As filed with the Securities and Exchange Commission on July 30, 1996
Registration No. 333-______
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------------
ALYN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0709359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3299
(Primary Standard Industrial Classification Code Number)
16871 Noyes Avenue
Irvine, CA 92606
(714) 475-1525
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------------
ROBIN A. CARDEN
ALYN CORPORATION
16871 Noyes Avenue
Irvine, CA 92606
(714) 475-1525
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
Copies to:
GERALD A. EPPNER, ESQ. STEVEN DELLA ROCCA, ESQ.
BATTLE FOWLER LLP LATHAM & WATKINS
Park Avenue Tower 885 Third Avenue
75 East 55th Street Suite 1000
New York, New York 10022 New York, New York 10022
(212) 856-7000 (212) 906-1200
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Offering Registration
be Registered Registered(1) Per Share(2) Price(2) Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.001 par value........... 2,760,000 shares $13.50 $37,260,000 $12,848.25
===================================================================================================================================
</TABLE>
(1) Includes 360,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
_________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
369440.19
<PAGE>
CORPORATION
-------------------------
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Between Items Required in Part 1 of Registration Statement
(Form S-1) and Information in Prospectus
<TABLE>
<CAPTION>
Item
No. Form S-1 Caption Prospectus Page or Caption
- ---- ---------------- --------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus................................. Facing Page of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges................................ Prospectus Summary; Risk Factors; Manage-
ment's Discussion and Analysis of Financial
Condition and Results of Operations; Selected
Financial Data
4. Use of Proceeds............................................ Use of Proceeds
5. Determination of Offering Price............................ Risk Factors; Underwriting
6. Dilution................................................... Dilution
7. Selling Security Holders................................... N/A
8. Plan of Distribution....................................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered................. Description of Capital Stock
10. Interests of Named Experts and Counsel..................... Legal Matters; Experts
11. Information with Respect to the Registrant
a. Description of Business................................ Prospectus Summary; Risk Factors; Business
b. Description of Property................................ Business
c. Legal Proceedings...................................... Business
d. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters................................... Dividend Policy; Capitalization; Shares Eligible
for Future Sale
e. Financial Statements................................... Prospectus Summary; Selected Financial Data;
Financial Statements
f. Selected Financial Data................................ Prospectus Summary; Selected Financial Data
g. Supplementary Financial Information.................... Prospectus Summary; Selected Financial Data
h. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... Management's Discussion and Analysis of Financial
Condition and Results of Operations
i. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ N/A
j. Directors, Executive Officers, Promoters and
Control Persons....................................... Management
k. Executive Compensation................................. Management
l. Security Ownership of Certain Beneficial
Owners and Management................................. Principal Stockholders
m. Certain Relationships and Related Transactions......... Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................... N/A
</TABLE>
<PAGE>
A Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 30, 1996
2,400,000 Shares
[GRAPHIC OMITTED]
Common Stock
All of the 2,400,000 shares of Common Stock of Alyn Corporation ("Alyn" or
the "Company") offered hereby are being sold by the Company. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that a trading market will develop after the completion of this
offering, or, if developed, that it will be sustained. It is currently
estimated that the initial public offering price of the Common Stock will be
between $11.50 and $13.50 per share. See "Underwriting" for information
relating to factors considered in determining the initial public offering
price. Application will be made for the Common Stock to be approved for
quotation on the Nasdaq National Market under the symbol "ALYN."
Certain affiliates of the Company, including Kingdon Capital Management
Corp., who hold approximately $2.3 million of the approximately $4.0 million of
indebtedness that will be repaid by the Company with a portion of the net
proceeds of this offering, intend to purchase at least 400,000 of the shares of
Common Stock offered hereby for an aggregate purchase price of approximately
$5.0 million (based on the mid-point of the range set forth above), for their
respective accounts or those of their affiliates or designees. See
"Underwriting."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
ON PAGE 7 AND "DILUTION" ON PAGE 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
Total (3) $ $ $
=============================================================================================================================
</TABLE>
(1) The Company has also agreed to indemnify the Underwriters (as defined
herein) against certain liabilities, including certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately
$____________, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 360,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares of
Common Stock offered hereby. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $_______________, $_______________ and $_______________, respectively.
See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Furman Selz LLC, New York, New York, on
or about
, 1996.
Furman Selz ___________________ Needham & Company, Inc.
The date of this Prospectus is , 1996.
369440.19
<PAGE>
[INSIDE OF FRONT COVER WITH PHOTOGRAPHS]
[PHOTOGRAPH OF CYCLIST ON BICYCLE] [PHOTOGRAPH OF BICYCLE COMPONENTS]
The Company believes that Boralyn(R) bicycle
frames and components offer a combination of
light weight and strength that improve riding
efficiency.
[PHOTOGRAPH OF GOLF CLUBS] [PHOTOGRAPH OF HARD DISKS]
The Company believes that golf clubs The Company believes that Boralyn(R) disks
manufactured with Boralyn (R) heads will allow for greater storage
achieve greater distance than capabilities and higher data transfer
titanium golf club heads and provide rates than computer hard disk drives in
for a larger "sweet spot" and "more use today.
forgiving" golf club.
------------------------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Boralyn(R) is a registered trademark and Ceralyn(TM) is a trademark of the
Company. All other trade names and trademarks appearing in this Prospectus are
the property of their respective holders.
369440.19
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus gives effect to the merger, effective on May 2, 1996, of Alyn
Corporation, a California corporation ("Old Alyn"), with and into Alyn
Corporation, a Delaware corporation formerly named AC Acquisition Corp. ("Alyn"
or the "Company"), and the issuance of 0.026111 shares of Common Stock of the
Company in exchange for each issued and outstanding share of common stock of
Old Alyn (the "Merger"), and an 80-for-one stock split of the Common Stock
effective on July 16, 1996. Unless the context otherwise requires, the term
"the Company" as used in this Prospectus includes the Company and its
predecessor, Old Alyn. For the definition of certain technical terms used
herein, see the "Glossary of Certain Technical Terms." Unless otherwise
indicated, all share, per share and financial information set forth herein
assumes no exercise of the Underwriters' over-allotment option.
Each prospective investor is urged to read this Prospectus in its entirety.
The Company
Alyn designs, develops, manufactures and markets consumer and
industrial products utilizing its proprietary advanced metal matrix composite
materials, which it believes have a superior combination of physical
properties, including strength, light weight, stiffness, hardness and fracture
resistance, for a variety of selected markets. The Company has developed
technology, for which it obtained a patent in January 1996, for the application
of boron carbide in combination with aluminum in lightweight metal matrix
composites under the name Boralyn(R). Boron carbide, a principal component of
Boralyn(R), is an advanced ceramic that is the third hardest material in the
world, and the hardest material available at a commercially reasonable cost.
The Company believes that no other material offers a range of properties
comparable to those Boralyn(R) provides. Boralyn(R) is lighter and can be more
easily fabricated than titanium; has a higher specific stiffness than titanium,
aluminum or specialty steel; is one-third the density of many steels; has a
hardness and resistance to wear greater than aluminum and comparable to
specialty steel and titanium; is more resistant to corrosion than aluminum; is
highly fracture resistant; and exhibits minimal resonance over a wide range of
rotational speeds. Boralyn(R) is available in a range of grades with varying
properties to satisfy specific customer requirements and is easily welded,
cast, bent, coated and extruded with conventional equipment and tools. The
Company believes that Boralyn(R) is a highly effective replacement for many
existing premium-priced metal and composite products, such as those used in
high-end sporting goods, high-capacity disks for computer hard disk drives,
neutron shielding and other applications. The Company is focusing its initial
marketing efforts on the use of Boralyn(R) in applications where its unique
combination of properties will justify an appropriate price premium. These
applications include the following:
High-end Sporting Goods. The Company has targeted premium-priced golf
club heads and shafts and high- end lightweight bicycle frames and components
as a primary market for Boralyn(R)-based products.
Golf Club Heads and Shafts. The U.S. wholesale market for
premium-priced golf clubs was estimated by industry sources to be approximately
$890 million in 1994, reflecting a 23% increase over the prior year. The
Company has produced or is producing prototype golf club heads for Nicklaus
Golf Equipment Limited, Hillerich & Bradsby Co., Inc. (Power-Bilt), Prince
Sports Group, Inc. and Taylor Made Golf Company, Inc., each a golf club
producer, including pre-tooling versions based on production molds customized
for Boralyn(R) composite heads. The Company believes that production and
customer approval of pre-tooling versions of golf clubs based on customized
molds is usually the final step before receipt of a definitive production
order. The Company is actively engaged in negotiations with each of the named
prospective customers that it believes may lead, by late 1996, to production
orders for delivery in 1997, although there can be no assurance that any
production orders will be obtained. The Company believes that the higher
specific stiffness, higher specific strength and ease of fabrication of
Boralyn(R), compared with titanium, allow the design and manufacture of golf
club heads with a larger "sweet spot" and better mass distribution compared
with titanium heads, thus yielding what golfers term a "more forgiving" golf
club. In an independent third-party's comparison test against two
premium-priced titanium golf club heads, a Boralyn(R) golf
1
369440.19
<PAGE>
club head drove the ball longer distances. The higher specific stiffness of
Boralyn(R) compared with graphite composite, a commonly used golf club shaft
material, also should permit stiffer shafts to be made with Boralyn(R).
Bicycle Components and Frames. The U.S. retail market for bicycles,
bicycle components and related products and services was estimated by industry
sources to be approximately $5 billion in 1994. The Company believes that
approximately 220,000 premium-priced (over $600 at retail) bicycles were sold
in 1995. The Company has received orders for prototype components or frames
from Campagnolo S.R.L., Cannondale Corporation and Trek Bicycle Corporation,
each a leading manufacturer of bicycle components and/or frames. The higher
specific strength and specific stiffness of Boralyn(R) compared to aluminum and
specialty steel allows for the production of lighter bicycle components and
frames with no decrease in strength or stiffness, or if weight is not a
dominant consideration, for stiffer components and frames with no increase in
weight. These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and
stiffness are important include tennis and other sports racquets, baseball bats
and arrows. The Company has received orders from Spalding Sports Worldwide,
Inc., a division of Spalding & Evenflo Cos., Inc., for prototype racquetball
and tennis racquets.
Computer Hard Disks. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high-speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company is producing preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk drive
manufacturers. Unlike conventional aluminum and glass substrates in use as
disks in computer hard drives, Boralyn(R) disks exhibit minimal resonance over
the entire range of rotational speeds, from initial spin-up to current maximum
speeds, as well as at substantially higher rotational speeds. Lower resonance
disks will permit hard disk drives to be designed for closer head-to-disk
distances and higher rotational speeds, characteristics that will allow for
greater storage capabilities and faster data transfer rates. The Company does
not anticipate production orders for hard disk applications prior to the second
half of 1997, as a result of stringent testing requirements, substantial
marketing efforts and the redesign of computer hard disk drives by disk drive
manufacturers that would be necessary to realize the benefits of disks based on
Boralyn(R), and there can be no assurance that any production orders will be
obtained.
Neutron Shielding. Materials traditionally used for neutron absorption
in nuclear reactors and disposal containers for radioactive products and waste
require a separate neutron-absorbing material such as boron carbide, encased in
layers of metallic alloy such as aluminum supported by steel, in order to
provide stiffness and structural integrity. The metal matrix structure of
Boralyn(R), combined with its boron carbide ingredients, provides acceptable
neutron absorption characteristics as well as stiffness in an homogeneous,
single structure, with advantages in ease of use and fabrication. The Company
has received small initial orders from Framatome S.A., a major nuclear plant
construction company, for prototype disposal containers. The Company does not
anticipate production orders for neutron shielding applications prior to the
second half of 1997, and there can be no assurance that any production orders
will be obtained.
Other Potential Applications. Other potential applications of
Boralyn(R) include its use in automotive and motorcycle components, where the
Company is producing prototype motorcycle brake drums for Honda R&D North
America, Inc. and connecting rods for Maverick Racing; marine applications,
where the Company is producing prototype drive shafts for Power Ski
International Inc.; structural components for aircraft, where the Company is
producing prototype sensor housings for Rosemount Aerospace, a division of BF
Goodrich, Inc., and prototype thin foil structures for Engelhard Corporation;
semiconductors, where the Company is producing prototype semiconductor
packaging for Motorola, Inc.; satellite components, where the Company is
producing samples for Endgate Corporation; and armor for government and
military vehicles and for personal protection.
The Company has also developed what it believes to be a superior
manufacturing process that benefits from the characteristics of Boralyn(R). The
Company recently filed a patent application for its soluble core method of
2
369440.19
<PAGE>
manufacturing metal matrix composite die-cast metal structures, which allows
for forming complex hollow chambers and passages, often within a one-piece
structure, without the need for welding together separate components or other
secondary manufacturing processes.
Many of the Company's claims with respect to the physical
characteristics of Boralyn(R) have been subjected to studies and testing,
performed by independent laboratories, universities and other testing
facilities, of its various properties such as specific strength, specific
stiffness, density, hardness, resonance and neutron absorption. The results of
those tests have verified and supported many of the Company's claims with
respect to Boralyn(R). See "Business -- Characteristics of Boralyn(R)."
Alyn's objective is to become a leader in advanced metal matrix
composite products and establish significant market share and brand awareness
for Boralyn(R) in niche markets, such as higher-priced consumer products and
specialized uses, where value-added premiums can be obtained. The Company
intends to do so by capitalizing on its existing proprietary technology and
patented process for producing Boralyn(R) through the direct manufacture and
sale of Boralyn(R)-based products to consumer and industrial product
manufacturers and distributors, and, to a lesser extent, to producers of
military products. The Company believes that its focus on marketing Boralyn(R)
for use in higher-priced consumer and commercial products and applications
where its properties provide performance advantages will afford it the best
opportunity for meaningful market penetration.
The Company anticipates commencing production in late 1996, for
shipment in early 1997, of Boralyn(R) in commercial quantities at its
newly-leased 48,000 square foot facility in Irvine, California, which is
expected to be operational in the fourth quarter of 1996. The new facility will
include sintering, casting (including soluble core) and extrusion capabilities.
Until production commences at the new facility, production and shipment of
Boralyn(R) will continue to be undertaken by unaffiliated subcontractors.
The Company's principal executive offices are currently located at
16871 Noyes Avenue, Irvine, California 92606, where its telephone number is
(714) 475-1525, and its fax number is (714) 475-1531, until its newly leased
facility, located nearby at 16761 Hale Avenue, Irvine, California 92606 is
ready for occupancy in the fourth quarter of 1996.
3
369440.19
<PAGE>
<TABLE>
<CAPTION>
The Offering
<S> <C>
Common Stock Offered by the Company........ 2,400,000 shares
Common Stock to be Outstanding after
the Offering............................... 10,400,000 shares(1)
Use of Proceeds............................ Approximately (i) $12.6 million for capital expen-
ditures for new production facilities, equipment and
tooling and management information systems; (ii)
$4.0 million to repay approximately $3.9 million
principal amount of stockholder loans and accrued
interest incurred since May 1996 (including
approximately $2.3 million principal amount of loans
held by affiliates of persons who intend to purchase,
for their respective accounts or those of their
affiliates or designees, at least 400,000 of the shares
of Common Stock offered hereby for an aggregate
purchase price of approximately $5.0 million (based
on the mid-point of the estimated initial public
offering price range set forth on the cover page of
this Prospectus)), and (iii) $3.0 million for marketing
activities for Boralyn(R)products. The remainder of
the net proceeds will be used for working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors and Dilution.................. Prospective investors should carefully consider the
matters set forth under the captions "Risk Factors"
and "Dilution." An investment in the shares of
Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution.
Proposed Nasdaq National Market Symbol "ALYN"
</TABLE>
- ----------------
(1) Does not include 1,000,000 shares of Common Stock reserved for future
issuance under the Company's stock incentive plan. See "Management - The
1996 Stock Incentive Plan." Also assumes no exercise of the Underwriters'
over-allotment option.
4
369440.19
<PAGE>
Summary Financial Data
(In thousands, except per share data)
Set forth below are selected financial data with respect to the statements
of operations of the Company for the three years ended December 31, 1993, 1994,
and 1995, and for the three months ended March 31, 1995, and 1996, and the
balance sheet of the Company at March 31, 1996. The financial data as of and
for the years ended December 31, 1993, 1994, and 1995 have been derived from
financial statements of the Company contained elsewhere herein, which have been
audited by Price Waterhouse LLP. The financial data as of March 31, 1996, and
for the three months ended March 31, 1995, and 1996, have been derived from
interim financial statements of the Company contained elsewhere herein, which
are unaudited. The unaudited financial data includes all adjustments, which
were of a normal recurring nature, that the Company considers necessary to
present fairly, in all material respects, the financial position and the
results of operations for these periods. Operating results for the three months
ended March 31, 1996, are not indicative of the results that may be expected
for the entire year ending December 31, 1996, as the Company anticipates
incurring a substantial operating loss for the entire 1996 year. The data
should be read in conjunction with the audited financial statements and the
unaudited interim financial statements included herein.
The Company is the successor by merger to Old Alyn. From 1990 to April
1996, Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. The pro forma
net income per share data shown below reflect the pro forma historical results
of Old Alyn. See Note (2) below. Old Alyn repurchased 200,000 of its shares of
Common Stock in April 1996, leaving 1,800,000 shares outstanding. In April
1996, certain prospective investors formed AC Acquisition Corp., a Delaware
corporation, in order to facilitate their investment in and loans to Old Alyn,
and were issued 53,000 shares of AC Acquisition Corp.'s common stock. In May
1996, Old Alyn was merged into AC Acquisition Corp., and each share of Old Alyn
was exchanged for 0.026111 shares of Common Stock of AC Acquisition Corp. (the
"Merger"), with 47,000 shares in the aggregate being issued to shareholders of
Old Alyn. AC Acquisition Corp.'s name was changed to Alyn Corporation, which
had 100,000 of shares of common stock issued and outstanding following the
Merger. In July 1996, the Company effected an 80-for-one stock split, resulting
in 8,000,000 shares being issued and outstanding. The pro forma, as adjusted,
financial information set forth below presents the Company's results as if the
Merger had occurred as of January 1, 1995, and in the case of the quarterly
data as of January 1, 1996. See Note (3) below.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1993 1994 1995 1995 1996
------------- -------------- -------------- --------------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue $540 $309 $319 $154 $91
Costs and expenses:
Cost of goods sold 265 92 203 64 20
General and administrative expenses 259 352 219 47 29
Selling and marketing 114 143 52 11 14
Research and development 24 180 79 18 8
------------- -------------- -------------- --------------- ---------------
Total costs and expenses 662 767 553 140 71
------------- -------------- -------------- --------------- ---------------
Operating income (loss) (122) (458) (234) 14 20
Other income (expense), net (3) (11) (10) (3) (2)
------------- -------------- -------------- --------------- ---------------
Income (loss) before provision for income taxes (125) (469) (244) 11 18
Provision for income taxes 1 1 1 -- --
------------- -------------- -------------- --------------- ---------------
Net income (loss) ($126) ($470) ($245) $11 $18
============= ============== ============== =============== ===============
Pro forma net income (loss) per share (1) ($0.12) $0.01
============== ===============
Pro forma weighted average common shares outstanding (1) 2,000 2,000
============== ===============
Pro forma net income (loss) per share, as
adjusted (2) ($0.04) $0.00
============== ===============
Pro forma weighted average common shares outstanding,
as adjusted (2) 8,000 8,000
============== ===============
See notes on the following page.
</TABLE>
5
369440.19
<PAGE>
Balance Sheet Data:
March 31, 1996
As
Actual Adjusted (3)
Working capital (deficit) $(368) $26,937
Total assets 140 27,917
Long-term obligations 128 128
Total stockholders' equity (deficit) (472) 27,305
_____________________________
(1) Presented on a pro forma basis to reflect the change of Old Alyn's status
for federal income tax purposes from an "S" corporation to a "C"
corporation as a result of the Merger. The effect of such change in status
was not material.
(2) As discussed above, this data reflects the Merger, including the
amortization of intangible assets of $47,000 and $12,000 for the year ended
December 31, 1995, and the quarter ended March 31, 1996, respectively, and
the 80-for-one stock split. See Notes to Pro Forma Financial Statements.
(3) As adjusted to reflect the sale of 2,400,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom, after giving pro
forma effect to the Merger. See "Use of Proceeds."
6
369440.19
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution and should only be made
by persons who can afford a loss of their entire investment. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the
other information contained in this Prospectus.
Emerging Technology; Substantial Risk of Uncertain Market Acceptance.
Since commencement of operations in 1990, the Company has been engaged in
the formulation, development and fabrication of Boralyn(R) for use in
commercial and consumer products. As with any new technology, there is the
substantial risk that the marketplace may not be receptive to products based on
it. The Company expects to incur substantial expenses as it continues its
development and marketing activities and, if they are successful, to penetrate
the markets for its products. Market acceptance of the Company's products will
depend, in large part, upon the pricing of those products and the Company's
ability to manufacture and deliver them on a timely basis, as well as the
ability of the Company to demonstrate the advantages of its products over
competing methodologies and products. There can be no assurance that the
Company will be able to market Boralyn(R) successfully or that any of the
Company's future boron carbide-based or other products will be accepted in the
marketplace. The costs of the Company's marketing efforts will be substantial
and will be recorded as expenses as they are incurred, notwithstanding that the
benefits, if any, from those marketing efforts (in the form of revenues) may
not be reflected, if at all, until subsequent periods.
Limited Operating History; Prior Losses
The Company has a limited operating history, having commenced its materials
development and manufacturing activities in 1990, and having had extremely
limited revenues through early 1996, with net revenue declining from $540,000
in 1993 to $319,000 in 1995. The Company has not received a production order
for Boralyn(R) since late 1994, when it ceased supplying a bicycle frame
manufacturer in order to pursue what it believed to be more promising marketing
and distribution channels in the high-end bicycle frame and components market.
The Company had net income of $18,000 for the three months ended March 31,
1996, compared with net income of $11,000 for the three months ended March 31,
1995. It incurred a net loss of $245,000 in the year ended December 31, 1995,
compared with a net loss of $470,000 in the year ended December 31, 1994, and a
net loss of $126,000 in the year ended December 31, 1993. The Company
anticipates incurring significant operating losses for the current fiscal year,
and may continue to incur losses thereafter. There can be no assurance that the
Company will ever achieve profitability in the future or maintain
profitability, if achieved, on a consistent basis. Moreover, the Company has
entered into a five-year lease of a facility in Irvine, California, and intends
to commit substantial capital, including a portion of the proceeds of this
offering, to provide that facility with significant production capability.
Unless and until the Company achieves a significant level of sales of
Boralyn(R) or Boralyn(R)-based products, the Company will have substantial
production overcapacity and underabsorbed costs that would cause the Company to
incur substantial operating losses. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
No Manufacturing Experience; Reliance on Manufacturing Facilities
The Company currently has no internal manufacturing capacity and no
experience in manufacturing its products in commercial quantities. The Company
intends to manufacture a substantial portion of its products at its newly-
leased facility in Irvine, California. The new facility, when fully equipped,
will include sintering, casting (including soluble core) and extrusion
capabilities, although there can be no assurance that these capabilities will
be adequate for all of the Company's future fabrication requirements, or, on
the other hand, that the Company will be able to fully utilize the plant's
capacity. The manufacturing process for Boralyn(R) utilizes high temperature
and high pressure processes and may be subject to volatile chemical reactions.
