-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BJhCHgWY3Tr9TIGEPfC+LtXoWVCEArkw+Qg5QrGOFjcyqHoDIok05blDYa3ZPTKp 9EMN1IQ3W0jSIP0k9yzZIA== 0000102198-04-000005.txt : 20040316 0000102198-04-000005.hdr.sgml : 20040316 20040316155956 ACCESSION NUMBER: 0000102198-04-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPETITIVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000102198 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 362664428 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08696 FILM NUMBER: 04672655 BUSINESS ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: BUILDING 1 CITY: FAIRFIELD STATE: CT ZIP: 06824 BUSINESS PHONE: 2032556044 MAIL ADDRESS: STREET 1: 1960 BRONSON ROAD STREET 2: BUILDING 1 CITY: FAIRFIELD STATE: CT ZIP: 06824 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY PATENTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 f10q_204.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8696 COMPETITIVE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2664428 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1960 Bronson Road Fairfield, Connecticut 06824 (Address of principal executive (Zip Code) offices) (203) 255-6044 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes[ ] No[x] Common Stock outstanding as of March 1, 2004 - 6,243,697 shares Exhibit Index on sequentially numbered page 30 of 76. Page 1 of 76 sequentially numbered pages COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements A. Condensed Financial Statements (Unaudited) Consolidated Balance Sheets at January 31, 2004 and (Unaudited) July 31, 2003 (Audited) 3 Consolidated Statements of Operations for the three months ended January 31, 2004 and 2003 4 Consolidated Statements of Operations for the six months ended January 31, 2004 and 2003 5 Consolidated Statement of Changes in Shareholders' Interest for the six months ended January 31, 2004 6 Consolidated Statements of Cash Flows for the six months ended January 31, 2004, and 2003 7 Notes to Consolidated Financial Statements 8-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20-28 Item 3. Quantitative and Qualitative Disclosures About Market Risk 29 Item 4. Controls and Procedures 29 PART II. OTHER INFORMATION Item 1. Legal Proceedings 29 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 5. Other Information 30 Item 6. Exhibits and Reports on Form 8-K 30-31 Signatures 32 PART I. FINANCIAL INFORMATION Item 1. Financial Statements COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets January 31, 2004 and July 31, 2003 January 31, July 31, 2004 2003 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 1,497,279 $ 1,404,615 Short-term investments 100,031 99,680 Receivables 897,281 957,275 Prepaid expenses and other current assets 152,134 275,019 Total current assets 2,646,725 2,736,589 Property and equipment, net 19,245 29,834 Investments, at cost 40,993 43,356 Intangible assets acquired, net 116,270 142,722 TOTAL ASSETS $ 2,823,233 $ 2,952,501 LIABILITIES AND SHAREHOLDERS' INTEREST Current liabilities: Accounts payable $ 261,247 $ 501,655 Accrued liabilities 824,799 1,281,419 Total current liabilities 1,086,046 1,783,074 Commitments and contingencies -- -- Shareholders' interest: 5% preferred stock, $25 par value 60,675 60,675 Common stock, $.01 par value 62,437 62,013 Capital in excess of par value 26,904,985 26,747,229 Accumulated deficit (25,290,910) (25,700,490) Total shareholders' interest 1,737,187 1,169,427 TOTAL LIABILITIES AND SHAREHOLDERS' INTEREST $ 2,823,233 $ 2,952,501 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the three months ended January 31, 2004 and 2003 (Unaudited) 2004 2003 Revenues Retained royalties $ 698,055 $ 833,004 Retained royalty settlements 250,000 -- 948,055 833,004 Patent enforcement expenses, net of reimbursements 14,174 118,362 Personnel and other direct expenses relating to revenue 588,085 670,672 General and administrative expenses 371,157 515,787 973,416 1,304,821 Operating loss (25,361) (471,817) Interest income 3,161 6,105 Other income (expense), net 86,487 (944,311) Net income (loss) $ 64,287 $(1,410,023) Net income (loss) per share: Basic and diluted $ 0.01 $ (0.23) Weighted average number of common shares outstanding: Basic 6,207,631 6,174,196 Diluted 6,398,726 6,174,196 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations for the six months ended January 31, 2004 and 2003 (Unaudited) 2004 2003 Revenue Retained royalties $ 1,084,954 $ 1,214,762 Retained royalty settlements 1,150,000 -- 2,234,954 1,214,762 Patent enforcement expenses, net of reimbursements 47,011 153,505 Personnel and other direct expenses relating to revenue 1,146,894 1,410,668 General and administrative expenses 797,327 939,781 Reversal of accounts payable exchanged for contingent note payable -- (1,583,445) 1,991,232 920,509 Operating income 243,722 294,253 Interest income 5,622 18,942 Other income (expense), net 160,236 (944,311) Net income (loss) $ 409,580 $ (631,116) Net income (loss) per share: Basic and diluted $ 0.07 $ (0.10) Weighted average number of common shares outstanding: Basic 6,204,488 6,166,284 Diluted 6,300,036 6,166,284 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Interest For the six months ended January 31, 2004 (Unaudited)
Preferred Stock Shares Common Stock Capital in issued and Shares excess of Accumulated outstanding Amount issued Amount par value Deficit Balance - July 31, 2003 2,427 $60,675 6,201,345 $62,013 $26,747,229 $(25,700,490) Exercise of common stock options 12,850 129 26,829 Stock issued under 1996 Directors' Stock Participation Plan 12,500 125 31,125 Stock issued under 401(k) Plan 17,002 170 99,802 Net income 409,580 Balance - January 31, 2004 2,427 $60,675 6,243,697 $62,437 $26,904,985 $(25,290,910)
See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the six months ended January 31, 2004 and 2003 (Unaudited) 2004 2003 Cash flows from operating activities: Net income (loss) $ 409,580 $ (631,116) Noncash items included in net income (loss): Depreciation and amortization 30,875 95,474 Stock compensation 33,266 40,740 Reversal of accounts payable exchanged for contingent note payable -- (1,583,445) Impairment loss on investment -- 944,000 Collection on Unilens receivable (160,235) -- Other, net 6,165 311 Net changes in various operating accounts: Receivables 59,994 (730,335) Prepaid expenses and other current assets 122,885 (3,208) Accounts payable and accrued liabilities (599,072) 52,005 Net cash flows used in operating activities (96,542) (1,815,574) Cash flows from investing activities: Purchases of property and equipment -- (13,567) Purchase of intangible assets -- (50,000) Proceeds from short-term investments (351) 1,036,025 Sale of interests in E. L. Specialists, Inc. -- 200,000 Collection on Unilens receivable 160,235 -- Other 2,364 -- Net cash flows provided by investing activities 162,248 1,172,458 Cash flows from financing activities: Proceeds from exercise of stock options 26,958 -- New cash flows provided by financing activities 26,958 -- Net increase (decrease) in cash and cash equivalents 92,664 (643,116) Cash and cash equivalents, beginning of period 1,404,615 750,421 Cash and cash equivalents, end of period $ 1,497,279 $ 107,305 See accompanying notes PART I. FINANCIAL INFORMATION (Continued) COMPETITIVE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Interim Financial Statements Interim financial information presented in the accompanying financial statements and notes hereto is unaudited. In the opinion of management, all adjustments that are necessary to present the financial statements fairly in conformity with accounting principles generally accepted in the United States of America, consisting only of normal recurring adjustments, have been made. The interim financial statements and notes thereto as well as the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended July 31, 2003. The year-end balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America. Capital Requirements, Management's Plans and Basis of Presentation The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. At January 31, 2004, the Company's accumulated deficit was $25,290,910. At January 31, 2004, its cash, cash equivalents and short-term investments were $1,597,310. The Company has incurred substantial operating and net losses in the three years ended July 31, 2003. Net patent enforcement expenses related to the Fujitsu and LabCorp litigations and investment losses have been substantial. In addition, the Company has incurred $534,000 cumulatively through January 31, 2004 for professional advice related to the ongoing SEC investigation (see Note 8 to Consolidated Financial Statements). Accordingly, our auditor's opinion with respect to our financial statements as of and for the year ended July 31, 2003 included an explanatory paragraph with respect to our ability to continue as a going concern. Management has and continues to take actions to improve the Company's results. These actions include aggressively pursuing new license agreements, reducing cash operating expenses, deferring payment of certain liabilities, structuring payment obligations contingent upon revenues, selling portions of CTT's share of the potential Materna award, and collecting amounts previously written off. See also Note 10 to the accompanying Consolidated Financial Statements. The amounts and timing of the Company's future cash requirements will depend on many factors, including the results of the Company's marketing efforts, the Materna(TM) award, Fujitsu and LabCorp lawsuits (see Note 8 to accompanying Consolidated Financial Statements), the SEC investigation, and the Company's fund raising efforts. To achieve profitability, the Company must successfully license technologies with current and long-term revenue streams greater than its operating expenses. To sustain profitability, the Company must continually add such licenses. However, royalty revenues, obtaining rights to new technologies, granting licenses, and enforcing intellectual property rights are subject to many factors outside our control or that we cannot currently anticipate. Although we cannot assure you that we will be successful in these efforts, management believes its plan would sustain the Company at least through fiscal 2005. 2. Net Income (Loss) Per Share The following table sets forth the computations of basic and diluted net income (loss) per share.
Six months Quarter ended January 31, ended January 31, 2004 2003 2004 2003 Net income (loss) applicable to common stock: $ 409,580 $ (631,116) $ 64,287 $(1,410,023) Weighted average number of common shares outstanding 6,204,488 6,166,284 6,207,631 6,174,196 Effect of dilutive securities: Stock options 95,548 -- 191,095 -- Weighted average number of common shares outstanding and dilutive securities 6,300,036 6,166,284 6,398,726 6,174,196 Net income (loss) per share of common stock: Basic and diluted $ 0.07 $ (0.10) $ 0.01 $ (0.23)
At January 31, 2004 and 2003, respectively, options and warrants to purchase 573,428 and 997,767 shares of common stock were outstanding but were not included in the computation of earnings per share because they were anti-dilutive (of total options and warrants outstanding of 1,113,717 and 997,767, respectively). 3. Stock-Based Compensation The Company accounts for stock-based compensation at its intrinsic value under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, the Company has recognized no compensation expense for options granted under its employees and directors stock option plans since the exercise price of all options granted under those plans was at least the market value of the underlying common stock on the grant date. If CTT had determined compensation expense for its option grants under its employees and directors stock option plans using the fair value method of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," the Company's results would have been:
Six months Quarter ended January 31, ended January 31, 2004 2003 2004 2003 Net income (loss), as reported $ 409,580 $ (631,116) $ 64,287 $(1,410,023) Deduct total stock-based compensation determined under the fair value method (169,556) (149,029) (73,802) (92,086) Pro forma net income (loss) $ 240,024 $ (780,145) $ (9,515) $(1,502,109) Net income per share: Basic and diluted - as reported $ 0.07 $ (0.10) $ 0.01 $ (0.23) Basic and diluted - pro forma $ 0.04 $ (0.13) $ 0.00 $ (0.24)
The pro forma information above may not be representative of pro forma fair value compensation effects in future periods. 4. Unilens Receivable In 1989, the Company sold substantially all the assets of University Optical Products Co. (UOP) to Unilens Corp. USA for $6 million dollars, including a $5.5 million installment receivable. Due to uncertainties related to its collection, the Company wrote off the entire installment receivable in fiscal 1989 and 1990. The Company deemed the receivable balance of $4.7 million uncollectible. Effective October 17, 2003, Unilens Corp. USA and Unilens Vision Inc. (Unilens) agreed to pay CTT an aggregate of $1,250,000 in quarterly installments of the greater of $100,000 or an amount equal to 50% of the royalties received by Unilens from one licensee. CTT and Unilens also agreed to settle all prior claims and to terminate all prior agreements between them. At January 31, 2004, Unilens has paid aggregate installments of $203,000. Installments are due each March 31, June 30, September 30 and December 31 beginning December 31, 2003. Unilens granted CTT a security interest in all Unilens real and personal property that is subordinate to a security interest held by UNIINVEST Holding AG in respect of $450,000 plus interest owed by Unilens to UNIINVEST Holding AG. Due to Unilens' financial condition and the uncertainty of its payments on this receivable ($1,047,000 at January 31, 2004), the Company will record other income as it receives payments from Unilens. 5. Receivables Receivables were: January 31, July 31, 2004 2003 Royalties $ 888,952 $ 905,654 Other 8,329 51,621 $ 897,281 $ 957,275 6. Intangible Assets Acquired The Company reported an impairment charge of $6,166 in the first half of fiscal 2004. The Company reported amortization expense of $20,286 and $78,759, in the first half of fiscal 2004 and 2003, respectively, and expects to record annual amortization expense of approximately $39,000 for fiscal 2004, $38,000 for fiscal 2005, $24,000 for fiscal 2006 and $3,000 for fiscal 2007 and 2008. January 31, July 31, 2004 2003 Intangible assets acquired, principally licenses and patented technologies, at adjusted cost $ 1,204,820 $ 1,687,067 Impairment charge (6,166) (482,247) Accumulated amortization (1,082,384) (1,062,098) $ 116,270 $ 142,722 7. Accrued Liabilities Accrued liabilities were: January 31, July 31, 2004 2003 Royalties payable $ 532,070 $ 854,616 Accrued professional fees 31,750 156,840 Accrued compensation 155,103 217,952 Accrued rent 48,750 -- Other 57,126 52,011 $ 824,799 $ 1,281,419 Accrued compensation at January 31, 2004 and July 31, 2003 included bonuses aggregating $50,000 for the fiscal year ended July 31, 2003. The Board of Directors awarded cash bonuses to administrative and professional staff (with the exception of Mr. Nano) for their efforts towards furthering the Company's goals to build recurring revenue streams and increase shareholder value. These bonuses will be paid to employees upon receipt of the potential Materna award (see Note 8 to accompanying Consolidated Financial Statements). 8. Contingencies Contingent Obligations CTT and Vector Vision, Inc. (VVI, a CTT consolidated subsidiary) have contingent future royalty obligations of $199,569 and $224,127, respectively, at January 31, 2004 to repay grant funding. Under a promissory note, the Company is contingently obligated to our former patent litigation counsel in the Fujitsu matter for $1,683,349 plus simple interest at the annual rate of 11% from October 28, 2002, payable only from future receipts in a settlement or other favorable outcome of the litigation against Fujitsu, if any. When we made this agreement in the first quarter of fiscal 2003, we reversed from accounts payable and recognized other operating income of $1,583,445 that was accrued at July 31, 2002. Since interest is also contingently payable, the Company has recorded no interest expense with respect to this note. Litigation Fujitsu In December 2000, (coincident with filing a complaint with the United States International Trade Commission (ITC) that was withdrawn in August 2001) CTT and the University of Illinois filed a complaint against Fujitsu Limited, Fujitsu General Limited, Fujitsu General America, Fujitsu Microelectronics, Inc. and Fujitsu Hitachi Plasma Display Ltd. (Fujitsu et al.) in the United States District Court for the Central District of Illinois seeking damages for past infringements and an injunction against future sales of plasma display panels (PDPs) that infringe two U.S. patents held by CTT's client, the University of Illinois. The two patents cover energy recovery in flat plasma display panels. In July 2001, CTT reactivated this complaint to pursue legal remedies (damages for past infringing sales and possibly damages for willfulness) that are not available at the ITC. In May 2002, the District Court granted defendants' motion to transfer this case to the Northern District of California. On July 31, 2003, the judge in this case issued his Markman decision to determine the scope of and the interpretation of terms in the underlying patent claims. The Court has since stayed all issues in both the underlying case and the counterclaims except issues relating to summary judgment. Currently, no trial is scheduled pending the outcome of summary judgment motions and possible appeal options. Since July 23, 2002, the University of Illinois has taken the lead in this litigation and assumed the cost of new lead counsel. Before that, CTT bore the entire cost of lead counsel in this litigation. In December 2002, CTT was dismissed as co-plaintiff from this litigation but retains its economic interest in any potential favorable outcome. In September 2001, Fujitsu et al. filed suit against CTT and Plasmaco, Inc. in the United States District Court for the District of Delaware (subsequently dismissed and refiled in the Northern District of California). This lawsuit alleged, among other things, that CTT misappropriated confidential information