U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
Commission File Number 0-20701
Compositech Ltd.
(Name of small business issuer 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)
Issuer's telephone number: (631) 436-5200
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Redeemable Common Stock Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended December 31, 1999: $794,988
As of March 28, 2000, there were 19,707,215 shares of the registrant's
Common Stock, $.01 par value outstanding. The aggregate market value of Common
Stock held by non-affiliates of the registrant, as of March 28, 2000 was
approximately $27,536,066.
Documents Incorporated By Reference: Portions of the issuer's Proxy Statement
for its 2000 Annual Meeting of Stockholders scheduled to be held on June 20,
2000, are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
Item 1. Description of Business
General
Compositech Ltd. (the "Company" or "Compositech") was founded in 1984 by
Jonas Medney, the Company's Chairman, and Fred Klimpl, to develop and market
innovative superior copper-clad fiberglass epoxy laminates used to make printed
circuit boards required by the electronics industry. The Company became a
publicly owned corporation in 1996. The primary innovation of Compositech was to
replace the fiberglass cloth component of the laminate with a more modern and
structurally efficient fiberglass core resulting from a uniform, orthogonally
layered construction. Based on its own benchmark testing and evaluations by
customers and other potential users, the Company believes that it has succeeded
in developing a laminate that is superior to competitive copper-clad fiberglass
epoxy laminates.
On December 3, 1999, the Company suspended its manufacturing operations due
to a lack of adequate financing and refocused its resources on locating suitable
licensees, joint venture partners or purchasers for its technology. The Company
is also exploring potential mergers and acquisitions or other strategic
transactions. As a result, the Company's staff was reduced from 124 employees to
seven.
As of December 31, 1999, Christopher F. Johnson resigned from his position
as President and Chief Executive Officer and from the Board of Directors to
accept a position with Park Electrochemical Corp., a manufacturer of laminates.
In January and February 2000, the Company had licensing discussions with
several potential licensees and hired International Licensing Network as a
consultant. In March 2000, the Company formally launched its licensing program
by sending proposals to a limited number of select candidates supported by
recommendation letters from several original equipment manufacturers ("OEM's")
and printed circuit board customers of the Company.
Technology History
The Company's innovative laminates are produced using proprietary processes
and machinery, designed by the Company's engineering staff. The Company has
received grants of 30 patents covering its products, processes and apparatus,
including five in the United States, and has submitted four additional patent
applications. The most recent patents granted were a fifth one in Japan and one
in Brazil. The patents on the laminates, processes and apparatus are
supplemented with other proprietary technology unprotected by patents and
considered by the Company to be of substantial value.
Compositech's laminate construction is structurally more efficient than
competitive copper-clad fiberglass epoxy laminates designated "FR-4", which is
the industry standard, resulting in enhanced smoothness and greater dimensional
stability. The Company believes, based on results of customers' evaluations,
that its improved products can economically substitute for the fiberglass woven
cloth epoxy laminates currently used in the electronics industry. According to
the Institute for Interconnecting and Packaging Electronic Circuits (the "IPC"),
this market exceeded $2.4 billion in 1998, the latest year for which data is
available.
The Company successfully constructed, debugged and operated its first pilot
plant production equipment for laminates with a panel size of 24" x 24" in 1991.
In 1991 and 1992, Compositech recruited an initial sales staff to develop the
market potential of its product, continued refining its product and designing
its production equipment to manufacture laminates with a panel size of 36" x 48"
and initiated a sampling program targeted at major potential customers. In 1994,
the Company started up and began debugging its first production module to
manufacture 36" x 48" laminates and, in 1995 and 1996, produced laminates on
this equipment in limited quantities for the purpose of making modifications to
the production processes and equipment constituting the module and reformulating
the laminates produced by the module. In 1996, the Company began installation of
advanced production equipment which was completed in 1997. Throughout 1997 and
1998, the Company worked on adjusting and enhancing its production equipment and
its manufacturing processes. In 1998 and 1999, the Company added production
equipment and expanded its labor force. The Company also worked on solving
problems with incoming raw materials and interior environment which affect
manufacturing yields. In June 1999, the Company signed a supply and
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joint product development agreement with Teradyne, Inc. The necessary production
ramp up to meet this and other customer demands was adversely affected by
difficulties in hiring and training skilled operators due to a labor shortage in
the Long Island, New York area where the Company operates. Because of this and
the inability to obtain adequate financing, as of December 3, 1999, the Company
suspended manufacturing operations and refocused its efforts on finding suitable
licensees, joint venture partners or purchasers for its technology.
Joint Ventures
On October 16, 1997, the Company closed a transaction with four Quebec
institutional investors (collectively, the "Quebec Investors") to form a 50/50
joint venture for the establishment of a plant in the greater Montreal area to
manufacture Compositech's laminates. The investor group was comprised of four
institutional investors: Societe generale de financement du Quebec, Fonds de
solidarite des travailleurs du Quebec (F.T.Q.), Societe Innovatech du Grand
Montreal and Fonds regional de solidarite Ile de Montreal. The Company's
approximately $5.4 million capital investment in the joint venture was funded by
the Quebec Investors purchasing 1,066,192 shares of the Company's Common Stock.
On November 26, 1999, Pierre LaFlamme, a member of our board of directors
who was appointed by the Quebec Investors resigned from the Company's board of
directors. In December of 1999, the Company received notice from the Quebec
Investors that they intended to begin the process of liquidation and dissolution
of the Canadian joint venture due principally to the Company's inability to
finance itself adequately which resulted in an inability to obtain necessary
financing for the joint venture in the required time periods. Under the
liquidation terms of the joint venture agreement, the Quebec Investors will
receive the proceeds of the liquidation of the assets of the joint venture and
the Company will receive back approximately 951,000 shares of the 1,066,192
shares of the Company's common stock originally purchased by the Quebec
Investors.
On February 9, 1998, the Company entered into a joint venture agreement and
patent, information and trademark agreement with a Taiwanese investor group to
establish a joint venture to manufacture the Company's laminates in Taiwan. The
Company received $1 million as a license down payment and was to receive
additional up-front license payments of $1 million upon the achievement of
certain milestones. As part of the transaction, the joint venture acquired
587,372 shares of the Company's common stock for $1 million and agreed to buy a
like amount of shares for another $1 million within 30 days following approval
of the joint venture license by the science park where the joint venture was
proposed to be located. During 1998, the Company received an advance of $500,000
against the latter purchase of shares, substantially all of which it invested in
the joint venture in accordance with the joint venture agreement.
In October 1999, the joint venture partner informed the Company that the
earthquake in Taiwan had affected their ability to raise capital and proposed a
settlement of the joint venture agreement and license. As of February 7, 2000,
the Company reached a settlement agreement with its joint venture
partner/licensee which terminates the joint venture agreement and the license to
use the proprietary technology of Compositech Ltd. in Taiwan. Under the terms of
the settlement, in exchange for the issuance of 587,372 shares of it common
stock, the Company will retain the $1 million license down payment it received
in 1998. Additionally, in exchange for the return of the Company's equity
interest in the joint venture, the Company will retain the $500,000 advance it
received to make the investment.
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Industry Overview
Initially, most circuit boards had circuits (traces) on one or two sides.
In the last ten years, rapid technological advances in both semiconductor design
and fabrication techniques have placed significant demands on the performance of
printed circuit boards. Greater circuit density, complexity and miniaturization
have increased demand for more sophisticated printed circuit boards. In response
to this demand, multilayer printed circuit boards were developed which
incorporate multiple layers of metallic traces. The several layers of circuitry
are aligned and bonded together in a stack to form a multilayer board with both
horizontal and vertical electrical interconnections. Further circuit board
sophistication is currently being achieved by increasing the number of layers
and by decreasing the width and separation of the traces, drilling and plating
smaller holes to connect the internal trace layers and precisely situating the
traces and pads on the board surface to accommodate surface mount components.
These trends in the printed circuit board industry have placed increasingly
rigorous demands on the electrical, thermal, chemical and mechanical properties
of laminates. Mechanical properties must be increasingly more uniform and
tightly controlled in order to align the various layers in a multilayer printed
circuit board. Electrical properties of laminates must be highly consistent and
predictable in order to avoid circuit timing malfunctions. Thermal stability is
also critical for attaching the components and for dense, high speed systems,
because of the heat generated.
Products
Printed Circuit Board Laminates. Printed circuit boards are the basic
platforms used to interconnect the microprocessors, integrated circuits and
other components essential to the functioning of electronic products. They
consist of a pattern of electrical circuitry resulting from etching copper foil
laminated to a composite made of insulating materials usually comprised of
fiberglass and epoxy. The laminate itself, therefore, is the copper-clad,
fiberglass and epoxy core from which printed circuit boards are produced.
Compositech's Laminates. CL200+ is the first Compositech laminate. This
laminate uses the same basic raw materials as conventional laminates: fiberglass
yarn, epoxy resin and copper foil. Compositech's technology combines these
materials into a unique, more efficient laminate. Conventional laminates are
made from woven fiberglass cloth in which the yarn is twisted and crimped in the
weaving process. The resultant weave pattern is impressed into the copper foil,
thereby roughening the surface of the laminate. In the construction of
Compositech's laminates, the filaments of fiberglass are wound in orthogonal
layers of flat, continuous parallel filaments. This construction creates the
enhanced smoothness and improved dimensional stability of Compositech's
laminates.
High processing temperature tolerance is necessary for soldering components
to circuit boards. CL200+ uses a proprietary epoxy resin formulation that,
according to Company tests, results in a thermal rating over 200(degree)C,
principally because of the formulation, which is generally 20(degree)C to
80(degree)C higher than other copper-clad fiberglass epoxy laminates. Certain
laminates produced from materials other than fiberglass epoxy, addressing a
small, higher cost end of the market, have thermal ratings which equal or exceed
those of the Company's introductory CL200+ laminates.
Management believes that the benefits of Compositech's laminates should
enable the printed circuit board industry to:
o Decrease costs through reducing waste in the manufacture of existing boards
because the improved dimensional stability, temperature tolerances and
enhanced smoothness increase manufacturers' yields.
o Economically produce large printed circuit boards with high layer counts
because of the improved dimensional stability.
o Accelerate the development of new products requiring denser circuitry by
permitting finer lines and smaller pads. A pad is a portion of a conductive
pattern which is usually, but not exclusively, used for the connection
and/or attachment of components.
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Compositech's Strategy
Until December 3, 1999, Compositech had focused its resources on utilizing
its technology to manufacture laminates for the multilayer/high performance
laminate segment of the market. In 1998, this market was $2.4 billion worldwide
according to IPC, a trade organization and the United States' share of this
market was $852 million. In the second half of 1999, the Company experienced a
demand for product that was greater than its production capability and was not
able to obtain adequate financing to maintain or expand its manufacturing
capabilities. On December 3, 1999, the Company suspended manufacturing
operations and refocused its resources on locating suitable licensees, joint
venture partners or purchasers for its technology. As a result, the staff was
reduced from 124 employees to seven. The Company expects to achieve its goals
through the effective exploitation of its patented and proprietary products
through licensing or strategic partnerships.
On December 27, 1999, the Company signed a letter of intent with Netdirect
International Corporation regarding a potential merger of the two companies. On
March 6, 2000, the parties terminated their merger discussions.
The Company has begun licensing discussions with several potential
licensees and hired International Licensing Network as a consultant. In March
2000, the Company formally launched its licensing program by sending proposals
to a limited number of select candidates supported by recommendation letters
from several original equipment manufacturers ("OEM's") and printed circuit
board customers of the Company. The Company has received responses from a few of
these candidates, indicating their interest in pursuing discussions to explore
this opportunity.
Management believes that the Company's technology has global potential.
According to IPC data, approximately 65% of the 1998 world laminate market for
the multilayer/high performance segment was outside of North America.
The foregoing strategic objectives represent anticipated accomplishments
dependent on future events. As in the case of all forward looking statements,
the Company can not ensure that it will achieve these goals.
Marketing and Customers
The Company's marketing efforts were directed to establishing good working
relations with leading-edge producers of printed circuit boards. According to
the IPC, in 1998 there were over 690 manufacturers of printed circuit boards in
North America with ten companies comprising approximately 44% of the market. The
Company has sold its laminates principally on a test basis to a select group of
these companies which were considered to be the key companies for Compositech's
growth. During the past three years, Compositech has encouraged benchmark
comparisons of its laminates with current laminates which have included
qualities such as dimensional stability, electrical performance, smoothness,
flatness and thermal processing. In virtually all of these evaluations, CL200+
has proven superior to current laminates. Customers benefit from increased
production yield primarily by reducing waste caused by circuitry misalignment.
These results led several manufacturers to begin to use CL200+ for current
production applications.
During 1998 and 1999, the Company received orders from Teradyne, Inc. for
its CL200+ copper-clad laminates. The orders enabled Teradyne to do extensive
material testing and product evaluation in backplane programs that included
circuit boards with as many as 48 circuit layers. This led to a supply and joint
product development agreement in June of 1999. The CL200+ laminates were used
for production runs and customer qualification of complex backplanes. A
backplane, sometimes known as a motherboard or backpanel, is a type of printed
circuit board which serves as the backbone of large electronic equipment, such
as internet servers and telecommunication switching equipment and often utilizes
20-, 30- and even 60-layer boards to which smaller printed circuit boards are
connected. The Teradyne joint development agreement was terminated when the
Company suspended manufacturing operations in December of 1999. Since the
Company did not meet the minimum commitment under the agreement, Teradyne has
the option of obtaining a non-exclusive royalty bearing license for the
manufacture of CL200+ for their own internal use and to purchase certain
production equipment. To date, Teradyne has not exercised the option to obtain
this license.
Compositech's laminates are designed to be and have proven to be directly
substitutable for
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conventional laminates in the circuit board production process as demonstrated
by their use in production by customers. This compatibility enables the circuit
board manufacturer to substitute Compositech's laminates with minimal process
changes and without the need for additional equipment or new process technology.
Competition
The laminate manufacturing business is highly competitive. Competitors
include major corporations, such as General Electric Company, which have
substantial financial, marketing and technical resources. In 1994, the Company
granted patent immunity on its product patents to AMP and Akzo Electronics
Products NV, which, at the time, were operating a joint venture which was
developing a new process to make linear laminates.
The future success of Compositech will depend on its ability or its
licensees or joint venture partners' ability to effectively market products made
using Compositech' technology against competitors with potentially greater
resources. There is no assurance that the Company or its licensees will be able
to compete successfully in the future.
Manufacturing
The Company occupies a leased building at 120 Ricefield Lane, Hauppauge,
New York, which includes its corporate offices, laboratory, machine shop,
engineering offices and manufacturing operations. The lease expires in August
2000.
Compositech's manufacturing process is unique and patented. The
manufacturing equipment has been designed by the Company's engineering staff.
Much of the equipment incorporates proprietary designs including hardware and
software. Management believes that the Company's manufacturing process
eliminates many manufacturing steps compared to the conventional manufacturing
process, including weaving fiberglass cloth.
The Company's manufacturing process enables the manufacturer to control the
consistency of mechanical, thermal and electrical properties of laminates in
various thicknesses. In addition, the Company's process eliminates the use of
solvents as an integral part of the manufacturing process although it uses small
amounts of solvents for the sole purpose of cleaning some of its equipment.
Compositech's CL200+ laminate is comprised of copper, fiberglass and epoxy.
Other combinations of materials usable in this process include aramid fibers,
quartz fibers, carbon fibers, cyanate ester resins, polyimide resins and other
conductive metal foils.
Materials and Sources of Supplies
The principal materials used in the manufacture of the Company's
laminates are copper foil, fiberglass yarn and specially formulated resins and
chemicals. Prior to December 3, 1999, the Company's policy was to identify and
concentrate on a limited number of chosen suppliers. The Company's major
suppliers were Yates Foil, USA, Inc. and Gould Electronics for copper foil;
Advanced Glassfiber Yarns LLC (successor to Owens Corning) for fiberglass yarn;
John C. Dolph Company and Eastech Chemicals for resins; and Lonza Inc. for
certain chemicals. The Company attempted to develop and maintain close working
relationships with those chosen suppliers who comply with the Company's
stringent technical requirements and specifications. The Company has identified
alternative sources of supply for each of the required materials. However, there
exists a limited number of qualified suppliers of these materials. Substitutes
for some of these materials are not readily available, and an inability to
obtain essential materials, if prolonged, could materially adversely affect the
business of the Company including its licensing program.
Patents and Proprietary Information
The Company continues to build a patent estate to protect its technology.
To date, 30 patents have been granted in the United States and internationally.
The U.S. patents granted expire from 2007 to 2011. The foreign patents generally
have expiration dates from 2004 to 2009. Four patent applications in the U.S.
and internationally are currently pending. These patents and applications cover
the unique laminate product and the process and equipment used for producing the
laminates. The patents also cover a precision
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multilayer process and a circuit transfer process. Additional inventions have
been disclosed to the Company's patent attorneys and may be the subject of
future patent applications.
In addition, the Company has developed extensive proprietary information
considered to be of substantial value. The Company has no patents for this
proprietary information. The Company believes that, although such information,
techniques and expertise are subject to misappropriation or obsolescence,
development of improved methods, processes and techniques by the Company will
continue on an ongoing basis.
The Company expended approximately $173,000 and $283,000 for research and
development during the years ended December 31, 1999 and 1998, respectively,
reflecting the Company's development efforts on new processes to manufacture its
patented laminates.
Environmental Matters
Unlike other laminate manufacturing operations, solvents are not an
integral part of the Company's manufacturing process. However, when the
manufacturing facility of the Company was operating, the Company used copper and
chemicals in its manufacturing process and limited amounts of solvents for the
sole purpose of cleaning some of its equipment and as a result the Company is
subject to a variety of applicable environmental laws. The Company believes that
its facilities comply in all material respects with applicable federal, state
and local environmental laws and believes that costs arising from compliance
with existing environmental laws will not have a material adverse effect on the
Company's ongoing operations. However, environmental laws could become more
stringent over time, imposing greater compliance costs and increasing risks and
penalties associated with a violation.
Employees
The Company currently has 5 full-time and 2 part time employees. None of
the employees is subject to collective bargaining agreements.
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Important Factors Regarding Future Results
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements concerning projected financial performance, market
and industry segment growth, product development and commercialization or other
aspects of future operations. Such statements, made pursuant to the safe harbor
established by recent securities legislation, are based on the assumptions and
expectations of the Company's management at the time such statements are made.
The Company cautions investors that its performance (and, therefore, any
forward-looking statement) is subject to risks and uncertainties. Various
important factors, including but not limited to the following, may cause the
Company's future results to differ materially from those projected in any
forward-looking statement.
Limited Revenues; Ability to Continue as Going Concern; Uncertainty of Future
Results
Compositech was a development stage company through December 31, 1996, has
had limited revenues from the sale of laminates, has incurred significant losses
and has had substantial negative cash flow since its inception.
As of December 31, 1999, the Company had an accumulated deficit of
$50,349,052 and a capital deficiency of $6,556,238. The Company's independent
auditors have included an explanatory paragraph in their report covering the
December 31, 1999 financial statements, which expresses substantial doubt about
the Company's ability to continue as a going concern. As of December 3, 1999,
the Company suspended manufacturing laminates due to a lack of skilled employees
and adequate financing and has refocused its resources on finding suitable
licensees, joint venture partners or purchasers for its technology.
The Company requires additional funding to cover past due accounts payable
and operating expenses until revenues either from manufacturing operations, if
any, or royalties from licensing or joint venture arrangements are sufficient
for these purposes. The Company expect that significant operating losses will
continue in 2000. The Company cannot assure you that it will be able to
successfully license or realize on its technology or that the Company or any
licensee will successfully achieve broad commercial acceptance of the Company's
products or that the Company will be able to generate sufficient revenues to
achieve profitable operations.
Need for Additional Financing; Requirement of Settlement of Debts; Going Concern
Compositech's available funds, without giving effect to alternative sources
of funding, are not sufficient to continue as a going concern. The Company will
need additional funding to pay past due accounts payable and for operations in
2000 which may be raised through sources including:
o license fees;
o sales of equipment in connection with licensing operations;
o joint ventures or other collaborative relationships;
o mergers; or
o equity or debt financing.
The Company cannot assure you that additional funding will be sufficient
and available or, if it is available, that it will be available on acceptable
terms. Our funding sources may require that our trade creditors, stockholder
note holders and deferred salary payees receive less than the full amounts due
them in cash and receive some amount in common stock. Although discussions have
been started with certain creditors in this regard, there is no assurance that
the creditors will accept the proposals. If additional funds are raised or debts
are settled through the issuance of equity securities or securities convertible
into equity securities, the percentage ownership of then current stockholders of
Compositech will be reduced and such securities may have rights, preferences or
privileges senior to those of the holders of common stock. If additional funds
are not available to satisfy our past due accounts payable and our short-term or
long-term capital requirements, Compositech may not be able to continue as a
going concern.
Liens on Assets and Patents
Compositech's patents and certain other assets are subject to liens
securing outstanding debt as follows:
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o notes payable to stockholders in the amount of $100,000 and notes
payable to stockholders/directors/officers in the amount of $733,333
are collateralized by a second lien on U.S. Patents and Patent
Applications;
o notes payable to stockholders/directors/officers in the amount of
$745,000 are collateralized by a first lien on Compositech's patents,
patent applications and certain production equipment; and
o term notes of $2,322,972 issued in October 1999 (to replace those
issued in March, April and July 1999) are collateralized by seven
pieces of production equipment.
If the Company defaults on the notes, it could lose all or most of its
patents and certain production equipment. The potential loss of these assets
could force the Company to negotiate new and disadvantageous terms to extend the
due dates of such notes.
The Company May Not Obtain Suitable Licensees or Joint Venture Partners
The Company is currently seeking licensees, joint venture partners or
purchasers for its technology. There can be no assurances that the Company will
be able to find suitable licensees, joint venture partners or purchasers for its
technology or that the Company will be able to negotiate acceptable terms with
such entities if found. If Compositech is unable to find a suitable licensee or
joint venture partner, it may not be able to continue as a going concern.
Competition
The laminate manufacturing business is highly competitive. Compositech's
competitors include major corporations, such as General Electric Company, which
have substantial financial, marketing and technical resources. In 1994, the
Company granted patent immunity on its product patents to AMP and Akzo
Electronics Products NV, which, at the time, were operating a joint venture
which was developing a new process to make linear laminates.
The future success of Compositech will depend on its ability or its
licensees or joint venture partners' ability to effectively market products made
using Compositech's technology against competitors with potentially greater
resources. The Company cannot assure you that it or its licensees or joint
venture partners will be able to compete successfully in the future.
Management of Growth
If Compositech is able to resume its manufacturing operations, it will need
to expand significantly its overall level of operations. Any such expansion,
however, is expected to strain the Company's management, technical, financial
and other resources. To manage growth effectively, the Company must:
o add manufacturing capacity;
o add personnel;
o maintain a high level of quality;
o achieve good manufacturing efficiency; and
o expand, train and manage its employee base.
Compositech's failure to add capacity and manage growth effectively could
have a material adverse effect on its business, financial condition and results
of operations.
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Reliance on Key Personnel
The Company believes that its success will depend to a significant extent
upon the efforts of its executive officers and senior management as well as the
Company's ability to attract and retain highly qualified managerial, technical
and sales personnel. On December 3, 1999, the Company suspended its
manufacturing operations and reduced its staff to nine and subsequently to seven
employees. All manufacturing and most of its engineers were terminated. As of
December 31, 1999, Christopher F. Johnson resigned from his position as
President and Chief Executive Officer and from the Board of Directors to accept
a position with Park Electrochemical Corp., a manufacturer of laminates.
The loss or unavailability of our executive officers or other senior
management or the inability to attract, assimilate or retain such personnel in
the future could have a material adverse effect on Compositech's business,
financial condition and results of operations. In addition, if the Company is
able to resume manufacturing operations, it will need to hire a substantial
number of skilled employees which may be difficult due to the tight labor
market. The Company can give no assurance that it will be able to hire the
required employees.
Dependence on a Single Manufacturing Facility; Process Disruptions
The Company's current laminate manufacturing operations are in one building
in Hauppauge, New York. If Compositech is able to resume its manufacturing
operations, the fact that it does not operate multiple facilities in different
geographic areas, may affect its ability to obtain and service large orders or
time sensitive orders. Further, a disruption of Compositech's manufacturing
operations resulting from sustained process abnormalities, human error,
government intervention or a natural disaster such as fire, earthquake or flood
could cause Compositech to cease or limit its manufacturing operations. This
could have a material adverse effect on Compositech's business, financial
condition and results of operations.
Uncertainty of Production Quality and Production Costs ; Process Disruptions
Compositech has limited experience in producing laminates on its
production-scale modules. In 1998 and 1999, the Company added production modules
to increase production levels and achieve economies of scale. This expansion was
the first production-scale expansion undertaken by Compositech, and consequently
no assurance can be given, if Compositech is able to resume its manufacturing
operations, and Compositech's production facilities will meet its production
targets in a timely way or that the resultant product will meet the high
commercial standard needed for successful market penetration. Furthermore, the
expanded production facilities may not be able to provide adequate efficiencies
or produce high yields. In addition, the costs of production may not be as low
as management expects, in which case the Company may not achieve profitable
operations.
The Company cannot assure you that disruptions will not occur in the
future. If the Company is able to resume its manufacturing operations, the loss
of revenue and earnings from such disruptions could have a materially adverse
effect on its results of operations.
Dependence on Significant Customers
Due to insufficient productive capacity, Compositech had been focusing its
marketing efforts on a number of select accounts. During 1998, Teradyne, Inc.
and HADCO Corporation accounted for 48% and 37%, respectively, of sales. During
1999, Teradyne, Inc. and Tyco International Ltd. accounted for 53% and 31 %,
respectively, of sales. The Company's business and finances would be negatively
affected if it resumed manufacturing and lost both of these customers. There can
be no assurances that Compositech's current inability to maintain manufacturing
operations will not have a negative impact on the Company's relations with its
principal customers.
Dependence on Licensees or Joint Venture Partners
If Compositech is able to find suitable licensees or joint venture partners
for its technology and negotiate a license or transaction with them, the Company
may be dependent on the manufacturing and machinery capability of companies who
have limited experience with products like the Company's. There
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can be no assurance that such licensees or joint venture partners will
successfully utilize the Company's technology and achieve a level of sales which
will generate royalty income to the Company sufficient to achieve profitable
operations.
Technological Change
Compositech's laminates are used in the electronic printed circuit board
industry which could encounter competition from new technologies in the future
and reduce the number of circuit boards required in electronic equipment or
render existing interconnect technology less competitive or obsolete.
Shortages or Poor Quality of Raw Materials or Price Increases Could Negatively
Impact Business
If the Company is able to resume manufacturing operations, the Company will
purchase raw materials used to produce laminates and in certain circumstances
would bear the risk of price fluctuations. In addition, shortages of and defects
in certain types of materials have occurred in the past and may occur in the
future. During 1997 and 1999, the Company experienced defects in incoming raw
materials used to make laminates. Compositech obtained alternate sources of
supply and also has explored solutions with the previous suppliers. Future
shortages, defects or price fluctuations in raw materials could have a material
negative effect on the Company's business, financial condition and results of
operations.
Advanced Glassfiber Yarns LLC, a major fiberglass manufacturer, has
developed products to meet the Company's processing and product requirements.