A mechanical or human failure or unforeseen condition, including natural
disasters such as earthquakes, characteristic of Southern California, could
result in temporary interruption of the Company's manufacturing capacity.
Moreover, the Company's manufacturing operations will use certain equipment
which, if damaged or otherwise rendered inoperable or unavailable, could
7
369440.19
<PAGE>
result in the disruption of the Company's manufacturing operations. Although
the Company intends to obtain business interruption insurance with coverage for
lost profits and out-of-pocket expenses of $1.0 million per occurrence, and
presently maintains and intends to continue to maintain other property and
casualty coverage that it believes to be adequate, any extended interruption of
operations at the Company's manufacturing facility would have a material
adverse effect on the business of the Company. See "Business--Manufacturing and
Supply."
Rapid Technological Change and New Product Development
The Company operates in a rapidly evolving field -- advanced composite
materials -- that is likely to be affected by future technological
developments. The Company's ability to anticipate changes in technologies,
markets and industry trends and to develop and introduce new and enhanced
products on a timely basis will be a critical factor in its ability to grow and
remain competitive. There can be no assurance that new products will be
completed or that any new products can be marketed successfully. In addition,
the anticipated development schedules for new or improved products are
inherently difficult to predict and are subject to change as a result of
shifting priorities in response to customers' requirements and competitors' new
product introductions. Moreover, the Company expects that it will devote
substantial resources to research and development efforts. The costs of those
efforts will be expensed as they are incurred, notwithstanding that the
benefits, if any, from the Company's research and development efforts (in the
form of increased revenues or decreased product costs) may not be reflected, if
at all, until subsequent periods.
In order to realize the benefits of Boralyn(R), hard disk drive
manufacturers will have to modify existing hard disk drive designs. The Company
believes that hard disk drive manufacturers will be motivated to modify or
introduce new hard disk drive designs only after a substantial testing period
and significant marketing efforts by the Company. The Company expects to incur
substantial expenses in connection with those testing and marketing efforts,
and anticipates ultimately that disks based on Boralyn(R) will be accepted by
hard disk drive manufacturers, if at all, only if such disks can be
demonstrated to have superior characteristics and can be offered at competitive
prices. Further, the Company expects that use of disks based on Boralyn(R) will
commence with, and could be limited to, high-end computer hard disk drives,
which constitute a small but significant percentage of the current market for
computer hard disks.
Dependence on Patents
The Company has obtained one United States patent that it believes provides
protection for its proprietary Boralyn(R) technology and contains claims that
cover the use of Boralyn(R), particularly in high-end sporting goods, as well
as in certain other markets targeted by the Company. The Company has also filed
additional patent applications, including divisional patent applications and
continuation-in-part applications that stem from the Company's original patent
application. The divisional patent applications relate to methods of
fabricating Boralyn(R) and to bicycle frames that were disclosed in the
original patent application. The continuation-in-part patent applications
expand the scope of the claims in the original patent, and cover the Company's
processes of fabricating Boralyn(R). Divisional patent applications and
continuation-in-part patent applications generally are likely to complete the
U.S. Patent Office review process on an expedited basis and, with respect to
claims having a common subject matter with those in the original patent, are
entitled to the date of filing of the original patent for purposes of
considering patentability. The divisional patent application relating to
bicycle frames was filed in September 1995 and was allowed in June 1996, but
there can be no assurance that the Company's other pending divisional patent
and continuation-in-part patent applications will receive expedited review. New
patent applications recently filed by the Company cover (i) application of
Boralyn(R) in neutron shielding, (ii) application of Boralyn(R) in computer
hard disk drives and (iii) a new soluble core manufacturing method for
Boralyn(R)-based structures. The Company is not aware of any reason why its
pending applications should not be granted with claims that will provide
coverage and, therefore, adequate protection for its anticipated business
activities, although there can be no assurance in that regard. There can also
be no assurance that the Company's existing patent and the divisional patent
application that was allowed, or any other patents that may be granted, will be
valid and enforceable or provide the Company with meaningful protection from
competitors. Further, there can be no assurance that any pending patent
application will issue as a patent or that any claim thereof will provide
protection against infringement. If the Company's present or future patent
rights are ineffective in protecting the Company against infringement, the
Company's marketing
8
369440.19
<PAGE>
efforts and future revenues could be materially and adversely affected.
Moreover, if a competitor were to infringe the Company's patent, the costs of
enforcing the Company's patent rights may be substantial or even prohibitive.
There can also be no assurance that the Company's future products will not
infringe the patent rights of others or that the Company will not be forced to
expend substantial funds to defend against infringement claims of, or to obtain
licenses from, third parties. The Company currently has only limited patent
protection for its technology outside the United States, and may be unable to
obtain even limited protection for its proprietary technology in certain
foreign countries. See "Business--Patents and Trademarks."
Product Liability Risks
The Company faces an inherent business risk of exposure to product
liability claims in the event that any of its products are alleged to be
defective or cause harmful effects. The cost of defending or settling product
liability claims may be substantial. The Company currently maintains and
intends to continue to maintain product liability insurance coverage that it
believes to be adequate. There can be no assurance that the Company will be
able to obtain such insurance on acceptable terms in the future or that such
insurance will adequately cover any claims.
Dependence on Management
The Company's future success and profitability is substantially dependent
upon the performance of its senior executives, including Robin A. Carden, the
Company's founder and principal stockholder, and Walter R. Menetrey, its chief
operating officer. Each of the Company's senior executives has an employment
agreement with the Company and has or is expected to have a substantial equity
interest in the Company through ownership of shares of Common Stock or the
grant of options to purchase shares of Common Stock, none of which options will
be, in the case of all such executives, vested as of the date of this offering.
The loss of Mr. Carden or Mr. Menetrey could have a material adverse effect on
the Company. Moreover, the Company does not maintain key-man life insurance on
any of its executives other than a $5.0 million policy on the life of Mr.
Carden. See "Management." The Company's future growth will also be dependent
upon its ability to attract and retain additional qualified management,
technical, scientific, administrative and other personnel. By reason both of
its location and the nature of its business, the Company believes it will
experience significant competition for qualified management, supervisory,
engineering and other personnel. There can be no assurance that the Company
will be successful in hiring or retaining the personnel it requires for
continued growth.
Need for Additional Management Information Systems
The Company's existing management information and accounting systems are
not designed for, and are likely to be inadequate to handle, information and
accounting requirements arising from large-scale production of Boralyn(R) and
future sales growth, should they materialize. The Company anticipates that a
portion of the net proceeds of this offering that are intended to be used for
capital expenditures will be allocated to procurement and installation of
accounting and manufacturing production management software and related
computer hardware designed for a large-scale manufacturing enterprise. There
can be no assurance that such management information systems will be adequate
for the Company's future needs.
Competition
The materials industry is highly competitive. The Company competes in its
chosen markets against several larger multi-national companies, all of which
are well-established in those markets and have substantially greater financial
and other resources than those of the Company. Competitive market conditions
could adversely affect the Company's results of operations if it were required
to reduce product prices to remain competitive or were unable to achieve
significant sales of its products. See "Business--Competition."
9
369440.19
<PAGE>
Need for Future Capital
Through mid-1996, the Company financed all of its working and other capital
requirements from equity infusions and borrowings from certain of its
stockholders. Future growth will be dependent, in part, upon the capital
resources available to the Company from time to time. In May 1996, in
connection with the Merger, the Company obtained from certain stockholders a $5
million, 60-month credit facility (the "Subordinated Credit Line").
Approximately $3.9 million of the Subordinated Credit Line had been drawn upon
as of July 1, 1996. All of the amounts owing under the Subordinated Credit Line
will be repaid with a portion of the net proceeds of this offering. The
Company's ability to obtain future debt financing will be dependent in part on
the quality and amount of the Company's trade receivables and inventory. The
Company believes that internally generated funds and cash on hand, together
with the net proceeds of this offering, should satisfy the Company's
anticipated capital needs for the next 24 months. However, there can be no
assurance that those funds will be sufficient to support the Company's business
strategy or that, if additional financing is required, it will be available in
amounts and on terms satisfactory to the Company, if at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Dependence on Trademarks for Current and Future Markets
The market for the Company's products is and will remain dependent upon the
goodwill engendered by its trademarks and trade names. Trademark protection is
therefore material to the Company's business. Although Boralyn(R) is registered
in the United States, there can be no assurance that the Company will be
successful in asserting trademark or trade name protection for its significant
marks and names in the United States or other markets, and the costs to the
Company of such efforts may be substantial. See "Business--Patents and
Trademarks."
Dependence on Principal Suppliers
The Company presently purchases its principal raw material, boron carbide,
from a limited number of suppliers, including one supplier that provides
approximately 50% of the Company's present requirements. The Company's business
would be materially and adversely affected if it were unable to continue to
receive boron carbide at prices and on terms presently made available to it by
its principal supplier. Although the Company believes that boron carbide is
readily available from other suppliers, there can be no assurance that the
Company will be able to continue to obtain desired quantities of boron carbide
on a timely basis at prices and on terms deemed reasonable by the Company. The
Company's business would be materially and adversely affected if it were unable
to continue to receive boron carbide at prices and on terms comparable to those
presently made available to it by its principal supplier. See
"Business--Manufacturing and Supply."
Possible Dependence on Significant Customers
In view of the very early stage nature of the Company's business, currently
it has only a limited number of customers, each of whom is material to the
Company's present results of operations. Even after the Company matures,
however, certain customers may be material to the business, operations and
future prospects of the Company. There can be no assurance that one or more
principal customers will not suffer business or financial setbacks resulting in
reduction or cancellation of product orders or the Company being unable to
obtain payment from such customers at any time or from time to time. The loss
of sales to one or more significant customers could have a material adverse
effect on the business and operations of the Company. Moreover, although the
Company does not presently intend to enter into exclusive production or
distribution arrangements with any of its customers, there may be circumstances
in which the benefits offered by a proposed exclusive arrangement could justify
the Company committing to an exclusive relationship as regards a product or
product line for a period of months or years. However, there can be no
assurance that the prospective benefits of such an exclusive relationship
would, in fact, materialize, and the existence of exclusive relationships with
one or more parties might prevent the Company from pursuing other market
alternatives, with possible adverse results on future revenues and prospects.
See "Business--Marketing and Customer Support."
10
369440.19
<PAGE>
Quarterly Fluctuations in Operating Results
The Company's operating results may vary significantly from quarter to
quarter, in part because of the costs associated with changes in the Company's
products and personnel, the size and actual delivery dates of orders, and the
timing of, and costs related to, any future acquisitions. The Company's
operating results for any particular quarter are not necessarily indicative of
any future results. The uncertainties associated with new product introduction
and market trends may limit management's ability to forecast accurately
short-term results of operations. Fluctuations caused by variations in
quarterly operating results or the Company's failure to meet analyst's
projections or public expectations as to operating results may adversely affect
the market price of the Common Stock.
Control by Existing Stockholders; Anti-takeover Provisions
After this offering, the Company's present stockholders will own
approximately 81% of the outstanding shares of voting stock, including at least
400,000 shares offered hereby that certain affiliates of the Company, including
Kingdon Capital Management Corp., who hold indebtedness that will be repaid
with a portion of the net proceeds of this offering, intend to purchase at the
initial public offering price, for their respective accounts or those of their
affiliates or designees (approximately 78% if the Underwriters' over-allotment
option is exercised in full). Consequently, the present stockholders will have
the ability to elect all the Company's directors and to control the outcome of
all other issues submitted to the Company's stockholders, and new stockholders
who acquire shares of Common Stock in this offering will not have the ability
to elect any of the Company's directors or to control the outcome of other
matters submitted to the stockholders. Additionally, the Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future.
Although the Company has no present intention to issue shares of Preferred
Stock, any issuance of Preferred Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. Certain
provisions of Delaware law applicable to the Company may also discourage
third-party attempts to acquire control. See "Principal Stockholders" and
"Description of Capital Stock."
Dilution; Benefits of the Public Offering to the Company's Affiliates and
Principal Stockholders
The initial public offering price of a share of Common Stock is
substantially in excess of the net tangible book value per share of Common
Stock, which results in a benefit to all existing stockholders. For instance,
8,000,000 shares of Common Stock were acquired by the existing stockholders for
an effective cash consideration of $5,300, or an average of $0.0007 per share,
as compared to new investors who will be paying $30 million or $12.50 per share
(the mid-point of the estimated initial public offering price range set forth
on the cover page of this Prospectus) for the 2,400,000 shares being offered
hereby. Accordingly, existing stockholders will realize an effective
appreciation of $12.50 per share of Common Stock in the value of the shares
they currently own as a result of this offering. See "Dilution."
Use of Proceeds for Repayment of Stockholder Indebtedness
A portion of the net proceeds of this offering will be used to repay all
amounts owing under the Subordinated Credit Line indebtedness to principal
stockholders of the Company. The Company will apply approximately $4.0 million
of the proceeds of this offering to repay the Subordinated Credit Line, which
includes a principal amount of $3.9 million and accrued interest thereon.
Accordingly, approximately 15% of the net proceeds of this offering will be
paid directly to certain principal stockholders of the Company, although
certain affiliates of the Company, including Kingdon Capital Management Corp.,
who hold approximately $2.3 million of the indebtedness that will be repaid,
intend to purchase at least 400,000 of the shares of Common Stock offered
hereby, for an aggregate
11
369440.19
<PAGE>
purchase price of approximately $5.0 million (based on the mid-point
of the estimated initial public offering price range set forth on the
cover page of this Prospectus) for their respective accounts or those of
their affiliates or designees. See "Certain Transactions--Agreement and
Plan of Merger; Repayment of Stockholder Loans."
Shares Eligible for Future Sale
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), or otherwise, could have an adverse effect on the price
of the shares of Common Stock. Upon consummation of this offering, the Company
will have outstanding 10,400,000 shares of Common Stock. The 2,400,000 shares
of Common Stock offered hereby (2,760,000 if the Underwriters' over-allotment
option is exercised in full) will be freely transferable without restriction or
further registration under the Securities Act. The remaining 8,000,000
outstanding shares of Common Stock will be "restricted securities," as that
term is defined in Rule 144, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from registration
thereunder, including exemptions provided by Rule 144. In addition, the Company
has contractually granted certain of its existing stockholders certain
registration rights. No prediction can be made as to the effect that future
sales of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market price of the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for the
Common Stock. The Company has agreed not to issue, and all of the existing
stockholders, have agreed (i) not to, directly or indirectly, issue, agree or
offer to sell, sell, grant an option for the purchase or sale of, assign,
transfer, pledge, or otherwise dispose of, any shares of Common Stock or other
equity securities of the Company or other securities convertible into or
exercisable for such shares of Common Stock or other equity securities for nine
months from the date of this Prospectus without the prior written consent of
the Company and Furman Selz LLC; and (ii) not to exercise their registration
rights for a period of nine months from the date of this Prospectus. Certain of
the existing stockholders of the Company have also agreed not to offer, sell or
otherwise dispose of more than 104,000 shares of Common Stock during any
three-month period in the six months following expiration of the nine-month
period, other than in an underwritten public offering, without the consent of
Furman Selz LLC. See "Shares Eligible for Future Sale" and "Underwriting."
Absence of Prior Public Market
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or continue after the offering. The initial public offering
price per share of Common Stock has been determined by negotiation between the
Company and the representative of the Underwriters and does not necessarily
bear any relationship to the Company's assets, book value, revenues or other
established criteria of value, and should not be considered indicative of the
price at which the Common Stock will trade after completion of the offering.
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. See "Underwriting."
Possible Volatility of Stock Price
Trading volume and prices for the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operations, results,
announcements with respect to sales and earnings, as well as technological
innovations, and new product developments and other events or factors, which
cannot be foreseen or predicted by the Company, including the sale or attempted
sale of a large amount of securities in the public market, the registration for
resale of any shares of Common Stock, and the effect on the Company's earnings
of existing or future equity-based compensation awards to management. See
"Management--Executive Compensation."
12
369440.19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.50 (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus) are estimated to be $27.3 million
($31.4 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discount and offering expenses payable
by the Company.
The Company intends to use the net proceeds as follows: (i) approximately
$12.6 million for capital expenditures for new production facilities, equipment
and tooling intended to provide a production capacity of up to approximately
125,000 pounds of Boralyn(R) per month by the first quarter of 1997, and up to
500,000 pounds per month by the third quarter of 1997, and for management
information systems; (ii) approximately $4.0 million to repay the outstanding
principal of and accrued interest on the Subordinated Credit Line; and (iii)
approximately $3.0 million for marketing activities for Boralyn(R) products.
Certain affiliates of the Company, including Kingdon Capital Management Corp.,
who hold approximately $2.3 million of the indebtedness that will be repaid,
intend to purchase at least 400,000 of the shares of Common Stock offered
hereby for an aggregate purchase price of approximately $5.0 million (based on
the mid-point of the estimated initial public offering price range set forth on
the cover page of this Prospectus), for their respective accounts or those of
their affiliates or designees. The indebtedness outstanding under the
Subordinated Credit Line obtained in May 1996 and expected to be repaid bears
interest at the annual rate of 8.0%. The Company may from time to time incur
other borrowings, as needed for its working capital and general corporate
requirements, although it does not currently have a credit facility and there
can be no assurance that the Company will be able to borrow funds on acceptable
terms now or in the future. The remaining net proceeds from this offering
(including any proceeds received from the exercise of the over-allotment
option) are expected to be utilized for working capital and general corporate
purposes.
The amounts and timing of actual expenditures will depend upon numerous
factors, including, primarily, the progress of the Company's research and
development programs, product marketing strategies and the competitive
environment. Additionally, it is the Company's policy regularly to review
potential opportunities to acquire, or enter into joint venture or licensing
relationships with respect to, products and businesses compatible with its
existing business. The Company may, therefore, use a portion of the net
proceeds to make acquisitions or to fund joint ventures, although the Company
does not have any arrangements, agreements or understandings with respect
thereto.
See "Business--Research and Development."
The Company believes that the net proceeds of this offering together with
cash flow from operations will be sufficient to finance its working and other
capital requirements for a period of approximately 24 months from the date of
this Prospectus. Pending the aforementioned uses, the net proceeds from this
offering will be invested in short-term, investment grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Company presently intends to retain its earnings,
if any, to finance the development of its business. The payment of any
dividends in the future will depend on the evaluation by the Company's Board of
Directors of such factors as it deems relevant at the time. Currently, the
Board of Directors believes that all of the Company's earnings, if any, should
be retained for the development of the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
13
369440.19
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
(i) at March 31, 1996, adjusted to give effect to the Merger and to the
80-for-one stock split effected in July 1996, and (ii) as further adjusted to
reflect the issuance and sale by the Company of the 2,400,000 shares of Common
Stock offered hereby, and the receipt by the Company of the estimated net
proceeds from this offering (after deducting the underwriters' discount and
estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
March 31, 1996
Pro Forma
Pro Forma As Adjusted
(in thousands)
<S> <C> <C>
Note payable to stockholder $128 $128
Long-term debt (1)
Stockholders' equity (2):
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding -
Common stock, $0.001 par value; 20,000,000 shares
authorized; 8,000,000 shares issued and outstanding;
10,400,000 shares issued
and outstanding, as adjusted 8 10
Additional paid in capital (3) 27,295
Accumulated deficit - -
------------------- ---------------------
Total stockholders' equity 5 27,305
-------------------- --------------------
Total capitalization $133 $27,433
==================== ================
</TABLE>
(1) Subsequent to March 31, 1996, certain stockholders provided a $5 million
credit facility (approximately $3.9 million outstanding as of July 1, 1996)
to the Company, all due and payable in April 2001. The outstanding
principal amount, plus accrued interest will be repaid with a portion of
the net proceeds of this offering.
(2) The amounts in the table give effect to the amendment of the Company's
certificate of incorporation to increase the number of authorized shares of
Common Stock from 110,000 to 20,000,000 and to authorize 5,000,000 shares
of preferred stock, and the 80-for-one stock split effective July 16, 1996.
14
369440.19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock at
March 31, 1996, was $5,300, or $0.0007 per share of Common Stock. "Net tangible
book value" per share is equal to the total tangible assets of the Company
reduced by the Company's total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the estimated net proceeds
from sale of the 2,400,000 shares of Common Stock offered hereby at $12.50 per
share (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus), the pro forma net tangible book
value of the Company at March 31, 1996, would have been $26.8 million, or $2.58
per share, representing an immediate increase in pro forma net tangible book
value of $2.58 per share to existing stockholders, and an immediate dilution in
pro forma net tangible book value of $9.92 per share (or 79.4%) to investors
purchasing shares at the assumed initial public offering price ("New
Investors"). The following table illustrates the per share dilution to New
Investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................................... $12.50
Pro forma net tangible book value per share before this offering.................... $0.00
------------
Increase in pro forma net tangible book value per share
attributable to New Investors....................................................... 2.58
------------
As adjusted, pro forma net tangible book value per share as of March 31, 1996,
after this offering ................................................................ 2.58
-----------
Dilution in pro forma net tangible book value to new investors...................... $9.92
===========
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $2.88 per share, which would result in dilution to new investors in
this offering of $9.62 (or 77.0%) per share of Common Stock.
The following table summarizes at March 31, 1996, on a pro forma basis the
total consideration paid and the average price paid per share of Common Stock
by the existing stockholders and the new investors who purchase pursuant to
this offering (before deducting the underwriting discount and the other
offering expenses payable by the Company):
<TABLE>
<CAPTION>
Average
Common Stock Acquired Total Consideration Price
------------------------------ ------------------------- Per
Number Percent Amount Percent Share
------------------------------ ------------------------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 8,000,000 76.92% $5,300 0.02% $0.0007
New investors.............. 2,400,000 23.08% $30,000,000 99.98% $12.50
---------- ------- ----------- ------
Total.................... 10,400,000 100.0% $30,005,300 100.00%
========== ====== =========== =======
</TABLE>
- ----------
(1) Does not reflect that certain affiliates of the Company, including Kingdon
Capital Management Corp., who hold, or whose affiliates hold, indebtedness
which will be repaid with a portion of the net proceeds of this offering,
intend to purchase at least 400,000 of the shares of Common Stock offered
hereby at the initial public offering price, for their respective accounts or
those of their affiliates or designees.
15
369440.19
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data as of and for each of the three years
in the period ended December 31, 1995, have been derived from financial
statements of the Company contained elsewhere herein, which have been audited
by Price Waterhouse LLP. The financial data as of and for the years ended
December 31, 1991, and 1992, and as of March 31, 1996, and for the three months
ended March 31, 1995, and 1996, have been derived from financial statements of
the Company which are unaudited. The unaudited financial data includes all
adjustments, which were of a normal recurring nature, that the Company
considers necessary to present fairly, in all material respects, the financial
position and the results of operations for these periods. Operating results for
the three months ended March 31, 1996, are not indicative of the results that
may be expected for the entire year ending December 31, 1996, as the Company
anticipates incurring a substantial operating loss for the entire 1996 year.
The data should be read in conjunction with the audited financial statements
and the unaudited interim financial statements included herein.
