U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-20701
COMPOSITECH LTD.
(Exact Name of Registrant as specified in its charter)
Delaware 11-2710467
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Ricefield Lane, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 436-5200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of May 12, 2000:
Common Stock $.01 par value 19,786,477
--------------------------- ----------
Class Number of shares
<PAGE>
COMPOSITECH LTD.
Index
Part I - Financial Information Page
- - ------------------------------ ----
Item 1. Financial Statements
Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999...............................................2
Statements of Operations (unaudited) for the three months
ended March 31, 2000 and 1999...................................... 3
Statements of Cash Flows (unaudited) for the three months
ended March 31, 2000 and 1999.......................................4
Notes to Financial Statements (unaudited).............................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................7
Part II - Other Information
Item 1. Legal Proceedings....................................................11
Item 2. Changes in Securities................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signature.....................................................................12
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 101,110 $ 73,197
Accounts receivable trade - net 82,783
Inventories 7,800 15,000
Prepaid expenses and other 89,901 48,412
------------ ------------
Total current assets 198,811 219,392
Property and equipment held for sale 2,000,000 2,000,000
Investment in joint venture 466,000
Deferred debt expense - net of accumulated amortization of $461,078 49,163
Other assets and other deferred charges, net of accumulated amortization
of $821,752 (2000) and $658,375 (1999) 563,844 401,894
------------ ------------
Total assets $ 2,762,655 $ 3,136,449
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable $ 1,894,586 $ 1,814,421
Deferred salaries 142,287 152,362
Accrued interest - $76,502 (2000) and $44,276 (1999) to stockholders 167,368 104,423
Other accrued liabilities 668,163 642,762
Loans and notes payable 2,114,072 2,976,935
Notes payable to directors/stockholders 158,333 158,333
------------ ------------
Total current liabilities 5,144,809 5,849,236
Non-current liabilities:
Notes payable to directors/stockholders 1,420,000 1,420,000
Deferred salaries - officers / directors 936,116 913,135
Accrued interest - directors/stockholders 366,476 366,476
Deferred licensing income 643,840
Advances received 500,000
------------ ------------
Total non-current liabilities 2,722,592 3,843,451
Commitments
Stockholders' (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 - 379,998 (2000) and 393,997 (1999) 1,139,994 1,181,991
Series C 8% convertible preferred stock, par value $0.01 per share;
authorized shares - 200,000 issued and outstanding shares - 54,000 540,000 540,000
Common stock, par value $.01 per share; authorized shares - 50,000,000,
issued and outstanding shares - 20,503,504 (2000) and 18,023,613 (1999) 205,035 180,236
Additional paid-in capital 46,816,419 44,449,398
Deficit (51,249,982) (50,349,052)
------------ ------------
(2,548,534) (3,997,427)
Less treasury shares to be received - 949,585 (2000) and 951,000 (1999) (1,744,388) (1,746,987)
Less notes receivable received for issuance of common stock (811,824) (811,824)
------------ ------------
Total stockholders' (deficiency) (5,104,746) (6,556,238)
------------ ------------
Total liabilities and stockholders' (deficiency) $ 2,762,655 $ 3,136,449
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Revenues:
Sales $ -- $ 95,980
Licensing -- 12,590
------------ ------------
Total revenues -- 108,570
Costs and expenses:
Manufacturing -- 1,202,842
Selling, general and administrative 556,319 369,579
Research and development -- 67,386
------------ ------------
Total operating expenses 556,319 1,639,807
(Loss) from operations (556,319) (1,531,237)
Other income (expenses):
Interest income 16,507 11,652
Interest expense, net of interest capitalized (99,278) (65,590)
Amortization of debt discount and expenses (259,869) (42,834)
Other income (expense) (1,971) (4,500)
------------ ------------
(344,611) (101,272)
------------ ------------
(Loss) from operations before equity in operations of joint venture (900,930) (1,632,509)
Equity in operations of joint venture -- (5,513)
------------ ------------
Net (loss) (900,930) (1,638,022)
Preferred stock dividends -- 11,851
------------ ------------
(Loss) attributable to common stockholders ($ 900,930) ($ 1,649,873)
============ ============
(Loss) per common share - basic and diluted ($ 0.05) ($ 0.11)
============ ============
Shares used in computing (loss) per common share 18,185,433 14,627,528
