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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
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 September 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 November 12, 1999:
Common Stock $.01 par value 16,711,056
Class Number of shares
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Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
COMPOSITECH LTD.
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998............................2
Statements of Operations (unaudited) for the three-month and nine-month
periods ended September 30, 1999 and 1998..........................................................3
Statements of Cash Flows (unaudited) for the nine-month periods
ended September 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..................................................................9
Part II - Other Information
- ---------------------------
Item 2. Changes in Securities...................................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................................14
Signature........................................................................................................15
</TABLE>
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,311 $ 102,286
Short-term investments
Accounts receivable trade - net 182,529 27,273
Accounts receivable from joint venture 53,510 103,696
Inventories 248,516 254,784
Prepaid expenses and other 172,463 165,827
------------ ------------
Total current assets 687,329 653,866
Property and equipment at cost - net 5,365,772 5,721,215
Investment in joint ventures - net of accumulated amortization
of $35,250 (1999) and $21,750 (1998) 5,675,509 5,562,090
Advance payments on construction-in-progress 16,753
Deferred debt expense - net of accumulated amortization of $273,960 (1999) 109,496 133,728
Other assets and other deferred charges, net of accumulated amortization
of $376,154 (1999) and $19,256 (1998) 396,507 151,110
------------ ------------
Total assets $ 12,234,613 $ 12,238,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,561,248 $ 637,861
Deferred salaries 163,212 194,739
Accrued interest - all (1998) to stockholders 55,349 5,880
Other accrued liabilities 555,148 413,982
Deferred licensing income 64,800 64,248
Loans and notes payable 2,387,167 438,917
Notes payable to directors/stockholders 75,000
------------ ------------
Total current liabilities 4,861,924 1,755,627
Non-current liabilities:
Notes payable to directors/stockholders 1,507,500 1,595,000
Deferred salaries - officers/directors 895,635 814,481
Accrued interest - directors/stockholders 367,774 248,948
Capital lease obligations 9,235
Deferred licensing income 597,583 713,001
Advances received on sale of common stock 500,000 500,000
------------ ------------
Total non-current liabilities 3,868,492 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 - 442,662
(1999) and 550,995 (1998) 1,327,986 1,652,985
Common stock, par value $.01 per share; authorized shares - 50,000,000,
issued and outstanding shares - 16,710,768 (1999) and 13,150,128 (1998) 167,108 131,502
Additional paid-in capital 43,309,017 37,436,677
Cumulative foreign currency translation adjustment (324,078) (552,039)
Deficit (40,289,012) (33,954,155)
------------ ------------
4,191,021 4,714,970
Less notes receivable received for issuance of common stock (686,824) (312,500)
------------ ------------
Total stockholders' equity 3,504,197 4,402,470
------------ ------------
Total liabilities and stockholders' equity $ 12,234,613 $ 12,238,762
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 291,692 $ 136,830 $ 507,657 $ 298,983
Licensing 14,105 16,280 42,556 47,856
------------ ------------ ------------ ------------
Total revenues 305,797 153,110 550,213 346,839
Costs and expenses:
Manufacturing 1,820,349 1,318,667 4,393,656 3,334,231
Selling, general and administrative 409,328 310,323 1,197,831 933,337
Research and development 74,842 41,146 222,649 107,056
------------ ------------ ------------ ------------
Total operating expenses 2,304,519 1,670,136 5,814,136 4,374,624
------------ ------------ ------------ ------------
(Loss) from operations (1,998,722) (1,517,026) (5,263,923) (4,027,785)
Other income (expenses):
Interest income 13,207 16,972 33,786 47,932
Interest expense, net of interest capitalized (95,730) 21,909 (213,250) (125,251)
Amortization of debt premium/discount and expenses (461,661) (698,963) (497,603)
Loss on disposal of property and equipment (8,360)
Other income (expense) (5,587) 20,020 (91,465) 75,816
------------ ------------ ------------ ------------
(549,771) 58,901 (969,892) (507,466)
------------ ------------ ------------ ------------
(Loss) from operations before equity in operations of joint venture (2,548,493) (1,458,125) (6,233,815) (4,535,251)
Equity in operations of joint venture (53,828) 23,687 (101,042) 74,934
------------ ------------ ------------ ------------
Net (loss) (2,602,321) (1,434,438) (6,334,857) (4,460,317)
Preferred stock dividends 102,212 15,692 367,330
------------ ------------ ------------ ------------
(Loss) attributable to common stockholders ($ 2,602,321) ($ 1,536,650) ($ 6,350,549) ($ 4,827,647)
============ ============ ============ ============
(Loss) per common share - basic and diluted ($ 0.16) ($ 0.12) ($ 0.40) ($ 0.43)
============ ============ ============ ============
Shares used in computing (loss) per common share 16,608,458 12,457,706 15,681,582 11,241,770
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($6,334,857) ($4,460,317)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 856,630 524,900
Loss on disposal of property and equipment 8,360
Amortization of debt premium/discount and expenses 698,963 497,603
Issuance of common stock as compensation to non-employee directors 24,502
Equity in net (income) loss of joint venture 101,042 (74,934)
Changes in operating assets and liabilities:
Accounts receivable trade - net (155,256) (7,507)
Accounts receivable from joint venture 50,186 103,764
Inventories 6,268 72,869
Prepaid expenses and other (6,136) (47,200)
Other assets and other deferred charges 40,568 (8,362)
Accounts payable 923,387 (162,147)
Deferred salaries 49,627 229,464
Accrued interest 168,295 91,360
Deferred licensing income (114,866) 813,581
Other accrued liabilities 248,314 22,183
----------- -----------
Net cash and cash equivalents (used) in operating activities (3,443,333) (2,396,383)
Cash Flows from Investing Activities
Purchase of property and equipment - net (331,792) (733,586)
Investment in joint ventures (467,487)
Patent costs deferred (18,866) (7,929)
----------- -----------
Net cash and cash equivalents (used in) investing activities (350,658) (1,209,002)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 2,277,535 987,120
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 1,679,682
Advance received on sale of common stock 500,000
Payment of capital lease obligations (23,983) (32,289)
Payment of loans and notes payable (212,500)
----------- -----------
Net cash and cash equivalents provided by financing activities 3,722,016 3,354,831
----------- -----------
(Decrease) in cash and cash equivalents (71,975) (250,554)
Cash and cash equivalents at beginning of period 102,286 624,254
----------- -----------
Cash and cash equivalents at end of period $ 30,311 $ 373,700
=========== ===========
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
=========== ===========
Issuance of common stock as compensation to non-employee directors $ 24,502
===========
Cash paid for:
Interest $ 60,742 $ 92,390
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
(Unaudited)
September 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 nine-month period ended
September 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 nine months ended September 30, 1998 to conform to
presentations for the three months and nine months ended September 30, 1999.
Note 2 - Common Stock Issuances and Stock Options
During the nine months ended September 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 494,689 shares of common
stock at prices ranging from $1.188 per share to $2.50 per share, the market
value of the common stock on the date of the grant, including options to
purchase 151,000 shares of common stock which are cancelable if certain goals
are not achieved.
During the nine months ended September 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.
5
<PAGE>
During the nine months ended September 30, 1999, 108,333 shares of the
Series A convertible preferred stock were converted at the existing conversion
rate into 54,166 shares of common stock, resulting in a decrease in
stockholders' equity relating to Series A convertible preferred stock of
$324,999, an increase in stockholders' equity relating to common stock of $542
and an increase in additional paid-in capital of $324,457.
During the nine months ended September 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 nine months ended September 30, 1999, the Company sold 1,644,088
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 private placements,
realizing approximately $2.3 million, net of expenses. In connection with these
private placements, the Company issued warrants to purchase 688,308 shares of
common stock at prices ranging from $1.125 to $2.25 per share, exercisable
principally two years after the purchase of the common stock.
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.
During July 1999, warrants to purchase 271,991 shares of the Company's
common stock were exercised, at prices ranging from $1.125 per share to $2.6125
per share, in exchange for notes receivable in the amount of $404,324, maturing
on September 1, 2000, resulting in an increase in stockholders' equity relating
to common stock of $2,720 and an increase in additional paid-in capital of
$401,604.
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 7.04%), 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.
During 1999, the Company borrowed $1,380,000 under a term note series (the
"Term Notes") as a bridge to a future financing. The notes are due 180 days
after issuance, are collateralized by certain production equipment and are
payable at maturity in cash or common stock at the Company's option. Warrants
issued in connection with the financing were priced at 110% of the closing bid
price of the Company's common stock on the dates of the closings and are
exercisable for five years. The estimated fair market value of the warrants are
being amortized over the term of the notes. See Note 4 regarding extension of
the due dates of the Term Notes.
6
<PAGE>
Details of the individual closings are as follows :
<TABLE>
<CAPTION>
March 16, April 21, July 28,
1999 1999 1999
--------------------------------------------------
<S> <C> <C> <C>
Principal $ 500,000 $ 430,000 $ 450,000
Number of warrants 125,000 107,500 112,500
Exercise price of warrants $ 2.372 $ 2.647 $ 2.131
Fair market value of warrants $ 73,267 $ 88,688 $ 62,635
</TABLE>
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 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.
In August 1999, the Company obtained extensions on the due dates, to April
2, 2001, on $1,420,000 of loans and notes payable to stockholders and
officers/directors, $879,385 of deferred salaries due to officers and $367,774
(as of September 30, 1999) in accrued interest due to officers, stockholders and
directors. In exchange for the extension of the due dates on the notes and loans
payable and the accruable interest as of December 31, 1999, the Company will
issue warrants to purchase 182,252 shares of common stock at an exercise price
per share of $1.272, equaling the price of warrants issued in connection with a
recently concluded financing transaction. The warrants are exercisable until
August 2004.
In August and September of 1999, the Company sold a total of $343,000 of
short term bridge notes, realizing $315,560, net of commissions, in a private
placement. In connection with this transaction, the Company issued warrants to
purchase 115,750 shares of its common stock at prices ranging from $1.188 per
share to $1.563 per share, exercisable for two years after the date of the
notes.
Note 4 - Subsequent Events
In October 1999, the Company sold a total of $300,000 of short term bridge
notes, realizing $276,000, net of commissions, in a private placement. In
connection with this transaction, the Company issued or will issue warrants to
purchase 112,500 shares of its common stock at exercise prices ranging from
$1.094 to $1.245 per share, exercisable until two years from the date of the
notes.
The Company has agreed with the holders of the Term Note series, originally
closed in three tranches in March, April and July of 1999 to extend the due
dates of all the notes issued in that transaction to March 31, 2000, and the
holders and the placement agent have agreed not to exercise any warrants issued
in connection with this transaction until that date, subject to the sale of the
Series C 8% Convertible Preferred Stock, par value $0.01, the "Series C
Preferred Stock", in the aggregate amount of $2 million. In connection with the
extension, the Company will issue new term notes with terms similar to the old
notes in an aggregate amount of approximately $2,065,000, representing the face
amount of the original term notes, plus the redemption premium, accrued
interest, a 20% premium in lieu of repricing rights and related fees. The notes
will be payable at maturity in cash or common stock, at the Company's option. In
connection
7
<PAGE>
with this refinancing, the Company will issue warrants, including placement
agent warrants, to purchase approximately 316,871 shares of common stock at
$1.20 per share, representing 110% of the closing bid price of the stock on the
date of negotiation, exercisable until October 2004.
On November 5, 1999, the Company sold 54,000 shares of Series C Preferred
Stock for $540,000. In connection with the closing, the Company issued and will
issue warrants, including placement agent warrants, to purchase 129,000 shares
of common stock at $1.272 per share, representing 110% of the closing bid price
of the stock on the date of closing. The Company anticipates the issuance and
sale of an additional 146,000 shares of Series C Preferred Stock with gross
proceeds of $1,460,000.
8
<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 nine months 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. In 1999, production ramp up has been affected due to difficulties in
hiring and training skilled operators due to the labor shortage on Long Island.
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
or produced by those companies, respectively.
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.
In September 1999, the Company announced that Tyco International Ltd.'s
Tyco-Santa Clara unit received approval from Underwriters Laboratories to use
Compositech's CL200+ laminates to manufacture printed circuit boards. The
Company has been receiving orders from Tyco-Santa Clara as well as other Tyco
units.
Also in September 1999, the Company announced that electrical property
tests performed by an independent laboratory to determine the dielectric
constant and dissipation factor of Compositech's CL200+ laminates resulted in
performance measurements approximately equivalent to epoxy/PPO laminates. This
type of laminates are used in the rapidly growing high-
9
<PAGE>
performance segment of the electronics market where a premium is placed on
electrical performance.
Results of Operations
Sales of laminates increased to $291,692 for the three months ended
September 30, 1999 from $136,830 for the three months ended September 30,1998
and to $507,657 for the nine months ended September 30, 1999 from $298,983 for
the nine months ended September 30, 1998. Sales for the third quarter of 1999
included the initial shipments under the supply agreement with Teradyne.
Research and development expenses increased to $74,842 for the three months
ended September 30, 1999 from $41,146 for the three months ended September 30,
1998 and to $222,649 for the nine months ended September 30, 1999 from $107,056
for the nine months ended September 30, 1998, reflecting the company's increased
development efforts on improved manufacturing methods.
Manufacturing expenses increased to $1,820,349 for the three months ended
September 30, 1999 from $1,318,667 for the three months ended September 30, 1998
and to $4,393,656 for the nine months ended September 30, 1999 from $3,334,231
for the nine months ended September 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 recruiting and training of additional manufacturing personnel and related
expenses, in anticipation of increased sales. Depreciation expense, a non-cash
item, increased to $686,689 for the nine months ended September 30, 1999 from
$484,332 for the nine months ended September 30, 1998, reflecting the higher
level of production equipment placed in service during the past year.
Selling, general and administrative expenses increased to $409,328 for the
three months ended September 30, 1999 from $310,323 for the three months ended
September 30, 1998 and to $1,197,831 for the nine months ended September 30,
1999 from $933,337 for the nine months ended September 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. Professional fees, consulting costs and investor
relations expense increased by approximately $239,000 due primarily to higher
legal expenses and higher financial public relations costs, which included the
amortization of approximately $104,000 of the estimated fair market value of
warrants given to a consulting firm in exchange for public relations services
for the calendar year 1999. Included in the total for the 1999 periods is a
non-cash item of $24,500 representing the compensation costs for non-employee
directors, which the Company will pay in shares of its common stock. During the
first nine months of 1999, approximately $393,000 of selling, general and
administrative expenses were charged to the Canadian joint venture, in
accordance with the joint venture agreements, compared with $297,000 of charges
in the nine months ended September 30, 1998.
Interest expense, net of interest capitalized, increased to $213,250 for
the nine months ended September 30, 1999 from $125,251 for the nine months ended
September 30, 1998. The increase is related to the addition of the Term Notes
and the short term bridge notes in 1999. The 1998 period also included a
reduction of $66,000, due to the capitalization of interest on construction in
progress; the 1999 period included only a $23,000 reduction, reflecting the
10
<PAGE>
reduced level of construction in progress projects during 1999. Amortization of
debt premium/discount and expenses was $461,661 for the three months ended
September 30, 1999, and increased to $698,963 for the nine months ended
September 30, 1999 from $497,603 for the nine months ended September 30, 1998.
The expense for the nine months ended September 30, 1999 includes $551,192 of
amortization of debt premium, expenses and warrants granted in connection with
the Term Notes. 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 $91,465 for the nine months ended September 30,
1999 from ($75,816) for the nine months ended September 30, 1998. The nine-month
period ended September 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.
The equity in the operations of the Canadian joint venture decreased to a
loss of $53,828 for the three months ended September 30, 1999, from a profit of
$23,687 for the three months ended September 30, 1998 and to a loss of $101,042
for the nine months ended September 30, 1999 from a profit of $74,934 for the
nine months ended September 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
1999 periods reflect the higher level of pre-opening costs incurred by the joint
venture, including the hiring of the general manager and chief financial
officer. 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 $2,602,321 for
the three months ended September 30, 1999 compared with $1,434,438 for the three
months ended September 30, 1998 and a net loss of $6,334,857 for the nine months
ended September 30, 1999 compared with $4,460,317 for the nine months ended
September 30, 1998. The net loss included non-cash items of $841,068 for the
1999 three-month period, $151,781 for the 1998 three-month period, $1,681,137
for the 1999 nine-month period and $955,929 for the 1998 nine-month period. The
increased loss was attributable primarily to the increases in manufacturing,
process development and selling and administrative expenses, as well as the
large increase in non-cash amortizations.
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 September 30, 1999, the Company had
approximately $30,000 of available cash resources. In October 1999, the Company
sold an additional $300,000 of short term bridge notes. On November 5, 1999, the
Company sold $540,000 of Series C Preferred Stock and anticipates selling an
additional $1,460,000. No assurances can be given that the additional financing
will be completed. However, the Company will require additional funding to cover
current operations and to fund additional production
11
<PAGE>
equipment purchases, based on projected levels of production, sales and capital
expenditure requirements, until revenues from operations are sufficient for
these purposes.
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.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended September
30, 1998
Net cash and cash equivalents used in operating activities increased to
$3,443,333 for the nine months ended September 30, 1999 from $2,396,383 for the
nine months ended September 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 nine months ended September
30, 1998, with $813,581 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.
Net cash and cash equivalents used in investing activity decreased to
$350,658 for the nine months ended September 30, 1999, compared with $1,209,002
for the nine months ended September 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 increased to $3,722,016 for the nine
months ended September 30, 1999, from $3,354,831 for the nine months ended
September 30, 1998. The primary sources of the funds, net of expenses, provided
by financing activities in the nine-month period ended September 30, 1999 were
the private placements of the Company's common stock, totaling $2,277,535, the
sale of the Term Notes, totaling $1,150,621, net of expenses and the sale of
short-term bridge notes, totaling $315,560, net of commissions. The payment of
$212,500 of loans in 1999, relate primarily to two bridge loans, totaling
$200,000, 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 1998 period.
12
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities.
During the month ended July 31, 1999, the Company sold 100,000 shares of
its common stock and warrants to purchase 15,000 shares of common stock at an
exercise price of $2.25 per share, exercisable until July 31, 2001, to certain
accredited investors in a private placement, for an aggregate offering of
$225,000. In connection with the private placement, Trautman Wasserman & Co.
Inc., the placement agent, received cash commissions of $18,000 and warrants to
purchase 25,000 shares of common stock at an exercise price of $2.25 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 July 28, 1999, in connection with the closing of the third and
final tranche of a term note series, the Company issued warrants to
purchase:
(i) 90,000 shares of its Common Stock for $2.131 per share,
exercisable until July 28, 2004 as investor warrants to SovCap
Equity Partners, Ltd., Correllus International Ltd. and Bronia
GmbH; and
(ii) 22,500 shares of its Common Stock for $2.131 per share,
exercisable until July 28, 2004 as compensation warrants to
Sovereign Capital Advisors, LLC, the placement agent.
b) In August 1999, in connection with the extension of due dates, to
April 2, 2001, on $1,420,000 of loan and notes payable to stockholders
and officers/directors and accruable interest as of December 31, 1999,
the Company issued or will issue warrants to purchase 182,252 shares
of its common stock, exercisable until August 2004 at an exercise
price of $1.272 per share.
c) In August and September of 1999, in connection with the sale of a
series of short term bridge notes in a private placement to a number
of accredited investors, the Company issued warrants to purchase
115,750 shares of its common stock at exercise prices ranging from
$1.188 per share to $1.563 per share, exercisable until two years from
the date of the note.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
3.5 Certificate of Designation for the Company's Series C 8%
Convertible Preferred Stock, filed on November 1, 1999.
3.6 Certificate of Correction of Certificate of Designation for
the Company's Series C 8% Convertible Preferred Stock,
filed on November 8, 1999.