The Company is the successor by merger to Old Alyn. From 1990 to April
1996, Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. The pro forma
net income per share data shown below reflect the pro forma historical results
of Old Alyn. See Note (2) below. Old Alyn repurchased 200,000 of its shares of
Common Stock in April 1996, leaving 1,800,000 shares outstanding. In April
1996, certain prospective investors formed AC Acquisition Corp., a Delaware
corporation, in order to facilitate their investment in and loans to Old Alyn,
and were issued 53,000 shares of AC Acquisition Corp.'s common stock. In May
1996, Old Alyn was merged into AC Acquisition Corp., and each share of Old Alyn
was exchanged for 0.026111 shares of Common Stock of AC Acquisition Corp. (the
"Merger"), with 47,000 shares in the aggregate being issued to shareholders of
Old Alyn. The name of AC Acquisition Corp. was changed to Alyn Corporation,
which had 100,000 shares of common stock issued and outstanding following the
Merger. In July 1996, the Company effected an 80-for-one stock split, resulting
in 8,000,000 shares being issued and outstanding. The pro forma, as adjusted,
financial information set forth below presents the Company's results as if the
Merger had occurred as of January 1, 1995, and in the case of the quarterly
data as of January 1, 1996. See Note (3) below.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1991 1992 1993 1994 1995
--------------- ---------------- ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue $319 $377 $540 $309 $319
Costs and expenses
Cost of goods sold 224 273 265 92 203
General and administrative
expenses 39 53 259 352 219
Selling and marketing 38 32 114 143 52
Research and development 19 19 24 180 79
--------------- ---------------- ------------ ----------- ------------
Total costs and expenses 320 377 662 767 553
--------------- ---------------- ------------ ----------- ------------
Operating income (loss) (1) 0 (122) (458) (234)
--------------- ---------------- ------------ ----------- ------------
Other income (expense), net 0 0 (3) (11) (10)
--------------- ---------------- ------------ ----------- ------------
Income (loss) before provision for
income taxes (1) 0 (125) (469) (244)
Provision for income taxes 1 1 1 1 1
--------------- ---------------- ------------ ----------- ------------
Net income (loss) ($2) ($1) ($126) ($470) ($245)
--------------- ---------------- ------------ ----------- ------------
--------------- ---------------- ------------ ----------- ------------
</TABLE>
Three Months Ended
March 31,
---------------------------
1995 1996
------------ ------------
(Unaudited)
Statements of Operations Data:
Net revenue $154 $91
Costs and expenses
Cost of goods sold 64 20
General and administrative
expenses 47 29
Selling and marketing 11 14
Research and development 18 8
------------ ------------
Total costs and expenses 140 71
------------ ------------
Operating income (loss) 14 20
------------ ------------
Other income (expense), net (3) (2)
------------ ------------
Income (loss) before provision for
income taxes 11 18
Provision for income taxes
------------ ------------
Net income (loss) $11 $18
------------ ------------
------------ ------------
16
369440.19
<PAGE>
<TABLE>
<S> <C> <C>
Pro forma net income (loss) per
share(1) ($0.12) $0.01
======= ===============
Pro forma weighted average common shares outstanding(1) 2,000 2,000
====== ===============
Pro forma net income (loss) per share, as adjusted (2) ($0.04) $0.00
======= ===============
Pro forma weighted average common shares outstanding, as
adjusted (2)
- -------------------------------
See notes on the following page. 8,000 8,000
====== ===============
</TABLE>
17
369440.19
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, March 31, 1996
---------------------------------------------------------------------- -------------------------
As
1991 1992 1993 1994 1995 Actual Adjusted (3)
--------------- ---------------- ------------ ----------- ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $152 $145 $ 18 $(133) $(382) $(368) $26,937
Total assets 178 198 219 193 128 140 27,917
Long-term obligations 128 128 128 128 128 128 128
Total stockholders' equity (deficit) (27) (26) (99) (245) (490) (472) 27,305
</TABLE>
- ------------------------
(1) Presented on a pro forma basis to reflect the change of Old Alyn's status
for federal income tax purposes from an "S" corporation to a "C"
corporation as a result of the Merger. The effect of such change in status
was not material.
(2) As discussed above, this data reflects the Merger, including the
amortization of intangible assets of $47,000 and $12,000 for the year ended
December 31, 1995, and the quarter ended March 31, 1996, respectively, and
the 80-for-one stock split. See Notes to Pro Forma Financial Statements.
(3) As adjusted to reflect the sale of 2,400,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom in the manner
contemplated under the caption "Use of Proceeds" after giving effect to the
Merger.
18
369440.19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Financial Data and the financial statements and related notes
thereto appearing elsewhere in this Prospectus.
Overview
Since its inception in 1990, the Company has been primarily engaged in
research, development, testing and prototype production of advanced metal
matrix composite materials, utilizing proprietary technology for the
application of boron carbide in combination with aluminum, under the name
Boralyn(R). The Company applied for a patent regarding Boralyn(R) in January
1994, and the patent was granted in January 1996. In the fourth quarter of 1993
and in 1994, the Company sold Boralyn(R) tubes, as well as Boralyn(R) prototype
cast parts, with approximately 44% of the Boralyn(R) sales in each of 1993 and
1994 being production tubes for one bicycle manufacturer. In 1995, the Company
stopped supplying that manufacturer in order to pursue what it considered to be
more promising marketing alternatives. In 1995 and the first quarter of 1996,
Boralyn(R) sales were primarily the result of prototype orders. The number of
prospective customers placing such prototype orders increased in the first half
of 1996. As a result, the Company had a backlog, as of June 30, 1996, of
approximately $73,000 of prototype orders for Boralyn(R) for delivery in the
third and fourth quarters of 1996. There can be no assurance that all or any of
these orders will result in revenues. No production revenues for Boralyn(R)
have been recognized since late 1994, and none are anticipated prior to the
fourth quarter of 1996. For reasons discussed below, the Company does not
expect to achieve significant sales of Boralyn(R) prior to 1997, and there can
be no assurance that any significant sales will be achieved.
Historically, the Company has financed its operations from capital and
loans provided by existing stockholders and funds generated by operations, and
its lack of sufficient working capital until the second quarter of 1996 had
limited its ability to pursue its long-term marketing goals. Obtaining the
Subordinated Credit Line from new investors in May 1996 allowed the Company,
for the first time, to pursue a comprehensive marketing program oriented to
long-term sales growth and market penetration. The anticipated reduction in
sales of Boralyn(R) in the second and third quarters of 1996 is the result of a
termination of active selling efforts at the request of the new investors who
simultaneously acquired an equity interest in the Company and provided it with
the Subordinated Credit Line in May 1996. Sales efforts were initially
suspended while those investors conducted their pre- investment due diligence,
particularly relating to the Company's patent position. Following the receipt
of the investors' commitments and initial loan proceeds, sales efforts were not
resumed while the Company's management prepared a comprehensive business,
marketing and manufacturing plan that took into account the working capital
made available by the Subordinated Credit Line and the flexibility afforded
thereby, including its enhancement of the Company's ability to attract senior
management and engineering personnel, as well as the possibility of a public
offering of the Company's Common Stock. Sales efforts have now resumed.
From 1993 through March 31, 1996, the Company recognized approximately
$357,000 in total revenues from sales of Boralyn(R). The balance of the
Company's revenues through March 31, 1996, resulted primarily from the sale to
end-users of boron carbide powder purchased from producers of the powder, and
to a lesser extent, from sales of Ceralyn(TM), a silicon nitride matrix
composite developed by the Company for use in tool inserts and abrasives. These
sales were pursued in order to generate operating cash flow to fund the
Company's development and marketing efforts regarding Boralyn(R). The Company
was unprofitable through 1995, expects to incur a substantial loss for the full
1996 year as a result of start-up expenses in anticipation of production
orders, and may incur additional losses thereafter.
The following table sets forth the relative contribution of Boralyn(R)
and other sources of revenue to total Company revenues since 1993, in thousands
of dollars and as a percentage of total revenues:
19
369440.19
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, Three Months ended March 31,
------------------------------------------------------ --------------------------------------
1993 1994 1995 1995 1996
--------------- ----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boralyn(R) $ 96 17.7% $109 35.2% $111 34.8% $15 9.7% $41 45.2%
Boron carbide
powders and
other $444 82.3% $200 64.8% $208 65.2% $139 90.3% $50 54.8%
---- ----- ---- ------ ---- ----- ---- ------ --- ------
Total revenues $540 100.0% $309 100.0% $319 100.0% $154 100.0% $91 100.0%
==== ====== ==== ====== ==== ====== ==== ====== === ======
</TABLE>
Results of Operations
Three Months Ended March 31, 1996, Compared to Three Months Ended March 31, 1995
Net sales in the three months ended March 31, 1996, decreased 40.9% to
$91,000, from $154,000 in the three months ended March 31, 1995. The decrease
was primarily the result of the Company's decision, following the grant in
January 1996 of the patent for Boralyn(R), to focus its efforts on sales of
Boralyn(R), and, in anticipation of receiving additional private financing in
the second quarter of 1996, to reduce its efforts to sell boron carbide powders
and ceramic products, which it had pursued in the past in order to generate
cash. The reduction in such sales was not fully offset by increases in sales of
Boralyn(R) prototype products.
Cost of goods sold decreased 68.8% to $20,000 in the three months ended
March 31, 1996, from $64,000 in the comparable period in 1995, reflecting the
reduction in revenues in the 1996 period. Cost of goods sold decreased as a
percentage of net sales to 22.0% in the three months ended March 31, 1996, from
41.6% in the comparable period in 1995 primarily as a result of the higher
percentage of sales of higher margin Boralyn(R) prototype products.
General and administrative expenses decreased 38.3% to $29,000 in the
three months ended March 31, 1996, from $47,000 in the comparable period in
1995. As a percentage of net sales, these expenses increased slightly to 31.9%
in the three months ended March 31, 1996, from 30.5% in the comparable period
in 1995. It is anticipated that general and administrative expenses will
increase substantially in the several quarters following the quarter ended
March 31, 1996, as the Company builds infrastructure to support anticipated
future sales of Boralyn(R) products.
Selling and marketing expenses increased 27.3% to $14,000 in the three
months ended March 31, 1996 from $11,000 in the comparable period in 1995. As a
percentage of net sales, these expenses increased to 15.4% in the three months
ended March 31, 1996, from 7.1% in the comparable period in 1995. This increase
was a result of an increase in marketing expenses, primarily printing costs,
incurred in renewing marketing efforts for Boralyn(R) products. Such expenses
are expected to increase over the several quarters following the quarter ended
March 31, 1996, as Boralyn(R)-related marketing and sales activities increase.
Research and development expenses decreased 55.6% to $8,000 in the three
months ended March 31, 1996, from $18,000 in the comparable period in 1995. As
a percentage of net sales, these expenses decreased to 8.8% in the three months
ended March 31, 1996, from 11.7% in the comparable period in 1995. This
decrease was primarily a result of completion of certain contract development
programs. The Company expects research and development personnel expenses to
increase substantially in the second half of 1996.
As a result of the foregoing factors, income before provision for income
taxes increased 63.6% to $18,000 in the three months ended March 31, 1996, from
$11,000 in the comparable period in 1995.
20
369440.19
<PAGE>
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Net sales in the year ended December 31, 1995, increased 3.2% to
$319,000 from $309,000 in the year ended December 31, 1994. The increase
reflected a slight increase in Boralyn(R) sales, as well as an increase in
sales of boron carbide powders and ceramics products.
Cost of goods sold increased 120.7% to $203,000 in the year ended
December 31, 1995, from $92,000 in the prior year. Cost of goods sold increased
as a percentage of net sales to 63.6% in 1995 from 29.8% in the prior year. The
increase was primarily attributable to the price of boron carbide, which
adversely affected the margins on sales of boron carbide powder.
General and administrative expenses decreased 37.8% to $219,000 in the
year ended December 31, 1995, from $352,000 in the prior year. As a percentage
of net sales, general and administrative expenses decreased to 68.7% in 1995
from 113.9% in the prior year. The decrease in expenses was primarily a result
of expense reduction efforts to conserve cash.
Selling and marketing expenses decreased 63.6% to $52,000 in the year
ended December 31, 1995, from $143,000 in the prior year. As a percentage of
net sales, selling and marketing expenses decreased to 16.3% in 1995 from 46.3%
in the prior year. The decrease in expenses was primarily a result of a
reduction in selling expenses as the Company reduced expenses to conserve cash.
Research and development expenses decreased 56.1% to $79,000 in the year
ended December 31, 1995, from $180,000 in the prior year. As a percentage of
net sales, research and development expenses decreased to 24.8% in 1995 from
58.3% in the prior year. The decrease in expenses was primarily a result of the
lower level of product development contracts, and a reduction in research and
development efforts in order to conserve cash.
As a result of the foregoing, loss before provision for income taxes
decreased 48.0% to $244,000 in the year ended December 31, 1995, from a loss of
$469,000 in the prior year.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Net sales in the year ended December 31, 1994, decreased 42.8% to
$309,000 from $540,000 in the year ended December 31, 1993. The decrease was
primarily the result of the Company's decision to pursue its long-term
strategic goals by focusing its efforts on selling Boralyn(R) tubes for bicycle
frames and castable products, rather than rely on sales of lower margin boron
carbide powders and ceramics products in order to generate cash. The Company
sold common stock during 1994 to finance its activities.
Cost of goods sold decreased 65.3% to $92,000 in the year ended December
31, 1994, from $265,000 in the prior year. Cost of goods sold decreased as a
percentage of net sales to 29.8% in 1994 from 49.1% in the prior year,
primarily a result of the change in the product mix to include a greater
proportion of higher margin Boralyn(R) product sales.
General and administrative expenses increased 35.9% to $352,000 in the
year ended December 31, 1994, from $259,000 in the prior year. As a percentage
of net sales, general and administrative expenses increased to 113.9% in 1994
from 48.0% in the prior year. The increase was primarily a result of personnel
added to assist in new business development and in reviewing the contracts
entered into as a result of these efforts.
Selling and marketing expenses increased 25.4% to $143,000 in the year
ended December 31, 1994 from $114,000 in the prior year. As a percentage of net
sales, selling and marketing expenses increased to 46.3% in 1994 from 21.1% in
the prior year. This increase was primarily a result of the increased marketing
of the Company's Boralyn(R) products.
21
369440.19
<PAGE>
Research and development expenses increased 650.0% to $180,000 in the
year ended December 31, 1994, from $24,000 in the prior year. As a percentage
of net sales, research and development expenses increased to 58.3% in 1994 from
4.4% in the prior year. The increase was primarily a result of
customer-supplied funds being available for Boralyn(R) product development.
As a result of the foregoing, loss before provision for income taxes
increased 275.2% to a loss of $469,000 in the year ended December 31, 1994,
from a loss of $125,000 in the prior year.
Liquidity and Capital Resources
Historically, the Company has financed its operations from capital and
loans provided by existing stockholders and funds generated by operations. At
March 31, 1996, the Company's working capital deficit was $368,000, compared to
working capital deficits of $382,000 and $133,000 at December 31, 1995 and
1994, respectively. Net cash used in investing activities in 1994, 1995 and the
first three months of 1996 was $3,000, $4,000, and $4,000, respectively. Cash
used in investing activities related primarily to purchases of equipment,
furniture, and office equipment. Net cash provided from financing activities
from 1994 through the first three months of 1996 was limited to $325,000,
representing proceeds from the sales of Common Stock in early 1994. At March
31, 1996, the Company had a note payable to its major stockholder in the amount
of $128,000.
In May 1996, certain new stockholders of the Company provided the
Subordinated Credit Line, pursuant to which such stockholders became obligated
to loan to the Company on a monthly basis up to an aggregate maximum amount of
$5 million, which loans bear interest at the annual rate of 8%. The outstanding
principal amount of the Subordinated Credit Line (approximately $3.9 million as
of July 1, 1996), plus accrued interest, will be repaid with a portion of the
net proceeds of this offering. Certain affiliates of the Company, including
Kingdon Capital Management Corp., who hold, or whose affiliates hold, $2.3
million of the indebtedness which will be repaid, intend to purchase at least
400,000 of the shares of Common Stock offered hereby for an aggregate purchase
price of approximately $5.0 million (based on the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), for their respective accounts or those of their affiliates or
designees.
The Company currently intends, following this offering, to seek a loan
commitment from one or more lenders for a working capital credit facility,
subject to satisfaction of such collateral and other requirements as may be
required by the lender. There can be no assurance that any such facility will
be obtained. The Company believes that the net proceeds of this offering,
together with cash flow from operations, will be sufficient to finance its
working and other capital requirements for a period of approximately 24 months
from the date of this Prospectus. Pending the aforementioned uses, the net
proceeds from this offering will be invested in interest bearing government
securities or short-term, investment grade securities.
Inflation
Inflation has not had a material impact on operating results and the
Company does not expect it to have such an impact in the future. There can be
no assurance, however, that the Company's business will not be affected by
inflation.
22
369440.19
<PAGE>
BUSINESS
Alyn designs, develops, manufactures and markets consumer and industrial
products utilizing its proprietary advanced metal matrix composite materials,
which it believes have a superior combination of physical properties, including
strength, light weight, stiffness, hardness and fracture resistance, for a
variety of selected markets. The Company has developed technology, for which it
obtained a patent in January 1996, for the application of boron carbide in
combination with aluminum in lightweight metal matrix composites under the name
Boralyn(R). Boron carbide, a principal component of Boralyn(R), is an advanced
ceramic that is the third hardest material in the world, and the hardest
material available at a commercially reasonable cost. The Company believes that
no other material offers a range of properties comparable to those Boralyn(R)
provides. Boralyn(R) is lighter and can be more easily fabricated than
titanium; has a higher specific stiffness than titanium, aluminum or specialty
steel; is one-third the density of many steels; has a hardness and resistance
to wear greater than aluminum and comparable to specialty steel and titanium;
is more resistant to corrosion than aluminum; is highly fracture resistant; and
exhibits minimal resonance over a wide range of rotational speeds. Boralyn(R)
is available in a range of grades with varying properties to satisfy specific
customer requirements and is easily welded, cast, bent, coated and extruded
with conventional equipment and tools. The Company believes that Boralyn(R) is
a highly effective replacement for many existing premium-priced metal and
composite products, such as those used in high-end sporting goods,
high-capacity disks for computer hard disk drives, neutron shielding and other
applications.
The Company is focusing its initial marketing efforts on the use of
Boralyn(R) in applications where its unique combination of properties will
justify an appropriate price premium. These applications include: (i) high-end
sporting goods such as premium-priced golf club heads and shafts, high-end
lightweight bicycle frames and components and sports racquets; (ii) disks for
computer hard disk drives; and (iii) neutron shielding for both disposal
containers and reactor installations.
Development of the Company's Business
The growth of interest in metal matrix composites is a result of the
engineering properties of these composites. Metal matrix composites compare
favorably to other materials with respect to weight, stiffness and strength,
high temperature capabilities, and low thermal expansion, and can be relatively
easily fabricated. Based on independent studies, the Company believes these
materials can provide up to 60% savings in weight compared to traditional
metallic alloys while still retaining key structural and design properties.
They also compare favorably with certain other composite materials, namely
polymer-matrix materials that have temperature and strength limitations, are
sensitive to moisture and in some cases also release gases or moisture.
The Company was founded in January 1990 by Robin A. Carden, who had
previously been a senior engineer at Ceradyne Inc., a company engaged in
advanced ceramics, where he developed civilian applications for advanced
ceramics originally developed for military use. At that time, boron carbide
technology had recently been declassified by the U.S. Department of Defense. In
order to capitalize on the commercial possibilities of a boron carbide/metallic
alloy composite structure, under Mr. Carden's direction the Company began to
experiment with new techniques for bonding boron carbide to different metals,
creating new composite structures. From 1990 through 1993 the Company continued
development of metal matrix composites, while purchasing and reselling boron
carbide powders in order to generate cash for its Boralyn(R) development
efforts. These efforts led to the filing of a patent application in January
1994, first sales of Boralyn(R) bicycle frames, and the grant of a U.S. patent
for the "Metal Matrix Compositions and Method of Manufacture Thereof" in
January 1996, which covers the initial matrix composites and methods for making
them.
In May 1996, the Company received significant debt financing from its
new stockholders, including Kingdon Capital Management Corp. affiliates and
Edelson Technology Partners III, enabling the Company to pursue further its
Boralyn(R) business. In that same month and in the month thereafter, the
Company assembled a senior management team with experience in areas such as
operations, manufacturing, research and development and finance and
administration. This senior management team has prepared a comprehensive
business, marketing and
23
369440.19
<PAGE>
manufacturing plan that takes into account the working capital made available
by the debt financing as well as the possibility of a public offering of the
Company's Common Stock. Following the completion of this offering, the Company
intends to add personnel to its marketing, sales and engineering support staff
in an effort to sell Boralyn(R) products to those customers who will be able to
charge a premium for their Boralyn(R)-based products.
The following table lists selected customers for Boralyn(R) products as
of the date of this Prospectus. Each of the customers identified below has
placed an order for prototype Boralyn(R) products for the application listed
opposite that customer's name.
<TABLE>
<CAPTION>
Selected Customers
------------------
Application Customer
----------- --------
<S> <C>
High-End Sports Equipment
Golf Club Heads and/or Shafts Hillerich & Bradsby Co., Inc. (Power-Bilt)
Nicklaus Golf Equipment Limited
Prince Sports Group, Inc.
Taylor Made Golf Company, Inc.
Bicycle Frames and/or Components Campagnolo S.R.L.
Cannondale Corporation
Trek Bicycle Corporation
Sports Racquets Spalding Sports Worldwide, a division of Spalding &
Evenflo Cos.
Neutron Shielding
Waste Containment Framatome S.A.
Other
Semiconductor Packaging Motorola, Inc.
Aerospace/Defense Endgate Corporation
Engelhard Corporation
Rosemount Aerospace, a division of BF
Goodrich, Inc.
Marine Power Ski International, Inc.
Automotive/Motorcycle Honda R&D North America, Inc.
Maverick Racing
Assembly Equipment Cartesian Data, Inc.
</TABLE>
Computer Hard Disks
The Company is producing preliminary sample disk substrates of Boralyn(R)
for evaluation by several major disk drive manufacturers. To date, the Company
has not received any prototype orders for hard disk substrates.
24
369440.19
<PAGE>
Company Strategy
Alyn's objective is to become a leader in advanced metal matrix
composite products and establish significant market share and brand awareness
for Boralyn(R) in niche markets, such as higher-priced consumer products and
specialized uses, where value-added premiums can be obtained. The Company
intends to do so by capitalizing on its existing proprietary technology and
patented process for producing Boralyn(R) through the direct manufacture and
sale of Boralyn(R)-based products to industrial and consumer product
manufacturers and distributors, and, to a lesser extent, to producers of
military products. The Company believes that its focus on marketing Boralyn(R)
for use in higher-priced consumer and commercial products and applications
where its properties provide performance advantages will provide it with the
best opportunity for meaningful market penetration. The Company has also
developed what it believes to be a superior manufacturing process which
benefits from the characteristics of Boralyn(R). The Company recently filed a
patent application for its soluble core method of manufacturing metal matrix
composite die-cast metal structures, which allow for forming complex hollow
chambers and passages, often within a one-piece structure, without the need for
welding together separate components or other secondary manufacturing
processes.