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($ 900,930) ($1,638,022)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 4,401 268,638
Restructuring charges
Loss on disposal of property and equipment
Amortization of debt discount and expenses 363,003 48,604
Issuance of common stock as compensation to directors 30,500
Equity in net (income) loss of joint venture 5,513
Changes in operating assets and liabilities:
Accounts receivable trade - net 82,783 4,215
Accounts receivable from joint venture (57,232)
Inventories 7,200 7,154
Prepaid expenses and other (41,489) 27,096
Other assets and other deferred charges 810 16,500
Accounts payable 80,165 (121,892)
Deferred salaries 12,906 29,738
Accrued interest 92,513 40,513
Deferred licensing income (63,424)
Other accrued liabilities 28,000 83,701
------------ ------------
Net cash and cash equivalents (used) in operating activities (240,138) (1,348,898)
Cash Flows from Investing Activities
Purchase of property and equipment - net (81,644)
Patent costs deferred (2,637) (10,113)
------------ ------------
Net cash and cash equivalents (used in) investing activities (2,637) (91,757)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 91,408 1,406,308
Net proceeds from exercise of warrants 159,280
Net proceeds from loans and notes payable 20,000 460,501
Payment of capital lease obligations (7,848)
------------ ------------
Net cash and cash equivalents provided by financing activities 270,688 1,858,961
------------ ------------
Increase in cash and cash equivalents 27,913 418,306
Cash and cash equivalents at beginning of period 73,197 102,286
------------ ------------
Cash and cash equivalents at end of period $ 101,110 $ 520,592
============ ===========
Supplemental disclosures of cash flow information
2Noncash financing activities:
Preferred Stock dividends on 7% Series B convertible preferred stock $ 11,851
Issuance of common stock in repayment of promissory notes,
including accrued interest $1,067,295
Issuance of common stock as compensation for bridge financing $ 12,500
Issuance of common stock as compensation to directors $ 30,500
Cash paid for:
Interest $ 6,689 $ 26,232
</TABLE>
See accompanying notes.
4
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
(Unaudited)
March 31, 2000
Note 1 - Basis of Presentation and Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Annual Report on
Form 10-KSB for the year ended December 31, 1999 of Compositech Ltd. (the
"Company"). In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
Note 2 - Common Stock Issuances and Stock Options
During January 2000, pursuant to the Company's Amended and Restated Stock
Award Plan (the "Award Plan"), the Company issued to its non-employee directors
stock awards of 36,365 shares of its common stock, vesting on a quarterly basis
over a one-year period, as payment of the annual $10,000 per year, per director,
retainer for the year 2000 and 13,094 shares of its common stock, as
compensation for the 1999 meeting attendance of the Board of Directors and
related subcommittees.
During February 2000, pursuant to the Award Plan, the Company granted
incentive options to its employees to purchase 600,000 shares of common stock at
$0.01 per share. These options are exercisable only in the event of a successful
transfer of the Company's technology or financing to restart production, while
still employed by the Company.
During February 2000, the Compensation Committee approved the repricing of
stock options held by current employees, to an exercise price of $1.4375 per
share, the market price on the date approved by the Committee, for all stock
options with exercise prices in excess of $1.4375 per share. The authorization
covered options to purchase 584,544 shares of common stock, of which 575,271
shares are exercisable as of the current date. At March 31, 2000, the market
price of the Company's common stock was lower than the repriced exercise price
and, therefore, there was no charge to earnings.
In the three months ended March 31, 2000, 13,999 shares of the Series A
convertible preferred stock were converted at the existing conversion rate into
6,999 shares of common stock, resulting in a decrease in stockholders' equity
relating to Series A convertible preferred
5
<PAGE>
stock of $41,997, an increase in stockholders' equity relating to common stock
of $70 and an increase in additional paid-in capital of $41,927.
During January 2000, in connection with an agreement to provide financial
public relations and investor relations services, the Company issued 500,000
shares of its common stock to a consultant. The Company has estimated the value
of the stock at $323,500, which is being amortized over the twelve-month life of
the agreement. This issuance resulted in an increase in stockholders' equity
relating to common stock of $5,000 and an increase in additional paid-in capital
of $318,500.