Should this manufacturer not continue supplying the Company's quality and
quantity needs, it would have to secure another supplier. Such event could:
o have a material adverse effect on the ability to supply customers;
o reduce expected sales; and
o increase the costs of manufacturing products.
No assurance can be given that an alternative supplier could meet the
Company's quality and quantity needs on satisfactory terms.
Patents and Intellectual Property Protections
Compositech believes that its patent estate and its know-how are important
for the protection of its technology. Compositech cannot assure you that any
patents issued to the Company will not be challenged, invalidated or
circumvented or that such patents will provide substantial protection with
respect to its product, process or competitive position. In addition, certain
proprietary information which is considered to be of substantial value is not
covered by patents and, along with the Company's other intellectual property, is
subject to misappropriation or obsolescence.
In addition, the Company granted certain immunities on its product patents
to AMP and Akzo Electronics Products NV which were potential competitors of
Compositech. The Company granted HT Troplast AG ("HT"), a significant
stockholder of Compositech, the exclusive right under a license, to produce and
market Compositech's laminates in Europe, the countries of the former Soviet
Union and Turkey. Although HT exited the laminate business, the license remains
in effect. Pursuant to the agreement, Compositech is obligated to sell only
through HT in such territories.
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Environmental Regulations
If the Company is able to resume manufacturing operations, the Company will
use copper and chemicals in its manufacturing process and limited amounts of
solvents for the sole purpose of cleaning equipment. Although the Company
believes that its facility complies in all material respects with existing
environmental laws and regulations, no assurance can be given that violations
will not occur. In the event of any future violations of environmental law and
regulations, the Company could be held liable for damages and for the cost of
remedial actions. In addition, environmental laws could become more stringent
over time, imposing greater compliance costs and increasing the risks and
penalties associated with a violation.
Control by Existing Stockholders and Possible Replacement of Shares
As of December 31, 1999, officers, directors and certain other significant
stockholders of Compositech beneficially owned approximately 16.4% of
Compositech's common stock and voting preferred stock, including stock options
and warrants exercisable within 60 days. It is expected that these stockholders
will continue to control the management and policies of Compositech. Included in
the beneficial ownership of officers and directors are 1,702,467 shares of
common stock that were lent to the Company to use as collateral for a loan from
CreditBancorp. The SEC has commenced an action against Credit Bancorp, its
principals and trustee, claiming violations of the securities laws by
misappropriating securities placed as collateral and has had a receiver
appointed. To date, the receiver has only located 1,122,967 of the Company's
shares and some or all of them are or may be in margin accounts. It is not known
when and how many shares may be returned to the stockholders. In accordance with
agreements with the two directors who lent the shares of common stock in
question to the Company, the Company may have to replace part or all of the
aforementioned shares which would dilute stockholders' ownership percentages. In
addition, some of these officers, directors and other stockholders, in
connection with certain outstanding loans, have a security interest in some of
Compositech's manufacturing equipment and either all of Compositech's patents
and patent applications or in Compositech's U.S. patents and patent
applications.
Quotation of the Common Stock on The Nasdaq SmallCap Market(SM); Possible Loss
of Quotation of the Common Stock
The common stock is quoted on The Nasdaq SmallCap MarketSM. No assurance
can given that the Company will continue to meet the maintenance criteria for
continued listing of the common stock on The Nasdaq SmallCap MarketSM. The
minimum listing requirements for continued listing The Nasdaq SmallCap MarketSM
include, among other criteria:
o net tangible assets of at least $2.0 million, or market capitalization
of $35 million, or net income of $500,000 (in the latest fiscal year
or two of the last three fiscal years);
o a minimum bid price per share of $1.00;
o a market value of the public float of $1.0 million;
o 300 round lot shareholders; and
o two market makers.
Furthermore, The Nasdaq SmallCap MarketSM listing and maintenance criteria
may become more stringent over time and thus more difficult for the Company to
meet. Failure to meet the maintenance criteria may result in the discontinuance
of the inclusion of the common stock in The Nasdaq SmallCap MarketSM. In such
event, trading, if any, in the common stock may continue to be conducted in
non-Nasdaq over-the-counter markets and investors may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the common
stock. The common stock would then be subject to the risk that it could become
characterized as low-priced or "penny stock," which characterization could
severely affect the ability of stockholders to sell their common stock.
The SEC has adopted regulations which generally define "penny stock" to be
any equity security that has a market price less than $5.00 per share (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock
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<PAGE>
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account.
In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the common stock becomes subject to the penny stock rules,
investors may find it more difficult to sell their common stock.
Certain Restrictive Charter and Bylaw Provisions
Compositech's Restated Certificate of Incorporation and Bylaws allow the
Board of Directors, without approval of the stockholders, to issue shares of
preferred stock and to fix the rights and preferences of the preferred stock.
The Board of Directors can also prohibit stockholders of Compositech from
calling a special meeting unless requested by at least a majority of the
outstanding voting shares. The Restated Certificate of Incorporation does not
provide for cumulative voting for election of directors.
In addition, Compositech's Bylaws provide that while the removal of a
director or the entire board of directors, with or without cause, may be
accomplished by the holders of the majority of shares entitled to vote, any
director designated by HT, may only so be removed for cause. These provisions
could have the effect of deterring unsolicited takeovers or other business
combinations or delaying or preventing changes in control or management of
Compositech. This may prevent transactions in which stockholders might otherwise
receive a premium for the securities over then-current market prices. In
addition, these provisions may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests.
Forward-Looking Information Could be Wrong
Information provided by the Company, including information contained in
this Annual Report, contains forward-looking statements that involve risks and
uncertainties. These statements deal with Compositech's future plans and growth
strategies, as well as trends the Company anticipates in its industry. The
Company bases these forward-looking statements largely on its expectations,
which are subject to risks and uncertainties often beyond its control. The
actual results could differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those
described in this section and elsewhere in this prospectus. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this prospectus will in fact occur or prove to be
accurate.
Item 2. Description of Property
The Company occupies approximately 33,000 square feet of leased office
space and manufacturing facilities in Hauppauge, New York. The lease for such
space has a five-year term expiring August 31, 2000.
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Item 3. Legal Proceedings
The Company is a party to the following legal proceedings:
1. An action commenced on January 11, 2000 in the Supreme Court of the State
of New York by Yates Foil USA, Inc. seeking damages of approximately
$140,000 for goods sold and delivered. The Company is in the process of
preparing an answer and is discussing a compromise of the amount sought.
The amount of the claim is accrued on the books of the Company as at
December 31, 1999.
2. A summary proceeding has been instituted on March 14, 2000 in the District
Court of the County of Suffolk, NY by Reckson Operating Partnership, L.P.
as landlord seeking damages of approximately $72,000 for non-payment of
rent and eviction of the Company from the premises. The Company is in the
process of preparing an answer and is discussing a compromise and payment
schedule for the amount due. The amount of the claim which principally
applies to year 2000 is accrued on the books of the Company in the
applicable periods.
3. The Company is also a party to several legal proceedings relating to
creditors which are not material.
Item 4. Submission of Matters to a Vote Of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock and Redeemable Warrants are traded on the Nasdaq
SmallCapSM Market under the symbols "CTEK" and "CTEKW", respectively.
The following sets forth the range of the high and low sales prices for the
Common Stock, as reported on the Nasdaq SmallCap Market :
1998
----
High Low
---- ---
First quarter 2 19/32 1 3/8
Second quarter 2 5/8 1 5/8
Third quarter 1 7/8 1
Fourth quarter 1 3/4 1
1999
----
High Low
---- ---
First quarter 3 1/4 1 1/32
Second quarter 4 1/16 1 9/32
Third quarter 2 1/2 31/32
Fourth quarter 2 7/16 1
There were approximately 216 holders of record of shares of Common Stock as
of March 14, 2000.
The Company has never paid cash dividends on its Common Stock. The Company
does not intend to pay cash dividends on its Common Stock in the foreseeable
future.
The following presents information concerning securities issuances of the
Company during the last fiscal year not previously reported by the Company in a
quarterly report on Form 10-QSB. See also Notes 4, 5, 6, 7, 8 and 14 to the
Financial Statements. The sales of all such securities were exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof, as transactions not involving a public offering.
In December 1999, the Company sold 250,000 shares of its Common Stock to
certain accredited investors in a private placement, realizing $195,500. In
connection with this private placement, Trautman Wasserman, its placement agent
received $17,000 in commisions. In December 1999, the Company issued 894,165
shares of its common stock to certain accredited investors, as repayment of
promissory notes, to
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satisfy obligations totaling $508,565, including accrued interest, as of the
date of the stock issuance.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company was founded in 1984 to develop copper-clad fiberglass epoxy
laminates used to manufacture printed circuit boards required by the electronics
industry. The Company has developed and is moving to commercialize its unique
nonwoven copper-clad fiberglass reinforced epoxy laminates. As part of its
development program, the Company patented the laminate, the process used to
manufacture the laminate and the equipment to produce the laminates. The first
prototype equipment was designed and assembled to produce 24" x 24" laminates.
In 1995, initial production scale prototype equipment to produce 36" x 48"
laminates was completed. In 1997, the Company completed the installation of
advanced 36" x 48" production equipment purchased with the proceeds of the
Company's Initial Public Offering in July 1996. In 1998 and continuing into
1999, the Company completed the installation of a second phase of 36" x 48"
production equipment purchased with the proceeds of the 5% Convertible
Debentures and the 7% Series B Convertible Preferred Stock.
During 1998 and 1999, 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 1998 and
1999, the Company worked on adjusting and enhancing its production equipment and
its manufacturing processes. Production ramp up issues, coupled with order
volatility, led to a much slower than expected expansion in production capacity.
In the second half of 1999, Compositech experienced a demand for product
that was greater than its production capability and the Company was unable to
obtain adequate financing to maintain or expand its manufacturing capabilities.
On December 3, 1999, the Company suspended manufacturing operations at its
facility in Long Island, New York due to inadequate financial resources. As a
result of this action, the Company's staff was ultimately reduced from 124
employees to seven. The retained employees include the Company's Chairman, Chief
Financial Officer, Vice President, Engineering, Vice President, Sales and
Controller. Compositech is currently in discussions with financial advisors
exploring strategic opportunities including mergers and acquisitions which would
provide an infusion of capital and the ability to exploit the full potential of
its technology. The Company is also seeking potential licensees, joint venture
partners or purchasers for its technology. In addition, the Company is currently
conducting a private placement of both debt and equity to meet short-term
capital requirements and is negotiating for additional financing.
In December of 1999, the Company received notice from the Quebec Investors
that they intended to begin the process of liquidation and dissolution of the
Canadian joint venture due principally to the Company's inability to finance
itself adequately which resulted in an inability to obtain necessary financing
for the joint venture in the required time periods.
Effective December 31, 1999, Christopher F. Johnson, President and Chief
Executive Officer, who was hired in June of 1998, resigned from his position and
as a member of the Board of Directors to accept a position with Park
Electrochemical Corp., a manufacturer of laminates.
As a result of the suspension of manufacturing activities and the
termination of the Canadian joint venture, the Company recorded restructuring
charges of approximately $7.4 million. The charges include an impairment of the
value of property and equipment of approximately $3.3 million due to the
suspension of manufacturing operations, a $3.8 million charge relative to the
loss on the termination of the Canadian joint venture and provisions totaling
approximately $274,000 for other items, including a writeoff of prepaid
manufacturing expenses and provisions related to the future lease costs of the
manufacturing facility. In addition, a related writedown of inventory of
approximately $153,000 was charged to manufacturing expenses. In connection with
the restructuring charges, approximately $200,000 is expected to be paid in the
year 2000, while all other amounts included in the restructuring charge were
non-cash items.
In February 1998, the Company entered into joint venture and license
agreements with a Taiwanese investor group to manufacture Compositech's
laminates in Taiwan. See "Item 1 - Joint Ventures" for information regarding
settlement agreement.
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Results of Operations - Years Ended December 31, 1999 and 1998
Sales of laminates increased to $736,889 in 1999 from $350,112 in 1998. The
increase in sales was attributable to the increased demand for the Company's
product from the Company's larger customers, including the supply agreement with
Teradyne, Inc., which was signed in June of 1999.
Licensing income, net of expenses, decreased to $58,099 in 1999 from
$64,284 in 1998. The income consisted of an amortization of an upfront licensing
payment that was received from the Taiwanese joint venture partners in early
1998.
Manufacturing expenses increased to $5,833,951 in 1999 from $4,248,421 for
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. Included in this total is a non-recurring writedown of
inventory totaling $153,068 related to the suspension of manufacturing
operations. Depreciation expense, a non-cash item, increased to $758,205 in 1999
from $679,742 in 1998, reflecting the higher level of production equipment
placed in service during the past eighteen months.
Selling, general and administrative expenses increased to $1,733,919 in
1999 from $1,254,739 in 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
$325,000 due primarily to higher legal expenses and higher financial public
relations costs, which included the amortization of approximately $201,000 of
the estimated fair market value of warrants given to a consulting firm in
exchange for public relations and investment banking services for the calendar
year 1999. Included in the 1999 total are non-cash items totaling $45,863
representing partial compensation costs for a company executive and for
non-employee directors, which the Company will pay in shares of its common
stock. During 1999, approximately $465,000 of selling, general and
administrative expenses were charged to the Canadian joint venture, in
accordance with the joint venture agreements, compared with $389,000 of charges
in 1998.
Research and development expenses decreased to $173,265 in 1999 from
$282,756 in 1998, reflecting a reduced level of development of new processes and
concentration on manufacturing activities.
The restructuring charges of $7,357,604 consisted of $3,289,879 applicable
to an impairment in the value of property and equipment due to the suspension of
manufacturing operations, $3,793,596 applicable to the loss on the termination
of the Canadian joint venture, which is to be liquidated during calendar year
2000, and $274,129 of other charges, including a writeoff of prepaid
manufacturing expenses and provisions related to the future lease costs of the
manufacturing facility
Interest expense, net of interest capitalized, increased to $347,868 in
1999 from $131,693 in 1998. The increase is related to the addition of term
notes and the short term bridge notes in 1999. The 1998 period also included a
reduction of $101,000 due to the capitalization of interest on construction in
progress; the 1999 period included only a $23,000 reduction, reflecting the
reduced level of construction in progress projects during 1999.
Amortization of debt discount and expenses increased to $1,632,586 in 1999
from $497,603 for 1998. The expense for 1999 includes $1,319,518 of amortization
of debt discount, expenses and warrants granted in connection with 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 income (expense) increased to ($26,035) in 1999 from $112,415 in
1998. The increased expense reflects a provision for severance due to a former
officer. The 1998 income included refunds received applicable to prior year
property taxes and adjustments of prior period professional fee charges.
The equity in the operations of the Canadian joint venture decreased to a
loss of $133,296 in 1999
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from a profit of $36,831 in 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 a general manager and chief financial officer.
The 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 $16,394,897 in
1999, including $7,357,604 of restructuring charges, compared to a net loss of
$5,810,595 in 1998. The increased loss was attributable primarily to the
restructuring charges and increases in manufacturing, selling, general and
administrative expenses, as well as the increase in non-cash amortizations. The
net loss included non-cash items of $10,184,525 in 1999 as compared to
$1,002,185 in 1998.
Liquidity and Capital Resources
Prior to its initial public offering in 1996, the Company had financed its
operations through private placements of debt and equity securities and from
income from a patent immunity agreement. Some of this financing had come from
officers and directors of the Company. 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 and December 31, 1999 financial statements, which
express substantial doubt about the Company's ability to continue as a going
concern. The Company expects operating losses to continue in 2000. As of
December 31, 1999, the Company had approximately $73,000 of available cash and
cash equivalents. During January through March 2000, the Company received net
proceeds aggregating approximately $97,000 through the sale of shares of its
common stock in a private placement and proceeds of approximately $156,000
through the exercise of warrants. At March 30, 2000, the Company had
approximately $87,000 of cash and cash equivalents; however, the Company will
require additional funding to cover current operations, which require
approximately $120,000 a month based on current levels of operations, until
revenues from licensing or technology sales are sufficient.
Net cash and cash equivalents used in operating activities increased to
$4,350,205 for 1999 from $3,505,961 for 1998. The net loss for 1999 was
partially offset by the non-cash charges for restructuring charges, depreciation
and amortization of debt discount and expenses, totaling $10,005,366 as well as
the increase in accounts payable, accrued interest and accrued liabilities of
$1,595,881. The net licensing fees received from the Taiwan joint venture of
$930,000 was the primary source of funds provided by operating activities for
1998, with $777,249 deferred to future periods for financial reporting purposes.
Decreases in accounts receivable from joint venture and in inventories as well
as increases in deferred salaries, accrued interest and accounts payable
accounted for the balance of the significant 1998 sources of cash.
Net cash and cash equivalents used in investing activities decreased to
$363,045 in 1999 from $1,190,988 for 1998. Capital expenditures for equipment
and advance payments for equipment decreased to $332,946 in 1999 from $694,297
for 1998. The decrease is attributable to the completion of the plant expansion
that was begun in 1997. Investments in joint ventures totaled $467,487 in 1998,
reflecting the Taiwan joint venture investment.
Cash flows from financing activities increased to $4,684,161 in 1999 from
$4,174,981 for 1998. The significant sources of funds provided by financing
activities for 1999, net of expenses, were: (i) the sale of 54,000 shares of
Series C Preferred Stock, totaling $434,570; (ii) Net proceeds from promissory
notes and Term Notes totaling $2,088,981 and (iii) the sale of Common Stock
through a number of private placements during 1999, totaling $2,464,944. The
principal financing activities in the 1998 period, net of expenses, were: (i)
the sale of Common Stock to the Taiwanese joint venture, totaling $952,500 ;
(ii) the sale of the Series B Stock which provided $1,900,000 ; (iii) the sale
of Common Stock through a private placement during November and December of
1998, totaling $435,525 ; (iv) the advance received from the Taiwanese joint
venture on the second half of their stock purchase obligation, totaling $500,000
and (v) the loan through an insured credit facility, totaling $395,025.
The Company is negotiating for additional funding. 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
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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 management has identified and made
appropriate assumptions regarding all factors that may affect the Company's
business in the future.
Year 2000
The Company recognized the need to ensure its operations were not adversely
impacted by the inability of the Company's systems to process data having dates
on or after January 1, 2000 ("Year 2000"). Processing errors due to software
failure arising from calculations using the Year 2000 date are recognized as a
risk. Prior to the 1999 year end, the Company has received favorable responses
from most of the third parties it communicated with, indicating that their
companies were either Year 2000 compliant or planned to be compliant prior to
year end.
The Company's information technology ("IT") systems consists of a series of
personal computers, linked via a network, which process data using purchased
software programs produced and maintained by large software vendors. The Company
exposure to any material Year 2000 problems was relatively small because its
financial and operating software systems have been produced and maintained by
large software vendors, who have made updates available or updated versions
available that are Year 2000 compliant, at a nominal cost. The Company's IT
equipment was evaluated for its Year 2000 capabilities and repair or renovation,
if necessary, was completed prior to the end of the fourth quarter of 1999. The
vast majority of the Company's production related non-IT systems use processors
that have no date related functionality, and accordingly, have no Year 2000
issues. The cost of the Company's Year 2000 initiatives were not material to the
Company's results of operations or financial position. Following year end 1999,
the Company's information systems suffered no significant problems or downtime
as a result of Year 2000 issues.
Item 7. Financial Statements
The required Financial Statements and the notes thereto are contained in a
separate section of this report beginning with the page following the signature
page.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The following table lists the Company's current directors and executive
officers.
Name Age Position(s) With the Company
- ---- --- ----------------------------
Jonas Medney 71 Director, President and Chairman
Samuel S. Gross 73 Director, Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
Willard T. Jackson(1)(2) 72 Director
Fred E. Klimpl 65 Director
Robert W. Middleton (2) 61 Director
Heinz-Gerd Reinkemeyer (1) 62 Director
James W. Taylor (1) (2) 81 Director
- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
The following table lists other management personnel:
Name Age Position(s) With the Company
- ---- --- ----------------------------
Richard Lucier 66 Vice President, Sales
Ralph W. Segalowitz 41 Vice President, Engineering
Kenneth J. Thompson 42 Controller
Management and Directors
Jonas Medney, Director, President and Chairman, has over 40 years of
experience in the composites industry and has more than 50 patents. Mr. Medney
has been a director and Chairman of the Company since its inception in 1984. He
co-founded Lamtex Industries, a public company which was a pioneer in
filament-wound composites, which was acquired by Koppers Company in 1963. He
co-founded Fiberglass Resources Corporation, a manufacturer of filament wound
epoxy pipes and conduits, with Mr. Klimpl. This company was acquired by Koch
Industries in 1983. Mr. Medney is a graduate of the Massachusetts Institute of
Technology (B.S. Mechanical Engineering).
Samuel S. Gross, Director, Executive Vice President, Secretary, Treasurer
and Chief Financial Officer, is a certified public accountant and has been
Executive Vice President and Treasurer of the Company since 1990. He had been a
consultant to the Company and a director since 1987. He was previously a partner
at Ernst & Young LLP where he was responsible for the Fiberglass Resources
Corporation account. Mr. Gross was affiliated with Ernst & Young LLP and its
predecessors for 39 years. He is a director and Secretary/Treasurer of the
National Mental Health Association, Honorary Director and former Chairman of the
Board of Directors of the Mental Health Association in New York State, Inc., and
a director and former president of Long Island Transportation Management, Inc.
Mr. Gross is a graduate of City College of New York (B.B.A.).
Richard Lucier, Vice President, Sales, has been with the Company since
1992. He was Corporate Accounts Manager with Polyclad Laminates, Inc. (Cookson
Group) from 1989 to 1992 and Senior Vice President with Fortin-Westinghouse from
1980 to 1989. Prior to that time, he was employed at Honeywell, Raytheon and
GTE. He is a graduate of Northeastern University (B.S. Mechanical Engineering).
Ralph W. Segalowitz, Vice President, Engineering, has been with the Company
since 1990. From 1985 to 1990, he was with Robotic Vision Systems Inc., where
his final position was as a project manager responsible for automated
manufacturing systems. From 1981 to 1985, he was a product engineer with
Databit, Inc., a manufacturer of data transmission equipment. He is a graduate
of the State University of New York at Stony Brook (B.S. Mechanical Engineering
and M.S. in Industrial Management).
Kenneth J. Thompson, Controller, has been with the Company since 1996. From
1995 to 1996 he was Controller of Cameron Engineering, P.C. From 1991 to 1995 he
was with Loveshaw Corporation, most recently as Vice President, Finance. He is a
graduate of Adelphi University (B.B.A. Accounting).
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Board of Directors. The Board of Directors consists of Messrs. Medney and
Gross and five outside directors: Willard T. Jackson, Fred E. Klimpl, Robert W.
Middleton, Heinz-Gerd Reinkemeyer and James W. Taylor.
Willard T. Jackson, private investor, retired in 1988 as a partner of
Brundage, Story and Rose, a New York investment counseling firm in which he
became a partner in 1969. He has been a director since January 1988. Mr. Jackson
is a graduate of Middlebury College (A.B.) and Columbia University (M.B.A.). He
is a trustee emeritus of Middlebury College.
Fred E. Klimpl, Director, has over 35 years of experience in the composites
industry and has over 25 patents. Mr. Klimpl has been a director of the Company
since its inception in 1984. He was co-inventor and a key manager in the
development and marketing of the fiberglass underground gasoline tank program
for Owens-Corning Fiberglas Corp. He was subsequently responsible for the
start-up and marketing of a fiberglass pipe business for Ciba-Geigy Corporation.
Mr. Klimpl is a graduate of Lowell University (B.S. Textile Engineering) and
Stevens Institute of Technology (M.S. Industrial Management).
Robert W. Middleton was elected as a director in March 1996 and has acted
as an investment banker to the Company in its prior financings and with respect
to the Company's initial public offering. He has been Chairman of The Middleton
Group, LLC, a firm of investment bankers associated with Gemini Financial
Corporation, since October 1998. He was Managing Director-Corporate Finance of
Trautman Wasserman & Company Incorporated, an investment banking firm, from 1993
to October 1998. From 1985 to October 1993, Mr. Middleton was, successively,
Director of Corporate Finance of Barclay Investments, Inc., and a Vice President
at C.L. King & Associates, Inc. Prior to that time, he was associated with
Fahnestock & Company from 1983 to 1985 and was a general partner from 1984-1985.
From 1974 to 1983, Mr. Middleton held various positions with Burgess & Leith,
Inc., including Senior Vice President and Director, while serving as Manager of
the New York office. He attended Princeton University. Mr. Middleton is the
designee of. Trautman Wasserman & Company Incorporated to the Board pursuant to
the terms of a financing agreement.
Heinz-Gerd Reinkemeyer has been a director since 1990. He had been Director
of the Industrial Plastics Division of HT, a German manufacturer and subsidiary
of the Rutgers Group, which is an affiliate of the Veba Group. Currently, he is
a consultant for the Rutgers Group. Mr. Reinkemeyer has a degree in mechanical
engineering and from 1961 he had been with Dynamit Nobel, a manufacturer of
laminates, until it was acquired by HT in 1988. Mr. Reinkemeyer is the designee
of HT to the Board.
James W. Taylor has been a director since 1987. He is the former Chairman
of the Board of Reuter Manufacturing Inc., where he was President from 1992 to
1998. He is a certified management consultant. He was a director from 1967 to
1973 and President from 1970 to 1973 of the international management consulting
firm, Booz Allen & Hamilton. Mr. Taylor was President and a director of Bradford
Trust from 1973 to 1975. He has served as a director of Insilco Corporation,
Times Fiber Communications, Inc., The Enterprise Companies, Techalloy, Inc.,
Amphenol Inc. and Knogo Corporation. He is a life trustee of Carnegie Mellon
University. He was a trustee of Beaver College and was a vice president and
director of the Association of Consulting Management Engineers and of the
Institute of Management Consultants. He holds a B.S. from Carnegie Mellon
University.
On November 26, 1999, Pierre Laflamme, a director who was appointed by the
Quebec Investors, resigned from the Board of Directors.
As of December 31, 1999, Christopher F. Johnson resigned from his position
as President and Chief Executive Officer and from the Board of Directors to
accept a position with Park Electrochemical Corp., a manufacturer of laminates.
Other information required by this item is included in the Company's
definitive Proxy Statement to be filed in connection with the Company's Annual
Meeting of Stockholders, and such information is incorporated herein by
reference.
20
<PAGE>
Item 10. Executive Compensation
The information required by this item is included in the Company's
definitive Proxy Statement to be filed in connection with the Company's Annual
Meeting of Stockholders, and such information is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's
definitive Proxy Statement to be filed in connection with the Company's Annual
Meeting of Stockholders, and such information is incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions
The information required by this item is included in the Company's
definitive Proxy Statement to be filed in connection with the Company's Annual
Meeting of Stockholders, and such information is incorporated herein by
reference.