The Company anticipates commencing production in late 1996 of Boralyn(R)
in commercial quantities at its newly leased 48,000 square foot facility in
Irvine, California, which is expected to be operational in the fourth quarter
of 1996. The new facility will include sintering, casting (including soluble
core) and extrusion capabilities. Until production commences at the new
facility, production and shipment of Boralyn(R) will continue to be undertaken
by unaffiliated subcontractors.
Characteristics of Boralyn(R)
Boralyn(R) is a new metal matrix composite material with the principal
constituents being aluminum and boron carbide. Boralyn(R) compares favorably to
other materials with which it will compete in markets selected by the Company,
with respect to density, specific strength, specific stiffness, hardness and
resistance to wear, fatigue and corrosion resistance, resonance and neutron
absorption.
Density. Boralyn(R) exhibits relatively low density compared to
certain alternative materials (see Figure 1). This characteristic contributes to
its greater specific strength and greater specific stiffness.
Figure 1
[GRAPHIC OMITTED]
25
369440.19
<PAGE>
Specific Strength. Figure 2 indicates the greater specific strength of
two grades of Boralyn(R) when compared to titanium alloy, aluminum alloy and
specialty steel products with which it will compete in markets selected by the
Company. As shown, the specific strength range (dependent somewhat on the
grade) of Boralyn(R) is higher by a considerable margin than that of titanium
and aluminum. Specific strength is particularly significant in applications
such as bicycle components.
Figure 2
[GRAPHIC OMITTED]
Specific Stiffness. Figure 3 indicates the greater specific stiffness of
Boralyn(R) when compared to titanium alloy, aluminum alloy and specialty steel.
Specific stiffness is particularly significant in applications such as computer
hard drive disks and golf club heads.
Figure 3
[GRAPHIC OMITTED]
26
369440.19
<PAGE>
Specific Strength/Specific Stiffness. Figure 4 compares the combination of
specific strength and specific stiffness, characteristics that are important
for any structure, such as premium-priced golf clubs and high-end bicycle
frames and components, where the combination of strength, stiffness and light
weight is important. As shown, Boralyn(R) exhibits a significantly superior
combination of specific strength and specific stiffness compared to the other
competing materials. For many applications, far less Boralyn(R) is required to
provide necessary strength and stiffness; conversely, for the same density,
Boralyn(R) provides significantly more strength and stiffness than the other
competing materials. Other applications such as arrows, baseball bats, sailing
masts, and spinnaker poles for boats also benefit from these strength and
stiffness advantages.
Figure 4
[GRAPHIC OMITTED]
Hardness and Resistance to Wear. Hardness directly relates to resistance to
wear. Boralyn(R) of a grade that can easily be welded, extruded or casted
exhibits greater wear resistance than aluminum and wear resistance comparable
to alternative materials, and therefore can be used to advantage in
applications where high wear resistance is significant, such as in engine
blocks, brake discs and pistons.
27
369440.19
<PAGE>
Fatigue and Corrosion Resistance. Figure 5 shows a comparison of Boralyn(R)
to an aluminum alloy. Boralyn(R), in a 5% salt moist environment, will endure a
large number of stress cycles. This property makes Boralyn(R) superior to
aluminum alloy for applications in which many stress cycles are encountered,
particularly in corrosive environments. Any structural support where stress is
applied repeatedly needs high fatigue characteristics. Bicycle frames and
components, airplane structures, motorcycle frames, piston rods and satellite
supports are some of the applications where high fatigue resistance is
necessary, and many of those applications take place in areas characterized by
salt and moist atmospheric conditions.
Figure 5
[GRAPHIC OMITTED]
Resonance. Figure 6A shows a comparison of the resonance characteristics of
Boralyn(R) compared with glass and aluminum substrates (materials commonly used
in computer hard disk drives) over rotational speeds ranging from 1,000 to
10,000 revolutions per minute. As shown by the absence of peaks and valleys,
Boralyn(R) disks exhibit minimal resonance over the entire range of rotational
speeds. (The downward slope of the line reflecting Boralyn(R) data has no
bearing on the measurement of resonance). The lower resonance of Boralyn(R) is
of particular advantage in computer hard disk drives, where lower resonance
allows for closer head-to-disk distance at higher rotational speeds.
28
369440.19
<PAGE>
Figure 6A
[GRAPHIC OMITTED]
Figure 6B shows a magnification of the resonance characteristics of
Boralyn(R) over rotational speeds ranging from 7,250 to 10,000 revolutions per
minute depicted in Figure 6A above.
Figure 6B
[GRAPHIC OMITTED]
29
369440.19
<PAGE>
Neutron Absorption. Neutron absorption (attenuation) in boron carbide-based
materials such as Boralyn(R) is primarily a function of the density (referred
to as areal density) and degree of uniformity of distribution (i.e.,
homogeneity) of boron carbide particles within the material. The absorption is
primarily accomplished by the B-10 isotope contained in the boron carbide
material. Figure 7A shows the uniformity of the B-10 areal density of four
separate samples of Boralyn(R) when measured over five separate positions on
each sample during a scanning test, reflected in the flatness and closeness in
proximity to each other of the lines. Figure 7B shows the small variations
between actual measured boron carbide areal density and the theoretical, or
calculated, boron carbide areal density, determined in accordance with
engineering standards, as a function of neutron attenuation fraction (the
fraction of neutrons that were absorbed), illustrating the predictability of
the material in this application. The predictable homogeneity of Boralyn(R)
allows for the design of structures to customer requirements without
incorporating additional material, compared with competing materials that can
require as much as 40% additional material to compensate for irregular
distribution of neutron-absorbing particles (i.e., relative lack of
homogeneity) and therefore achieve adequate levels of uniform absorption.
Accordingly, Boralyn(R) can produce the same neutron absorbing results as
competing materials, but with less Boralyn(R), thereby reducing the weight and
cost of the structure.
Figure 7A
[GRAPHIC OMITTED]
30
369440.19
<PAGE>
Figure 7B
[GRAPHIC OMITTED]
Broad Range of Available Grades. Boralyn(R) is available in various grades
depending principally on the aluminum alloy of choice and the percent of boron
carbide that is included. A specific grade can be matched to a specific
application where a specific property or properties are to be highlighted. For
example, in aerospace applications, where thermal expansion is a problem due to
the extremes of the environment, the percentage of boron carbide can be
increased to lower the thermal expansion; for transducers, the electrical
resistivity can be lowered by decreasing the boron carbide to a few percent;
for better wearability of tools, 20% to 25% boron carbide can be used for
harder surfaces; for higher corrosion resistance, corrosion-resistant materials
can be added.
Ease of Fabrication. In addition to the properties described above,
Boralyn(R) also has excellent brazing and welding capabilities, can be easily
extruded and wrought and can be used in a variety of casting processes. The
Company has also developed what it believes to be a superior manufacturing
process that benefits from the characteristics of Boralyn(R). The Company
recently filed a patent application for its soluble core method of
manufacturing metal matrix composite die-cast metal structures, which allows
for forming complex hollow chambers and passages, often within a one-piece
structure, without the need for welding together separate components or other
secondary manufacturing processes.
Independent Third Party Testing. Many of the Company's claims with respect
to the physical characteristics of Boralyn(R) have been subjected to, and were
verified and supported by, studies and testing, performed by independent third
parties, including testing by: (i) the Department of Chemical Engineering and
Materials Science of the University of California, Irvine, of its specific
strength, homogeneity, hardness, density and specific stiffness; (ii) Corning
Incorporated CELS - Laboratory Services, of its chemical composition; (iii) the
University of Michigan's Nuclear Reactor Laboratory of its neutron radiation
absorption characteristics; (iv) THoT Technologies, Inc. of its minimal
resonance through a wide range of computer hard disk drive rotational speeds;
and (v) Golf Laboratories, Inc. of its effect on the driving distance achieved
by a golf club head.
31
369440.19
<PAGE>
Products and Applications
The Company is focusing its initial marketing efforts on the use of
Boralyn(R) in applications where its unique combination of properties will
justify an appropriate price premium. These applications include the following:
High-end Sporting Goods. The Company has targeted premium-priced golf club
heads and shafts and high-end lightweight bicycle frames and components as a
primary market for Boralyn(R)-based products.
Golf Club Heads and Shafts. The U.S. wholesale market for
premium-priced golf clubs was estimated by industry sources to be approximately
$890 million in 1994, reflecting a 23% increase over the prior year. The
Company has produced or is producing prototype golf club heads for Nicklaus
Golf Equipment Limited, Hillerich & Bradsby Co., Inc. (Power-Bilt), Prince
Sports Group, Inc. and Taylor Made Golf Company, Inc., each a golf club
producer, including pre-tooling versions based on production molds customized
for Boralyn(R) composite heads. The Company believes that production and
customer approval of pre-tooling versions of golf clubs based on customized
molds is usually the final step before receipt of a definitive production
order. The Company is actively engaged in negotiations with each of the named
prospective customers that it believes may lead, by late 1996, to production
orders for delivery in 1997, although there can be no assurance that any
production orders will be obtained. The Company believes that the higher
specific stiffness, higher specific strength and ease of fabrication of
Boralyn(R), compared with titanium, allow the design and manufacture of golf
club heads with a larger "sweet spot" and better mass distribution compared
with titanium heads, thus yielding what golfers term a "more forgiving" golf
club. In an independent third-party's comparison test against two
premium-priced titanium golf club heads, a Boralyn(R) golf club head drove the
ball longer distances. The higher specific stiffness of Boralyn(R) compared
with graphite composite, a commonly used golf club shaft material, also should
permit stiffer shafts to be made with Boralyn(R).
Bicycle Components and Frames. The U.S. retail market for
bicycles, bicycle components and related products and services was estimated by
industry sources to be approximately $5 billion in 1994. The Company believes
that approximately 220,000 premium-priced (over $600 at retail) bicycles were
sold in 1995. The Company has received orders for prototype components or
frames from Campagnolo S.R.L., Cannondale Corporation and Trek Bicycle
Corporation, each a leading manufacturer of bicycle components and/or frames.
The higher specific strength and specific stiffness of Boralyn(R) compared to
aluminum and specialty steel allows for the production of lighter bicycle
components and frames with no decrease in strength or stiffness, or if weight
is not a dominant consideration, for stiffer components and frames with no
increase in weight. These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and stiffness
are important include tennis and other sports racquets, baseball bats and
arrows. The Company has received orders from Spalding Sports Worldwide, Inc., a
division of Spalding & Evenflo Cos., Inc. for prototype racquetball and tennis
racquets.
Computer Hard Disks. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high-speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company has produced preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk drive
manufacturers. Unlike conventional aluminum and glass substrates currently in
use as disks in computer hard drives, Boralyn(R) disks exhibit minimal
resonance over the entire range of rotational speeds, from initial spin-up to
current maximum speeds, as well as at substantially higher rotational speeds.
Lower resonance disks will permit hard disk drives to be designed for closer
head-to-disk distances and higher rotational speeds, characteristics that will
allow for greater storage capabilities and faster data transfer rates. In order
to realize the benefits of Boralyn(R), hard disk drive manufacturers will have
to modify existing hard disk drive designs. The Company believes that hard disk
drive manufacturers will be motivated to modify or introduce new hard disk
drive designs only after a substantial testing period and significant marketing
efforts by the Company. The Company expects to incur substantial expenses in
32
369440.19
<PAGE>
connection with those testing and marketing efforts, and anticipates ultimately
that disks based on Boralyn(R) will be accepted by hard disk drive
manufacturers, if at all, only if such disks can be demonstrated to have
superior characteristics and can be offered at competitive prices. Further, the
Company expects that use of disks based on Boralyn(R) will commence with, and
could be limited to, high-end computer hard disk drives, which constitute a
small but significant percentage of the current market for computer hard disks.
The Company does not anticipate production orders for hard disk applications
prior to the second half of 1997, as a result of stringent testing
requirements, substantial marketing efforts and the redesign of computer hard
disk drives by disk drive manufacturers that would be necessary to realize the
benefits of disks based on Boralyn(R), and there can be no assurance that any
production orders will be obtained.
Neutron Shielding. Materials traditionally used for neutron absorption in
nuclear reactors and disposal containers for radioactive products and waste
require a separate neutron-absorbing material such as boron carbide, encased in
layers of metallic alloy such as aluminum supported by steel, in order to
provide stiffness and structural integrity. The metal matrix structure of
Boralyn(R), combined with its boron carbide ingredients, provides acceptable
neutron absorption characteristics as well as stiffness in an homogeneous,
single structure, with advantages in ease of use and fabrication. The Company
has received small initial orders from Framatome S.A., a major nuclear plant
construction company based in France, for prototype disposal containers. The
Company does not anticipate production orders for neutron shielding
applications prior to the second half of 1997, and there can be no assurance
that any production orders will be obtained.
Other potential applications. Other potential applications of Boralyn(R)
include its use in automotive and motorcycle components, where the Company is
producing prototype motorcycle brake drums for Honda R&D North America, Inc.
and connecting rods for Maverick Racing; marine applications, where the Company
is producing prototype drive shafts for Power Ski International Inc.;
structural components for aircraft, where the Company is producing prototype
sensor housings for Rosemount Aerospace, a division of BF Goodrich, Inc., and
prototype thin foil structures for Engelhard Corporation; semiconductors, where
the Company is producing prototype semiconductor packaging for Motorola, Inc.;
satellite components, where the Company is producing samples for Endgate
Corporation; and armor for government and military vehicles and for personal
protection.
Marketing and Customer Support
To date, most of the Company's prototype orders have been the result of
unsolicited inquiries from prospective customers. The Company intends to
achieve market penetration in selected markets through a multi-step process
usually consisting of initial discussions of the application highlighting the
advantages of Boralyn(R) , an engineering and marketing evaluation by the
prospective customer of sample material and demonstration products, appropriate
agreements allowing the customer to use and market Boralyn(R) in the relevant
application and market and, finally, a production program where appropriate
expenditures are made on tooling, equipment and quality control necessary to
fulfill market requirements. The Company intends to sell primarily to OEM
customers, with distribution from the Company manufacturing site to customer
facilities.
The Company anticipates incurring increased expenditures in connection with
its marketing activities in the next two years, and has allocated a substantial
portion of the net proceeds of this offering to fund those activities. See "Use
of Proceeds." The existing sales staff on June 30, 1996, of two persons is
expected to increase to approximately ten persons by the end of 1997. The
Company's marketing activities are also expected to include substantial
applications engineering support to assist in the development of products for
specific customers and markets, evaluation of Boralyn(R) by institutions that
specialize in technology and/or markets of this type, development of
appropriate sales materials such as specification sheets and corporate
brochures, and promotion through appearances at selected trade shows and
selective advertising in journals and the trade press. For example, the Company
will exhibit Boralyn(R) bicycle components and frames at the annual Interbike
Exhibition in Las Vegas, Nevada in September 1996. These activities, if
successful, may not result in proportional or any revenue increases in the same
period in which those activities occur. The
33
369440.19
<PAGE>
Company's marketing activities will initially focus on prospective customers in
the United States, but it is anticipated that international efforts will
develop within the next 18 months. However, in view of the anticipated
concentration outside the United States, and particularly in Europe, of
prospective customers for neutron shielding applications of Boralyn(R), the
Company believes that it may be required to focus on international marketing
efforts in order to obtain any significant production orders for such
applications.
Patents and Trademarks
The Company believes that protection of its proprietary technology and
know-how is important to the development of its business. It seeks to protect
its interests through a combination of patent protection and confidentiality
agreements with key employees, as well as by limiting the availability of
certain critical information to a small number of key employees.
The Company intends to pursue a vigorous patent application program in the
United States and abroad. The Company has obtained one United States patent
(No. 5,496,223, issued to Robin A. Carden in January 1996, and which expires in
January 2014), that it believes provides protection for its proprietary
Boralyn(R) technology and contains claims that cover the use of Boralyn(R),
particularly in high-end sporting goods, as well as in certain other markets
targeted by the Company. The Company has also filed additional patent
applications, including divisional patent applications and continuation-in-part
applications that stem from the Company's original patent application. The
divisional patent applications relate to methods of fabricating Boralyn(R) and
to bicycle frames that were disclosed in the original patent application. The
continuation-in-part patent applications expand the scope of the claims in the
original patent, and cover the Company's processes of fabricating Boralyn(R).
Divisional patent applications and continuation-in-part patent applications
generally are likely to complete the U.S. Patent Office review process on an
expedited basis and, with respect to claims having a common subject matter with
those in the original patent, are entitled to the date of filing of the
original patent for purposes of considering patentability. The divisional
patent application relating to bicycle frames was filed in September 1995 and
was allowed in June 1996, but there can be no assurance that the Company's
other pending divisional patent and continuation-in-part applications will
receive expedited review. New patent applications recently filed by the Company
cover (i) application of Boralyn(R) in neutron shielding, (ii) application of
Boralyn(R) in computer hard disk drives and (iii) a new soluble core
manufacturing method for Boralyn(R)-based structures. The Company is not aware
of any reason why its pending applications should not be granted with claims
that will provide coverage and, therefore, adequate protection for its
anticipated business activities, although there can be no assurance in that
regard.
There can be no assurance that the Company's existing patent and the
divisional patent application that was allowed, or any other patents that may
be granted, will be valid and enforceable or provide the Company with
meaningful protection from competitors. There also can be no assurance that any
pending patent application will issue as a patent or that any claim thereof
will provide protection against infringement. If the Company's present or
future patent rights are ineffective in protecting the Company against
infringement, the Company's marketing efforts and future revenues could be
materially and adversely affected. Moreover, if a competitor were to infringe
the Company's patent, the costs of enforcing the Company's patent rights may be
substantial or even prohibitive. The Company currently has only limited patent
protection for its technology outside the United States, and may be unable to
obtain even limited protection for its proprietary technology in certain
foreign countries. See "Risk Factors--Dependence on Patents."
The Company believes that its current and anticipated business does not
infringe on any patent owned by others, although there can also be no assurance
that the Company's products will not infringe the patent rights of others or
that it will not be forced to expend substantial funds to defend against
infringement claims of, or to obtain licenses from, third parties.
34
369440.19
<PAGE>
Research and Development
The Company continuously engages in the development of new products and
improvements to its existing formulations and will maintain laboratory
facilities for these purposes as well as a network of outside independent test
laboratories and specialty subcontractors. The Company's past research and
development effort was focused on various applications for cast, soluble-core
and extruded Boralyn(R) products, and the tooling and methods for product
production, and the formulation of other metal matrix composites using
magnesium and titanium. It is expected that formulations and techniques will
continue to be developed and refined through empirical tests and prototype
development. The Company expects that it will devote substantial resources to
research and development efforts. The costs of those efforts will be recorded
for accounting purposes as expenses as they are incurred, notwithstanding that
the benefits, if any, from the Company's research and development efforts (in
the form of increased revenues or decreased product costs) may not be reflected
in the Company's operating results, if at all, until subsequent periods.
Manufacturing and Supply
Raw materials used by Alyn are principally aluminum and boron carbide. The
Company presently purchases boron carbide from a limited number of suppliers,
including one supplier that provides approximately 50% of the Company's present
requirements. Although the Company believes that boron carbide is readily
available from other suppliers, there can be no assurance that the Company will
be able to continue to obtain desired quantities of boron carbide on a timely
basis at prices and terms deemed reasonable by the Company. Alyn's other
principal raw material, aluminum, is available from several domestic suppliers
and the Company is not dependent on the availability of supplies from any other
single source.
Unlike a number of other metal-matrix composites, Boralyn(R) is not made
through a molten process. Instead of adding boron carbide powder into the
molten base metal alloy, the various powdered elements are blended dry and
mixed uniformly to avoid stratification and settling. After the particulates
have sufficiently mixed, they are directed into a die and then into a
cylindrical container, where the particulates are subjected to up to 85,000
pounds per square inch (psi) of pressure, transforming the elements into a
solid ingot. These Boralyn(R) ingots are used for casting and to extrude forms
such as plates and tubes for use in various consumer products and other end
uses.
The Company monitors the quality of its products that are produced by
subcontractors by frequent tests and material certification, and intends to
maintain a strict internal quality control system to monitor the quality of
production at its renovated facility. The quality control laboratory is
expected to be capable of conducting both physical and chemical testing. The
Company also maintains product liability insurance at levels it believes to be
adequate.
The Company intends to maintain a sufficient inventory of raw materials and
finished Boralyn(R) in the on-site warehouse that will occupy part of its
newly-leased facility, which is expected to be ready for inventory storage by
October 1996. Finished inventory generally is expected to be warehoused for
distribution by commercial trucking throughout the United States at the
Company's plant, but products produced for third parties are likely to be
immediately released to third party warehouses and not remain at the Company's
plant.
Government Regulation
The Company's manufacturing and packaging operations will be subject to a
wide range of federal, state and local regulations, including the discharge,
handling and disposal of hazardous wastes regulations contained in the
environmental laws and the plant and laboratory safety requirements of various
occupational safety and health laws that are applicable to all the Company's
facilities and operations.
35
369440.19
<PAGE>
The Company believes it has complied in all material respects with regard
to governmental regulations applicable to it. To date, those regulations have
not materially restricted or impeded the Company's operations.
Competition
The materials industry is highly competitive. The Company competes in its
chosen markets against several larger multi-national companies, all of which
are well-established in those markets and have substantially greater financial
and other resources than those of the Company. Competitive market conditions
could adversely affect the Company's results of operations if it were required
to reduce product prices to remain competitive or were unable to achieve
significant sales of its products.
In the golf club market, the Company competes primarily with titanium, used
widely today in premium- priced golf club heads, with the base material being
supplied by companies such as RMI Titanium Company, Tremont Industries, Inc.,
and Titanium Metals Corporation of America (Timet), and with clubs produced by
CoastCast and Sturm Ruger. In the premium-priced bicycle market, the current
market uses titanium, aluminum alloys, and other materials supplied by
companies such as The Aluminum Corporation of America (Alcoa), Reynolds Metals
Co., Easton Aluminum, Inc., Sandvik Steel Co. and Oregon Metallurgical
Corporation (Oremet Titanium). In the computer disk drive market, the disks
currently being used are made from aluminum supplied by Alcoa and other
suppliers. For neutron shielding, current disposal containers typically use
Boral, a material supplied by AAR Brook & Perkins.
Personnel
The Company employed 12 persons as of June 30, 1996, including three
Company executive officers, four manufacturing personnel and two persons
engaged in sales and marketing activities. None of the Company's employees is a
member of a labor union. The Company considers its relationship with its
employees to be good. The Company anticipates hiring approximately 15
additional manufacturing, five additional research and product development and
five additional sales and marketing personnel during the remainder of 1996.
Facilities
The Company leases its new facility in Irvine, California, under a
five-year lease entered into in June 1996 and expiring in August 2001, with a
five-year renewal option. The 48,000 square foot, primarily single story
facility, to be available in September 1996, is located on a three-acre site at
16761 Hale Avenue in Irvine in an industrial park with close proximity to
truck, rail and air (John Wayne Airport, a major regional airport in Orange
County) connections and a highly trained labor pool. Of the total 48,000 square
foot area of the facility, approximately 10,000 square feet will be for office
space and approximately 38,000 square feet will be for manufacturing operations
dedicated to Boralyn(R) ingot manufacturing, including powder consolidation and
sintering (approximately 10,000 square feet), extrusion of tubes and other
shapes (approximately 8,000 square feet), die casting (approximately 8,000
square feet), and secondary processes and warehousing.