10.50 Form of Promissory Note between the Company and certain
investors in connection with a private placement of short
term bridge notes which had its most recent closing on
October 22, 1999.
10.51 Convertible Preferred Stock Purchase Agreement, dated as of
November 5, 1999 between the Company and The Shaar Fund
Ltd.
10.52 Registration Rights Agreement dated as of November 5, 1999,
between the Company and The Shaar Fund Ltd.
10.53 Common Stock Purchase Warrant dated November 5, 1999 between
the Company and The Shaar Fund Ltd.
10.54 Letter agreement, dated October 27, 1999 concerning the
Bridge Note Purchase Agreement between Compositech and
SovCap Equity Partners, Ltd.
10.55 Form of Investor Subscription Agreement between Compositech
and certain investors in connection with a private
placement of Compositech's common stock which had its
final closing on July 27, 1999.
10.56 Form of Common Stock Purchase Warrant issued in connection
with Compositech's private placement, which had its final
closing on July 27, 1999.
27 Financial Data Schedules ( Edgar version only )
(b) Reports on Form 8-K
None
All other items required in Part II have been filed previously or are not
applicable for the quarter ended September 30, 1999.
14
<PAGE>
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: November 15, 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)
15
EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
OF
SERIES C 8% CONVERTIBLE PREFERRED STOCK
OF
COMPOSITECH LTD.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Compositech Ltd., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that the following resolution was adopted by the Board of Directors of the
Corporation on September 24, 1999 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Restated Certificate of Incorporation, as
amended to date, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series C 8% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(d) "Capital Shares" means the Common Shares (as defined below) and any
other shares of any other class or series of common stock, whether now or
hereafter authorized and however designated, which have the right to participate
in the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(e) "Common Shares" or "Common Stock" means shares of common stock, par
value $0.01 per share, of the Corporation.
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(f) "Common Stock Issued at Conversion", when used with reference to the
securities issuable upon conversion of the Series C Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(g) "Conversion Date" means any day on which all or any portion of shares
of the Series C Preferred Stock is converted in accordance with the provisions
hereof.
(h) "Conversion Discount" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series C Preferred
Stock into Common Shares on such day as set forth in Section 6.1.
(i) "Conversion Notice" means a written notice of conversion substantially
in substantially the form annexed hereto as Annex I.
(j) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series C Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(k) "Corporation" means Compositech Ltd., a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
(l) "Current Market Price" means on any date of determination the closing
bid price of a Common Share on such day as reported on Nasdaq; provided, if such
security bid is not listed or admitted to trading on Nasdaq, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
(m) "Default Dividend Rate" is equal to the Dividend Rate plus an
additional 4% per annum.
(n) "Dividend Period" means the quarterly period commencing on and
including the Issue Date or, if a dividend has previously been paid, the day
after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date.
(o) "Dividend Payment Due Date" means March 31, June 30, September 30 and
December 31 of each year.
(p) "Dividend Rate" means 8% per annum, computed on the basis of a 360-day
year.
(q) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series C Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
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(r) "Issue Date" means, as to any share of Series C Preferred Stock, the
date of issuance of such share.
(s) "Junior Securities" means all capital stock of the Corporation except
for the Series C Preferred Stock.
(t) "Liquidation Preference" means, with respect to a share of the Series C
Preferred Stock, an amount equal to the sum of (i) the Stated Value thereof,
plus (ii) an amount equal to 30% of such Stated Value, plus (iii) the aggregate
of all accrued and unpaid dividends on such share of Series C Preferred Stock
until the most recent Dividend Payment Due Date; provided that, in the event of
an actual liquidation, dissolution or winding up of the Corporation, the amount
referred to in clause (iii) above shall be calculated by including accrued and
unpaid dividends to the actual date of such liquidation, dissolution or winding
up, rather than the Dividend Payment Due Date referred to above.
(u) "Mandatory Conversion Date" has the meaning set forth in Section 6.8.
(v) "Market Price" per Common Share means the arithmetic mean of the
closing bid prices of the Common Shares as reported on Nasdaq for the three
Trading Days on which the three lowest closing bid prices are reported during
any Valuation Period, it being understood that such three Trading Days need not
be consecutive; provided, if such security bid is not listed or admitted to
trading on Nasdaq, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, for the three Trading
Days on which the three lowest closing bid prices are reported during any
Valuation Period, it being understood that such three Trading Days need not be
consecutive.
(w) "Nasdaq" means the Nasdaq SmallCap Market.
(x) "Optional Redemption Price" has the meaning set forth in Section 6.5.
(y) "Outstanding", when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(z) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
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<PAGE>
(aa) "Redemption Date" has the meaning set forth in Section 6.5.
(bb) "Registration Rights Agreement" means that certain Registration Rights
Agreement dated a date even herewith between the Corporation and The Shaar Fund
Ltd.
(cc) "SEC" means the United States Securities and Exchange Commission.
(dd) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(ee) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated as of a date even herewith between the Corporation and The Shaar
Fund Ltd.
(ff) "Series C Preferred Shares" or "Series C Preferred Stock" means the
shares of Series C 8% Convertible Preferred Stock of the Corporation or such
other convertible Preferred Stock exchanged therefor.
(gg) "Stated Value" has the meaning set forth in Article 2.
(hh) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(ii) "Trading Day" means any day on which purchases and sales of securities
authorized for quotation on Nasdaq are reported thereon and on which no event
which results in a material suspension or limitation of trading of the Common
Shares on Nasdaq has occurred.
(jj) "Valuation Event" has the meaning set forth in Section 6.1.
(kk) "Valuation Period" means the period of 10 Trading Days immediately
preceding the Conversion Date; provided, however, that if a Valuation Event
occurs during a Valuation Period on a date less than 5 Trading Days before the
Conversion Date, the Valuation Period shall be extended until the date 5 Trading
Days after the occurrence of the Valuation Event.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of 200,000 shares of
Preferred Stock, shall be Series C 8% Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be $10 per share (the "Stated
Value").
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<PAGE>
ARTICLE 3
RANK
The Series C Preferred Stock shall rank prior to any other capital stock of
the Corporation.
ARTICLE 4
DIVIDENDS
(a) (i) The Holder shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available for the payment of
dividends, dividends at the Dividend Rate on the Stated Value of each share of
Series C Preferred Stock on and as of each Dividend Payment Due Date with
respect to each Dividend Period; provided, however, that if any dividend is not
paid in full on any Dividend Payment Due Date, dividends shall thereafter accrue
and be payable at the Default Dividend Rate on the Stated Value of each share of
Series C Preferred Stock until all accrued dividends are paid in full. Dividends
on the Series C Preferred Stock shall be cumulative from the date of issue,
whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each
Dividend Payment Due Date, commencing December 31, 1999, to the Holders of
record of shares of the Series C Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on such record
date, not more than 60 days or less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors. Accrued and
unpaid dividends for any past Dividend Period may be declared and paid at
any time, without reference to any Dividend Payment Due Date, to Holders of
record, not more than 15 days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be paid
either (x) in cash or (y) through the issuance of duly and validly
authorized and issued, fully paid
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and nonassessable, freely tradable shares of the Common Stock valued at the
Market Price and registered for resale in the open market transactions on
the Registration Statement (as defined in the Registration Rights
Agreement), which Registration Statement shall then be effective under the
Securities Act; provided, however, that if no funds are legally available
for the payment of cash dividends on the Series C Preferred Stock,
dividends shall be paid as provided in clause (y) above. Notwithstanding
the foregoing, until such Registration Statement has been declared
effective under the Securities Act by the SEC, payment of dividends on the
Series C Preferred Stock shall be in cash only.
(b) Except as provided in Section 4(d) hereof, the Holder shall not be
entitled to any dividends in excess of the cumulative dividends, as herein
provided, on the Series C Preferred Stock.
(c) So long as any shares of the Series C Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon any Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary), for any consideration by the
Corporation, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any Junior
Securities, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series C Preferred Stock shall
have been paid or set apart for payment for all past Dividend Periods with
respect to the Series C Preferred Stock and (ii) sufficient funds shall have
been paid or set apart for the payment of the dividend for the current Dividend
Period with respect to the Series C Preferred Stock.
(d) If the Corporation shall at any time or from time to time after the
Issue Date declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spin-off) on shares of its Common
Stock, then, and in each such case, in addition to the dividend obligation of
the Corporation specified in paragraph (a) of this Article 4, the Corporation
shall declare, order, pay and make the same dividend or distribution to each
Holder of Series C Preferred Stock as would have been made with respect to the
number of Common Shares the Holder would have received had it converted all of
its Series C Preferred Shares, and exercised the Warrant held by it in full for
all the Common Shares then underlying the Warrant, immediately prior to such
dividend or distribution.
ARTICLE 5
LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC.
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the Holders of shares of Series C Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
with respect to each share.
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(b) In case the Corporation shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Corporation is not the survivor or where there is a change in or distribution
with respect to the Common Stock of the Corporation), sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Corporation is disposed of
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Corporation, then each Holder of Series C
Preferred Stock shall have the right thereafter, at its sole option, either (x)
to require the Corporation to deem such Fundamental Corporate Change to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to, such Fundamental Corporate Change an amount equal to the
Liquidation Preference with respect to each outstanding share of Series C
Preferred Stock, (y) to receive the number of shares of common stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common Stock
into which such Series C Preferred Stock may be converted at the Conversion
Price applicable immediately prior to such Fundamental Corporate Change or (z)
require the Corporation, or such successor, resulting or purchasing corporation,
as the case may be, to, without benefit of any additional consideration
therefor, to execute and deliver to the Holder shares of its Preferred Stock
with substantial identical rights, preferences, privileges, powers, restrictions
and other terms as the Series C Preferred Stock equal to the number of shares of
Series C Preferred Stock held by such Holder immediately prior to such
Fundamental Corporate Change; provided, that all Holders of Series C Preferred
Stock shall be deemed to elect the option set forth in clause (i) above if at
least a majority in interest of such Holders elect such option. The foregoing
provisions of this Section 5(b) shall similarly apply to successive Fundamental
Corporate Changes.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series C Preferred Stock may be
converted, either in whole or in part, into Common Shares (calculated as to each
such conversion to the nearest 1/100th of a share) at any time and from time to
time following the Issue Date at a Conversion Price per share of Common Stock
equal to the lesser of: (i) 110% of the Current Market Price on the Issue Date
or (ii) 82.5% of the Market Price; provided that any unconverted Series C
Preferred Stock remaining 180 days after the Issue Date may be converted, at the
sole option of the Holder, at a Conversion Price per share of Common Stock equal
to 78.5% of the Market Price; provided, further, that any unconverted Series C
Preferred Stock remaining 270 days after the Issue Date may be converted, at the
sole option of the Holder, at a Conversion Price per share of Common Stock equal
to 75% of the Market Price; and provided, further, that any unconverted Series C
Preferred Stock remaining 360 days after the Issue Date may be
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converted at the sole option of the Holder, at a Conversion Price per share of
Common Stock equal to 70% of the Market Price; and provided, further, that if
the Corporation's Common Stock is delisted off Nasdaq for any reason, then any
remaining unconverted Series C Preferred Stock may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
50% of the Market Price. At the Corporation's option, the amount of accrued and
unpaid dividends as of the Conversion Date shall not be subject to conversion
but instead may be paid in cash as of the Conversion Date; if the Corporation
elects to convert the amount of accrued and unpaid dividends at the Conversion
Date into Common Stock, the Common Stock issued to the Holder shall be valued at
the applicable Conversion Price.
The number of shares of Common Stock due upon conversion of Series C
Preferred Stock shall be (i) the number of shares of Series C Preferred Stock to
be converted, multiplied by (ii) the Stated Value plus accrued and unpaid
dividends, to the extent the Corporation does not elect to pay, and pay, accrued
and unpaid dividends in cash, and divided by (iii) the applicable Conversion
Price.
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice thereof to each Holder, except that Holder(s)
shall send notice to the Corporation with respect to events set forth in Section
6.1(h) below. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, the Holder may convert some
or all of its Series C Preferred Stock, at its sole option, at a Conversion
Price equal to the Current Market Price on any Trading Day during the Valuation
Period.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event
in which the Corporation takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Additional Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
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(f) announce a Fundamental Corporate Change;
(g) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(g) hereof, inclusive, which in the opinion of the Holder, determined in good
faith, would have a material adverse effect upon the rights of the Holder at the
time of a conversion of the Preferred Stock or is reasonably likely to result in
a decrease in the Market Price.
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Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series C Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed Conversion
Notice to the Corporation. Each date on which a Conversion Notice is telecopied
to the Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Preferred Stock
and issue the Common Stock Issued at Conversion, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the Persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series C Preferred Stock to
the Corporation by express courier within 30 days following the date on which
the telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment thereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five Business Days after the Corporation's receipt of such
Conversion Notice, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and (ii) cause
to be mailed for delivery by overnight courier to the Holder (x) a certificate
or certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3,
in respect of any fraction of a Common Share issuable upon such conversion and
(z) if the Corporation chooses to pay accrued and unpaid dividends in cash, cash
in the amount of accrued and unpaid dividends as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates so long as the Series C Preferred Stock shall have
been surrendered as aforesaid at such time, and at such time the rights of the
Holder of the Series C Preferred Stock, as such, shall cease and the Person or
Persons in whose name or names the Common Stock Issued at Conversion shall be
issuable shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons. The Conversion Notice shall constitute a contract
between the Holder and the Corporation, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription (and
for any cash adjustment to which it is entitled pursuant to Section 6.3), to
surrender the Series C Preferred Stock and to release the Corporation from all
liability thereon. No cash payment aggregating less than $1.00 shall be required
to be given unless specifically requested by the Holder.
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(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series C Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Series C Preferred Stock into Common Shares, then the Holder shall have
the right, by written notice to the Corporation, to require the Corporation to
promptly redeem the Series C Preferred Stock for cash at a redemption price
equal to 130% of the Stated Value thereof together with all accrued and unpaid
dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series C Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common Shares
shall be issued upon conversion of the Series C Preferred Stock. Instead of any
fractional Common Shares which otherwise would be issuable upon conversion of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction.
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Section 6.4 Adjustments to Conversion Discount
For so long as any shares of the Series C Preferred Stock are outstanding,
if the Corporation issues and sells pursuant to an exemption from registration
under the Securities Act (A) Common Shares (unless they have been disclosed in
the Schedules to the Securities Purchase Agreement) at a purchase price on the
date of issuance thereof that is lower than the Conversion Price, (B) warrants
or options (unless they have been disclosed in the Schedules to the Securities
Purchase Agreement) with an exercise price on the date of issuance thereof that
is lower than the agreed upon Conversion Price for the Holder on such date,
except for warrants or options issued pursuant to employee stock option
agreements or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities (unless they have been disclosed in the
Schedules to the Securities Purchase Agreement) with a right to exchange at
lower than the Current Market Price on the date of issuance or conversion, as
applicable, of such convertible, exchangeable or exercisable securities, except
for stock option agreements or stock incentive agreements, then the Conversion
Discount shall be reduced to equal the lowest of any such lower rates.
Section 6.5 Optional Redemption
At any time after the Issue Date until the Mandatory Conversion Date (as
defined below), the Corporation, upon notice delivered to the Holder as provided
in Section 6.6, may redeem, in cash, the Series C Preferred Stock (but only with
respect to such shares as to which the Holder has not theretofore furnished a
Conversion Notice in compliance with Section 6.2), at 130% of the Stated Value
thereof (the "Optional Redemption Price"), together with all accrued and unpaid
dividends thereon to the date of redemption (the "Redemption Date"). Except as
set forth in this Section 6.5, the Corporation shall not have the right to
redeem the Series C Preferred Stock.
Section 6.6 Notice of Redemption
Notice of redemption pursuant to Section 6.5 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.5 (including a
statement of the Current Market Price per Common Share) and this Section 6.6.
Section 6.7 Surrender of Preferred Stock
Upon any redemption of the Series C Preferred Stock pursuant to Sections
6.5 and 6.6, the Holder shall either deliver the Series C Preferred Stock by
hand to the Corporation at its principal executive offices or surrender the same
to the Corporation at such address by express courier within 14 days after the
date that the Buyer receives payment therefore. Payment of the Optional
Redemption Price shall be made by the Corporation to the Holder by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such Optional Redemption Price is not made in
full by the Redemption Date, the Holder shall again have the right to convert
the Series C Preferred Stock as provided in Article 6 hereof.
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Section 6.8 Mandatory Conversion
On the third anniversary of the date of this Agreement (the "Mandatory
Conversion Date"), the Corporation shall convert all Series C Preferred Stock
outstanding at the Conversion Price utilizing the Stated Value (plus accrued and
unpaid dividends) as the value of each share of Series C Preferred Stock, into
Common Stock which is registered for resale in open market transactions on the
Registration Statement (as defined in the Registration Rights Agreement), which
Registration Statement shall then be effective under the Securities Act.
Section 6.9 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall not
have the right, and the Corporation shall not have the obligation, to convert
all or any portion of the Series C Preferred Stock (and the Corporation shall
not have the right to pay dividends on the Series C Preferred Stock in shares of
Common Stock) if and to the extent that the issuance to the Holder of shares of
Common Stock upon such conversion (or payment of dividends) would result in the
Holder being deemed the "beneficial owner" of more than 5% of the then
Outstanding shares of Common Stock within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then Outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"Redemption Shares") of Series C Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
Outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series C Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series C Preferred Stock held by the Holder. Such redemption shall be
for cash at a redemption price equal to the sum of (i) 125% of the Stated Value
of the Redemption Shares and (ii) any accrued and unpaid dividends to the date
of such redemption.
(b) Unless the Corporation shall have obtained the approval of its voting
stockholders to such issuance in accordance with the rules of Nasdaq or such
other stock market with which the Corporation shall be required to comply, but
only to the extent required thereby, the Corporation shall not issue shares of
Common Stock (i) upon conversion of any shares of Series C Preferred Stock or
(ii) as a dividend on the Series C Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series C Preferred Stock,
(ii) upon exercise of the Warrants issued pursuant to the terms of the
Securities Purchase Agreement and (iii) in payment of dividends on the Series C
Preferred Stock, would equal or exceed 20% of the number of shares of the
Corporation's Common Stock which were issued and Outstanding on the Issue Date
(the "Maximum Issuance Amount"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (i)
converting the number of shares of Series C Preferred Stock stated in the
Conversion Notice not in excess of the Maximum Issuance Amount and (ii)
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redeeming the number of shares of Series C Preferred Stock stated in the
Conversion Notice equal to or in excess of the Maximum Issuance Amount in cash
at a price equal to 125% of the Stated Value of the shares of Series C Preferred
Stock to be so redeemed, together with all accrued and unpaid dividends thereon.
In the event that the Corporation shall elect to pay a dividend in shares of
Common Stock which would require the Corporation to issue shares of Common Stock
equal to or in excess of the Maximum Issuance Amount, the Corporation shall pay
(i) a dividend in shares of Common Stock equal to one less than an amount which
would result in the Corporation issuing shares equal to the Maximum Issuance
Amount and (ii) the balance of the dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series C Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware
("DGCL"), in this Article 7, and in Article 8 below.
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<PAGE>
Notwithstanding the above, the Corporation shall provide each Holder of
Series C Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the Series C
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series C Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
C Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL Holders of the Series C Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series C Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series C
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series C Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series C Preferred Stock;
(c) increase the authorized number of shares of Series C Preferred Stock;
or
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<PAGE>
(d) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the Holders of shares of the
Series C Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of least a majority of the then outstanding shares of
Series C Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series C Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of 30 days to convert pursuant to the terms of this Certificate of
Designation as in effect prior to such alteration or change or continue to hold
their shares of Series C Preferred Stock.