21
<PAGE>
Item 13. Exhibits and Reports on Form 8K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Note
Number Exhibit Number
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company. (3)
3.2 Amendment to the Restated Certificate of Incorporation of the Company (1)
3.3 By-Laws, As Amended, of the Company. (2)
3.4 Certificate of Designations for 7% Series B Convertible Preferred Stock dated as of May 29, 1998 (8)
3.5 Certificate of Designation for the Company's Series C 8% Convertible Preferred Stock, filed on
November 1, 1999. (12)
3.6 Certificate of Correction of Certificate of Designation for the Company's Series C 8% Convertible
Preferred Stock, filed on November 8, 1999. (12)
4.1 Specimen Common Stock Certificate. (2)
4.2 Specimen Warrant Certificate. (2)
4.3 Representative's Unit Purchase Option dated as of July 9, 1996. (2)
4.4 Warrant Agreement dated as of July 9, 1996 between the Company and Continental Stock Transfer &
Trust Company. (2)
4.5 Form of 10% Secured Note. (2)
4.5.1 Security Agreement dated August 3, 1995 among the Company and certain secured parties. (2)
4.6 Form of Secured Note. (2)
4.6.1 Security and Intercreditor Agreement dated as of October 30, 1992 among the Company and certain
secured parties covering listed patent collateral. (2)
4.7 Notes issued by the Company between May 28, 1992 and February 16, 1993 in the aggregate amount of
$550,000 payable to Willard Jackson. (2)
4.8 Form of agreements between the Company and certain officers, directors and stockholder/creditors
to defer maturity of Secured Notes, 10% Secured Notes, and certain other notes. (1)
10.1 Lease Agreement dated August 29, 1990 between the Company and Ricefield Number Six. (2)
10.1.1 First Amendment of Lease dated June 30, 1995 between the Company and Ricefield Number Six. (2)
10.2 Patent Immunity Agreement dated March 15, 1994, among the Company and AKZO Electronic Products
B.V. and AMP Incorporated. (2)
10.3 Stock Purchase Agreement dated as of June 22, 1990, between the Company and HT Troplast AG. (2)
10.3.1 Amendment No. 1 to Stock Purchase Agreement dated June 22, 1990 between the Company and HT
Troplast AG (Amendment No. 1 dated January 10, 1996). (2)
10.4 Technical Cooperation Agreement between the Company and HT Troplast AG dated as of June 22, 1990. (2)
10.5 License Agreement between the Company and HT Troplast AG dated as of June 22, 1990. (2)
10.5.1 Amendment to the License Agreement dated May 18, 1994 between the Company and HT Troplast AG. (2)
10.6 Consent to the transfer of rights of Huls Troisdorf AG in respect of the Company to Mora
Beteiligungs AG (now HT Troplast AG) dated February 4, 1994. (2)
10.6.1 Acknowledgment of assumption of obligations of Huls Troisdorf AG in respect of the Company by
HT Troplast AG dated August 19, 1994. (2)
10.7 Form of Warrants issued on May 28, 1992. (2)
10.8 Form of Warrants issued on November 16, 1993. (2)
10.9 Form of Subscription Agreement for Series A Convertible Preferred Stock issued in 1994. (2)
10.10 Form of Warrants issued or amended between August 3, 1995 and March 12, 1996. (2)
10.11 Common Stock Purchase Agreement between the Company and Win Win Venture Capital Corporation dated
as of April 1, 1996. (2)
10.12 Agreements to defer salary between the Company and certain employees of the Company. (2)
*10.13 Nonqualified Stock Option Plan dated April 12, 1988. (2)
*10.14 Stock Award Plan. (2)
*10.14.1 Compositech Ltd. Amended and Restated Stock Award Plan. (9)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit Note
Number Exhibit Number
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*10.15 Employment Agreement dated as of January 1, 1996 between the Company and Samuel S. Gross. (2)
*10.16 Employment Agreement dated as of January 1, 1996 between the Company and Fred E. Klimpl. (2)
*10.17 Employment Agreement dated as of January 1, 1996 between the
Company and Jonas Medney. (2)
*10.18 Common Stock Purchase Agreement between the Company and Win Win Venture Capital Corporation dated
as of June 26, 1996. (2)
10.19 Form of Securities Purchase Agreement between the Company and certain investors. (5)
10.20 Form of 5% Convertible Debenture between the Company and certain investors. (5)
10.21 Form of Registration Rights Agreement between the Company and certain investors. (5)
10.22 Form of Security Agreement between the Company and certain investors. (5)
10.23 Form of License Security Agreement between the Company and certain investors. (5)
10.24 Technology Licensing Agreement dated October 16, 1997, by and between the Company and Lamines (6)
CTEK Inc.
10.25 Subscription Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand (6)
Montreal, Industries Devma Inc. (a subsidiary of Societe generale de financement du Quebec),
Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Fonds regional de solidarite Ile de
Montreal and the Company.
10.26 Registration Rights Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand (6)
Montreal, Industries Devma Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Fonds
regional de solidarite Ile de Montreal and the Company.
10.27 Subscription Agreement dated October 16, 1997, by and between the Company and Lamines CTEK Inc. (6)
10.28 Shareholders Agreement dated October 16, 1997, among the Shareholders of Lamines CTEK Inc. (6)
10.29 Stock Exchange Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand (6)
Montreal, Industries Devma Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Fonds
regional de solidarite Ile de Montreal and the Company.
10.30 Sales Agency and Marketing Agreement dated October 16, 1997, by and between Lamines CTEK Inc. and (6)
the Company.
10.31 Agreement with respect to electing a nominee of the Quebec Investors to the Board of Directors of (6)
Compositech Ltd. dated October 16, 1997, by and among: Societe Innovatech du Grand Montreal,
Industries Devma Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Fonds regional de
solidarite Ile de Montreal and the Company and certain of its principal shareholders.
10.32 Agreement to Form a Joint Venture by and between the Company and Fidelity Venture Capital Corp. (7)
and Fidelity Investors, dated February 9, 1998.
10.33 Patent, Information and Trademark Agreement by and between the Company and Compositech Taiwan (or (7)
Compositech Technologies, Inc.). Portions of the Exhibit have been omitted pursuant to a request
for confidential treatment.
10.33.1 Patent, Information and Trademark Agreement - Amendment No. 1 by and between the Company and (7)
Compositech Taiwan (or Compositech Technologies, Inc.).
10.34 Purchase Agreement by and between the Company and Compositech Taiwan (or Compositech (7)
Technologies, Inc.).
10.35 Convertible Preferred Stock Purchase Agreement dated as of May 29, 1998, between the Company and (8)
JNC Opportunity Fund Ltd.
10.36 Registration Rights Agreement dated as of May 29, 1998, between the Company and JNC Opportunity (8)
Fund Ltd.
10.37 Bridge Note Purchase Agreement dated March 16, 1999 between the Company and SovCap Equity (10)
Partners, Ltd.
10.38 Bridge Note dated March 16, 1999 between the Company and SovCap Equity Partners, Ltd. (10)
10.39 Attached Repricing Warrant dated March 16, 1999 between the Company and SovCap Equity Partners, (10)
Ltd.
10.40 Common Stock Purchase Warrant dated March 16, 1999 between the Company and SovCap Equity (10)
Partners, Ltd.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit Note
Number Exhibit Number
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.41 Registration Rights Agreement dated March 16, 1999 between the Company and SovCap Equity (10)
Partners, Ltd.
10.42 Placement Agency Agreement dated March 16, 1999 between the Company and Sovereign Capital (10)
Advisors LLC.
10.43 Sovereign Warrant Agreement dated March 16, 1999 between the Company and Sovereign Capital (10)
Advisors LLC.
10.44 Sovereign Warrant Certificate dated March 16, 1999 between the Company and Sovereign Capital (10)
Advisors LLC.
10.45 First Amendment to Bridge Note Purchase Agreement, dated April 21, 1999, between the Company and (11)
Purchasers of the Second Closing Bridge Notes
10.46 Second Amendment to Bridge Note Purchase Agreement, dated July 28, 1999, between the Company and (11)
Purchasers of the Third Closing Bridge Notes
10.47 Second Amendment to the Registration Rights Agreement, dated
July 28, 1999, between the Company (11) and the Purchasers of
the First, Second and Third Closing Bridge Notes
10.48 Retirement and Consulting Agreement, dated May 28, 1999, between the Company and Fred E. Klimpl (11)
10.49 Supply and Joint Product Development Agreement, dated June 1, 1999, between the Company and (11)
Teradyne, Inc.
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. (12)
10.51 Convertible Preferred Stock Purchase Agreement, dated as of November 5, 1999 between the Company
and The Shaar Fund Ltd. (12)
10.52 Registration Rights Agreement dated as of November 5, 1999, between the Company and The Shaar
Fund Ltd. (12)
10.53 Common Stock Purchase Warrant dated November 5, 1999 between the Company and The Shaar Fund Ltd. (12)
10.54 Letter agreement, dated October 27, 1999 concerning the Bridge Note Purchase Agreement between
Compositech and SovCap Equity Partners, Ltd. (12)
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. (12)
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. (12)
10.57 Letter agreement, dated November 22, 1999, concerning the Series 1 Bridge Note Purchase and
Security Agreement, as amended, between Compositech and certain Purchasers (1)
10.58 Form of Series 1 Bridge Financing Note dated October 4, 1999 between Compositech and SovCap
Equity Partners, Ltd. (1)
10.59 Form of Common Stock Purchase Warrant dated October 4, 1999 between Compositech and SovCap Equity
Partners, Ltd. (1)
10.60 Form of Attached Repricing Warrant dated October 4, 1999 between Compositech and SovCap Equity
Partners, Ltd. (1)
10.61 Secured Convertible Bridge Financing Note dated October 4, 1999 between Compositech and Sovereign
Capital Advisors, LLC (1)
10.62 Sovereign Warrant Agreement dated October 4, 1999 between Compositech and Sovereign Capital
Advisors LLC. (1)
10.63 Form of Promissory Note between Compositech and certain qualified investors with a term of 14
days (1)
10.64 Form of Promissory Note between Compositech and certain qualified investors with a term of 30
days (1)
10.65 Form of Promissory Note between Compositech and certain qualified investors with a term of 30
days and time-dependent warrant coverage (1)
10.66 Form of Common Stock Purchase Warrant issued in connection with
Compositech's private placements.
10.67 Form of Convertible Promissory Note between the Company and certain investors in
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit Note
Number Exhibit Number
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
connection with a private placement of short term bridge notes which had its most recent closing
on January 16, 2000. (1)
10.68 Form of Investor Subscription Agreement between Compositech and certain investors in connection
with a private placement of Compositech's common stock which had its most recent closing on March
3, 2000. (1)
10.69 Settlement Agreement dated February 17, 2000, by and between Compositech Ltd.,
Cheng Xin Technology Development Corporation (as successor in interest to Fidelity Venture
Capital Corp.), Composite Technologies. Inc. and investors in Composite Technologies, Inc. (13)
23.1 Consent of Ernst & Young LLP (1)
27.1 Financial Data Schedules (Edgar version only) (1)
</TABLE>
- ----------
* Management contract, compensatory plan or arrangement.
(1) Filed herewith.
(2) Incorporated by reference to a previously filed Exhibit to the
Company's Registration Statement on Form SB-2, Reg. No. 333-3564-NY.
(3) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-KSB for the year ended December 31, 1996.
(4) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-QSB for the quarterly period ended June 30, 1997.
(5) Incorporated by reference to a previously filed Exhibit to the
Company's Registration Statement on Form S-3, Reg. No. 333-32241-NY
filed on July 28, 1997.
(6) Incorporated by reference to a previously filed Exhibit to the
Company's Form 8-K dated October 27, 1997.
(7) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-KSB for the year ended December 31, 1997.
(8) Incorporated by reference to a previously filed Exhibit to the
Company's Form 8-K dated May 29, 1998.
(9) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-QSB for the quarterly period ended June 30, 1998.
(10) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-KSB for the year ended December 31, 1998.
(11) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-QSB for the quarterly period ended June 30, 1999.
(12) Incorporated by reference to a previously filed Exhibit to the
Company's Form 10-QSB for the quarterly period ended September 30,
1999.
(13) Incorporated by reference to a previously filed Exhibit to the
Company's Form 8-K dated March 7, 2000.
(b) Form 8-K Reports:
<TABLE>
<CAPTION>
Financial
Date of Report Item Reported Statements Filed
- ------------------------------ ------------------------------------------------ ----------------------
<S> <C> <C>
June 29, 1999 Item 5 - Other Events No
(Press release announcing signing of supply
and joint product development agreement with
Teradyne, Inc.)
December 16, 1999 Item 5 - Other Events No
(Press release confirming merger and
acquisition talks and plans to identify
strategic partners; Company awaits closing of
private placement and substantially reduces
expenses.)
</TABLE>
25
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMPOSITECH LTD.
Date: March 30, 2000 By: /S/ Jonas Medney
---------------------
Jonas Medney
Chairman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
/S/ Jonas Medney March 30, 2000
--------------------------------------------
Jonas Medney
Chairman of the Board, Director
(Principal Executive Officer)
/S/ Samuel S. Gross March 30, 2000
--------------------------------------------
Samuel S. Gross
Executive Vice President, Secretary,
Treasurer and Director
(Principal Financial and Accounting Officer)
/S/ Willard T. Jackson March 30, 2000
--------------------------------------------
Willard T. Jackson, Director
/S/ Fred E. Klimpl March 30, 2000
--------------------------------------------
Fred E. Klimpl, Director
/S/ Robert W. Middleton March 30, 2000
--------------------------------------------
Robert W. Middleton, Director
/S/ Heinz-Gerd Reinkemeyer March 30, 2000
--------------------------------------------
Heinz-Gerd Reinkemeyer, Director
/S/ James W. Taylor March 30, 2000
--------------------------------------------
James W. Taylor, Director
26
<PAGE>
Index to Financial Statements
Pages
-----
Report of Independent Auditors............................................. F2
Balance Sheets as of December 31, 1999 and 1998............................ F3
Statements of Operations for the years ended
December 31, 1999 and 1998................................................ F4
Statements of Stockholders' Equity (Deficiency) for the years
ended December 31, 1999 and 1998......................................... F5
Statements of Cash Flows for the years ended
December 31, 1999 and 1998................................................ F6
Notes to Financial Statements.............................................. F7
F1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Compositech Ltd.
We have audited the accompanying balance sheets of Compositech Ltd. (the
"Company") as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compositech Ltd. at December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully described in Note 1, the Company
suspended its manufacturing operations on December 3, 1999 due a lack of
financing and refocused its resources on locating suitable licensees, joint
venture partners or purchasers for its patented technology and equipment design.
Further, the Company has incurred recurring operating losses and has a working
capital deficiency. The Company requires, and is currently negotiating for,
additional funding from financing or other sources to satisfy its existing
liabilities and cover future operating expenses until sufficient revenues are
generated. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Melville, New York
March 3, 2000
F2
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 December 31
1999 1998
------------ ------------
<S> <C> <C>
ASSETS (Note 1)
Current assets:
Cash and cash equivalents $73,197 $102,286
Accounts receivable trade - net 82,783 27,273
Accounts receivable from joint venture 103,696
Inventories 15,000 254,784
Prepaid expenses and other 48,412 165,827
------------ ------------
Total current assets 219,392 653,866
Property and equipment held for sale 2,000,000
Property and equipment at cost - net 5,721,215
Investment in joint ventures - net of accumulated amortization
of $21,750 (1998) 466,000 5,562,090
Advance payments on construction-in-progress 16,753
Deferred debt expense - net of accumulated amortization of $461,078 (1999) 49,163 133,728
Other assets and other deferred charges, net of accumulated amortization
of $658,375 (1999) and $19,256 (1998) 401,894 151,110
------------ ------------
Total assets $3,136,449 $12,238,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $1,814,421 $637,861
Deferred salaries 152,362 194,739
Accrued interest - $44,276 (1999) and all (1998) to stockholders 104,423 5,880
Other accrued liabilities 642,762 413,982
Deferred licensing income 64,248
Loans and notes payable 2,976,935 438,917
Notes payable to directors/stockholders 158,333
------------ ------------
Total current liabilities 5,849,236 1,755,627
Non-current liabilities:
Notes payable to directors/stockholders 1,420,000 1,595,000
Deferred salaries - officers/directors 913,135 814,481
Accrued interest - directors/stockholders 366,476 248,948
Capital lease obligations 9,235
Deferred licensing income 643,840 713,001
Advances received 500,000 500,000
------------ ------------
Total non-current liabilities 3,843,451 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 - 220 (1998) 2,200,000
Commitments
Stockholders' equity (deficiency) :
Undesignated preferred stock; authorized 3,799,780 shares, none issued and outstanding
Series A convertible preferred stock, par value $3.00 per share; authorized shares - 714,161,
issued and outstanding shares - 393,997 (1999) and 550,995 (1998) 1,181,991 1,652,985
Series C 8% convertible preferred stock, par value $0.01 per share; authorized shares - 200,000
issued and outstanding shares - 54,000 (1999) 540,000
Common stock, par value $.01 per share; authorized shares - 50,000,000,
issued and outstanding shares - 18,023,613 (1999) and 13,150,128 (1998) 180,236 131,502
Additional paid-in capital 44,449,398 37,436,677
Cumulative foreign currency translation adjustment (552,039)
Deficit (50,349,052) (33,954,155)
------------ ------------
(3,997,427) 4,714,970
Less treasury stock to be received (1,746,987)
Less notes receivable received for issuance of common stock (811,824) (312,500)
------------ ------------
Total stockholders' equity (deficiency) (6,556,238) 4,402,470
------------ ------------
Total liabilities and stockholders' equity (deficiency) $3,136,449 $12,238,762
============ ============
</TABLE>
See accompanying notes.
F3
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
December 31
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Sales $736,889 $350,112
Licensing 58,099 64,284
------------ ------------
Total revenues 794,988 414,396
Costs and expenses:
Manufacturing 5,833,951 4,248,421
Selling, general and administrative 1,733,919 1,254,739
Research and development 173,265 282,756
Restructuring charges 7,357,604
------------ ------------
Total operating expenses 15,098,739 5,785,916
------------ ------------
(Loss) from operations (14,303,751) (5,371,520)
Other income (expenses):
Interest income 48,639 49,335
Interest expense
(net of interest capitalized of $23,000 (1999) and $101,000 (1998) (347,868) (131,693)
Amortization of debt discount and expenses (1,632,586) (497,603)
Loss on disposal of property and equipment (8,360)
Other income (expense) (26,035) 112,415
------------ ------------
(1,957,850) (475,906)
------------ ------------
(Loss) from operations before equity in operations of joint venture (16,261,601) (5,847,426)
Equity in operations of joint venture (133,296) 36,831
------------ ------------
Net (loss) (16,394,897) (5,810,595)
Preferred stock dividends 22,892 406,686
------------ ------------
(Loss) attributable to common stockholders ($16,417,789) ($6,217,281)
============ ============
(Loss) per common share - basic and diluted ($1.03) ($0.54)
============ ============
Shares used in computing (loss) per common share 15,986,153 11,612,001
============ ============
</TABLE>
See accompanying notes.
F4
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Series C 8%
Series A convertible convertible
preferred stock preferred stock
------------------------ -------------------
Shares Amount Shares Amount
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 614,161 $1,842,483
Conversion of Series A convertible preferred stock to common stock (63,166) (189,498)
Issuance of common stock upon conversion of 5% convertible debentures
Issuance of common stock through private placements, net of
related costs of $83,097
Expenses related to the issuance of 7% Series B convertible preferred stock
through a private placement
Dividends declared on 7% Series B convertible preferred stock
Exercise of a warrant for notes receivable
Issuance of common stock as compensation for loan financing
Foreign currency translation adjustment
Net (loss) for the year ended December 31, 1998
Comprehensive (loss)
--------------------------------------------
Balance at December 31, 1998 550,995 1,652,985
Conversion of Series A convertible preferred stock to common stock (156,998) (470,994)
Conversion of 7% Series B convertible preferred stock to common stock
Issuance of common stock through private placements, net of
related costs of $201,989
Proceeds from the exercise of a stock purchase option of common
stock, net of related costs of $43,200
Dividends declared on 7% Series B convertible preferred stock
Dividends paid in common stock on 7% Series B convertible preferred stock
Compensation for short term bridge financing
Exercise of a warrant for notes receivable
Issuance of common stock upon exercise of warrants
Issuance of common stock as compensation to directors
Issuance of common stock as repayment for a loan financing
Issuance of common stock award as compensation to officer
Fair market value of warrant issued in exchange for services rendered
Fair market value of warrant issued in exchange for deferral of interest
Fair market value of warrants issued in connection with term notes
Fair market value of warrants issued in connection with promissory bridge notes
Issuance of Series C 8% convertible preferred stock in a private placement,
net of related costs of $105,430 54,000 $ 540,000
Dividends declared on Series C 8% convertible preferred stock
Record treasury stock to be received in connection with joint venture liquidation
Foreign currency translation adjustment
Net (loss) for the year ended December 31, 1999
Comprehensive (loss)
--------------------------------------------
Balance at December 31, 1999 393,997 $ 1,181,991 54,000 $ 540,000
============================================
<CAPTION>
Cumulative
Foriegn
Common stock Addtional Currency
------------------- Paid-in Translation
Shares Amount Capital Adjustment
-------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 7,767,921 $77,679 $30,075,100
Conversion of Series A convertible preferred stock to common stock 31,583 316 189,182
Issuance of common stock upon conversion of 5% convertible debentures 4,055,667 40,557 5,795,064
Issuance of common stock through private placements, net of
related costs of $83,097 1,090,601 10,906 1,377,119
Expenses related to the issuance of 7% Series B convertible preferred stock
through a private placement (300,000)
Dividends declared on 7% Series B convertible preferred stock (92,400)
Exercise of a warrant for notes receivable 125,000 1,250 311,250
Issuance of common stock as compensation for loan financing 79,356 794 81,362
Foreign currency translation adjustment $(552,039)
Net (loss) for the year ended December 31, 1998
Comprehensive (loss)
-------------------------------------------------
Balance at December 31, 1998 13,150,128 131,502 37,436,677 (552,039)
Conversion of Series A convertible preferred stock to common stock 78,498 785 470,209
Conversion of 7% Series B convertible preferred stock to common stock 1,500,142 15,001 2,184,999
Issuance of common stock through private placements, net of
related costs of $201,989 1,294,088 12,940 1,949,204
Proceeds from the exercise of a stock purchase option of common
stock, net of related costs of $43,200 600,000 6,000 496,800
Dividends declared on 7% Series B convertible preferred stock (15,692)
Dividends paid in common stock on 7% Series B convertible preferred stock 73,797 738 107,354
Compensation for short term bridge financing
Exercise of a warrant for notes receivable 371,991 3,720 525,604
Issuance of common stock upon exercise of warrants 2,250 23 1,259
Issuance of common stock as compensation to directors 18,554 185 30,570
Issuance of common stock as repayment for a loan financing 894,165 8,942 499,623
Issuance of common stock award as compensation to officer 40,000 400 72,120
Fair market value of warrant issued in exchange for services rendered 330,995
Fair market value of warrant issued in exchange for deferral of interest 21,405
Fair market value of warrants issued in connection with term notes 363,655
Fair market value of warrants issued in connection with promissory bridge notes 87,246
Issuance of Series C 8% convertible preferred stock in a private placement,
net of related costs of $105,430 (105,430)
Dividends declared on Series C 8% convertible preferred stock (7,200)
Record treasury stock to be received in connection with joint venture liquidation
Foreign currency translation adjustment 552,039
Net (loss) for the year ended December 31, 1999
Comprehensive (loss)
-------------------------------------------------
Balance at December 31, 1999 18,023,613 $180,236 $44,449,398 $ --
=================================================
<CAPTION>
Total
Treasury Stockholders
stock to be Notes Equity
Deficit Received Receivable (Deficiency)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $(28,143,560) $3,851,702
Conversion of Series A convertible preferred stock to common stock
Issuance of common stock upon conversion of 5% convertible debentures 5,835,621
Issuance of common stock through private placements, net of
related costs of $83,097 1,388,025
Expenses related to the issuance of 7% Series B convertible preferred stock
through a private placement (300,000)
Dividends declared on 7% Series B convertible preferred stock (92,400)
Exercise of a warrant for notes receivable (312,500)
Issuance of common stock as compensation for loan financing 82,156
Foreign currency translation adjustment (552,039)
Net (loss) for the year ended December 31, 1998 (5,810,595) (5,810,595)
-------------
Comprehensive (loss) (6,362,634)
----------------------------------------------------
Balance at December 31, 1998 (33,954,155) (312,500) 4,402,470
Conversion of Series A convertible preferred stock to common stock
Conversion of 7% Series B convertible preferred stock to common stock 2,200,000
Issuance of common stock through private placements, net of
related costs of $201,989 1,962,144
Proceeds from the exercise of a stock purchase option of common
stock, net of related costs of $43,200 502,800
Dividends declared on 7% Series B convertible preferred stock (15,692)
Dividends paid in common stock on 7% Series B convertible preferred stock 108,092
Compensation for short term bridge financing 30,000 30,000
Exercise of a warrant for notes receivable (529,324)
Issuance of common stock upon exercise of warrants 1,282
Issuance of common stock as compensation to directors 30,755
Issuance of common stock as repayment for a loan financing 508,565
Issuance of common stock award as compensation to officer 72,520
Fair market value of warrant issued in exchange for services rendered 330,995
Fair market value of warrant issued in exchange for deferral of interest 21,405
Fair market value of warrants issued in connection with term notes 363,655
Fair market value of warrants issued in connection with promissory bridge notes 87,246
Issuance of Series C 8% convertible preferred stock in a private placement,
net of related costs of $105,430 434,570
Dividends declared on Series C 8% convertible preferred stock (7,200)
Record treasury stock to be received in connection with joint venture
liquidation $(1,746,987) (1,746,987)
Foreign currency translation adjustment 552,039
Net (loss) for the year ended December 31, 1999 (16,394,897) (16,394,897)
-------------
Comprehensive (loss) (15,842,858)
----------------------------------------------------
Balance at December 31, 1999 $(50,349,052) $(1,746,987) $ (811,824)$ (6,556,238)
====================================================
</TABLE>
See accompanying notes.
F5
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($16,394,897) ($5,810,595)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 1,015,176 533,053
Restructuring charges 7,357,604
Loss on disposal of property and equipment 8,360
Amortization of debt discount and expenses 1,632,586 497,603
Issuance of common stock as compensation to directors 45,863
Equity in net (income) loss of joint venture 133,296 (36,831)
Changes in operating assets and liabilities:
Accounts receivable trade - net (55,510) 17,452
Accounts receivable from joint venture 59,946 97,686
Inventories 239,784 147,138
Prepaid expenses and other 43,785 (68,456)
Other assets and other deferred charges 53,413 (7,200)
Accounts payable 1,176,560 28,583
Deferred salaries 56,277 265,091
Accrued interest 275,627 128,652
Deferred licensing income (133,409) 777,249
Other accrued liabilities 143,694 (83,746)
------------ ------------
Net cash and cash equivalents (used) in operating activities (4,350,205) (3,505,961)
Cash Flows from Investing Activities
Purchase of property and equipment - net (332,946) (694,297)
Investment in joint ventures (467,487)
Patent costs deferred (30,099) (29,204)
------------ ------------
Net cash and cash equivalents (used in) investing activities (363,045) (1,190,988)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 2,464,944 1,393,647
Net proceeds from issuance of Series C convertible preferred stock 434,570
Net proceeds from exercise of warrants 1,282
Net proceeds from issuance of 5% convertible debentures 29,000
Net proceeds from issuance of 7% Series B convertible preferred stock 1,900,000
Net proceeds from loans and notes payable 2,088,981 395,025
Advance received on sale of common stock 500,000
Payment of capital lease obligations (38,949) (42,691)
Payment of loans and notes payable (266,667)
------------ ------------
Net cash and cash equivalents provided by financing activities 4,684,161 4,174,981
------------ ------------
(Decrease) in cash and cash equivalents (29,089) (521,968)
Cash and cash equivalents at beginning of period 102,286 624,254
------------ ------------
Cash and cash equivalents at end of period $73,197 $102,286
============ ============
Supplemental disclosures of cash flow information
Noncash financing activities:
Preferred Stock dividends on 7% Series B convertible preferred stock $15,692 $406,686
Preferred Stock dividends on Series C 8% convertible preferred stock 121,745
Issuance of common stock for notes receivable 529,324 312,500
Issuance of common stock in repayment of promissory notes, including accrued interest 508,565
Issuance of common stock as compensation for bridge financing 30,000
Issuance of common stock as compensation to an officer and to directors 103,275
Cash paid for:
Interest 95,243 104,039
</TABLE>
See accompanying notes.