Commencement of manufacturing operations at the new facility, expected in
late 1996, is dependent on obtaining various local permits and
approvals. The Company does not presently anticipate that any of the required
permits and approvals will not be obtained on a timely basis. However, there
can be no assurance in this regard, and a delay in or failure to obtain the
required permits could adversely affect the Company's operations.
The facility is designed for expansion of capacity to match future needs
over the next several years, with additional warehousing to be leased at a
nearby location, if required. There can be no assurance that these facilities
will be adequate for all of the Company's future fabrication requirement, or,
alternatively, that the Company will be able to fully utilize the capacity of
its new facility. The Company believes the new facility will be adequate for
its contemplated needs.
36
369440.19
<PAGE>
Litigation
There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company. Based on certain correspondence
described below, however, the Company believes that litigation against the
Company may be under contemplation by Lynx Golf, Inc. ("Lynx"), a subsidiary of
Zurn Industries, Inc.
In late August 1995, the Company commenced activities related to the
development for Lynx of a prototype golf club head using Boralyn(R). This
marked the Company's first adaptation of Boralyn(R) for golf club heads. When
Lynx determined in December 1995 that tooling delays were being experienced by
the independent die casting company engaged by Lynx to produce the
developmental club heads to its specifications, Lynx advised the Company to
cease further work. By that time, prototype Boralyn(R) golf club heads had been
produced and delivered to a golf professional sponsored by Lynx, Mr. Fred
Couples. The Company did not hear further from Lynx until April 10, 1996, when
it received from Lynx a draft proposed contract that provided, among other
things, for Lynx to have exclusive rights to the use of Boralyn(R) in the golf
industry. Otherwise than with respect to the limited developmental activities
that had been performed prior to December 1995, there was no prior contract
between the parties. The Company rejected Lynx's proposed contract and offered
a counterproposal that provided for non-exclusivity. Lynx did not respond to
that counterproposal. On May 24, 1996, however, the Company's counsel received
a letter, dated May 17, 1996, from Lynx's counsel alleging that Lynx had been
misled as to Boralyn(R)'s properties and capabilities, but demanding
nevertheless that the Company grant Lynx the exclusive contract it had proposed
on April 10. The Company commenced a review of its patents and processes in
response to the May 17 letter, utilizing the services of new, independent
patent counsel and an outside testing laboratory (see
"Business--Characteristics of Boralyn(R)"). Subsequently, the Company's counsel
contacted Lynx's counsel and advised Lynx's counsel that the Company rejected
Lynx's contentions and urged, instead, that the parties resume negotiations for
the purpose of entering into a fair and reasonable agreement. On May 30, Lynx's
counsel notified the Company's counsel that Lynx was withdrawing its May 17
letter and wished to resume negotiations.
Despite the Company's attempts to resume negotiations with Lynx, the
parties did not meet further and, on June 28, 1996, Lynx's counsel sent the
Company's counsel a letter to the effect that Lynx was of the view that it had
suffered damages of approximately $10 million as a result of the matters first
referred to in the May 17 letter. Of that amount, Lynx claimed approximately
$200,000 was for out-of-pocket expenses related to tooling and other golf club
developmental activities, including approximately $84,000 for one unpublished
advertisement, and approximately $9.8 million was for the loss of anticipated
profits from future sales of products. Lynx's counsel offered to settle the
entire matter for a $5 million payment at that time. Following various
communications between counsel on July 19, 1996, counsel for Lynx advised that
his client had authorized action to be taken unless the Company presented a
written offer for a cash settlement by July 23, 1996. On July 23, the Company
informed Lynx that Lynx's claims were without basis and that the Company would
not offer any settlement. At the same time, the Company formally terminated
communications with Lynx.
Each correspondence from Lynx's counsel to the Company's counsel was
accompanied by a notation to the effect that its contents were included solely
for the purpose of "settlement and compromise in regard to pending and/or
otherwise likely litigation" and were not to be disclosed to any third person.
Telephonically, Lynx's counsel advised the Company's counsel that the foregoing
correspondence was not intended to rise to the level of a threatened claim
requiring financial statement or other disclosure and that, in the view of
Lynx's counsel, such disclosure was not required. The Company believes,
however, that disclosure of the foregoing should be made available to
prospective investors in this offering.
37
369440.19
<PAGE>
The Company believes, and has advised both Lynx and its corporate parent,
that Lynx's contentions are totally without merit and that the Company will
defend itself vigorously against such contentions should they be brought in the
form of a legal action. If Lynx were to commence litigation against the
Company, the cost to the Company of defending such litigation might be
material. There can be no assurance that the Company would ultimately prevail
in any such proceedings or that the outcome of such proceedings would not have
a materially adverse effect on the Company and its future results of operations
or financial condition.
38
369440.19
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robin A. Carden.......................... 38 President, Chief Executive Officer and a Director
Walter R. Menetrey....................... 62 Executive Vice President, Chief Operating Officer and a
Director
Phillip R. Gustavson..................... 52 Vice President, Finance and Administration
Harry Edelson............................ 59 Director
Michael Markbreiter...................... 34 Director
Udi Toledano............................. 46 Director
</TABLE>
The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.
Robin A. Carden is the founder of the Company and has been the President,
Chief Executive Officer and a Director since its formation in 1990. Prior to
1990, Mr. Carden was employed by Ceradyne Inc., a company engaged in the
development and production of advanced ceramics products, as Senior Sales
Engineer, and was engaged in developing civilian applications for advanced
ceramics products originally developed for military use. Mr. Carden graduated
from Long Beach State University with a Bachelor of Science degree. A number of
United States patents have been issued to Mr. Carden.
Walter R. Menetrey has been the Executive Vice President, Chief Operating
Officer and a Director of the Company since May 1996. From August 1992 to April
1996, he worked as an independent management consultant to numerous companies
engaged in, among other things, the security and software industries. From
April 1988 to July 1992, Mr. Menetrey was Chief Executive Officer of Meret,
Inc., a company engaged in the manufacture and sale of fibre optics
communication equipment. From February 1987 to May 1988, he was Chief Executive
Officer of Cambrian Systems, Inc., a company engaged in disk drive test
equipment manufacture. From March 1985 to December 1986, Mr. Menetrey was
President of Applied Circuit Technology, a company engaged in disk drive test
equipment manufacture. Prior to 1985, he was employed with Xerox Corp., most
recently as a principal of Xerox Development Corp. In July 1995, Mr. Menetrey
filed for personal bankruptcy under Chapter 7 of the Bankruptcy Code, and Mr.
Menetrey was granted a discharge of the claims of certain creditors pursuant to
Section 727 of the Bankruptcy Code in November 1995. Mr. Menetrey received a
Bachelor of Science degree in Physics and a Master of Science degree in
Electrical Engineering from the California Institute of Technology.
Phillip R. Gustavson has been the Vice President, Finance and
Administration, of the Company since June 1996. From March 1995 to June 1996,
Mr. Gustavson was the Corporate Controller for PIA Merchandising, Co., Inc., a
public company engaged in the retail merchandising services industry. From
March 1993 to December 1994, he was the Chief Financial and Administrative
Officer of Aztec Toys, Inc., a toy manufacturing company. From March 1990 to
September 1992, he was the Vice President (Finance and Administration) of
Geneva Capital Markets, Inc., a private investment company. From March 1988 to
March 1990, Mr. Gustavson was the Assistant Corporate Controller of Mattel,
Inc., a toy manufacturing company. From April 1982 to December 1987, he was
Vice President of Finance of Tungsten Carbide Mfg., a division of Smith
International, Inc., a company engaged in the manufacturing of oil field
equipment. From 1974 to 1982, he was a Senior Audit Manager at Price Waterhouse
LLP. Mr. Gustavson is a Certified Public Accountant.
39
369440.19
<PAGE>
Harry Edelson has been a Director of the Company since May 1996. Mr.
Edelson has been the Managing Partner of Edelson Technology Partners, a venture
capital fund that is an affiliate of Edelson Technology Partners III, a
principal stockholder of the Company, for more than five years. Edelson
Technology Partners and its related funds have invested in more than 70
companies involved in a wide range of technologies, including
telecommunications, computers, semiconductors, specialty chemicals,
environmental and publishing, with a focus on funding technologies that could
assist its corporate partners. Mr. Edelson was a financial analyst for over 12
years, covering technology companies for Merrill Lynch & Co., Drexel Burnham
Lambert and First Boston Corporation. He has consulted for dozens of companies
and is a frequent speaker and contributor to leading business magazines in
Europe, Asia and the United States.
Michael Markbreiter has been a Director of the Company since May 1996.
Since August 1995, Mr. Markbreiter has been a portfolio manager for private
equity investments for Kingdon Capital Management Corp., a manager of
investment funds. In April 1994, he co-founded Ram Investment Corp., a venture
capital company. From March 1993 to March 1994, he served as a portfolio
manager for Kingdon Capital Management Corp. From December 1989 to February
1993, he worked as an analyst at Alliance Capital Management Corp. From July
1983 to September 1989, he worked as Executive Editor for Arts of Asia
magazine. Mr. Markbreiter graduated from Cambridge University with a degree in
Engineering.
Udi Toledano has been a Director of the Company since May 1996. Mr.
Toledano has been the President of Andromeda Enterprises, Inc., a private
investment company, since December 1993. Prior to that he was the President of
CR Capital Inc., a private investment company, for more than five years. He has
been an advisor to various public and private corporations, none of which
competes with the Company. Since May 1996, Mr. Toledano has been a Director of
HumaScan Inc., a medical device company, and since April 1995, he has been a
Director of Global Pharmaceutical Corporation, a public generic pharmaceutical
manufacturing company. Since July 1994, Mr. Toledano has been a Director of
Universal Stainless & Alloy Products, Inc., a public specialty steel producing
company, and since January 1993, he has been a Director of Pudgie's Chicken,
Inc., a public national fast food chain.
All Directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors.
Committees of the Board of Directors
The Executive Committee, established in June 1996, currently consists of
Messrs. Carden (Chairman), Markbreiter and Toledano. The Executive Committee
has all of the powers of the Company's Board of Directors except that it is not
authorized to amend the Company's Certificate of Incorporation, declare any
dividends or issue shares of the capital stock of the Company.
The Audit Committee, also established in June 1996, currently consists of
Messrs. Edelson (Chairman), Markbreiter and Toledano. The functions of the
Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, review the
scope of the annual audit and other services they are asked to perform, review
the report on the Company's financial statements following the audit, review
the accounting and financial policies of the Company and review management's
procedures and policies with respect to the Company's internal accounting
controls.
The Compensation Committee, also established in June 1996, currently
consists of Messrs. Toledano (Chairman), Carden and Markbreiter. The functions
of the Compensation Committee are to review and approve salaries, benefits and
bonuses for all executive officers of the Company, and to review and recommend
to the Board of Directors matters relating to employee compensation and
employee benefit plans. The Compensation Committee also administers the
Company's stock option plans. See "Management - The 1996 Stock Incentive Plan."
40
369440.19
<PAGE>
Key Employees
Thomas Flessner, age 49, has been the Director of Casting of the Company
since June 1996. From March 1995 to June 1996, he was an Engineering Manager
for Allied Die Casting of North Carolina, responsible for product engineering.
From April 1990 to February 1995, he was Chief Engineer for Puget Cast
Products, responsible for product engineering. From March 1988 to April 1990,
he was a Senior Die Casting Engineer for Dycast Inc., responsible for product
and tooling development. Mr. Flessner received a Bachelor of Science degree in
Mechanical Engineering from the University of Illinois.
William C. Harrigan, Jr., Ph.D., age 52, has been the Director of Research
and Development of the Company since June 1996. From May 1995 to June 1996, he
was the President of MMC Engineering, Inc., and was responsible for developing
production applications for metal matrix composites. From February 1993 to
April 1995, he was the Vice President (Technology) of Pacific Metal Craft,
Inc., and was responsible for product development. From mid-1977 to January
1993, he was the General Manager (Technology) of DWA Composite Specialties,
Inc., and was responsible for research and development and production. Dr.
Harrigan received a Bachelor of Science degree in Metallurgical Engineering
from the University of Notre Dame and a Master of Science degree and Ph.D.
in Materials Science from Stanford University.
Tom Miller, age 45, has entered in an employment agreement to be the
Director of Marketing and Sales of the Company commencing August 12, 1996. From
June 1991 to July 1996, he was the Director of Business Development for Premier
Services Corp., responsible for identifying market opportunities, product
development, business planning and implementation. From August 1986 to March
1991, he was the President of Industrial Insulations, Inc., a company engaged
in supplying insulation materials. From November 1977 to July 1985, he was the
founder and President of Industrial Furnace Services, Inc., a company engaged
in the design and manufacture of furnaces. Mr. Miller received a Bachelor of
Science degree in Industrial Engineering from Fenn College of Engineering and a
Master of Science degree in Industrial Engineering from Cleveland State
University.
Raymond Lee Stanish, age 46, has been the Director of Manufacturing of the
Company since June 1996. From June 1995 to June 1996, he was a Vice President
at MMC Engineering, Inc. From August 1993 to June 1995, he was the Manager of
Composite Manufacturing for Pacific Metal Craft, Inc., responsible for product
manufacturing. From June 1980 to June 1993, he was a Product/Program Manager
for DWA Composite Specialties, Inc., responsible for supervising the production
of all forms of metal matrix composites.
Executive Compensation
The table below summarizes the compensation received by the Company's Chief
Executive Officer for each of the Company's last three completed fiscal years.
No other executive officer of the Company received any compensation during that
period, nor were any grants or exercises of stock options made during the
fiscal year ended December 31, 1995.
41
369440.19
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Number of
----------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robin A. Carden 1995 $40,348 -- -- ___ ___
President and Chief Executive 1994 $76,328 -- -- ___ ___
Officer.......................... 1993 $15,550 -- -- ___ ___
</TABLE>
Employment Agreements. Robin A. Carden has entered into a three-year
employment agreement with the Company in the positions of President and Chief
Executive Officer, commencing May 1, 1996. Subject to the provisions for
termination provided therein, the term of Mr. Carden's employment agreement
shall automatically be renewed for a one-year term after the expiration of the
initial three-year term and for successive one-year terms thereafter for a
maximum of 10 years. The employment agreement provides that Mr. Carden's annual
base salary shall be determined by the Board of Directors, but in no event
shall such annual salary be less than $150,000, which amount shall be increased
annually in an amount equal to at least the annual Consumer Price Index. In
addition to his base salary, Mr. Carden is entitled to a bonus and a customary
benefits package. In the event that the Company terminates Mr. Carden's
employment agreement without cause, Mr. Carden would be entitled to receive his
base salary and benefits until the expiration of the then current term. The
employment agreement prohibits Mr. Carden from (i) competing with the Company
for a period of two years following termination of employment with the Company
and (ii) disclosing confidential information or trade secrets in any
unauthorized manner.
Each of Walter R. Menetrey, Phillip R. Gustavson, Thomas Flessner, William
C. Harrigan, Jr., Tom Miller and Raymond Lee Stanish has entered into a two-year
employment agreement with the Company for the position of Chief Operating
Officer, Vice President, Finance and Administration, Director of Casting,
Director of Research and Development, Director of Marketing and Sales and
Director of Manufacturing, respectively. Subject to the termination provisions
provided therein, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's, Dr.
Harrigan's, Mr. Miller's and Mr. Stanish's employment agreements shall
automatically be renewed for a one-year term after the expiration of the initial
two-year term and for successive one-year terms thereafter. Mr. Menetrey's, Mr.
Gustavson's, Mr. Flessner's, Dr. Harrigan's, Mr. Miller's and Mr. Stanish's
employment agreements provide for an annual base salary to be determined by
management (or, in the case of Mr. Menetrey, by the Board of Directors), but in
no event shall such annual salary be less than $100,000, $95,000, $100,000,
$95,000, $100,000 and $85,000, respectively. In addition to an annual base
salary, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's, Dr. Harrigan's, Mr.
Miller's and Mr. Stanish's employment agreements provide for a bonus and a
customary benefits package. In the event that the Company terminates the
respective employment agreement without cause, Mr. Menetrey, Mr. Gustavson, Mr.
Flessner, Dr. Harrigan, Mr. Miller and Mr. Stanish would be entitled to receive
their base salary and benefits until the earlier of (i) the expiration of the
then current term of the respective employment agreement without any further
extensions and (ii) the date which is three months (or, in the case of Mr.
Menetrey, six months) after the termination date. Each of the employment
agreements of Mr. Menetrey, Mr. Gustavson, Mr. Flessner, Dr. Harrigan, Mr.
Miller and Mr. Stanish prohibits the employee from (i) competing with the
Company for a period of two years following termination of employment with the
Company and (ii) disclosing confidential information or trade secrets in any
unauthorized manner.
The 1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Plan") was adopted by
the Company's Board of Directors and approved by the Company's stockholders in
July 1996 for the purpose of securing for the Company and its stockholders the
benefits of ownership of Company stock options by non-employee Directors, and
by officers and other key employees (the "Key Employees") of the Company (and
any subsidiary corporations) who are expected to contribute materially to the
Company's future growth and success. No shares of Common Stock have been issued
under the 1996 Plan. No award may be granted under the 1996 Plan after June 30,
2006.
42
369440.19
<PAGE>
Under the 1996 Plan, the Company may grant options with respect to a
maximum of 1,000,000 shares of Common Stock ("Options"). It is anticipated that
on the effective date of this offering options with respect to approximately
200,000 shares of Common Stock will have been granted under the 1996 Plan. The
Company may in its sole discretion grant Options to Key Employees and shall
grant Options to the Company's non-employee Directors subject to specified
terms and conditions and in accordance with a specified formula (the "Formula")
as discussed below. Options granted to Key Employees may be either incentive
stock options ("ISOs") meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options
("NQSOs") not meeting the requirements of Section 422 of the Code. Options
granted to non-employee Directors shall be NQSOs.
The 1996 Plan provides that the Plan may be administered by the Board of
Directors or a committee appointed by the Board. The Board has designated the
Compensation Committee (the "Committee") to administer the 1996 Plan. Subject
to the terms of the 1996 Plan, the Committee will determine the Key Employees
who will receive grants of Options, the number of shares of Common Stock
subject to each Option, the grant date, the expiration date and other terms and
conditions for the Options. Options granted to non-employee Directors are
governed by the formula discussed below. The Committee has the authority to
construe and interpret the provisions of the 1996 Plan or the Options granted
thereunder. Each grant of Options will be evidenced by a Stock Option Agreement
executed by the Company and the non-employee Director or Key Employee, as the
case may be at the time of grant, in accordance with the terms and conditions
of the 1996 Plan.
An Option granted to a Key Employee shall expire on the date determined
by the Committee, which date may not exceed ten years from the date the Option
is granted. Unless otherwise specified by the Committee for a particular grant,
Options granted to Key Employees vest as follows: 33 1/3% one year after the
date of grant, 66 2/3% two years after the date of grant and 100% three years
after the date of grant, in each case assuming that the recipient has been
continuously employed by the Company or any subsidiary during that time.
If a Key Employee's employment with the Company is terminated for any
reason other than death or disability or a discharge for cause, any outstanding
Option, to the extent that it was exercisable on the date of such termination,
may be exercised by the holder within three months after such termination (or
such shorter time as may be specified by the Committee), but in no event later
than the expiration of the Option. If a Key Employee dies or becomes totally
and permanently disabled while an employee of the Company or a subsidiary, or
dies within three months after the Key Employee ceases to be such an employee,
any outstanding Option, to the extent that it has vested, may be exercised by
the Key Employee (his estate, or by the person to whom the Option is
transferred by will or the laws of descent and distribution, as the case may
be), within the period of one year after the date of death or disability (or
within such lesser period as may be specified by the Committee). If a Key
Employee is discharged for "cause" (as defined in the 1996 Plan), the right of
such Key Employee to exercise an Option will terminate immediately upon
cessation of such services.
Under the formula, each non-employee Director will be granted,
immediately prior to the date of this Prospectus, (x) Options (the "Director
Options") to purchase 10,000 shares of Common Stock in the aggregate, subject
to partial vesting as described below and (y) 5,000 Director Options that will
be fully vested on the date of grant. On the first business day following the
annual meeting of stockholders of the Company to elect directors in 1997 and
thereafter on the first business day following each successive annual meeting
of stockholders, so long as Options remain available to grant to non-employee
Directors, each person who is elected as a director after that meeting and is a
non-employee Director, and each person who continues to serve as a director
after that meeting and is a non-employee Director, shall be granted (x) 10,000
Director Options in recognition of service as a director, subject to partial
vesting, and (y) to the extent such non-employee Director has not previously
served as a non-employee Director, 5,000 Director Options that will be fully
vested on the date of grant. Director Options expire ten years from the date of
grant and vest as follows: 33 1/3% on the date of grant, 66 2/3% one year after
the date of grant and 100% two years after the date of grant, assuming that the
recipient continuously serves as a director during that time. Director Options
that have vested as of the date on which a non-employee Director ceases to
serve as a director, including by reason of his or her death, remain
exercisable until their expiration date.
43
369440.19
<PAGE>
Options granted under the 1996 Plan must be exercised within ten years of
the grant date, except that an ISO granted to a person owning more than 10% of
the total combined voting power of all classes of stock of the Company or of
any parent or subsidiary of the Company (a "Ten Percent Stockholder") must be
exercised within five years of the grant date.
The exercise price for each Option granted under the 1996 Plan shall not
be less than 100% of the fair market value (the "Fair Value") per share of
Common Stock on the date such Option is granted, which with respect to the
Director Options granted immediately prior to the date of this prospectus shall
be equal to the initial public offering price per share. For ISOs granted to a
Ten Percent Stockholder, the exercise price shall not be less than 110% of the
Fair Value per share of Common Stock. The exercise price may be paid in cash
(by check) by transferring shares of Common Stock owned by the Option holder
and having a Fair Value on the date of surrender equal to the aggregate
exercise price of the Option, or solely with respect to Options granted to Key
Employees by cash payments in installments or pursuant to a full recourse
promissory note, in either case, upon the terms and conditions as the Committee
shall determine. Upon the exercise of any Option, the Company is required to
comply with all applicable withholding tax requirements.
The Board may amend or terminate the 1996 Plan at any time and in any
respect, including modifying the form of the Stock Option Agreements, except
that the Committee cannot, without the approval of the stockholders of the
Company, amend the 1996 Plan if stockholder approval is required or desired for
compliance with (i) Rule 16b-3 under the Securities Exchange Act of 1934, as
amended or (ii) Section 422 of the Code and such amendment would affect the
status of any ISO under Section 422 of the Code. No amendment of the 1996 Plan,
without the Option holder's consent, may adversely affect any Options
previously granted to him or her.
Director Compensation
Members of the Board of Directors of the Company presently receive no
annual remuneration for acting in that capacity. The Company anticipates its
non-employee directors will be paid $500 (plus reasonable expenses) for each
attended meeting of the Board of Directors or committee thereof. Certain
members of the Board of Directors of the Company will also be eligible for the
grant of Options under the 1996 Plan that currently provides for each
non-employee Director (currently, Messrs. Edelson, Markbreiter and Toledano) to
receive an initial grant of Options to purchase 15,000 shares of Common Stock
and, beginning in 1997, an annual grant of Options to purchase 10,000 shares of
Common Stock. See "Management--The 1996 Stock Incentive Plan."