Notwithstanding anything to the contrary herein, if at any time the
Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("Spinco") and making a dividend (the "Spin-off Dividend") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series C Preferred Stock equal to the number of shares of
Series C Preferred Shares held by such Holder immediately prior to the Spin-off
Dividend.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series C Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series C Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series C Preferred Stock, new shares of Series
C Preferred Stock of like tenor. The Series C Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series C Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
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<PAGE>
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series C Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series C Preferred Stock for the
purpose of receiving payment of dividends on the Series C Preferred Stock, for
the conversion of the Series C Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series C Preferred Stock to the extent of the
sum or sums so paid or the conversion so made.
Section 9.3 Notice of Certain Events
In the case of the occurrence of any event described in Sections 5(b), 6.5
or 6.6 of this Certificate of Designation, the Corporation shall cause to be
mailed to the Holder of the Series C Preferred Stock at its last address as it
appears in the Corporation's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such corporate action, or if a
record is not to be taken, the date as of which the Holders of record of Series
C Preferred Stock to be entitled to such dividend, distribution, issuance or
granting of rights, options or warrants are to be determination or the date on
which such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series C Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series C Preferred Stock.
Upon any transfer of the Series C Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the Series C
Preferred Stock register.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series C Preferred Stock.
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
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Section 9.7 Severability
If any provision of this Certificate of Designation, or the application
thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii) the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer on October 29, 1999.
COMPOSITECH LTD.
By: /s/ Christopher F. Johnson
--------------------------------
Name: Christopher F. Johnson
Title: President and CEO
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<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
To: Compositech Ltd.
120 Ricefield Ltd.
Hauppauge, New York 11788
Attention:
The undersigned owner of this Series C 8% Convertible Preferred Stock (the
"Series C Preferred Stock") issued by Compositech Ltd. (the "Corporation")
hereby irrevocably exercises its option to convert __________ shares of the
Series C Preferred Stock into shares of the common stock, par value $0.01 per
share ("Common Stock"), of the Corporation in accordance with the terms of the
Certificate of Designation. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series C Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designation. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series C Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designation. So long as the Series C Preferred Stock shall
have been surrendered for conversion hereby, the conversion pursuant hereto
shall be deemed to have been effected at the date and time specified below, and
at such time the rights of the undersigned as a Holder of the Series C Preferred
Stock shall cease and the Person or Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby and all
voting and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons.
Date and time:
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address (including zip code number)
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EXHIBIT 3.6
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION
OF
COMPOSITECH LTD.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Compositech Ltd.
2. The Certificate of Designation of the Corporation, which was filed with
the Secretary of State of Delaware on November 1, 1999, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
(i) In the first sentence of Section 6.8, the phrase "On the third
anniversary of this Agreement" was mistakenly used instead of the phrase
"On the third anniversary of the Issue Date."
4. In its corrected form, Section 6.8 shall read as follows:
Section 6.8 Mandatory Conversion
On the third anniversary of the Issue Date (the "Mandatory Conversion
Date"), the Corporation shall convert all Series C Preferred Stock outstanding
at the Conversion Price utilizing the Stated Value (plus accrued and unpaid
dividends) as the value of each share of Series C Preferred Stock, into Common
Stock which is registered for resale in open market transactions on the
Registration Statement (as defined in the Registration Rights Agreement), which
Registration Statement shall then be effective under the Securities Act.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction of Certificate of Designation to be signed by a duly authorized
officer this 5th day of November, 1999.
COMPOSITECH LTD.
By: /s/ Christopher F. Johnson
-----------------------------
Name: Christopher F. Johnson
Title: President
EXHIBIT 10.50
Date __________________:
PROMISSORY NOTE
For Value Received, Compositech Ltd., a Delaware corporation ("Maker"), promises
to pay to _____________ ("Payee"), the principal sum of $_________
(_____________) ("Principal Sum") on or before the ______ day from the date
hereof. Interest shall accrue on the Principal Sum, or the unpaid balance
thereof, at the rate of twelve (12%) percent per annum, payable at maturity.
In consideration of the loan, the Payee shall receive warrants to purchase
_______ shares of Common Stock of the Maker at $___________ per share, 100% of
the closing market price on the day prior to the date hereof, exercisable within
two years from the date hereof. The Company will include the Stock underlying
the warrants or any to be issued in conjunction with the default provisions
below in a registration filing with the Securities and Exchange Commission
within 60 days of the date above.
Maker shall have the right, at any time, and from time to time, to prepay
this Note, in whole or in part, without premium or penalty. In the event that
Payee shall place this Note in the hands of an Attorney or otherwise commence
any legal action to recover any sum due hereunder, Maker shall also pay all
costs, including attorney's fees and court costs, incurred by Payee.
The borrower shall be deemed to be in default of the loan if the complete
amount, plus accrued interest, is not repaid within 10 days after maturity. In
the event of a default, instead of other remedy that Payee may have, the Payee
may elect to convert all of the loan to common stock of the Maker at the lesser
of a 50% discount to the closing bid price on the date written above, or, a 50%
discount to the market price at the date of default (10 days after maturity).
In the event of a default, and in addition to any other remedy that Payee
may have, Maker irrevocable authorizes any Prothonotary, Clerk of Court or any
Attorney of any Court of record to appear for Maker in such Court in term, time
or vacation, and confess judgment against Maker, without process, in favor of
Payee or any Holder of this Note for such amount as may appear to be unpaid
hereof, together with a reasonable attorney's fee of up to five (5%) percent of
the amount due and owing on the defaulted Note, and consents to immediate
execution upon such judgment and hereby waives and releases the benefit of all
appraisement and inquisition of real estate, hereby voluntarily condemning said
real estate and authorizing the entry of such condemnation upon any writ issued,
stay of execution and all rights under the exemption laws of any State now in
force, or hereafter to be passed.
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<PAGE>
This Note shall be binding upon Maker and shall be governed by and
construed in accordance with the laws of the State of New York. This Note may
not be varied, amended of modified, except in writing, signed by Maker and Payee
or the Holder thereof.
In Witness Whereof, Maker, intending to be legally bound hereby, has caused
this Note to be duly executed the day and year first above written.
WITNESS COMPOSITECH LTD.
By_______________________________ By ___________________________
Name: Samuel S. Gross,
Title: Executive Vice President, Secretary
and Treasurer
2
EXHIBIT 10.51
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 5, 1999 (this
"Agreement"), by and between Compositech Ltd., a Delaware corporation, with
principal executive offices located at 120 Ricefield Lane, Hauppauge, New York
11788 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
WHEREAS, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this Agreement, (i) 54,000 shares of the Company's Series C 8% Convertible
Preferred Stock, par value $0.01 per share (collectively, the "Preferred
Shares"), and (ii) Common Stock Purchase Warrants in the form attached hereto as
Exhibit A to purchase 75,000 shares of Common Stock (as defined below)
(collectively, the "Warrants");
WHEREAS, upon the terms and subject to the designations, preferences and
rights set forth in the Company's Certificate of Designation of Series C 8%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.01 per share (the "Common Stock");
and
WHEREAS, the Warrants, upon the terms and subject to the conditions
specified in the Warrants, will be exercisable for a period of five years
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants.
B. Purchase Price; Form of Payment. The total purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$540,000 (the "Purchase Price"). Subject to the terms and conditions of this
Agreement and those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Escrow Instructions"), Buyer shall
pay to the Company $540,000 minus the deductions as set forth in the Escrow
Instructions (the "Purchase Price") at the date and time of the issuance and
sale by the Company of the Preferred Shares and the Warrants (the "Closing") by
wire transfer of immediately available funds to the escrow agent (the "Escrow
Agent") identified in the Escrow Instructions. Simultaneously with the execution
of this Agreement, the Company shall deliver to the Escrow Agent or its
designated depository one or more duly authorized, issued and executed
<PAGE>
certificates (I/N/O Buyer or, if the Company otherwise has been notified, I/N/O
Buyer's nominee) evidencing the Preferred Shares and the Warrants. By executing
and delivering this Agreement, Buyer and the Company each hereby agrees to
observe the terms and conditions of the Escrow Instructions, all of which are
incorporated herein by reference as if fully set forth herein.
C. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of immediately available funds to:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), the Common Stock,
if any, issuable in payment of dividends on the Preferred Shares (the "Dividend
Shares"), and the Common Stock issuable upon conversion or redemption of the
Preferred Shares (the "Conversion Shares" and, collectively with the Preferred
Shares, the Warrants, the Warrant Shares and the Dividend Shares, the
"Securities") for its own account, for investment purposes only and not with a
view towards or in connection with the public sale or distribution thereof in
violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, (ii) experienced in making investments of
the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
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D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission.
E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
F. Neither Buyer nor its affiliates nor any person acting on its or their
behalf has the intention of entering, or will enter into, prior to the closing,
any put option, short position or other similar instrument or position with
respect to the Common Stock and neither Buyer nor any of its affiliates nor any
person acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists solely of
54,714,161 shares of capital stock: (i) 50,000,000 shares of Common Stock,
of which 16,711,056 shares are issued and outstanding on the date hereof;
(ii) 714,161 shares of Series A Convertible Preferred Stock, $3.00 par
value per share, of which 442,662 shares are issued and outstanding on the
date hereof; (iii) 220 shares of 7% Series B Convertible Preferred Stock,
$0.01 par value per share, stated value $10,000 per share, of which no
shares are issued and outstanding on the date hereof; (iv) 200,000 shares
of Series C Convertible Preferred Stock, $0.01 par value per share, of
which no shares are issued and outstanding on the date hereof; and (v)
3,799,780 shares of undesignated preferred stock, of which no shares are
issued and outstanding. As of the date hereof, the Company has outstanding
stock options to purchase 1,981,879 shares of Common Stock and warrants to
purchase 7,089,867 shares of Common Stock. Schedule III.A.1. hereto
specifies the exercise prices for each of such outstanding options and
warrants.
2. The Preferred Shares have been duly and validly authorized and
reserved for issuance by the Company, and, when issued by the Company, will
be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being such
holder. The Conversion Shares, the Dividend Shares and the Warrant Shares
have been duly and validly authorized and reserved for issuance by the
Company, and, when issued by the Company upon conversion of, or in lieu of
accrued dividends on, the Preferred Shares and on exercise of the Warrants
will be
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<PAGE>
duly and validly issued, fully paid and nonassessable and will not subject
the holder thereof to personal liability by reason of being such holder.
3. Except as disclosed on Schedule III.A.3 there are no preemptive,
subscription, "call," right of first refusal or other similar rights to
acquire any capital stock of the Company or any of its Subsidiaries or
other voting securities of the Company that have been issued or granted to
any person or any other obligations of the Company or any of the
subsidiaries of the Company (the "Subsidiaries") to issue, grant, extend or
enter into any security, option, warrant, "call," right, commitment,
agreement, arrangement or undertaking with respect to any of their
respective capital stock.
4. Schedule III.A.4. hereto lists all the Subsidiaries. Except as
disclosed on Schedule III.A.4. hereto, the Company does not own or control,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, unincorporated business organization,
association, trust or other business entity.
5. The Company has delivered to Buyer complete and correct copies of
the Restated Certificate of Incorporation, as amended to date (the
"Certificate of Incorporation"), and the By-Laws of the Company and the
Subsidiaries, in each case as amended to the date of this Agreement. Except
as set forth on Schedule III.A.4, the Company has delivered to Buyer true
and complete copies of all minutes of the Board of Directors of the Company
(the "Board of Directors") since October 1, 1996.
B. Organization; Reporting Company Status.
1. Each of the Company and each of the Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
state of jurisdiction in which it is incorporated and is duly qualified as
a foreign corporation in all jurisdictions in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
the business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries taken as a whole
or on the consummation of any of the transactions contemplated by this
Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Common Stock is listed and traded on the Nasdaq SmallCap Market
("Nasdaq") and the Company has not received any notice regarding, and to
its knowledge there is no threat of, the termination or discontinuance of
the eligibility of the Common Stock for such listing.
C. Authorization. The Company (i) has duly and validly authorized and
reserved for issuance 2,000,000 shares of Common Stock, sufficient in number for
the conversion of and the payment of dividends (in lieu of cash payments) on the
Preferred Shares and the exercise of the Warrants, and (ii) at all times from
and after the date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to
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<PAGE>
satisfy the conversion of Preferred Shares, the payment of dividends (in lieu of
cash payments) on the Preferred Shares and the exercise of the Warrants. The
Company understands and acknowledges the potentially dilutive effect on the
Common Stock of the issuance of the Preferred Shares, the Conversion Shares, the
Dividend Shares and the Warrant Shares upon the conversion of, and payment of
dividends on, the Preferred Shares and the exercise of the Warrants,
respectively. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred Shares and Warrant Shares
upon exercise of the Warrants in accordance with this Agreement, the Certificate
of Designation and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.
362 in respect of the conversion of the Preferred Shares and the exercise of the
Warrants. The Company agrees, without cost or expense to Buyer, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C. ss.
362. Schedule III.C. hereto sets forth (i) all issuances and sales by the
Company since December 31, 1998 of its capital stock, and other securities
convertible, exercisable or exchangeable for capital stock of the Company, (ii)
the amount of such securities sold, including any underlying shares of capital
stock, (iii) the purchaser thereof, (iv) the amount paid therefor, and (v) the
material terms of all outstanding capital stock of the Company (other than the
Common Stock).
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into the Documents (as hereinafter
defined), and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
execution, delivery and performance by the Company of the Documents, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Designation
with the Delaware Secretary of State's office, the issuance of the Preferred
Shares and the Warrants and the issuance and reservation for issuance of the
Conversion Shares, the Dividend Shares and the Warrant Shares), have been duly
authorized by all necessary corporate action on the part of the Company. Each of
the Documents has been duly and validly executed and delivered by the Company
and the Certificate of Designation has been duly filed with the Delaware
Secretary of State's office by the Company and each Document constitutes a valid
and binding obligation of the Company enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except as rights to indemnity and contribution may be
limited by federal or state securities laws or the public policy underlying such
laws. The Securities have been duly and validly authorized for issuance by the
Company and, when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. For purposes of this Agreement, the term
"Documents" means (i) this Agreement; (ii) the Registration Rights Agreement of
even date herewith between the Company and Buyer, a copy of
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<PAGE>
which is annexed hereto as Exhibit D (the "Registration Rights Agreement");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. Validity of Issuance of the Securities. The Preferred Shares as of the
Closing Date (as defined below), the Conversion Shares and the Dividend Shares
upon their issuance in accordance with the Certificate of Designation, and the
Warrant Shares upon exercise of the Warrants, respectively, are or will be
validly issued and outstanding, fully paid and nonassessable, and not subject to
any preemptive rights, rights of first refusal, tag-along rights, drag-along
rights or other similar rights. The Warrants as of the Closing Date are or will
be validly issued.
F. Non-contravention. Except as set forth on Schedule III.F. hereto, the
execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Delaware Secretary of State's office, do
not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined below)
upon any of the properties or assets of the Company or any of its Subsidiaries
under, or result in the termination of, or require that any consent be obtained
or any notice be given with respect to, (i) the Certificate of Incorporation or
By-Laws of the Company or the comparable charter or organizational documents of
any of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or permit
applicable to the Company or any of its Subsidiaries or their respective
properties or assets, or (iii) any Law (as defined below) applicable to the
Company or any of its Subsidiaries or their respective properties or assets.
G. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by the Company for the
issuance and sale of the Preferred Shares or the Warrants (and the Conversion
Shares, the Dividend Shares or Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
H. Commission Filings. The Company has properly and timely filed with the
Commission all reports, proxy statements, forms and other documents required to
be filed with the Commission under the Securities Act and the Exchange Act since
August 1, 1996 (the "Commission Filings"). As of their respective dates, (i) the
Commission Filings complied in all material respects with the requirements of
the Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the Commission promulgated thereunder applicable to such
Commission Filings, and (ii) none of the Commission Filings contained at the
time of their filing any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, were true and complete in
all material respects and complied with applicable accounting requirements and
the published rules
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<PAGE>
and regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles in the United States
("GAAP") (except in the case of the unaudited statements, as permitted by Form
10-QSB under the Exchange Act) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented
the consolidated financial position of the Company and its Subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments that in the aggregate are not material and
to any other adjustment described therein).
I. Absence of Certain Changes. Since the Balance Sheet Date (as defined in
Section III.M.), there has not occurred any change, event or development in the
business, financial condition, prospects or results of operations of the Company
and the Subsidiaries, there has not existed any condition having or reasonably
likely to have a Material Adverse Effect, and the Company and the Subsidiaries
have conducted their respective businesses only in the ordinary course.
J. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to Buyer that (i) reasonably could be
expected to have a Material Adverse Effect or (ii) reasonably could be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to the Documents.
K. Absence of Litigation. Except as set forth on Schedule III.K, there are
(i) no suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (ii) no
complaints, lawsuits, charges or other proceedings pending or, to the knowledge
of the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
of employment, any applicable law governing employment or the termination
thereof or other discriminatory, wrongful or tortuous conduct in connection with
the employment relationship, or (iii) no judgments, decrees, injunctions or
orders of any court or other governmental entity or arbitrator outstanding
against the Company or any Subsidiary.
L. Absence of Events of Default. Except as set forth in Schedule III.L, no
"Event of Default" (as defined in any agreement or instrument to which the
Company is a party) and no event which, with notice, lapse of time or both,
would constitute an Event of Default (as so defined), has occurred and is
continuing.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of the (i) audited balance sheet of
the Company and the Subsidiaries as at December 31, 1997 and December 31, 1998,
respectively, and the related audited statements of income, changes in
stockholders' equity and cash flows for the three fiscal years ended December
31, 1996, 1997 and 1998 including the related notes and schedules thereto and
(ii) unaudited balance sheets of the Company and the Subsidiaries and the
statements of income, changes in stockholders' equity and cash flows for each
fiscal quarter ended since December 31, 1998 including the related notes and
schedules, all certified by the chief financial
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<PAGE>
officer of the Company (collectively, the "Financial Statements"), and all
management letters, if any, from the Company's independent auditors relating to
the dates and periods covered by the Financial Statements. Each of the Financial
Statements is complete and correct in all material respects, has been prepared
in accordance with GAAP (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes), and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1998 is hereinafter
referred to as the "Balance Sheet" and December 31, 1998 is hereinafter referred
to as the "Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or was
not incurred in the ordinary course of business consistent with the Company's
past practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. Each of the Company and each of its
Subsidiaries is in compliance and has complied with all laws, rules,
regulations, codes, ordinances and statutes (collectively, "Laws") applicable to
it or to the conduct of its business. The Company possesses all material
permits, approvals, authorizations, licenses, certificates and consents from all
public and governmental authorities which are necessary to conduct its business.
O. Related Party Transactions. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or "Affiliates"
(as such term is defined in Rule 12b-2 under the Exchange Act) nor any family
member of any officer, director or Affiliate of the Company has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company or any of the Subsidiaries. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or Affiliates nor
any family member of any officer, director or Affiliate of the Company (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower from,
or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company or any Subsidiary, (y) engaged in a business related to the business
of the Company or any Subsidiary, or (z) a participant in any transaction to
which the Company or any Subsidiary is a party or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company or any
Subsidiary with a total purchase price above $25,000.
P. Insurance. Each of the Company and each of the Subsidiaries maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. Each of the Company
and each of the Subsidiaries has not received notice from, and has no knowledge
of any threat by, any insurer (that has issued any insurance policy to the
Company or the Subsidiaries) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
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<PAGE>
Q. Securities Law Matters. Assuming the accuracy of the representations and
warranties of Buyer set forth in Section II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year next preceding the date hereof, except as
disclosed on Schedule III.Q. hereto, and the Company shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Preferred Shares
or shares of Common Stock), so as to make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer and
sale to Buyer of the Preferred Shares and the Warrants (and the Conversion
Shares, the Dividend Shares and the Warrant Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Preferred Shares and the Warrants (and
the Conversion Shares, the Dividend Shares and the Warrant Shares) as
contemplated by this Agreement or any other agreement to which the Company is a
party.