F6
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
December 31, 1999
1. Organization, Basis of Presentation and Significant Accounting Policies
Organization and Basis of Presentation
Compositech Ltd. (the "Company"), a Delaware corporation, has developed a
proprietary technology for the manufacture of innovative and superior
copper-clad fiberglass epoxy laminates used to make printed circuit boards.
On December 3, 1999, the Company suspended its manufacturing operations due to a
lack of adequate financing and refocused its resources on locating suitable
licensees, joint venture partners or purchasers for its patented technology and
equipment design. The Company is also exploring potential mergers and
acquisitions or other strategic transactions. The Company has begun licensing
discussions with several potential licensees and hired International Licensing
Network as a consultant. In March 2000, the Company formally launched its
licensing program by sending proposals to a limited number of select candidates
supported by recommendation letters from several original equipment
manufacturers and printed circuit board customers of the Company.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. In addition to the matters discussed above,
the Company has incurred recurring operating losses and has a working capital
deficiency. The Company requires, and is negotiating for, additional funding
from financing or other sources to satisfy its existing liabilities and cover
future operating expenses until sufficient revenues are generated. Since
December 31, 1999, the Company has received limited private placement funding
(See Note 14). In addition, the Company has initiated discussions with certain
creditors to provide accommodations with regard to outstanding liabilities.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash in banks and highly liquid
investments with maturities of three months or less.
F7
<PAGE>
Inventories
Inventories include raw materials, finished goods and inventories of spare
parts. Raw materials and finished goods inventories are stated at the lower of
cost or market based on the first-in, first-out method. Inventories of spare
parts are stated at the lower of cost or market based on specific item cost. In
connection with the decision by the Company to suspend manufacturing operations
on December 3, 1999, the Company has reduced the carrying value of its
inventories to estimated net realizable value by recording a charge to
manufacturing expense of $153,068.
December 31
----------------------------------
1999 1998
--------------- ---------------
Raw Materials $ 5,000 $ 122,577
Finished Goods 10,000 86,800
Spare Parts 45,407
--------------- ---------------
Total $15,000 $ 254,784
=============== ===============
Property and Equipment
Property and equipment were depreciated using the straight line method over
their estimated lives, which ranged from five to ten years, until December 3,
1999, when the Company suspended manufacturing operations and reduced the
carrying value of such assets to estimated net realizable value. See Note 2.
Patents
The Company has obtained patents in the United States and internationally and
has filed additional patent applications. Such patent rights are of significant
importance to the Company to protect products, processes and equipment
developed. Costs incurred in connection with patents are being deferred and are
amortized over the life of the patents beginning upon issue. Costs related to
unsuccessful patent applications will be expensed.
(Loss) Per Share
Basic and diluted loss per share are calculated in accordance with SFAS No. 128,
"Earnings per Share." Loss per share is based on the weighted average number of
shares of common stock outstanding. The conversion of the Series A Convertible
Preferred Stock, par value $3.00 per share (the "Series A Stock"), the 7% Series
B Convertible Preferred Stock, par value $0.01 (the "Series B Stock"), the
Series C 8% Convertible Preferred Stock, par value $0.01 (the "Series C Stock"),
the 5% Convertible Debentures (the "Debentures") and outstanding options and
warrants into common stock has not been assumed in the calculation of diluted
loss per share, as such conversion would be anti-dilutive.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
F8
<PAGE>
2. Property and Equipment
In connection with the suspension of manufacturing activities which
occurred on December 3, 1999 and the pursuit of potential licensees for the
Company's patented technology and equipment design, the Company has reduced the
carrying value of its property and equipment to $2,000,000, which represents an
estimate by management of its net realizable value by recording an impairment
loss of $3,289,879. Property and equipment is classified as held for sale in the
accompanying balance sheet as of December 31, 1999.
Property and equipment at December 31, 1998 consisted of the following :
Production equipment $5,774,374
Laboratory equipment 160,535
Furniture, fixtures and equipment 424,464
Leasehold improvements 469,555
Construction-in-progress 862,099
Equipment under capital leases 212,106
------------
7,903,133
Less accumulated depreciation and amortization 2,181,918
------------
$5,721,215
============
3. Investment in Joint Ventures
Canada
On October 16, 1997, the Company formed a 50/50 joint venture with four Quebec
institutional investors (collectively, the "Quebec Investors") for the
establishment of a plant in the greater Montreal area to manufacture
Compositech's laminates. The Quebec Investors are: Societe generale de
financement du Quebec, Fonds de solidarite des travailleurs du Quebec (F.T.Q.),
Societe Innovatech du Grand Montreal and Fonds regional de solidarite Ile de
Montreal. The Company's $5,426,917 capital investment in the joint venture was
funded by the Quebec Investors purchasing 1,066,192 shares of the Company's
common stock at $5.09 per share.
The investment in joint venture at December 31, 1998 included $269,853 in
commission and legal costs incurred by the Company in connection with the
negotiation and preparation of the various joint venture agreements as well as
unreimbursed expenses related to the joint venture which was being amortized on
a straight-line basis over fifteen years. The Company accounted for its
investment in the joint venture using the equity method of accounting. During
the years ended December 31, 1999 and 1998, the joint venture had net (loss)
income of ($266,593) and $73,663, respectively. The 1998 net income was
attributed to the excess of interest income earned on cash balances over actual
costs incurred.
During 1999 and 1998, $534,000 and $389,000, respectively, of engineering,
selling, general and administrative expenses were charged to the Canadian joint
venture in accordance with the joint venture agreements. As of December 31,
1998, the total assets and total liabilities (unaudited) of the joint venture
were approximately $9,835,000 and $139,000, respectively.
F9
<PAGE>
In December 1999, the Company received notice from the Quebec Investors of their
decision to proceed with the liquidation and dissolution of the joint venture
due principally to the Company's inability to finance itself adequately, which
resulted in an inability to obtain necessary financing for the project in the
required time periods. The effect of the liquidation is that the Quebec
Investors will receive the proceeds of the liquidation of the assets of the
joint venture and the Company will receive back approximately 951,000 shares of
the Company's common stock originally purchased by the Quebec Investors. These
shares have been recorded at $1.837 per share, representing the fair value of
the Company's common stock during the notice period, and have been classified as
treasury stock to be received in the accompanying balance sheet at December 31,
1999. The $3,793,596 balance of the investment has been written off and included
in the statement of operations as a restructuring charge for the year ended
December 31, 1999.
Taiwan
On February 9, 1998, the Company entered into a joint venture agreement and
patent, information and trademark agreement with a Taiwanese investor group led
by Cheng Xin Venture Capital Corp. (formerly Fidelity Venture Capital Corp.)
("Cheng Xin") to manufacture the Company's laminates in Taiwan. The Company
received $1 million as a license down payment and was to receive additional
up-front license payments of $1 million upon the achievement of certain
milestones. The Company recorded the license income, net of expenses incurred,
as deferred licensing income which was being amortized over the life of the
contract. As part of the transaction, the Company received approximately
$952,500, net of expenses, in a private placement with the joint venture, and
issued 610,868 shares of the Company's common stock, including commissions, and
was to issue a like amount of shares to the joint venture for $960,000, net of
expenses, within 30 days following approval of the joint venture license by a
governmental authority. The Company received an advance payment of $500,000 from
the joint venture which was to be applied to the second half of the stock
purchase and reinvested substantially all the proceeds as part of its investment
in the joint venture. Licensing income of $58,099 for the year ended December
31, 1999 and $64,284 recorded during the year ended December 31, 1998 relates to
the joint venture.
In October 1999, the Company received a communication from Composite
Technologies, its joint venture/licensee in Taiwan, stating that the earthquake
in Taiwan had affected the venture capital group behind Compositech Technologies
to the extent that they have decided not to proceed with the joint venture and
proposed a settlement. As of February 17, 2000, the Company reached a settlement
agreement with its joint venture partner/licensee in Taiwan, which terminates
the joint venture agreement and their license for use of the Company's
proprietary technology in Taiwan. Under the terms of the settlement, in exchange
for the issuance of 587,372 shares of its common stock to the licensee, the
Company retained the $1 million license down payment it received in 1998.
Additionally, in exchange for the equity in the joint venture, the Company
retained the $500,000 advance it received to make the investment. The Company
incurred no loss as a result of this settlement agreement.
F10
<PAGE>
4. Loans Payable
In January 1999, the Company borrowed $17,500, bringing the total amount
borrowed to $456,417 under the credit facility through Credit Bancorp. The loan
is collateralized by approximately 1.7 million shares of the Company's common
stock loaned to the Company by two of the Company's stockholder/directors. The
loan is due on December 29, 2000 and bears interest at the rate of one percent
above the one year LIBOR rate (currently approximately 7.29%), payable
quarterly. A default would occur if the Company fails to supplement the
collateral or partially repay the loan in the event the collateral falls in
value by 25% or more from the value as of the loan date. The Company has agreed
with the two directors to issue replacement shares to them in the event of any
liquidation of the collateral by the lender and provide them with registration
rights, where necessary.
In November 1999, the SEC commenced an action against Credit Bancorp, its
principals and trustee claiming violations of the securities laws by
misappropriating stock placed as collateral. A receiver was appointed and the
receiver reported to the Company that to date only 1,122,967 of the 1,702,467
shares of the Company's stock has been located that some or all of them may be
in margin accounts. It is not known whether and to what extent the shares will
be returned. The Company believes that any loss of shares should be covered by
the insurance policies of Credit Bancorp and if the shares were misappropriated,
the principal amount of the loan may be reduced or may not be due. The
litigation may not be settled for some time and the Company may have to replace
the shares if they are not ultimately returned.
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, which were 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 were
amortized over the term of the notes.
Details of the individual original closings are as follows :
March 16, April 21, July 28,
1999 1999 1999
-------------- ------------- ------------
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
In October 1999, the Company agreed with the holders of the Term Notes, to
extend the due dates of all the Term Notes 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. In connection with the
extension, the Company issued 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 are payable at
maturity in cash or common stock, at the option of the holders of the Term
Notes. The Company is currently negotiating an extension
F11
<PAGE>
of the due date of the Term Notes. In connection with this refinancing, the
Company issued 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. The estimated fair market value of the warrants,
totaling $99,656, is being amortized over the term of the notes.
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 $362,169
(as of December 31, 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 accrued interest as of December 31, 1999, the Company issued
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 the five months ended December 1999, the Company sold a total of $792,167 of
convertible short term promissory notes, realizing $728,794, net of commissions,
in a private placement. The promissory notes are convertible into shares of the
Company's common stock, at an agreed upon conversion price, at the option of the
noteholder. Through December 31, 1999, the noteholders of $493,000 of promissory
notes elected repayment in shares of common stock. 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.
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 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.
5. Long-Term Debt
<TABLE>
<CAPTION>
December 31
------------------------
1999 1998
------------ -----------
<S> <C> <C>
Notes payable to stockholders due
April 2, 2001, as amended, interest
payable semi-annually
at prime rate plus 1 1/2% (10.0% at December
31, 1999 and 9.25% at December 31,
1998); $700,000 collateralized by a second lien
on U.S. patents and patent applications. $750,000 $850,000
10% Secured Notes, to stockholders, due
April 2, 2001, as amended, interest
payable annually, collateralized by patents,
patent applications and certain
production equipment. 670,000 745,000
------------ ------------
1,420,000 1,595,000
============ ============
</TABLE>
F12
<PAGE>
Interest and debt expense includes interest of $155,924 (1999) and $219,548
(1998) applicable to related parties.
6. 7% Series B Convertible Preferred Stock
On May 29, 1998, the Company issued 220 shares of 7% Series B Stock at $10,000
per share in a private placement, resulting in net proceeds of approximately
$1.9 million.
Based on a SEC pronouncement, a portion of the proceeds of the issue
representing the discounted conversion feature as measured by the difference
between the fair market value of the common stock on the dates the Series B
Stock was sold and the earliest discounted conversion price has been allocated
to additional paid-in-capital. The discount resulting from the allocation of
proceeds has been recorded as an additional dividend of $314,286 which was
amortized over the period from issuance to July 8, 1998, the date on which the
Series B Stock first became convertible.
7. Stockholders' Equity (Deficiency)
The shares of the Series A Stock are convertible at any time at the option of
the stockholder into shares of common stock at the rate (subject to antidilution
adjustment) of one-half share of common stock for each share of Series A Stock.
Each share will automatically be converted into shares of common stock (at the
then applicable conversion rate) upon the consummation of an underwritten public
offering covering the sale of common stock with aggregate net proceeds of not
less than $10,000,000 with a price per share equal to or greater than $9.00 per
share.
The common stock and Series A Stock vote as one class, with each share of common
stock being entitled to one vote. Each holder of the Series A Stock is entitled
to the number of votes equal to the number of shares of common stock into which
a share of the preferred stock could have been converted as of the record date
for voting.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A Stock shall be entitled to
receive up to $3.00 per share, as adjusted, before any payments are made to the
holders of common stock. Each one-half share of common stock would then be
entitled to receive $3.00, as adjusted, from the remaining assets of the
Company. Any remaining assets will be distributed to the holders of all shares
of stock on a pro rata basis.
In November 1998 and December 1998, the Company sold 479,733 shares of its
common stock in a private placement, realizing $435,525, net of expenses.
At a special meeting held on March 26, 1999, the stockholders approved an
amendment of the Company's Amended and Restated Certificate of Incorporation,
increasing the number of authorized shares of common stock of the Company from
25,000,000, $0.01 par value, to 50,000,000 shares, $0.01 par value.
F13
<PAGE>
On November 5, 1999, the Company sold 54,000 shares of Series C Stock for an
aggregate amount of $540,000. In connection with this transaction, the Company
issued purchaser and placement agent warrants to purchase 129,000 shares of
common stock at an exercise price of $1.272 per share, exercisable until
November 5, 2004, representing 110% of the closing bid price of the stock on the
date of the closing. The Series C stock is convertible into shares of common
stock at the lower of $1.272 per share or :
(i) 82% of the closing bid price from date of issuance (the "DOI") to 180
days after DOI or
(ii) 78.5% of the closing bid price from 181 days after DOI to 270 days
after DOI or
(iii) 75% of the closing bid price from 271 days after DOI to 360 days after
DOI or
(iv) 70% of the closing bid price at any time after 360 days after issuance.
In the event the Company is delisted from Nasdaq, the conversion price is
reduced to 50% of the Market Price.
Holders of the Series C Stock are entitled to dividends on a cumulative basis,
payable quarterly in cash or common stock at the option of the Company, except
under certain specified conditions which require the payment of dividends in
cash. In the event of any voluntary or involuntary liquidation of the Company,
holders of the Series C Stock shall be entitled to receive the sum of : (i) the
stated value of $10 per share, plus (ii) 30% of such stated value, plus (iii)
all due but unpaid dividends before any distribution or payments are made to
holders of the Series A Stock or common stock. The holders of the Series C Stock
do not have voting rights except in certain limited circumstances in which their
rights, powers or preferences could be adversely affected.
Based on a SEC pronouncement, a portion of the proceeds of the issue
representing the discounted conversion feature as measured by the difference
between the fair market value of the common stock on the dates the Series C
Stock was sold and the earliest discounted conversion price has been allocated
to additional paid-in-capital. The discount resulting from the allocation of
proceeds has been recorded as an additional dividend of $114,545 which was
amortized on the date of issuance, the date on which the Series C Stock first
became convertible. Management believes that the proceeds received from the
Series C Stock and the discount offered on conversion of the Series C Stock is a
fair representation of the net proceeds the Company would otherwise expect to
receive from an equity offering of a like number of shares after consideration
of all associated commissions, costs and expenses.
During the four months ended April 1999, the Company issued 1,500,142 shares of
common stock upon the conversion of all 220 shares of the Company's Series B
Stock ($2,200,000 face amount). The shares issued included an accrued 7%
dividend, paid in shares of common stock.
During the year ended December 31, 1999, the Company sold 1,894,088 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 $2.4 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 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. During December 1999,
F14
<PAGE>
warrants to purchase 100,000 shares of the Company's common stock were
exercised, at a price of $1.25 per share, in exchange for notes receivable in
the amount of $125,000, maturing on December 31, 2000.
During the year ended December 31, 1999, pursuant to Compositech's Amended and
Restated Stock Award Plan (the "Award Plan"), the Company issued stock awards of
18,554 shares of its common stock to its non-employee directors, vesting on a
quarterly basis, as payment of the annual $10,000, 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.
In November 1999, pursuant to the Award Plan, the Company issued stock awards of
140,000 shares of its common stock to two of its executive officers, with a
restriction period ending on August 1, 2001. The awards are rescinded if the
executive officer leaves the Company other than because of disability or
retirement, as determined in good faith by the Board of Directors. In connection
with the resignation of Christopher F. Johnson, which was accepted by the Board
as of December 31, 1999, his stock award, totaling 100,000 shares was rescinded.
In December 1999, 894,165 shares of the Company's common stock were issued in
connection with the repayment of $493,000 of convertible promissory notes plus
$15,565 in accrued interest, in accordance with the conversion rights held by
various noteholders.
8. Warrants and Options
Warrants
In April 1998, in connection with the final conversion of the Company's 5%
Convertible Debentures, the Company issued warrants to Trautman Wasserman &
Company, Incorporated., the Placement Agent, to buy 75,000 shares of common
stock at $2.6125 per share. Management estimates the fair value of such warrants
is nominal. The warrants are exercisable until April 24, 2003.
In October 1998, the Placement Agent exercised a warrant to buy 125,000 shares
of common stock at $2.50 per share in exchange for notes receivable, maturing in
September 2000, as extended.
During December 1998, the Company issued 79,356 shares of its common stock to
certain shareholders as compensation for advisory services rendered in
connection with the arrangement of a credit facility.
During November and December 1998, in connection with a private placement of its
common stock, the Company issued warrants to buy 318,134 shares of common stock
at $1.125 per share. Management estimates the fair value of such warrants is
nominal. The warrants are exercisable until February 15, 2001. In connection
with the same private placement, the Company issued a stock purchase option to
buy 600,000 shares of the Company's common stock for $0.90 per share,
exercisable until March 18, 1999.
F15
<PAGE>
During the three months ended March 1999, in connection with a private placement
of its common stock, the Company issued warrants to buy 505,928 shares of common
stock at prices ranging from $1.125 per share to $2.125 per share. The warrants
are exercisable until February 15, 2001
In March 1999, in connection with the past due accrued interest due as of
December 31, 1998, the Company issued warrants to buy 25,483 shares of common
stock at $2.50 per share to its stockholder noteholders, exercisable until March
10, 2004. The fair market value of the warrants has been estimated at $21,405
and was amortized over calendar 1999.
In June 1999, in connection with the loaning of their shares to the Company as
collateral for the loan from Credit Bancorp, the Company issued warrants to buy
114,103 shares of common stock at $1.134 per share to two of its
officer/directors, exercisable until December 29, 2003. The fair market value of
the warrants has been estimated at $39,365 and was amortized over calendar 1999.
In June 1999, in exchange for investment banking services to be rendered over a
two year period, the Company issued warrants to buy 400,000 shares of common
stock, at $2.20 per share, exercisable until June 2, 2002. The fair market value
of the warrants has been estimated at $151,300 and are being amortized over the
two year period ending June 2001.
In connection with the extension of due dates on stockholder loans and accruable
interest as of December 31, 1999 till April 2, 2001, the Company issued warrants
to buy 178,218 shares of common stock, at $1.272 per share, a price identical to
the warrants given in the Series C Stock financing. The warrants are exercisable
until August 2004.
During June and July 1999, in connection with a private placement, the Company
issued warrants to buy 182,380 shares of common stock, at exercise prices
ranging from $1.375 per share to $2.25 per share, exercisable until July 31,
2001.
In connection with the private placement of convertible promissory notes issued
in the three months ended October 1999, the Company issued warrants to buy
295,750 shares of common stock, at exercise prices ranging from $1.125 per share
to $1.563 per share, exercisable until September 30, 2001.
In October 1999, as partial compensation in connection with financial public
relations services to be rendered over a six month time period, the Company
issued warrants to buy 99,000 shares of common stock, divided equally into
groups of warrants to buy 33,000 shares of common stock at exercise prices of
$1.50, $2.50 and $3.50, respectively, exercisable until September 30, 2001. The
fair market value of the warrants has been estimated at $33,495 and is being
amortized over the period of October 1999 through March 2000.
In connection with the sale of the Series C Stock in November 1999, the Company
issued warrants, including placement agent warrants, to buy 129,000 shares of
common stock at an exercise price of $1.272 per share, exercisable until
November 5, 2004.
F16
<PAGE>
Stock Option Plan
Under the Company's 1988 non-qualified stock option plan, 150,000 shares of
common stock may be issued to selected key employees and non-employees,
including directors, providing services to the Company. Under the Company's 1994
Stock Award Plan as amended, 2,675,000 shares of common stock may be issued as
Incentive Stock Options, non-qualified options or restricted stock to selected
key employees or to non-employees, including directors, providing services to
the Company. All options granted have ten year terms and vest and become fully
exercisable between six months and three years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation", requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by SFAS
No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1999
and 1998: risk-free interest rates of 6.79% and 4.72% ; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
.861 and .827; and a weighted-average expected life of the option of six years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
The Company's pro forma information for 1999 and 1998 are as follows:
1999 1998
---------------- --------------
Pro forma net (loss) ($16,742,270) ($6,802,411)
Pro forma (loss) per share -
basic and diluted ($1.05) ($0.59)
F17
<PAGE>
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 1,482,670 $ 2.70 770,490 $ 4.16
Granted 496,689 $ 1.57 814,100 $ 1.57
Forfeited 674,049 $ 1.62 101,920 $ 4.79
------------- ---------------- ------------- ---------------
Outstanding - end of year 1,305,310 $ 2.83 1,482,670 $ 2.70
============= ================ ============= ===============
Exercisable - end of year 1,030,477 $ 3.16 611,669 $ 3.63
Weighted average fair value of
options granted during the year $ 1.35 $ 1.15
</TABLE>
A summary of options outstanding as of December 31, 1999 follows:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Contractual Life
Options Options (Years)
Exercise Price Outstanding Exercisable
-------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
$ 1.188 133,334 56,667 8.71
1.219 65,000 -- 9.71
1.375 187,667 76,334 8.06
1.406 667 667 8.27
1.813 4,246 4,246 8.48
1.844 123,283 123,283 8.48
2.000 28,168 25,501 8.22
2.375 46,290 46,290 7.93
2.500 377,689 377,689 6.00
4.375 2,000 2,000 7.35
4.750 7,667 7,334 7.27
5.000 119,800 119,800 2.88
5.750 209,499 190,666 6.91
------------------ ----------------- ------------------
1,305,310 1,030,477 6.71
================== ================= ==================
</TABLE>
Included in the total outstanding as of December 31, 1999 are 599,610 options
for directors.
The Company has reserved 16,232,546 shares of common stock for conversions of
preferred stock and issuances for stock options, warrants, stock purchase option
agreements and stock exchange agreements.
F18
<PAGE>
9. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
At December 31, 1999, the Company has net operating loss carryforwards ("NOL")
of approximately $38,806,000 for Federal income tax purposes, expiring at 2003
through 2019. In addition, the Company has research and development credits,
targeted job credits and alternative minimum tax credits of approximately
$1,205,000 which generally expire through 2014, to offset future taxes. The
Internal Revenue Code ("IRC") includes provisions which significantly limit
potential use of net operating losses and tax credits in situations where there
is a change in ownership, as defined, of more than 50% during a three-year
period. Accordingly, if a change in ownership occurs, the ultimate benefit
realized from these carryovers may be significantly reduced in total, and the
amount that may be utilized in any given year may be significantly limited.
Additionally, because there is a limit on the time during which NOL
carryforwards and tax credits may be applied against future taxable income, the
Company will not be able to take full advantage of these NOL's when the Company
generates taxable income.
As of December 31, 1999, the maximum utilization of the Company's $38.8 million
NOL has been calculated to be approximately $28.5 million, due to the
aforementioned limitations. As the Company has had cumulative losses and there
is no assurance of future taxable income, a valuation allowance has been
established to offset deferred tax assets. The components of the Company's net
deferred tax are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1998 1998
----------------- ----------------
<S> <C> <C>
Deferred tax assets:
Deferred salaries $ 362,000 $ 343,000
Net operating loss carryforwards 9,683,000 7,416,000
Research and development and other credits 1,205,000 1,140,000
----------------- ----------------
Total deferred tax assets 11,250,000 8,899,000
Less: valuation allowance (10,381,000) (8,179,000)
----------------- ----------------
Net deferred tax assets 869,000 720,000
Deferred tax liability:
Tax over book depreciation (869,000) (720,000)
----------------- ----------------
Net deferred tax $ _____ $ _____
================= ================
</TABLE>
F19
<PAGE>
10. Commitments and Contingencies
Operating Leases
At December 31, 1999, future minimum annual rentals for leases with initial or
remaining terms in excess of one year are as follows:
2000 $152,000
2001 26,000
2002 4,000
-----------
$182,000
The Company leases its plant under a net lease expiring August 31, 2000. The
lease requires that the Company pay real estate taxes as additional rent.
Rent expense was approximately $226,310 in 1999 and $247,000 in 1998. The
foregoing amounts include $37,000 and $38,000, respectively, of real estate
taxes paid as additional rent.
Capital Leases
Future minimum lease payments under capital leases for equipment with a net book
value of approximately $88,000, included in property and equipment for the years
ending December 31, are as follows:
2000 $12,523
Less: Amount representing interest 114
-------
Present value of minimum lease payments $12,409
=======
Legal Proceedings
The Company is a party to the following legal proceedings:
1. An action commenced in January 2000 in the Supreme Court of the State of
New York by Yates Foil USA, Inc. seeking damages of approximately $140,000
for goods sold and delivered. The Company is in the process of preparing an
answer and is discussing a compromise of the amount sought. The amount of
the claim is accrued on the books of the Company as at December 31, 1999.
2. A summary proceeding has been instituted in March 2000 in the District
Court of the County of Suffolk, NY by Reckson Operating Partnership, L.P.
as landlord seeking damages of approximately $72,000 for non-payment of
rent and eviction of the Company from the premises. The Company is in the
process of preparing an answer and is discussing a compromise and payment
schedule for the amount due. The amount of the claim which principally
applies to year 2000 is accrued on the books of the Company in the
applicable periods.
3. The Company is also a party to several legal proceedings relating to
creditors which are not material.