During February 2000, in connection with the settlement agreement which
terminated the Taiwan joint venture agreement, the Company issued 587,372 shares
of its common stock to its former joint venture partner, resulting in an
increase in stockholders' equity relating to common stock of $5,874 and an
increase in additional paid-in capital of $671,966 (see Note 3).
During the three months ended March 31, 2000, the Company sold 158,747
shares of its common stock, in a private placement, realizing $91,408, net of
expenses, resulting in an increase in stockholders' equity relating to common
stock of $1,587 and an increase in additional paid-in capital of $89,821.
During the three months ended March 31, 2000, the Company sold 141,583
shares of its common stock in connection with the exercise of warrants,
realizing $159,280, resulting in an increase in stockholders' equity relating to
common stock of $1,415 and an increase in additional paid-in capital of
$157,865.
During the three months ended March 31, 2000, the Company issued 273,442
shares of its common stock in connection with the repayment of certain
promissory notes payable totaling $169,167, including $20,000 which was borrowed
during January 2000, resulting in an increase in stockholders' equity relating
to common stock of $2,735 and an increase in additional paid-in capital of
$166,432.
On March 31, 2000, the Company issued 789,563 shares of its common stock in
connection with the conversion of the first tranche of a term note series which
totaled $898,128, including accrued interest, resulting in an increase in
stockholders' equity relating to common stock of $7,896 and an increase in
additional paid-in capital of $890,232.
Note 3 - Joint Venture
As of February 17, 2000, the Company reached a settlement agreement with
its joint venture partner/licensee in Taiwan, which terminated the joint venture
agreement and the 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
returning the equity held by the Company in the Taiwanese joint venture, the
Company retained the $500,000 advance it received to make the investment. The
Company has recorded the value of the shares issued in connection with this
settlement at $677,840, representing the net balance of the accounts on its
balance sheet as of the agreement date, relating to the investment in the joint
venture, the deferred licensing income and the advances received on the sale of
common stock.
6
<PAGE>
Note 4 - Subsequent Events
Subsequent to March 31, 2000, the Company sold 50,000 shares of its common
stock in a private placement to accredited investors, realizing approximately
$34,500, net of expenses.
During April 2000, the Company issued 182,558 shares of its common stock in
connection with the repayment of certain promissory notes payable and accrued
interest totaling $106,953, resulting in an increase in stockholders' equity
relating to common stock of $1,826 and an increase in additional paid-in capital
of $105,127.
On April 25, 2000, the Board of Directors for the Company's Canadian joint
venture approved the dissolution and liquidation of the joint venture. In
accordance with that action, the Company will receive back 949,585 shares of its
common stock, which is adjusted from the 951,000 shares which were recorded as
treasury shares to be received in the Company's financial statements as of
December 31, 1999.
During May 2000, the holders of certain term notes payable, totaling
approximately $1,605,000 including accrued interest as of April 30, 2000, agreed
to an extension of the due date on such notes to June 2, 2000.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, in addition to the discussions below, please refer to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999 and
the risk factors listed therein.
Overview
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.
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.
8
<PAGE>
Results of Operations
In light of the Company's decision to suspend its manufacturing operations
on December 3, 1999 and refocus its resources on locating suitable licensees,
joint venture partners or purchasers for its patented technology and equipment
design, management's comparitive analysis is limited to those areas for which
data is available for both periods. During the first three months of 2000, the
Company did not record any sales, manufacturing or research and development
expenses. Lease related obligations of the idled manufacturing facility,
totaling approximately $50,000 were charged to the restructuring provision
recorded as of December 31, 1999.
Selling, general and administrative expenses reflect an increase of
$186,740, to $556,319 for the three months ended March 31, 2000 from $369,579
for the three months ended March 31, 1999. Decreases in payroll related, travel
and promotion expenses were more than offset by an increase in non-cash charges
of approximately $130,000 due to amortization of the value of warrants and
common stock issued in exchange for professional services and $30,000 for
directors' compensation, paid in common stock. For the three months ended March
31, 2000, there was an increase of approximately $30,000 in legal and
professional fees related to creditor activities and the pursuit of licensing
and financing partners. In addition, the 1999 period included a reduction of
approximately $145,000 of expenses that were charged to the Company's Canadian
joint venture, in accordance with the joint venture agreements.