R. Environmental Matters.
Except as set forth on Schedule III.R. hereto:
1. The Company, the Subsidiaries and their respective operations are
in compliance with all applicable Environmental Laws and all permits
(including terms, conditions, and limitations therein) issued pursuant to
Environmental Laws or otherwise.
2. Each of the Company and the Subsidiaries has all permits, licenses,
waivers, exceptions, and exemptions required under all applicable
Environmental Laws necessary to operate its business.
3. None of the Company or the Subsidiaries is the subject of any
outstanding written order of or agreement with any governmental authority
or person respecting (i) Environmental Laws or permits, (ii) Remedial
Action or (iii) any Release or threatened Release of Hazardous Materials.
4. None of the Company or the Subsidiaries has received any written
communication alleging that it is or may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law.
5. None of the Company or the Subsidiaries has any liability,
contingent or otherwise, in connection with any presence, treatment,
storage, disposal or
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Release of any Hazardous Materials whether on property owned or operated by
the Company and the Subsidiaries or property of third parties, and none of
the Company or the Subsidiaries has transported, or arranged for
transportation of, any Hazardous Materials for treatment or disposal of any
property.
6. There are no investigations of the business, operations, or
currently or previously owned, operated or leased property of the Company
or any of the Subsidiaries pending or threatened which could lead to the
imposition of any case or liability pursuant to any Environmental Law.
7. There is not located at any of the properties owned or operated by
the Company or any of the Subsidiaries any (A) underground storage tank,
(B) asbestos-containing material or (C) equipment containing
polychlorinated biphenyls.
8. Each of the Company and the Subsidiaries has provided to Buyer all
environmentally related assessments, audits, studies, reports, analyses,
and results of investigations that have been performed with respect to the
currently or previously owned, leased or operated properties or activities
of the Company and the Subsidiaries.
9. There are no liens arising under or pursuant to any Environmental
Law on any real property owned, operated, or leased by the Company or any
of the Subsidiaries, and no action of any governmental authority has been
taken or, to the knowledge of the Company, is in process of being taken
which could subject any of such properties to such liens, and none of the
Company or any of the Subsidiaries is or has been expected to be required
to place any notice or restriction relating to the presence of Hazardous
Material at any real property owned, operated, or leased by it in any deed
to such property.
10. Neither the Company nor any of the Subsidiaries owns, operates or
leases any hazardous waste generation, treatment, storage, or disposal
facility, as such terms are used pursuant to the RCRA and related or
analogous state, local, or foreign law. None of the properties owned,
operated, or leased by the Company, the Subsidiaries or any predecessor of
any of them is now, or to the knowledge of the Company, was in the past,
used in any part as a dump, landfill, or disposal site, and neither
Company, the Subsidiaries nor any predecessor of them has filled any
wetlands.
11. The purchase that is the subject of this Agreement will not
require any governmental approvals under Environmental Laws, including
those that are triggered by sales or transfers of businesses or real
property, including, as examples and without limitation, the New Jersey
Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq., and the
Connecticut Transfer of Establishments Act, Conn. Gen. Stat. ss. 22a-134 et
seq.
12. There is no currently existing requirement or, to the knowledge of
the Company, requirement to be imposed in the future by any Environmental
Law or Environmental Permit which could result in the incurrence of a cost
that could be reasonably expected to have a Material Adverse Effect.
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13. Each of the Company and each of the Subsidiaries has disclosed to
Buyer all other acts or conditions that could result in any costs or
liabilities under Environmental Laws.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or common law as now or hereafter in effect in any way
relating to the protection of human health, safety or welfare, or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act,
the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide,
Fungicide, and Rodenticide Act, and the Occupational Safety and Health Act, and
the regulations promulgated pursuant thereto.
"Hazardous Material" means any substance that is listed, classified or
regulated pursuant to any Environmental Law, including petroleum, gasoline, and
any other petroleum product, by-product, fraction or derivative, asbestos or
asbestos-containing material, lead-containing paint, water, or plumbing,
polychlorinated biphenyls, radioactive materials and radon.
"Release" means any placement, release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration,
or leaching to, through, or under the indoor or outdoor environment, or into,
through, under, or out of any property.
"Remedial Action" means all actions to (x) clean up, remove, remediate,
treat or in any other way address any Hazardous Material; (y) prevent or contain
the Release of any Hazardous Material; or (z) perform studies and investigations
or post-remedial monitoring and care in relation to (x) and (y) above.
S. Labor Matters. Neither the Company nor any of the Subsidiaries is party
to any labor or collective bargaining agreement and there are no labor or
collective bargaining agreements which pertain to employees of the Company. No
employees of the Company or the Subsidiaries are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company or the Subsidiaries pending or to the Company's knowledge, threatened by
any labor organization or group of employees of the Company or the Subsidiaries.
There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or
(ii) material grievances or other labor disputes pending or, to the knowledge of
the Company, threatened against or involving the Company or the Subsidiaries.
There are no unfair labor practice charges, grievances or complaints pending or,
to the knowledge of the Company, threatened by or on behalf of any employee or
group of employees of the Company or the Subsidiaries.
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T. ERISA Matters. All Plans maintained by the Company, its Subsidiaries and
ERISA Affiliates are listed in Schedule III.T. and copies of all documentation
relating to such Plans (including, but not limited to, copies of written Plans,
written descriptions of oral Plans, summary plan descriptions, trust agreements,
the three most recent annual returns, employee communications and IRS
determination letters) have been delivered or made available for review by the
Buyer. Each Plan has at all times been maintained and administered in all
material respects in accordance with its terms and the requirements of
applicable law, including ERISA and the Code, and each Plan intended to qualify
under Section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under Section 501(a) of the Code. The
Company, its Subsidiaries and its ERISA Affiliates are in compliance in all
material respects with all provisions of ERISA applicable to it. No Reportable
Event has occurred, been waived or exists as to which the Company, its
Subsidiaries or any ERISA Affiliate was required to file a report with the PBGC,
and the present value of all liabilities under each Pension Plan (based on those
assumptions used to fund such Plans) listed in Schedule III.T. did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of such Pension Plan. None of the Company, its Subsidiaries or ERISA
Affiliates has incurred, or reasonably expects to incur, any Withdrawal
Liability with respect to any Multi-employer Plan that could result in a
Material Adverse Effect. None of the Company, its Subsidiaries or ERISA
Affiliates has received any notification that any Multi-employer Plan is in
reorganization or has been terminated within the meaning of Title IV of ERISA,
and no Multi-employer Plan is reasonably expected to be in reorganization or
termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise. No direct, contingent or secondary liability
has been incurred or is expected to be incurred by the Company or its
Subsidiaries under Title IV of ERISA to any party with respect to any Plan, or
with respect to any other Plan presently or heretofore maintained or contributed
to by any ERISA Affiliate. Neither the Company, its Subsidiaries, or ERISA
Affiliate has incurred any liability for any tax imposed under section 4971
through 4980B of the Code or civil liability under section 502(i) or (l) of
ERISA. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of plan activities and any other claim which
could reasonably be expected to result in a material liability or expense to the
Company, its Subsidiaries or ERISA Affiliates) has been brought or, to the
knowledge of the Company, threatened against or with respect to any Plan and
there are no facts or circumstances known to the Company, its Subsidiaries or
ERISA Affiliates that could reasonably be expected to give rise to any such
suit, action or other litigation. All contributions to Plans that were required
to be made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
other Documents and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the offer, issue and sale by the Company
and its Subsidiaries, and the purchase by the Buyer, of the Preferred Shares,
the Conversion Shares, the Warrants, the Warrant Shares and Dividend Shares)
will not involve any "prohibited transaction" within the meaning of ERISA or the
Code with respect to any Plan.
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For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the regulations thereunder, as the same may be
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that was, is or hereafter may become, a member of a group of which the Company
is a member and which is treated as a single employer under Section 414 of the
Internal Revenue Code of 1986, as amended (the "Code").
"Multi-employer Plan" means a multi-employer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Code) is making or accruing an obligation to make contributions, or
has within any of the preceding six plan years made or accrued an obligation to
make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA, including
any Pension Plan.
"Pension Plan" means any pension plan (other than a Multi-employer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Code that is
maintained for employees of the Company, its Subsidiaries, or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section 4043(b)
of ERISA or the regulations issued thereunder with respect to a Plan
"Withdrawal Liability" means liability to a Multi-employer Plan as a result
of a complete or partial withdrawal from such Multi-employer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all material Tax Returns which it is required
to file under applicable Laws; all such Tax Returns are true and accurate
in all material respects and have been prepared in compliance with all
applicable Laws; the Company has paid all Taxes due and owing by it
(whether or not such Taxes are required to be shown on a Tax Return) and
has withheld and paid over to the appropriate taxing authorities all
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Taxes which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since the
Balance Sheet Date, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending
or being conducted with respect to the Company; no information related to
Tax matters has been requested by any foreign, federal, state or local
taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by
the Company from any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law;
or (B) has not agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method initiated by the
Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
3. The Company has not made an election under Section 341(f) of the
Code. The Company is not liable for the Taxes of another person that is not
a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The Company is
not a party to any tax sharing agreement. The Company has not made any
payments, is not obligated to make payments and is not a party to an
agreement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-
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on minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
V. Property. Except as set forth on Schedule III.V, each of the Company and
each of the Subsidiaries has good and marketable title to all of its assets and
properties material to the conduct of its business, free and clear of any liens,
pledges, security interests, claims, encumbrances or other restrictions of any
kind (collectively, "Liens"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair. The inventory of the Company and its
Subsidiaries is in good and marketable condition, does not include any material
quantity of items which are obsolete, damaged or slow moving, and is salable (or
may be leased) in the normal course of business as currently conducted by it.
W. Intellectual Property. The Company and the Subsidiaries own or possess
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of their businesses as now being
conducted including, but not limited to, those described on Schedule III.W.
hereto. Except as set forth on Schedule III.W, the Company and the Subsidiaries
have all right, title and interest in all of the Intangibles, free and clear of
any and all Liens. The Company and the Subsidiaries are not infringing upon or
in conflict with any right of any other person with respect to any Intangibles.
Except as disclosed on Schedule III.W. hereto, (i) no claims have been asserted
by any individual, partnership, corporation, unincorporated organization or
association, limited liability company, trust or other entity (collectively, a
"Person") contesting the validity, enforceability, use or ownership of any
Intangibles, and the Company and the Subsidiaries have no knowledge of any basis
for such claim, and (ii) neither the Company nor any of the Subsidiaries has any
knowledge of infringement or misappropriation of the Intangibles by any third
party.
X. Contracts. All contracts, agreements, notes, instruments, franchises,
leases, licenses, commitments, arrangements or understanding, written or oral
(collectively, "Contracts") which are material to the business and operations of
the Company and the Subsidiaries are in full force and effect and constitute
legal, valid and binding obligations of the Company and the Subsidiaries and, to
the best knowledge of the Company, the other parties thereto; the Company and
the Subsidiaries and, to the best knowledge of the Company, each other party
thereto, have performed in all material respects all obligations required to be
performed by them under the Contracts, and no material violation or default
exists in respect thereof, nor any event that with notice or lapse of time, or
both, would constitute a default
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thereof, on the part of the Company and the Subsidiaries or, to the best
knowledge of the Company, any other party thereto; except as set forth on
Schedule III.X., none of the Contracts is currently being renegotiated; and the
validity, effectiveness and continuation of all Contracts will not be materially
adversely affected by the transactions contemplated by this Agreement.
Y. Registration Rights. Except as set forth on Schedule III.Y, no Person
has, and as of the Closing, no Person shall have, demand, "piggy-back" or other
rights to cause the Company to file any registration statement under the
Securities Act, relating to any of its securities or to participate in any such
registration statement.
Z. Dividends. The timely payment of dividends on the Preferred Shares as
specified in the Certificate of Designation is not prohibited by the Certificate
of Incorporation or By-Laws of the Company or any agreement, contract, documents
or other undertaking to which the Company or any of the Subsidiaries is a party.
AA. Investment Company Act. Neither the Company nor any of the Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), nor is the Company nor any of
the Subsidiaries directly or indirectly controlled by or acting on behalf of any
Person which is an "investment company" within the meaning of the Investment
Company Act.
BB. Business Plan. Any business information of the Company previously
submitted to Buyer in any form, including the projections contained therein, was
prepared by the senior management of the Company in good faith and is based on
assumptions that the Company believes are reasonable. The Company is not aware
of any fact or condition that could reasonably be expected to result in the
Company not achieving the results described in such business plan.
CC. Year 2000 Compliance. The Company is currently reviewing its products,
business and operations that could be adversely affected by the risk that
computer applications used by the Company and the Subsidiaries may be unable to
recognize and properly perform date-sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000 Problem"). The Company believes its
internal information and business systems will be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000. In
addition, the Company is currently surveying those vendors, suppliers and other
third parties (collectively, the "Outside Parties") with which the Company and
the Subsidiaries do business and whose failure to adequately address the Year
2000 Problem could reasonably be expected to adversely affect the business and
operations of the Company and the Subsidiaries. Based upon the aforementioned
internal review and surveys of the Outside Parties as of the date of this
Agreement, the Year 2000 Problem has not resulted in, and is not reasonably
expected to have, a Material Adverse Effect.
DD. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls that provide reasonable assurance
that (i) all transactions to which the Company or each of the Subsidiaries is a
party or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's and the
Subsidiaries' assets is compared with existing assets at regular intervals;
(iii)
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access to the Company's and the Subsidiaries' assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
each of the Company and the Subsidiaries is a party or by which its properties
are bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with GAAP.
EE. Payments and Contributions. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to the company matters.
FF. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, not misleading.
GG. Finder's Fee. There are no finder's fee, brokerage commission or like
payment in connection with the transactions contemplated by this Agreement for
which Buyer is liable or responsible.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities (including any Dividends Shares,
Conversion Shares or the Warrant Shares) shall have endorsed thereon a legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Shares, the Warrant Shares and the Conversion
Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the
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Securities to Buyer as required by all applicable Laws, and shall provide a copy
thereof to Buyer promptly after such filing.
C. Reporting Status. So long as Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the sale of
the Preferred Shares and the Warrants (excluding amounts paid by the Company for
Buyer's out-of-pocket costs and expenses whether or not accounted for or
incurred in connection with the transactions contemplated by this Agreement
(including the fees and disbursements of Buyer's legal counsel)) solely for
working capital purposes.
E. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange or the Nasdaq National Market, the Company shall use its
best efforts to maintain its listing of the Common Stock on Nasdaq. If the
Common Stock is delisted from Nasdaq, the Company will use its best efforts to
list the Common Stock as promptly as possible on the most liquid national
securities exchange or quotation system that the Common Stock is qualified to be
listed on.
F. Reserved Conversion Shares. The Company at all times from and after the
date hereof shall have such number of shares of Common Stock duly and validly
authorized and reserved for issuance as shall be sufficient for the conversion
in full of, and the payment of dividends on, the Preferred Shares and the
exercise in full of the Warrants.
G. Right of First Refusal. If, during the period commencing on the date
hereof and ending three years after the Closing Date (the "Right of First
Refusal Period"), the Company should propose (the "Proposal") to issue Common
Stock or securities convertible into Common Stock at a price less than the
Current Market Price (as defined in the Certificate of Designation), or debt at
less than par value or having an effective annual interest rate in excess of
9.9% (each a "Right of First Refusal Security" and collectively, the "Right of
First Refusal Securities"), in each case the Company shall be obligated to offer
such Right of First Refusal Securities to Buyer on the terms set forth in the
Proposal (the "Offer") and Buyer shall have the right, but not the obligation,
to accept such Offer on such terms. At least 15 business days prior to the
issuance of any Right of First Refusal Securities, the Company shall provide
written notice to Buyer of any Proposal, setting forth in full the terms and
conditions thereof, and Buyer shall then have 10 business days to accept or
reject the Offer in writing. If the Company issues any Right of First Refusal
Securities during the Right of First Refusal Period but fails to: (i) notify
Buyer of the Proposal, (ii) offer Buyer the opportunity to complete the
transaction as set forth in the Proposal, or (iii) enter into and consummate an
agreement to issue such Right of First Refusal Securities to Buyer on the terms
and conditions set forth in the Proposal, after Buyer has accepted the Offer,
then the Company shall pay to Buyer, as liquidated damages, an amount equal to
10% of the amount paid to the Company for the Right of First Refusal Securities.
The foregoing Right of First Refusal is and shall be senior in right to any
other right of first refusal issued by the Company to any other Person.
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H. Information. Each of the parties hereto acknowledges and agrees that
Buyer shall not be provided with, nor be given access to, any material
non-public information relating to the Company and the Subsidiaries.
I. Exemption from Investment Company Act. The Company shall conduct its
business, and shall cause the Subsidiaries to conduct their businesses, in a
manner so that neither the Company nor any Subsidiary shall become an
"investment company" within the meaning of the Investment Company Act.
J. Accounting and Reserves. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
proper reserves for depreciation, obsolescence, amortization, bad debts and
other purposes in connection with its operations as are required by such
principles so applied.
K. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person. A "Disinterested Director" shall mean an individual who
is not and who has not been an officer or employee of the Company and who is not
a member of the family of, controlled by or under common control with, any such
officer or employee.
L. Issuances of Additional Convertible Preferred Shares or Convertible
Debentures. So long as Buyer beneficially owns any of the Preferred Shares, the
Company shall not issue any additional convertible preferred stock or
convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.
M. Certain Restriction. So long as any Preferred Shares are outstanding, no
dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities (as defined in the
Certificate of Designation), nor shall any Junior Securities be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of shares of Common Stock made for purposes of an employee incentive
or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Company, directly or indirectly.
N. Restrictions on the Sale of Preferred Shares. The Company covenants and
agrees not to issue and sell/or transfer any shares of Series C 8% Convertible
Preferred Stock to any person other than Buyer.
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V. TRANSFER AGENT INSTRUCTIONS
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Conversion Shares, the Dividend Shares
and the Warrant Shares otherwise shall be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and applicable law. Nothing contained in this
Section V.A. shall affect in any way Buyer's obligations and agreement to comply
with all applicable securities laws upon resale of such Common Stock. If, at any
time, Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of the resale by Buyer of such
Common Stock is not required under the Securities Act and that the removal of
restrictive legends is permitted under applicable law, the Company shall permit
the transfer of such Common Stock and, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without any restrictive
legends endorsed thereon.
B. Buyer shall have the right to convert the Preferred Shares by
telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company the Preferred
Shares being converted.
C. Buyer shall have the right to purchase shares of Common Stock pursuant
to exercise of the Warrants in accordance with its applicable terms of the
Warrants. The last date that the Company may deliver shares of Common Stock
issuable upon any exercise of Warrants is referred to herein as the "Warrant
Delivery Date."
D. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond five
days from the Dividend Payment Due Date, the Delivery Date or the Warrant
Delivery Date, as applicable):
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No. Business Days Compensation For Each 10 Shares
----------------- of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
Warrants Not Issued Timely
--------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer, and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
VI. DELIVERY INSTRUCTIONS
The Preferred Shares and the Warrants shall be delivered by the Company to
the Escrow Agent pursuant to Section I.B. hereof at the Closing.
VII. CLOSING AND CLOSING DATES
A. Closing. The date and time (the "Closing Date") of the Closing shall be
the date hereof or such other date as shall be mutually agreed upon in writing.
B. Place of the Closing. The Closing shall occur on the Closing Date at the
offices of the Escrow Agent.