F20
<PAGE>
11. Significant Customers
Customers who individually represent 10% or more of net sales for the respective
years are as follows:
Years Ended December 31
------------------------------------
1999 1998
----------------- ----------------
Teradyne, Inc. 52.8% 48.2%
Tyco International Ltd. 31.4% 2.9%
HADCO Corporation 0.2% 37.4%
12. Retirement Plan
The Company established a defined contribution retirement plan ("the Plan") for
eligible employees under Section 401(k) of the Internal Revenue Code effective
January 1, 1998. Participants can make voluntary contributions up to a maximum
of 20% of their annual salary. The Company made no matching contributions to the
Plan in 1999 or 1998. In connection with the suspension of manufacturing
activities and subsequent reduction in the Company's workforce, the Company gave
notice of Plan termination on December 3, 1999.
13. Restructuring Charges
In connection with the suspension of manufacturing operations and other items
discussed in Note 1 under Organization and Basis of Presentation, the Company
instituted a restructuring program whereby it has refocused its resources on
locating suitable licensees, joint venture partners or purchasers for its
technology. Restructuring charges of $7,357,604 for the year ended December 31,
1999 consist of the following:
(i) an impairment loss of $3,289,879 representing the reduction in the
carrying value of property and equipment to net realizable value
related to the suspension of manufacturing operations
(ii) a loss of $3,793,596 on the termination of the Company's Canadian
joint venture
(iii) other items of $274,129 relating to the suspension of manufacturing
operations, including future lease costs and the writeoff of prepaid
manufacturing expenses.
In addition, $153,068 of inventory writedowns was charged to manufacturing
expenses in connection with the suspension of manufacturing operations.
14. Subsequent Events
During January 2000, the Company sold $20,000 of convertible promissory notes,
under an agreement entered into during December 1999.
Subsequent to December 31, 1999, the Company issued 273,442 shares of common
stock upon the conversion of $169,167 of convertible promissory notes, in
accordance with the instructions of the noteholders, resulting in an increase in
common stock of $2,734 and an increase in additional paid-in capital of
$166,433.
Subsequent to December 31, 1999, the Company sold 158,747 shares of its common
stock, in a private placement, realizing $97,265, net of expenses and sold
139,083 shares of its common stock in connection with the exercise of warrants,
realizing $156,468
F21
EXHIBIT 10.57
COMPOSITECH LTD.
120 Ricefield Lane
Hauppauge, New York 11788
November 22, 1999
SovCap Equity Partners, Ltd.
Sovereign Capital Advisors, LLC
3340 Peachtree Road, NE, Suite 1965
Atlanta, Georgia 30326
Facsimile:
Attention: Mr. Paul D. Hamm
Arab Commerce Bank, Ltd.
P.O. Box 309, Grand Cayman
Cayman Islands
Facsimile: 0171-437-2413
Attention: A. De Nazareth
Correllus International Ltd.
Calle Azucera 37
Torreblanca Del Sol
296 40 Fuengirola, Spain
Facsimile: (34) 95-2477043
Attention: Jan Lander
Bronia GmbH
Baarerstrasse 73, Postfach 2515
6302 Zug, Switzerland
Facsimile:
Attention: Bernard Muller
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Attention: Edward F. Cox
Dear Sirs:
Reference is made to the Series 1 Bridge Note Purchase and Security
Agreement, dated March 16, 1999, by and among Compositech Ltd. and the
Purchasers listed therein (the "Note Purchase Agreement"), 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 (the "First
<PAGE>
Amendment") and that certain Second Amendment to the Series 1 BridgeNote
Purchase and Security Agreement, dated July 28, 1999 and executed by the Company
and certain Purchasers in connection with the Third Closing (the Second
Amendment, together with the Note Purchase Agreement and the First Amendment the
"Purchase Agreement"). Defined terms, used but not defined herein, have the
meanings ascribed thereto in the Purchase Agreement.
In order to (i) effect the extension and modification of those certain
Bridge Notes previously issued to SovCap Equity Partners, Ltd. ("SovCap") on
March 16, 1999, SovCap, Correllus International Ltd. and Arab Commerce Bank Ltd.
on April 21, 1999 and SovCap and Bronia GmbH on July 28, 1999 as set forth on
Exhibit A hereto (the "Old Bridge Notes"); (ii) effect the modification of the
Repricing Warrants attached to the Old Bridge Notes (the "Old Repricing
Warrants"); and (iii) delay, until March 31, 2000, the exercise of all warrants
issued under and pursuant to the Purchase Agreement, the Placement Agency
Agreement, dated March 16, 1999 (the "Placement Agreement"), by and between the
Company and Sovereign Capital Advisors, LLC (the "Placement Agent"), the Warrant
Agreement, dated March 16, 1999, by and between the Company and the Placement
Agent (the "Warrant Agreement") or in connection herewith, as previously agreed
in that certain letter agreement, dated October 27, 1999 (the "Side Letter"), by
and between the Company and SovCap, as Representative for the Purchasers, each
of the parties hereto hereby agrees as follows:
a) The Company and the Purchasers hereby appoint Patterson, Belknap, Webb &
Tyler LLP, and Patterson, Belknap, Webb & Tyler LLP hereby accepts its
appointment, as escrow agent (the "Escrow Agent") to discharge the duties set
forth herein. All Old Bridge Notes and Old Repricing Warrants will be delivered
to the Escrow Agent by November 23, 1999. Bridge Notes, dated as of October 4,
1999, in the following denominations and in the name of the following Purchasers
(the "New Bridge Notes") will be delivered fully executed to the Escrow Agent by
November 23, 1999:
SovCap $739,200.00 ("S1BFN 7")
SovCap $189,025.00 ("S1BFN 8")
Correllus International Ltd. $290,808.00 ("S1BFN 9")
Arab Commerce Bank Ltd. $145,404.00 ("S1BFN 10")
Bronia GmbH $334,500.00 ("S1BFN 11")
SovCap $267,600.00 ("S1BFN 12")
Attached to each New Bridge Note delivered to the Escrow Agent will be a fully
executed Repricing Warrant (the "New Repricing Warrants").
b) Warrants, dated as of October 4, 1999, to purchase shares of Common
Stock in the following denominations in the name of the following Purchasers
(the "New Warrants") will be delivered fully executed to the Escrow Agent by
November 23, 1999:
SovCap 110,000
SovCap 23,400
Correllus International Ltd. 36,000
Arab Commerce Bank Ltd. 18,000
Bronia GmbH 19,250
SovCap 15,400
-2-
<PAGE>
c) A fully executed warrant certificate to purchase 94,821 shares of Common
Stock dated as of October 4, 1999, in the name of the Placement Agent and in the
form designated in the Warrant Agreement (the "New Placement Agent Warrant")
shall be delivered to the Escrow Agent by November 23, 1999. A fully executed
promissory note, dated as of October 4, 1999, in the form designated for the
Bridge Notes in the Purchase Agreement and in the name of the Placement Agent
for $98,327.00 (the "Placement Bridge Note") together with a fully executed
Repricing Warrant (the "Placement Repricing Warrant") shall be delivered to the
Escrow Agent by November 23, 1999.
d) Notwithstanding their respective terms, the parties hereto agree that
the Warrants, warrant certificates previously issued in connection with the
Placement Agreement or the Warrant Agreement (the "Placement Agent Warrants"),
the New Warrants and the New Placement Agent Warrant shall not be exercisable
prior to March 31, 2000.
e) The Old Bridge Notes and Old Repricing Warrants (the "Old Documents")
and the New Bridge Notes, New Repricing Warrants, New Warrants, the New
Placement Agent Warrant, Placement Bridge Note and the Placement Repricing
Warrant (the "New Documents") shall be held by the Escrow Agent until the first
to occur of (i) a closing on the issuance and sale of 146,000 shares of Series C
8% Convertible Preferred Stock, par value $.01, of the Company to The Shaar Fund
Ltd. for an aggregate purchase price of $1,460,000 (the "Shaar Closing") as
evidenced by a certificate to such effect delivered by the Company to the Escrow
Agent or (ii) December 6, 1999 as such date may be extended from time to time by
written agreement between the Company and SovCap, as Representative for the
Purchasers, notice of which extension shall be delivered to the Escrow Agent
(such earlier date, the "Escrow Termination Date").
f) Concurrently with the occurrence of the Shaar Closing:
1. The Company shall provide the Escrow Agent with a certificate
evidencing that the Shaar Closing has occurred. At such time the
Old Documents shall be released from escrow, and delivered to the
Company as promptly as practicable thereafter, and the New
Documents shall be released from escrow and delivered to the
Balboni Law Group, LLC ("BLG"), as attorneys and agent for the
Purchasers and the Placement Agent, by overnight or next-day
courier. At the time of the Shaar Closing, the Old Notes and the
Old Repricing Warrants will automatically become null and void
without further force or effect. Delivery of the New Documents to
BLG by the Escrow Agent shall be deemed delivery to the
Purchasers and the Placement Agent for all purposes under this
Agreement.
2. The first sentence of the Background section of the Registration
Rights Agreement will automatically be amended to insert the
following phrase
-3-
<PAGE>
immediately after the phrase "Series 1 Bridge Notes": "(as the
same may be amended, renewed, extended, replaced, substituted,
exchanged, supplemented or otherwise modified from time to time,
the "Bridge Notes")" and to delete the defined term (the "Series
1Bridge Notes"). The first sentence of Section 2(a) of the
Registration Rights Agreement will be automatically amended to
extend the Filing Deadline (as defined therein) to a date 30 days
after the date of the Shaar Closing and the second and third
sentences of Section 2(a) will automatically be amended to read
in their entirety as follows: "The Registration Statement(s)
shall state that, in accordance with Rule 416 promulgated under
the 1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock as may
become issuable upon exercise of the Purchaser Warrants to
prevent dilution resulting from stock splits, stock dividends, or
similar transactions. Such Registration Statement shall initially
register for resale 3,327,443 shares of Common Stock, all of
which is subject to adjustment as provided in Section 3(b), and
such registered shares of Common Stock shall be allocated among
the Investors pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration
Statement, as amended, relating to the sale of the Registrable
Securities is declared effective by the SEC." In addition the
fourth sentence of Section 3(b) of the Registration Rights
Agreement will automatically be deleted and replaced with the
following sentence: "For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of Registrable Securities
issued or issuable upon conversion of the Series 1 Bridge Notes
together with the number of Registrable Securities issued or
issuable upon exercise of the Purchaser Warrants and the
Repricing Warrants is greater than 3,327,443."
3. The first sentence of the Background section of each of the Note
Purchase Agreement, the First Amendment and the Second Amendment
will automatically be amended to insert the following phrase
immediately after the phrase "Series 1 Secured Convertible Bridge
Financing Notes": (as the same may be amended, renewed, extended,
replaced, substituted, exchanged, supplemented or otherwise
modified from time to time, the "Bridge Notes")" and to delete
the defined term (the "Bridge Notes").
4. It is hereby agreed that: (a) the term Bridge Note issued on the
First Closing Date in the Purchase Agreement will automatically
be deemed to refer to the New Bridge Note bearing number S1BFN7;
(b) the term Second Closing Bridge Notes in the Purchase
Agreement will automatically be deemed to refer to the New Bridge
Notes bearing numbers S1BFN8, S1BFN9 and S1BFN 10; and (c) the
term Third Closing Bridge Notes in the Purchase Agreement will be
automatically deemed to refer to the New
-4-
<PAGE>
Bridge Notes bearing numbers S1BFN 11 and S1BFN12, and each of
the New Bridge Notes so substituted for an Old Bridge Note shall
be entitled to, and have the benefit of, the security interest in
the Collateral provided to the corresponding Old Bridge Note,
provided in the Purchase Agreement.
5. The first sentence of Section 2.1 of the Note Purchase Agreement
will automatically be amended to delete the parenthetical and to
insert the following phrase after the phrase "under the Bridge
Notes": "and such other obligations of the Company, the
instruments evidencing which state that they are secured by the
security interest and lien granted hereby (such obligations are
sometimes hereinafter referred to as the "Obligations")". The
first sentences of Section 2.1 of the First Amendment and Section
1.1 of the Second Amendment will automatically be amended to
insert the following phrase after the phrases "Second Closing
Bridge Notes" and "Third Closing Bridge Notes", in the First
Amendment and the Second Amendment, respectively: "and such other
obligations of the Company, the instruments evidencing which
state that they are secured by the security interest and lien
granted hereby".
6. The Company shall take all reasonable actions the Purchasers and
the Placement Agent may request, including, without limitation,
the execution of any necessary documents, to effectuate the
agreement of the Company, the Purchasers, and the Placement Agent
to continue the security interests originally granted securing
the Old Bridge Notes and now securing the New Bridge Notes, and
with respect to providing a security interest to secure the
Placement Bridge Note.
7. The Purchasers will be deemed to acknowledge that no Event of
Default has occurred under the Old Bridge Notes.
g) If the Escrow Termination Date occurs prior to the Shaar Closing, the
Old Documents shall be released from escrow and delivered to the Purchasers by
overnight or next-day courier to BLG, as attorneys and agent for the Purchasers
and the Placement Agent, and the New Documents shall be released from escrow and
delivered to the Company as promptly as practicable thereafter. Delivery of the
Old Documents to BLG by the Escrow Agent shall be deemed delivery to the
Purchasers and the Placement Agent for all purposes under this Agreement. At
such time the New Documents will automatically become null and void without
further force or effect, and the Old Documents will continue to remain in full
force and effect. Furthermore, all other agreements contained herein including,
without limitation, the agreement not to exercise the Warrants, the Placement
Agent Warrants, the New Placement Agent Warrant and the New Warrants, shall be
null and void and of no further force or effect.
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<PAGE>
(h) Each Purchaser and the Placement Agent hereby represents and warrants
that it is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended.
(i) All notices and other communications hereunder shall be in writing and
shall be delivered as provided for in the Purchase Agreement, as follows:
If to a Purchaser to the address as set forth below such Purchaser's
name above;
If to the Company to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attention: Samuel S. Gross
Facsimile Number: (516) 436-5203
With a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036
Attention: Edward F. Cox
Facsimile Number (212) 336-2222
If to the Escrow Agent to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Attention: Edward F. Cox
Facsimile: (212) 336-2222
(j) This Agreement sets forth all the obligations of the Escrow Agent with
respect to any and all matters pertinent to the escrow contemplated hereunder
and no additional obligations of the Escrow Agent shall be implied from the
terms hereof. The Escrow Agent shall incur no liability, and the parties agree
to indemnify and hold harmless the Escrow Agent, in connection with the
discharge of its obligations hereunder or otherwise in connection therewith,
except such liability as may arise from the gross negligence or wilful
misconduct of the Escrow Agent.
(k) This Agreement shall be governed by the laws of the State of New York
without regard to the conflicts of law doctrine of such state.
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<PAGE>
(l) This Agreement may be executed in counterparts, each of which shall
constitute an integral original part of one and the same original instrument.
If the foregoing correctly sets forth the understanding among us, please
indicate your agreement and acceptance by signing below.
Sincerely,
COMPOSITECH LTD.
By: _________________________________
Samuel Gross
Executive Vice President
Acknowledged, agreed and accepted by the undersigned:
SOVCAP EQUITY PARTNERS LTD.
By:___________________________
Authorized Signatory
ARAB COMMERCE BANK, LTD.
By:___________________________
Authorized Signatory
CORRELLUS INTERNATIONAL LTD.
By:___________________________
Authorized Signatory
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<PAGE>
BRONIA GMBH
By:___________________________
Authorized Signatory
SOVEREIGN CAPITAL ADVISORS, LLC
By:___________________________
Authorized Signatory
PATTERSON, BELKNAP, WEBB & TYLER LLP
By: __________________________
Partner
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<PAGE>
EXHIBIT A
SovCap $500,000.00 ("S1BFN 1")
SovCap $130,000.00 ("S1BFN 2")
Correllus International Ltd. $200,000.00 ("S1BFN 3")
Arab Commerce Bank Ltd. $100,000.00 ("S1BFN 4")
Bronia GmbH $250,000.00 ("S1BFN 5")
SovCap $200,000.00 ("S1BFN 6")
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EXHIBIT 10.58
THIS BRIDGE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
COMPOSITECH LTD.
SERIES 1 BRIDGE FINANCING NOTE
No. S1BFN-7 $739,200.00 October 4, 1999
COMPOSITECH LTD., a Delaware corporation (such corporation, or any
successor permitted hereunder, the "Company"), for value received, hereby
promises to pay to SOVCAP EQUITY PARTNERS, LTD., or any subsequent holder hereof
(such holders, assignees, or any registered assignees, the "Holders"), the
principal sum of SEVEN HUNDRED THIRTY-NINE THOUSAND TWO HUNDRED AND NO/100
DOLLARS (US $739,200.00), and to pay interest on such principal sum, at the rate
of eight percent (8%) per annum (the "Note Rate") from the Original Issue Date
(as defined below) until March 31, 2000 (the "Maturity Date") and at the rate of
eleven percent (11%) per annum (the "Default Rate") after the Maturity Date
until payment of all principal, premium, and accrued and unpaid interest has
been paid in full. Interest shall be payable on the Maturity Date. All such
interest shall be computed on the basis of the actual number of days elapsed
during any interest period in a year of 360 days. The date on which this Series
1 Bridge Note shall have first been issued is referred to herein as the
"Original Issue Date."
Section 1. Description. This Bridge Note is one of a series of Series 1
Bridge Financing Notes that have been authorized by the Company (the "Series 1
Bridge Notes") and are alike except for principal amount and issue date, and are
in registered form. This Series 1 Bridge Note replaces the Bridge Note
denominated "S1BFN-1" bearing the original issue date March 16, 1999, made by
the Company in favor of SovCap Equity Partners, Ltd. in connection with the
First Closing and tendered to and cancelled by the Company on the date hereof as
part of the making and issuance of this Series 1 Bridge Note. This Series 1
Bridge Note is convertible, into shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), as provided herein, and, effective upon any such
conversion, the Common Stock so issued shall be subject to all terms and
conditions and shall enjoy all rights, privileges, and preferences applicable to
such Common Stock under the Company's Certificate of Incorporation (the
"Certificate of Incorporation"). The Common Stock issuable upon conversion of
this Series 1 Bridge Note (the "Conversion Shares") are entitled to registration
rights pursuant to a Registration Rights Agreement between Holder, the Company,
and certain other signatures thereto dated March 16, 1999, as amended (the
"Registration Rights Agreement"). This Series 1 Bridge Note is secured by
certain specified equipment of the Company having a value of approximately 130%
of the principal amount of this Series 1 Bridge Note pursuant to the terms of a
Series 1 Bridge Note Purchase and Security Agreement dated March 16, 1999, as
amended (the "Purchase Agreement"), and is otherwise entitled to all of the
rights and benefits thereunder.
Section 2. Office for Registration and Conversion. The Company shall
maintain an office where this Series 1 Bridge Note shall be surrendered or
presented for registration of transfers or exchanges and conversions. This
office will initially be located at the offices of the Company at 120 Ricefield
Lane, Hauppauge, New York 11788. The Company shall keep a register of the Series
1 Bridge Notes and of their transfer and exchange, including the names and
addresses of Holders of the Series 1 Bridge Notes. Holder shall give the Company
notice of any change in Holder's address to the office indicated in this Section
2. Upon two (2) business days written request, the Company shall permit Holder
or its duly authorized representatives to inspect such register. Upon written
notice to Holder, the Company may change the address of the office to be
maintained by the Company pursuant to this Section 2 or appoint one
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<PAGE>
or more co-registrars, stock registrars, paying agents, or conversion agents to
assist the Company in performing its functions under the Series 1 Bridge Notes.
Section 3. Redemption.
(a) Mandatory Redemption. If this Series 1 Bridge Note is outstanding
on the Maturity Date, this Series 1 Bridge Note shall be due and payable as
follows:
(i) if on the Maturity Date a Registration Statement is effective
with respect to the Conversion Shares, the Company shall give written
notice to Holder of its intent to redeem the then outstanding
principal amount of this Series 1 Bridge Note, which notice shall
state the election of the Company to pay the redemption price in cash
or by conversion of this Series 1 Bridge Note into Common Stock, in
the manner contemplated by Section 3(c) hereof. Regardless of the
manner in which paid, the redemption price (the "Maturity Date
Redemption Price") shall be equal to 117.5% of the then outstanding
principal amount of this Series 1 Bridge Note plus accrued and unpaid
interest thereon at the Note Rate through and including the Maturity
Date and at the Default Rate after the Maturity Date through and
including the date the payment is disbursed (whether by issuance of
Conversion Shares or a payment in cash).
(ii) if on the Maturity Date a Registration Statement is not
effective with respect to the Conversion Shares, Holder may, in
addition to all other rights and remedies of Holder hereunder and
under the Purchase Agreement, elect to make written demand to the
Company to redeem, all or part of the then outstanding principal under
this Series 1 Bridge Note. Such demand shall specify Holder's election
to accept payment of the redemption price in cash or by conversion of
this Series 1 Bridge Note into Common Stock, in the manner
contemplated by Section 3(c) hereof. The Company shall have two (2)
Business Days after its receipt of such demand to confirm its
intention to redeem this Series 1 Bridge Note by tendering to Holder
either (A) cash or (B) Conversion Shares (as specified in Holder's
demand), in the manner contemplated by Section 3(c) hereof. In either
case the redemption price shall be equal to the Maturity Date
Redemption Price.
(iii) The date of any redemption under either subparagraph (i) or
(ii) above shall be referred to as a "Redemption Date."
(b) Voluntary Redemption. At any time from and after the Original
Issue Date up to but not including the Maturity Date, the Company may, at
its option, call and redeem this Series 1 Bridge Note, at the redemption
price set forth in subparagraph (i), below, plus accrued and unpaid
interest on such redeemed amount through and including the Voluntary
Redemption Date, as such term is defined below (such redemption being the
"Voluntary Redemption"), under and in accordance with the following terms
and procedures:
(i) The Company at its option prior to the Maturity Date may
redeem this Series 1 Bridge Note at the Redemption Price set forth
below plus all accrued and unpaid interest on the principal amount
through and including the Voluntary Redemption Date (the "Voluntary
Redemption Price") as of a Voluntary Redemption Date:
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<PAGE>
Redemption Date Redemption Price
- --------------- ----------------
Original Issue Date through and including the 90th day after the 110%
Original Issue Date
91st day after the Original Issue Date through and including the 112 1/2%
120th day after the Original Issue Date
121st day after the Original Issue Date through and including the 115%
150th day after the Original Issue Date
151st day after the Original Issue Date through and including the 117 1/2%
date of redemption or conversion
(ii) At least ten (10) days before a Voluntary Redemption, the
Company shall mail a notice of redemption to Holder, stating (A) the
redemption date, which shall be a business day in New York, New York
(the "Voluntary Redemption Date"), (B) the aggregate principal amount
of this Series 1 Bridge Note to be redeemed, (C) the Voluntary
Redemption Price, and (D) the name and address of the Person to whom
this Series 1 Bridge Note must be presented to receive payment if
required pursuant to paragraph (iv) below. Once notice of redemption
is mailed and the Company shall have complied with paragraph (iii)
below, the Voluntary Redemption Price shall become due and payable on
the Voluntary Redemption Date.
(iii) On or before the third (3rd) day prior to the Voluntary
Redemption Date, the Company shall deposit into a bank trust account
for the benefit of the Holder of this Series 1 Bridge Note money
sufficient to pay the Redemption Price and all accrued and unpaid
interest.
(iv) The Company may, at its option, require as a condition to
the receipt of a payment pursuant to this Section 3(b) that Holder
present the Series 1 Bridge Notes to the Person specified in paragraph
(ii) above for surrender.
(v) No Voluntary Redemption of this Series 1 Bridge Note can be
effected after the 179th day after the Original Issue Date.
(c) Conversion into Common Stock in Lieu of Payments.
(i) In lieu of payment of cash to Holder pursuant to Section
3(a)(i) hereof and Section 3(b) hereof, the Company may, elect to pay
all or part of the Maturity Date Redemption Price or the Voluntary
Redemption Price in Conversion Shares, under the terms of Section 3(d)
hereof.
(ii) In lieu of cash, pursuant to Section 3(a)(ii) hereof, Holder
may require the Company to pay all or part of the Maturity Date
Redemption Price in Conversion Shares, under the terms of Section 3(d)
hereof.
The Repricing Warrant shall apply to each share of Common Stock received by
Holder pursuant to this Section 3(c).
(d) The number of shares of Common Stock issuable in payment of the
Mandatory Redemption Price or the Voluntary Redemption Price is equal to
the quotient of the Mandatory
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<PAGE>
Redemption Price or the Voluntary Redemption Price (as the case may be)
divided by $1.1375 (the "Conversion Price"). Fractional shares will not be
issued. In lieu of any fraction of a share, the Company shall deliver its
check for the dollar amount of the less-than full share remainder.
Section 4. Method of Payment.
(a) Interest accruing through and including the Maturity Date shall be
computed at the Note Rate. Interest accruing after the Maturity date shall
be computed at the Default Rate. Accrued and unpaid interest shall be due
and payable at the time the principal and premium of this Series 1 Bridge
Note is paid. All such interest shall be computed on the basis of the
actual number of days elapsed during any interest period in a year of 360
days. Interest shall begin to accrue on the Original Issue Date.
(b) The Company shall pay interest and principal on this Series 1
Bridge Note (except defaulted interest) to the Person who is the registered
Holder of this Series 1 Bridge Note on the day on which the interest or
principal payment is due. If the Company defaults in a payment of interest
on this Series 1 Bridge Note, it may pay the defaulted interest, plus any
interest on the defaulted interest if permitted provided by Section 4(d)
below, to the Person who is the registered Holder of this Series 1 Bridge
Note on the date such payment is made.
(c) The Company shall pay interest by check payable in money of the
United States of America that at the time of payment is legal tender for
public and private debts. Payments of interest shall be mailed to Holder's
address shown in the register maintained pursuant to Section 2; provided
however, that with respect to the final payment of principal and accrued
and unpaid interest necessary to pay this Series 1 Bridge Note in full, to
receive such payment Holder must surrender this Series 1 Bridge Note for
cancellation to the Company or to a paying agent appointed by the Company.
Principal and interest shall be considered paid on the date due, and no
interest shall accrue thereafter, if there is on deposit on that date, in a
bank trust account for the benefit of Holder of this Series 1 Bridge Note,
money sufficient to pay the Redemption Price and all accrued and unpaid
interest due under this Series 1 Bridge Note.
Section 5. Conversion Price and Adjustments.
(a) At anytime after the Maturity Date, Holder may convert all or any
portion of the Redemption Price and accrued and unpaid interest due on this
Series 1 Bridge Note into shares of Common Stock.
(b) If Holder elects to convert less than the full Redemption Price of
this Series 1 Bridge Note, such conversion shall be permitted only in one
hundred (100)-share increments unless the Company has given its
contemporaneous consent to conversion of an odd lot. The provisions hereof
that apply to conversion of the entire Redemption Price of this Series 1
Bridge Note shall also apply to conversion of a portion of the Redemption
Price. Upon surrender of the Series 1 Bridge Note for conversion in part,
the Company shall issue new Series 1 Bridge Notes in substantially the same
form as this Series 1 Bridge Note, except that the principal amount shall
be reduced by the principal amount so converted (exclusive of the
redemption premium).
(c) The number of shares of Common Stock issuable upon conversion of
this Series 1 Bridge Note is equal to the quotient of the Redemption Price
of this Series 1 Bridge Note being converted divided by Conversion Price.