Interest expense increased to $99,278 for the three months ended March 31,
2000 from $65,590 for the three months ended March 31, 1999. The increase is
related to the borrowing cost of the term note series, as well as the increases
in the prime lending rate, which affects the interest expense of some of the
stockholder loans and notes payable. Amortization of debt discount and expenses
increased to $259,869 for the three months ended March 31, 2000 from $42,834 for
the three months ended March 31, 1999. The increase was comprised primarily of a
non-cash charge for debt premium of approximately $155,000 related to the term
note series as well as an increase of approximately $53,000 of non-cash
amortizations of expenses related to the extension of the due dates on the term
note series.
The foregoing resulted in the Company having a net loss of $900,930 for the
three months ended March 31, 2000 compared with $1,632,509 for the three months
ended March 31, 1999. The decreased loss was attributable to the lower operating
costs due to the suspension of manufacturing activities offset partially by an
increase in the amortization of debt discount and expenses and other non-cash
items.
9
<PAGE>
Liquidity and Capital Resources
The Company has incurred significant losses and has substantial negative
cash flow since its inception. The Company's independent auditors have included
an explanatory paragraph in their report covering the December 31, 1999
financial statements, which expresses substantial doubt about the Company's
ability to continue as a going concern. The Company expects operating losses to
continue in 2000. As of March 31, 2000, the Company had approximately $101,000
of available cash resources. 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,
joint ventures or technology sales are sufficient.
Current liabilities include approximately $1,658,000 of convertible
promissory notes and term notes, which the Company anticipates will be converted
into shares of its common stock. Non-current liabilities include approximately
$936,000 in deferred salaries due to officers, accrued interest of approximately
$366,000 due to stockholders and notes payable of $1,420,000 due to
officers/directors, whose due dates have historically been extended in the event
the Company does not have the available cash resources to repay on the scheduled
due dates.
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 additional funds are not available to
satisfy our past due accounts payable and our short-term or long-term capital
requirements, we may not be able to continue as a going concern.
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Net cash and cash equivalents used in operating activities decreased to
$240,138 for the three months ended March 31, 2000 from $1,348,898 for the three
months ended March 31, 1999. The decreased level of activities and continued
deferral of salaries, accrued interest and other accrued liabilities contributed
to the lower use of cash during the first quarter of 2000.
Net cash and cash equivalents used in investing activity decreased to
$2,637 for the three months ended March 31, 2000, from $91,757 for the three
months ended March 31, 1999. During the first quarter of 2000, there were no
expenditures for property and equipment, which totaled $81,644 during the three
months ended March 31, 1999.
Cash flows from financing activities decreased to $270,688 for the three
months ended March 31, 2000, from $1,858,961 for the three months ended March
31, 1999. The primary sources of the funds, net of expenses, provided by
financing activities in the first quarter of 2000 were the private placement of
the Company's common stock, totaling $91,408 and the sale of the Company's
common stock through the exercise of warrants, totaling $159,280. The primary
sources of the funds, net of expenses, provided by financing activities in the
first quarter of 1999 were the private placement of the Company's common stock,
totaling $1,406,308 and the closing of the first tranche of the term notes
series, totaling $430,000.
10
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Part II - Other Information
Item 1. Legal Proceedings
The Company is a party to the following legal proceedings :
1. On April 3, 2000, the Company entered into a stipulation agreement with
Reckson Operating Partnership, L.P. ("Reckson") as a result of a summary
proceeding that was instituted on March 14, 2000 in the District Court of
the County of Suffok, NY by Reckson with regard to non-payment of
approximately $72,000 of rent and real estate taxes. The Company and
Reckson have agreed to a payment schedule and to terminate the Company's
lease as of June 30, 2000.
2. On March 28, 2000, the Company filed a verified answer in regard to an
action commenced on January 11, 2000 in the Supreme Court of State of New
York by Yates Foil USA, Inc., which seeks damages of approximately $140,000
for goods sold and delivered. The amount of the claim is accrued on the
books of the Company as at December 31, 1999.
3. The Company is also a party to several legal proceedings relating to
creditors which are not material.
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities.
---------------------------------------
During the three months ended March 31, 2000, the Company sold 158,747
shares of its common stock to certain accredited investors in a private
placement, for an aggregate offering of $91,408. In connection with the private
placement, Trautman Wasserman & Company, Inc., the placement agent, received
cash commissions of $8,458.
The sales of the shares of common stock in the private placement were made
in reliance upon the exemption from registration under the Securities Act of
1933, as amended (the "Securities Act"), provided by Section 4(2) of the
Securities Act.
