Here's an interesting post from RB - I'm just pasting it here to make it easier to read - any thoughts on this?
Here's an e-mail from a very large shareholder in the company. I also have a substantial holding in the company but am not connected to them in any other way. Thought some good info might help at this point.
If you didn’t know, CTC filed for reorganization under Chapter 11 bankruptcy today. This was done to allow the company to continue to pursue their business without financial threat from litigation. CTC negotiated up until last night with the litigants but they refused to accept a reasonable offer.
Before I go any further you need to know you will keep your shares, no change at all here. They will not pull a K-Mart.
As for myself, this was a real shock. For what it’s worth I was buying the last couple of days (ooops!). Will I buy tomorrow, probably not. I am not selling.
I have spoken with Benton Wilcoxon, Chairman & CEO. He has assured me everything published regarding the Chapter 11 filing is as stated. He has spoken with a number of their largest investors, none are selling, and there are some who intend to buy quite a bit tomorrow.
Key points from the filing:
It’s voluntary.
The bankruptcy is motivated solely to resolve several litigation matters.
Given the unknown consequences of litigation which might have shut down the company, they sought protective measures.
Their strategic partners have indicated their continued support – General Cable was very supportive of this move.
CTC submitted a plan of reorganization along with the filing – which will include no change in the ownership of stock. This should be public tomorrow.
The company believes the claims are extortionate and given the proper venue they will prevail.
CTC’s current financial condition will allow them to operate normally – the Chapter 11 filing freed up their cash for business, not litigation.
Here is my somewhat educated view of the most potentially damaging litigation, CTC vs. Acquvest and Tarbox vs. CTC. I have been aware of the Acquvest scam for a couple of years and no one thought their cross-complaint would be taken seriously. At the end of this message I included the case information provided in the CTC quarterly public statement if you care to wade through the details.
In April 2003 CTC had a private offering of .25 per share.
Acquvest (4 people, mainly Paul Koch) subscribed for $375,000 which would be paid over time based on CTC achieving certain goals. The agreement was later amended to include additional shares at the same price. They paid $125,000 up front.
When CTC reached their goals Acquvest didn’t pay.
CTC filed suit for breach of contract in October 2003.
Aqcuvest cross filed in October of 2004.
One of the people in Aqcuvest, Tarbox, filed suit against the other people in Acquvest and CTC.
It turns out Koch and his group were not accredited (didn’t have the funds and didn’t meet the asset level required by the SEC to invest in a 144 stock offering). Koch got money from Tarbox to buy the shares and was subsequently sued by Tarbox to get the shares.
Koch is now on his 4th attorney, and has racked up fees of $450,000.
Sounds messy, well it is!
Things were going OK for CTC and they assumed they would prevail, Aqcuvest twice filed motions to tie up CTC assets and they were denied.
They filed for a third time to attach assets and were successful in mid-April.
CTC filed an emergency appeal and lost.
They continued to negotiate a settlement up until last night but the other party was very unreasonable, looking to get over $10,000,000 from the company.
Faced with a trial next week and an unfavorable judge, they decided to file Chapter 11 to protect their assets and move forward with business.
This moves them out of a provincial court and into federal court. CTC’s attorneys are pleased with the judge who will handle these cases.
Here’s my bottom line, disregarding share price, and the stigma of Chapter 11, the company is in a better position to market, sell, and manufacture their products than they were last week. They are very close to several of their first no-strings-attached commercial orders with major utilities.
COMPOSITE TECHNOLOGY CORPORATION V. ACQUVEST (OCSC CASE NO. 03 CC 12640):
On October 16, 2003, CTC filed suit against Acquvest, Inc., Paul Koch, Victoria Koch, Patricia Manolis, and Michael Tarbox in Orange County Superior Court. CTC alleges causes of action for declaratory relief, breach of contract, fraudulent inducement, rescission and economic duress arising out of certain subscription and related agreements among the Company and the defendants. In connection with such agreements, CTC issued to Acquvest, Inc. and Patricia Manolis, in April 2003 and September 2003, a total of 150,000 units for a total purchase price of $375,000. Each unit consists of 10 shares of unregistered, restricted common stock and 10 Series I warrants to purchase one share of unregistered, restricted common stock. Each Series I warrant entitles the holder to purchase a share of common stock at $0.50 per share and expires on March 30, 2005. The agreements provide for the issuance of up to an additional 550,000 of such units for the same purchase price of $2.50 per unit, subject to certain conditions, and registration of share issuances under the Securities Act of 1933. The additional units have not been issued and the additional purchase consideration has not been paid. The parties disagree as to their respective rights and obligations with respect to the original issuances and such additional units. 10,000 units were also issued to Paul Koch for services in connection with such agreements, and a dispute has arisen as to his entitlement to those and additional units and warrants in connection with the agreements. CTC is seeking actual damages, punitive damages, statutory costs, attorneys' fees and injunctive relief against the defendants. CTC also seeks rescission of the pertinent agreements based on numerous grounds, including fraudulent inducement. By a letter to CTC's counsel dated September 8, 2004, Acquvest stated that it was waiving the contractual conditions to its purchase of an additional 400,000 units under its subscription agreement and was tendering $1,000,000, which was available on deposit, to CTC as payment for the units. Acquvest, Koch, and Manolis filed a Cross-Complaint on September 16, 2004, which they amended per stipulation on December 17, 2004. On April 14, 2005, CTC was served with notice that the Court granted defendants and cross-complainants' application for Writs of Attachment allowing for the attachment of CTC's assets totaling $2.55 million. The Court had denied two prior applications by defendants and cross-complainants for Writs of Attachment. CTC immediately filed a Notice of Appeal on April 14, 2005 and an Emergency Writ on April 18, 2005 with the California Courts of Appeal to challenge the Court's decision to grant the Writs of Attachment and to stay the Writs of Attachment. Additionally, CTC is working to arrange to post the bond to stay attachment of the entire amount subject to the Writs of Attachment. CTC believes that the Court committed reversible error by granting the Writs of Attachment and intend to vigorously seek to reversal of the order. Trial date has been set for May 9, 2005.
MICHAEL TARBOX V. COMPOSITE TECHNOLOGY CORPORATION, ET AL.
Michael Tarbox ("Tarbox") filed this action on October 13, 2004 in Orange County Superior Court (Case No. 04-CC-10345) against Paul Koch, Acquvest, CTC and Doe Defendants. Tarbox alleges that Koch made fraudulent transfers to Acquvest and the Doe defendants for the purpose of avoiding the debt owed to Tarbox. Tarbox alleges that CTC securities were intended to serve as security for a debt owed by Koch to Tarbox. Tarbox alleges that Defendants were not bona fide purchasers of the CTC securities since they were receiving such securities for the benefit of Tarbox. Tarbox further alleges that CTC breached an agreement to pay him a finder's fee in connection with investments made by Koch. Tarbox alleges that CTC's breach has caused him to suffer damages in excess of $750,000. CTC denies Tarbox's material allegations. On November 14, 2004, CTC filed a demurrer to the Complaint. Tarbox filed a First Amended Complaint. CTC filed an Answer to the First Amended Complaint.