44
369440.19
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1996, certain information
regarding beneficial ownership of the Common Stock by (a) each stockholder
known to the Company to be the beneficial owner of more than 5% of the Common
Stock, (b) each Director and named executive officer of the Company and (c) all
executive officers and Directors as a group, before and after the offering.
Unless otherwise indicated, each of the stockholders has sole voting investment
power with respect to the shares beneficially owned by such stockholders.
<TABLE>
<CAPTION>
Percentage Owned
Name and Address of Amount and Nature of ----------------
Beneficial Owners(1) Beneficial Ownership Before Offering After Offering
- -------------------- -------------------- --------------- --------------
<S> <C> <C> <C>
Robin A. Carden 3,092,000 38.65% 29.73%
Kingdon Capital Management 2,088,000 26.10% 20.08%
Corp.(2)
Udi Toledano(3) 564,333 7.05% 5.42%
Herbert V. Turk(4) 560,000 7.00% 5.38%
Edelson Technology
Partners III 480,000 6.00% 4.62%
Walter R. Menetrey 240,000 3.00% 2.31%
Harry Edelson(5) 8,333 * *
Michael Markbreiter(6) 8,333 * *
All executive officers and
directors of the Company as a
group (six persons)(7) 3,929,665 48.87% 37.63%
</TABLE>
- ---------------------------------
*Less than 1%.
(1) The address for each of the persons listed below is c/o Alyn Corporation,
16871 Noyes Avenue, Irvine, California 92606.
(2) Includes 1,246,400 shares of Common Stock held by M. Kingdon Offshore NV,
420,800 shares of Common Stock held by Kingdon Associates, L.P. and
420,800 shares of Common Stock held by Kingdon Partners, L.P. Does not
include any shares of Common Stock intended to be purchased by Kingdon
Capital Management Corp. and its affiliates in this offering, and does not
include the shares of Common Stock underlying immediately exercisable
options that appear in the table above opposite the name of Michael
Markbreiter, a Director of the Company and an employee of Kingdon Capital
Management Corp.
(3) Includes options immediately exercisable for 8,333 shares of Common
Stock. Also includes 276,000 shares of Common Stock held by Mr.
Toledano's wife and 80,000 shares of Common Stock held by a certain trust
for the benefit of their minor children. Also includes an aggregate of
48,000 shares of Common Stock owned by certain other members of Mr.
Toledano's family, with respect to which Mr.
Toledano disclaims beneficial ownership.
(4) Includes 344,000 shares of Common Stock held by Mr. Turk jointly with his
wife. Also includes 216,000 shares of Common Stock held by Mr. Turk's two
adult daughters, with respect to which Mr. Turk disclaims beneficial
ownership.
(5) Includes options immediately exercisable for 8,333 shares of Common
Stock. Does not include 480,000 shares of Common Stock held by Edelson
Technology Partners III, with respect to which Mr. Edelson disclaims
beneficial ownership.
(6) Includes options immediately exercisable for 8,333 shares of Common
Stock. Does not include 420,800 shares of Common Stock held by Kingdon
Partners, L.P. 420,800 shares of Common Stock held by Kingdon Associates,
L.P., and 1,246,400 shares of Common Stock M. Kingdon Offshore NV, with
respect to which Mr. Markbreiter disclaims beneficial ownership.
(7) Includes options immediately exercisable for 25,000 shares of Common
Stock. Does not include (i) 480,000 shares of Common Stock held by
Edelson Technology Partners III, with respect to which Mr. Edelson, a
Director, disclaims beneficial ownership, (ii) 420,800 shares of Common
Stock held by Kingdon Partners, L.P. 420,800 shares of Common Stock held
by Kingdon Associates, L.P., and 1,246,400 shares of Common Stock M.
Kingdon Offshore NV, with respect to which Mr. Markbreiter, a Director,
disclaims beneficial ownership and (iii) 48,000 shares of Common Stock
owned by certain members of Mr. Toledano's family, with respect to which
Mr. Toledano, a Director, disclaims beneficial ownership.
45
369440.19
<PAGE>
CERTAIN TRANSACTIONS
Agreement and Plan of Merger; Repayment of Stockholder Loans
Pursuant to an Agreement and Plan of Merger, dated as of May 1, 1996 (the
"Merger Agreement"), among Old Alyn, Robin Carden and the Company, Old Alyn was
merged with and into the Company, with the Company being the surviving
corporation. In accordance with the terms of the Merger Agreement, certain
stockholders of the Company provided the Subordinated Credit Line, pursuant to
which such stockholders became obligated to loan to the Company on a monthly
basis up to an aggregate maximum amount of $5 million, which loans bear
interest at the annual rate of 8%. The outstanding principal amount of the
Subordinated Credit Line (approximately $3.9 million as of July 1, 1996), plus
accrued interest, will be repaid with a portion of the net proceeds of this
offering. As of July 1, 1996, Mr. Toledano, a Director of the Company, Kingdon
Capital Management Corp., a principal stockholder of the Company, Herbert V.
Turk, a principal stockholder of the Company, and Edelson Technology Partners
III, a principal stockholder of the Company, had advanced $282,750, $2,320,500,
$282,750 and $585,000, respectively, or an aggregate of approximately $3.5
million of the approximately $3.9 million of loans outstanding. To the extent
that the holders of such indebtedness loan additional amounts to the Company,
if necessary, prior to the closing date of the offering, such amounts will be
paid from the net proceeds of the offering. See "Use of Proceeds."
Certain affiliates of the Company, including Kingdon Capital Management
Corp., who together with their affiliates hold approximately $2.3 million of
the indebtedness that will be repaid by the Company with a portion of the net
proceeds of this offering, intend to purchase at least 400,000 of the shares of
Common Stock offered hereby for an aggregate purchase price of approximately
$5.0 million (based on the mid-point of the estimated initial public offering
price range set forth on the cover page of this Prospectus), for their
respective accounts or those of their affiliates or designees.
In 1990, the Company borrowed $128,000 from Robin A. Carden, the
President, Chief Executive Officer and a Director of the Company. The
outstanding principal amount of such loan, plus accrued and unpaid interest,
was repaid in May 1996 with a portion of the initial proceeds of the
Subordinated Credit Line.
Andromeda Enterprises, Inc.
Andromeda Enterprises, Inc., a Delaware corporation ("Andromeda"),
received $100,000 from the Company in May 1996 for sales, marketing and
consulting services performed by Andromeda on behalf of Old Alyn and on behalf
of the Company. Mr. Udi Toledano, a Director and a principal stockholder of the
Company, is the President of Andromeda, and, together with his wife,
beneficially owns all of its outstanding capital stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.001 par value, and 5,000,000 shares of preferred stock,
$0.01 par value per share (the "Preferred Stock"). As of June 30, 1996, there
were 8,000,000 shares of Common Stock outstanding held by 29 stockholders and
no shares of Preferred Stock issued or outstanding.
Common Stock
The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the stockholders, and a majority vote is required for action to
be taken by the stockholders. In the event of liquidation,
46
369440.19
<PAGE>
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company. The
holders of the Common Stock have no preemptive rights or cumulative voting
rights and there are no redemption, sinking fund or conversion provisions
applicable to the Common Stock. Holders of Common Stock are entitled to receive
dividends if, as and when declared by the Board of Directors, out of funds
legally available for such purpose. See " Dividend Policy."
Limitations Upon Transactions with "Interested Stockholders"
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless (1)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (3) on or after such date the business combination is approved
by the board of directors and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own), 15% or more of the corporation's voting stock.
The restrictions of Section 203 do not apply, among other things, if a
corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed
by Section 203, provided that, in addition to any other vote required by law,
such amendment to the certificate of incorporation or by-laws must be approved
by the affirmative vote of a majority of the shares entitled to vote. Moreover,
an amendment so adopted is not effective until twelve months after its adoption
and does not apply to any business combination between the corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. The Company's Certificate of Incorporation and By-laws do not
currently contain any provisions electing not to be governed by Section 203 of
the Delaware General Corporation Law. The provisions of Section 203 of the
Delaware General Corporation Law may have a depressive effect on the market
price of the Common Stock because they could impede any merger, consolidating
takeover or other business combination involving the Company or discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company.
Preferred Stock
The Company's Certificate of Incorporation provides that the Company may,
by vote of its Board of Directors, issue Preferred Stock in one or more series
having the rights, preferences, privileges and restrictions thereon, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series without further vote or
action by the stockholders. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock
with voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others.
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company has been appointed as the
transfer agent and registrar for the Common Stock.
47
369440.19
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by current stockholders could adversely affect the
price of the Company's Common Stock. Upon completion of this offering, the
Company will have 10,400,000 shares of Common Stock outstanding, of which
8,000,000 shares of Common Stock (77% of the shares to be outstanding) were
issued by the Company in private transactions. Some of these shares are treated
as "restricted securities" pursuant to Rules 144 and 701 under the Securities
Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of
the Company (as that term is defined under the Securities Act), who has
beneficially owned his or her shares for at least two years is entitled to sell
within any three-month period that number of restricted securities that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (104,000 shares based on the number of shares to be outstanding after the
offering), or the average weekly trading volume of the Common Stock during the
four calendar weeks immediately preceding such sale, notice and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such shares may be sold without
limitations by persons who have not been affiliates of the Company for at least
three months.
Registration Rights. The Company's existing holders of Common Stock and
the Company are parties to an agreement providing certain registration rights,
including one demand registration right exercisable at any time after nine
months from the date of this Prospectus for registration of "restricted
securities" provided the holders of at least 1,600,000 shares join in the
request for registration. Each of the Company's existing holders of Common
Stock has also been granted "piggyback" registration rights for a two-year (in
some instances, three-year) period following their respective purchases of
Common Stock. The Company has agreed to pay all registration expenses (other
than underwriting or sales commissions) incurred in complying with the
registration rights described above. Notwithstanding the foregoing, all
existing stockholders of the Company have agreed (i) to waive their
registration rights with respect to this offering and (ii) without the prior
written consent of the Company and Furman Selz LLC, not to exercise their
registration rights for a period of nine months from the date of this
Prospectus.
Prior to this offering there has been no public market for the Common
Stock. The Company cannot predict the number of shares which may be sold in the
future pursuant to Rule 144 since such sales will depend upon the market price
of Common Stock, the circumstances of individual holders thereof and other
factors. In addition, the Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The Company intends to file a registration statement under the Securities
Act to register all of the shares of Common Stock reserved for issuance under
its 1996 Stock Incentive Plan. Registration would permit the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act.
48
369440.19
<PAGE>
UNDERWRITING
Each of the underwriters named below (the "Underwriters"), for whom Furman
Selz LLC and Needham & Company, Inc. are acting as representatives (the
"Representatives"), has severally agreed, subject to the terms and conditions
of the underwriting agreement, dated ________, 1996, between the Company and
the Underwriters (the "Underwriting Agreement"), to purchase from the Company
the aggregate number of shares of Common Stock set forth opposite its name
below:
Underwriter Number of Shares
----------- ----------------
Furman Selz LLC.............................................
Needham & Company, Inc......................................
Total.................................................. 2,400,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions precedent, including the approval of certain legal matters
by counsel. The Underwriting Agreement also provides that the Underwriters are
committed to purchase all of the above shares of Common Stock if any are
purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the commencement of the public offering, the
offering price and other selling terms may be changed by the Representatives.
The Company has granted the Underwriters an option to purchase up to
360,000 additional shares of Common Stock at the public offering price less
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. Such option may be exercised at any
time until 30 days after the date of the Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
above table.
The Company, certain officers and directors, and all current stockholders
of the Company have agreed not to offer, issue, sell or otherwise dispose of
any of the Common Stock owned by them for a period of nine months after the
date of this Prospectus, without the prior written consent of Furman Selz LLC,
except for the offering contemplated by this Prospectus and for shares of
Common Stock being sold pursuant to the Underwriters' over-allotment option.
Certain of the existing stockholders of the Company has also agreed not to
offer, sell or otherwise dispose of more than 104,000 shares of Common Stock
during any three-month period in the six months following expiration of that
initial nine-month period. Notwithstanding the foregoing, the Company may issue
and sell Common Stock upon the exercise of stock options granted pursuant to
any employee stock option plan or pursuant to any other employee benefit plan
of the Company in effect as of the date of the Underwriting Agreement.
The Representatives have informed the Company that the Underwriters do not
expect sales to accounts over which they exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered hereby and that
the Underwriters (excluding the Representatives) do not intend to confirm sales
to accounts over which they exercise discretionary authority without the
consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
Certain affiliates of the Company, including Kingdon Capital Management
Corp., who hold, or whose affiliates
49
369440.19
<PAGE>
hold, part of the indebtedness owed by the Company that will be repaid with a
portion of the net proceeds of this offering, intend to purchase at least
400,000 of the shares of Common Stock offered hereby for their respective
accounts or those of their affiliates or designees.
Certain officers of Furman Selz LLC hold an aggregate of 64,000 shares of
Common Stock of the Company, acquired in May 1996 at a cash purchase price of
$0.00125 per share. Such persons have also advanced $78,000 in the aggregate of
the approximately $3.9 million of loans outstanding under the Subordinated
Credit Line, which amounts will be repaid with a portion of the net proceeds of
this offering. See "Certain Transactions."
Prior to the offering, there has been no public market for the Common
Stock of the Company. There can be no assurance that any active trading market
will develop for the Common Stock or as to the price at which the Common Stock
may trade in the public market from time to time subsequent to the offering.
The initial price to the public for the Common Stock offered hereby has been
determined by negotiations among the Company and the Representatives and was
based upon the following factors: the financial and operating history and
condition of the Company; the Company's business and financial prospects; the
prospects for the industries in which the Company operates; prevailing market
conditions; the present stage of the Company's development; the
Representatives' assessment of the Company's management team; and the recent
market prices of securities of companies in businesses similar to that of the
Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Battle Fowler LLP, New York, New York, certain legal
matters concerning United States patent laws will be passed upon for the
Company by Cooper & Dunham LLP, New York, New York, and certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Latham & Watkins, New York, New York.
EXPERTS
The financial statements of Old Alyn as of December 31, 1994, and 1995,
and for each of the three years in the period ended December 31, 1995, and the
balance sheet of the Company as of April 30, 1996, included in this Prospectus,
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits and schedules thereto, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and to the exhibits and
schedules thereto. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the Commission's principal
offices in Washington, D.C. and copies of all or any part thereof may be
obtained from such office upon payment of prescribed fees. Descriptions
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the Registration Statement are not necessarily
complete and each such description is qualified by reference to such contract
or document.
50
369440.19
<PAGE>
GLOSSARY OF CERTAIN TECHNICAL TERMS
B-10 Areal Density: The amount of B-10 (an isotope of Boron which
is normally just
under 20% of naturally occurring Boron)
concentration per unit volume, which has a
direct effect on neutron attenuation.
Casting: The manufacture of shapes of material by the
process of melting the material and pouring
or injecting into a mold, producing the
desired shape.
Ceramic Material: A material composed of one or more
phases in which the phases exhibit covalent
bonding of a metal with either a nitride,
oxide, boride, carbide or silicide.
Extrusion: The fabrication of shapes (tube, rod,
L-shape, etc.) by the application of pressure
against an ingot of the material, forcing it
through a tooling die, producing the desired
shape.
Modulus of A generally accepted measure of the
Elasticity: rigidity or stiffness of a material.
Rockwell B A value derived from the net increase in
Hardness: the depth of impression as a load on
a material is increased from a
fixed minor load to a major load and then
returned to the minor load. Various scales
of hardness numbers have been developed,
designated by alphabetic suffixes to the
hardness designation. The " B" scale is
typically used for metals and alloys.
Sintering: The insertion of a body of material into a
furnace that is heated to a temperature
approximately 85% of the material's melting
temperature such that the material is
further consolidated and hardened, creating
a more stable material.
Soluble Core: A salt/ceramic core used to form inner
passages in a mold which, after the molten
material is poured and solidifies, is washed
out by means of water or steam.
Specific Stiffness: The modulus of elasticity divided
by the density of a material, thereby
providing a measure of the relative stiffness
of various materials.
Specific Strength: The yield tensile strength divided
by the density of a material, thereby
providing a measure of the relative strength
of various materials.
Substrate: The disk of material that is the basic
structure for a hard disk used in a computer
drive, on to which is deposited magnetic
layers.
Yield Tensile The stress at which a material
Strength: exhibits a specified deviation from
proportionality of stress and strain.
369440.19
<PAGE>
<TABLE>
[INSIDE OF BACK COVER WITH ARTWORK]
<S> <C>
[Photograph of Boralyn(R) marine propeller] [Photograph of Boralyn(R) pistons]
The Company believes the fatigue and corrosion The Company believes that the hardness and
resistance of Boralyn(R) are of particular benefit resistance to wear of Boralyn(R) can be used to
in marine applications. advantage in automotive and other applications.
</TABLE>
[GRAPHIC OMITTED]
[Three photographs of soluble core die-cast structures]
The products shown above are examples of the use of the Company's soluble
core method of manufacturing, which allows for forming complex one-piece metal
matrix die-cast structures without the need for welding together separate
components or other secondary manufacturing processes.
<PAGE>
=========================================== ==================================
No dealer, salesman or any other person
has been authorized to give any information
or to make any representation in connection
with this offering other than those
contained in this Prospectus and, if given
or made, such information or representation
must not be relied upon as having been [GRAPHIC OMITTED]
authorized by the Company or the
Underwriters. This Prospectus does not 2,400,000 Shares
constitute an offer to sell or a
solicitation of an offer buy any of these
securities in any state to any person to
whom it is unlawful to make such offer or
solicitation in such state. The delivery of
this Prospectus at any time does not imply
that information herein is correct as of
any time subsequent to its date. Common Stock
Until , 1996, all dealers effecting
transactions in the registered securities,
whether or not participating in this
distribution, may be required to deliver a
Prospectus. This is in addition to the
obligation of dealers to deliver a
Prospectus when acting as Underwriters and
with respect to their unsold allotments or
subscriptions.
---------------------------
TABLE OF CONTENTS
Page
Prospectus Summary..................... 1 -----------------------
Risk Factors........................... 7 PROSPECTUS
Use of Proceeds........................ 13 -----------------------
Dividend Policy........................ 13
Capitalization......................... 14
Dilution............................... 15
Selected Financial Data................ 16 Furman Selz
Management's Discussion and Analysis of
Financial Condition and Results Needham & Company, Inc.
of Operations........................ 19
Business............................... 23
Management............................. 40
Principal Stockholders................. 46
Certain Transactions................... 47
Description of Capital Stock........... 47
Shares Eligible for Future Sale........ 49
Underwriting........................... 50
Legal Matters.......................... 51
Experts................................ 51
Additional Information................. 51
Glossary of Certain Technical Terms.... 52
Index to Financial Statements......... F-1
, 1996
=========================================== ==================================
369440.19 07/29/96 8:3PM
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the securities being registered
hereunder. All of the amounts shown are estimates (except for the SEC and NASD
registration fees).
Securities and Exchange Commission filing fee................ $12,848
National Association of Securities Dealers, Inc. filing fee.. 4,226
NASDAQ listing fee........................................... 46,940
Transfer agent's and registrar's fee......................... 5,000
Printing expenses............................................ 150,000
Legal fees and expenses...................................... 225,000
Accounting fees and expenses................................. 125,000
Blue sky filing fees and expenses (including counsel fees)... 15,000
Miscellaneous expenses....................................... 16,026
-------
Total...............................................$ 600,000
14. Indemnification of Directors and Officers
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation (the "Certificate") provides that no
director shall be personally liable to the Company or any stockholder for
monetary damages for breach of fiduciary duty as a director, except for
liability: (i) arising from payment of dividends or approval of a stock
purchase in violation of Section 174 of the DGCL; (ii) for any breach of the
duty of loyalty to the Company or its stockholders; (iii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; or (iv) for any action from which the director derived an
improper personal benefit. While the Certificate provides protection from
awards for monetary damages for breaches of the duty of care, it does not
eliminate the director's duty of care. Accordingly, the Certificate will not
affect the availability of equitable remedies, such as an injunction, based on
a director's breach of the duty of care. The provisions of the Certificate
described above apply to officers of the Company only if they are directors of
the Company and are acting in their capacity as directors, and does not apply
to officers of the Company who are not directors.
In addition, the Company's By-Laws provide that the Company shall
indemnify its officers and directors, and any employee who serves as an officer
or director of any corporation at the Company's request, to the fullest extent
permitted under and in accordance with the DGCL. Under the DGCL, directors and
officers as well as employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation as a derivative action) if they acted in good
faith and in a manner they reasonably believed to be in or not
II-1
369440.19
<PAGE>
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful.
Reference is made to Section ___ of the Underwriting
Agreement (Exhibit 1.1 to this Registration Statement), which provides for
indemnification of the Company's officers, directors and controlling persons by
the Underwriters against certain civil liabilities, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
The Company has applied for a director and officer liability
insurance policy, under which each director and certain officers of the Company
would be insured against certain liabilities.
15. Recent Sales of Unregistered Securities
The Registrant and its predecessors have issued the following
securities without registration under the Securities Act during the last three
years (with all share and per share data presented before giving effect to the
Merger and the 80-for-one stock split):
(1) On April 3, 1994 Old Alyn granted to three individuals, in
consideration of payment of $75,000, options to purchase up to 20% of
Old Alyn's capital stock.
(2) On May 4, 1994, Old Alyn issued, upon partial exercise of the options
referred to above, to:
A. Art Liang, 100,000 shares of Series B common stock for $1.00
per share; and
B. Larry Liou, 200,000 shares of Series B common stock for $1.00
per share.
(3) On May 1, 1996, the Registrant issued to:
A. Stephen and Rosalie Balog, 400 shares of common stock for
$0.10 per share;
B. Gary and Stephanie Escandon, 800 shares of common stock for
$0.10 per share;
C. Frontier PTY Limited, Trustee for Frontier Trust, 1,200 shares
of common stock for $0.10 per share;
D. First Pacific Capital, 800 shares of common stock for $0.10
per share;
E. Herbert and Edith Turk, 4,300 shares of common stock for $0.10
per share;
F. Udi Toledano, 1,900 shares of common stock for $0.10 per
share;
G. Janet Toledano, 3,450 shares of common stock for $0.10 per
share;
H. James M. Stuart, Jr., 360 shares of common stock for $0.10 per
share;
I. James M. Stuart, Jr., Trustee under agreement dated May 1,
1987, for the benefit of John E. Stuart, 360 shares of common
stock for $0.10 per share;
J. James M. Stuart, Jr. and John E. Stuart, Trustees under
agreement dated January 1, 1989, for the benefit of Mary E.