Fractional shares will not be issued. In lieu of any fraction of a share,
the Company shall deliver its check for the dollar amount of the less than
full share remainder. Accrued and unpaid interest shall be included in
computing the number of
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<PAGE>
Conversion Shares issuable upon conversion of this Series 1 Bridge Note.
Interest shall cease to accrue on that portion of the Redemption Price
converted from and after the Conversion Date.
Section 6. Procedures for Conversion, and Issuance of Conversion Shares.
(a) Holders' Delivery Requirements. To convert this Series 1 Bridge
Note into Common Stock, (the "Conversion Date"), the Holder hereof shall
(A) deliver or transmit by facsimile, for receipt on or prior to 11:59
P.M., Eastern Time, on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit A (the "Conversion
Notice") to the Company or its designated Transfer Agent, and (B) surrender
to a common carrier for delivery to the Company or the Transfer Agent as
soon as practicable following such date, the original Series 1 Bridge Note
being converted (or an indemnification undertaking with respect to such
shares in the case of the loss, theft, or destruction of the Series 1
Bridge Note) and the originally executed Conversion Notice. The date the
Company receives the Conversion Note and this Series 1 Bridge Note is
hereinafter the "Conversion Date."
(b) Company's Response. Upon receipt by the Company of a facsimile
copy of a Conversion Notice, the Company shall immediately send, via
Facsimile, a confirmation of receipt of such Conversion Notice to Holder.
Upon receipt by the Company or the Transfer Agent of the Series 1 Bridge
Note to be converted pursuant to a Conversion Notice, together with the
originally executed Conversion Notice, the Company or the Transfer Agent
(as applicable) shall, within five (5) business days following the date of
receipt, (A) issue and surrender to a common carrier for overnight delivery
to the address as specified in the Conversion Notice, a certificate,
registered in the name of Holder or its designee, for the number of shares
of Common Stock to which Holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which such Holder shall be
entitled to the Holder's or its designee's balance account at The
Depository Trust Company.
(c) Record Holder. The Person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Series 1 Bridge
Note shall be treated for all purposes as the "Record Holder" or Holder of
such shares of Common Stock on the Conversion Date.
(d) Company's Failure to Timely Convert. If the Company shall fail to
issue to Holder within five (5) business days following the date of receipt
by the Company or the Transfer Agent of this Series 1 Bridge Note to be
converted pursuant to a Conversion Notice, a certificate for the number of
shares of Common Stock to which each Holder is entitled upon Holder's
conversion of this Series 1 Bridge Note, in addition to all other available
remedies which such Holder may pursue hereunder and under the Purchase
Agreement between the Company and the initial Holder of this Series 1
Bridge Note (including indemnification pursuant to Section 7.18 thereof),
the Company shall pay additional damages to Holder on each day after the
fifth (5th) business day following the date of receipt by the Company or
the Transfer Agent an amount equal to 1.0% of the product of (A) the number
of shares of Common Stock not issued to Holder and to which Holder is
entitled multiplied by (B) the Closing Bid Price of the Common Stock on the
business day following the date of receipt by the Company or the Transfer
Agent of the Conversion Notice. The foregoing notwithstanding, Holder at
its option may withdraw a Conversion Notice, and remain a Holder of this
Series 1 Bridge Note, if Holder has otherwise complied with this Section 6.
(e) If any adjustment to the Conversion Price to be made pursuant to
Section 7 becomes effective immediately after a record date for an event as
therein described, and conversion occurs prior to such event but after the
record date, the Company may defer issuing, delivering, or paying to Holder
any additional shares of Common Stock or check for any cash remainder
required
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<PAGE>
by reason of such adjustment until the occurrence of such event, provided
that the Company delivers to Holder a due bill or other appropriate
instrument evidencing the Holders' right to receive such additional shares
or check upon the occurrence of the event giving rise to the adjustment.
(f) Until such time as this Series 1 Bridge Note has been fully
redeemed, the Company shall reserve out of its authorized but unissued
Common Stock enough shares of Common Stock to permit the conversion of the
entire Redemption Price and all accrued and unpaid interest due on this
Series 1 Bridge Note at any time. All shares of Common Stock issued upon
conversion of this Series 1 Bridge Note shall be fully paid and
nonassessable. The Company covenants that if any shares of Common Stock,
required to be reserved for purposes of conversion of this Series 1 Bridge
Note hereunder, require registration with or approval of any governmental
authority under any federal or state law or listing upon any national
securities exchange before such shares may be issued upon conversion, the
Company shall in good faith, as expeditiously as possible, endeavor to
cause such shares to be duly registered, approved or listed, as the case
may be.
Section 7. Adjustments to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization, or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by
combination, reverse stock split, or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(b) Prior to the consummation of any Organic Change (as defined
below), the Company will make appropriate provision (in form and substance
satisfactory to the Holder to insure that Holder will thereafter have the
right to acquire and receive in lieu of, or in addition to, (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of this Holder's Series 1 Bridge Note, such
shares of stock, securities, or assets as may be issued or payable with
respect to, or in exchange for, the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of
this Series 1 Bridge Note had such Organic Change not taken place. In any
such case, the Company will make appropriate provision (in form and
substance satisfactory to Holder with respect to such Holder's rights and
interests to insure that the provisions of this Section 7b) and Sections
7(c) and 7(d) below will thereafter be applicable. The Company will not
effect any such consolidation, merger, or sale, unless prior to the
consummation thereof the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes, by written instrument (in form and substance satisfactory to
Holder, the obligation to deliver to Holder such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, that
Holder may be entitled to acquire. For purposes of this Agreement, "Organic
Change" means any recapitalization, reorganization, reclassification,
consolidation, merger, or sale of all or substantially all of the Company's
assets to another Person (as defined below), or other similar transaction
which is effected in such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent liquidation) stock,
securities, or assets with respect to or in exchange for Common Stock; and
"Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, and
a government or any department or agency thereof.
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<PAGE>
Section 8. Notices. The Company shall give the following notices at the
times specified:
(a) Immediately upon any adjustment of the Conversion Price, the
Company will give written notice thereof to Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company will give written notice to Holder, at least twenty
(20) days prior to the date on which the Company closes its books or takes
a record (i) with respect to any dividend or distribution upon the Common
Stock, (ii) with respect to any pro rata subscription offer to Holder of
Common Stock, or (iii) for determining rights to vote with respect to any
Organic Change, dissolution, or liquidation.
(c) The Company will also give written notice to Holder at least
twenty (20) days prior to the date on which any Organic Change, Major
Transaction (as defined below), dissolution, or liquidation will take
place.
Section 9. Successors to the Company. The Company shall not consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person unless: (i) the Person is a corporation; (ii) such Person executes, and
mails to Holder a copy of, an instrument by which such Person or an affiliate
assumes the due and punctual payment of the principal of and interest on this
Series 1 Bridge Note and the performance and observance of all the obligations
of the Company under this Series1 Bridge Note; and (iii) immediately after
giving effect to the transaction, no Event of Default or event which after
notice or lapse of time or both would become an Event of Default shall have
occurred. Upon compliance with this Section 9, Successor Corporation shall
succeed to and be substituted for the Company under this Series 1 Bridge Note
with the same effect as if the Successor Corporation had been named as the
Company herein. Nothing in this Series 1 Bridge Note shall prevent any
consolidation or merger in which the Company is the surviving corporation, or
any acquisition by the Company by purchase or otherwise of all or any part of
the assets of any other Person, and no such consolidation, merger, or
acquisition shall require compliance with this Section 9.
Section 10. Events of Default and Remedies.
(a) As used herein, an "Event of Default" occurs if:
(i) The Company defaults in the payment of principal and/or
interest when the same becomes due and payable.
(ii) the Company fails to comply with any other provision
contained in this Series 1 Bridge Note, the Purchase Agreement, the
Warrant, the Repricing Warrant, or the Registration Rights Agreement,
and such failure is not cured within five (5) days after the Company
receives written demand from Holder to remedy the same;
(iii) the Company defaults in any payment of principal of or
interest on any Debt (excluding trade payables) in excess of $100,000
beyond any period of grace provided with respect thereto and the
effect of such failure is to cause the holder of such Debt to
accelerate the Debt such that such Debt becomes due prior to its
stated maturity;
(iv) any representation or warranty made in writing by or on
behalf of (i) the Company in the Purchase Agreement or in any writing
furnished in connection with or pursuant to the Purchase Agreement or
in connection with the transactions contemplated by this Agreement, or
(ii) the Company in the Registration Rights Agreement, or (iii) the
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<PAGE>
Company in the Escrow Agreement, shall be false in any material
respect on the date as of which made;
(v) the Company makes an assignment for the benefit of creditors
or is generally not paying its debts as such debts become due;
(vi) any order or decree for relief in respect of the Company is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation or
similar law, whether now or hereafter in effect (herein called the
"Bankruptcy Law"), of any jurisdiction;
(vii) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidation, or similar official of the Company,
or of any substantial part of the assets of the Company, or commences
a voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any
other jurisdiction;
(viii) any petition or application described in Section 10(a)(vi)
above is filed, or any such proceedings are commenced, against the
Company and the Company by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator, or similar official, or approving the petition in any such
proceedings, and such order, judgment, or decree remains unstayed and
in effect for more than sixty (60) days;
(ix) any order, judgment, or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment, or decree remains unstayed and in effect for more
than sixty (60) days; or
(x) a final judgment (not fully covered by insurance) in an
amount in excess of $100,000 is rendered against the Company and,
within ten (10) business days after entry thereof, such judgment is
not discharged or execution thereof stayed pending appeal, or within
ten (10) days after the expiration of any such stay, such judgment is
not discharged.
(b) Upon the occurrence of an Event of Default described in subsection
(vi), (vii), or (viii) of Section 10(a), the principal of and accrued
interest on this Series 1 Bridge Note shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company. If any other Event of Default exists, Holder may, in addition to
the exercise of any right, power, or remedy permitted to Holder by law,
declare (by written notice or notices to the Company) the entire principal
of and all interest accrued on this Series 1 Bridge Note to be due and
payable, and this Series 1 Bridge Note shall thereupon become immediately
due and payable, without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived by the Company. Upon
such declaration, the Company will immediately pay to Holder of this Series
1 Bridge Note the then outstanding principal of and accrued and unpaid
interest on the Series 1 Bridge Notes. If at any time after acceleration of
the maturity of the Series 1 Bridge Notes, the Company shall pay all
arrears of interest and all payments on account of principal which shall
have become due other than by acceleration (with interest on principal and,
to the extent permitted by law, on overdue interest, at the rate specified
in the Series 1 Bridge Notes) and all Events of Default (other than
nonpayment of principal of or interest on this Series 1 Bridge Note due and
payable solely by virtue of acceleration) shall be remedied or waived by
Holder by written notice to the Company may rescind and annul the
acceleration and its consequences, but such action shall not affect any
subsequent Event of Default or impair any right consequent thereon.
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<PAGE>
(c) A delay or omission by the Holder of this Series 1 Bridge Note in
exercising any right or remedy arising upon an Event of Default shall not
impair such right or remedy or constitute a waiver of or an acquiescence in
the Event of Default.
(d) If any Event of Default shall occur and be continuing, the Holder
of this Series 1 Bridge Note may proceed to protect and enforce their
rights under this Agreement and this Series 1 Bridge Note by exercising
such remedies as are available to such Holder either by suit in equity or
by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of
any power granted in this Agreement. No remedy conferred in this Agreement
upon Holder is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
Section 11. Exchange, Transfer, Replacement or Cancellation.
(a) This Series 1 Bridge Note may be exchanged for an equal principal
amount of Series 1 Bridge Notes in denominations of US$25,000.00 or in
greater multiples of US$5,000.00 upon written request to the Company
accompanied by surrender of this Series 1 Bridge Note to the Company or to
an agent designated for that purpose. Any Series 1 Bridge Notes issued in
exchange for this Series 1 Bridge Note shall be one of this Series 1 Bridge
Note referred to in Section 1, and shall be entitled to all the rights
thereof.
(b) The Series 1 Bridge Notes may not be transferred except upon the
conditions specified in this Section 11(b), which conditions are intended
to insure compliance with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"). Prior to any proposed transfer of this
Series 1 Bridge Note the Holder hereof shall give written notice to the
Company of the proposed disposition and shall furnish to the Company a
statement of the circumstances surrounding the proposed disposition and an
opinion of counsel reasonably satisfactory to the Company to the effect
that (i) such disposition will not require registration of such securities
under the Securities Act or qualification of such securities under the blue
sky or state securities laws of any state in which such qualification would
be required, or (ii) appropriate action necessary for compliance with the
Securities Act or the blue sky or securities laws of such states has been
taken. The Holder hereof shall cause any proposed transferee of such
securities to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 11. The
Company or any co-registrar appointed by the Company may require the Holder
to furnish appropriate endorsements and/or transfer documents, including
information regarding any proposed transferee's name, address and social
security or taxpayer identification number, and to pay any issue or
transfer taxes or fees as may be required by law. The registered Holder of
this Series 1 Bridge Note may be treated as its owner for all purposes.
(c) If Holder claims this Series 1 Bridge Note has been lost,
destroyed, or wrongfully taken, the Company shall issue a replacement
Series 1 Bridge Note upon (i) receipt of any indemnity bond or other
assurance requested by the Company to protect it from any loss which it may
suffer by reason of such replacement or subsequent presentment of the
original Series 1 Bridge Note, and (ii) payment of any expenses reasonably
incurred by the Company in replacing the Series 1 Bridge Note.
Section 12. Amendments and Waivers. This Series 1 Bridge Note may, with the
consent of the Company and the Holder be amended or any provision thereof
waived.
Section 13. Notice. Any notice or communication hereunder shall be in
writing and delivered by first-class mail, return receipt requested, to each
Holder at its address shown in the register kept by the
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Company or any co-registrar appointed by the Company and to the Company at the
address of its office to be maintained pursuant to Section 2. Failure to mail,
or any defect in, a notice or communication to any other Holder of this Series 1
Bridge Note shall not affect its sufficiency with respect to the other Holders.
If a notice or communication is mailed to Holder in the manner provided above
within the time prescribed, it shall be deemed duly given and effective on the
tenth (10th) business day after it was deposited in the mail, whether or not
Holder actually receives it.
Section 14. No Recourse Against Others. A director, officer, employee, or
shareholder, as such, of the Company shall not have any liability for any
obligations of the Company under this Series 1 Bridge Note or for any claim
based on, in respect of or by reason of such obligations or their creation. The
Holder of this Series 1 Bridge Note by accepting this Series 1 Bridge Note
waives and releases all such liability and such waiver and release are part of
the consideration for the issue of the Series 1 Bridge Note.
Section 15. Governing Law. The Series 1 Bridge Notes shall be governed by
and construed in accordance with the laws of the State of New York, irrespective
of the choice of law provisions thereof. The parties agree that any appropriate
state court located in New Castle County, Delaware, or any Federal Court located
in Wilmington, Delaware, including without limitation to the United States
District Court of Delaware, shall have exclusive jurisdiction of any case or
controversy arising under or in connection with this Agreement and shall be a
proper forum in which to adjudicate such case or controversy. The parties
consent to the jurisdiction of such courts.
IN WITNESS WHEREOF, the parties have caused this Series 1 Bridge Financing
Note to be duly executed as of day and year first above written.
[Signatures on the following page]
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<PAGE>
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE FINANCING NOTE
COMPOSITECH, LTD.
By:_________________________________________
Samuel S. Gross, Chief Financial Officer
ATTEST:
By:________________________________
Assistant Secretary
[Corporate Seal]
-11-
EXHIBIT 10.59
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
COMPOSITECH LTD.
COMMON STOCK PURCHASE WARRANT
Warrant No. 8 148,800 shares
Original Issue Date: October 4, 1999
THIS CERTIFIES THAT, FOR VALUE RECEIVED, SOVCAP EQUITY PARTNERS, LTD or its
assigns (the "Holder") is entitled to purchase, on the terms and conditions
hereinafter set forth, at any time or from time to time from the date hereof
until 5:00 p.m., Eastern Time, on the fifth (5th) anniversary of the Original
Issue Date set forth above, or if such date is not a day on which the Company is
open for business, then the next succeeding day on which the Company is open for
business (such date is the "Expiration Date"), but not thereafter, up to ONE
HUNDRED FORTY-EIGHT THOUSAND EIGHT HUNDRED (148,800) shares of the Common Stock,
par value $.01 (the "Common Stock"), of COMPOSITECH LTD., a Delaware corporation
(the "Company"), at a price of $1.20 per share (the "Exercise Price"), such
number of shares and Exercise Price being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant. Each share of Common
Stock as to which this Warrant is exercisable is a "Warrant Share" and all such
shares are collectively referred to as the "Warrant Shares."
Section 1. Exercise of Warrant; Conversion of Warrant.
(a) This Warrant may, at the option of the Holder, be exercised in
whole or in part from time to time by delivery to the Company at its office
at 120 Ricefield Lane, Hauppauge, New York 11788, Attention: President, or
to any transfer agent for the Common Stock, on or before 5:00 p.m., Eastern
Time, on the Expiration Date, (i) a written notice of such registered
Holder's election to exercise this Warrant (the "Exercise Notice"), which
notice may be in the form of the Notice of Exercise attached hereto,
properly executed and completed by the registered Holder or an authorized
officer thereof, (ii) a check payable to the order of the Company, in an
amount equal to the product of the Exercise Price multiplied by the number
of Warrant Shares specified in the Exercise Notice, and (iii) this Warrant
(the items specified in (i), (ii), and (iii) are collectively the "Exercise
Materials").
(b) Upon timely receipt of the Exercise Materials, the Company shall,
as promptly as practicable, and in any event within five (5) business days
after its receipt of the Exercise Materials, execute or cause to be
executed and delivered to Holder a certificate or certificates representing
the number of Warrant Shares specified in the Exercise Notice, together
with cash in lieu of any fraction of a share, and, (x) if the Warrant is
exercised in full, a copy of this Warrant marked "Exercised," or (y) if the
Warrant is partially exercised, a copy of this Warrant marked "Partially
Exercised" together with a new Warrant on the same terms for the
unexercised balance of the Warrant Shares, or (z) if the Warrant is
converted, a copy of this Warrant marked "Converted." The stock certificate
or certificates shall be registered in the name of the registered
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Holder of this Warrant or such other name or names as shall be designated
in the Exercise Notice or Conversion Notice. The date on which the Warrant
shall be deemed to have been exercised or converted (the "Effective Date"),
and the date the person in whose name any certificate evidencing the Common
Stock issued upon the exercise or conversion hereof is issued shall be
deemed to have become the holder of record of such shares, shall be the
date the Corporation receives the Exercise Materials, irrespective of the
date of delivery of a certificate or certificates evidencing the Common
Stock issued upon the exercise or conversion hereof, except that, if the
date on which the Exercise Materials are received by the Company is a date
on which the stock transfer books of the Company are closed, the Effective
Date shall be the date the Company receives the Exercise Materials, and the
date such person shall be deemed to have become the holder of the Common
Stock issued upon the exercise or conversion hereof shall be the next
succeeding date on which the stock transfer books are open. All shares of
Common Stock issued upon the exercise or conversion of this Warrant will,
upon issuance, be fully paid and nonassessable and free from all taxes,
liens, and charges with respect thereto.
(c) If the Company shall fail to issue to Holder within five (5)
business days following the Effective Date a certificate for the number of
shares of Common Stock to which such holder is entitled upon such holder's
exercise or conversion of this Warrant, in addition to all other available
remedies which such holder may pursue hereunder and the Series 1 Bridge
Note Purchase and Security Agreement between the Company and the initial
holder of the Warrant, as amended (the "Securities Purchase Agreement")
including indemnification pursuant to Section 7.18 thereof (all of which
shall be cumulative), the Company shall pay additional damages to such
holder on each day after the Effective Date, an amount equal to 1.0% of the
product of (A) the number of Warrant Shares not issued to Holder and to
which Holder is entitled multiplied by (B) the Closing Bid Price of the
Common Stock on the Effective Date. Such damages shall be computed daily
and are due and payable daily. Additionally, notwithstanding anything in
this Section 1 to the contrary, Holder may withdraw an Exercise Notice at
any time prior to Holder's receipt of certificates evidencing the Warrant
Shares if Holder has otherwise complied with the requirements of this
Section 1.
Section 2. Adjustments to Warrant Shares. The number of Warrant Shares
issuable upon the exercise hereof shall be subject to adjustment as follows:
(a) In the event the Company is a party to a consolidation, share
exchange, or merger, or the sale of all or substantially all of the assets
of the Company to, any person, or in the case of any consolidation or
merger of another corporation into the Company in which the Company is the
surviving corporation, and in which there is a reclassification or change
of the shares of Common Stock of the Company, this Warrant shall after such
consolidation, share exchange, merger, or sale be exercisable for the kind
and number of securities or amount and kind of property of the Company or
the corporation or other entity resulting from such share exchange, merger,
or consolidation, or to which such sale shall be made, as the case may be
(the "Successor Company"), to which a holder of the number of shares of
Common Stock deliverable upon the exercise (immediately prior to the time
of such consolidation, share exchange, merger, or sale) of this Warrant
would have been entitled upon such consolidation, share exchange, merger,
or sale; and in any such case appropriate adjustments shall be made in the
application of the provisions set forth herein with respect to the rights
and interests of the registered Holder of this Warrant, such that the
provisions set forth herein shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to the number and
kind of securities or the type and amount of property thereafter
deliverable upon the exercise of this Warrant. The above provisions shall
similarly apply to successive consolidations, share exchanges, mergers, and
sales. Any adjustment
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<PAGE>
required by this Section 2 (a) because of a consolidation, share exchange,
merger, or sale shall be set forth in an undertaking delivered to the
registered Holder of this Warrant and executed by the Successor Company
which provides that the Holder of this Warrant shall have the right to
exercise this Warrant for the kind and number of securities or amount and
kind of property of the Successor Company or to which the holder of a
number of shares of Common Stock deliverable upon exercise (immediately
prior to the time of such consolidation, share exchange, merger, or sale)
of this Warrant would have been entitled upon such consolidation, share
exchange, merger, or sale. Such undertaking shall also provide for future
adjustments to the number of Warrant Shares and the Exercise Price in
accordance with the provisions set forth in Section 2 hereof.
(b) In the event the Company should at any time, or from time to time
after the Original Issue Date, fix a record date for the effectuation of a
stock split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock, or
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon exercise or exercise thereof), then, as of such record
date (or the date of such dividend, distribution, split, or subdivision if
no record date is fixed), the number of Warrant Shares issuable upon the
exercise hereof shall be proportionately increased and the Exercise Price
shall be appropriately decreased by the same proportion as the increase in
the number of outstanding Common Stock Equivalents of the Company resulting
from the dividend, distribution, split, or subdivision. Notwithstanding the
preceding sentence, no adjustment shall be made to decrease the Exercise
Price below $.01 per Share.
(c) In the event the Company should at any time or from time to time
after the Original Issue Date, fix a record date for the effectuation of a
reverse stock split, or a transaction having a similar effect on the number
of outstanding shares of Common Stock of the Company, then, as of such
record date (or the date of such reverse stock split or similar transaction
if no record date is fixed), the number of Warrant Shares issuable upon the
exercise hereof shall be proportionately decreased and the Exercise Price
shall be appropriately increased by the same proportion as the decrease of
the number of outstanding Common Stock Equivalents resulting from the
reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to time
after the Original Issue Date, fix a record date for a reclassification of
its Common Stock, then, as of such record date (or the date of the
reclassification if no record date is set), this Warrant shall thereafter
be convertible into such number and kind of securities as would have been
issuable as the result of such reclassification to a holder of a number of
shares of Common Stock equal to the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such reclassification, and
the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the 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 in order to protect the rights of the
Holder against dilution or other impairment. Without limiting the
generality of the
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<PAGE>
foregoing, the Company (x) will not create a par value of any share of
stock receivable upon the exercise of the Warrant above the amount payable
therefor upon such exercise, and (y) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares upon the exercise of the
Warrant.
(f) When any adjustment is required to be made in the number or kind
of shares purchasable upon exercise of the Warrant, or in the Exercise
Price, the Company shall promptly notify the Holder of such event and of
the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of the Warrants and of the Exercise
Price, together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Warrant Shares which may
be issued will, upon issuance, be validly issued, fully paid, and
non-assessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for
the exercise of the Warrant in full.
Section 3. No Stockholder Rights. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company.
Section 4. Transfer of Securities.
(a) This Warrant and the Warrant Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split or
share reclassification thereof, a stock dividend thereon, or otherwise,
shall not be transferable except upon compliance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act") and applicable
state securities laws with respect to the transfer of such securities. The
Holder of this Warrant, by acceptance of this Warrant, agrees to be bound
by the provisions of Section 4 hereof and to indemnify and hold harmless
the Company against any loss or liability arising from the disposition of
this Warrant or the Warrant Shares issuable upon exercise hereof or any
interest in either thereof in violation of the provisions of this Warrant.
(b) Each certificate for the Warrant Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split or
share reclassification thereof, a stock dividend thereon or otherwise, and
each certificate for any such securities issued to subsequent transferees
of any such certificate shall (unless otherwise permitted by the provisions
hereof) be stamped or otherwise imprinted with a legend in substantially
the following form:
Legend for Warrant Shares or other shares of capital stock:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
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<PAGE>
Section 5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or assigns of the Company and of the holder
or holders hereof and of the Common Stock issued or issuable upon the
exercise hereof.
(b) Except as otherwise provided herein, this Warrant and all rights
hereunder are transferable by the registered holder hereof in person or by
duly authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and treat
the registered holder of this Warrant at any time as the absolute owner
hereof for all purposes and shall not be affected by any notice to the
contrary.
(c) Notwithstanding any provision herein to the contrary, Holder
hereof may not exercise, sell, transfer, or otherwise assign this Warrant
unless the Company is provided with an opinion of counsel satisfactory in
form and substance to the Company, to the effect that such exercise, sale,
transfer, or assignment would not violate the Securities Act or applicable
state securities laws.
(d) This Warrant may be divided into separate Warrants covering one
share of Common Stock or any whole multiple thereof, for the total number
of shares of Common Stock then subject to this Warrant at any time, or from
time to time, upon the request of the registered holder of this Warrant and
the surrender of the same to the Company for such purpose. Such subdivided
Warrants shall be issued promptly by the Company following any such request
and shall be of the same form and tenor as this Warrant, except for any
requested change in the name of the registered holder stated herein.
(e) All notices, requests, demands, and other communications required
or permitted under this Warrant and the transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made, and
received when personally delivered the day after deposited with a
recognized national overnight delivery service prior to its dead-line for
receiving packages for next day delivery or upon the fifth day after
deposited in the United States registered or certified mail with postage
prepaid, return receipt requested, in each case addressed as set forth
below:
If to the Company:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attn: Samuel S. Gross
Facsimile: (516) 436-5203
If to the Holder hereof, to the address of such Holder appearing on
the books of the Company.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, irrespective of the choice of law
provisions thereof. The parties agree that any appropriate state court
located in New Castle County, Delaware, or any federal Court located in
Wilmington, Delaware, including without limitation to the United States
District Court of
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<PAGE>
Delaware, shall have exclusive jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be a proper
forum in which to adjudicate such case or controversy. The parties consent
to the jurisdiction of such courts.
[Signatures on the following page]
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<PAGE>
SIGNATURE PAGE
TO
COMPANY
COMMON STOCK PURCHASE WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed in
its name by its duly authorized officers under its corporate seal, and to be
dated as of the date first above written.
COMPOSITECH LTD.