C. Obligations of the Escrow Agent. Notwithstanding anything to the
contrary contained herein, the Escrow Agent shall not be authorized to release
to the Company the
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Purchase Price and to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's
nominee) evidencing the Securities being purchased by Buyer unless the
conditions set forth herein have been satisfied.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING
Buyer understands that the Company's obligation to sell to Buyer the
Preferred Shares and the Warrants on the Closing Date is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy on the Closing Date of the representations and warranties
of Buyer contained in this Agreement as if made on the Closing Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as of
such specified date) and the performance by Buyer in all material respects on or
before the Closing Date of all covenants and agreements of Buyer required to be
performed by it pursuant to this Agreement on or before the Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS AT THE CLOSING
The Company understands that Buyer's obligation to purchase the Preferred
Shares and the Warrants on the Closing Date is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate of
Designation has been filed and is effective.
B. Delivery by the Company to the Escrow Agent of one or more certificates
(I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Preferred Shares and the
Warrants to be purchased by Buyer pursuant to this Agreement;
C. The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by the chief
executive officer of the Company by delivery of the certificate to that effect;
D. Buyer having received an opinion of counsel for the Company, dated the
Closing Date, in form, scope and substance reasonably satisfactory to Buyer as
to the matters set forth in Annex A;
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<PAGE>
E. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeable could have a
Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in the Escrow
Instructions) reimbursement of Buyer's out-of-pocket costs and expenses whether
or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel) of $40,000;
H. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
I. Delivery by the Company of irrevocable instructions to the Company's
transfer agent to reserve 2,000,000 shares of Common Stock for issuance of the
Conversion Shares, the Dividend Shares and the Warrant Shares;
J. The Company shall have obtained all consents, approvals or waivers from
governmental authorities and third persons necessary for the execution, delivery
and performance of the Documents and the transactions contemplated thereby, all
without material cost to the Company; and
K. Buyer shall have received such additional documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.
X. TERMINATION
A. Termination by Mutual Written Consent. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned, for any reason and at
any time prior to the Closing Date, by the mutual written consent of the Company
and Buyer.
B. Termination by the Company or Buyer. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on November 8, 1999 (the "Latest Closing Date");
provided, however, that the right to terminate this Agreement pursuant to this
Section X.B. shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or has resulted in
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<PAGE>
the failure of the Closing to occur at or before such time and date; provided,
further, however, that if the Closing shall not have occurred on or prior to the
Latest Closing Date, the Closing may only occur after the Latest Closing Date
with the written consent of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably likely to
have a Material Adverse Effect or (iv) the Company shall have failed to satisfy
the conditions provided in Section IX hereof.
D. Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
E. Effect of Termination. In the event of the termination of this Agreement
pursuant to this Section X, this Agreement shall thereafter become void and have
no effect, and no party hereto shall have any liability or obligation to any
other party hereto in respect of this Agreement, except that the provisions of
Article XI and this Section X.E. shall survive any such termination; provided,
however, that no party shall be released from any liability hereunder if this
Agreement is terminated and the transactions contemplated hereby abandoned by
reason of (i) willful failure of such party to perform its obligations hereunder
or (ii) any misrepresentation made by such party of any matter set forth herein.
XI. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses
(except for losses relating to the economic value of the investment of Buyer in
the Company), claims, damages, judgments, penalties, liabilities and
deficiencies (collectively, "Losses"), and agrees to reimburse Buyer Indemnitees
for
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<PAGE>
all out of-pocket expenses (including the fees and expenses of legal counsel),
in each case promptly as incurred by Buyer Indemnitees and to the extent arising
out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Documents;
2. the purchase of the Preferred Shares and the Warrants, the
conversion of the Preferred Shares, the exercise of the Warrants, the
consummation of the transactions contemplated by this Agreement and the
other Documents, the use of any of the proceeds of the Purchase Price by
the Company, the purchase or ownership of any or all of the Securities, the
performance by the parties hereto of their respective obligations hereunder
and under the Documents or any claim, litigation, investigation,
proceedings or governmental action relating to any of the foregoing,
whether or not Buyer is a party thereto; and
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; and
2. any failure by Buyer to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this
Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying
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<PAGE>
Party is materially prejudiced and forfeits substantive rights and defenses by
reason of such failure. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
and the Indemnifying Party reasonably shall have concluded that representation
of the Indemnified Party and the Indemnifying Party by the same legal counsel
would not be appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests between such
parties in the conduct of the defense of such Claim, or if there may be legal
defenses available to the Indemnified Party that are in addition to or disparate
from those available to the Indemnifying Party, or (z) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
of such state.
XIII. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an
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<PAGE>
inconvenient forum or improper venue to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on account of its
place of residence or domicile. Each party hereto irrevocably and
unconditionally consents to the service of any and all process in any such
action or proceeding in such courts by the mailing of copies of such process by
certified or registered airmail at its address specified in Section XIX. Each
party hereto agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
XIV. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XV. COUNTERPARTS; EXECUTION
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
XVI. HEADINGS
The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
XVII. SEVERABILITY
In the event any one or more of the provisions contained in this Agreement
or in the other Documents should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
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<PAGE>
XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
XIX. NOTICES
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attention: Samuel Gross
(516) 436-5200
(516) 436-5203 (Fax)
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Attention: Edward F. Cox, Esq.
(212) 336-2000
(212) 336-2222 (Fax)
B. if to Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
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<PAGE>
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIX.
XX. CONFIDENTIALITY
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XXI. ASSIGNMENT
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any affiliate of Buyer.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
COMPOSITECH LTD.
By: /s/ Christopher F. Johnson
--------------------------------
Name: Christopher F. Johnson
Title: President and CEO
THE SHAAR FUND LTD.
By: /s/ Samuel Levinson
--------------------------------
Name: Samuel Levinson
Title: Managing Director
<PAGE>
[SEE TAB 2]
COMMON STOCK PURCHASE WARRANTS
<PAGE>
[SEE TAB 3]
CERTIFICATE OF DESIGNATION
<PAGE>
[SEE TAB 6]
ESCROW INSTRUCTIONS
<PAGE>
[SEE TAB 5]
REGISTRATION RIGHTS AGREEMENT
<PAGE>
SCHEDULE III.A.1.
OPTIONS AND WARRANTS
<PAGE>
SCHEDULE III.A.3.
PREEMPTIVE, SUBSCRIPTION, "CALL" OR SIMILAR RIGHTS
<PAGE>
SCHEDULE III.A.4.
SUBSIDIARIES
<PAGE>
SCHEDULE III.C.
ISSUANCES AND SALES OF SECURITIES
<PAGE>
SCHEDULE III.E.
NON-CONTRAVENTION
<PAGE>
SCHEDULE III.K.
LITIGATION
<PAGE>
SCHEDULE III.L.
EVENTS OF DEFAULT
<PAGE>
SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
<PAGE>
SCHEDULE III.Q.
SECURITIES LAW MATTERS
<PAGE>
SCHEDULE III.R.
ENVIRONMENTAL MATTERS
<PAGE>
SCHEDULE III.T.
ERISA MATTERS
<PAGE>
SCHEDULE III.V.
PROPERTY
<PAGE>
SCHEDULE III.W.
INTELLECTUAL PROPERTY
<PAGE>
SCHEDULE III.X.
CONTRACTS
<PAGE>
SCHEDULE III.Y.
REGISTRATION RIGHTS
<PAGE>
ANNEX A
FORM OF OPINION
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of __________, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties or conducts business,
except for jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect, and has all requisite corporate power and authority to
own its properties and conduct its business as described in the Commission
Filings.
2. The authorized capital stock of the Company consists of __________
shares of Common Stock, par value $_____ per share (the "Common Stock"), and
__________ shares of Preferred Stock, par value $_____ per share.
3. When delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Documents, the
Securities will be duly authorized and validly issued, fully paid and
nonassessable.
4. The Company has the requisite corporate power and authority to enter
into the Documents and to sell and deliver the Securities as described in the
Documents; each of the Documents has been duly and validly authorized by all
necessary corporate action by the Company; each of the Documents has been duly
and validly executed and delivered by and on behalf of the Company, and is valid
and binding agreement of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally.
5. The executive, delivery and performance of the Documents by the Company
and the performance of its obligations thereunder do not and will not constitute
a breach or violation of any of the terms and provisions of, or constitute a
default (or with notice, lapse of time or both would constitute a default) under
or conflict with or violate any provision of (i) the Company's certificate of
incorporation or bylaws, (ii) any indenture, mortgage, deed of trust, agreement
or other instrument known to us to which the Company is a party or by which it
or any of its property is bound, (iii) or, to the best of our knowledge, any
judgment, decree or order of any court or governmental body having jurisdiction
over the Company or any of its property. To the best of our knowledge, no
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its properties or
assets is required for the execution, delivery and performance by the Company of
the Documents or the consummation by the Company of the transactions
contemplated thereby.
<PAGE>
6. When issued, the Preferred Shares and the Warrants shall be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
all encumbrances and restrictions, except for restrictions on transfer imposed
by applicable securities laws. The Conversion Shares and Warrant Shares issuable
upon conversion or exercise, respectively, of the Preferred Shares and the
Warrants, respectively, will be duly authorized, validly issued, fully paid and
nonassessable, and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.
7. Based on Buyer's representations contained in this Agreement, the offer
and sale of the Preferred Shares and the Warrants are exempt from the
registration requirements of the Securities Act.
8. To the best of our knowledge, other than as described in the Commission
Filings, there are no outstanding options, warrants or other securities
exercisable or convertible into Common Stock of the Company.
9. There is no action, suit, claim, inquiry or investigation pending or, to
the best of our knowledge, threatened by or before any court or public or
governmental authority which, if determined adversely to the Company, would have
a Material Adverse Effect.
10. Neither the Company nor any of its subsidiaries is, or will be after
the consummation of the transactions contemplated by this Agreement and the
other Documents and the use of the proceeds from the sale of the Securities, an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
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EXHIBIT 10.52
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 5, 1999 (this
"Agreement"), by and between Compositech Ltd., a Delaware corporation, with
principal executive offices located at 120 Ricefield Lane, Hauppauge, New York
11788 (the "Company"), and The Shaar Fund Ltd. (the "Initial Investor").
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of even date herewith, by and between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor (i) 54,000 shares of Series C
8% Convertible Preferred Stock, par value $0.01 per share (the "Series C
Preferred Shares") which, upon the terms of and subject to the conditions of the
Company's Certificate of Designation of Series C 8% Convertible Preferred Stock
(the "Certificate of Designation"), are convertible into shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), and (ii) Common
Stock Purchase Warrants (the "Warrants") to purchase shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Series C Preferred Shares, upon conversion of the Preferred Shares and exercise
of the Warrants certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions
(a) As used in this Agreement, the following terms shall have the meanings:
(i) "Affiliate," of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date and time of the issuance and sale
of the Series C Preferred Shares and the Warrants.
(iii) "Commission" means the Securities and Exchange Commission.
<PAGE>
(iv) "Current Market Price" on any date of determination means the
closing bid price of a share of the Common Stock on such day as reported on
the Nasdaq SmallCap Market ("Nasdaq"); provided, if such security is not
listed or admitted to trading on the Nasdaq, as reported on the principal
national security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(vi) "Investor" means each of the Initial Investor and any transferee
or assignee of Registrable Securities which agrees to become bound by all
of the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "Person" means any individual, partnership, corporation, limited
liability company, joint stock company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
(viii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(ix) "Public Offering" means an offer registered with the Commission
and the appropriate state securities commissions by the Company of its
Common Stock and made pursuant to the Securities Act.
(x) "Registrable Securities" means the Common Stock issued or issuable
(i) in lieu of cash dividend payments on the Series C Preferred Shares,
(ii) upon conversion or redemption of the Preferred Shares or (iii) upon
exercise of the Warrants; provided, however, a share of Common Stock shall
cease to be a Registrable Security for purposes of this Agreement when it
no longer is a Restricted Security.
(xi) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the
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<PAGE>
Registrable Securities pursuant to Rule 415 under the Securities Act,
including the Prospectus contained therein and forming a part thereof, any
amendments to such registration statement and supplements to such
Prospectus, and all exhibits to and other material incorporated by
reference in such registration statement and Prospectus.
(xii) "Restricted Security" means any share of Common Stock issued or
issuable in lieu of cash dividend payments on the Series C Preferred
Shares, upon conversion or redemption of the Preferred Shares or exercise
of the Warrants except any such share that (i) has been registered pursuant
to an effective registration statement under the Securities Act and sold in
a manner contemplated by the prospectus included in such registration
statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or (iii) otherwise has
been transferred and a new share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of
the Company.
(xiii) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the respective
meaning assigned to them in the Securities Purchase Agreement.
2. Registration
(a) Filing and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission not later than 30 days after the Closing
Date a Registration Statement relating to the offer and sale of the Registrable
Securities in the amount of 1,250,000 shares of Common Stock and shall use its
best efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but in no event
later than 120 days after the Closing Date. The Company shall promptly (and, in
any event, no more than 24 hours after it receives comments from the
Commission), notify the Buyer when and if it receives any comments from the
Commission on the Registration Statement and promptly forward a copy of such
comments, if they are in writing, to the Buyer. At such time after the filing of
the Registration Statement pursuant to this Section 2(a) as the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement, the Company shall promptly, and in no event later than two business
days after receipt of such indication from the Commission, request that the
effectiveness of such Registration Statement be accelerated within two business
days of the Commission's receipt of such request. Except as set forth on Exhibit
A hereto, the Company shall not include any other securities in the Registration
Statement relating to the offer and sale of the Registrable Securities. The
Company shall notify the Initial Investor by written notice that such
Registration Statement has been declared effective by the Commission within 24
hours of such declaration by the Commission.
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(b) Registration Default. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a), is not (i) filed with the Commission within 30 days after the Closing Date
or (ii) declared effective by the Commission within 120 days after the Closing
Date (either of which, without duplication, an "Initial Date"), then the Company
shall make the payments to the Initial Investor as provided in the next sentence
as liquidated damages and not as a penalty. The amount to be paid by the Company
to the Initial Investor shall be determined as of each Computation Date (as
defined below), and such amount shall be equal to 2% (the "Liquidated Damage
Rate") of the Purchase Price (as defined in the Securities Purchase Agreement)
from the Initial Date to the first Computation Date and for each Computation
Date thereafter, calculated on a pro rata basis to the date on which the
Registration Statement is filed with (in the event of an Initial Date pursuant
to clause (i) above) or declared effective by (in the event of an Initial Date
pursuant to clause (ii) above) the Commission (the "Periodic Amount") provided,
however, that in no event shall the liquidated damages be less than $25,000;
provided, further, however, that if the Registration Statement is not declared
effective by the Commission within 210 days after the Initial Date set forth in
clause (ii) above, then the Liquidated Damage Rate shall increase to 4%;
provided, further, however, that the Liquidated Damage Rate shall increase by 1%
for each 30 day period after the 210th day after the Initial Date set forth in
clause (ii) above that the Registration Statement is not declared effective by
the Commission. The full Periodic Amount shall be paid by the Company to the
Initial Investor by wire transfer of immediately available funds within three
days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date which is 30
days after the Initial Date and, if the Registration Statement required to be
filed by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the previous
Computation Date until such Registration Statement is so declared effective.
(c) Eligibility for Use of Form S-3. The Company agrees that at such time
as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) Additional Registration Statement. In the event the Current Market
Price declines to $0.50 per share or less and each time thereafter that the
Current Market Price declines by 20% (each such date, a "Decline Date"), the
Company shall, to the extent required by the Securities Act (because the
additional shares were not covered by the Registration Statement filed pursuant
to Section 2(a)), as reasonably determined by the Initial Investor, file an
additional Registration Statement (an "Additional Registration Statement") with
the Commission for such additional number of Registrable Securities as would be
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(the "Additional Registrable Securities") in addition to those previously
registered, assuming (x) with respect to the first Additional Registration
Statement, a Conversion Price of $0.50 per share and (y) with respect to each
succeeding Additional Registration Statement, a Conversion Price of 20% less
than the Conversion Price assumed with respect to the immediately preceding
Additional Registration Statement. The Company shall, to the extent required by
the Securities Act, as reasonably determined by the
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Initial Investor, prepare and file with the Commission not later than the 30th
day thereafter, a Registration Statement relating to the offer and sale of such
Additional Registrable Securities and shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than 60 days thereafter. The
Company shall not include any other securities in the Registration Statement
relating to the offer and sale of such Additional Registrable Securities.
If the Additional Registration Statement is not (i) filed with the
Commission within 30 days after the Decline Date or (ii) declared effective by
the Commission within 90 days after the Decline Date (either of which, without
duplication, an "Additional Registration Date"), then the Company shall make the
payments to the Initial Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and for
each Additional Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "Additional Periodic Amount")
provided, however, that in no event shall the liquidated damages be less than
$25,000; provided, further, however, that if the Additional Registration
Statement is not declared effective by the Commission within 120 days after the
Additional Registration Date set forth in clause (ii) above, then the Liquidated
Damage Rate shall increase to 4%; provided, further, however, that the
Liquidated Damage Rate shall increase by 1% for each 30 day period after the
120th day after the Additional Registration Date set forth in clause (ii) above
that the Additional Registration Statement is not declared effective by the
Commission. The full Additional Periodic Amount shall be paid by the Company to
the Initial Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
As used in this Section 2(d), "Additional Computation Date" means the date
which is 30 days after the Additional Registration Date and, if the Additional
Registration Statement required to be filed by the Company pursuant to this
Section 2(d) has not theretofore been declared effective by the Commission, each
date which is 30 days after the previous Additional Computation Date until such
Additional Registration Statement is so declared effective.
(e) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other
shares of common stock of the Company issuable upon exercise of employee
share options or in connection with any employee benefit or similar plan of
the Company or (C) in connection with a direct or indirect acquisition by
the Company of another Person or any transaction with respect to which Rule
145 (or any successor provision) under the Securities Act applies), whether
or not for sale for its own account, it will each such time, give prompt
written notice at least 20 days prior to the anticipated filing date of the
registration statement relating to such registration to each Investor,
which notice shall set forth such Investor's rights under this Section 3(e)
and shall offer such Investor the opportunity to include in such
registration statement such number of Registrable Securities as such
Investor may request. Upon the written request
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of any Investor made within 10 days after the receipt of notice from the
Company (which request shall specify the number of Registrable Securities
intended to be disposed of by such Investor), the Company will use its best
efforts to effect the registration under the Securities Act of all
Registrable Securities that the Company has been so requested to register
by each Investor, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered; provided, however, that (A) if
such registration involves a Public Offering, each Investor must sell its
Registrable Securities to any underwriters selected by the Company with the
consent of such Investor on the same terms and conditions as apply to the
Company and (B) if, at any time after giving written notice of its
intention to register any Registrable Securities pursuant to this Section 3
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register such Registrable Securities, the Company shall give
written notice to each Investor and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration. The Company's obligations under this Section 2(e) shall
terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves a Public
Offering and the managing underwriter thereof advises the Company that, in
its view, the number of shares of Common Stock, Warrants or other shares of
Common Stock that the Company and the Investors intend to include in such
registration exceeds the largest number of shares of Common Stock or
Warrants (including any other shares of Common Stock or Warrants of the
Company) that can be sold without having an adverse effect on such Public
Offering (the "Maximum Offering Size"), the Company will include in such
registration only such number of shares of Common Stock or Warrants, as
applicable, as does not exceed the Maximum Offering Size, and the number of
shares in the Maximum Offering Size shall be allocated pro-rata among the
Investors, the Company and any other sellers of Common Stock or Warrants in
such Public Offering ("Third-Party Sellers"). If, as a result of the
proration provisions of this Section 2(e)(ii), any Investor is not entitled
to include all such Registrable Securities in such registration, such
Investor may elect to withdraw its request to include any Registrable
Securities in such registration. With respect to registrations pursuant to
this Section 2(e), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated among the Company,
the Investors and any Third Party Seller pro rata on the basis of the
relative number of securities offered for sale under such registration by
each of the Investors, the Company and any such Third Party Sellers before
the exercise of such over-allotment option.