11
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
10.70 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
April 13, 2000.
10.71 Form of Amendment to Bridge Financing Notes between Compositech
and certain investors dated March 31, 2000.
10.72 Agreement between the Company and Sovereign Capital Advisors,
LLC to extend the due date of a Secured Convertible Bridge
Financing Note.
10.73 Agreement between the Company and SovCap Equity Partners, Ltd.,
Sovereign Capital Advisors LLC, Arab Commerce Bank, Ltd.,
Correllus International Ltd. and Bronia GmbH dated April 21,
2000, extending the due dates on certain Bridge Financing Notes
till June 2, 2000.
27 Financial Data Schedules ( Edgar version only )
(b) Reports on Form 8-K
Financial
Date of Report Item Reported Statements Filed
-------------- -------------------------------- ----------------
March 7, 2000 Item 5 - Other Events No
(Announcing settlement agreement with
Taiwanese joint venture partners and
termination of merger negotiations with
Netdirect International Corporation.)
All other items required in Part II have been filed previously or are not
applicable for the quarter ended March 31, 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPOSITECH LTD.
Dated: May 15, 2000 /s/ Samuel S. Gross
--------------------------------------
Executive Vice President and Treasurer
(Principal Accounting Officer and officer
duly authorized to sign this report on
behalf of the registrant)
12
<PAGE>
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 10.70
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
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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
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<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).
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(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;
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<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
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<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
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<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;
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(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
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<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.
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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)
$------------------------------
Subscription Amount
-------------------------------
(Purchaser's Telephone Number)
15
<PAGE>
ACCEPTANCE
The undersigned hereby accepts the foregoing Subscription Agreement
this day of , .
----- ------------- -------
Compositech Ltd.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
16
<PAGE>
Exhibit 10.71
FIRST AMENDMENT TO
COMPOSITECH LTD.
SERIES 1 BRIDGE FINANCING NOTE S1BFN-_
THIS FIRST AMENDMENT TO SERIES 1 BRIDGE FINANCING NOTE S1BFN-8 (the
"Amendment") is made and entered into as of the 31st day of March, 2000, by and
between COMPOSITECH LTD., a Delaware corporation ("Maker" or the "Company")
and.,______________ ("Holder"). Capitalized terms used and not otherwise defined
herein shall the meanings ascribed to them in the Restated Bridge Note (as
defined below).
Background
Pursuant to the Purchase Agreement, Maker has previously issued, sold, and
delivered to Holder that certain Series 1 Bridge Financing Note, designated
S1BFN-__ (the "Original Bridge Note"), originally issued ______________ to
Holder in the original principal amount of US$____________ and due to mature one
hundred eighty days thereafter. Subsequently, the Original Bridge Note was
amended without additional consideration to extend the maturity date and restate
the principal amount (the "Restated Bridge Note"), and Holder exchanged the
Original Bridge Note for the Restated Bridge Note in the original principal
amount of US$_____________. Maker and Holder now desire to modify and amend the
Restated Bridge Note to provide for an extension to the Maturity Date to allow
the Company to file its registration statement with respect to the shares of
common stock underlying the Restated Bridge Note and Attached Repricing Warrant.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Maker and Holder do hereby agree
to amend the Restated Bridge Note as follows:
ARTICLE 1. Amendment of Restated Bridge Note
Section 1.1 Change of Maturity Date. The introductory paragraph of the
Restated Bridge Note shall be modified and amended by striking the date "March
31, 2000" in the seventh line and inserting into the seventh line in place of
such date the following: "April 21, 2000", so that the defined term "Maturity
Date" is redefined and definitively established as April 21, 2000.
Section 1.2 Provisions for Interest Unchanged. The provisions in the
Restated Bridge Note for interest at the Note Rate up to the Maturity Date, as
now defined in Section 1.1 of this Amendment, and for interest at the Default
Rate thereafter, shall remain in full force and effect.
ARTICLE 2. Miscellaneous
Section 2.1 Entire Agreement; Amendments. This Amendment supersedes all
other prior oral or written agreements between Holder, Maker, and their
respective affiliates and persons acting on their behalf with respect to the
matters specifically referred to herein, and this Amendment and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither Maker nor Holder makes any representation, warranty,
covenant, or undertaking with respect to such matters other than those contained
in the Restated Bridge Note or the Purchase Agreement, which remain in full
force and effect as
-1-
<PAGE>
if made on the date hereof. No provision of this Amendment may be waived or
amended other than by an instrument in writing signed by the party to be charged
with enforcement.