and trade secrets supplied by Fujitsu during the course of the ITC action. It also alleged that, with Plasmaco's assistance, CTT abused the ITC process to obtain information to which it otherwise would not have been entitled and which it will use in the action against Fujitsu in the United States District Court for the Northern District of California. On February 3, 2004, the U.S. Court of Appeals for the Federal Circuit heard oral arguments on appeal by the University of Illinois (now a defendant in this suit) of the District Court ruling that sovereign immunity does not attach to certain of the counterclaims. CTT is unable to estimate the legal expenses or the loss it may incur or the possible damages it may recover in these suits, if any, and has recorded no potential judgment proceeds in its financial statements to date. The Company records expenses in connection with this suit as they are incurred. LabCorp On May 4, 1999, Metabolite Laboratories, Inc. (MLI) and CTT (collectively plaintiffs) filed a complaint and jury demand against Laboratory Corporation of America Holdings d/b/a LabCorp (LabCorp) in the United States District Court for the District of Colorado. The complaint alleged, among other things, that LabCorp owes plaintiffs royalties for homocysteine assays performed beginning in the summer of 1998 using methods falling within the claims of a patent owned by CTT. CTT licensed the patent non-exclusively to MLI and MLI sublicensed it to LabCorp. Plaintiffs claimed LabCorp's actions constitute breach of contract and patent infringement. The claim sought an injunction ordering LabCorp to perform all its obligations under its agreement, to cure past breaches, to provide an accounting of wrongfully withheld royalties and to refrain from infringing the patent. Plaintiffs also sought unspecified money and exemplary damages and attorneys' fees, among other things. LabCorp filed an answer and counterclaims alleging noninfringement, patent invalidity and patent misuse. The jury that heard this case in November 2001 confirmed the validity of CTT's patent rights and found that LabCorp willfully contributed to and induced infringement and breached its contract. In December 2001, the Court entered judgment affirming the jury's verdict. In November 2002, the Court confirmed its judgment in favor of CTT and MLI. The Court's amended judgment awarded CTT approximately $1,019,000 damages, $1,019,000 enhanced damages, $560,000 attorneys' fees and $132,000 prejudgment interest. If the Court's judgment is upheld on appeal, CTT will retain approximately $1,100,000 of damages awarded plus post-judgment interest at the statutory rate. The U.S. Court of Appeals for the Federal Circuit heard oral arguments in this case on November 5, 2003 and we await its decision. CTT is unable to estimate the legal expenses it may incur or the possible damages it may ultimately recover in this suit, if any. CTT has not recorded revenue in its financial statements to date for awarded damages, awarded enhanced damages, awarded attorneys' fees or awarded interest from the Court's November 2002 judgment. CTT will record these revenues, if any, when the awards are final and collectible. The Company records expenses in connection with this suit as they are incurred. In a January 2003 Stipulated Order, LabCorp agreed to post a bond for all damages awarded in the November 2002 judgment and to pay CTT a percentage of sales of homocysteine tests performed since November 1, 2002 through final disposition of this case. In addition, pursuant to this order, LabCorp paid $250,000 for homocysteine assays performed from November 1, 2001 through October 31, 2002. In exchange, this Stipulated Order stayed execution of the monetary judgment and the permanent injunction against LabCorp in the Court's November 2002 judgment. This Stipulated Order is without prejudice to any party's position on appeal. Since January 2003, CTT has received cumulative royalties of $1,003,029 (revenues of $401,211 (of which $99,954 relate to assays performed from November 1, 2001 through October 31, 2002) and royalties paid or payable of $601,818 to our clients) from LabCorp pursuant to this January 2003 Stipulated Order. If the November 2002 judgment in favor of CTT is reversed on appeal, LabCorp's ability to recover amounts paid to CTT, if at all, may depend on the extent and reason for the reversal. CTT's management believes the probability that LabCorp will recover such amounts is very unlikely. Materna(TM) The University of Colorado Foundation, Inc., the University of Colorado, the Board of Regents of the University of Colorado, Robert H. Allen and Paul A. Seligman, plaintiffs, previously filed a lawsuit against American Cyanamid Company (now a subsidiary of Wyeth), defendant, in the United States District Court for the District of Colorado. This case involved a patent for an improved formulation of Materna, a prenatal vitamin compound sold by defendant. While the Company was not and is not a party to this case, the Company had a contract with the University of Colorado to license University of Colorado inventions to third parties. As a result of this contract, the Company is entitled to share 18.2% of damages awarded to the University of Colorado, if any, after deducting the expenses of this suit. On July 7, 2000, the District Court concluded that Robert H. Allen and Paul A. Seligman were the sole inventors of the reformulation of Materna that was the subject of the patent and that defendant is liable to them and the other plaintiffs on their claims for fraud and unjust enrichment. On August 13, 2002, the District Court judge awarded approximately $54 million, plus certain interest from January 1, 2002, to the plaintiffs. The defendant has posted a $59 million bond. On September 3, 2003, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit (CAFC) unanimously affirmed the August 13, 2002 judgment. In November 2003, the CAFC denied the defendant's appeal requesting a rehearing en banc. On February 12, 2004, the defendant filed petition for certiorari (a request that the U.S. Supreme Court hear its appeal) to the U.S. Supreme Court. Based on the language of the September 3, 2003 judgment, CTT's management believes there is a very reasonable possibility the Company will receive its share of damages finally awarded plus its proportionate share of interest. CTT has recorded no potential judgment proceeds in its financial statements to date. CTT will record revenue for judgment proceeds when it receives them. Sales of portions of expected Materna award Effective October 30, 2003, CTT sold to LawFinance Group, Inc. (LFG) a second portion of its expected $6,000,000 patent infringement judgment against American Cyanamid Company (Defendant) in the Materna lawsuit. On October 31, 2003, CTT received $900,000 cash in exchange for an Assigned Portion (plus court awarded interest thereon from October 31, 2003) of CTT's share of the potential award and recorded $900,000 in retained royalty settlement revenue in first quarter 2004. In management's opinion, it is most likely that the Assigned Portion will be $1,125,000. According to this LFG agreement, the Assigned Portion relating to the above transaction will be: a) $1,125,000 if, in the current Appeal, Defendant does not file a petition for certiorari with the United States Supreme Court (Supreme Court) or the Supreme Court denies Defendant's petition for certiorari during the current 2003-2004 Term and LFG receives full payment within 7 days of CTT's receiving payment from Defendant, or b) $2,160,000 if, in the current Appeal, Defendant files a petition for certiorari with the Supreme Court and the Supreme Court grants Defendant's petition and LFG receives full payment within 7 days of CTT's receiving payment from Defendant, or c) $1,400,000 in any circumstance that does not meet the conditions of a) or b). CTT has no financial obligation to repay LFG or to return any portion of the aggregate $1,500,000 received from LFG as of January 31, 2004. (On May 19, 2003, CTT received $600,000 cash from LFG in exchange for $1,290,000 (plus court awarded interest from May 19, 2003) of CTT's share of the potential award.) If CTT's share of the potential award is less than the total amount sold to LFG, the entire amount would be paid to LFG and LFG would be deemed paid in full. CTT granted LFG a first security interest in CTT's share of the potential award. Effective November 17, 2003, CTT sold to a CTT shareholder $312,500 (plus court awarded interest thereon from November 14, 2003) of its expected judgment in the Materna lawsuit in exchange for $250,000 in cash. CTT granted this shareholder a security interest subordinate to that of LFG in CTT's share of the potential award. If the judgment in the Materna lawsuit is reversed in an unappealable decision by the appropriate court, or if there are no litigation proceeds to be distributed, the Company has no financial obligation to repay this shareholder in either cash or shares of CTT common stock. If the award remaining after all amounts due to LFG is less than $312,500, CTT shall pay this shareholder the difference in shares of CTT common stock valued at its market value on the day of distribution, after which he would be deemed paid in full. Depending on the conditions described in a), b) and c) above relative to LFG, at January 31, 2004, CTT retained the remaining anticipated a) $3,272,500, b) $2,237,500, or c) $2,997,500 proceeds from this expected award (plus court awarded interest thereon) in addition to the $1,750,000 already received from LFG and this shareholder. SEC Investigation By letter of May 17, 2001, CTT received a subpoena from the Securities and Exchange Commission (SEC) seeking certain documents in connection with the SEC's private investigation captioned "In the Matter of Trading in the Securities of Competitive Technologies, Inc." On June 12, 2003, the staff of the Securities and Exchange Commission sent written "Wells Notices" to the Company, Frank R. McPike, Jr., (then the Company's Executive Vice President and Chief Financial Officer), Samuel M. Fodale (a director of the Company) and George C. J. Bigar (a former director of the Company). The "Wells Notices" indicated that the staff intended to recommend that the Commission bring a civil action against the Company and the individuals in the matter of trading in the stock of the Company, which the Company believes relates to the Company's stock repurchase program under which the Company repurchased shares of its stock from time to time during the period from October 28, 1998 to March 22, 2001. The Company, Mr. McPike, Mr. Fodale and Mr. Bigar have responded in writing to their respective "Wells Notices." The Company continues to cooperate with the Commission staff in this matter and awaits notice of the staff's formal recommendation of what action, if any, the Commission might take against the Company. CTT has agreed, pursuant to Article IV of its By-laws, to advance to Mr. Fodale his expenses incurred in connection with this investigation, and Mr. Fodale has agreed to repay amounts so advanced if it is ultimately determined that he is not entitled to be indemnified by CTT as authorized by Article IV. As of January 31, 2004, the Company has advanced $101,000 pursuant to this agreement. As of January 31, 2004, the Company has also paid $356,000 and accrued an additional $77,000 for the Company's and several current and former directors' (excluding Mr. Fodale, addressed above) related legal fees in the matter, which were in the aggregate approximately $433,000 to January 31, 2004. Except for Mr. Fodale, no individual current or former director's cumulative fees exceeded $60,000 at January 31, 2004. The Company has filed a claim under its directors' and officers' liability insurance with Federal Insurance Company of Warren, New Federal Jersey (Federal) for reimbursement of these fees in excess of the policy deductible. Federal denied the Company's claim. As a result, on February 3, 2004, the Company filed a complaint in the U.S. District Court for the District of Connecticut against Federal to enforce its claim. The Company will record any reimbursements for these expenses when it receives them. Other Pursuant to a severance agreement dated November 1, 2003, CTT agreed, among other things, to pay Mr. McPike up to $112,500 if and only if CTT receives settlement funds from the Materna litigation discussed above. CTT also agreed to extend the expiration date of his stock options vested at November 1, 2003 to the earlier of ten years from their grant date or November 1, 2006. By letter dated October 7, 2003, the U.S. Department of Labor notified CTT that certain former employees had filed complaints alleging discriminatory employment practices in violation of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514A, also known as the Sarbanes-Oxley Act. The complainants request that the Occupational Safety and Health Administration (OSHA) investigate and, if appropriate, prosecute such violations and request OSHA's assistance in obtaining fair and reasonable reimbursement and compensation for damages. Management believes these claims are without merit and the Company has responded to the complaints. It cannot estimate the final outcome of these complaints or the related legal or other expenses it may incur. 9. Related Party Transactions During the six months ended January 31, 2004 and 2003, CTT incurred charges (reported in personnel and other direct expenses relating to revenues) of approximately $5,300 and $6,000, respectively, related to consulting services provided by one director. 10. Subsequent Event On February 25, 2004, CTT entered into an agreement to obtain up to $5 million in equity financing from Fusion Capital Fund II, LLC (Fusion). Under the agreement, Fusion agreed to purchase up to $5 million of newly issued CTT common stock over a period of time up to 20 months. CTT has the right to control the timing and the amount of stock sold, if any, to Fusion. In this agreement, CTT agreed to initially issue at no cost to Fusion 53,138 commitment shares of CTT restricted common stock and an additional 35,425 commitment shares of CTT common stock on a pro rata basis as CTT obtains funds from selling common stock to Fusion. CTT will pay no cash commitment fee to Fusion to obtain this agreed funding. Under this agreement, funding of the initial $5 million would occur over a period of time commencing upon fulfillment of certain conditions, including the Securities and Exchange Commission declaring effective a registration statement covering the resale by Fusion of the commitment shares and newly issued shares of common stock to be purchased by Fusion. Upon completion of this funding, at CTT's sole discretion, it has the right to enter into a new agreement with Fusion covering the sale of up to an additional $5 million of common stock. When funding commences, Fusion has agreed to purchase on each trading day $12,500 of our common stock. The purchase price per share will be equal to the lesser of: -- the lowest sale price of our common stock on the purchase date; or -- the average of the three lowest closing sale prices during the 12 consecutive trading days prior to the date of purchase. We may, subject to certain provisions, set a minimum purchase price from time to time (currently $3.00 per share). Fusion does not have the right or obligation to purchase our stock in the event that the price of our stock is less than $1.00 per share. We presently estimate that the maximum number of shares we will sell to Fusion (exclusive of commitment fee shares) will be 1,159,552 shares. Therefore, the selling price of our common stock to Fusion will have to average at least $4.32 per share for us to receive the maximum proceeds of $5 million. Under our agreement with Brooks, Houghton & Company, Inc., our financial advisor who assisted in arranging the transaction with Fusion, we will pay the advisor a cash fee of $50,000 plus up to $200,000 in installments as we receive amounts from Fusion (5% of $5 million in the aggregate). In addition, we will grant to the advisor five-year warrants to purchase 57,537 shares of our common stock (approximately 5% of 1,159,552 shares, the maximum number of shares that may be sold to Fusion) at an exercise price of $4.345 per share (110% of the $3.95 average closing price of our common stock for a ten (10) day trading period ended January 21, 2004 that was used to determine the 88,563 commitment shares issuable to Fusion). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations We have rounded all amounts in this Item 2 to the nearest thousand dollars. In addition, all periods discussed in this Item 2 relate to our fiscal years ending July 31 (first, second, third and fourth quarters ending October 31, January 31, April 30 and July 31 respectively). Results of Operations - Three Months Ended January 31, 2004 (Second Quarter 2004) vs. Three Months Ended January 31, 2003 (Second Quarter 2003) Summary Results Net income for our second quarter 2004 was $64,000 compared with a loss of $1,410,000 for our second quarter 2003, an improvement of $1,474,000. Revenues In our second quarter 2004, $790,000 (83%) of our revenues were from four technologies: Ethyol $300,000 (32%), the sale of a portion of expected Materna award, $250,000 (26%), the homocysteine assay, $135,000 (14%) and gallium arsenide $105,000 (11%). Total revenues in our second quarter 2004 were $948,000, which was $115,000 (14%) higher than in our second quarter 2003, principally because of $300,000 royalty revenues from Ethyol(TM) (none in second quarter 2003) and retained royalty settlement revenues of $250,000 from sale of a portion of our potential award in the Materna(TM) lawsuit in our second quarter 2004 (see Note 8 to the accompanying Consolidated Financial Statements). Offsetting these increases were a $173,000 reduction in gallium arsenide revenues, $162,000 of nonrecurring second quarter 2003 revenues (see the Company's Annual Report on form 10-K for the year ended July 31, 2003) and a reduction of $100,000 because of other expiring licenses. Lower sales of licensed products, timing differences and expiring licenses caused the reduction in gallium arsenide revenues. Our licenses generally expire when the last of the licensed patents expires. Operating expenses Patent enforcement expenses, net of reimbursements, of $14,000 in second quarter 2004 were $104,000 (88%) lower than in second quarter 2003. The level of patent enforcement expenses varies depending on the stage of the litigation. We have included details of progress and status in these cases in Note 8 to the accompanying Consolidated Financial Statements. Personnel and other direct expenses relating to revenue were $588,000 for second quarter 2004, which was $83,000 (12%) lower than the $671,000 in second quarter 2003. Personnel expenses (which include costs of consultants engaged to assist us in developing specific revenue opportunities and strategic alliances and relationships) were $68,000 lower in second quarter 2004. In second quarter 2004, we had approximately 14 full-time equivalents compared with approximately 16 in second quarter 2003. In addition, amortization expense on intangible assets was $30,000 lower in second quarter 2004. General and administrative expenses for second quarter 2004 were $371,000, which was $145,000 (28%) lower than the $516,000 for second quarter 2003. We reduced proxy and annual report expenses by $57,000, audit and tax expenses by $33,000 and legal expenses directly related to the SEC investigation by $69,000 (see Note 8 to Consolidated Financial Statements) in our second quarter 2004. Financing expenses increased $31,000. Other income, net Other income, net, for second quarter 2004 included a $103,000 installment received from Unilens Corp. USA pursuant to a settlement agreement effective October 17, 2003, partially offset by related expenses. We recorded an impairment charge of $944,000 on our investment in NTRU Cryptosystems, Inc. in our second quarter 2003. Results of Operations - Six Months Ended January 31, 2004 (First Half 2004) vs. Six Months Ended January 31, 2003 (First Half 2003) Summary Results Net income for our first half 2004 was $410,000 compared with a loss of $631,000 for our first half 2003, an improvement of $1,041,000. Revenues In our first half 2004, $1,850,000 (83%) of our revenues were from three technologies: the sales of portions of expected Materna award $1,150,000 (52%), the homocysteine assay $401,000 (18%) and Ethyol $300,000 (13%). Total revenues in our first half 2004 were $2,235,000, which was $1,020,000 (84%) higher than in our first half 2003, principally because of retained royalty settlement revenues of $1,150,000 in our first half 2004 from sales of portions of our potential award in the Materna(TM) lawsuit discussed in Note 8 to accompanying Consolidated financial Statements. Royalty revenues from Ethyol increased $153,000 due to increasing sales and their effect on when we record these royalties, up to our $500,000 per calendar year maximum. In our first half 2004, we recorded $300,000 of Ethyol royalties in the second quarter and none in the first quarter. In our first half 2003, we recorded $147,000 of Ethyol royalties in the first quarter and none in the second quarter. We expect to record the remaining $200,000 of our calendar year 2004 Ethyol royalties in our third quarter 2004. CTT received $140,000 homocysteine revenues from settlement of a royalty audit in our first half 2004. Recurring royalty revenues from homocysteine assays increased $101,000 (63%). Partially offsetting these increases were a $200,000 reduction in gallium arsenide revenues, a $163,000 reduction because of other expiring licenses and $162,000 of nonrecurring first half 2003 revenues (see the Company's Annual Report on Form 10-K for the year ended July 31, 2003). Lower sales of licensed products, timing differences and expiring licenses caused the reduction in gallium arsenide revenues. Operating expenses Patent enforcement expenses, net of reimbursements, of $47,000 in first half 2004 were $106,000 (69%) lower than in first half 2003. The level of patent enforcement expenses varies depending on the stage of the litigation. We have included details of progress and status in these cases in Note 8 to the accompanying Consolidated Financial Statements. Personnel and other direct expenses relating to revenue were $1,147,000 for first half 2004, which was $264,000 (19%) lower than the $1,411,000 in first half 2003. Personnel expenses (which include costs of consultants engaged to assist us in developing specific revenue opportunities and strategic alliances and relationships) were $250,000 lower in first half 2004. In first half 2004, we had approximately 14 full-time equivalents compared with approximately 16 in first half 2003. General and administrative expenses for first half 2004 were $797,000, which was $142,000 (15%) lower than the $940,000 for first half 2003. We reduced proxy and annual report expenses by $83,000, audit and tax expenses by $45,000 and legal expenses directly related to the SEC investigation by $36,000 (see Note 8 to accompanying Consolidated Financial Statements) in first half 2004. Financing expenses increased $65,000. Reversal of accounts payable exchanged for contingent note payable In first quarter 2003, we reversed from accounts payable $1,583,000 that was accrued at July 31, 2002. This one-time reversal constituted other operating income (see Note 8 to accompanying Consolidated financial Statements). Other income, net Other income, net, for first half 2004 included $203,000 of installments received from Unilens Corp. USA pursuant to a settlement agreement effective October 17, 2003, partially offset by related and other expenses (see Note 4 to accompanying Consolidated Financial Statements). We recorded an impairment charge of $944,000 on our investment in NTRU Cryptosystems, Inc. in our second quarter 2003. The Company has substantial net operating and capital loss carryforwards for Federal income tax purposes. Financial Condition and Liquidity Condition at January 31, 2004 At January 31, 2004, the Company had net working capital of $1,561,000 (which was $607,000 more than at July 31, 2003) and no outstanding debt or available credit facility. However, see $5 Million Equity Financing below. At January 31, 2004, cash, cash equivalents and short-term investments of $1,597,000 were $93,000 higher than at July 31, 2003 and were available to support our current operating needs. Operating activities in first half 2004 used $97,000 of cash: $600,000 for paying accounts payable and accrued liabilities partially offset by $410,000 from net income, $123,000 from prepaid expenses and other current assets and $60,000 from collecting receivables. Investing activities provided $162,000 of cash primarily from the Unilens payment described above. Financing activities provided $27,000 from exercise of stock options. In addition to fluctuations in the amounts of royalties reported, changes in royalties receivable and payable reflect the Company's normal cycle of royalty collections and payments. Funding and capital requirements $5 Million Equity Financing On February 25, 2004, CTT entered into an agreement to obtain up to $5 million in equity financing from Fusion Capital Fund II, LLC (Fusion). Under the agreement, Fusion agreed to purchase up to $5 million of newly issued CTT common stock over a period of time up to 20 months. CTT has the right to control the timing and the amount of stock sold, if any, to Fusion. In this agreement, CTT agreed to initially issue at no cost to Fusion 53,138 commitment shares of CTT restricted common stock and an additional 35,425 commitment shares of CTT common stock on a pro rata basis as CTT obtains funds from selling common stock to Fusion. CTT will pay no cash commitment fee to Fusion to obtain this agreed funding. Under this agreement, funding of the initial $5 million would occur over a period of time commencing upon fulfillment of certain conditions, including the Securities and Exchange Commission declaring effective a registration statement covering the resale by Fusion of the commitment shares and newly issued shares of common stock to be purchased by Fusion. Upon completion of this funding, at CTT's sole discretion, it has the right to enter into a new agreement with Fusion covering the sale of up to an additional $5 million of common stock. When funding commences, at CTT's sole option, Fusion has agreed to purchase $12,500 of our common stock on each trading day. The purchase price per share will be equal to the lesser of: -- the lowest sale price of our common stock on the purchase date; or -- the average of the three lowest closing sale prices during the 12 consecutive trading days prior to the date of purchase. See Note 10 to the accompanying Consolidated Financial Statements. Capital requirements The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. At January 31, 2004, the Company's accumulated deficit was $25,290,910. At January 31, 2004, its cash, cash equivalents and short-term investments were $1,597,310. The Company has incurred substantial operating and net losses in the three years ended July 31, 2003. Net patent enforcement expenses related to the Fujitsu and LabCorp litigations and investment losses have been substantial. In addition, the Company has incurred $534,000 cumulatively through January 31, 2004 for professional advice related to the ongoing SEC investigation (see Note 8 to Consolidated Financial Statements). Accordingly, our auditor's opinion with respect to our financial statements as of and for the year ended July 31, 2003 included an explanatory paragraph with respect to our ability to continue as a going concern. Management has and continues to take actions to improve the Company's results. These actions include aggressively pursuing new license agreements, reducing cash operating expenses, deferring payment of certain liabilities, structuring payment obligations contingent upon revenues, selling portions of CTT's share of the potential Materna award, and collecting amounts previously written off. See also the $5 Million Equity Financing above. The amounts and timing of the Company's future cash requirements will depend on many factors, including the results of the Company's marketing efforts, the Materna(TM) award, Fujitsu and LabCorp lawsuits (see Note 8 to accompanying Consolidated Financial Statements), the SEC investigation, and the Company's fund raising efforts. To achieve profitability, the Company must successfully license technologies with current and long-term revenue streams greater than its operating expenses. To sustain profitability, the Company must continually add such licenses. However, royalty revenues, obtaining rights to new technologies, granting licenses, and enforcing intellectual property rights are subject to many factors outside our control or that we cannot currently anticipate. Although we cannot assure you that we will be successful in these efforts, management believes its plan would sustain the Company at least through fiscal 2005. Compliance with American Stock Exchange listing standards At July 31, 2003, CTT's shareholders' interest was $1,169,000. On November 12, 2003, the American Stock Exchange (AMEX) notified CTT that it did not meet certain AMEX listing standards and that the Company must submit a plan for returning to compliance with those standards to maintain its AMEX listing. On January 23, 2004, AMEX notified CTT that AMEX had accepted CTT's plan to regain compliance with AMEX continued listing standards and that AMEX was continuing CTT's listing pursuant to an extension. To maintain its listing, CTT is required to make progress consistent with its plan during the extension period and to regain compliance with AMEX continued listing standards by May 12, 2005. We cannot assure you if or when we will again meet AMEX listing requirements. Installment receivable from Unilens Corp. USA and Unilens Vision, Inc. (Unilens) Due to Unilens' financial condition and the uncertainty of its payments on our installment receivable ($1,047,000 at January 31, 2004), the Company will record other income as it receives payments from Unilens (see Note 4 to accompanying Consolidated Financial Statements). Commitments In addition to liabilities recorded at January 31, 2004, the Company's commitments were: Payments Due by Period Less More At January 31, 2004 than 1-3 3-5 than 5 Contractual Obligations Total 1 year years years years Operating lease obligations $735,000 $294,000 $441,000 $ -- $ -- Other obligations 19,000 4,000 15,000 -- -- $754,000 $298,000 $456,000 $ -- $ -- The Company's other commitments are either contingent upon a future event or terminable on less than thirty days' notice. Our directors, officers, employees and agents may claim indemnification in certain circumstances. We are currently exposed to potential indemnification claims in connection with the SEC investigation and with complaints filed by certain former employees alleging discriminatory employment practices in violation of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002 (see Note 8 to accompanying Consolidated Financial Statements). We seek to limit and reduce our potential financial obligations for indemnification by carrying directors' and officers' liability insurance (subject to deductibles). The Company has several agreements with third parties to assist it in licensing specific technologies or to audit licensees' royalty reports. Under these agreements, the third parties are compensated only from the new revenues generated by their efforts. In one of the Company's agreements (which the Company may terminate on ninety days' written notice), it has committed to pay minimum annual license fees of $10,000 on each January 1, beginning January 1, 2004. In another agreement (which the Company may also terminate on ninety days' written notice), it has committed to pay $4,000 in June 2004 and a $15,000 termination fee if the agreement is terminated in certain circumstances before January 31, 2006. In addition, the Company has agreed to reimburse patent expenses ($59,000 as of January 31, 2004) from future royalty receipts before retaining any revenue. Under another agreement, the Company has agreed to pay $25,000 per technology portfolio when a candidate transferee demonstrates firm interest in two technology portfolios. CTT and Vector Vision, Inc. (VVI, a CTT consolidated subsidiary) have remaining contingent obligations of $199,569 and $224,127, respectively, at January 31, 2004 to repay grant funding. Other Matters The Company carries liability insurance, directors' and officers' liability insurance and casualty insurance for owned or leased tangible assets. The Company is involved in several lawsuits all of which are detailed in Note 8 to the accompanying Consolidated Financial statements. Critical Accounting Policies Preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses for the reporting period, and related disclosures. We base our estimates on the information available at the time and assumptions we believe are reasonable. We believe that significant estimates, assumptions and judgments affect the following critical accounting policies used in preparing our consolidated financial statements. Our audit committee has reviewed their selection, application and disclosure. Revenue Recognition We derive revenues primarily from patent and technology license and royalty fees. Since these revenues result from our representation agreements with owners and assignees of intellectual property rights, we record revenues net of the owners' and assignees' shares of license and royalty fees. We stipulate the terms of our licensing arrangements in written agreements with the owners, assignees and licensees. Single element arrangements Since we usually have no significant obligations after we execute license agreements, they are generally single element arrangements. Under the terms of our license agreements, we generally receive an upfront license fee and a royalty stream based on the licensee's sales of products applying the licensed technology. License fees under single element arrangements We recognize upfront, nonrefundable license fees when our licensee executes the license agreement and pays the license fee. When these two events occur, we have persuasive evidence of an arrangement, no continuing obligations, completed delivery, and assurance of collection. Royalty fees under single element arrangements Although we fix the royalty rate (e.g., percentage of sales or rate per unit sold) in the license agreement, the amount of earned royalties is contingent upon the amount of licensed product the licensee sells. Royalties earned in each reporting period are contingent on the outcome of events (i.e., the licensee's sales of licensed products) occurring within that period that are not within our control and are not directly tied to our providing services. Therefore, we recognize this royalty revenue when the contingency is resolved and we can estimate the amount of royalty fees earned, which is upon our receipt of the licensee's royalty report. Royalty settlements We recognize royalty settlement revenue when our rights to litigation awards related to our patent and license rights are final and unappealable and we have assurance of collecting those awards. We also recognize royalty settlement revenue when we have collected litigation awards in cash (from the adverse party or by sale of our rights to another party without recourse) and we have no obligation or are very unlikely to be obligated to repay such collected amounts. We include royalty settlement revenue in operating revenue. Although final litigation awards may be infrequent, they are an integral aspect of our patent and technology licensing and commercialization business. Other arrangements In limited instances, we enter into multiple element arrangements with continuing service obligations. Based upon the limited verifiable objective evidence available, we generally defer all revenue from such multiple element arrangements until we deliver all elements. We evaluate milestone billing arrangements on a case-by- case basis. Generally we recognize upfront fees ratably over the entire arrangement and milestone payments as we achieve milestones. Impairment of Intangible Assets and Long-Term Investments We review intangible assets and investments in equity securities that do not have readily determinable fair values for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of expected future undiscounted cash flows is less than the carrying amount of the asset, we recognize an impairment loss measured by the amount the asset's carrying value exceeds its fair value and re- evaluate the remaining useful life of the asset. If a quoted market price is available for the asset or a similar asset, we use it in determining fair value. If not, we determine fair value as the present value of estimated cash flows based on reasonable and supportable assumptions. We regularly apply this policy to our equity investments in privately held companies. We consider the investee's financial health (including cash position), business outlook (including product stage and viability to continue operations), recent funding activities, and business plan (including historical and forecast financial information). These investments are not readily transferable and our opportunities to liquidate them are limited and subject to many factors beyond our control, including circumstances internal to the investee and broader economic conditions. We also apply this policy to all acquired intangible assets. Related Party Transactions CTT incurred charges (reported in personnel and other direct expenses relating to revenue) of $5,300 and $6,000 related to consulting services provided by one director in the first half of fiscal 2004 and 2003, respectively. The Company's board of directors determined that when a director's services were outside the normal duties of a director, the Company should compensate the director at the rate of $1,000 per day plus expenses (which is the same amount it pays a director for attending a one-day Board meeting). Forward-Looking Statements Statements about our future expectations, including development and regulatory plans, and all other statements in this Quarterly Report on Form 10-Q other than historical facts, are "forward- looking statements" within the meaning of applicable Federal Securities Laws and are not guarantees of future performance. When used in this Form 10-Q, the words "anticipate," "believe," "intend," "plan," "expect" and similar expressions as they relate to us or our business or management are intended to identify such forward-looking statements. These statements involve risks and uncertainties related to market acceptance of and competition for our licensed technologies and other risks and uncertainties inherent in our business, including those set forth in Item 1 of our Annual Report on Form 10-K for the year ended July 31, 2003 under the caption "Risk Factors," and other factors that may be described in our other filings with the Securities and Exchange Commission, and are subject to change at any time. Our actual results could differ materially from these forward-looking statements. We undertake no obligation to update publicly any forward-looking statement. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures The Company's Chief Executive and Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of January 31, 2004. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported as specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, the Company's Chief Executive and Financial Officer concluded that these controls were effective as of January 31, 2004. (b) Change in Internal Controls There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses in our internal controls. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in pending litigation matters, including the Company's complaint filed on February 3, 2004, against Federal Insurance Company of Warren, New Jersey, that are fully detailed in Note 8 to the accompanying Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held January 16, 2004, the following directors were elected: Name Votes For Votes Withheld Richard E. Carver 5,467,573 436,564 George W. Dunbar, Jr. 4,913,809 990,328 Samuel M. Fodale 4,916,409 987,728 John B. Nano 5,654,557 249,580 Charles J. Philippin 5,475,673 428,464 John M. Sabin 4,975,609 928,528 There were no broker non-votes. In addition, at the Company's annual meeting of stockholders held January 16, 2004, stockholders did not approve the proposal to amend the 1996 Directors' Stock Participation Plan by increasing the number of shares of Common Stock available for issuance under the Plan by 25,000 shares to a total of 125,000 shares. There were 1,150,834 shares voted for and 1,296,705 shares voted against this proposal, and 39,376 shares abstained. There were 3,417,222 broker non-votes on this matter. Item 5. Other Information (a) Effective January 1, 2004, the Company appointed Dr. Donald J. Freed as Executive Vice President and Chief Technology Officer. Prior thereto, he consulted for CTT from April 2003 to December 2003. From November 1998 through March 2003, he served as Vice President, Business Development, and prior thereto, as Vice President of Marketing of Nanophase Technologies Corporation, a publicly held nanomaterials company. Effective November 1, 2003, the Company agreed, among other things, to terminate Frank R. McPike, Jr.'s employment with the Company. Prior to July 1, 2003, Mr. McPike served as Executive Vice President and Chief Financial Officer of the Company (see Note 8 to accompanying Consolidated Financial Statements). Item 6. Exhibits and Reports on Form 8-K Page A) Exhibits 10.1 Agreement between registrant and a CTT shareholder effective November 17, 2003** 33-54 10.2* Severance agreement between registrant and Frank R. McPike, Jr. effective November 1, 2003 55-64 10.3 Letter agreement between registrant and Brooks, Houghton & Company, Inc. and Brooks, Houghton Securities, Inc. and their affiliates dated October 7, 2002 and extended July 10, 2003 65-73 31.1 Certification by the Principal Executive and Financial Officer of Competitive Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)) 74-75 32.1 Certification by the Principal Executive and Financial Officer of Competitive Technologies, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 76 __________________ * Management Contract or Compensatory Plan ** Portions of this Exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and such portions have been filed separately with the Commission. B) Reports on Form 8-K The Company filed the following two reports on Form 8-K during the period covered by this report on Form 10-Q: 1) On November 10, 2003, the Company filed a report on Form 8-K under Items 2, 5 and 7 to report its October 30, 2003 sale to LawFinance Group, Inc. of a second portion of its expected patent infringement judgment against American Cyanamid Company in the Materna lawsuit. 2) On January 29, 2004, the Company filed a report on Form 8-K (date of earliest event reported January 23, 2004) under Items 5 and 7 to report that the American Stock Exchange had accepted the Company's plan to regain compliance with AMEX continued listing standards within the extension period ending May 12, 2005. In addition, on December 15, 2003, the Company furnished a report on Form 8-K under Item 12 to the SEC for furnishing the press release announcing results for its first quarter ended October 31, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPETITIVE TECHNOLOGIES, INC. (the registrant) By /s/ John B. Nano John B. Nano President, Chief Executive Officer, Chief Financial Officer and Authorized Signer Date: March 16, 2004 EX-10.1 4 ex10-1.txt PURCHASE AGREEMENT Exhibit 10.1 Purchase Agreement Between Competitive Technologies, Inc. and [*] Agreement AGREEMENT EFFECTIVE as of November 17th, 2003 ("Effective Date") by mutual consent of Competitive Technologies, Inc., a Delaware corporation (hereinafter referred to as "SELLER") having a place of business at: Competitive Technologies, Inc. 1960 Bronson Road Fairfield, CT 06824 and [*], an individual (hereinafter referred to as "PURCHASER") having a place of residence at: [*] [*] [*] SELLER and PURCHASER being sometimes hereinafter referred to singularly as a "Party" and collectively as "Parties". WITNESSETH: WHEREAS, SELLER and PURCHASER are contemplating entering into a relationship that calls for SELLER to sell a portion of its potential proceeds from a judgment award from the federal Lawsuit in which a judgment has been entered by the Court; WHEREAS, SELLER is willing to sell a portion of its award to PURCHASER; and WHEREAS, PURCHASER is willing to purchase a portion of the award to which SELLER is entitled to receive from the Lawsuit. NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties agree as follows: _____________ * Portions of this Exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and such portions have been filed separately with the Commission. 1.0 Definitions. The following definitions shall apply to terms used in this Agreement: 1.1 "Adverse Party" - refers to American Cyanamid Company and any other or later added party(ies) in the Litigation, whose interests are or may become adverse to Plaintiffs or SELLER. 1.2 "Agreement" - refers to this Agreement, all documents described herein as exhibits and documents referred herein as part of this Agreement. 1.3 "Appeal" - refers to the appeal of the Lawsuit currently pending in the United States Court of Appeals for the Federal Circuit (CAFC) and any further appeals related thereto. 1.4 "Assigned Portion" - refers to the sum of three hundred twelve thousand five hundred dollars ($312,500.00 USD). 1.5 "Assignment" - refers to the document entitled Assignment of Litigation Proceeds, attached hereto as Exhibit 1 and incorporated herein by this reference, and all those other or related documents evidencing and acknowledging assignment of an interest in the Judgment to PURCHASER executed by SELLER and SELLER's successors and assigns. 1.6 "Attorney" - refers to Robert N. Miller, Esq., Perkins Coie, LLP, 1899 Wynkoop Street, Suite 700, Denver, CO 80202, Tel. No. (303) 291-2300; Kristin M. Diamond, Esq., Technology Transfer/Research Compliance Attorney, University of Colorado, System Technology Transfer Office, 4001 Discovery Drive, Suite 390, 588 SYS; Boulder, CO 80309-0588; Tel No. (303) 735-4474 / Fax No. (303) 735-3831; and such other attorneys as may be employed, consulted, or engaged by Plaintiffs in connection with the Appeal and the Litigation. 1.7 "Proceeds Date" - refers to that date on which the PURCHASER remits the Purchase Price to SELLER. 1.8 "Court" - refers to the United States District Court for the District of Colorado. 1.9 "Discount" - refers to eighty percent (80.0%), which is the percentage by which the Assigned Portion has been reduced to establish the Purchase Price. 1.10 "Judgment" - refers to: (i) the judgment for the Plaintiffs entered by the Court in the Lawsuit, a copy of which is attached to this Agreement, as Reference Documents Exhibit, and incorporated herein by this reference; (ii) any later amended, modified, augmented, supplemental or other judgment and judgment on appeal; and (iii) any and all rights of Plaintiffs and SELLER and their successors and assigns to Proceeds, as defined below, from the Litigation, as defined below. 1.11 "Judgment Amount Assigned" - refers to the Assigned Portion plus the interest accruing on the Judgment, allocable to the Assigned Portion, commencing on the Proceeds Date of Nov. 14th, 2003 . Provided however, if the Judgment is set aside and remanded for Further Proceedings, and if interest is ultimately awarded as to any claim for the period on or after the Proceeds Date ("Accrual Period"), the Judgment Amount Assigned shall be the Assigned Portion plus the portion of the interest awarded or later accruing that is allocable to the Assigned Portion for the Accrual Period. In addition, should SELLER be in default or breach of this Agreement, there shall be added to the Judgment Amount Assigned, all expenses, costs (including reasonable attorneys fees), and the amount of all damages sustained by PURCHASER on account of any such default or breach. 1.12 "Judgment Collateral" - refers to: (i) the bond or other undertaking lodged with the Court to secure payment of the Judgment, a copy of which is attached to this Agreement as Exhibit 2, and incorporated herein; (ii) any other bond or other undertaking, serving as collateral for the Judgment (including all interest, income or proceeds accruing or paid thereon); and, (iii) any additional or substitute security, guaranty, bond, surety, segregated account or other undertaking given on account of the Judgment. 1.13 "Judgment Debtor(s)" - refers to the Adverse Party and any affiliate, successor, surety or guarantor, as may assume or be bound by the Judgment or other obligations to Plaintiffs or SELLER arising out of the Litigation. 1.14 "Lawsuit" - refer to the case of The University of Colorado Foundation, Inc., et al. v. American Cyanamid Company, Civil Action No. 93-K-1657, in which the Judgment was entered by the Court and all related post-trial proceedings. 1.15 "Litigation" - refers to the (i) Lawsuit; (ii) all appellate proceedings on remand, enforcement, ancillary, parallel or alternate dispute resolution proceedings and processes arising out of or related to the Lawsuit; (iii) any other proceedings founded on the underlying facts giving rise to the Lawsuit, in which SELLER or SELLER's successor in interest is a party; and (iv) all arrangements made with SELLER by or among any Adverse Party having the effect of resolving any of SELLER's claims against any Adverse Party. 1.16 "Litigation Proceeds" - refers to all Proceeds of the Litigation. 1.17 "Plaintiffs" - refers to: The University of Colorado Foundation Inc. (hereinafter, "UCFI"); The University of Colorado; The Board of Regents of the University of Colorado; Dr. Robert H. Allen; Dr. Paul A. Seligman; and, any other party(ies) in the Litigation owning rights, title, and interest in and to the Judgment and any Proceeds of the Litigation. 1.18 "Purchase Price" - refers to the sum of two hundred fifty thousand dollars ($250,000.00 USD). 1.19 "Proceeds" - refers to cash, negotiable instruments, contract rights, annuities, and any other rights to payment of cash and transfer of things of value or other property. 1.20 "Receipt" - refers to the SELLER's Acknowledgment of Receipt of Purchase Price. 1.21 "SELLER's Attorney" - refers to the Vice President and General Counsel, Competitive Technologies, Inc., 1960 Bronson Road, Fairfield, CT 06824, Tel No. (203) 255-6044, and such other attorneys as may be employed, consulted, or engaged by SELLER. 1.22 "SELLER's Litigation Proceeds" - refers to all of SELLER's legal and/or equitable rights, title and interest in and to the Litigation Proceeds thereof, whether in the nature of ownership, lien, security interest or otherwise, on account of SELLER's claims against the Adverse Party, Attorney's fees and costs, or any other agreement with one or more SELLER. 2.0 Underlying Facts. SELLER represents and acknowledges the following underlying facts as true and correct and on which PURCHASER has placed material reliance in entering and which form the factual foundation for this Agreement: 2.1 Plaintiffs are parties to the Lawsuit. 2.2 Robert N. Miller is Plaintiffs' attorney of record in the Lawsuit. 2.3 Kristin M. Diamond is Plaintiffs' in-house attorney. 2.4 Plaintiffs have obtained the Judgment against the Adverse Party(ies) at the District Court level. The Judgment was affirmed by the CAFC on September 3rd, 2003. The Adverse Party(ies) subsequently filed a petition for a Re-Hearing and Re-Hearing En Banc at the CAFC. The petition of the Adverse Party(ies) was denied on November 12th, 2003. 2.5 At the time the Lawsuit was filed, SELLER was doing business as University Patents, Inc. (hereinafter, "UPI"). SELLER formally changed its name to Competitive Technologies, Inc., in 1994. 2.6 By Agreement, dated August 1, 1993, between UCFI and UPI, a copy of which is attached hereto as Exhibit 3 and incorporated herein, Plaintiffs assigned to SELLER eighteen and two-tenths percent (18.2%) of Plaintiffs' rights, title, and interest in and to the entire Judgment and any and all Proceeds of the Litigation after deduction of Attorney's contingent fee and out of pocket expenses. 2.7 SELLER is entitled to receive approximately six million dollars ($6,000,000.00 USD) of the Judgment, plus interest, by virtue of the Agreement referenced in subparagraph 2.6 hereinabove and attached hereto as Exhibit 3. 2.8 The following documents in the Lawsuit, provided to PURCHASER, (i) are complete, accurate and genuine, (ii) remain in full force and effect as of the date hereof, and to the best of SELLER's knowledge after due inquiry to Attorney and Plaintiffs, have not been and (except as to issues that may be raised on appeal), are not currently proposed by any party to be modified or superseded (unless copy of the modifying, superceding or amended document(s) or written notice thereof have been provided to PURCHASER): 2.8.1 Reference Documents Exhibit, the Judgment and Bond, Undertaking or other Judgment collateral, if any; 2.8.2 The Appellate Briefs, Notice(s) of Appeal and other documents filed in the Appellate Court; 2.8.3 If all briefs have not been filed; all trial briefs and related points and authorities filed in the Lawsuit; the verdict, all post-trial motion papers and rulings, if any; 2.8.4 All other papers and documents supplied by Attorney with respect to the Appeal and the Lawsuit. 2.9 SELLER hereby irrevocably instructs Attorney and SELLER's Attorney to do the following: (i) provide all documents requested by PURCHASER relating to the Appeal, the Litigation, settlement of the Litigation, Attorney's or other persons' interest in or claim against the Judgment and the subject matter of this Agreement; (ii) when requested by PURCHASER, to provide factual information within the knowledge of Plaintiffs, Attorney, or SELLER's Attorney; and (iii) to perform all those action(s) to be taken by Attorney or by SELLER's Attorney, as agent of SELLER, provided for in this Agreement. Provided, however, nothing in this Agreement shall: (1) require the dissemination of information to PURCHASER or other persons, which is subject to attorney-client or other evidentiary privilege, unless it is done in a manner that does not constitute a waiver of the applicable privilege; or, (2) give PURCHASER any right to direct or control Plaintiffs, Attorney, SELLER, or SELLER's Attorney in pursuing or settling of the Litigation. Any information disclosed to PURCHASER shall be treated as confidential by PURCHASER and may be used by PURCHASER solely for purposes related to or arising out of this Agreement. 