 +|- 0.0005 * * * *
0.003 +|- 0.0005 * * * *
0.0035 +|- 0.0005 * * * *
0.004 +|- 0.0005 * * * *
0.0045 +|- 0.0005 * * * *
0.005 +|- 0.0007 * * * *
0.0055 +|- 0.0007 * * * *
0.006 +|- 0.0007 * * * *
0.007 +|- 0.001 * * * *
0.008 +|- 0.001 * * * *
0.009 +|- 0.001 * * * *
0.010 +|- 0.001 * * * *
0.011 +|- 0.001 * * * *
0.012 +|- 0.0015 * * * *
0.013 +|- 0.0015 * * * *
0.014 +|- 0.0015 * * * *
Notes:
1. Shipments: FOB Nashua, NH
2. Terms: Net 30 Days from Date of Invoice
3. Minimum Order: 150 square feet
4. Shipping tolerances on quantity ordered will be plus 5 minus
5 percent
5. Price in effect at time of shipment will apply
6. Emergency orders: lead time seven (7) working days
7. CL 200+ for use in high Tg backplanes: *% price premium
8. Dropoff: calculated against 36" x 48", 42" x 48" and 48" x
56" sheet sizes
The data above is provided for informational purposes only. Values are typical
and are not guaranteed. Compositech Ltd. reserves the right to change them
without notice at any time and for any purpose. Each user should perform his or
her own tests to determine suitability for particular applications. No warranty
is made that the data shown herein are accurate or that any product will conform
to that data, and nothing herein is to be construed to imply a license under any
Compositech Ltd. patent. COMPOSITECH LTD. EXPRESSLY DISCLAIMS ALL WARRANTIES,
EXPRESS AND IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND SUITABILITY FOR
A PARTICULAR PURPOSE.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed with the Securities and Exchange
Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the period ended June 30, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 176,820
<SECURITIES> 0
<RECEIVABLES> 79,858
<ALLOWANCES> 0
<INVENTORY> 225,159
<CURRENT-ASSETS> 844,815
<PP&E> 8,153,945
<DEPRECIATION> 2,647,995
<TOTAL-ASSETS> 12,722,908 <F1>
<CURRENT-LIABILITIES> 3,033,501
<BONDS> 0
0
1,432,983
<COMMON> 163,071
<OTHER-SE> 42,173,454
<TOTAL-LIABILITY-AND-EQUITY> 12,722,908 <F1>
<SALES> 215,965
<TOTAL-REVENUES> 244,416
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,509,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354,822 <F2>
<INCOME-PRETAX> (3,732,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,732,536)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
<FN>
<F1> Includes <$336,097> cumulative foreign currency translation adjustment,
applicable to the net assets of the Canadian joint venture [ Tag # 18 & Tag
# 25 ]
<F2> Interest expense includes $237,302 of amortization of debt discount and
expenses, a non-cash item [ Tag # 32 ]
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the period ended June 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,752,185
<SECURITIES> 0
<RECEIVABLES> 31,029
<ALLOWANCES> 0
<INVENTORY> 370,497
<CURRENT-ASSETS> 2,385,530
<PP&E> 6,829,490
<DEPRECIATION> 1,813,729
<TOTAL-ASSETS> 13,893,372
<CURRENT-LIABILITIES> 3,449,799 <F1>
<BONDS> 0
2,137,143 <F2>
1,702,983
<COMMON> 124,577
<OTHER-SE> 36,704,990
<TOTAL-LIABILITY-AND-EQUITY> 13,893,372
<SALES> 162,153
<TOTAL-REVENUES> 193,729
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,704,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 644,763 <F3>
<INCOME-PRETAX> (3,025,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,025,879)
<EPS-BASIC> (0.31)
<EPS-DILUTED> 0.31
<FN>
<F1> Current liabilities include current maturities of long-term
debt-stockholders of which $1,495,000 was due January 2, 2000, as amended
is due to officers or directors [ Tag # 19 ]
<F2> Represents balance of 7% Series B Convertible Preferred Stock, net of
unamortized discount of $62,857 [ Tag 32 ]
<F3> Interest expense includes $497,603 of amortization of debt discount and
expenses, a non-cash item [ Tag # 32 ]
</FN>
</TABLE>