Section 2.2 Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to its principles of conflict of laws. The parties agree that any appropriate
State court located in New Castle County, Delaware or the Federal courts located
in the District of Delaware, shall have jurisdiction of any case or controversy
arising under or in connection with this Amendment and shall be the proper forum
in which to adjudicate such case or controversy, and the parties further agree
to submit to the personal jurisdiction of such court.
Section 2.3 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Amendment must be in writing and given as more fully provided for in the
Restated Bridge Note and in Section 9.5 of the Purchase Agreement.
[Remainder of page intentionally left blank; signatures on next page]
-2-
<PAGE>
SIGNATURE PAGE TO
FIRST AMENDMENT
TO
SERIES 1 BRIDGE FINANCING NOTE
S1BFN-__
IN WITNESS WHEREOF, the Company as Maker under the Restated Bridge Note and
Holder have caused their duly authorized officers or agents to execute this
Amendment as of the day and year first written above.
MAKER
COMPOSITECH LTD.
By:-------------------------------------------
Samuel S. Gross, Executive Vice President
Attest:
- - ------------------------
Assistant Secretary
HOLDER
----------------------------------------------
By:
------------------------------------------
Name:
-----------------------------------------
Title:----------------------------------------
Attest/Witness:
- - -------------------------
Name:
--------------------
Title:
--------------------
-3-
<PAGE>
Exhibit 10.72
March 31, 2000
Sovereign Capital Advisors, LLC
3340 Peachtree Road, NE, Suite 2320
Atlanta, Georgia 30326
Facsimile:
Attention: Mr. Paul D. Hamm
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 Amendment"), that
certain Second Amendment to the Series1 Bridge Note 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") and
that certain Letter Agreement, dated November 22, 1999, and executed by the
Company and the Purchasers (the "Letter Agreement", together with the Note
Purchase Agreement, the First Amendment and the Second Amendment, the "Purchase
Agreement"). Defined terms, used but not defined herein, have the meanings
ascribed thereto in the Purchase Agreement.
The parties hereto agree that the Secured Convertible Bridge Financing Note
of Compositech Ltd. in the amount of $98,327.00 issued to Sovereign Capital
Advisors, LLC (the "Placement Agent") on October 4, 1999 to evidence the
placement fee owed to the Placement Agent as part of the cancellation of the
original Bridge Notes and issuance of replacement Bridge Notes on October 4,
1999 (the "Placement Note") be amended by striking the date "March 31, 2000" in
the seventh line of the Placement Note and inserting into the seventh line in
place of such date "June 2, 2000" so that the defined term "Maturity Date" is
redefined and definitively established as June 2, 2000.
The provisions of the Placement Note for interest at the Note Rate up to
the Maturity Date, as now defined in this Agreement, and for interest at the
Default Rate thereafter, shall remain in full force and effect.
This Agreement supersedes all other prior oral or written agreements
between the Company and the Placement Agent and their respective affiliates and
persons acting on their behalf with respect to the matters specifically referred
to herein, and this Agreement and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein, neither the
Company nor the Placement Agent make any representation, warranty, covenant or
<PAGE>
undertaking with respect to such matters other than those contained in the
Placement Note or the Placement Agency Agreement, dated March 16, 1999, by and
between the Company and the Placement Agent (the "Placement Agency Agreement")
which remain in full force and effect as if made on the date hereof. No
provision of this Agreement may be waived or amended other than by an instrument
in writing signed by the party to be charged with enforcement.
All notices and other communications hereunder shall be in writing and
shall be delivered as provided for in the Placement Agency Agreement, as
follows:
If to the Placement Agent to:
Sovereign Capital Advisors, LLC
3340 Peachtree Road, N.E.
Suite 2320
Atlanta, Georgia 30326
Attention: Don Odom
Tel: (404) 814-3737
Fax: (404) 812-3738
With a copy to:
Balboni Law Group, LLC
3475 Lenox Road
Suite 990
Atlanta, Georgia 30326
Attention: Geraldo M. Balboni II, Esq.