2.10 The transaction provided for in this Agreement involves substantial economic risk to PURCHASER. 3.0 Purposes. 3.1 SELLER is in need of funds to provide for SELLER's obligations and to accomplish SELLER's current economic objectives. The parties have entered into this Agreement for the underlying purpose of providing SELLER the opportunity to receive cash now on account of the Litigation, without regard to the decision on the pending Appeal and the outcome of the Litigation. PURCHASER is interested in acquiring a partial assignment of a civil money judgment during appeal for cash. Being a purchase, PURCHASER is at risk as to the result of the court's decision on the appeal and the outcome of the Litigation. In arriving at the Purchase Price, the Litigation Proceeds to be purchased under the Agreement have been discounted, taking into account PURCHASER's risks in buying a portion of the Litigation Proceeds when an appeal has been taken, among other things. 3.2 PURCHASER has offered to pay SELLER the Purchase Price in exchange for an assignment of the Litigation Proceeds in the amount of the Judgment Amount Assigned. SELLER has accepted PURCHASER's offer and the parties intend to set forth their contract in this Agreement. The Purchase Price and Judgment Amount Assigned have been agreed to on an arm's length basis. 4.0 Nature of Transaction. The parties recognize and acknowledge that the rights granted PURCHASER will be purchased and an ownership interest will be sold, transferred and assigned by SELLER to PURCHASER. This transaction is not a loan. It is not intended as collateral for any loan. Unless otherwise stated in this Agreement, SELLER has no personal obligation to pay any amount to PURCHASER. 5.0 Agreement To Sell And Buy/Non-Assumption By Purchaser. 5.1 Under and subject to the terms and conditions of this Agreement and in exchange for the Purchase Price, SELLER agrees to and, upon remittance of the Purchase Price by PURCHASER, shall sell, transfer, assign and deliver to PURCHASER, SELLER's legal and equitable rights, title and interest in and to the SELLER's Litigation Proceeds, the Judgment Collateral and all Proceeds and or other rights and property SELLER has the right to recover on account of the Litigation or that arise therefrom in and up to the amount of the Judgment Amount Assigned. PURCHASER agrees to buy all of said rights and interests from SELLER and to pay the Purchase Price under and subject to the terms and conditions of this Agreement. 5.2 In making this Agreement and purchasing a portion of SELLER's Litigation Proceeds, PURCHASER is not otherwise acquiring or assuming any responsibility, obligation or liability of SELLER or arising out of any rights or interests of SELLER being purchased including, but not limited to, any duty or obligation to the Judgment Debtor(s), the SELLER or any obligation or expense with regard to the Litigation, the Appeal or any retrial of the subject matter of the Litigation or issues related thereto (including court costs or sanctions). 5.3 It is acknowledged and agreed that, this Agreement does not, and shall not be interpreted so as to affect any rights of SELLER to make such claims against Attorney, as may be otherwise permitted by law or rule of professional conduct. SELLER having disclosed to PURCHASER the material provisions of the fee agreement between Plaintiffs and Attorney, and in reliance thereon by PURCHASER, it is understood that the agreement of SELLER to permit the sale and assignment to PURCHASER a portion of SELLER's Litigation Proceeds for cash hereunder shall in no way supersede, amend, modify, or otherwise detract from or expand SELLER's or Plaintiffs' rights or obligations under Attorney's existing contract with Plaintiffs for legal representation. 6.0 Rights In Proceeds. 6.1 That portion of the Litigation Proceeds and the rights to the Judgment Collateral and the Litigation assigned to PURCHASER shall be satisfied and paid to PURCHASER in full, on a priority basis in accordance with Exhibit 4, prior to any Proceeds or other consideration paid to or received by SELLER, but shall be secondary to any assignment made to an assignee listed in Exhibit 4 with a priority higher than that of PURCHASER. SELLER shall not be entitled to receive any recovery or any rights or interests on account of the Litigation, unless and until the full Judgment Amount Assigned has been received by PURCHASER. 6.1.1 There may be one (1) or more purchasers, but no more than four (4) purchasers (hereinafter the "Purchase Class"), who will be given equal priority with that of PURCHASER hereunder. The Purchase Class shall consist of certain select stockholders of the SELLER's common stock who have been given the opportunity to participate in the herein described transaction. The Purchase class shall receive any Litigation Proceeds on a pro-rata basis as determined by each purchaser's Puchase Price. Each of the purchasers in the Purchase Class shall be given the same terms of purchase relative to discount rates. 6.2 PURCHASER's rights in the Litigation Proceeds and Judgment Collateral shall be satisfied at such time as PURCHASER has received the full Judgment Amount Assigned. 6.3 The rights of SELLER to recover and receive amounts due under the Judgment and Judgment Collateral and the Litigation, in excess of the Judgment Amount Assigned, are and shall remain the property of SELLER. 6.4 In the event that any distribution of Litigation Proceeds to the Purchaser Class identified in Exhibit 4 results in an amount that is less than the Assigned Portion for each of the members of the Purchaser Class, then the Litigation Proceeds shall be distributed pro-rata in accordance with the percentage of Purchase Price paid by each member of the Purchase Class. Any shortfall between the Assigned Portion and the distributed portion shall be made whole by SELLER in the form of shares of common stock of the SELLER with a market value as determined on the day of distribution. 6.4.1 In no event will the PURCHASER be made whole under subparagraph 6.4 if the Judgment in the Lawsuit is reversed in an unappealable decision by the appropriate court; or, if there are no Litigation Proceeds to be distributed. 6.5 Notwithstanding subparagraph 6.1, it is understood and acknowledged that the rights purchased by PURCHASER hereunder are subject to: the liens identified in Exhibit 4, or approved in writing by PURCHASER in accordance with the provisions of this Agreement; and the rights of Attorney to costs and attorneys' fees under the presently existing fee agreement between Plaintiffs and Attorney. 7.0 Representations. SELLER hereby represents, warrants and agrees with PURCHASER as follows: 7.1 The documents and information provided by SELLER to PURCHASER, attached hereto, are accurate and complete and, as of the date hereof, have not been superseded or altered as to legal effect, validity or amount by the Court, stipulation or otherwise. As of the date of this Agreement, no action has been taken and, as of the Closing Date, no action shall have been taken which has the effect of settling or deciding the Appeal or which materially alters or changes the legal validity, effect of or amounts stated in said documents and information or the value of SELLER's Litigation Proceeds, the Judgment, or Judgment Collateral. 7.2 The representations and warranties of SELLER contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of that date. Notwithstanding any other provisions of this Agreement, should the case be settled or decided in whole or in part or all representations or warranties not be fully true and correct at the time SELLER receives the Purchase Price, the sale shall not close and PURCHASER's rights under Section 20.0, below, will apply. SELLER shall not be entitled to accept the Purchase Price without first giving written notice to PURCHASER and obtaining PURCHASER's written consent. 7.3 Except as set forth in Exhibit 4 as to assignment of a portion of the proceeds, SELLER has not assigned, transferred or given, as collateral to any party other than PURCHASER, any right or interest of SELLER in the Litigation, the Litigation Proceeds, the Judgment, the Judgment Collateral, or any Proceeds thereof. SELLER shall not: make any assignment or transfer or give, as collateral, any right or beneficial interest of SELLER in the Litigation, the Litigation Proceeds, the Judgment, the Judgment Collateral or any Proceeds thereof or rights therein, or take any other action that could have the effect of impairing or delaying PURCHASER's receipt of the Judgment Amount Assigned. It is intended and understood that any assignment or transfer of right or beneficial interest in the Litigation, the Litigation Proceeds, the Judgment, the Judgment Collateral, or any Proceeds thereof or rights therein shall be subordinate to and shall not adversely affect any right or interest of PURCHASER in the Litigation, the Litigation Proceeds, the Judgment, the Judgment Collateral or any Proceeds thereof or rights therein. Except as disclosed by SELLER in Exhibit 4, or otherwise agreed to by PURCHASER in writing, all Proceeds to which SELLER is entitled on account of Litigation, the Litigation Proceeds, the Judgment and the Judgment Collateral shall be paid first to Law Finance Group and secondly to PURCHASER, until the full Judgment Amount Assigned to the extent remaining has been paid to PURCHASER. 7.4 Except as set forth in Exhibit 4, there are no persons who have liens against amounts to which SELLER may be entitled on account of the Litigation. SELLER agrees to refrain from causing or permitting any other liens to be placed against the Judgment, without the prior written consent of PURCHASER, which consent may not be withheld unless a proposed lien materially impairs the rights, value, priority or collectability of the rights assigned to PURCHASER hereunder. 7.5 Except as set forth in Exhibit 4, SELLER is not aware of any asserted or unasserted claims, liens or judgments against the SELLER which would materially impair the rights, value, priority or collectability of the rights assigned to PURCHASER hereunder. 7.6 SELLER has the power, authority, right and competence to enter into this Agreement, and does so willingly and freely. All approvals, actions and consents required to authorize SELLER to enter into this Agreement have been obtained and taken and, upon execution by SELLER, this Agreement and all documents contemplated to be signed by SELLER herein shall be valid and binding obligations and undertakings of SELLER. Entering into this Agreement and carrying out the actions provided for in this Agreement and the Exhibits will not cause SELLER to be in breach or violation of any other agreement or legal obligation to which SELLER is a party or subject. 7.7 SELLER shall use best efforts and exercise good faith to pursue SELLER's rights in the Litigation, to bring the Litigation to good faith settlement or final judgment; and to enforce collection of all money and other Proceeds due on account of the Litigation, including any settlement with Judgment Debtor(s). 7.8 SELLER has not and shall not, directly or indirectly, delay, seek to prevent, impair, or frustrate the rights granted to PURCHASER under this Agreement, or payment of the Judgment Amount Assigned to PURCHASER, in any way. 7.9 SELLER shall make all reasonable, good faith efforts to cause Plaintiffs to vigorously: 7.9.1 Defend the Judgment on Appeal and fully prosecute and enforce all rights in the Judgment in both the Appeal and any further proceedings ordered or permitted by the Court or applicable law. 7.9.2 Pursue Plaintiffs' and SELLER's underlying claims in the Litigation, unless advised by Attorney or SELLER's Attorney that pursuit of such claims would be fruitless or not economically feasible, in light of the likely cost and risks in doing so. 7.9.3 Pursue collection of the Judgment and promptly exercise collection rights against the Judgment Collateral. 7.10 SELLER shall notify PURCHASER and keep PURCHASER advised regarding: the name(s), address(es), telephone and fax numbers of SELLER and of all legal counsel engaged to represent Plaintiffs or SELLER in the Litigation; and the nature and scope of representation of all such legal counsel and any change therein. 7.11 SELLER shall give PURCHASER prompt written notice of any material change in any of the information contained in the representations and warranties or Exhibits to this Agreement. 8.0 Litigation Documentation. Unless otherwise requested in writing by PURCHASER and subject to subparagraph 2.4, SELLER shall, and SELLER hereby instructs Attorney and SELLER's Attorney, as SELLER's agent, to promptly provide and continue to provide PURCHASER with: 8.1 All future Court documents, including, but not limited to, any Notices, Orders of Briefs presented to any party to the Litigation or filed with any court. 8.2 All future correspondence, written proposals or agreements, and notice of any oral proposals or agreements between SELLER, Plaintiffs and Judgment Debtor(s) relating to the Litigation, the Judgment Collateral, settlement, alternative dispute resolution procedures, or collection and payment of the Judgment or the Litigation. 8.3 Any proposed assignment by SELLER or any interest in the Judgment, Judgment Collateral or rights in the Litigation, and written notice of any other similar proposed action on the part of SELLER. Unless waived in writing by PURCHASER, such proposed assignment or notice shall be provided to PURCHASER not less than seven (7) days prior to SELLER making the proposed assignment or taking the proposed action. 8.4 Notice of and documents relating to payment or receipt of any money, consideration or other Proceeds by Plaintiffs, Attorney, SELLER or SELLER's Attorney on account of the Judgment, the Judgment Collateral or the Litigation, settlement or payment of the Judgment, and all accountings of the application of said money or other things of value received. 8.5 Information requested by PURCHASER relating to the status of the Appeal, the Litigation, settlement, alternative dispute resolution proceedings and any efforts to enforce the Judgment. 9.0 Assignment Of Litigation proceeds. It is understood and agreed that the Assignment evidences the transfer of the Judgment Amount Assigned and PURCHASER's right to receive payment hereunder and shall remain in full force and effect until the entire Judgment Amount Assigned has been received by PURCHASER. Upon PURCHASER's remittance of the Purchase Price to SELLER, PURCHASER shall be the sole and absolute owner of the first Litigation Proceeds which SELLER is entitled to collect or receive on account of the Judgment, the Judgment Collateral and the Litigation, up to the full Judgment Amount Assigned, whether by way of enforcement of the Judgment, compromise and settlement of SELLER's rights arising out of the Judgment and Litigation, or otherwise. As collateral for and to secure SELLER's representations, warranties, undertaking and agreements made or given under this Agreement, SELLER hereby grants PURCHASER a security interest in all of SELLER's Litigation Proceeds and interests in the Judgment, the Judgment Collateral and the Litigation not other wise assigned and transferred to PURCHASER under this Agreement (the "Collateral"). This shall constitute a security agreement between SELLER and PURCHASER for that purpose. It shall not in any way affect or impair any rights or fee lien of Attorney in and to the Judgment, the Judgment Collateral, or the Litigation, absent an express written agreement with Attorney to the contrary. SELLER shall execute, and PURCHASER may file, one or more UCC-1 Financing Statement Forms for the purpose of perfecting PURCHASER's security interest in the Collateral, and as notice to third parties that SELLER has conveyed an interest in the SELLER's Litigation Proceeds. 10.0 Acknowledgment/Assignment Of Litigation Proceeds. It is understood and agreed that the Assignment is intended to serve as evidence and notice of the Assignment. Upon PURCHASER's remittance of the Purchase Price, PURCHASER is fully authorized to and shall insert the Closing Date on the Assignment. The Assignment may be filed by PURCHASER with the Court, on or after the Closing Date, pursuant to the provisions of applicable laws, court rules or local custom, and served upon such persons as may be deemed necessary by PURCHASER to perfect and give effect to PURCHASER's ownership of and right to receive the Judgment Amount Assigned. 11.0 Breach. SELLER understands and acknowledges that PURCHASER is relying on all of SELLER's agreements, representations and warranties in entering into this Agreement and in purchasing the Judgment Amount Assigned. The parties agree that, if SELLER breaches any material part of this Agreement of if any of SELLER's representations or warranties fail to be correct in any respect, SELLER will be in breach of this Agreement. 11.1 If SELLER breaches any material part of this Agreement, and SELLER fails to cure said breach within fifteen (15) days of PURCHASER's notice to SELLER of such breach, PURCHASER is granted the right to immediately recover from the SELLER all amounts due under this Agreement and the Judgment Amount Assigned. This right of PURCHASER is in addition to any other rights to which PURCHASER is entitled by law because of any breach by SELLER, including PURCHASER's rights in and to Collateral given by SELLER. Any breach or failure of the representations and warranties of subparagraph 7.2, above, shall not be subject to cure and SELLER shall have no rights to receive any payment absent the expressed written approval of PURCHASER. 