Stuart, 80 shares of common stock for $0.10 per share;
II-2
369440.19
<PAGE>
K. Fred Fraenkel, 400 shares of common stock for $0.10 per share;
L. Edelson Technology Partners III, 6,000 shares of common stock
for $0.10 per share;
M. Kingdon Associates, L.P., 5,260 shares of common stock for
$0.10 per share;
N. Kingdon Partners, L.P., 5,260 shares of common stock for $0.10
per share;
O. M. Kingdon Offshore NV, 15,580 shares of common stock for
$0.10 per share;
P. Steve Hourigan, 2,000 shares of common stock for $0.10 per
share;
Q. Bergen Enterprises Corp., 500 shares of common stock for $0.10
per share;
R. Janet Toledano, Trustee under agreement dated 9/2/93 for the
benefit of Alexander and Anna Toledano, 1,000 shares of common
stock for $0.10 per share;
S. Judith Green, 150 shares of common stock for $0.10 per share;
T. Stephanie Bier Toledano, 150 shares of common stock for $0.10
per share;
U. Gideon Toledano, 150 shares of common stock for $0.10 per
share;
V. Robert Lax, 150 shares of common stock for $0.10 per share;
W. Jennifer Thompson, 50 shares of common stock for $0.10 per
share;
X. Rachel Turk Balter, 1,350 shares of common stock for $0.10 per
share; and
Y. Miriam Turk, 1,350 shares of common stock for $0.10 per share.
(4) On May 2, 1996, the Registrant issued, in exchange for all outstanding
shares of Old Alyn, in connection with the Merger, to:
A. Robin A. Carden, 38,650 shares of Common Stock;
B. Walter R. Menetrey, 3,000 shares of Common Stock;
C. Charles Rosenblum 3,000 shares of Common Stock; and
D. Art Liang 2,350 shares of Common Stock;
The issuances described above were made in reliance upon the exemption
from the registration requirements of the Securities Act provided by Section
4(2) of the Securities Act for transactions by an issuer not involving a public
offering. The recipients of the securities in each of the above-referenced
transactions represented their intentions to acquire the securities for
investment only and not with a view to or a sale in connection with any
distribution thereof. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant. No
underwriter or underwriting discount or commission was involved in any of such
sales.
II-3
369440.19
<PAGE>
16. Exhibits and Financial Statement Schedules
The following Exhibits are filed herewith and made a part hereof:
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- ------------
<S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
*4.1 Specimen Copy of Stock Certificate for shares of Common Stock.
4.2 Stockholders Agreement, dated as of May 1, 1996, by and among the
Company and certain stockholders of the Registrant.
*5.1 Opinion of Battle Fowler as to the securities being offered.
10.1 Loan Agreement, dated as of May 1, 1996, between certain persons and the
Registrant.
*10.2 1996 Stock Incentive Plan of the Registrant.
10.3 Employment Agreement between the Company and Robin A. Carden, dated
as of April 1, 1996, as amended by Amendment Number One, dated as of
April 30, 1996.
*10.4 Form of Employment Agreement between the Company and certain senior
executives.
10.5 Lease, dated as of June 12, 1996, between
the Registrant and Taylor- Longman, with
respect to premises at 16761 Hale Avenue,
Irvine, California.
*23.1 Consent of Battle Fowler LLP (included in its opinion to be filed as Exhibit
5.1).
23.2 Consent of Price Waterhouse LLP.
24 Power of Attorney (included in the signature page hereto).
99.1 U.S. Patent Number 5,496,223, dated January 23, 1996.
</TABLE>
- --------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All other schedules have been omitted because the information to be
set forth therein is not applicable or is shown in the financial statements or
the notes thereto.
17. Undertakings
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to its Certificate of Incorporation, its ByLaws, the
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other
II-4
369440.19
<PAGE>
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such directors, officers or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
Prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of Prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of Prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
II-5
369440.19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on July 30, 1996.
ALYN CORPORATION
By:/s/ Robin A. Carden
-------------------------------------
Robin A. Carden
President and Chief Executive Officer
POWER OF ATTORNEY
Alyn Corporation, a Delaware corporation, and each person whose
signature appears below constitutes and appoints Robin A. Carden, Michael
Markbreiter, and Udi Toledano, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with exhibits
and schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact, full
power and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, thereby ratifying and confirming
all that said attorney-in-fact, or his substitute, may lawfully do or cause to
be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and of the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robin A. Carden President, Chief Executive Officer and July 30, 1996
- ------------------------- a Director
Robin A. Carden (Principal Executive Officer)
/s/ Phillip R. Gustavson Vice President, Finance and July 30, 1996
- ------------------------- Administration
Phillip R. Gustavson (Principal Financial and Accounting
Officer)
/s/ Harry Edelson Director July 30, 1996
- -------------------------
Harry Edelson
/s/ Michael Markbreiter Director July 30, 1996
- -------------------------
Michael Markbreiter
/s/ Walter R. Menetrey Director July 30, 1996
- -------------------------
Walter R. Menetrey
/s/ Udi Toledano Director July 30, 1996
- -------------------------
Udi Toledano
</TABLE>
<PAGE>
ALYN CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
Number
-------
Alyn Corporation
Report of Independent Accountants..............................F-2
Balance Sheet at December 31, 1994 and 1995 and at
March 31, 1996 (unaudited)...................................F-3
Statement of Operations for the Years Ended
December 31, 1993, 1994 and 1995 and for the Three
Months Ended March 31, 1995 and 1996 (unaudited).............F-4
Statement of Stockholders' Deficit for the Years
Ended December 31, 1993, 1994 and 1995 and for the
Three Months Ended March 31, 1996 (unaudited)................F-5
Statement of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995 and for the Three
Months Ended March 31, 1995 and 1996 (unaudited).............F-6
Notes to the Financial Statements..........................F-7 to F-11
Alyn Corporation, formerly AC Acquisition Corp.
Report of Independent Accountants..............................F-12
Balance Sheet at April 30, 1996................................F-13
Notes to Balance Sheet....................................F-14 to F-15
Unaudited Pro Forma Financial Information..........................F-16
Unaudited Pro Forma Balance Sheet at March 31, 1996............F-17
Unaudited Pro Forma Statement of Operations for
the Three Months Ended March 31, 1996........................F-18
Unaudited Pro Forma Statement of Operations for
the Year Ended December 31, 1995.............................F-19
Notes to Unaudited Pro Forma Financial Information.............F-20
F-1
C/M: 12156.0001 388274.2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Alyn Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Alyn Corporation at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
July 16, 1996
F-2
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Balance Sheet
- ------------------------------------------------------------------------------
December 31, March 31,
1994 1995 1996
(unaudited)
Assets
Current assets:
Cash $ 15,000 $ 77,000 $ 39,000
Accounts receivable 8,000 15,000 68,000
Inventories 154,000 16,000 9,000
--------- --------- ---------
Total current assets 177,000 108,000 116,000
Equipment, furniture and fixtures, net 5,000 3,000 6,000
Intangible asset 11,000 17,000 18,000
--------- --------- ---------
$ 193,000 $ 128,000 $ 140,000
========= ========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 42,000 $ 64,000 $ 58,000
Accrued and other current liabilities 268,000 426,000 426,000
--------- --------- ---------
Total current liabilities 310,000 490,000 484,000
Note payable to stockholder 128,000 128,000 128,000
Commitments and contingencies (Note 5)
Stockholders' deficit:
Common stock, Class A, no par value;
10,000,000 shares authorized; 1,700,000
shares issued and outstanding 1,000 1,000 1,000
Common stock, Class B, no par value;
10,000,000 shares authorized; 300,000
shares issued and outstanding 325,000 325,000 325,000
Accumulated deficit (571,000) (816,000) (798,000)
--------- --------- ---------
Total stockholders' deficit (245,000) (490,000) (472,000)
--------- --------- ---------
$ 193,000 $ 128,000 $ 140,000
========= ========= =========
See accompanying notes to financial statements.
F-3
C/M: 12156.0001 388274.2
<PAGE>
<TABLE>
Alyn Corporation
Statement of Operations
- ---------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Three Months Ended
----------------------------------- ---------------------
December 31, March 31,
1993 1994 1995 1995 1996
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 540,000 $ 309,000 $ 261,000 $ 154,000 $ 91,000
Contract revenue 58,000
---------- ---------- ---------- --------- ---------
Total revenue 540,000 309,000 319,000 154,000 91,000
---------- ---------- ---------- --------- ---------
Costs and expenses:
Cost of goods sold 265,000 92,000 203,000 64,000 20,000
General and administrative
expenses 259,000 352,000 219,000 47,000 29,000
Selling and marketing 114,000 143,000 52,000 11,000 14,000
Research and development 24,000 180,000 79,000 18,000 8,000
---------- ---------- ---------- --------- ---------
Total costs and expenses 662,000 767,000 553,000 140,000 71,000
---------- ---------- ---------- --------- ---------
Operating income (loss) (122,000) (458,000) (234,000) 14,000 20,000
Interest expense (4,000) (12,000) (12,000) (3,000) (3,000)
Other income 1,000 1,000 2,000 1,000
---------- ---------- ---------- --------- ---------
Income (loss) before provision
for income taxes (125,000) (469,000) (244,000) 11,000 18,000
Provision for income taxes 1,000 1,000 1,000
---------- ---------- ---------- -------- ---------
Net income (loss) $ (126,000) $(470,000) $ (245,000) $ 11,000 $18,000
=========== ========= ========== ======== =======
Unaudited pro forma data
(Notes 1 and 3):
Pro forma net income (loss) $(245,000) $ 18,000
========= =========
Pro forma net income (loss)
per share $(0.12) $ 0.01
====== =========
Weighted average number of
common shares outstanding
(Note 1) 2,000,000 2,000,000
========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
C/M: 12156.0001 388274.2
<PAGE>
<TABLE>
Alyn Corporation
Statement of Stockholders' Deficit
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock Common Stock, Class A Common Stock, Class B Accumulated
Shares Amount Shares Amount Shares Amount Deficit
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 1,000 $ 1,000 $ 25,000
Net loss (126,000)
----- ------- ---------
Balance at December 31, 1993 1,000 1,000 (101,000)
Sale of common stock option $ 75,000
Exchange of shares of common
stock for shares of common
stock, Class A (1,000) (1,000) 1,700,000 $ 1,000
Issuance of common stock,
Class B, pursuant to
common stock option 300,000 250,000
Net loss (470,000)
----- ------- --------- ------- ------- -------- -----------
Balance at December 31, 1994 1,700,000 1,000 300,000 325,000 (571,000)
Net loss (245,000)
----- ------- --------- ------- ------- -------- -----------
Balance at December 31, 1995 1,700,000 1,000 300,000 325,000 (816,000)
Net income (unaudited) 18,000
----- ------- --------- ------- ------- -------- -----------
Balance at March 31, 1996
(unaudited) 1,700,000 $ 1,000 300,000 $325,000 $ (798,000)
===== ======= ========= ======= ======== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
C/M: 12156.0001 388274.2
<PAGE>
<TABLE>
Alyn Corporation
Statement of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Three Months Ended
------------------------------------- ------------------------
December 31, March 31,
1993 1994 1995 1995 1996
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (126,000) $ (470,000) $ (245,000) $ 11,000 $ 18,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 5,000 3,000 2,000 1,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable (58,000) 50,000 (7,000) (90,000) (53,000)
Decrease (increase) in inventories 56,000 (49,000) 138,000 47,000 7,000
Increase in intangible asset (2,000) (6,000) (6,000) (2,000) (1,000)
(Decrease) increase in accounts payable 5,000 (7,000) 22,000 (2,000) (6,000)
Increase in accrued and other
current liabilities 142,000 126,000 158,000 30,000
---------- --------- --------- --------- --------
Net cash provided by (used in)
operating activities 22,000 (353,000) 62,000 (6,000) (34,000)
---------- --------- --------- --------- --------
Cash flows from investing activities:
Capital expenditures (3,000) (4,000) (4,000)
---------- --------- --------- --------- --------
Net cash used in investing activities (3,000) (4,000) (4,000)
---------- --------- --------- --------- --------
Cash flows from financing activities:
Sale of common stock option 75,000
Issuance of common stock, Class B,
pursuant to common stock option 250,000
---------- --------- --------- --------- --------
Net cash provided from
financing activities 325,000
---------- --------- --------- --------- --------
Net increase (decrease) in cash 19,000 (32,000) 62,000 (6,000) (38,000)
Cash at beginning of period 28,000 47,000 15,000 15,000 77,000
---------- ---------- --------- --------- --------
Cash at end of period $ 47,000 $ 15,000 $ 77,000 $ 9,000 $ 39,000
========== ========== ========= ========= ========
Supplemental cash flow information:
Cash paid during the period for
income taxes $ 1,000 $ 1,000 $ 1,000 $ - $ -
========== ========== ========= ========= ========
Cash paid during the period for interest $ - $ - $ - $ - $ -
========== ========== ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-6
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 1
- -------------------------------------------------------------------------------
1. Description of business and summary of significant accounting policies
Description of business
Alyn Corporation (Old Alyn) was incorporated in California in 1990. Old
Alyn designs, develops, manufactures and markets industrial and consumer
products utilizing its proprietary advanced metal matrix composite
materials. Old Alyn has developed technology, for which it obtained a
patent in January 1996, for the application of Boron Carbide in
combination with aluminum in lightweight metal matrix composites under the
name Boralyn.
In June 1994, Old Alyn's Articles of Incorporation were amended
authorizing 10,000,000 shares of Series A common stock and 10,000,000
shares of Series B common stock. The stockholders of Old Alyn exchanged
their existing shares of common stock for 1,700,000 shares of Series A
common stock. Old Alyn received $75,000 cash in exchange for an option to
acquire Series B common stock of Old Alyn. Pursuant to this option
agreement, Old Alyn issued 300,000 shares of the new Series B common
stock for an additional $250,000 in cash.
In April 1996, Old Alyn repurchased 200,000 shares of the Series B common
stock for $260,000 in cash.
In May 1996, Old Alyn was acquired by AC Acquisition Corp., a Delaware
corporation (Alyn). In connection with the stock for stock purchase, each
outstanding share of common stock of Old Alyn was exchanged for 0.026111
shares of common stock of Alyn. Following the acquisition, Old Alyn
stockholders hold 47,000 shares or 47% of the outstanding common stock of
Alyn. Alyn was renamed Alyn Corporation.
Also in May 1996 and in connection with the acquisition, Alyn obtained
from certain of its stockholders a $5 million, five-year credit facility
due and payable in April 2001. Borrowings under the credit facility will
bear interest at a rate of 8% per annum payable quarterly, or as defined
in the loan agreement, and will be secured by substantially all of the
assets of Alyn and the acquired assets of Old Alyn.
Funding of Activities
To date Old Alyn funded its efforts to engage in the design, development,
manufacture and marketing of industrial and consumer products through
equity and debt financing. Old Alyn intends to expend substantial funds
for capital expenditures for a new production facility and the related
equipment and tooling. Old Alyn also expects to incur substantial
additional expenditures to develop its manufacturing, sales and marketing
capabilities. Old Alyn will require additional funds for these purposes in
1996, and, in the interim, raised funds through the five-year credit
facility obtained from the stockholders of Alyn, who acquired Old Alyn in
May 1996. In the future Old Alyn plans to raise funds through the use of
proceeds from a planned initial public offering. Old Alyn also intends to
use the proceeds from the planned offering to repay all of the outstanding
borrowings under the credit facility. Old Alyn's failure to raise
sufficient capital or to produce and sell sufficient quantities of its
products, would adversely affect its cash flows and operating and
development plans.
F-7
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 2
- -------------------------------------------------------------------------------
Summary of accounting policies
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out cost basis.
Equipment, furniture and fixtures
Equipment, furniture and fixtures are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
individual assets, which range from 18 months to 5 years. Amortization of
leasehold improvements is recorded using the straight-line method over the
shorter of the life of the improvement or the term of the related lease.
Intangible assets
The legal costs associated with obtaining the patent for the Boralyn
technology are capitalized as an intangible asset. The intangible assets
will be amortized on a straight-line basis over the estimated economic
life of the patent. Intangible assets are periodically reviewed for
impairment to ensure that they are fairly stated.
Revenue recognition
Old Alyn recognizes sales of product at the time of shipment. Contract
revenue of $58,000 in 1995 was recognized as the related research and
development costs of $58,000 were incurred. Amounts received prior to
performance are classified as customer advances and recognized as earned.
In 1993, two customers accounted for 33% of product sales, individually
19% and 14%. In 1994, two customers accounted for 47% of product sales,
individually 31% and 16%. In 1995, two customers accounted for 54% of
product sales, individually 40% and 14%.
Research and development
Expenditures for research and development costs are charged to expense as
incurred.
Unaudited pro forma net income (loss) and net income (loss ) per share
Pro forma net income (loss) per share is based upon the number of weighted
average of common stock shares outstanding during the year. Pro forma net
income assumes Old Alyn was a C Corporation for tax purposes effective
January 1, 1995 and January 1, 1996. Historical net income (loss) per
share has not been presented as such is not deemed meaningful due to the
change in Old Alyn's income tax status (Note 3).
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Concentrations of credit risk
Old Alyn sells its products and services to various companies across
several industries, and therefore management believes that no material
concentrations of credit risk exist.
F-8
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 3
- -------------------------------------------------------------------------------
Fair value of financial instruments
Old Alyn's financial instruments consist primarily of cash, accounts
receivable, accounts payable, accrued and other current liabilities and
the note payable to stockholder. These financial instruments are stated at
current value which approximates fair value.
Unaudited interim information
The information presented as of March 31, 1996, and for the three month
periods ended March 31, 1995 and 1996, has not been audited. In the
opinion of management, the unaudited interim financial statements include
all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly Old Alyn's financial position as of March 31,
1996, and the results of its operations and its cash flows for the three
months ended March 31, 1995 and 1996, and the stockholders' deficit for
the three months ended March 31, 1996.
New accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 must be adopted by Alyn in 1996
and establishes an alternative method of accounting for stock-based
compensation plans. Alyn intends to adopt the disclosure alternative for
stock compensation and does not expect that the adoption of SFAS No. 123
will have a material impact on Alyn's results of operations or financial
position.
2. Balance sheet components
Inventories:
December 31, March 31,
1994 1995 1996
unaudited)
Raw materials $ 129,000 $ 6,000 $ 2,000
Finished goods 25,000 10,000 7,000
---------- ---------- ----------
$ 154,000 $ 16,000 $ 9,000
========== ========== ==========
Equipment, furniture and fixtures:
December 31, March 31,
1994 1995 1996
unaudited)
Equipment and tooling $ 11,000 $ 11,000 $ 13,000
Furniture and office equipment 2,000 2,000 4,000
Leasehold improvements 2,000 2,000 2,000
---------- ---------- ----------
15,000 15,000 19,000
Less accumulated depreciation
and amortization (10,000) (12,000) (13,000)
--------- ---------- ----------
$ 5,000 $ 3,000 $ 6,000
========== ========== ==========
F-9
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 4
- ------------------------------------------------------------------------------
Accrued and other current liabilities:
December 31, March 31,
1994 1995 1996
(unaudited)
Accrued compensation $ 173,000 $ 255,000 $ 252,000
Accrued professional fees 49,000 73,000 73,000
Customer advance 40,000 40,000
Other 46,000 58,000 61,000
---------- ---------- ----------
$ 268,000 $ 426,000 $ 426,000
========== ========== ==========
3. Income taxes
Old Alyn accounts for income taxes under the liability method specified by
SFAS 109. Accordingly, deferred tax assets and liabilities are measured
each year based on the difference between the financial statement and tax
bases of all assets and liabilities at the current expected income tax
rates. Deferred tax assets and liabilities are not material to the
financial position of Old Alyn at December 31, 1994 and 1995.
In 1994, Old Alyn elected to become an S-Corporation for federal and
California income tax purposes. As a result of these elections, federal
and California tax attributes of Old Alyn pass to the stockholders.
The provision for income taxes in each of the three years ended December
31, 1993, 1994 and 1995 is comprised of the annual minimum California
franchise tax.
4. Note payable to stockholder
At December 31, 1993, 1994 and 1995, Old Alyn had an unsecured note
payable due to a stockholder of $128,000. In May 1996, the outstanding
principal and accrued interest was paid to the stockholder.
5. Commitments and contingencies
Future minimum lease payments required under a non-cancelable operating
lease at December 31, 1995, for a vehicle operated by a former officer of
Old Alyn who performs legal services from time to time, are as follows:
Year ending December 31:
1996 $ 5,000
1997 3,000
----------
$ 8,000
==========
Rent expense totaled $11,000, $15,000 and $17,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
F-10
C/M: 12156.0001 388274.2
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 5
- -------------------------------------------------------------------------------
In June 1996, Old Alyn received correspondence from legal counsel of a
customer asserting damages suffered as a result of misrepresentations as
to the properties and capabilities of Boralyn and the customer's loss of
anticipated profits from future sales of products. Management believes
that the customer's assertions are without merit and intends to vigorously
defend any litigation brought by the customer. However, the cost of
defending such litigation may be material and there can be no assurance
that Old Alyn would ultimately prevail or that the outcome of such
litigation would not have a material adverse effect on Old Alyn's
financial position or results of operations.
Also, in the ordinary course of business, Old Alyn is generally subject to
claims, complaints, and legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of such
matters might have a material adverse effect upon the financial position
of Old Alyn. However, in the opinion of management, such matters are not
expected to have a material adverse effect on the financial position of
Old Alyn.
F-11
C/M: 12156.0001 388274.2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Alyn Corporation,
formerly AC Acquisition Corp.
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Alyn Corporation, formerly AC Acquisition
Corp., at April 30, 1996 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
balance sheet is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the balance
sheet, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
July 16, 1996
C/M 12156.0001 388290.1
F-12
<PAGE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
BALANCE SHEET
- -------------------------------------------------------------------------------
April 30,
1996
Assets
Cash $ 5,000
-------
$ 5,000
=======
Liabilities and stockholders' equity
Commitments and contingencies (Note 2)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding $ --
Common stock, $0.001 par value; 20,000,000 shares
authorized; 4,240,000 shares issued and outstanding 4,000
Additional paid-in capital 1,000
--------
Total stockholders' equity 5,000
$ 5,000
=======
See accompanying notes to balance sheet.
F-13
C/M 12156.0001 388290.1
<PAGE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
NOTES TO BALANCE SHEET
- -------------------------------------------------------------------------------
1. Description of business and subsequent events
Alyn Corporation (Alyn or the Company), formerly AC Acquisition Corp.,
was incorporated in Delaware on April 9, 1996. In May 1996, the Company
acquired Alyn Corporation (Old Alyn), a California corporation, whereby
all of the 1,800,000 outstanding shares of common stock of Old Alyn were
exchanged at a ratio of 2.1-to- one for 3,760,000 shares of common stock
of the Company.
Also in May 1996 and in connection with the acquisition, certain
stockholders of the Company provided a $5 million, five-year credit
facility to the Company due and payable in April 2001. Borrowings under
the credit facility will bear interest at a rate of 8% per annum payable
quarterly, or as defined by the loan agreement, and will be secured by
substantially all of the assets of the Company.
In July 1996, the Company's Board of Directors amended its Articles of
Incorporation to increase the number of shares authorized of common
stock from 110,000 to 20,000,000 and to authorize 5,000,000 shares of
preferred stock and declared an 80-for-one split of its common stock.
All share amounts presented have been adjusted to give retroactive
effect for the above.
Also in July 1996, the Company's Board of Directors adopted the 1996
Stock Incentive Plan (the 1996 Plan) for the purpose of securing for the
Company and its stockholders the benefits of ownership of Company stock
options by non-employee directors, and by officers and other key
employees of the Company who are expected to contribute to the Company's
future growth and success. Under the 1996 Plan, the Company may grant
options with respect to a maximum of 1,000,000 shares of common stock.