Tel: (404) 812-3100
Fax: (404) 812-3101
If to the Company to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attention: Samuel S. Gross
Facsimile Number: (631) 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
<PAGE>
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.
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:
SOVEREIGN CAPITAL ADVISORS, LLC
By:
-----------------------------
Authorized Signatory
<PAGE>
Exhibit 10.73
April 21, 2000
SovCap Equity Partners, Ltd.
Sovereign Capital Advisors, LLC
3340 Peachtree Road, NE, Suite 2320
Atlanta, Georgia 30326
Facsimile (404) 814-3738
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
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 Amendment"), that
certain Second Amendment to the Series 1 Bridge Note Purchase and Security
Agreement, dated July 28, 1999, and executed by the Company and certain
Purchasers in connection with the Third Closing (the "Second Amendment") and
that certain Letter Agreement, dated November 22, 1999, and executed by the
Company and the Purchasers (the "Letter Agreement", together with the Note
Purchase Agreement, the First Amendment and the Second Amendment, the "Purchase
Agreement"). Defined terms, used but not defined herein, have the meanings
ascribed thereto in the Purchase Agreement or the Restated Bridge Notes (as
defined below).
<PAGE>
The parties hereto agree that the following Restated Bridge Notes, dated as
of October 4, 1999, as amended by the First Amendment to each of these Restated
Bridge Notes, dated March 31, 2000, in the following denominations and in the
name of the following Purchasers (collectively, the "Restated Bridge Notes"),
are hereby amended by striking the date "April 21, 2000" in the seventh line and
inserting into the seventh line in place of such date "June 2, 2000" so that
the defined term "Maturity Date" is redefined and definitively established as
June 2, 2000:
SovCap Equity Partners, Ltd. $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 Equity Partners, Ltd. $267,600.00 S1BFN-12
The provisions of the Restated Bridge Notes for interest at the Note Rate
up to the Maturity Date, as now defined in this Agreement, and for interest at
the Default Rate thereafter, shall remain in full force and effect.
This Agreement supersedes all other prior oral or written agreements
between the Purchasers, the Company and their respective affiliates and persons
acting on their behalf with respect to the matters specifically referred to
herein, and this Agreement and the instruments referenced herein along with the
Transaction Agreements contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters
other than those contained in the Restated Bridge Notes or the Purchase
Agreement, which remain in full force and effect as if made on the date hereof.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
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
as set forth on their respective Purchaser Signature Page to the Purchase
Agreement;
With a copy to:
Sovereign Capital Advisors, LLC
3340 Peachtree Road, N.E.
Suite 2265
Atlanta, Georgia 30326
Attention: Paul Hamm or Don Odom
Tel: (404) 814-3737
Fax: (404) 812-3738
If to the Company to:
Compositech Ltd.
120 Ricefield Lane
Hauppauge, New York 11788
Attention: Samuel S. Gross
Facsimile Number: (631) 436-5203
With a copy to:
Patterson, Belknap, Webb & Tyler LLP
<PAGE>
1133 Avenue of the Americas
New York, New York 10036
Attention: Edward F. Cox
Facsimile Number (212) 336-2222
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.
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
<PAGE>
CORRELLUS INTERNATIONAL LTD.
By:
--------------------------------
Authorized Signatory
BRONIA GMBH
By:
--------------------------------
Authorized Signatory
SOVEREIGN CAPITAL ADVISORS, LLC
By:
--------------------------------
Authorized Signatory
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-QSB for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 101,110
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 7,800
<CURRENT-ASSETS> 198,811
<PP&E> 2,000,000 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,762,655
<CURRENT-LIABILITIES> 5,144,809
<BONDS> 0
0
1,679,994
<COMMON> 205,035
<OTHER-SE> (6,989,775)
<TOTAL-LIABILITY-AND-EQUITY> 2,762,655
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 556,319 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,611 <F3>
<INCOME-PRETAX> (900,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (900,930)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
<FN>
Footnotes
<F1> Consists of $2,000,000 of property and equipment held for sale [ Tag # 16 ]
<F2> Other expense includes approximately $130,000 of non-cash expenses related
to the amortization of warrants and stock based compensation [ Tag # 30 ]
<F3> Interest expense includes $259,869 of amortization of debt discount and
expenses, a non-cash item [ Tag # 32 ]
</FN>
</TABLE>