11.2 Should SELLER fail to adhere to the representations and warranties set forth in subparagraph 7.9, above, then PURCHASER is fully authorized and permitted, but not obligated, on behalf of SELLER and PURCHASER and subject always to the rights and informed consent of SELLER to engage a new Attorney, to pursue any of SELLER's rights with respect to the Appeal and prosecute, enforce and resolve the rights of SELLER, and PURCHASER in furtherance of the Appeal and the Litigation, to the fullest extent as if done by the SELLER. SELLER hereby appoints PURCHASER as SELLER's attorney-in-fact, in the event of such default or breach under this sub-section, to do all things and take all actions in its own name and as attorney-in-fact, for SELLER to pursue such actions and to engage such legal counsel for the account of SELLER and PURCHASER, subject always to the rights and informed consent of the SELLER, as PURCHASER shall, in its good faith judgment, deem to be in the best interests of the PURCHASER, SELLER and Attorney. In such event, any amounts recovered on account of the SELLER's interests in the SELLER's Litigation Proceeds, shall be applied: (i) first, to recoup all fees and expenses incurred in exercise of said authority (including attorneys fees and costs); (ii) next, to PURCHASER on account of the Judgment Amount Assigned; (iii) the balance to SELLER, as SELLER's interests may appear and as SELLER may direct. 12.0 Indemnification. 12.1 PURCHASER agrees to indemnify, defend and hold SELLER harmless from and against any and all losses, costs, damages, claims and expenses (including reasonable attorneys' fees) which SELLER may sustain at any time by reason of: (i) any debt, liability or obligation incurred by PURCHASER, (ii) any liability or obligation of any kind for prosecution or defense thereof, or (iii) the breach of, inaccuracy of, or failure to comply with, or the existence of any facts resulting in the inaccuracy of, any of the warranties, representations, or covenants of PURCHASER contained in this Agreement or in any exhibits or documents delivered pursuant hereto or in connection with the subject matter of this Agreement. 12.2 SELLER agrees to indemnify, defend and hold PURCHASER harmless from and against any and all losses, costs, damages, claims and expenses (including reasonable attorneys' fees) which PURCHASER may sustain at any time by reason of: (i) any debt, liability or obligation incurred by SELLER, (ii) any liability or obligation of any kind for prosecution or defense of such debt, liability or obligation incurred by SELLER, and (iii) the breach of, inaccuracy of, or failure to comply with, or the existence of any facts resulting in the inaccuracy of, any of the warranties, representations, or covenants of SELLER contained in this Agreement or in any exhibits or documents delivered pursuant hereto or in connection with the subject matter of this Agreement. 12.3 Any party who receives notice of a claim for which it will seek indemnification ("Indemnified Party") hereunder shall promptly notify the party from which the Indemnified Party will seek indemnification ("Indemnifying Party") of such claim in writing. The Indemnifying Party shall have the right to assume the defense of such action at its cost with counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall have the right to participate in such defense with its own counsel at its cost. 13.0 Attorney-Client Relationship. 13.1 Nothing in this Agreement is intended to require action that may impair the attorney-client privilege, or other evidentiary privilege as may exist in favor of SELLER in connection with the Litigation. This Agreement shall not be interpreted or enforced in a manner that would have the effect of loss of any such privilege. If redacting portions of any writing, required to be given PURCHASER in this Agreement, would avoid waiver or loss of any such privilege: the writing shall be redacted by Attorney or SELLER's Attorney so as to avoid waiver or loss of privilege and provided to PURCHASER. PURCHASER shall be notified that the writing was redacted for that purpose and shall be advised of the general subject matter of the redacted material. Further, nothing in this Agreement is intended to prevent or impair Plaintiffs', Attorney's, SELLER's, and SELLER's Attorney's ability to vigorously conduct the Litigation in such manner as they deem in good faith and in their sole discretion will benefit Plaintiffs and SELLER, without interference from PURCHASER. Provided, however, nothing shall be interpreted as restricting PURCHASER's exercise of its discretion in analysis of the results of its due diligence under Section 15.0, below, or enforcement of PURCHASER's rights under this Agreement and the Assignment, in the event of a breach of the terms of this Agreement. 13.2 Should a dispute arise at any time between Plaintiffs, SELLER, and Attorney, or any of them, regarding payment or application of any sums recovered on the Judgment, which dispute may delay, reduce or otherwise affect payment or retention of the Judgment Amount Assigned to PURCHASER, SELLER shall promptly notify PURCHASER in writing and shall nevertheless immediately pay, on a pro rata basis, any undisputed portion of the sums recovered. The Notice shall state the facts of the dispute in order that PURCHASER may fully assert its rights. In order to allow PURCHASER to become fully aware of the dispute, SELLER hereby authorizes Attorney and SELLER'S Attorney to provide PURCHASER all facts and information related to the dispute. Notwithstanding any other provisions of this Agreement, including subparagraph 13.1, above, SELLER expressly waives attorney-client privilege as to information requested by PURCHASER under these limited circumstances and for this limited purpose. Should the dispute delay payment of any amount otherwise due or payable to PURCHASER, all amounts due or payable to PURCHASER shall begin to bear interest at the rate of eight percent (8%) per annum, or such lesser rate as shall be the maximum rate permitted by applicable law, from the date any amounts are paid or payable by the Adverse Party until said sums due or payable to PURCHASER have been paid in full. 14.0 Cooperation. SELLER will, and will so instruct Attorney and SELLER's Attorney to, keep PURCHASER fully advised about and will cooperate and consult with PURCHASER in connection with, any and all matters relating to the Appeal and the Litigation including, but not limited to, matters with regard to Plaintiffs', SELLER's, and Attorney's legal positions, briefs and oral arguments, settlement negotiations, alternate dispute resolution proceedings, and engagement of appellate or other counsel. 15.0 Contingencies. This Agreement is expressly conditioned upon PURCHASER conducting and completing its due diligence with regard to the subject matter of this Agreement and providing SELLER with PURCHASER's written approval of its intent to complete the purchase. PURCHASER's approval and intention to complete the purchase shall be determined in PURCHASER's sole and absolute discretion. PURCHASER shall have fifteen (15) days from the receipt of all documents and Exhibits, properly signed and witnessed, or three (3) business days of PURCHASER'S receipt of the opinion letter referenced in Section 16.0, whichever is later, but not later than thirty (30) days, to provide SELLER and SELLER's Attorney with written approval of its intention to complete the purchase. 16.0 Purchaser's Due Diligence/Seller's Payment of Due Diligence Costs. SELLER understands that PURCHASER will incur costs and expenses in connection with the completion of PURCHASER's due diligence referred to herein above. It is understood that upon receipt of the signed Agreement, PURCHASER will incur expenses for a credit and liabilities investigation and report. It is further understood that upon receipt of the signed Agreement, PURCHASER will engage an attorney, for the purpose of reviewing the Lawsuit and advising PURCHASER as part of PURCHASER's due diligence. It is acknowledged that any analysis or opinion received by PURCHASER from legal counsel engaged to review and evaluate the Litigation: (i) is legal advice rendered solely for PURCHASER's benefit in completing its due diligence; (ii) is subject to certain privileges in favor of PURCHASER and said attorney; (iii) and in no way constitutes legal advice to, nor may it be relied upon by Plaintiffs, Attorney, SELLER or SELLER's Attorney, should information relating to said attorneys' advice be made available to Plaintiffs, Attorney, SELLER, or SELLER's Attorney, absent prior written consent from the individual attorney engaged by PURCHASER. 17.0 Delivery By Purchaser/Closing. PURCHASER shall pay SELLER the Purchase Price (less any amounts deductible therefrom) within ten (10) business days after it has completed its due diligence and approved of and expressed its intention, in writing, to complete the purchase. Except as hereafter provided, upon PURCHASER's tender of the Purchase Price to SELLER: the PURCHASER's rights in the SELLER's Litigation Proceeds, the Judgment Proceeds, the Judgment Amount Assigned, and the Litigation, and all of PURCHASER's rights, as provided for in this Agreement, shall be fully vested; SELLER'S assignment shall be absolute and irrevocable by SELLER; and PURCHASER shall be entitled to file with the Court and serve the exhibit(s) evidencing SELLER's Assignment and the form UCC-1 giving effect to the parties agreements hereunder. 18.0 Miscellaneous. 18.1 Entire Agreement. This Agreement, including the exhibits hereto, sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them. No party hereto shall be bound by any term, condition, warranty or representation other than as expressly provided for in this Agreement, or as may be on a date on or after to the date hereof duly set forth in writing signed by the party hereto which is to be bound thereby. This Agreement shall not be changed, modified or amended except by a writing dated and signed by the party to be charged. 18.2 Governing Law. This Agreement and its validity, construction and performance shall be governed in all respects by the laws of the State of Connecticut, but without recourse to that State's conflict of laws provisions. 18.3 Severability. If any provisions of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected unless the provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. 18.4 Benefits of Parties. This Agreement shall be binding upon, and inure to the benefit of the parties hereto, individually and to each and all their agents, attorneys, beneficiaries, representatives and its respective successors, spouses, heirs, legal representatives and assigns. No assignments by any party shall relieve the assigning party from any obligation, duty, representation, warranty or agreement absent an express written release given by the non-assigning party. 18.5 Headings Singular/Plural. The headings in the section of this Agreement are inserted for convenience or reference only and shall not constitute a part hereof. Where context so permits, the singular form of a word shall include the plural and the plural form shall include the singular. 18.6 Notices. Any notices given under this Agreement shall be in writing and delivered by first class mail or by overnight courier service (such as Federal Express, DHL, UPS, etc.) to the parties as follows unless changed by written notice: In the case of Competitive Technologies, Inc.: Mr. John B. Nano President and CEO Competitive Technologies, Inc. 1960 Bronson Road Fairfield, CT 06824 with a copy to: V.P. and General Counsel Competitive Technologies, Inc. 1960 Bronson Road Fairfield, CT 06824 In the case of [*]: [*] [*] [*] with a copy to: Name: Title: Firm: Street Address: City, State, Zip: 18.7 Attorney's Fees. In the event that any action or proceeding is brought to enforce or interpret any provision, covenant or condition contained in the Agreement on the part of PURCHASER or SELLER, the prevailing party in such action or proceeding shall be entitled to recover from the party not prevailing its expenses therein, including reasonable attorneys' fees and allowable costs. _____________ * Portions of this Exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and such portions have been filed separately with the Commission. 18.8 Disputes Between The Parties. At the request of any party, any dispute between the parties arising out of the transaction provided for in this Agreement, and the exhibits to this Agreement, shall be submitted to final and binding arbitration in Fairfield, Connecticut, by a three (3) member panel, under the Commercial Arbitration Rules of the American Arbitration Association then in effect. The Association shall be requested to provide a panel of prospective arbitrators consisting of persons experienced in business law matters. Prior to appointment of the arbitrator, either party may commence judicial proceedings, in either the state or federal court having jurisdiction over the party against whom relief is sought, to obtain preliminary relief, including injunctive relief, for the purposes of: (i) enforcement of this arbitration provision; (ii) obtaining appointment of arbitrator(s); (iii) preserving the status quo; (iv) preventing the disbursement by any person of disputed funds; and (v) preserving and protecting the rights of either party pending the outcome of the arbitration. Any party may have judgment entered on the arbitration award. subparagraph 18.7, above, shall apply to any arbitration or court proceeding between the parties. 18.9 Further Assurances. Each party agrees to execute and file or caused to be filed such other or further documents as may be requested by the other party to give effect to the purposes of the Agreement. Such further documents shall include, but not be limited to: (i) documents intended to perfect PURCHASER's ownership of and power to exercise the rights herein granted by SELLER; (ii) if the Judgment is modified, vacated and there are further proceedings, a replacement Assignment in order to give effect to PURCHASER's rights in and to the Litigation Proceeds, the Judgment Collateral, Judgment and this Agreement. 18.10 Force Majeure. Neither of the Parties hereto shall be liable in damages or have the right to cancel this Agreement for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control, including, without limitation, acts of God, government restrictions, wars or insurrections. 18.11 No Waiver. Failure by either Party to enforce any provision of this Agreement or assert a claim on account of breach hereof shall not be deemed a waiver of its right to enforce the same or any other provision hereof on the occasion of a subsequent breach. 18.12 Remedies. The remedies expressed in this Agreement are not and shall not be deemed to be exclusive and shall be in addition to any other remedies that either Party may have at law or in equity. 18.13 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19.0 Resolution of Litigation Prior to Closing. In the event the Appeal is resolved, whether by settlement, judicial decision, or otherwise, on or before Proceeds Date, PURCHASER's obligation to purchase and SELLER's obligation to sell under this Agreement shall cease. 20.0 Arm's Length. The parties each acknowledge and agree that: (i) this Agreement has been entered into voluntarily and freely; and (ii) the Purchase Price has been determined at arm's length and is reasonable in light of the risks assumed by PURCHASER. ***** IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date first set forth above. for Competitive Technologies, Inc. for [*] By: s/John B. Nano By: s/[*] Name: John B. Nano Name: [*] Title: President and CEO Title: Individual Investor Date: 11/17/03 Date: 11-14-03 _____________ * Portions of this Exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and such portions have been filed separately with the Commission. ACKNOWLEDGMENT For Competitive Technologies, Inc. STATE OF Connecticut) ) COUNTY OF Fairfield ) On (Date) 11/17/03 before me, (Notary's name, title) Lorraine Frauenhofer , personally appeared John B. Nano, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the he acted, executed the instrument. WITNESS my hand and official seal. s/Lorraine Frauenhofer Notary's Signature LORRAINE FRAUENHOFER NOTARY PUBLIC MY COMMISSION EXPIRES SEP. 30, 2008 ACKNOWLEDGMENT For [*]: STATE OF ______________________) ) COUNTY OF _____________________) On __________________ before me,_______________________, personally appeared______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ____________________________ Notary's Signature _____________ * Portions of this Exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and such portions have been filed separately with the Commission. EX-10.2 5 ex10-2.txt SEVERANCE AGREEMENT Exhibit 10.2 SEVERANCE AGREEMENT AND GENERAL RELEASE This Severance Agreement and General Release (the "Agreement") is made effective as of November 1, 2003, between Competitive Technologies, Inc., a Delaware corporation with an office and place of business at 1960 Bronson Road, Fairfield, Connecticut ("Employer"), and Frank R. McPike, Jr. whose address is currently 46 Poplar Road, Ridgefield, CT 06877 ("Employee"). Employer and Employee agree that: 1.0 Last Day of Employment. Employee's last day of employment with Employer was November 1, 2003. 2.0 Consideration. In consideration for Employee's entering into and signing this Agreement and compliance with the promises made herein, Employer shall provide to Employee the following severance benefits to which the Employee would not otherwise be entitled: (a) Employer shall pay to Employee the sum of One Hundred Twelve Thousand and Five Hundred Dollars ($112,500.00), less lawful deductions (the "Severance Payment"). Employer shall make the Severance Payment to Employee within fourteen (14) days after Employer's receipt of funds pursuant to that certain Agreement dated August 1, 1993 (the "UCF Agreement) between The University of Colorado Foundation, Inc, and Employer (f/k/a University Patents, Inc.) concerning litigation entitled The University of Colorado Foundation, Inc., et al. v. American Cyanamid Company, Docket No. 02-1587 currently pending in the United States Court of Appeals for the Federal Circuit; provided, however, that notwithstanding anything to the contrary contained herein, no Severance Payment shall be due from Employer to Employee unless and until Employer receives funds pursuant to the UCF Agreement that are sufficient to make the Severance Payment. However, should Employer continue to assign portions of the anticipated Materna award to be received pursuant to the UCF Agreement to third party purchasers, Employer agrees to pay Employee 3.237% of future amounts of the Materna award assigned to such third party purchaser(s) and 3.237% of any balance due to Employer from such award, within fourteen (14) days after Employer's receipt of funds pursuant to the UCF Agreement. However, in no event shall the total amount paid to Employee by Employer under this subparagraph exceed One Hundred Twelve Thousand Five Hundred Dollars ($112,500.00). (b) Employer shall promptly transfer to Employee title to the 1999 Toyota Camry XLE, VIN4T1BG28K7XU891361 previously provided by Employer for Employee's use. (c) Employer shall pay to Employee the sum of Four Thousand Seven Hundred Three and 70/100 Dollars ($4,703.70), less lawful deductions, which sum shall be paid to Employee promptly following Employee's execution and delivery to Employer of both this Agreement and a letter in the form of Exhibit A attached hereto (which shall be dated, signed and returned by Employee to Employer after the expiration of the revocation period described in Section 4 below). (d) Employer shall extend the expiration date on stock option grants issued to the Employee to the earlier of ten (10) years from the date of issue of the grant or three (3) years from the Last Day of Employment listed in Section 1 hereof. 