By:_______________________________________
Samuel S. Gross, Chief Financial Officer
ATTEST:
[Corporate Seal]
_______________________________________
Assistant Secretary
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<PAGE>
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers
unto __________________________________________________________ the foregoing
Warrant and the rights represented thereto to purchase shares of Common Stock of
Compositech Ltd. in accordance with terms and conditions thereof, and does
hereby irrevocably constitute and appoint ________________ Attorney to transfer
the said Warrant on the books of the Company, with full power of substitution.
Holder:
________________________
________________________
Address
Dated: __________________, 19__
In the presence of:
________________________
<PAGE>
FORM OF NOTICE OF EXERCISE OR CONVERSION
[To be signed only upon exercise of Warrant]
To: COMPOSITECH LTD.
The undersigned registered Holder of the attached Warrant hereby
irrevocably elects to exercise the Warrant for, and to purchase thereunder,
_____ shares of Common Stock of Compositech Ltd., issuable upon exercise of said
Warrant and hereby surrenders said Warrant.
|_| The Holder herewith delivers to Compositech Ltd., a check in the
amount of $______ representing the Exercise Price for such shares.
The undersigned herewith requests that the certificates for such shares be
issued in the name of, and delivered to the undersigned, whose address is
________________________________.
Dated: ___________________
Holder:
________________________________
________________________________
By:
________________________________
________________________________
NOTICE
The signature above must correspond to the name as written upon the face of
the within Warrant in every particular, without alteration or enlargement or any
change whatsoever.
EXHIBIT 10.60
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
COMPOSITECH LTD.
ATTACHED REPRICING WARRANT
Warrant No. RPW-7 ____,000 shares
Original Issue Date: October 4, 1999
THIS CERTIFIES THAT, FOR VALUE RECEIVED, SOVCAP EQUITY PARTNERS, LTD. or
its assigns (the "Holder") is entitled to purchase, on the terms and conditions
hereinafter set forth, at any time or from time to time during the Exercise
Period, but not thereafter, a number of shares of the Common Stock, par value
$.01 (the "Common Stock"), of COMPOSITECH LTD., a Delaware corporation (the
"Company"), determined in accordance with Section 2 hereof, at a price of $.01
per share (the "Exercise Price"). Each share of Common Stock as to which this
Repricing Warrant is exercisable is a "Repricing Share" and all such shares are
collectively referred to as the "Repricing Shares." This Repricing Warrant shall
remain attached to the Series 1 Bridge Financing Note issued to Holder on the
Original Issue Date (the "Bridge Note"), until conversion of the Bridge Note, at
which time it shall automatically detach.
Section 1. Definitions.
The following capitalized terms are not defined elsewhere in this Repricing
Warrant, and are used herein with the meanings thereafter ascribed:
"Average Market Price" means, the arithmetic mean of the Closing Bid Prices
of the Common Stock for each trading day in a ten (10) trading day period which
ends on the Exercise Date.
"Closing Bid Price" means, the last closing bid price of the Common Stock
on the NASDAQ National Market (the "NASDAQ-NM") as reported by Bloomberg
Financial Markets ("Bloomberg"), or, if the NASDAQ-NM is not the principal
trading market for the Common Stock, the last closing bid price of the Common
Stock on the principal securities exchange or trading market where the Common
Stock is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price of the Common Stock in the over-the-counter
market on the pink sheets or bulletin board for the Common Stock as reported by
Bloomberg, or, if no closing bid price is reported for the Common Stock by
Bloomberg, the last closing trade price of the Common Stock as reported by
Bloomberg. If the Closing Bid Price cannot be calculated for the Common Stock on
such date on any of the foregoing bases, the Closing Bid Price of the Common
Stock on such date shall be the fair market value as reasonably determined in
good faith by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split, or other similar transaction
during such period);
"Conversion Date" means the date Bridge Note is converted into Common
Stock.
"Conversion Price" means $1.1375, the conversion price of the Bridge Note.
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<PAGE>
"Conversion Shares" means the number of shares of Common Stock issued upon
conversion of the Bridge Note.
"Exercise Period" means a period which commences on the Conversion Date and
ends at 5:00 p.m. (Eastern Time) on the Expiration Date.
"Expiration Date" means the ninetieth (90th) day after the Conversion Date,
provided however, that the Expiration Date shall accelerate to the twenty-first
(21st) trading day after the Conversion Date, if and only if the average Closing
Bid Price of the Common Stock over a period of twenty (20) trading days
commencing on the Conversion Date is at least 120% of the Conversion Price.
Section 2. Determination of Number of Repricing Shares. The number of
Repricing Shares issuable upon exercise of this Repricing Warrant shall be
determined on the Exercise Date. The number of Repricing Shares shall be equal
to: the number of Conversion Shares multiplied by a fraction, (a) the numerator
of which is 120% of the Conversion Price minus the Average Market Price and (b)
the denominator of which is the Average Market Price. In the case of a dispute
as to the determination of the Average Market Price or the arithmetic
calculation of the Exercise Price, the Company shall promptly issue to such
Holder(s) the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within three (3) business days of receipt of such holder's Conversion
Notice. If such Holder(s) and the Company are unable to agree upon the
determination of the Average Market Price or arithmetic calculation of the
Exercise Price within two (2) business days of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile (A) the disputed determination
of the Average Market Price to an independent, reputable investment bank or (B)
the disputed arithmetic calculation of the Exercise Price to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and such Holders of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
Section 3. Exercise of Warrant; Conversion of Warrant; Election to Pay
Cash.
(a) This Warrant may, at the option of the Holder, be exercised in
whole or in part from time to time by delivery to the Company at its office
at 120 Ricefield Lane, Hauppauge, New York 11788, Attention: President, or
to any transfer agent for the Common Stock, on or before 5:00 p.m., Eastern
Time, on the Expiration Date, (i) a written notice of such registered
Holder's election to exercise this Warrant (the "Exercise Notice"), which
notice may be in the form of the Notice of Exercise attached hereto,
properly executed and completed by the registered Holder or an authorized
officer thereof, (ii) a check payable to the order of the Corporation, in
an amount equal to the product of the Exercise Price multiplied by the
number of Repricing Shares specified in the Exercise Notice, and (iii) this
Warrant (the items specified in (i), (ii), and (iii) are collectively the
"Exercise Materials").
(b) This Warrant may, at the option of the Holder, be converted into
Common Stock in whole but not in part, if and only if the Value of one
share of Common Stock on the Exercise Date (as defined in Section 1(c)
hereof) is greater than the Exercise Price, by delivery to the Company at
the address designated in Section 1(a) above or to any transfer agent for
the Common Stock, on or before 5:00 p.m. Eastern Time on the Expiration
Date, (i) a written notice of Holder's election to convert this Warrant
(the "Conversion Notice"), properly executed and completed by
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<PAGE>
the registered Holder or an authorized officer thereof, and (ii) this
Warrant (the items specified in (i) and (ii) are collectively the
"Conversion Materials"). The number of shares of Common Stock issuable upon
conversion of this Warrant is equal to the quotient of (x) the product of
the number of Repricing Shares then issuable upon exercise of this Warrant
(assuming an exercise for cash) multiplied by the difference between (A)
the Average Market Price minus (B) the then effective Exercise Price
divided by (y) the Average Market Price. Any fraction resulting from the
calculation of the number of Repricing Shares then issuable in a conversion
of this Repricing Warrant shall be truncated;
(c) Upon timely receipt of the Exercise Materials or Conversion
Materials (whichever is applicable), the Company shall, as promptly as
practicable, and in any event within five (5) business days after its
receipt of the Exercise Materials or Conversion Materials, execute or cause
to be executed and delivered to Holder a certificate or certificates
representing the number of Repricing Shares specified in the Exercise
Notice or if Holder delivered a Conversion Notice, the number of shares of
Common Stock issuable upon conversion of this Warrant (whichever is
applicable), together with cash in lieu of any fraction of a share, and,
(x) if the Warrant is exercised in full, a copy of this Warrant marked
"Exercised," or (y) if the Warrant is partially exercised, a copy of this
Warrant marked "Partially Exercised" together with a new Warrant on the
same terms for the unexercised balance of the Repricing Shares, or (z) if
the Warrant is converted, a copy of this Warrant marked "Converted." The
stock certificate or certificates shall be registered in the name of the
registered Holder of this Warrant or such other name or names as shall be
designated in the Exercise Notice or Conversion Notice. The date on which
the Warrant shall be deemed to have been exercised or converted (the
"Exercise Date"), and the date the person in whose name any certificate
evidencing the Common Stock issued upon the exercise or conversion hereof
is issued shall be deemed to have become the holder of record of such
shares, shall be the date the Corporation receives the Exercise Materials
or Conversion Materials, irrespective of the date of delivery of a
certificate or certificates evidencing the Common Stock issued upon the
exercise or conversion hereof, except that, if the date on which the
Exercise Materials or Conversion Materials are received by the Company is a
date on which the stock transfer books of the Company are closed, the
Exercise Date shall be the date the Company receives the Exercise Materials
or Conversion Materials, and the date such person shall be deemed to have
become the holder of the Common Stock issued upon the exercise or
conversion hereof shall be the next succeeding date on which the stock
transfer books are open. All shares of Common Stock issued upon the
exercise or conversion of this Warrant will, upon issuance, be fully paid
and nonassessable and free from all taxes, liens, and charges with respect
thereto.
(d) If the Company shall fail to issue to Holder within five (5)
business days following the date of receipt by the Company or the Transfer
Agent of the Exercise Materials or the Conversion Materials, a certificate
for the number of shares of Common Stock to which such holder is entitled
upon such holder's exercise or conversion of this Warrant, in addition to
all other available remedies which such holder may pursue hereunder and
under this Warrant and the Series 1 Bridge Note Purchase and Security
Agreement dated March 16, 1999 between the Company and the initial holder
of this Warrant, as amended (the "Securities Purchase Agreement") including
indemnification pursuant to Section 7.18 thereof, the Company shall pay
additional damages to such holder on each day after the Exercise Date, an
amount equal to 1.0% of the product of (A) the number of Repricing Shares
not issued to Holder and to which Holder is entitled multiplied by (B) the
Closing Bid Price of the Common Stock on the Exercise Date. Such damages
shall be computed daily and are due and payable daily. Additionally,
notwithstanding anything in this Section 3 to the contrary, Holder may
withdraw an Exercise Notice at any time prior to Holder's
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<PAGE>
receipt of certificates evidencing the Conversion Shares if Holder has
otherwise complied with the requirements of this Section 3.
(e) The Company may, in lieu of issuing the Repricing Shares pay
Holder an amount equal to the number of Repricing Shares issuable on the
Exercise Date multiplied by the Average Market Price (the "Payment
Amount"). In such event, the Company shall be obligated to deliver the
Payment Amount to Holder within five (5) business days following the
Exercise Date. If the Company shall fail to deliver the Payment Amount
within five (5) business days after the Exercise Date, in addition to all
other available remedies which Holder may pursue at law or equity,
including indemnification pursuant to Section 7.18 of the Securities
Purchase Agreement, the Company shall pay additional damages to Holder on
each day after the Exercise Date, until the Payment Amount has been paid,
an amount equal to 1.0% of the Payment Amount. Such damages shall be
computed daily and are due and payable daily.
Section 4. Adjustments to Repricing Shares. The number of Repricing Shares
issuable upon the exercise hereof shall be subject to adjustment as follows:
(a) In the event the Company is a party to a consolidation, share
exchange, or merger, or the sale of all or substantially all of the assets
of the Company to, any person, or in the case of any consolidation or
merger of another corporation into the Company in which the Company is the
surviving corporation, and in which there is a reclassification or change
of the shares of Common Stock of the Company, this Warrant shall after such
consolidation, share exchange, merger, or sale be exercisable for the kind
and number of securities or amount and kind of property of the Company or
the corporation or other entity resulting from such share exchange, merger,
or consolidation, or to which such sale shall be made, as the case may be
(the "Successor Company"), to which a holder of the number of shares of
Common Stock deliverable upon the exercise (immediately prior to the time
of such consolidation, share exchange, merger, or sale) of this Warrant
would have been entitled upon such consolidation, share exchange, merger,
or sale; and in any such case appropriate adjustments shall be made in the
application of the provisions set forth herein with respect to the rights
and interests of the registered Holder of this Warrant, such that the
provisions set forth herein shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to the number and
kind of securities or the type and amount of property thereafter
deliverable upon the exercise of this Warrant. The above provisions shall
similarly apply to successive consolidations, share exchanges, mergers, and
sales. Any adjustment required by this Section 2 (a) because of a
consolidation, share exchange, merger, or sale shall be set forth in an
undertaking delivered to the registered Holder of this Warrant and executed
by the Successor Company which provides that the Holder of this Warrant
shall have the right to exercise this Warrant for the kind and number of
securities or amount and kind of property of the Successor Company or to
which the holder of a number of shares of Common Stock deliverable upon
exercise (immediately prior to the time of such consolidation, share
exchange, merger, or sale) of this Warrant would have been entitled upon
such consolidation, share exchange, merger, or sale. Such undertaking shall
also provide for future adjustments to the number of Repricing Shares and
the Exercise Price in accordance with the provisions set forth in Section 2
hereof.
(b) In the event the Company should at any time, or from time to time
after the Original Issue Date, fix a record date for the effectuation of a
stock split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock, or
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional
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<PAGE>
shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
exercise thereof), then, as of such record date (or the date of such
dividend, distribution, split, or subdivision if no record date is fixed),
the number of Repricing Shares issuable upon the exercise hereof shall be
proportionately increased and the Exercise Price shall be appropriately
decreased by the same proportion as the increase in the number of
outstanding Common Stock Equivalents of the Company resulting from the
dividend, distribution, split, or subdivision. Notwithstanding the
preceding sentence, no adjustment shall be made to decrease the Exercise
Price below $.01 per Share.
(c) In the event the Company should at any time or from time to time
after the Original Issue Date, fix a record date for the effectuation of a
reverse stock split, or a transaction having a similar effect on the number
of outstanding shares of Common Stock of the Company, then, as of such
record date (or the date of such reverse stock split or similar transaction
if no record date is fixed), the number of Repricing Shares issuable upon
the exercise hereof shall be proportionately decreased and the Exercise
Price shall be appropriately increased by the same proportion as the
decrease of the number of outstanding Common Stock Equivalents resulting
from the reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to time
after the Original Issue Date, fix a record date for a reclassification of
its Common Stock, then, as of such record date (or the date of the
reclassification if no record date is set), this Warrant shall thereafter
be convertible into such number and kind of securities as would have been
issuable as the result of such reclassification to a holder of a number of
shares of Common Stock equal to the number of Repricing Shares issuable
upon exercise of this Warrant immediately prior to such reclassification,
and the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the 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 in order to protect the rights of the
Holder against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (x) will not create a par value of
any share of stock receivable upon the exercise of the Warrant above the
amount payable therefor upon such exercise, and (y) will take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares upon the
exercise of the Warrant.
(f) When any adjustment is required to be made in the number or kind
of shares purchasable upon exercise of the Warrant, or in the Exercise
Price, the Company shall promptly notify the Holder of such event and of
the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of the Warrants and of the Exercise
Price, together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Repricing Shares which
may be issued will, upon issuance, be validly issued, fully paid, and
non-assessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from
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<PAGE>
preemptive rights, a sufficient number of shares of its Common Stock to
provide for the exercise of the Warrant in full.
Section 5. No Stockholder Rights. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company.
Section 6. Transfer of Securities.
(a) This Warrant and the Repricing Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split or
share reclassification thereof, a stock dividend thereon, or otherwise,
shall not be transferable except upon compliance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act") and applicable
state securities laws with respect to the transfer of such securities. The
Holder of this Warrant, by acceptance of this Warrant, agrees to be bound
by the provisions of Section 4 hereof and to indemnify and hold harmless
the Company against any loss or liability arising from the disposition of
this Warrant or the Repricing Shares issuable upon exercise hereof or any
interest in either thereof in violation of the provisions of this Warrant.
(b) Each certificate for the Repricing Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions hereof) be stamped or otherwise imprinted with
a legend in substantially the following form:
Legend for Repricing Shares or other shares of capital stock:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
Section 7. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or assigns of the Company and of the holder
or holders hereof and of the Common Stock issued or issuable upon the
exercise hereof.
(b) Except as otherwise provided herein, this Warrant and all rights
hereunder are transferable by the registered holder hereof in person or by
duly authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and treat
the registered holder of this Warrant at any time as the absolute owner
hereof for all purposes and shall not be affected by any notice to the
contrary.
(c) Notwithstanding any provision herein to the contrary, Holder
hereof may not exercise, sell, transfer, or otherwise assign this Warrant
unless the Company is provided with an opinion of counsel satisfactory in
form and substance to the Company, to the effect that such exercise, sale,
transfer, or assignment would not violate the Securities Act or applicable
state securities laws.
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<PAGE>
(d) This Warrant may be divided into separate Warrants covering one
share of Common Stock or any whole multiple thereof, for the total number
of shares of Common Stock then subject to this Warrant at any time, or from
time to time, upon the request of the registered holder of this Warrant and
the surrender of the same to the Company for such purpose. Such subdivided
Warrants shall be issued promptly by the Company following any such request
and shall be of the same form and tenor as this Warrant, except for any
requested change in the name of the registered holder stated herein.
(e) All notices, requests, demands, and other communications required
or permitted under this Warrant and the transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made, and
received when personally delivered the day after deposited with a
recognized national overnight delivery service prior to its dead-line for
receiving packages for next day delivery or upon the fifth day after
deposited in the United States registered or certified mail with postage
prepaid, return receipt requested, in each case addressed as set forth
below:
If to the Company:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attn: Samuel S. Gross
Facsimile: (516) 436-5203
If to the Holder hereof, to the address of such Holder appearing on the
books of the Company.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, irrespective of the choice of law
provisions thereof. The parties agree that any appropriate state court
located in New Castle County, Delaware, or any federal Court located in
Wilmington, Delaware, including without limitation to the United States
District Court of Delaware, shall have exclusive jurisdiction of any case
or controversy arising under or in connection with this Agreement and shall
be a proper forum in which to adjudicate such case or controversy. The
parties consent to the jurisdiction of such courts.
[Signatures on the following page]
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<PAGE>
SIGNATURE PAGE
TO
ATTACHED REPRICING WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed in
its name by its duly authorized officers under its corporate seal, and to be
dated as of the date first above written.
COMPOSITECH LTD.
By: _________________________________________
Samuel S. Gross, Chief Financial Officer
ATTEST:
________________________________
Assistant Secretary [Corporate Seal]
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<PAGE>
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers
unto ___________________________________________________________________________
the foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of Compositech Ltd. in accordance with terms and conditions
thereof, and does hereby irrevocably constitute and appoint ________________
Attorney to transfer the said Warrant on the books of the Company, with full
power of substitution.
Holder:
___________________________
___________________________
Address
Dated: __________________, 19__
In the presence of:
___________________________
<PAGE>
FORM OF NOTICE OF EXERCISE OR CONVERSION
[To be signed only upon exercise of Warrant]
To: COMPOSITECH LTD.
The undersigned registered Holder of the attached Warrant hereby
irrevocably elects to exercise the Warrant for, and to purchase thereunder,
_____ shares of Common Stock of Compositech Ltd., issuable upon exercise of said
Warrant and hereby surrenders said Warrant.
Choose One:
|_| The Holder herewith delivers to Compositech Ltd., a check in the
amount of $______ representing the Exercise Price for such
shares.
or
|_| The Holder elects a cashless exercise pursuant to Section 2(b) of
the Warrant. The Average Market Price as of _______ was $_____.
The undersigned herewith requests that the certificates for such shares be
issued in the name of, and delivered to the undersigned, whose address is
________________________________.
Dated: ___________________
Holder:
________________________________
________________________________
By: ____________________________
______________
NOTICE
The signature above must correspond to the name as written upon the face of
the within Warrant in every particular, without alteration or enlargement or any
change whatsoever.
EXHIBIT 10.61
THIS BRIDGE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
COMPOSITECH LTD.
SECURED CONVERTIBLE BRIDGE FINANCING NOTE
UNDENOMINATED $98,327.00 October 4, 1999
COMPOSITECH LTD., a Delaware corporation (such corporation, or any
successor permitted hereunder, the "Company"), for value received, hereby
promises to pay to SOVEREIGN CAPITAL ADVISORS, LLC, a Nevada limited liability
company or any subsequent holder hereof (such holders, assignees, or any
registered assignees, the "Holders"), the principal sum of NINETY EIGHT THOUSAND
THREE HUNDRED TWENTY-SEVEN AND NO/100 DOLLARS (US $98,327.00), and to pay
interest on such principal sum, at the rate of eight percent (8%) per annum (the
"Note Rate") from the Original Issue Date (as defined below) until March 31,
2000 (the "Maturity Date") and at the rate of eleven percent (11%) per annum
(the "Default Rate") after the Maturity Date until payment of all principal,
premium, and accrued and unpaid interest has been paid in full. Interest shall
be payable on the Maturity Date. All such interest shall be computed on the
basis of the actual number of days elapsed during any interest period in a year
of 360 days. The date on which this Bridge Note shall have first been issued is
referred to herein as the "Original Issue Date."
Section 1. Description. This Bridge Note has been authorized by the Company
(the "Bridge Notes"), and is in registered form. This Bridge Note is issued by
the Company on and as of the Original Issued Date to evidence the placement fee
owed to Sovereign Capital Advisors, LLC as part of the cancellation of the
original Bridge Notes and issuance of replacement Bridge Notes on the date
hereof. This Bridge Note is convertible, into shares of the Company's Common
Stock, $.01 par value (the "Common Stock"), as provided herein, and, effective
upon any such conversion, the Common Stock so issued shall be subject to all
terms and conditions and shall enjoy all rights, privileges, and preferences
applicable to such Common Stock under the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"). The shares of
Common Stock issuable upon conversion of this Bridge Note (the "Conversion
Shares") are entitled to registration rights pursuant to a Registration Rights
Agreement between the Company, and certain other signatories thereto dated March
16, 1999, as amended (the "Registration Rights Agreement"). This Bridge Note is
issued as payment of placement fees governed by the terms of a Placement Agent
Agreement dated March 16, 1999 between the Company and Holder, as placement
agent thereunder. This Bridge Note will be secured from time to time by certain
specified equipment of the Company as agreed to between the Company and the
Holder, and is made and entered into by the Company and Holder as part of the
consummation of the transactions called for in Bridge Note Purchase and Security
Agreement dated March 16, 1999, as amended (the "Purchase Agreement") and the
letter agreement among the Purchasers dated November 22, 1999, and to the extent
relevant to this Bridge Note is otherwise entitled to all of the rights and
benefits thereunder.
Section 2. Office for Registration and Conversion. The Company shall
maintain an office where this Bridge Note shall be surrendered or presented for
registration of transfers or exchanges and conversions. This office will
initially be located at the offices of the Company at 120 Ricefield Lane,
Hauppauge, New York 11788. The Company shall keep a register of the Bridge Notes
and of their transfer and exchange, including the names and addresses of Holders
of the Bridge Notes. Holder shall give the Company notice of any change in
Holder's address to the office indicated in this Section 2. Upon two (2)
business days written request, the Company shall permit Holder or its duly
authorized representatives to inspect such register. Upon written notice to
Holder, the Company may change the address of the office to
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<PAGE>
be maintained by the Company pursuant to this Section 2 or appoint one or more
co-registrars, stock registrars, paying agents, or conversion agents to assist
the Company in performing its functions under the Bridge Notes.
Section 3. Redemption.
(a) Mandatory Redemption. If this Bridge Note is outstanding on the
Maturity Date, this Bridge Note shall be due and payable as follows:
(i) if on the Maturity Date a Registration Statement is effective
with respect to the Conversion Shares, the Company shall give written
notice to Holder of its intent to redeem the then outstanding
principal amount of this Bridge Note, which notice shall state the
election of the Company to pay the redemption price in cash or by
conversion of this Bridge Note into Common Stock, in the manner
contemplated by Section 3(c) hereof. Regardless of the manner is which
paid, the redemption price (the "Maturity Date Redemption Price")
shall be equal to 117.5% of the then outstanding principal amount of
this Bridge Note plus accrued and unpaid interest thereon at the Note
Rate through and including the Maturity Date and at the Default Rate
after the Maturity Date through and including the date the payment is
disbursed (whether by issuance of Conversion Shares or a payment in
cash).
(ii) if on the Maturity Date a Registration Statement is not
effective with respect to the Conversion Shares, Holder may, in
addition to all other rights and remedies of Holder hereunder and
under the Purchase Agreement, elect to make written demand to the
Company to redeem, all or part of the then outstanding principal under
this Bridge Note. Such demand shall specify Holder's election to
accept payment of the redemption price in cash or by conversion of
this Bridge Note into Common Stock, in the manner contemplated by
Section 3(c) hereof. The Company shall have two (2) Business Days
after its receipt of such demand to confirm its intention to redeem
this Bridge Note by tendering to Holder either (A) cash or (B)
Conversion Shares (as specified in Holder's demand), in the manner
contemplated by Section 3(c) hereof. In either case the redemption
price shall be equal to the Maturity Date Redemption Price.
(iii) The date of any redemption under either subparagraph (i) or
(ii) above shall be referred to as a "Redemption Date."
(b) Voluntary Redemption. At any time from and after the Original
Issue Date up to but not including the Maturity Date, the Company may, at
its option, call and redeem this Bridge Note, at the redemption price set
forth in subparagraph (i), below, plus accrued and unpaid interest on such
redeemed amount through and including the Voluntary Redemption Date, as
such term is defined below (such redemption being the "Voluntary
Redemption"), under and in accordance with the following terms and
procedures:
(i) The Company at its option prior to the Maturity Date may
redeem this Bridge Note at the Redemption Price set forth below plus
all accrued and unpaid interest on the principal amount through and
including the Voluntary Redemption Date (the "Voluntary Redemption
Price") as of a Voluntary Redemption Date:
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<TABLE>
<CAPTION>
Redemption Date Redemption Price
--------------- ----------------
<S> <C>
Original Issue Date through and including the 90th day after the 110%
Original Issue Date
91st day after the Original Issue Date through and including the 112 1/2%
120th day after the Original Issue Date
121st day after the Original Issue Date through and including the 115%
150th day after the Original Issue Date
151st day after the Original Issue Date through and including the 117 1/2%
date of redemption or conversion
</TABLE>
(ii) At least ten (10) days before a Voluntary Redemption, the
Company shall mail a notice of redemption to Holder, stating (A) the
redemption date, which shall be a business day in New York, New York
(the "Voluntary Redemption Date"), (B) the aggregate principal amount
of this Bridge Note to be redeemed, (C) the Voluntary Redemption
Price, and (D) the name and address of the Person to whom this Bridge
Note must be presented to receive payment if required pursuant to
paragraph (iv) below. Once notice of redemption is mailed and the
Company shall have complied with paragraph (iii) below, the Voluntary
Redemption Price shall become due and payable on the Voluntary
Redemption Date.
(iii) On or before the third (3rd) day prior to the Voluntary
Redemption Date, the Company shall deposit into a bank trust account
for the benefit of the Holder of this Bridge Note money sufficient to
pay the Redemption Price and all accrued and unpaid interest.
(iv) The Company may, at its option, require as a condition to
the receipt of a payment pursuant to this Section 3(b) that Holder
present the Bridge Notes to the Person specified in paragraph (ii)
above for surrender.