3. Obligations of the Company
In connection with the registration of the Registrable Securities, the
Company shall:
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(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of five years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect
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at all times during the Registration Period, and (iv) take all such other lawful
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process in any such
jurisdiction;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the registration statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a registration statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
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(k) Make generally available to its security holders as soon as practicable
after (i) the effective date (as defined in Rule 158(c) under the Securities
Act) of the Registration Statement, and (ii) the effective date of each
post-effective amendment to the Registration Statement, as the case may be, an
earnings statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder;
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of
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the opinion and as of the Effective Time of the Registration Statement or most
recent post-effective amendment thereto, as the case may be, the absence from
the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of
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a particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. As least seven days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investor
(the "Requested Information") if such Investor elects to have any of its
Registrable Securities included in the Registration Statement. If at least two
business days prior to the anticipated filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"), then
the Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor and have no further obligations to
the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of its election to exclude all of its Registrable Securities from the
Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f), it
shall immediately discontinue its disposition of Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(e) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims,
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damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or an omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, not misleading, or arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
the Company hereby agrees to reimburse such Indemnified Person for all
reasonable legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when such expenses
are incurred; provided, however, that the Company shall not be liable to any
such Indemnified Person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an untrue
statement or alleged untrue statement made in, or an omission or alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person expressly for use therein or (ii) in the case of the occurrence of an
event of the type specified in Section 3(e), the use by the Indemnified Person
of an outdated or defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any
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investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if
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<PAGE>
contribution pursuant to this Section 6(d) were determined by pro rata
allocation (even if the Investors or any underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 6(d). The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144
With a view to making available to the Investors the benefits of Rule 144
under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
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<PAGE>
8. Assignment
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assigned by the Investors to any permitted
transferee of all or any portion of such Registrable Securities (or all or any
portion of any Preferred Shares or Warrant of the Company which is convertible
into such securities) only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment, the securities so transferred or assigned to the transferee or
assignee constitute Restricted Securities, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.
10. Changes in Common Stock
If, and as often as, there are any changes in the Common Stock by way of
stock split, stock dividend, reverse split, combination or reclassification, or
through merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof, as
may be required, so that the rights and privileges granted hereby shall continue
with respect to the Common Stock as so changed.
11. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
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<PAGE>
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Compositech Ltd.
120 Ricefield Lane
Hauppage, New York 11788
Attention: Samuel Gross
(516) 436-5200
(516) 436-5203 (Fax)
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Attention: Edward F. Cox, Esq.
(212) 336-2000
(212) 336-2222 (Fax)
(ii) if to the Initial Investor, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
(iii) if to any other Investor, at such address as
such Investor shall have provided in writing to the Company.
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<PAGE>
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 11(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES CONSENTS TO THE
JURISDICTION OF THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE
CITY OF NEW YORK OR THE STATE COURTS OF THE STATE OF NEW YORK SITTING IN THE
CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND
HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION INCLUDING
ANY OBJECTION BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH
PROCEEDING IN SUCH JURISDICTIONS.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived or as stated on Exhibit A. Without limiting the generality of
the foregoing, without the written consent of the holders of a majority in
interest of the Registrable Securities, the Company shall not grant to any
person the right to request it to register any of its securities under the
Securities Act unless the rights so granted are subject in all respect to the
prior rights of the holders of Registrable Securities set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
The restrictions on the Company's rights to grant registration rights under this
paragraph shall terminate on the date the Registration Statement to be filed
pursuant to Section 2(a) is declared effective by the Commission.
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<PAGE>
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "Escrow Instructions"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(1) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
COMPOSITECH LTD.
By: /s/ Christopher F. Johnson
--------------------------------
Name: Christopher F. Johnson
Title: President and CEO
THE SHAAR FUND LTD.
By: /s/ Samuel Levinson
--------------------------------
Name: Samuel Levinson
Title: Managing Director
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EXHIBIT 10.53
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 75,000
Warrant No. I
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Compositech Ltd.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered assigns, is
entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from Compositech Ltd., a
Delaware corporation (the "Company"), 75,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price per share equal to 110%
of the Market Price, subject to adjustment as specified herein, all on the terms
and conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on any
date herein specified, the consolidated book value of the Company as of the last
day of any month immediately preceding such date, divided by the number of Fully
Diluted Outstanding shares of Common Stock as determined in accordance with GAAP
(assuming the payment of the exercise prices for such shares) by Ernst & Young
LLP or any other firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
<PAGE>
"Closing Date" shall have the meaning set forth in the Securities Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $0.01 per share, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Market Price" means on any date of determination the closing bid
price of a Common Share on such day as reported on the Nasdaq SmallCap Market
("Nasdaq"); provided, if such security bid is not listed or admitted to trading
on Nasdaq, as reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg LP, or a
similar generally accepted reporting service, as the case may be.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date, as specified in the first
paragraph of this Warrant.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean November 5, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of
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<PAGE>
this Warrant, outstanding on such date, and other options or warrants to
purchase, or securities convertible into, shares of Common Stock outstanding on
such date which would be deemed outstanding in accordance with GAAP for purposes
of determining Book Value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" per Common Share means the closing bid price of a Common
Share as reported on Nasdaq on the Closing Date.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith between the Company and The Shaar Fund
Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on their exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
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<PAGE>
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise
From and after the Closing Date and until 5:00 p.m., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any Business Day, for all
or any part of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 120 Ricefield Lane, Hauppauge,
New York 11788, or at the office or agency designated by the Company pursuant to
Section 12, (i) a written notice of Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(ii) to the extent such exercise is not being effected through a Cashless
Exercise, payment of the Warrant Price in cash or wire transfer or cashier's
check drawn on a United States bank and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by Holder or its agent or attorney. Upon
receipt of the items referred to in clauses (i), (ii) and (iii) above, the
Company shall, as promptly as practicable, and in any event within five Business
Days thereafter, execute or cause to be executed and deliver or cause to be
delivered to Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share, as hereinafter provided. The stock
certificate or certificates so delivered shall be, to the extent possible, in
such denomination or denominations as Holder shall request in the notice and
shall be registered in the name of Holder or, subject to Section 9, such other
name as shall be designated in the notice. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other Person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the notice, together with the cash or check or checks and this
Warrant, is received by the Company as described above and all taxes required to
be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of such
shares have been paid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased shares of
4
<PAGE>
Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
Simultaneously with the exercise of this Warrant, payment in full of the
Warrant Price shall be made, at the option of the Holder, (i) by payment of the
Warrant Price in cash or by wire transfer or cashier's check drawn on a United
States bank, (ii) through a net exercise without payment of the Warrant Price by
providing notice to the Company of the election to receive a number of shares of
Common Stock in a Cashless Exercise equal to the product of (1) the number of
shares for which such Warrant is exercisable with payment of the Warrant Price
as of the date of exercise and (2) the Cashless Exercise Ratio or (iii) by any
combination of (i) and (ii). For purposes of this Agreement, the "Cashless
Exercise Ratio" shall equal a fraction, the numerator of which is the excess of
the Current Market Price per share of the Common Stock on the date of exercise
over the Current Warrant Price as of the date of exercise and the denominator of
which is the Current Market Price per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with provisions in (ii) in the
first sentence of this paragraph is herein called a "Cashless Exercise."
Following a Cashless Exercise, this Warrant shall be canceled in all respects
with regard to the number of shares of Common Stock issued in accordance with
the Cashless Exercise plus the number of shares used as consideration for the
Cashless Exercise.
2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this Warrant
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of Common
Stock upon exercise of any Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise, the Company shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
5
<PAGE>
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
3.3 Expenses
The Company shall prepare, issue and deliver at its own expense (other than
transfer taxes) the new Warrants or Warrants under this Section 3.
6
<PAGE>
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency, books
for the registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions
If at any time the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock); or
7
<PAGE>
(c) any warrants or other rights to subscribe for or purchase any evidences
of its indebtedness, any shares of its stock or any other securities or property
of any nature whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of Directors
of the Company shall be required to make a determination in good faith of the
fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Company
and acceptable to Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets
In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving
8
<PAGE>
corporation or where there is a change in or distribution with respect to the
Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any action
in respect of its Common Stock, other than any action described in this Section
4, which would have a materially adverse effect upon the rights of Holder, the
number of shares of Common Stock and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances, as determined
in good faith by the Board of Directors of the Company.
4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees not to
enter into any transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per share of
Common Stock.
9
<PAGE>
5. NOTICES TO HOLDER
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 4.2), specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such adjustment was
made pursuant to Section 4.4 or 4.5) describing the number and kind of any other
shares of stock or Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section 14.2. The
Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, or
any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing
10
<PAGE>
clause also shall specify (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, the date on which the
holders of Common Stock shall be entitled to any such dividend, distribution or
right, and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form satisfactory to
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in
11
<PAGE>
order that the Company may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Current Warrant
Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of record of such holders, the Company will in each case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock agrees that
this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder that such securities may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a legend
as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED
AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN
12
<PAGE>
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH
ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS
OF THIS WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any shares
of Restricted Common Stock, the Holder shall give ten days' prior written notice
(a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration Rights
Agreement, the Company shall prepare and file with the Commission not later than
the 30th day after the Closing Date, a Registration Statement relating to the
offer and sale of the Common Stock issuable upon exercise of the Warrants and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but no
later than 120 days after the Closing Date.
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<PAGE>
9.4 Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the restrictions
imposed by this Section upon the transferability of the Warrants, the Warrant
Stock and the Restricted Common Stock (or Common Stock issuable upon the
exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________,
_____, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any securities
exchange or quotation system, it will, at its expense, list thereon, maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent permissible under the applicable securities exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity
14
<PAGE>
reasonably satisfactory to it (it being understood that the written agreement of
the Holder shall be sufficient indemnity), and in case of mutilation upon
surrender and cancellation hereof, the Company will execute and deliver in lieu
hereof a new Warrant of like tenor to Holder; provided, in the case of
mutilation no indemnity shall be required if this Warrant in identifiable form
is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
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<PAGE>
(a) if to the Company, to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attention: Samuel Gross
(516) 436-5200
(506) 436-5203 (Fax)
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Attention: Edward F. Cox, Esq.
(212) 336-2000
(212) 336-2222 (Fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and against
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements of any kind
which may be imposed upon, incurred by or asserted against Holder in any manner
relating to or arising out of any failure by the Company to perform or observe
in any material respect any of its covenants, agreements, undertakings or
16
<PAGE>
obligations set forth in this Warrant; provided, however, that the Company will
not be liable hereunder to the extent that any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final nonappealable judgment by a court
to have resulted from Holder's gross negligence, bad faith or willful misconduct
in its capacity as a stockholder or warrantholder of the Company.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under Section 9 of this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of Section 9 of this Warrant and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall only be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of reference only
and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law
THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: November 5, 1999
COMPOSITECH LTD.
By: /s/ Christopher F. Johnson
----------------------------------
Name: Christopher F. Johnson
Title: President and CEO
Attest:
By: /s/ Samuel S. Gross
Name: Samuel S. Gross
Title: Executive Vice President, Secretary and Treasurer
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of __________ shares of Common Stock, par value $0.01
per share, of Compositech Ltd. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to
- --------------------------------------------------------------------------------
whose address is
- --------------------------------------------------------------------------------
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
----------------------------------------
(Name of Registered Owner)
----------------------------------------
(Signature of Registered Owner)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Notice: The signature on this
subscription must correspond with the
name as written upon the face of the
within Warrant in every particular,
without alteration or enlargement or any
change whatsoever.
A-1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ------------
and does hereby irrevocably constitute and appoint
- --------------------------------------------------------------------------------
attorney-in-fact to register such transfer on the books of Compositech Ltd.
maintained for the purpose, with full power of substitution in the premises.
Dated:
----------------------------------------
(Print Name)
----------------------------------------
(Signature)
----------------------------------------
(Print Name of Witness)
----------------------------------------
(Witness's Signature)
Notice: The signature on this
subscription must correspond with the
name as written upon the face of the
within Warrant in every particular,
without alteration or enlargement or any
change whatsoever.
B-1
EXHIBIT 10.54
SOVCAP EQUITY PARTNERS
c/o SovCap Investment Management Group, LLC
3340 Peachtree Road, NE
Suite 2320
Atlanta, GA 30326
October 27, 1999
COMPOSITECH LTD.
120 Ricefield Lane
Hauppauge, New York 11788
To Whom It May Concern:
Reference is made to the Series 1 Bridge Note Purchase and Security
Agreement, dated March 16, 1999, by and among the Compositech Ltd. and the
Purchasers listed therein, as amended by that certain First Amendment to the
Series 1 Bridge Note Purchase and Security Agreement, Dated April 21,1999 and
executed by the Company and certain Purchasers in connection with the Second
Closing and that certain Second Amendment to the Series 1 Bridge Note Purchase
and Security Agreement, dated July 28, 1999 and executed by the Company and
certain purchasers in connection with the Third Closing (as so amended, the
"Purchase Agreement"). Defined terms used but not defined herein shall have the
meanings ascribed thereto in the Purchase Agreement or the Company's Series 1
Secured Convertible Bridge Financing Notes (the "Bridge Notes") issued pursuant
thereto.
The Company has requested that Representative and all other Purchasers
grant an extension of maturity under the original Bridge Notes from the original
Maturity Date provided for in each respective Bridge Note to March 31, 2000, and
also to defer any exercise of any existing or newly issued Purchaser Warrants
until after March 31, 2000. In exchange therefor the Company has agreed to
increase the principal amount of each such Bridge Note and issue to each
Purchaser additional warrants to purchase additional shares of the Company's
Common Stock. This action is necessary in order for the Company to complete
certain financing transactions necessary for the continued operations of the
Company, and this contemplated action and the terms and provisions of the new
Bridge Notes, to the extent they differ from those contained in the original
Bridge Notes, have been fully agreed to by the Company.
In accordance with Section 2.5 of the Purchase Agreement appointing SovCap
Equity Partners, Ltd. as Representative for all other Purchasers under the
Purchase Agreement, Representative hereby confirms that it has agreed with the
Company (i) to tender or cause to be tendered all outstanding Bridge Notes and
Repricing Warrants; (ii) that such cancelled notes will be exchanged for newly
issued Bridge Notes containing revised principal amounts and otherwise
substantially the same terms as the original Bridge Notes except (a) the
maturity date for all newly issued Bridge Notes shall be March 31, 2000 as
agreed to by Representative and Company, (b) the principal amount will be
increased per agreement of the Company and Representative, and (c) any other
conforming changes that would need to be made to the new Bridge Notes to effect
the agreement of the Company and Representative; (iii) that such Repricing
Warrants will be exchanged for newly issued Repricing Warrants with
substantially the same terms; (iv) to issue to each Purchaser new Purchase
Warrants evidencing the right of each Purchaser to purchase additional shares of
the Company's Common Stock under the terms thereof; and (v) that the Purchasers
will
<PAGE>
not exercise any outstanding Purchaser Warrants or Purchaser Warrants to be
issued as contemplated by this agreement until March 31, 2000.
This agreement, as summarized above, is subject in all instances to (i) the
Company executing (a) new Bridge Notes in substance reasonably acceptable to
Representative and (b) executing any other document or instrument reasonably
requested by Representative necessary in its discretion to evidence the
transactions contemplated in this letter, and (ii) to the delivery of an opinion
of counsel to the Company in form and substance satisfactory to Representative
with respect to all the transactions contemplated in this letter. Representative
on behalf of itself or any other Purchaser does not consent to the waiver of or
waive any rights or interest under the Bridge Notes currently issued and
outstanding under the Purchase Agreement, the Bridge Notes and all such rights
and interests therein remaining in full force and effect until the original
Bridge Notes are replaced with new Bridge Notes that have fully executed by the
Company and delivered to Representative. Upon issue of the new Bridge Notes,
Representative hereby agrees that no event of default will have occurred under
the old Bridge Notes.
The Company has agreed to take all actions necessary to evidence the
transactions contemplated in this letter and further to refrain from directly or
indirectly taking any action which would prevent, hinder, or frustrate the
transactions contemplated in this letter or its intent and purpose. The
Company's agreement to the contents of this letter and the accuracy of the
within summary between the Company and Representative is indicated and
acknowledged by its signature below.
SOVCAP EQUITY PARTNERS, LTD.:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
COMPOSITECH LTD.:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EXHIBIT 10.55
COMPOSITECH LTD.
INVESTOR SUBSCRIPTION AGREEMENT
AND INVESTOR QUESTIONNAIRE
THE SECURITIES OFFERED HEREBY IN THE FORM OF SHARES OF COMMON STOCK OF
COMPOSITECH LTD. HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES CANNOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
THE RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THIS AGREEMENT AND
APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND WILL NOT BE TRANSFERRED OF
RECORD EXCEPT IN COMPLIANCE WITH THIS AGREEMENT AND SUCH LAWS.
* * * * * * *
PLEASE REVIEW THIS SUBSCRIPTION AGREEMENT CAREFULLY. PLEASE NOTE THAT IN
ADDITION TO SIGNING AND COMPLETING PAGE 15 OF THIS SUBSCRIPTION AGREEMENT,
YOU ARE REQUIRED TO INITIAL THE APPLICABLE PARAGRAPHS OF SECTION 4.
* * * * * * *
Compositech Ltd.
120 Ricefield Lane
Hauppauge, NY 11788
Gentlemen:
1. Subscription. Subject to the terms and conditions of this Subscription
Agreement, the undersigned hereby subscribes for and agrees to purchase
____________ shares of Common Stock, par value $.01 per share (the "Shares"), at
a price of $_________ per Share, of Compositech Ltd., a Delaware corporation
(the "Company") and warrants, exercisable until February 15, 2001, enabling the
holder to purchase __________shares of the Company's Common Stock at $ _______
per Share, a price agreed to between the undersigned and the Company, at or
about the market price on the date of the purchase. The undersigned herewith
delivers a certified or bank check or wires funds, in accordance with the wire
transfer instructions attached hereto as Exhibit A, in the amount of
$___________ which amount represents the aggregate purchase price of the Shares.
Except to the extent provided by applicable state securities laws, the
undersigned agrees that this subscription shall be irrevocable and shall survive
the death or disability of the
<PAGE>
undersigned. The undersigned further understands that if and to the extent that
this subscription is not accepted, in whole or in part, any amount received by
the Company from the undersigned will be returned to the undersigned without
interest or deduction.
2. Access to Information. The undersigned acknowledges that the Company has
made available to the undersigned, or the undersigned's personal advisors, the
opportunity to obtain additional information to evaluate the merits and risks of
the undersigned's investment in the Company.
3. General Representations and Warranties. The undersigned hereby
represents and warrants to the Company and the other purchasers of Shares as
follows:
(a) The Company has answered all inquiries that the undersigned has
made of it concerning the Company, its business and financial condition or
any other matter relating to the operation of the Company and the offer and
sale of the Shares.
(b) The undersigned has such knowledge and experience in financial and
business matters in general, and financial and business matters of the type
in which the Company will engage in particular, that the undersigned is
capable of evaluating the merits and risks of an investment in the Company.
(c) The undersigned is familiar with the nature of and risks attendant
to an investment of this type, the undersigned is financially capable of
bearing the economic risk of this investment and the undersigned can afford
the loss of the total amount of the investment.
(d) If the undersigned is a corporation, partnership, trust or other
entity, it is duly organized and validly existing under the laws of the
state and country of its incorporation or formation and the person
executing this Subscription Agreement in a representative or fiduciary
capacity has full power and authority to execute and deliver this
Subscription Agreement in such capacity and on behalf of the subscribing
corporation, partnership, trust or other entity. Such entity has full right
and power to perform its obligations pursuant to this Subscription
Agreement.