3.0 No Consideration Absent Execution of this Agreement. Employee understands and agrees that Employee would not receive the consideration specified in Section 2 above except for his execution of this Agreement and fulfillment of the promises contained herein. (a) Effective as of the Last Date of Employment, Employee agrees to resign from the Board of Directors of any Employer affiliates and/or subsidiaries, including, but not limited to the following: Melanotan Corporation Innovation Partners International, Inc. Digital Acorns Life Sciences Acorns CTT Acquisition Corp. Vector Vision, Inc. University Optical Products Genetic Technology Management 4.0 Revocation. Employee may revoke his acceptance of this Agreement for a period of seven (7) days following the day Employee executes this Agreement (the "revocation period"). If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Connecticut, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday. This Agreement shall not become effective or enforceable until the revocation period has expired and Employee has executed and returned to Employer both this Agreement and a letter in the form of Exhibit A attached hereto (which must be dated, signed and returned by Employee to Employer after the expiration of the revocation period but no more than ten (10) days after the date Employee executes this Agreement). 5.0 General Release of Claims. Employee knowingly and voluntarily releases and forever discharges Employer of and from any and all liabilities, debts, obligations, promises, covenants, agreements, contracts, controversies, suits, actions, causes of action, judgments, executions, damages, and/or claims of any nature whatsoever, whether known and unknown, which Employee has or may have against Employer as of the date of Employee's execution of this Agreement, including without limitation any claims for alleged violations of, or any claims relating to: - The National Labor Relations Act, as amended; - Title VII of the Civil Rights Act of 1964, as amended; - Sections 1981 through 1988 of Title 42 of the United States Code; - The Employee Retirement Income Security Act of 1974, as amended; - The Immigration Reform Control Act, as amended; - The Americans With Disabilities Act of 1990, as amended; - The Age Discrimination in Employment Act of 1967, as amended; - The Family and Medical Leave Act of 1993, as amended; - The Fair Labor Standards Act of 1938, as amended; - The Occupational Safety and Health Act, as amended; - The Consolidated Omnibus Budget Reconciliation Act, as amended; - The Connecticut Family and Medical Leave Act; - The Connecticut Human Rights and Opportunities laws, as amended; - The Connecticut Fair Employment Practices Act, as amended; - The Connecticut Minimum Wage Law, as amended; - The Equal Pay Law for Connecticut, as amended; - any other federal, state or local civil or human rights law or any other federal, state or local law, regulation or ordinance; - any public policy, contract, tort, or common law; and - any right to recover costs, fees, or other expenses, including attorneys' fees, incurred in these matters. As used in this Section 5, the term "Employer" shall be deemed to include Employer and Employer's affiliates, subsidiaries, divisions, successors and assigns, and the current and former officers, directors, employees, shareholders and agents thereof. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall be deemed to release or affect in any way the Employee's rights, if any, with respect to (i) any options granted to Employee under the Competitive Technologies, Inc. Restated Key Employees' Stock Option Plan or the Competitive Technologies, Inc. 1997 Employees' Stock Option Plan As Amended January 24, 2003, (ii) the Competitive Technologies, Inc. 401(k) Plan; or, (iii) Employee's rights pursuant to the Indemnification provisions (Section 4.01) of the Company's By-Laws as amended November 23, 1997. 6.0 No Charges or Complaints. Employee waives his right to file any charge, complaint or action against Employer, and/or to participate in any charge, complaint or action against Employer which may be made by any other person or organization on Employee's behalf, before any federal, state or local court or administrative agency. Employee represents that he is not aware of any factual basis for any such charge, complaint or action, and should any such charge, complaint or action be filed, Employee agrees that he will not accept any relief or recovery therefrom. 7.0 No Disparagement. Employee agrees that he shall not utter disparaging remarks or defamation, oral or written, with respect to Employer or concerning the business, affairs, operations, financial condition, character, performance or any other information or actions (past, present or future) of Employer. Employee shall have the right to approve the content of any press release that Employer may choose to issue concerning the termination of Employee's employment with Employer, provided, however, that Employee's prior approval right as set forth herein shall be exercised reasonably by Employee. 8.0 Non-Disclosure of Confidential Information. (a) As used in this Agreement, the term "Confidential Information" means all items, materials and information which belong to Employer and are not generally known to the public, or which have been confidentially provided to Employer by its customers or other third parties, and which are related to the business and operations of Employer (or its customers or other third parties) and were disclosed to Employee during the course of Employee's employment with Employer. Confidential Information includes, but is not limited to, items, materials and information concerning: trade secrets (as defined by applicable law); methods of operation; non-public know-how of Employer or customers of Employer; customer account information, lists and data; pricing data, policies and procedures; estimating procedures; sources of business; marketing plans or strategies; the existence and contents of agreements; financial information, data, statements or accounts; technology owned by customers or third parties and disclosed to, licensed, marketed or otherwise used by Employer in its business; and all documentation, reports and data (recorded in any form, electronically or otherwise) relating to the foregoing. Confidential Information does not include anything described above (i) which was known to Employee before his employment with Employer, or (ii) which is generally known to the public, unless it became generally known through an act or failure to act of Employee, in which case it shall remain Confidential Information. (b) Employee acknowledges that Employer in the ordinary course of its business develops, possesses, uses and acquires Confidential Information relating to the business and operations of Employer, and Confidential Information belonging to customers of Employer and third parties; that Confidential Information is a valuable and unique asset of Employer, or of the customers of Employer or third parties who have furnished it to Employer; and that such Confidential Information must be maintained under strict confidentiality in order for Employer to maintain a competitive position in its business and operations, and attract and keep customers. (c) Employee understands and agrees that Confidential Information was only disclosed to Employee in confidence and for use by Employee solely in connection with his/her job for Employer. If Employee is in doubt as to whether any items, materials or information he/she has received in the course of his/her job with Employer constitute Confidential Information, Employee will treat such items, materials or information as Confidential Information. In the event of a dispute between Employee and Employer as to whether specific items, materials or information constitute Confidential Information, the items, materials or information in dispute shall be presumed to be Confidential Information, and the Employee shall have the burden of proving that the items, materials or information in dispute are not Confidential Information. (d) During the period of his employment with Employer and for an additional period ending three (3) years after the termination of Employee's employment with Employer, Employee shall not, without the prior written authorization of Employer, use for Employee's own benefit or disclose to any person or entity, either directly or indirectly, any and all Confidential Information. 9.0 Non-Solicitation of Customers; No Work For Customers. (a) For a period ending six (6) months after the date of termination of Employee's employment with Employer, Employee will not, either directly or indirectly, solicit on behalf of any person or entity other than Employer (including but not limited to the Employee himself), the business of any customer or prospective customer of Employer (i) whose needs became known to Employee during the term of his employment with the Corporation, or (ii) with whom Employee had any dealings as a result of his employment with Employer at any time during the two (2) years immediately preceding the termination of Employee's employment with Employer, wherein such solicitation involves any service or product that is similar to or in competition with any service or product of Employer either existing or in the process of being developed at the time of the termination of Employee's employment with Employer. (b) For a period ending six (6) months after the date of termination of Employee's employment with Employer, Employee will not, either directly or indirectly, perform work for any customer or prospective customer of Employer (i) whose needs became known to the Employee during the term of his employment with Employer, or (ii) with whom Employee had any dealings as a result of his employment with Employer at any time during the two (2) years immediately preceding the termination of Employee's employment with Employer, wherein such work involves any service or product that is similar to or in competition with any service or product of Employer either existing or in the process of being developed at the time of the termination of Employee's employment with Employer. 10.0 Confidentiality of Agreement. Employee and Employer agree that the existence and substance of this Agreement shall remain confidential, and that the existence or substance of this Agreement may be only be disclosed: (i) as evidence in a subsequent proceeding in which any of the parties allege a breach of this Agreement, or in any proceeding in which this Agreement provides a defense thereto; (ii) in response to a valid subpoena or court order; (iii) in response to any lawful request of the Internal Revenue Service or other governmental agency; (iv) in connection with the usual legal, accounting or auditing requirements of Employer; and (v) by the parties to their legal counsel. Except as provided herein, Employer, Employee and their counsel shall not publicize or disclose to anyone the fact of, the terms of, or the amounts of payments made pursuant to this Agreement. In the event of any breach of the obligations set forth in this paragraph by Employee or Employee's representatives, Employee shall immediately reimburse and repay to Employer all amounts paid by Employer to Employee pursuant to this Agreement. 11.0 Governing Law and Jurisdiction. This Agreement and the rights and obligations of the parties hereunder shall in all respects be governed by and construed and enforced in accordance with the laws of the State of Connecticut (without giving effect to Connecticut's principles of conflicts of law). Employee consents to the jurisdiction and exclusive venue of the State and/or federal courts in Connecticut in any litigation concerning this Agreement or its enforcement. 12.0 Severability. Both Employee and Employer acknowledge and agree that the restrictions and obligations imposed on the Employee by virtue of this Agreement are, in light of the circumstances, fair and reasonable, and are reasonably required for the protection of Employer. Furthermore, it is the intent of the parties that this Agreement be enforceable to the fullest extent permitted by applicable law. Accordingly, if any provision of this Agreement as presently written should be construed to be illegal, invalid or unenforceable, said illegal, invalid or unenforceable provision shall be deemed to be amended and construed to have the broadest scope permissible (Employee and Employer intending and agreeing that any provision of this Agreement may be reformed to have the broadest scope permitted by applicable law), and if no validating amendment or construction is possible, shall be severable from the rest of this Agreement, and the validity, legality, and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; provided, however, that if any portion of the general release language contained in Section 5 of this Agreement should be ruled unenforceable as a result of any action by or on behalf of Employee, Employee shall immediately return to Employer the consideration paid to Employee by Employer under this Agreement. 13.0 Entire Agreement; Modification; Binding Effect. (a) This Agreement, consisting of eight (8) pages (which includes the signature page and Exhibit A), sets forth the entire agreement of the parties concerning its subject matter and shall supersede the terms of any other agreement, representation or understanding (whether oral or written) between Employee and Employer concerning the subject matter of this Agreement. (b) This Agreement may only changed or modified in a writing signed by both the Employee and the President or General Counsel of Employer wherein specific reference is made to this Agreement. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal or legal representatives, successors and assigns. 14.0 Non-Waiver. Any delay or failure by either party to exercise any right under this Agreement, or any party's partial exercise of any right under this Agreement, shall not constitute a waiver of such right or any other right. The waiver by either party of any particular breach of this Agreement or right hereunder shall not operate or be construed as a waiver of any other breach of this Agreement or right hereunder, and no such waiver shall be effective unless set forth in writing by the Employee or the President or General Counsel of Employer. 15.0 Miscellaneous Provisions. (a) Any caption contained in this Agreement is for convenience only and shall not be deemed a substantive part of this Agreement. As used herein, the masculine, feminine or neuter gender, and the singular or plural number, shall each be deemed to include the others whenever the context so indicates. (b) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same Agreement. 16.0 Cooperation. (a) In connection with any lawsuit, administrative proceeding or other dispute that in any way involves Employee's conduct, activities or knowledge of matters arising during Employee's employment with Employer, Employee shall cooperate with Employer and upon Employer's request shall provide complete and truthful information (by way of testimony, affidavits or otherwise as may reasonably be requested by Employer) concerning Employee's conduct, activities or knowledge of matters arising during Employee's employment with Employer. Employer agrees to reimburse Employee for any reasonable out-of-pocket expenses incurred by Employee in providing such cooperation. (b) Employer and/or members of the Employer's Board of Directors agree to cooperate with Employee and, if required, shall provide complete and truthful information (by way of testimony, affidavits, etc.) in connection with the SEC investigation in the matter of trading in the Company's stock. 17.0 No Admission of Wrongdoing. Employee agrees that neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed at any time for any purpose as an admission by Employer of any liability or any unlawful conduct of any kind. 18.0 NO JURY TRIAL. EMPLOYEE WAIVES ANY RIGHT TO A JURY TRIAL IN ANY LITIGATION CONCERNING THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, ANY LITIGATION CONCERNING A BREACH OF THIS AGREEMENT OR ENFORCEMENT OF ITS TERMS OR CONDITIONS. 