(v) No Voluntary Redemption of this Bridge Note can be effected
after the 179th day after the Original Issue Date.
(c) Conversion into Common Stock in Lieu of Payments.
(i) In lieu of payment of cash to Holder pursuant to Section
3(a)(i) hereof and Section 3(b) hereof, the Company may, elect to pay
all or part of the Maturity Date Redemption Price or the Voluntary
Redemption Price in Conversion Shares, under the terms of Section 3(d)
hereof.
(ii) In lieu of cash, pursuant to Section 3(a)(ii) hereof, Holder
may require the Company to pay all or part of the Maturity Date
Redemption Price in Conversion Shares, under the terms of Section 3(d)
hereof.
The Repricing Warrant shall apply to each share of Common Stock received by
Holder pursuant to this Section 3(c).
(d) The number of shares of Common Stock issuable in payment of the
Mandatory Redemption Price or the Voluntary Redemption Price is equal to
the quotient of the Mandatory
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<PAGE>
Redemption Price or the Voluntary Redemption Price (as the case may be)
divided by $1.1375, (the "Conversion Price"). Fractional shares will not be
issued. In lieu of any fraction of a share, the Company shall deliver its
check for the dollar amount of the less-than full share remainder.
Section 4. Method of Payment.
(a) Interest accruing through and including the Maturity Date shall be
computed at the Note Rate. Interest accruing after the Maturity date shall
be computed at the Default Rate. Accrued and unpaid interest shall be due
and payable at the time the principal and premium of this Bridge Note is
paid. All such interest shall be computed on the basis of the actual number
of days elapsed during any interest period in a year of 360 days. Interest
shall begin to accrue on the Original Issue Date.
(b) The Company shall pay interest and principal on this Bridge Note
(except defaulted interest) to the Person who is the registered Holder of
this Bridge Note on the day on which the interest or principal payment is
due. If the Company defaults in a payment of interest on this Bridge Note,
it may pay the defaulted interest, plus any interest on the defaulted
interest if permitted provided by Section 4(d) below, to the Person who is
the registered Holder of this Bridge Note on the date such payment is made.
(c) The Company shall pay interest by check payable in money of the
United States of America that at the time of payment is legal tender for
public and private debts. Payments of interest shall be mailed to Holder's
address shown in the register maintained pursuant to Section 2; provided
however, that with respect to the final payment of principal and accrued
and unpaid interest necessary to pay this Bridge Note in full, to receive
such payment Holder must surrender this Bridge Note for cancellation to the
Company or to a paying agent appointed by the Company. Principal and
interest shall be considered paid on the date due, and no interest shall
accrue thereafter, if there is on deposit on that date, in a bank trust
account for the benefit of Holder of this Bridge Note, money sufficient to
pay the Redemption Price and all accrued and unpaid interest due under this
Bridge Note.
Section 5. Conversion Price and Adjustments.
(a) At anytime after the Maturity Date, Holder may convert all or any
portion of the Redemption Price and accrued and unpaid interest due on this
Bridge Note into shares of Common Stock.
(b) If Holder elects to convert less than the full Redemption Price of
this Bridge Note, such conversion shall be permitted only in one hundred
(100)-share increments unless the Company has given its contemporaneous
consent to conversion of an odd lot. The provisions hereof that apply to
conversion of the entire Redemption Price of this Bridge Note shall also
apply to conversion of a portion of the Redemption Price. Upon surrender of
the Bridge Note for conversion in part, the Company shall issue new Bridge
Notes in substantially the same form as this Bridge Note, except that the
principal amount shall be reduced by the principal amount so converted
(exclusive of the redemption premium).
(c) The number of shares of Common Stock issuable upon conversion of
this Bridge Note is equal to the quotient of the Redemption Price of this
Bridge Note being converted divided by Conversion Price. Fractional shares
will not be issued. In lieu of any fraction of a share, the Company shall
deliver its check for the dollar amount of the less than full share
remainder. Accrued and unpaid interest shall be included in computing the
number of Conversion Shares
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<PAGE>
issuable upon conversion of this Bridge Note. Interest shall cease to
accrue on that portion of the Redemption Price converted from and after the
Conversion Date.
Section 6. Procedures for Conversion, and Issuance of Conversion Shares.
(a) Holders' Delivery Requirements. To convert this Bridge Note into
Common Stock, (the "Conversion Date"), the Holder hereof shall (A) deliver
or transmit by facsimile, for receipt on or prior to 11:59 P.M., Eastern
Time, on such date, a copy of a fully executed notice of conversion in the
form attached hereto as Exhibit A (the "Conversion Notice") to the Company
or its designated Transfer Agent, and (B) surrender to a common carrier for
delivery to the Company or the Transfer Agent as soon as practicable
following such date, the original Bridge Note being converted (or an
indemnification undertaking with respect to such shares in the case of the
loss, theft, or destruction of the Bridge Note) and the originally executed
Conversion Notice. The date the Company receives the Conversion Note and
this Bridge Note is hereinafter the "Conversion Date."
(b) Company's Response. Upon receipt by the Company of a facsimile
copy of a Conversion Notice, the Company shall immediately send, via
Facsimile, a confirmation of receipt of such Conversion Notice to Holder.
Upon receipt by the Company or the Transfer Agent of the Bridge Note to be
converted pursuant to a Conversion Notice, together with the originally
executed Conversion Notice, the Company or the Transfer Agent (as
applicable) shall, within five (5) business days following the date of
receipt, (A) issue and surrender to a common carrier for overnight delivery
to the address as specified in the Conversion Notice, a certificate,
registered in the name of Holder or its designee, for the number of shares
of Common Stock to which Holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which such Holder shall be
entitled to the Holder's or its designee's balance account at The
Depository Trust Company.
(c) Record Holder. The Person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Bridge Note shall
be treated for all purposes as the "Record Holder" or Holder of such shares
of Common Stock on the Conversion Date.
(d) Company's Failure to Timely Convert. If the Company shall fail to
issue to Holder within five (5) business days following the date of receipt
by the Company or the Transfer Agent of this Bridge Note to be converted
pursuant to a Conversion Notice, a certificate for the number of shares of
Common Stock to which each Holder is entitled upon Holder's conversion of
this Bridge Note, in addition to all other available remedies which such
Holder may pursue hereunder against the Company, the Company shall pay
additional damages to Holder on each day after the fifth (5th) business day
following the date of receipt by the Company or the Transfer Agent an
amount equal to 1.0% of the product of (A) the number of shares of Common
Stock not issued to Holder and to which Holder is entitled multiplied by
(B) the Closing Bid Price of the Common Stock on the business day following
the date of receipt by the Company or the Transfer Agent of the Conversion
Notice. The foregoing notwithstanding, Holder at its option may withdraw a
Conversion Notice, and remain a Holder of this Bridge Note, if Holder has
otherwise complied with this Section 6.
(e) If any adjustment to the Conversion Price to be made pursuant to
Section 7 becomes effective immediately after a record date for an event as
therein described, and conversion occurs prior to such event but after the
record date, the Company may defer issuing, delivering, or paying to Holder
any additional shares of Common Stock or check for any cash remainder
required by reason of such adjustment until the occurrence of such event,
provided that the Company delivers to Holder a due bill or other
appropriate instrument evidencing the Holders' right to
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<PAGE>
receive such additional shares or check upon the occurrence of the event
giving rise to the adjustment.
(f) Until such time as this Bridge Note has been fully redeemed, the
Company shall reserve out of its authorized but unissued Common Stock
enough shares of Common Stock to permit the conversion of the entire
Redemption Price and all accrued and unpaid interest due on this Bridge
Note at any time. All shares of Common Stock issued upon conversion of this
Bridge Note shall be fully paid and nonassessable. The Company covenants
that if any shares of Common Stock, required to be reserved for purposes of
conversion of this Bridge Note hereunder, require registration with or
approval of any governmental authority under any federal or state law or
listing upon any national securities exchange before such shares may be
issued upon conversion, the Company shall in good faith, as expeditiously
as possible, endeavor to cause such shares to be duly registered, approved
or listed, as the case may be.
Section 7. Adjustments to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization, or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by
combination, reverse stock split, or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(b) Prior to the consummation of any Organic Change (as defined
below), the Company will make appropriate provision (in form and substance
satisfactory to the Holder to insure that Holder will thereafter have the
right to acquire and receive in lieu of, or in addition to, (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of this Holder's Bridge Note, such shares of
stock, securities, or assets as may be issued or payable with respect to,
or in exchange for, the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of this Bridge
Note had such Organic Change not taken place. In any such case, the Company
will make appropriate provision (in form and substance satisfactory to
Holder with respect to such Holder's rights and interests to insure that
the provisions of this Section 7(b) and Sections 7(c) and 7(d) below will
thereafter be applicable. The Company will not effect any such
consolidation, merger, or sale, unless prior to the consummation thereof
the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes, by
written instrument (in form and substance satisfactory to Holder, the
obligation to deliver to Holder such shares of stock, securities, or assets
as, in accordance with the foregoing provisions, that Holder may be
entitled to acquire. For purposes of this Agreement, "Organic Change" means
any recapitalization, reorganization, reclassification, consolidation,
merger, or sale of all or substantially all of the Company's assets to
another Person (as defined below), or other similar transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities, or
assets with respect to or in exchange for Common Stock; and "Person" means
an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, and a government or
any department or agency thereof.
Section 8. Notices. The Company shall give the following notices at the times
specified:
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<PAGE>
(a) Immediately upon any adjustment of the Conversion Price, the
Company will give written notice thereof to Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company will give written notice to Holder, at least twenty
(20) days prior to the date on which the Company closes its books or takes
a record (i) with respect to any dividend or distribution upon the Common
Stock, (ii) with respect to any pro rata subscription offer to Holder of
Common Stock, or (iii) for determining rights to vote with respect to any
Organic Change, dissolution, or liquidation.
(c) The Company will also give written notice to Holder at least
twenty (20) days prior to the date on which any Organic Change, Major
Transaction (as defined below), dissolution, or liquidation will take
place.
Section 9. Successors to the Company. The Company shall not consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person unless: (i) the Person is a corporation; (ii) such Person executes, and
mails to Holder a copy of, an instrument by which such Person or an affiliate
assumes the due and punctual payment of the principal of and interest on this
Bridge Note and the performance and observance of all the obligations of the
Company under this Series1 Bridge Note; and (iii) immediately after giving
effect to the transaction, no Event of Default or event which after notice or
lapse of time or both would become an Event of Default shall have occurred. Upon
compliance with this Section 9, Successor Corporation shall succeed to and be
substituted for the Company under this Bridge Note with the same effect as if
the Successor Corporation had been named as the Company herein. Nothing in this
Bridge Note shall prevent any consolidation or merger in which the Company is
the surviving corporation, or any acquisition by the Company by purchase or
otherwise of all or any part of the assets of any other Person, and no such
consolidation, merger, or acquisition shall require compliance with this Section
9.
Section 10. Events of Default and Remedies.
(a) As used herein, an "Event of Default" occurs if:
(i) The Company defaults in the payment of principal and/or
interest when the same becomes due and payable.
(ii) the Company fails to comply with any other provision
contained in this Bridge Note, the Purchase Agreement, the Repricing
Warrant, the Sovereign Warrant Agreement, or the Registration Rights
Agreement, and such failure is not cured within five (5) days after
the Company receives written demand from Holder to remedy the same;
(iii) the Company defaults in any payment of principal of or
interest on any Debt (excluding trade payables) in excess of $100,000
beyond any period of grace provided with respect thereto and the
effect of such failure is to cause the holder of such Debt to
accelerate the Debt such that such Debt becomes due prior to its
stated maturity;
(iv) any representation or warranty made in writing by or on
behalf of (i) the Company in the Purchase Agreement or in any writing
furnished in connection with or pursuant to the Purchase Agreement or
in connection with the transactions contemplated by this Agreement, or
(ii) the Company in the Registration Rights Agreement, or (iii) the
Company in the Escrow Agreement, shall be false in any material
respect on the date as of which made;
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<PAGE>
(v) the Company makes an assignment for the benefit of creditors
or is generally not paying its debts as such debts become due;
(vi) any order or decree for relief in respect of the Company is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation or
similar law, whether now or hereafter in effect (herein called the
"Bankruptcy Law"), of any jurisdiction;
(vii) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidation, or similar official of the Company,
or of any substantial part of the assets of the Company, or commences
a voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any
other jurisdiction;
(viii) any petition or application described in Section 10(a)(vi)
above is filed, or any such proceedings are commenced, against the
Company and the Company by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator, or similar official, or approving the petition in any such
proceedings, and such order, judgment, or decree remains unstayed and
in effect for more than sixty (60) days;
(ix) any order, judgment, or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment, or decree remains unstayed and in effect for more
than sixty (60) days; or
(x) a final judgment (not fully covered by insurance) in an
amount in excess of $100,000 is rendered against the Company and,
within ten (10) business days after entry thereof, such judgment is
not discharged or execution thereof stayed pending appeal, or within
ten (10) days after the expiration of any such stay, such judgment is
not discharged.
(b) Upon the occurrence of an Event of Default described in subsection
(vi), (vii), or (viii) of Section 10(a), the principal of and accrued
interest on this Bridge Note shall automatically become immediately due and
payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Company. If any other
Event of Default exists, Holder may, in addition to the exercise of any
right, power, or remedy permitted to Holder by law, declare (by written
notice or notices to the Company) the entire principal of and all interest
accrued on this Bridge Note to be due and payable, and this Bridge Note
shall thereupon become immediately due and payable, without presentment,
demand, protest, or other notice of any kind, all of which are hereby
expressly waived by the Company. Upon such declaration, the Company will
immediately pay to Holder of this Bridge Note the then outstanding
principal of and accrued and unpaid interest on the Bridge Notes. If at any
time after acceleration of the maturity of the Bridge Notes, the Company
shall pay all arrears of interest and all payments on account of principal
which shall have become due other than by acceleration (with interest on
principal and, to the extent permitted by law, on overdue interest, at the
rate specified in the Bridge Notes) and all Events of Default (other than
nonpayment of principal of or interest on this Bridge Note due and payable
solely by virtue of acceleration) shall be remedied or waived by Holder by
written notice to the Company may rescind and annul the acceleration and
its consequences, but such action shall not affect any subsequent Event of
Default or impair any right consequent thereon.
(c) A delay or omission by the Holder of this Bridge Note in
exercising any right or remedy arising upon an Event of Default shall not
impair such right or remedy or constitute a waiver of or an acquiescence in
the Event of Default.
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<PAGE>
(d) If any Event of Default shall occur and be continuing, the Holder
of this Bridge Note may proceed to protect and enforce their rights under
this Agreement and this Bridge Note by exercising such remedies as are
available to such Holder either by suit in equity or by action at law, or
both, whether for specific performance of any covenant or other agreement
contained in this Agreement or in aid of the exercise of any power granted
in this Agreement. No remedy conferred in this Agreement upon Holder is
intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy
conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
Section 11. Exchange, Transfer, Replacement or Cancellation.
(a) This Bridge Note may be exchanged for an equal principal amount of
Bridge Notes in denominations of US$25,000.00 or in greater multiples of
US$5,000.00 upon written request to the Company accompanied by surrender of
this Bridge Note to the Company or to an agent designated for that purpose.
Any Bridge Notes issued in exchange for this Bridge Note shall be one of
this Bridge Note referred to in Section 1, and shall be entitled to all the
rights thereof.
(b) The Bridge Notes may not be transferred except upon the conditions
specified in this Section 11(b), which conditions are intended to insure
compliance with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"). Prior to any proposed transfer of this Bridge Note
the Holder hereof shall give written notice to the Company of the proposed
disposition and shall furnish to the Company a statement of the
circumstances surrounding the proposed disposition and an opinion of
counsel reasonably satisfactory to the Company to the effect that (i) such
disposition will not require registration of such securities under the
Securities Act or qualification of such securities under the blue sky or
state securities laws of any state in which such qualification would be
required, or (ii) appropriate action necessary for compliance with the
Securities Act or the blue sky or securities laws of such states has been
taken. The Holder hereof shall cause any proposed transferee of such
securities to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 11. The
Company or any co-registrar appointed by the Company may require the Holder
to furnish appropriate endorsements and/or transfer documents, including
information regarding any proposed transferee's name, address and social
security or taxpayer identification number, and to pay any issue or
transfer taxes or fees as may be required by law. The registered Holder of
this Bridge Note may be treated as its owner for all purposes.
(c) If Holder claims this Bridge Note has been lost, destroyed, or
wrongfully taken, the Company shall issue a replacement Bridge Note upon
(i) receipt of any indemnity bond or other assurance requested by the
Company to protect it from any loss which it may suffer by reason of such
replacement or subsequent presentment of the original Bridge Note, and (ii)
payment of any expenses reasonably incurred by the Company in replacing the
Bridge Note.
Section 12. Amendments and Waivers. This Bridge Note may, with the consent
of the Company and the Holder be amended or any provision thereof waived.
Section 13. Notice. Any notice or communication hereunder shall be in
writing and delivered by first-class mail, return receipt requested, to each
Holder at its address shown in the register kept by the Company or any
co-registrar appointed by the Company and to the Company at the address of its
office to be maintained pursuant to Section 2. Failure to mail, or any defect
in, a notice or communication to any other Holder of this Bridge Note shall not
affect its sufficiency with respect to the other Holders. If a notice or
communication is mailed to Holder in the manner provided above within the time
prescribed, it shall be deemed duly given and effective on the tenth (10th)
business day after it was deposited in the mail, whether or not Holder actually
receives it.
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<PAGE>
Section 14. No Recourse Against Others. A director, officer, employee, or
shareholder, as such, of the Company shall not have any liability for any
obligations of the Company under this Bridge Note or for any claim based on, in
respect of or by reason of such obligations or their creation. The Holder of
this Bridge Note by accepting this Bridge Note waives and releases all such
liability and such waiver and release are part of the consideration for the
issue of the Bridge Note.
Section 15. Governing Law. The Bridge Notes shall be governed by and
construed in accordance with the laws of the State of New York, irrespective of
the choice of law provisions thereof. The parties agree that any appropriate
state court located in New Castle County, Delaware, or any Federal Court located
in Wilmington, Delaware, including without limitation to the United States
District Court of Delaware, shall have exclusive jurisdiction of any case or
controversy arising under or in connection with this Agreement and shall be a
proper forum in which to adjudicate such case or controversy. The parties
consent to the jurisdiction of such courts.
IN WITNESS WHEREOF, the parties have caused this Secured Convertible Bridge
Financing Note to be duly executed as of day and year first above written.
[Signatures on the following page]
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<PAGE>
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE FINANCING NOTE
COMPOSITECH, LTD.
By: __________________________________________
Samuel S. Gross, Chief Financial Officer
ATTEST:
By: ___________________________________
Assistant Secretary
[Corporate Seal]
-11-
EXHIBIT 10.62
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (II) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, OCTOBER 4, 2004
No.SCA-4 One Warrant
SOVEREIGN WARRANT CERTIFICATE
This Warrant Certificate certifies that Sovereign Capital Advisors, LLC
("Sovereign") or registered assigns, is the registered holder of One (1) Warrant
to purchase, at any time from March 31, 2000, until 5:00 P.M. Eastern Standard
Time on October 4, 2004 ("Expiration Date"), up to Ninety-Four Thousand Eight
Hundred Twenty-One (94,821) shares ("Shares") of fully-paid and non-assessable
common stock, par value $.01 ("Common Stock"), of Compositech Ltd., a Delaware
corporation (the "Company"), at the Initial Exercise Price, subject to
adjustment in certain events (the "Exercise Price"), of $1.20 per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Warrant Agreement dated as of March 16, 1999 between the Company and
Sovereign (the "Warrant Agreement"), the terms and conditions of which are
expressly incorporated herein. Payment of the Exercise Price may be made in
cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the, request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
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<PAGE>
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
[Signature On Following Page]
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<PAGE>
COMPANY SIGNATURE PAGE
TO
SOVEREIGN WARRANT CERTIFICATE
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: October 4, 1999
COMPOSITECH LTD.
By:
-------------------------------------------
Samuel S. Gross, Chief Financial Officer
ATTEST:
By: [Corporate Seal]
-----------------------------
Assistant Secretary
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<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
_____________________ in the amount of $_______________ all in accordance with
the terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of whose address is_______________________________ and
that such Certificate be delivered to ______________ whose address is
____________________________.
Dated: ________________ Signature: _______________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
___________________________________
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
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<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns
and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title, and interest therein,
and does hereby irrevocably constitute and appoint
__________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: ________________ Signature: _______________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
___________________________________
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-5-
EXHIBIT 10.63
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
fourteenth 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. In the event the loan remains
outstanding for more than 14 days, an additional ___________ warrants under the
same terms will be due. 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.
1
<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 10.64
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 thirtieth 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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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 10.65
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 thirtieth day from the date hereof. In the event there is a
closing on the currently contemplated offering of convertible preferred stock,
proceeds from that offering will be used to retire this note. 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, calculated as 100% of the closing bid price on the day prior to the date
hereof, exercisable within two years from the date hereof. In the event this
loan remains outstanding for more than 10 days and less than 21 days , an
additional warrants (total of warrants) under the same terms will be due. In the
event this loan remains outstanding for more than 20 days and less than 30, an
additional ________________ warrants (total of __________ warrants) under the
same terms will be due. 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 any other remedy that Payee may have, at the
option of the lender he may convert all of the loan to stock at the lesser of a
50% discount to the closing bid price on the date written above, or, a 50%
discount to the closing bid 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
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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.
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.
MAKER COMPOSITECH LTD.
By____________________________ By ___________________________
Name: Samuel S. Gross,
Title: Executive Vice President, Secretary,
and Treasurer
2
EXHIBIT 10.66
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 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.
3 Registration Rights. Common shares issuable upon the exercise of this
warrant have the same registration rights as those set forth in the Agreement
between the Holder and the Company, pursuant to which this warrant was issued.
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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 duly executed copy of the
attached Warrant Exercise Notice indicating 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 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.
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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.
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.
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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, 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 _____________, ________.
COMPOSITECH LTD.
By:___________________________
Samuel S. Gross
Executive Vice President, Secretary
and Treasurer
<PAGE>
Warrant Exercise Notice
Compositech Ltd.
120 Ricefield Lane
Hauppauge, NY 11788
Attention: Samuel Gross
Re: Exercise of Common Stock Purchase Warrant Void after __________________
(the "Warrant"). (expiration date of warrant)
Dear Sirs:
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant, to purchase __________________(number of shares) shares of Common
Stock at the Purchase Price of $_______ per share for a total purchase price of
$________________________.
1. Enclosed is my original Warrant.
2. I have made remittance of $______________ by:
|_| Check enclosed made payable to Compositech Ltd.
|_| Wire transfer to Compositech's account in accordance with the below
wiring instructions.
3. Please register the Common Stock certificate in the name of
______________________ and mail to the address listed below.
4. If I am not exercising the Warrant in full, please mail a replacement
Warrant to me for the unpurchased ________________ shares at the below
listed address. (number of shares)
______________________________________________________
Address
______________________________________________________
Address
_________________________________ __________ _____________
City State Zip
_________________________________
Attention
_________________________________________________________
Tax ID Number(s) (very important - please provide both ID
numbers if issued jointly)
Sincerely,
________________________________________________
Signature and Date (signature must conform in
all respects to name of holder as specified
on the warrant)
________________________________________________
Printed Name
Daytime Phone Number __________________________
==========================================================
Wire Transfer Instructions
Mellon Bank
One Mellon Bank Plaza
Pittsburgh, Pennsylvania
ABA Routing Number: 043000261
For credit to: Merrill Lynch
Account Number: 1011730
For further credit:
Compositech Ltd. - Account Number 84307B12
International wire transfer: SWIFT MELNUS 3P
==========================================================
EXHIBIT 10.67
December __, 1999
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
thirtieth day from the date hereof. Interest shall accrue on the Principal Sum,
or the unpaid balance thereof, at the rate of four (4%) percent per annum,
payable at maturity.
The Payee retains an option to convert the promissory note, excluding
accrued interest, into shares of common stock of the Company at a price which is
the lower of (i) 50% of the closing price of the Company's common stock on the
date the funds are received by the Company or (ii) 50% of the closing price of
the common stock on December 31, 1999. The Company will include the Stock
underlying the option in a registration filing with the Securities and Exchange
Commission within 60 days of the date above, in the event the Payee elects the
repayment in shares of common stock.
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, 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.
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.
<PAGE>
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.
MAKER
PAYEE COMPOSITECH LTD.
Name ____________________________ By ___________________________
Title _____________________________ Samuel S. Gross
Executive Vice President, Secretary
and Treasurer
THE TERMS OF THIS SUBSCRIPTION AGREEMENT, AS SET FORTH BELOW, HAVE BEEN MODIFIED
IN ACCORDANCE WITH AN AGREEMENT BETWEEN THE PURCHASERS AND THE COMPANY.
EXHIBIT 10.68
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"), a price agreed to between the undersigned and the Company 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 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
<PAGE>
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 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
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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.
(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
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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 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
4
<PAGE>
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 management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise;
and the terms
5
<PAGE>
"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).
(ix) "Registration Period" shall have the meaning ascribed to such
term in Section 11(c).
6
<PAGE>
(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
three-month period all Registrable Securities then held by such Holder;
7
<PAGE>
(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;
(v) prior to any public offering of the Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain an
8
<PAGE>
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 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
9
<PAGE>
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 omission) to state therein a material
fact
10
<PAGE>
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
referred to therein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party thereunder, shall contribute to the amount paid or
payable by
11
<PAGE>
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
request in writing or as shall be required in connection with any
registration, qualification or compliance referred to in this Section 11;
12
<PAGE>
(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 other
documents required of the Company under the Exchange Act; and
13
<PAGE>
(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.
14
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day ______ of ____________, _____.
--------------------------------
(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 _____________, _______.
Compositech Ltd.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
16
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-32241 and 333-75401) of Compositech Ltd. and in the related
Prospectuses of our report dated March 3, 2000, with respect to the financial
statements of Compositech Ltd. included in this Annual Report (Form 10-KSB) for
the year ended December 31, 1999.
/s/ Ernst & Young LLP
Melville, New York
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-KSB for the year ended December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 73,197
<SECURITIES> 0
<RECEIVABLES> 82,783
<ALLOWANCES> 0
<INVENTORY> 15,000
<CURRENT-ASSETS> 219,392
<PP&E> 2,000,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,136,449
<CURRENT-LIABILITIES> 5,849,236
<BONDS> 0
0
1,721,991
<COMMON> 180,236
<OTHER-SE> (8,458,465)
<TOTAL-LIABILITY-AND-EQUITY> 3,136,449
<SALES> 736,889
<TOTAL-REVENUES> 794,988
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,076,135<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,980,454<F3>
<INCOME-PRETAX> (16,394,897)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,394,897)<F4>
<EPS-BASIC> (1.03)
<EPS-DILUTED> (1.03)
<FN>
(1) Consists of $2,000,000 of property and equipment held for sale [ Tag # 16 ]
(2) Includes a non-recurring restructuring charge of $7,357,604 [ Tag # 30 ]
(3) Interest expense includes $1,632,586 of amortization of debt discount and
expenses, a non-cash item [ Tag # 32 ]
(4) Represents loss available for common stockholders, after deducting $22,892
of Preferred Stock dividends [ Tag # 39 ]
</FN>
</TABLE>