4. ACCREDITED INVESTOR STATUS REPRESENTATIONS AND WARRANTIES. PLEASE
INITIAL THE APPLICABLE REPRESENTATION BELOW ((A) OR (B)) REGARDING THE NATURE OF
YOUR STATUS AS AN "ACCREDITED INVESTOR" AS SUCH TERM IS DEFINED IN RULE 501(A)
OF REGULATION D ("REGULATION D") PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT").
(a) INITIAL IF (i) AND (ii) BELOW ARE APPLICABLE ___________.
(i) The undersigned is an individual who is such an "Accredited
Investor" because: the undersigned is a director or executive officer
of the Company; or the undersigned has a net worth, or joint net worth
with the undersigned's spouse, in excess of $1,000,000 (which net
worth includes the value
2
<PAGE>
of homes, home furnishings and automobiles); or the undersigned had an
individual income in excess of $200,000 in each of the two most recent
years, or joint income with the undersigned's spouse in excess of
$300,000 in each of those years, and has a reasonable expectation of
reaching the same income level in the current year; and
(ii) The undersigned represents that the undersigned: (A) does
not have an overall commitment to investments which are not readily
marketable that is disproportionate to the undersigned's net worth,
and that the undersigned's investment in the Shares will not cause
such overall commitment to become excessive; and (B) has adequate net
worth and means of providing for the undersigned's current needs and
personal contingencies to sustain a complete loss of the undersigned's
investment in the Company at the time of investment and has no need
for liquidity in the undersigned's investment in the Shares.
OR
(b) INITIAL IF THE FOLLOWING IS APPLICABLE: ___________.
The undersigned is a corporation, partnership, trust, plan or other
organization, entity or institution which is an "Accredited Investor," as
defined in Regulation D.
5. Investment Representations. The undersigned hereby represents and
warrants to the Company and the other purchasers of Shares as follows:
(a) The undersigned understands that the Shares have not been
registered under the Securities Act or the securities laws of any state and
that the undersigned is purchasing the Shares for investment only; the
undersigned agrees and represents that the undersigned will not sell,
assign, pledge or otherwise dispose of any Shares or any portion thereof
unless, in the opinion of counsel for the Company, the same may be legally
sold or disposed of without registration or qualification under the
applicable state or federal statutes, or the Shares shall have been so
registered or qualified and an appropriate registration statement shall
then be in effect; the undersigned understands that the certificates
representing the Shares will bear a legend containing the foregoing
restriction; and the undersigned understands that the undersigned must bear
the economic risk of the investment for an indefinite period of time.
(b) The undersigned is fully aware that the Shares are being issued
and sold to the undersigned in reliance upon the exemption provided for in
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder and
similar exemptions provided under state securities laws on the grounds that
no public offering is involved and that the representations, warranties and
agreements set forth in this Subscription Agreement are essential to the
claiming of such exemptions.
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<PAGE>
(c) The undersigned is purchasing the Shares with the undersigned's
personal funds and not with the funds of any other person, firm or entity; the
undersigned is acquiring the Shares for the undersigned's personal account for
investment only, and without any intention of selling or distributing all or any
part thereof; the undersigned has no reason to anticipate any change in personal
circumstances, financial or otherwise, which would cause the undersigned to
sell, distribute, or necessitate or require any sale or distribution of the
Shares; and no person other than the undersigned has any beneficial interest in
the Shares.
(d) No representations, warranties or covenants have been made to the
undersigned by the Company or any officer, employee, agent, affiliate or
subsidiary of the Company, other than the representations, warranties and
covenants included in this Subscription Agreement.
6. Representations, Warranties and Covenants of the Company. The Company
represents, warrants and covenants that:
(a) The Company is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware.
(b) The Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which its activities
or the ownership or leasing of property require such qualification or where
the failure to so qualify would have a material adverse effect on the
business, operations, condition (financial or otherwise) or results of
operations of the Company.
(c) The outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable; none of such
shares has been issued in violation of the preemptive rights of any
shareholder of the Company. The Shares, when issued in accordance with the
terms thereof, will be duly authorized, validly issued, fully paid and
nonassessable; and none of the Shares will be issued in violation of the
preemptive rights of any shareholder of the Company.
(d) This Subscription Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms.
(e) The Company is not in violation of any term or provision of (i)
any of its charter documents, including its certificate of incorporation or
by-laws, (ii) any material term or provision of any indenture, mortgage,
deed of trust, note agreement, or other agreement or instrument to which it
is a party or by which it is or may be bound or to which any of its assets,
property or business is or may be subject, (iii) any material term of any
indebtedness or (iv) to the best of the Company's knowledge, any statute or
any judgment, decree, order, rule or regulation of any court, regulatory
body or administrative agency or other federal, state or other
4
<PAGE>
governmental body, domestic or foreign, having jurisdiction over its
assets, property or business, which violation or violations, either in any
case or in the aggregate, might result in any material adverse change,
financial or otherwise, in its assets, properties, condition, business,
earnings or prospects, and the execution and delivery by the Company of
this Subscription Agreement, the consummation by the Company of the
transactions herein contemplated and compliance by the Company with the
terms of this Subscription Agreement will not result in any such violation.
7. Indemnification. The undersigned agrees to indemnify and hold harmless
the Company, its officers, directors, employees, stockholders and affiliates,
and any person acting on behalf of the Company, from and against any and all
damage, loss, liability, cost and expense (including attorney's fees) which any
of them may incur by reason of the failure by the undersigned to fulfill any of
the terms and conditions of the Subscription Agreement, or by reason of any
breach of the representations, warranties and covenants made by the undersigned
herein, or in any other document provided by the undersigned to the Company. All
representations, warranties and covenants contained in this Subscription
Agreement, and the indemnification contained in this Section 7, shall survive
the acceptance of this Subscription Agreement by the Company.
8. Transferability; Binding Effect. The undersigned hereby agrees that this
Subscription Agreement may not be sold, assigned, pledged, transferred or
otherwise disposed of, except as otherwise provided for herein, in any manner,
by the purchaser, without the prior written consent of the Company. This
Subscription Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and the undersigned's heirs, personal
representatives, successors and permitted assigns.
9. Acceptance of Subscription. The Company shall have the right to accept
or reject this Subscription Agreement, in whole or in part, and this
Subscription Agreement shall be deemed to be accepted only when the acceptance
attached hereto is signed by the Company.
10. No Waiver. Notwithstanding any of the representations, warranties,
acknowledgments or agreements made herein by the undersigned, the undersigned
does not thereby or in any other manner waive any of the rights granted to the
undersigned under federal or state securities laws.
11. Registration Rights
(a) As used in this Section 11, the following terms shall have the
following meanings:
(i) "Affiliate" shall mean, with respect to any person, any other
person controlling, controlled by or under direct or indirect common
control with such person (for the purposes of this definition
"control," when used with respect to any specified person, shall mean
the power to direct the
5
<PAGE>
management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" shall have
meanings correlative to the foregoing).
(ii) "Business Day" shall mean a day Monday through Friday on
which banks are generally open for business in New York.
(iii) "Holders" shall mean the undersigned and any person holding
Registrable Securities to whom the rights under Section 11 have been
transferred in accordance with Section 11(i).
(iv) "Person" shall mean any person, individual, corporation,
partnership, trust or other nongovernmental entity or any governmental
agency, court, authority or other body (whether foreign, federal,
state, local or otherwise).
(v) The terms "register," "registered" and "registration" refer
to the registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration
or ordering of the effectiveness of such registration statement.
(vi) "Registrable Securities" shall mean the Shares and any
shares of common stock of the Company issued as a dividend or other
distribution with respect to or in replacement of Shares; provided,
however, that such securities shall only be treated as Registrable
Securities if and only for so long as they (A) have not been disposed
of pursuant to a registration statement declared effective by the SEC,
(B) have not been sold in a transaction exempt from the registration
requirements of the Securities Act so that all transfer restriction
and restrictive legends with respect thereto are removed upon the
consummation of such sale or (C) are held by a Holder or a permitted
transferee pursuant to Section 11(i).
(vii) "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 11(b) hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and expenses of counsel for the Company,
blue sky fees and expense (for a reasonable number of states) and the
expenses of any special audits incident to or required by any such
registration (but excluding the fees of legal counsel for any Holder).
(viii) "Registration Statement" shall have the meaning ascribed
to such term in Section 11(b).
6
<PAGE>
(ix) "Registration Period" shall have the meaning ascribed to
such term in Section 11(c).
(x) "SEC" shall mean the U.S. Securities and Exchange Commission.
(xi) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities
and all fees and expenses of legal counsel for any Holder.
(b) No later than 60 days after the purchase of Shares pursuant to
this Subscription Agreement (the "Filing Date"), the Company will file a
registration statement (the "Registration Statement") with the SEC and use
its reasonable best efforts to effect the registration, qualifications or
compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications
or exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) as may be so reasonably requested and as would permit or
facilitate the sale and distribution of all Registrable Securities.
Notwithstanding the foregoing, the Company will not be obligated to enter
into any underwriting agreement for the sale of any of the Shares.
(c) All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section
11(b) shall be borne by the Company. All Selling Expenses relating to the
sale of securities registered by or behalf of Holders shall be borne by
such Holders pro rata on the basis of the number of securities so
registered.
(d) In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Subscription Agreement,
the Company will, upon reasonable request, inform each Holder as to the
status of such registration, qualification, exemption and compliance. At
its expense the Company will:
(i) use its reasonable best efforts to keep such registration,
and any qualification, exemption or compliance under state securities
laws which the Company determines to obtain, continuously effective
until at least the second anniversary of the Closing Date or until the
Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs. The period of time
during which the Company is required hereunder to keep the
Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing at the Company's
election, the Company may cease to keep such registration,
qualification or compliance effective with respect to any Registrable
Securities and the registration rights of a Holder shall expire, at
such time as the Holder may sell under Rule 144 under the Securities
Act (or other exemption from registration acceptable to the Company)
in a
7
<PAGE>
three-month period all Registrable Securities then held by such
Holder;
(ii) advise the Holders:
(A) when the Registration Statement or any amendment thereto
has been filed with the SEC and when the Registration Statement
or any post-effective amendment thereto has become effective;
(B) of any request by the SEC for amendments or supplements
to the Registration Statement or the prospectus included therein
or for additional information;
(C) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation
of any proceeding for such purpose;
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares
included therein for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and
(E) of the happening of any event that requires the making
of any changes in the Registration Statement or the prospectus so
that, as of such date, the statements therein are not misleading
and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case
of the prospectus, in the light of the circumstances under which
they were made) not misleading;
(iii) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement
at the earliest possible time;
(iv) during the Registration Period deliver to each Holder,
without charge, as many copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Company consents to the use,
consistent with the provisions hereof, of the prospectus or any
amendment or supplement thereto by each of the selling Holders of
Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or
supplement thereto;
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<PAGE>
(v) prior to any public offering of the Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain
an exemption for offer and sale under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in
writing, provided that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do
any and all other acts or things reasonably necessary or advisable to
enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(vi) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to any Registration Statement free of
any restrictive legends to the extent not required at such time and in
such denomination and registered in such names as Holders may request
at least three business days prior to sales of Registrable Securities
pursuant to such Registration Statement; and
(vii) upon the occurrence of any event contemplated by Section
11(d)(ii)(E) above, the Company shall promptly prepare a
post-effective amendment to the Registration Statement or a supplement
to the related prospectus, or file any other required document so
that, as thereafter delivered to purchasers of the Registrable
Securities included therein not misleading, the prospectus will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading
in the light of the circumstances under which they were made.
(e) The Holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration pursuant to Section 11(b) hereof
as a result of any controversy that may arise with respect to the
interpretation or implementation of this Subscription Agreement.
(f) (i) To the extent permitted by law, the Company will
indemnify each Holder, each underwriter of the Registrable Securities
and each person controlling such Holder within the meaning of Section
15 of the Securities Act, with respect to which any registration,
qualification or compliance has been effected pursuant to this
Subscription Agreement, against losses, damages and liabilities (or
action in respect thereof), including any of the incurred in
settlement of any litigation, commenced or threatened (subject to
Section 11(f)(iii) below), arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any Registration Statement, prospectus or offering circular, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance, or based on any omission (or alleged
9
<PAGE>
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse
each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder, for reasonable legal and any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action as
incurred; provided that the Company will not be liable in any such
case to the extent that any untrue statement or omission or allegation
thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder
and stated to be specifically for use in preparation of such
registration statement, prospectus or offering circular; further
provided that the indemnity contained in this Section 11(f)(i) shall
not apply to amounts paid in settlement of any such claim, loss,
damages, liability, action or proceeding if such settlement is
effected without the consent of the Company (which consent shall not
be unreasonably withheld), nor shall the Company be liable in any such
case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and
agreements contained in this Agreement with respect to the sales of
Registrable Securities, and except that the foregoing indemnity
agreement is subject to the conditions that insofar as it relates to
(A) any such untrue statement or alleged untrue statement or omission
or alleged omission made in the preliminary prospectus but eliminated
or remedied in the amended prospectus filed with the SEC pursuant to
Rule 424(b) or in the prospectus subject to completion and term sheet
under Rule 434 of the Securities Act, which together meet the
requirements of Section 10(a) of the Securities Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit
of any such Holder, any such underwriter or any such controlling
person, if a copy of the Final Prospectus was not furnished to person
or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act, and (B)
any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished to the Company by
such Holder, such indemnity agreement shall not inure to the benefit
of any such Holder, any such underwriter or any such controlling
person;
(ii) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify
the Company, each of its directors and officers, each underwriter of
the Shares and each person who controls the Company within the meaning
of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced
or threatened (subject to Section 11(f)(iii) below), arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or
offering circular, or any amendment or supplement thereof, incident to
any such registration, qualification or compliance, or based on any
omission (or alleged
10
<PAGE>
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse
the Company, such directors and officers, each underwriter of the
Shares and each person controlling the Company for reasonable legal
and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action as incurred, in each case to the extent, but only to the
extent, that such untrue statement or omission or allegation thereof
is made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Holder and stated to
be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the indemnity shall not
apply to the extent that such claim, loss, damage or liability results
from the fact that a current copy of the prospectus that was made
available to the Holder was not sent or given to the person asserting
any such claim, loss, damage or liability at or prior to the written
confirmation of the sale of the Registrable Securities confirmed to
such person if such current copy of the prospectus would have cured
the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, in no event shall a Holder be liable
for any such claims, losses, damages or liabilities in excess of the
proceeds received by such Holder in the offering, except in the event
of fraud by such Holder;
(iii) Each party entitled to indemnification under this Section
11(f) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and
provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Subscription Agreement, unless such failure
is prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any
settlement of an action or claim effected without its written consent
(which consent will not be unreasonably withheld);
(iv) If the indemnification provided for in this Section 11(f) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage
or expense
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<PAGE>
referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of
such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
(g) (i) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable
Securities so that, as thereafter delivered to the Holders, such
prospectus will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, each Holder
will forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement contemplated by Section 11(b)
until its receipt of copies of the supplemented or amended prospectus
from the Company and, if so directed by the Company, each Holder shall
deliver to the Company all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(ii) Each Holder agrees to suspend, upon request of the Company,
any disposition of Registrable Securities pursuant to the Registration
Statement and prospectus contemplated by Section 11(b) during (A) any
period not to exceed two 30-day periods within any one 12-month period
the Company requires in connection with a primary underwritten
offering of equity securities and (B) any period, not to exceed one
30-day period per circumstance or development, when the Company
determines in good faith that offers and sales pursuant thereto should
not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure
that would be required in such a prospectus is premature, would have
an adverse effect on the Company or is otherwise inadvisable;
(iii) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as
the Company may
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<PAGE>
request in writing or as shall be required in connection with any
registration, qualification or compliance referred to in this Section
11;
(iv) Each Holder hereby covenants with the Company (A) not to
make any sale of the Registrable Securities without effectively
causing the prospectus delivery requirements under the Securities Act
to be satisfied, and (B) if such Registrable Securities are to be sold
by any method or in any transaction other than on a national
securities exchange, in the over-the-counter market, in privately
negotiated transactions, or in a combination of such methods, to
notify the Company at least five business days prior to the date on
which the Holder first offers to sell any such Shares;
(v) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to a Registration Statement are not
transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities
is accompanied by a certificate reasonably satisfactory to the Company
to the effect that (A) the Registrable Securities have been sold in
accordance with such Registration Statement and (B) the requirement of
delivering a current prospectus has been satisfied;
(vi) Each Holder agrees not to take any action with respect to
any distribution deemed to be made pursuant to such Registration
Statement, that constitutes a violation of Regulation M under the
Exchange Act or any other applicable rule, regulation or law;
(vii) At the end of the period during which the Company is
obligated to keep the Registration Statement current and effective as
described above, the Holders of Registrable Securities included in the
Registration Statement shall discontinue sales of shares pursuant to
such Registration Statement upon receipt of notice from the Company of
its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and such Holders shall
notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
(h) With a view to making available to the Holders the benefits of
certain rules and regulations of the SEC which at any time permit the sale
of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at
all times;
(ii) file with the SEC in a timely manner all reports and
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<PAGE>
other documents required of the Company under the Exchange Act; and
(iii) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon any reasonable request a
written statement by the Company as to its compliance with Rule 144
under the Securities Act, and of the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company as such Holder may reasonably
request in availing itself of any rule or regulation of the SEC
allowing a Holder to sell any such securities without registration.
(i) The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under Section 11(a) may be assigned
in full by a Holder, provided that such transfer may otherwise be effected
in accordance with applicable securities laws; (ii) such Holder gives prior
written notice to the Company; and (iii) such transferee agrees to comply
with the terms and provisions of this Subscription Agreement, and such
transfer is otherwise in compliance with this Subscription Agreement.
Except as specifically permitted by this Section 11(i), the rights of a
Holder with respect to Registrable Securities as set out herein shall not
be transferable to any other Person, and any attempted transfer shall cause
all rights of such Holder therein to be forfeited.
(j) With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding,
any provision of this Section 11 may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation
of each such waiver or amendment, the Company shall promptly give written
notice thereof to the Holders, if any, who have not previously received
notice thereof or consented thereto in writing.
12. Acknowledgment. The undersigned acknowledges that the undersigned has
carefully read and fully understands this Subscription Agreement and its
representations.
13. Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York with the
exception of the choice of law provisions thereof.
14. Counterparts. This Subscription Agreement shall be executed through the
use of separate signature pages or in any number of counterparts, and each of
such counterparts shall, for all purposes, constitute one agreement binding on
all parties.
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IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of ____________, 1999.
-----------------------------------
(Purchaser's Name)
-----------------------------------
(Purchaser's Signature)
-----------------------------------
-----------------------------------
-----------------------------------
(Purchaser's Address)
-----------------------------------
(Purchaser's Social Security or
Taxpayer Identification Number)
$
-----------------------------------
Subscription Amount
-----------------------------------
(Purchaser's Telephone Number)
15
<PAGE>
ACCEPTANCE
The undersigned hereby accepts the foregoing Subscription Agreement this
_____ day of _____________, 1999.
Compositech Ltd.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
EXHIBIT 10.56
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE PURSUANT
HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SCOPE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
COMPOSITECH LTD.
COMMON STOCK PURCHASE WARRANT
VOID AFTER ____________________
1 Number and Price of Shares Subject to Warrant. Subject to the terms and
conditions herein set forth, ______________________, his or her designees,
successors and assigns (together, the "Warrantholder") are entitled to purchase
from Compositech Ltd., a Delaware corporation (the "Company"), at any time or
from time to time after the date hereof and on or before ____________________,
in whole or in part, _______________ (_________) fully paid and non-assessable
shares of common stock, par value $.01 per share (the "Common Stock" and such
number of shares as adjusted as described below, the "Shares"), upon surrender
hereof to the Company and upon payment of the Purchase Price as hereinafter
defined. The purchase price per Share shall be $__________ (as may be adjusted
as described below, the "Purchase Price").