19.0 Agreement Read and Understood. Employee acknowledges that he has read and understands this Agreement, and that he understands that this Agreement includes a full and final release of all of his claims and potential claims against Employer as of the date of this Agreement. EMPLOYEE HAS BEEN ADVISED THAT HE HAS AT LEAST TWENTY-ONE (21) DAYS TO CONSIDER THIS AGREEMENT AND HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT. HAVING ELECTED TO EXECUTE THIS AGREEMENT, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THEREBY THE SUMS AND BENEFITS SET FORTH ABOVE, EMPLOYEE FREELY AND KNOWINGLY, WITHOUT COERCION OR DURESS, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ANY AND ALL CLAIMS HE HAS OR MIGHT HAVE AGAINST EMPLOYER. IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily execute this Agreement as of the dates set forth below: EMPLOYEE: Dated: 12/9/03 By: s/Frank R. McPike, Jr. Frank R. McPike, Jr. COMPETITIVE TECHNOLOGIES, INC. Dated: 12/4/03 By: s/John B. Nano John B. Nano President and Chief Executive Officer EXHIBIT A Competitive Technologies, Inc. Attn.: John B. Nano President and CEO 1960 Bronson Road Fairfield, CT 06824 Dated: ______________ Re: Severance Agreement and General Release Dear John: On ____________________ [INSERT DATE], I executed a Severance Agreement and General Release (the "Agreement") between Competitive Technologies, Inc. ("CTT") and me. I was advised by CTT in writing to consult with an attorney of my choosing prior to executing the Agreement. More than seven (7) days have passed since I executed the Agreement. I have at no time revoked my acceptance of the Agreement, and I hereby reaffirm my acceptance of the Agreement. Therefore, in accordance with the terms of the Agreement, I request payment of the severance benefits described in the Agreement. Very truly yours, Frank R. McPike, Jr. EX-10.3 6 ex10-3.txt LETTER AGREEMENT EXHIBIT 10.3 BROOKS, HOUGHTON & COMPANY, INC. 444 Madison Avenue - 25th Floor - New York, NY 10022 Telephone: 212-753-1991 - Facsimile: 212-753-7730 Kevin Centofanti Executive Director By Email and Post Confidential October 7, 2002 Mr. John B. Nano President and CEO Competitive Technologies, Inc. 1960 Bronson Road Fairfield, CT 06430 Re: Letter Agreement for Financial Advisor, Investment Banker & Placement Agent Dear John: This letter agreement (the "Letter Agreement") sets forth the terms and conditions upon which Brooks, Houghton & Company, Inc. and Brooks, Houghton Securities, Inc., and their affiliates (collectively, "BHC" or the "Advisor") are hereby retained on an exclusive basis as financial advisor, investment banker and placement agent for Competitive Technologies, Inc., its subsidiaries and affiliates (collectively, "CTT" or the "Company") to provide Services (defined below) in connection with the Company's proposed Transaction (defined below). This Letter Agreement sets forth the agreement between the parties as follows: As used in this Letter Agreement, Transaction shall mean any transaction involving on a best efforts basis, the sale and purchase of equity or debt issued by the Company (a "Transaction"). In the event that CTT decides to engage in a mergers and acquisition transaction, CTT may engage the Advisor as its representative in such transaction under and pursuant to a separate engagement letter mutually acceptable to the parties. It is understood that CTT has the right to accept or reject any Transaction arranged by the Advisor on behalf of CTT. A. Responsibilities and Services The Advisor shall perform the following specific services, on a best efforts basis as requested by and at the direction of the Company: 1. provide a general business and financial analysis of CTT, including transaction feasibility analysis, valuation of the Company's strategic and non-strategic assets, strategic plans and fund-raising alternatives; 2. evaluate and analyze warrant grants for executive compensation, and provide guidance with regard to valuation methodology of such warrants and/or stock grants and the accounting treatment thereof. 3. advise and assist in the preparation of any necessary descriptive memorandum and offering material to be used in connection with the proposed Transaction, which documentation may be used to assist the Advisor in attracting and negotiating with potential investors, and which documentation shall be the property of the Company; 4. consult as to the strategy and process for identifying and initiating discussions with the various investors, lenders and strategic partners that CTT considers appropriate to participate in the Transaction, and to so identify such third parties and, upon prior approval of the Company, initiate such discussions; 5. advise CTT as to the possible terms, form and structure of the Transaction to be negotiated and thereafter assist CTT in its negotiations until such time as the Transaction is closed; and 6. assist and support the Company, on an ongoing basis, with regard to its strategic business plans and positioning the Company to maximize its shareholder value. The Company agrees that all inquiries, indications of interest or offers received by the Company prior to this date or at any time during the period of this Letter Agreement with respect to the Transaction shall be referred promptly to the Advisor and therefore shall be considered applicable to this Letter Agreement during the period of the Advisor's engagement pursuant to this Letter Agreement. B. Compensation to the Advisor 1. Advisory Fee CTT agrees to pay BHC a monthly fee of $10,000 payable upon the signing of this Letter Agreement and subsequently on the first day of the month thereafter (the "Advisory Fee") until expiration or termination of this Letter Agreement pursuant to paragraph C below. 2. Placement Fee If a Transaction is consummated, the Company will pay in full to the Advisor a "Placement Fee" in cash at the initial and all subsequent closing(s) of the Transaction as follows: a. Upon the placement of all forms of equity, including shares of preferred stock, the Advisor will be paid a placement fee of 5.0% of the total value of the placement. For purposes of this subparagraph B.2.a., "total value of the placement" shall mean the fair market value of the gross proceeds received from the purchasers of the equity sold in such Transaction. b. Upon placement of subordinated term debt, the Advisor will be paid a placement fee of 5% of amounts so raised. c. Upon the placement of senior debt, the Advisor will be paid a placement fee of 1.75% of the amount raised. If requested by CTT, the Advisor and its legal advisors will be in attendance at all closings of Transactions, and, to the extent practicable, the Advisor will be given at least one week's written notice of any such closing(s). 3. Warrants At the closing of a Transaction arranged by the Advisor, the Company shall grant to the Advisor five- year warrants (the "Warrants") to purchase a number of shares of the Company's equity equal to 5.0% of the total amount raised in the Transaction. The Warrants shall have an exercise price equal to 110% of the price per share of the Company's equity expressly or implicitly paid by investors associated with the corresponding Transaction, and the Warrants terms shall contain customary terms (including, without limitation, anti-dilution provisions for stock splits, stock dividends, merger and other recapitalization transactions; registration rights; etc.). 4. Fairness Opinion Fee Upon delivery of any Fairness Opinion required by CTT, CTT shall pay the Advisor a fixed fee of $80,000. Each Fairness Opinion rendered will be covered by separate agreements between BHC and CTT. 5. Expenses CTT agrees to reimburse the Advisor monthly for all reasonable, documented out-of-pocket expenses incurred in connection with providing the services outlined in this Letter Agreement. The Advisor shall not incur expenses, including expenses of third party service providers, which exceed $2,000 per month without CTT's prior written approval. C. Terms of Engagement The engagement of the Advisor pursuant to the terms of this Letter Agreement shall be effective for 6 months from the date of CTT's acceptance of this Letter Agreement, and may be extended by CTT by written notice to the Advisor. This Letter Agreement may be terminated, at any time after 90 days from the date hereof, by either the Advisor or CTT upon 30 days written notice to the other party. Effective as of the date of this Letter Agreement and until the expiration of a period of 12 months from the date of the expiration or termination of this Letter Agreement, the Advisor will be paid all fees outlined above should CTT consummate a Transaction offered by any party (1) introduced to CTT by the Advisor or with which CTT or the Advisor on behalf of CTT has held discussions during the period of the Advisor's engagement pursuant to this Letter Agreement and (2) which was identified by Advisor on a written list limited to parties described in clause 1 above and delivered to the Company at the time of termination or expiration of this Letter Agreement. D. Obligations and Third Party Fees The obligation of the Company to pay any fees or expenses set forth herein shall not be assigned, delegated, or transferred to any other person or entity without the prior written consent of the Advisor. The Company understands and agrees that the Advisor will not be responsible for the payment of any fees, commissions, expenses, or other charges claimed by or payable to any financial or other advisor, or any other person or entity used or retained by the Company or any of its affiliates or any prospective or actual merger partner or capital provider. The Company also understands and agrees that the Advisor will not be responsible for the payment of any legal, accounting, printing or other costs incurred by the Company in connection herewith. E. Indemnification Provision Because the Advisor will be acting on behalf of CTT, CTT agrees to the indemnification provision (the "Indemnification Provision") attached to this Letter Agreement as Annex A and incorporated herein in its entirety. F. Arbitration Notwithstanding anything to the contrary contained herein, any controversy or claim arising out of or relating to this Letter Agreement or the breach thereof, shall be settled by arbitration in New York City before a referee in accordance with the rules of the National Association of Securities Dealers ("NASD") and the results of the arbitration shall be final and binding on the parties; judgment upon the award rendered by the arbitrator may be entered in any New York court having jurisdiction thereof. G. Additional Terms Notwithstanding anything to the contrary contained herein, the provisions concerning confidentiality, indemnification, contribution and the obligation to pay fees and reimburse expenses contained herein and in the Indemnification Provision shall survive any expiration or termination of the Letter Agreement or the engagement of the Advisor pursuant to the terms of the Letter Agreement. During the term of the Letter Agreement, the Company will apprise the Advisor in a timely manner of material matters relevant to the Company's business and financial condition. For 12 months following the expiration or termination of the Letter Agreement, the Company will notify the Advisor of any Transaction with any person or entity on the list provided by Advisor to the Company pursuant to paragraph C of this Letter Agreement at least one week before the closing of such Transaction whenever practicable and promptly whenever not so practicable. The Company represents and warrants that to the best of its knowledge no information which it furnishes to the Advisor, including the Company's financial statements, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading, and all forecasts are and will be based on reasonable assumptions. CTT acknowledges that the Advisor (i) will be using and relying on information available from CTT and generally recognized public sources (the "Information") without having independently verified the same; and (ii) does not assume responsibility for the accuracy or completeness of the Information. The Advisor agrees that any information supplied by and created in conjunction with the Company will be considered property of the Company and that any summaries or analyses by Advisor of any of such information created by the Advisor including, but not limited to, financial and valuation models needed for analysis of the Transactions shall be considered confidential information of the Company and shall be treated as such under this paragraph. The Advisor agrees to keep any information with respect to CTT and this Letter Agreement (including the summaries and analyses described above) confidential and shall not disclose or make use thereof except in connection with services hereunder for the Company, unless disclosure is required by applicable law or judicial process (and then only after prior written notice to the Company), any information is or becomes generally available to the public, or any information was or becomes available to the Advisor on a non-confidential basis from a source other than the Company or its representatives. No party to this Letter Agreement will be identified or referred to in any release or communication prepared by any other party to this Letter Agreement or any of its affiliates or associates without the first party's prior written consent. This Letter Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, supersedes all prior agreements, may not be amended or modified except in writing executed by CTT and the Advisor, and shall be governed by and construed in accordance with the laws of the State of New York. This Letter Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Please confirm that the foregoing is in accordance with your understanding by signing and returning to Brooks, Houghton & Company, Inc. the enclosed duplicate of this Letter Agreement. It is a distinct privilege to be working with you on this important project. We look forward to developing a long term and mutually successful relationship with your company. Sincerely yours, BROOKS, HOUGHTON & COMPANY, INC. and BROOKS, HOUGHTON SECURITIES, INC. By:/s/ Kevin Centofanti Dated: October 7, 2002 Name:Kevin Centofanti Title: Executive Director By:/s/ Gerald Houghton Dated: October 7, 2002 Name:Gerald Houghton Title: President Agreed and Accepted by COMPETITIVE TECHNOLOGIES, INC. By:/s/ John B. Nano Date: October 7, 2002 Name: John B. Nano Title: President and CEO ANNEX A INDEMNIFICATION PROVISION CTT, INC. ("CTT" or the "Company") agrees to indemnify and hold harmless Brooks, Houghton & Company, Inc., and its affiliates, Private Corporate Advisors, Inc., Brooks Houghton Securities, Inc., (collectively "BHC") and their respective directors, officers, employees, agents and each such person or entity, if any, who controls BHC or any of its affiliates within the meaning of the Securities Exchange Act of 1934 (BHC and all above- described entities or persons being an "Indemnified Party") from and against any and all losses, claims, damages, liabilities, and expenses whatsoever, joint or several (including all reasonable fees of counsel and other expenses incurred by an Indemnified Party in connection with the preparation for or defense of any claim, action, or proceeding, whether or not resulting in liability), as incurred, to which such Indemnified Party may become subject under any applicable Federal or state law, or otherwise, relating to or arising out of any proposed or consummated transaction covered by the Letter Agreement, except that the Company will not be liable hereunder to the extent that any loss, claim, damage, liability or expense is found in a final judgment by an arbitrator or a court to have resulted primarily from an Indemnified Party's gross negligence or willful malfeasance in the performance of its services described in the Letter Agreement. The Company and BHC agree that if any indemnification or reimbursement sought pursuant to the preceding paragraph is finally judicially determined to be unavailable (except by reason of the gross negligence or willful malfeasance of BHC or its controlling person, directors, officers, employees or agents, as the case may be), then the Company and BHC shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable in such proportions as is appropriate to reflect (a) the relative benefits to the Company on the one hand, and BHC on the other hand, in connection with the transaction to which such indemnification or reimbursement relates, (b) the relative fault of the parties, and (c) other equitable considerations; provided, however, that in no event shall the amount to be contributed by BHC exceed the amount of the fees actually received by BHC hereunder. In connection with any claim for contribution, CTT agrees that it shall not require BHC to contribute any amount in excess of the amount of fees received by BHC pursuant to this Letter Agreement. CTT and BHC mutually agree to notify each other promptly of the assertion against it or any other person of any claim or the commencement of any action, proceeding or investigation relating to any activity or transaction contemplated by this Letter Agreement. BROOKS, HOUGHTON & COMPANY, INC. 444 Madison Avenue - 25th Floor - New York, NY 10022 Telephone: 212-753-1991 - Facsimile: 212-753-7730 July 10, 2003 By Email and Post Confidential Mr. John Nano President and CEO Competitive Technologies, Inc. 1960 Bronson Road Fairfield, CT 06824 RE: Extension Agreement to Letter Agreement Dated October 7, 2002 Dear John: This letter will serve as an extension agreement (the "Extension Agreement") to Brooks, Houghton & Company, Inc.'s ("BHC") Letter Agreement with Competitive Technologies, Inc. ("CTT") dated October 7, 2002. This Extension Agreement shall be for a period of six (6) months from the date of execution of this Extension Agreement and thereafter will be subject to a 30 day termination notice by either Party. Sincerely yours, BROOKS, HOUGHTON & COMPANY, INC. and BROOKS, HOUGHTON SECURITIES, INC. By: /s/ Gerald Houghton Dated: July 10, 2003 Name: Gerald Houghton Title: President By: /s/ Kevin Centofanti Dated: July 10, 2003 Name: Kevin Centofanti Title: Executive Director Agreed and Accepted by COMPETITIVE TECHNOLOGIES, INC. By: /s/ John Nano Dated: July 10, 2003 Name: John Nano Title: President and CEO EX-31.1 7 ex31-1.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, John B. Nano, President, Chief Executive Officer and Chief Financial Officer of Competitive Technologies, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Competitive Technologies, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2004 /s/ John B. Nano John B. Nano President, Chief Executive Officer and Chief Financial Officer of Competitive Technologies, Inc. EX-32.1 8 ex32-1.txt CERTIFICATION BY PRINCIPAL EXECUTIVE/FINANCIAL OFFICER Exhibit 32.1 CERTIFICATION BY THE PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICER OF COMPETITIVE TECHNOLOGIES, INC. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) I, John B. Nano, am President, Chief Executive Officer and Chief Financial Officer of Competitive Technologies, Inc. (the Company). This certification is being furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 2004 (the Report). I hereby certify that to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. Date: March 16, 2004 /s/ John B. Nano John B. Nano President, Chief Executive Officer and Chief Financial Officer of Competitive Technologies, Inc. -----END PRIVACY-ENHANCED MESSAGE-----