2 Adjustments; Anti-Dilution Provisions.
2.1. In the event of a change in the capital stock of the Company, such as
a stock dividend, stock split or combination or similar recapitalization, the
Warrantholder upon exercise hereof shall be entitled to receive, in lieu of the
number of shares of Common Stock which he would have been entitled to receive
upon exercise at that date had there been no such change, such number of shares
of Common Stock as such holder would have received pursuant to such change if
the exercise of this Warrant had been effected prior to such change and the
Purchase Price shall be adjusted proportionately.
2.2. In the case of (i) any consolidation or merger of the Company, (ii)
any sale or transfer of all or substantially all the assets of the Company, or
(iii) any share exchange whereby the Common Stock is converted into other
securities or property, the Warrantholder shall have the right to exercise this
Warrant and receive upon such exercise the kind and amount of shares of stock or
other securities or property receivable upon the consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of Common Stock
for which this Warrant might have been exercised immediately prior to the
consolidation, merger, sale, transfer or share exchange.
2.3. The Company shall, within a reasonable time period after written
request at any time of the Warrantholder, furnish or cause to be furnished to
such holder a certificate setting forth adjustments and readjustments regarding
(i) the number of Shares, (ii) the amount, if any, of other property at the time
receivable upon the exercise of this Warrant, or (iii) the Purchase Price.
<PAGE>
3 Registration Rights
(a) As used in this Section 3, the following terms shall have the following
meanings:
(i) "Affiliate" shall mean, with respect to any person, any other
person controlling, controlled by or under direct or indirect common
control with such person (for the purposes of this definition "control,"
when used with respect to any specified person, shall mean the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing).
(ii) "Business Day" shall mean a day Monday through Friday on which
banks are generally open for business in New York.
(iii) "Holders" shall mean the undersigned and any person holding
Registrable Securities to whom the rights under Section 3 have been
transferred in accordance with Section 3(i).
(iv) "Person" shall mean any person, individual, corporation,
partnership, trust or other nongovernmental entity or any governmental
agency, court, authority or other body (whether foreign, federal, state,
local or otherwise).
(v) The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(vi) "Registrable Securities" shall mean the Shares and any shares of
common stock of the Company issued as a dividend or other distribution with
respect to or in replacement of Shares; provided, however, that such
securities shall only be treated as Registrable Securities if and only for
so long as they (A) have not been disposed of pursuant to a registration
statement declared effective by the SEC,
2
<PAGE>
(B) have not been sold in a transaction exempt from the registration
requirements of the Securities Act so that all transfer restriction and
restrictive legends with respect thereto are removed upon the consummation
of such sale or (C) are held by a Holder or a permitted transferee pursuant
to Section 3(i).
(vii) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 3(b) hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and expenses of counsel for the Company, blue
sky fees and expense (for a reasonable number of states) and the expenses
of any special audits incident to or required by any such registration (but
excluding the fees of legal counsel for any Holder).
(viii) "Registration Statement" shall have the meaning ascribed to
such term in Section 3(b).
(ix) "Registration Period" shall have the meaning ascribed to such
term in Section 3(c).
(x) "SEC" shall mean the U.S. Securities and Exchange Commission.
(xi) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and expenses of legal counsel for any Holder.
(b) No later than 90 days after the purchase of Shares pursuant to this
Subscription Agreement (the "Filing Date"), the Company will file a registration
statement (the "Registration Statement") with the SEC and use its reasonable
best efforts to effect the registration, qualifications or compliances
(including, without limitation, the execution of any required undertaking to
file post-effective amendments, appropriate qualifications or exemptions under
applicable blue sky or other state securities laws and appropriate compliance
with applicable securities laws, requirements or regulations) as may be so
reasonably requested and as would permit or facilitate the sale and distribution
of all Registrable Securities. Notwithstanding the foregoing, the Company will
not be obligated to enter into any underwriting agreement for the sale of any of
the Shares.
(c) All Registration Expenses incurred in connection with any registration,
qualification, exemption or compliance pursuant to Section 3(b) shall be borne
by the Company. All Selling Expenses relating to the sale of securities
registered by or behalf of Holders shall be borne by such Holders pro rata on
the basis of the number of securities so registered.
3
<PAGE>
(d) In the case of the registration, qualification, exemption or compliance
effected by the Company pursuant to this Subscription Agreement, the Company
will, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company will:
(i) use its reasonable best efforts to keep such registration, and any
qualification, exemption or compliance under state securities laws which
the Company determines to obtain, continuously effective until at least the
second anniversary of the Closing Date or until the Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs. The period of time during which the Company is
required hereunder to keep the Registration Statement effective is referred
to herein as "the Registration Period." Notwithstanding the foregoing at
the Company's election, the Company may cease to keep such registration,
qualification or compliance effective with respect to any Registrable
Securities and the registration rights of a Holder shall expire, at such
time as the Holder may sell under Rule 144 under the Securities Act (or
other exemption from registration acceptable to the Company) in a
three-month period all Registrable Securities then held by such Holder;
(ii) advise the Holders:
(A) when the Registration Statement or any amendment thereto has
been filed with the SEC and when the Registration Statement or any
post-effective amendment thereto has become effective;
(B) of any request by the SEC for amendments or supplements to
the Registration Statement or the prospectus included therein or for
additional information;
(C) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceeding for such purpose;
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares included
therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(E) of the happening of any event that
4
<PAGE>
requires the making of any changes in the Registration Statement or
the prospectus so that, as of such date, the statements therein are
not misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein (in the
case of the prospectus, in the light of the circumstances under which
they were made) not misleading;
(iii) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of any Registration Statement at the
earliest possible time;
(iv) during the Registration Period deliver to each Holder, without
charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may
reasonably request; and the Company consents to the use, consistent with
the provisions hereof, of the prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in
connection with the offering and sale of the Registrable Securities covered
by the prospectus or any amendment or supplement thereto;
(v) prior to any public offering of the Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain an
exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided
that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in
any such jurisdiction, and do any and all other acts or things reasonably
necessary or advisable to enable the offer and sale in such jurisdictions
of the Registrable Securities covered by such Registration Statement;
(vi) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to any Registration Statement free of any restrictive legends to
the extent not required at such time and in such denomination and
registered in such names as Holders may request at least three business
days prior to sales of Registrable Securities pursuant to such Registration
Statement; and
(vii) upon the occurrence of any event
5
<PAGE>
contemplated by Section 3(d)(ii)(E) above, the Company shall promptly
prepare a post-effective amendment to the Registration Statement or a
supplement to the related prospectus, or file any other required document
so that, as thereafter delivered to purchasers of the Registrable
Securities included therein not misleading, the prospectus will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
(e) The Holders shall have no right to take any action to restrain, enjoin
or otherwise delay any registration pursuant to Section 3(b) hereof as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Subscription Agreement.
(f) (i) To the extent permitted by law, the Company will indemnify
each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which any registration, qualification
or compliance has been effected pursuant to this Subscription
Agreement, against losses, damages and liabilities (or action in
respect thereof), including any of the incurred in settlement of any
litigation, commenced or threatened (subject to Section 3(f)(iii)
below), arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any Registration
Statement, prospectus or offering circular, or any amendment or
supplement thereof, incident to any such registration, qualification
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse each Holder,
each underwriter of the Registrable Securities and each person
controlling such Holder, for reasonable legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action as incurred; provided
that the Company will not be liable in any such case to the extent
that any untrue statement or omission or allegation thereof is made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder and stated to be
specifically for use in preparation of such registration statement,
prospectus or offering circular; further provided that the indemnity
contained in this Section 3(f)(i) shall not apply to amounts paid in
settlement of any such claim, loss, damages, liability, action or
proceeding if such
6
<PAGE>
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case where the claim, loss, damage or liability
arises out of or is related to the failure of the Holder to comply
with the covenants and agreements contained in this Agreement with
respect to the sales of Registrable Securities, and except that the
foregoing indemnity agreement is subject to the conditions that
insofar as it relates to (A) any such untrue statement or alleged
untrue statement or omission or alleged omission made in the
preliminary prospectus but eliminated or remedied in the amended
prospectus filed with the SEC pursuant to Rule 424(b) or in the
prospectus subject to completion and term sheet under Rule 434 of the
Securities Act, which together meet the requirements of Section 10(a)
of the Securities Act (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any such Holder, any such
underwriter or any such controlling person, if a copy of the Final
Prospectus was not furnished to person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act, and (B) any such untrue statement or
alleged untrue statement or omission or alleged omission based upon
information furnished to the Company by such Holder, such indemnity
agreement shall not inure to the benefit of any such Holder, any such
underwriter or any such controlling person;
(ii) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify
the Company, each of its directors and officers, each underwriter of
the Shares and each person who controls the Company within the meaning
of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced
or threatened (subject to Section 3(f)(iii) below), arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or
offering circular, or any amendment or supplement thereof, incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances in which they
were made, and will reimburse the Company, such directors and
officers, each underwriter of the Shares and each person controlling
the Company
7
<PAGE>
for reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action as incurred, in each case to the extent,
but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Holder and stated to be specifically for use in preparation of such
registration statement, prospectus or offering circular; provided that
the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the
prospectus that was made available to the Holder was not sent or given
to the person asserting any such claim, loss, damage or liability at
or prior to the written confirmation of the sale of the Registrable
Securities confirmed to such person if such current copy of the
prospectus would have cured the defect giving rise to such loss,
claim, damage or liability. Notwithstanding the foregoing, in no event
shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the
offering, except in the event of fraud by such Holder;
(iii) Each party entitled to indemnification under this Section
3(f) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense
at such Indemnified Party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Subscription Agreement, unless such failure is prejudicial to the
Indemnifying Party in defending such claim or litigation. An
Indemnifying Party shall not be liable for any settlement of an action
or claim effected without its written consent (which consent will not
be unreasonably withheld);
(iv) If the indemnification provided for in this Section 3(f) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage
or
8
<PAGE>
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of
such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
(g) (i) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable
Securities so that, as thereafter delivered to the Holders, such
prospectus will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, each Holder
will forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement contemplated by Section 3(b)
until its receipt of copies of the supplemented or amended prospectus
from the Company and, if so directed by the Company, each Holder shall
deliver to the Company all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(ii) Each Holder agrees to suspend, upon request of the Company,
any disposition of Registrable Securities pursuant to the Registration
Statement and prospectus contemplated by Section 3(b) during (A) any
period not to exceed two 30-day periods within any one 12-month period
the Company requires in connection with a primary underwritten
offering of equity securities and (B) any period, not to exceed one
30-day period per circumstance or development, when the Company
determines in good faith that offers and sales pursuant thereto should
not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure
that would be required
9
<PAGE>
in such a prospectus is premature, would have an adverse effect on the
Company or is otherwise inadvisable;
(iii) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as
the Company may request in writing or as shall be required in
connection with any registration, qualification or compliance referred
to in this Section 3;
(iv) Each Holder hereby covenants with the Company (A) not to
make any sale of the Registrable Securities without effectively
causing the prospectus delivery requirements under the Securities Act
to be satisfied, and (B) if such Registrable Securities are to be sold
by any method or in any transaction other than on a national
securities exchange, in the over-the-counter market, in privately
negotiated transactions, or in a combination of such methods, to
notify the Company at least five business days prior to the date on
which the Holder first offers to sell any such Shares;
(v) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to a Registration Statement are not
transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities
is accompanied by a certificate reasonably satisfactory to the Company
to the effect that (A) the Registrable Securities have been sold in
accordance with such Registration Statement and (B) the requirement of
delivering a current prospectus has been satisfied;
(vi) Each Holder agrees not to take any action with respect to
any distribution deemed to be made pursuant to such Registration
Statement, that constitutes a violation of Regulation M under the
Exchange Act or any other applicable rule, regulation or law;
(vii) At the end of the period during which the Company is
obligated to keep the Registration Statement current and effective as
described above, the Holders of Registrable Securities included in the
Registration Statement shall discontinue sales of shares pursuant to
such Registration Statement upon receipt of notice from the Company of
its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and such Holders shall
notify the Company of the number of
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<PAGE>
shares registered which remain unsold immediately upon receipt of such
notice from the Company.
(h) With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which at any time permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(iii) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon any reasonable request a written
statement by the Company as to its compliance with Rule 144 under the
Securities Act, and of the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of
the Company as such Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing a Holder to sell any such securities
without registration.
(i) The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under Section 3(a) may be assigned in full
by a Holder, provided that such transfer may otherwise be effected in accordance
with applicable securities laws; (ii) such Holder gives prior written notice to
the Company; and (iii) such transferee agrees to comply with the terms and
provisions of this Subscription Agreement, and such transfer is otherwise in
compliance with this Subscription Agreement. Except as specifically permitted by
this Section 3(i), the rights of a Holder with respect to Registrable Securities
as set out herein shall not be transferable to any other Person, and any
attempted transfer shall cause all rights of such Holder therein to be
forfeited.
(j) With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this Section 3 may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the Holders, if any, who have not previously received notice thereof or
consented thereto in writing.
11
<PAGE>
4 No Fractional Shares. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant. All Shares
(including fractions thereof) issuable upon exercise of this Warrant or any part
hereof by the holder hereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional Share. If
any such conversion results in a fraction, an amount equal to such fraction
multiplied by the then current market price (as determined in good faith by the
board of directors of the Company) of one Share shall be paid to such holder in
cash by the Company.
5 No Shareholder Rights. This Warrant shall not entitle its holder to any
of the rights of a shareholder of the Company.
6 Reservation of Shares. The Company covenants that during the period this
Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of the Shares upon the exercise of this Warrant and, from time to time,
will take all steps necessary to provide therefore, including any required
amendment to, its Restated Certificate of Incorporation.
7 Exercise of Warrant.
7.1. In order to exercise this Warrant, in whole or in part, the
Warrantholder shall deliver to the Company (i) a written notice of the
Warrantholder's election to exercise this Warrant, specifying the number of
Shares to be purchased and designating the Purchase Price to be applied, (ii)
cash or a check or checks payable to the order of the Company in an amount equal
to the product of the Purchase Price so designated per Share and the number of
Shares to be purchased at such time pursuant to the Warrant, and (iii) this
Warrant. Except as set forth in section 7.2, upon receipt of such items, the
Company shall, as promptly as practicable, and in any event within 20 days
thereafter, issue or cause to be issued and delivered to such holder a
certificate or, if requested by the holder, multiple certificates representing
the aggregate number of full Shares issuable upon such exercise, together with
cash in lieu of any fraction of a Share, as provided in section 4 above. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and such holder or any other
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares for all purposes, as of the date that said notice,
together with said cash or check or checks and this Warrant, are received by the
Company as aforesaid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of said certificate or certificates,
deliver to such holder a new Warrant evidencing the rights of such holder to
purchase the unpurchased Shares, or such other securities as may become subject
to the right to purchase by the holder hereof
12
<PAGE>
under the terms hereof, called for by this Warrant, which new Warrant shall in
all other respects be identical to this Warrant.
7.2. All Shares issuable upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable, and the Company shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed in respect of, the issue or delivery thereof other than any federal,
state or local income tax or other tax based upon gross or net income, owed by
the Warrantholder. The Company shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for Shares in any name other than that of the registered
Warrantholder, and in such case the Company shall not be required to issue or
deliver any stock certificate until such tax or other charge has been paid or it
has been established to the Company's satisfaction that no such tax or other
charge is due.
8 Optional Redemption. After the Company shall have given to the
Warrantholder sixty days' notice and opportunity to exercise, the Company may
redeem this Warrant for $0.01 per Share if at any time twelve months subsequent
to the date of this Warrant, the Common Stock has traded for at least the 20
consecutive trading days prior to the giving of notice at or above 200% of the
per share Warrant price.
9 Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company, at the expense of the holder will
execute and deliver, in lieu thereof, a new warrant of like tenor.
10 Transfer of Warrant. This Warrant and all rights hereunder are
transferable upon surrender of this Warrant; provided, however, that (i) such
transfer must be effected in accordance with applicable securities laws, (ii)
the Company is, prior to such transfer, furnished with written notice of the
name and address of such transferee and the portion of the amount of Shares to
which the transferee is entitled, and (iii) immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act. Upon such surrender, the Company, at the expense of
the transferee or transferor hereof, as the transferee and transferor may decide
between themselves, will issue and deliver to and on the order of the
Warrantholder, a new warrant of like tenor in the name of the new Warrantholder,
on payment by the Warrantholder of any applicable transfer taxes, calling in the
aggregate for the number of Shares called for by the Warrant surrendered.
13
<PAGE>
11 Remedies. The Company stipulates that the remedies at law of the
Warrantholder in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
12 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be deemed to have been duly given if
delivered by hand, telecopied (with receipt confirmed), sent by overnight
courier service or mailed by certified or registered mail and shall be deemed to
be received on the date of receipt:
(a) If to the Company, to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788-2008
Attention: Mr. Samuel S. Gross
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036-6710
Attention: Edward F. Cox, Esq.
or to such other person or address as the Company shall furnish to the
Warrantholder in writing.
(b) If to the Warrantholder, to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
or to such other person or address as the Warrantholder shall furnish to the
Company in writing.
13 Miscellaneous. This Warrant shall be governed by the laws of the State
of New York applicable to agreements made and to be performed entirely within
such state. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived,
14
<PAGE>
discharged or terminated orally but only by an instrument in writing signed by
the Company and the registered holder hereof. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability of
any other provision.
ISSUED as of the ______th day of _____________, 199___.
COMPOSITECH LTD.
By:___________________________
Samuel S. Gross
Executive Vice President
and Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-QSB for the nine months ended September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,311
<SECURITIES> 0
<RECEIVABLES> 182,529
<ALLOWANCES> 0
<INVENTORY> 248,516
<CURRENT-ASSETS> 687,329
<PP&E> 8,251,178
<DEPRECIATION> 2,885,406
<TOTAL-ASSETS> 12,234,613<F1>
<CURRENT-LIABILITIES> 4,861,924
<BONDS> 0
0
1,327,986
<COMMON> 167,108
<OTHER-SE> 42,984,939
<TOTAL-LIABILITY-AND-EQUITY> 12,234,613<F1>
<SALES> 507,657
<TOTAL-REVENUES> 550,213
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,814,136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 912,213<F2>
<INCOME-PRETAX> (6,334,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,334,857)
<EPS-BASIC> (0.40)
<EPS-DILUTED> (0.40)
<FN>
<F1> Includes <$324,078> cumulative foreign currency translation adjustment,
applicable to the net assets of the Canadian joint venture [ Tag # 18 & Tag
# 25 ]
<F2> Interest expense includes $698,963 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 September 30, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 373,700
<SECURITIES> 0
<RECEIVABLES> 52,232
<ALLOWANCES> 0
<INVENTORY> 329,053
<CURRENT-ASSETS> 997,174
<PP&E> 7,742,119
<DEPRECIATION> 1,981,615
<TOTAL-ASSETS> 13,073,494
<CURRENT-LIABILITIES> 2,079,918
<BONDS> 0
2,200,000<F1>
1,702,983
<COMMON> 124,577
<OTHER-SE> 36,602,778
<TOTAL-LIABILITY-AND-EQUITY> 13,073,494
<SALES> 298,983
<TOTAL-REVENUES> 346,839
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,374,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622,854<F2>
<INCOME-PRETAX> (4,460,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,460,317)
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
<FN>
<F1> Represents balance of 7% Series B Convertible Preferred Stock [ Tag #21 ]
<F2> Interest expense includes $497,603 of amortization of debt discount and
expenses, a non-cash item [ Tag # 32 ]
</FN>
</TABLE>