The options will be granted at not less than fair market value and vest
ratably over a three-year period with the exception of certain
non-employee director options that will be fully vested at the date of
grant. No award may be granted under the 1996 Plan after June 30, 2006.
The balance sheet should be read in conjunction with the historical
financial statements of Old Alyn included elsewhere in the registration
statement.
2. Summary of significant accounting policies
Use of estimates in the preparation of balance sheet
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
balance sheet.
F-14
C/M 12156.0001 388290.1
<PAGE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
NOTES TO BALANCE SHEET
- -------------------------------------------------------------------------------
New accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 must be adopted
by the Company in 1996 and establishes an alternative method of
accounting for stock-based compensation plans. The Company intends to
adopt the disclosure alternative for stock compensation and does not
expect that the adoption of SFAS No. 123 will have a material impact on
the Company's results of operations or financial position.
Income taxes
The Company will provide for deferred income taxes for all temporary
differences between financial and income tax reporting in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
3. Commitments and contingencies
In June 1996, the Company executed a new five-year manufacturing
facility lease agreement commencing in September 1996. Future minimum
lease payments required under the non-cancelable operating lease are as
follows:
Year ending December 31:
1996 $ 85,000
1997 235,000
1998 269,000
1999 280,000
2000 292,000
Thereafter 200,000
----------
$1,361,000
In the ordinary course of business, the Company is generally subject to
claims, complaints, and legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of such
matters might have a material adverse effect upon the financial position
of the Company. However, in the opinion of management, such matters are
not expected to have a material adverse effect on the financial position
of the Company.
F-15
C/M 12156.0001 388290.1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
acquisition by Alyn Corporation (the Company or Alyn), formerly AC Acquisition
Corp., of Alyn Corporation (Old Alyn) in a transaction to be accounted for as a
purchase. The unaudited pro forma balance sheet is based on the historical
balance sheets of the Company and Old Alyn appearing elsewhere in this
registration statement and has been prepared to reflect the acquisition of Old
Alyn by the Company as of March 31, 1996. The unaudited pro forma statements of
operations are based on the historical statements of operations of the Company
and Old Alyn appearing elsewhere in this registration statement, and combines
the results of operations of the Company and Old Alyn (merged as of May 2,
1996) for the three months ended March 31, 1996 and for the year ended December
31, 1995, as if the acquisition had occurred on January 1, 1995. These
unaudited pro forma financial statements reflect the preliminary allocation of
purchase price based upon the best available data. The unaudited pro forma
financial statements are intended for informational purposes and may not be
indicative of the financial position or results of operations that actually
would have occurred had the transaction been consummated during the periods or
as of the dates indicated, or which may be attained in the future. These
unaudited pro forma statements should be read in conjunction with the
historical balance sheet and notes thereto of the Company and the historical
financial statements and notes thereto of Old Alyn included elsewhere in this
registration statement.
F-16
C/M 12156.0001 388286.1
<PAGE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
ASSETS
Pro Forma
----------------------
Alyn Old Adjustments
Corporation Alyn (Note 1) Combined
----------- --------- ----------- ---------
Current assets:
Cash $ 5,000 $ 39,000 $ 44,000
Accounts receivable 68,000 68,000
Inventories 9,000 9,000
--------- --------- ---------
Total current assets 5,000 116,000 121,000
Property and equipment, net 6,000 6,000
Intangible assets 18,000 $ 472,000(c) 490,000
--------- --------- --------- --------
$ 5,000 $ 140,000 $ 472,000 $ 617,000
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,000 $ 58,000
Accrued and other current
liabilities 426,000 426,000
--------- ---------
Total current liabilities 484,000 484,000
Note payable to stockholder 128,000 128,000
Stockholders' equity:
Preferred stock $ --
Common stock:
Alyn Corporation (Note 2) 4,000 $ 4,000 (a) 8,000
Old Alyn (Class A & B) 326,000 (326,000)(b) --
Additional paid-in capital 1,000 (4,000)(a) (3,000)
Accumulated deficit (798,000) 798,000 (b) --
-------- ---------- --------- ---------
Total stockholders' equity 5,000 (472,000) 472,000 5,000
-------- --------- --------- ---------
$ 5,000 $ 140,000 $ 472,000 $ 617,000
======== ========= ========= =========
F-17
C/M 12156.0001 388286.1
<PAGE>
<TABLE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<CAPTION>
Pro Forma
-------------------------
Alyn Old Adjustments
Corporation Alyn (Note 1) Combined
----------- ---- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ -- $ 91,000 $ 91,000
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 20,000 20,000
General and administrative
expenses 29,000 $ 12,000 (d) 41,000
Selling and marketing 14,000 14,000
Research and development 8,000 8,000
--------- --------- --------- ---------
Total costs and expenses 71,000 12,000 83,000
--------- --------- --------- ---------
Operating income (loss) 20,000 (12,000) 8,000
--------- --------- --------- ---------
Interest expense (3,000) (3,000)
Other income 1,000 1,000
--------- --------- --------- ---------
Income (loss) before provision for
income taxes 18,000 (12,000) 6,000
Provision for income taxes (Note 3)
Net income (loss) $ -- $ 18,000 $ (12,000) $ 6,000
--------- ========= ========= =========
Net income per share $ 0.00
=========
Average shares outstanding (Note 2) 8,000,000
=========
</TABLE>
F-18
C/M 12156.0001 388286.1
<PAGE>
<TABLE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Pro Forma
--------------------------
Alyn Old Adjustments
Corporation Alyn (Note 1) Combined
----------- ---- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ -- $ 261,000 -- $ 261,000
Contract revenue 58,000 58,000
--------- --------- --------- ---------
Total revenue 319,000 319,000
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 203,000 203,000
General and administrative
expenses 219,000 $ 47,000 (d) 266,000
Selling and marketing 52,000 52,000
Research and development 79,000 79,000
--------- --------- --------- ---------
Total costs and expenses 553,000 47,000 600,000
--------- --------- --------- ---------
Operating loss (234,000) (47,000) (281,000)
--------- --------- --------- ---------
Interest expense (12,000) (12,000)
Other income 2,000 2,000
--------- --------- --------- ---------
Loss before provision for income taxes (244,000) (47,000) (291,000)
Provision for income taxes (Note 3) 1,000 1,000
--------- --------- --------- ---------
Net loss $ -- $(245,000) $ (47,000) $(292,000)
--------- ========= ========= =========
Net loss per share $ (0.04)
=========
Average shares outstanding (Note 2) 8,000,000
=========
</TABLE>
F-19
C/M 12156.0001 388286.1
<PAGE>
ALYN CORPORATION, FORMERLY AC ACQUISITION CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Note 1
The unaudited pro forma combined balance sheet and statements of operations
have been prepared to reflect the acquisition of Old Alyn by the Company
whereby all of the 1,800,000 outstanding shares of common stock of Old Alyn
were exchanged at a ratio of 2.1-to-one for 3,760,000 shares of common stock of
the Company. Pro forma adjustments are made to reflect:
(a) Issuance of 3,760,000 shares of common stock of the Company in
exchange for all of the outstanding shares of common stock of Old Alyn.
(b) The elimination of common stockholders' equity accounts of Old Alyn.
(c) The excess of cost over the fair value of the net tangible assets
acquired. The Company has preliminarily allocated this excess to patents
and goodwill. The estimated useful lives assigned to the patents and
goodwill do not vary materially.
(d) Amortization of the excess purchase price on a straight-line basis
over ten years.
Note 2
All share amounts, including average shares outstanding, retroactively reflect
the Company's 80-for-one stock split effected on July 16, 1996.
Note 3
The effect of the termination of Old Alyn's S Corporation for income tax
purposes is not material. The Company has calculated the pro forma deferred tax
assets and liabilities and provision for income taxes using the asset and
liability approach in accordance with Statement of Financial Standards No. 109,
"Accounting for Income Taxes."
C/M 12156.0001 388286.1
F-20
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ALYN CORPORATION
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is ALYN CORPORATION. The Certificate of Incorporation
of the Corporation was originally filed under the name AC Acquisition
Corp. with the Secretary of State of the State of Delaware on April 9,
1996. The Corporation filed a Certificate of Amendment of Certificate
of Incorporation with the Secretary of State of the State of Delaware
on April 30, 1996. The Corporation file a Certificate of Merger with
the Secretary of State of the State of Delaware on May 2, 1996.
2. This Restated Certificate of Incorporation has been duly adopted by
the Stockholders and Directors of the Corporation, in accordance with
the provisions of Section 242 and 245 of the General Corporation Law
of the State of Delaware. Stockholder written consent has been
obtained and Stockholder written notice has been given as required by
Section 228 of the General Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of the
Corporation, as corrected, is hereby amended and
restated so as to read in its entirety as follows:
FIRST: The name of the corporation is ALYN CORPORATION
(hereinafter called the "Corporation").
SECOND: The registered office of the Corporation is to be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, Delaware 19801. The name of its registered agent at that address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware.
FOURTH:
Section 1. Authorization.
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty-
C/M: 12156.0001 378869.1
<PAGE>
five Million (25,000,000) shares, consisting of (i) Twenty Million (20,000,000)
shares of common stock, $.001 par value per share (the "Common Stock"), and
(ii) Five Million (5,000,000) shares of designated preferred stock, $.01 par
value per share (the "Preferred Stock").
(b) The Preferred Stock may be issued in any number of series,
including, without limitation, Preferred Stock, and any other series designated
by the Board of Directors pursuant to this ARTICLE FOURTH and ARTICLE SIXTH.
FIFTH:
Section 1. Common Stock; Identical Rights. Except as expressly
provided otherwise in this ARTICLE FIFTH or as required by law, all shares of
Common Stock shall be identical and shall entitle the holders thereof to the
same rights and privileges.
Section 2. Dividends. Subject to any preferential or other rights of
the holders of any outstanding shares of Preferred Stock, the Board of
Directors of the Corporation may cause dividends to be declared and paid on
outstanding shares of Common Stock out of funds legally available for the
payment of dividends. When, as and if such dividends are declared by the
Corporation's Board of Directors, whether payable in cash, property, or
securities of the Corporation, the holders of Common Stock shall be entitled to
share equally therein, in accordance with the number of shares of Common Stock
held by each such holder.
Section 3. Liquidation Rights. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation, after
payment to all creditors of the Corporation of the full amounts to which they
shall be entitled and subject to any preferential or other rights of the
holders of any outstanding shares of Preferred Stock, the holders of all
classes of Common Stock shall be entitled to share ratably, in accordance with
the number of shares of Common Stock held by each such holder, in all remaining
assets of the Corporation available for distribution among the stockholders of
the Corporation, whether such assets are capital, surplus or earnings.
For the purposes of this Section 3, neither the consolidation or
merger of the Corporation with or into any other corporation or corporations,
nor the sale, lease, exchange or transfer by the Corporation of all or any part
of its assets, nor the reduction of the capital stock of the Corporation, shall
be deemed to be a voluntary or involuntary liquidation, dissolution, or
winding-up of the Corporation.
Section 4. Voting Rights. Except as otherwise required by law, and
subject to the voting rights of the holders of any outstanding shares of
Preferred Stock, the approval of all
C/M: 12156.0001 378869.1
2
<PAGE>
matters brought before the stockholders of the Corporation shall require the
affirmative vote of the holders of a majority in voting power of the shares of
Common Stock that are present in person or represented by proxy voting as a
single class.
SIXTH: PREFERRED STOCK
Designation of Preferred Stock. The Board of Directors is hereby
expressly authorized, by resolution or resolutions thereof, to provide for,
designate and issue, out of the 5,000,000 authorized but undesignated and
unissued shares of Preferred Stock, one or more series of Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of any
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law, and, if so, the terms
of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or
relation which such dividends shall bear to the dividends payable on any shares
of stock or any other class or any other series of this class;
(d) whether the shares of such series shall be subject to redemption
by the Corporation and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase
or redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of capital stock of
C/M: 12156.0001 378869.1
3
<PAGE>
any other class or any other series of this class or any other securities and,
if so, the price or prices or the rate or rates of conversion or exchange and
the method, if any, of adjusting the same, and any other terms and condition or
exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of capital stock
of any other class or any other series of this class;
(i) the conditions or restrictions, if any, to be effective while any
shares of such series are outstanding upon the creation of indebtedness of the
Corporation upon the issue of any additional stock, including additional shares
of such series or of any other series of this class or of any other class; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease
(but not below the number of shares thereof then outstanding) the number of
shares of capital stock of any series of Preferred Stock designated as any one
or more series of Preferred Stock pursuant to this ARTICLE SIXTH.
SEVENTH: The election of directors need not be by written ballot
unless the By-laws so provide.
EIGHTH: The Board of Directors of the Corporation, is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
the By-laws of the Corporation, except as such power may be restricted or
limited by the General Corporation Law of the State of Delaware.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under
C/M: 12156.0001 378869.1
4
<PAGE>
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of the creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all
creditors or class of creditors, and/or all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
ELEVENTH: The personal liability of the directors of the Corporation
is hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented. No amendment or repeal
of this Article Eleventh shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to the effective date of
such amendment or repeal.
TWELFTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons who it
shall have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-laws, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in any
other capacity while holding such office, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
C/M: 12156.0001 378869.1
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed and attested to by its undersigned
officers this 15th day of July, 1996.
/s/ Robin A. Carden
Name: Robin A. Carden
Title: President
Attest:
/s/ Walter R. Menetrey
Name: Walter R. Menetrey
Title: Secretary
C/M: 12156.0001 378869.1
6
Exhibit 3.2
B Y - L A W S
OF
ALYN CORPORATION
(a Delaware corporation)
-------------------------
ARTICLE I
OFFICES
SECTION 1. OFFICES. The Corporation shall maintain its registered
office in the State of Delaware at 1209 Orange Street, Wilmington, in the
County of New Castle, and its resident agent at such address is The Corporation
Trust Company. The Corporation may also have offices in such other places in
the United States or elsewhere as the Board of Directors may, from time to
time, appoint or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors shall
determine by resolution and set forth in the notice of the meeting. In the
event that the Board of Directors fails to so determine the time, date and
place for the annual meeting, it shall be held, beginning in 1997, at the
principal office of the Corporation at 10 o'clock A.M. on the last Friday in
May of each year.
C/M: 11458.0002 362423.1
<PAGE>
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called by the Chairman of the Board,
the President or by resolution of the Board of Directors and shall be called by
the President or Secretary upon the written request of not less than 10% in
interest of the stockholders entitled to vote thereat. Notice of each special
meeting shall be given in accordance with Section 3 of this Article II. Unless
otherwise permitted by law, business transacted at any special meeting of
stockholders shall be limited to the purpose stated in the notice.
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting,
which shall state the place, date and time of the meeting, and, in the case of
a special meeting, the purposes for which the meeting is called, shall be
mailed to or delivered to each stockholder of record entitled to vote thereat.
Such notice shall be given not less than ten (10) days nor more than sixty (60)
days before the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the Certificate of
Incorporation, the holders of a majority of the issued and outstanding stock
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders.
SECTION 5. VOTING. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. Upon the request of not less than 10%
in interest of the stockholders entitled to vote at a meeting, voting shall be
by written ballot. All elections of directors shall be decided by plurality
vote. Unless otherwise required by law, these By-Laws
-2-
C/M: 11458.0002 362423.1
<PAGE>
or the Certificate of Incorporation, all other corporate action shall
be decided by majority vote.
SECTION 6. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting may, or if inspectors shall not have
been appointed, the chairman of the meeting shall, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with the right to vote,
count and tabulate all votes, ballots or consents, determine the results, and
do such acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the chairman of the meeting, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of an election
of directors.
SECTION 7. CHAIRMAN OF MEETINGS. The Chairman of the Board of Directors of
the Corporation, if one is elected, or, in his absence or disability, the
President of the Corporation, shall preside at all meetings of the
stockholders.
-3-
C/M: 11458.0002 362423.1
<PAGE>
SECTION 8. SECRETARY OF MEETING. The Secretary of the Corporation shall
act as Secretary at all meetings of the stockholders. In the absence or
disability of the Secretary, the Chairman of the Board of Directors or the
President shall appoint a person to act as Secretary at such meetings.
SECTION 9. LISTS OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of
each stockholder and the number and class of shares held by each. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the meeting and may be inspected by any stockholder who is
present.
SECTION 10. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
such meetings, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote were present and voted. Prompt
notice
-4-
C/M: 11458.0002 362423.1
<PAGE>
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
SECTION 11. ADJOURNMENT. At any meeting of stockholders of the
Corporation, if less than a quorum be present, a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have the power
to adjourn the meeting from time to time without notice other than announcement
at the meeting until a quorum shall be present. Any business may be transacted
at the adjourned meeting which might have been transacted at the meeting
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date, as provided for in Section 5 of
Article V of these By-Laws, is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The property, business and affairs of the
Corporation shall be managed and controlled by its Board of Directors. The
Board shall exercise all of the powers and duties conferred by law except as
provided by the Certificate of Incorporation or these By-Laws. SECTION 2.
NUMBER AND TERM. The number of directors shall be fixed at no less than one nor
more than six. Within the limits specified above, the number of directors shall
be fixed from time to time by the Board. The Board of Directors shall be
elected by the stockholders at their annual meeting, and each director shall be
elected to serve
-5-
C/M: 11458.0002 362423.1
<PAGE>
for the term of one year and until his successor shall be elected and qualify
or until his earlier resignation or removal. Directors need not be
stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. REMOVAL. Subject to any written agreement among all of the
stockholders of the Corporation, any director or the entire Board of Directors
may be removed either for or without cause at any time by the affirmative vote
of the holders of a majority of the shares entitled to vote for the election of
directors at any annual or special meeting of the stockholders called for that
purpose. Subject to any written agreement among all of the stockholders of the
Corporation, vacancies thus created may be filled at such meeting by the
affirmative vote of a majority of the stockholders entitled to vote, or, if the
vacancies are not so filled, by the directors as provided in Section 5 of this
Article III.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as provided
in Section 4 of this Article III, and subject to any written agreement among
all of the stockholders of the Corporation, and vacancies occurring in any
directorship and newly created directorships may be filled by a majority vote
of the remaining directors then in office. Any director so chosen shall hold
office for the unexpired term of his predecessor and until his successor shall
be elected and qualify or until his earlier death, resignation or removal. The
Board may not fill the vacancy created by removal of a director by electing the
director so removed.
-6-
C/M: 11458.0002 362423.1
<PAGE>
SECTION 6. MEETINGS. The newly elected directors shall hold their
first meeting to organize the Corporation, elect officers and transact any
other business which may properly come before the meeting. An annual
organizational meeting of the Board of Directors shall be held immediately
after each annual meeting of the stockholders, or at such time and place as may
be noticed for the meeting. Regular meetings of the Board may be held without
notice at such places and times as shall be determined from time to time by
resolution of the directors. Special meetings of the Board shall be called by
the President or by the Secretary on the written request of any director with
at least two days' notice to each director and shall be held at such place as
may be determined by the directors or as shall be stated in the notice of the
meeting.
SECTION 7. QUORUM, VOTING AND ADJOURNMENT. A majority of the total
number of directors or any committee thereof shall constitute a quorum for the
transaction of business. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum, a majority of the directors present thereat may adjourn
such meeting to another time and place. Notice of such adjourned meeting need
not be given if the time and place of such adjourned meeting are announced at
the meeting so adjourned.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the Board, designate one or more committees, including
but not limited to an Executive Committee and an Audit Committee, each such
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more
-7-
C/M: 11458.0002 362423.1
<PAGE>
directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's properties and assets, recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution or to amend
these By-Laws. Unless a resolution of the Board expressly provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock of the Corporation. All committees of the Board
shall report their proceedings to the Board when required.
SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
any committee thereof consent thereto in writing.
SECTION 10. COMPENSATION. The Board of Directors shall have the
authority to fix the compensation of directors for their services. A director
may also serve the Corporation in other capacities and receive compensation
therefor.
-8-
C/M: 11458.0002 362423.1
<PAGE>
SECTION 11. TELEPHONIC MEETING. Unless otherwise restricted
by the Certificate of Incorporation, members of the Board, or any committee
designated by the Board, may participate in a meeting by means of conference
telephone or similar communications equipment in which all persons
participating in the meeting can hear each other. Participation in such
telephonic meeting shall constitute the presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall include a President
and a Secretary, who shall be elected by the Board of Directors and who shall
hold office for a term of one year and until their successors are elected and
qualify or until their earlier resignation or removal. In addition, the Board
of Directors may elect a Chairman of the Board, one or more Vice Presidents,
including an Executive Vice President, a Treasurer and one or more Assistant
Treasurers and one or more Assistant Secretaries, who shall hold their office
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors. The initial officers
shall be elected at the first meeting of the Board of Directors and,
thereafter, at the annual organizational meeting of the Board held after each
annual meeting of the stockholders. Any number of offices may be held by the
same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it deems advisable, who shall hold
their office
-9-
C/M: 11458.0002 362423.1
<PAGE>
for such terms and shall exercise and perform such powers and duties as shall
be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors shall be
a member of the Board and shall preside at all meetings of the Board of
Directors and of the stockholders. In addition, the Chairman of the Board shall
have such powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation. He shall exercise such duties as customarily
pertain to the office of President and Chief Executive Officer, and shall have
general and active management of the property, business and affairs of the
Corporation, subject to the supervision and control of the Board. He shall
perform such other duties as prescribed from time to time by the Board or these
By-Laws. In the absence, disability or refusal of the Chairman of the Board to
act, or the vacancy of such office, the President shall preside at all meetings
of the stockholders and of the Board of Directors. Except as the Board of
Directors shall otherwise authorize, the President shall execute bonds,
mortgages and other contracts on behalf of the Corporation, and shall cause the
seal to be affixed to any instrument requiring it and, when so affixed, the
seal shall be attested by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENTS. Each Vice President, if any are elected,
of whom one or more may be designated an Executive Vice President, shall have
such powers
-10-
C/M: 11458.0002 362423.1
<PAGE>
and shall perform such duties as shall be assigned to him by the President or
the Board of directors.
SECTION 6. TREASURER. The Treasurer, if one is elected, shall have
custody of the corporate funds, securities, evidences of indebtedness and other
valuables of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation, taking
proper vouchers therefor. He shall render to the President and Board of
Directors, upon their request, a report of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe. The Treasurer shall have such
further powers and perform such other duties incident to the office of
Treasurer as from time to time are assigned to him by the Board.
SECTION 7. SECRETARY. The Secretary shall be the Chief Administrative
Officer of the Corporation and shall: (a) cause minutes of all meetings of the
stockholders and directors to be recorded and kept; (b) cause all notices
required by these By-Laws or otherwise to be given properly; (c) see that the
minute books, stock books, and other nonfinancial books, records and papers of
the Corporation are kept properly; and (d) cause all reports, statements,
returns, certificates and other documents to be prepared and filed when
-11-
C/M: 11458.0002 362423.1
<PAGE>
and as required. The Secretary shall have such further powers and perform such
other duties as prescribed from time to time by the Board.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Each
Assistant Treasurer and each Assistant Secretary, if any are elected, shall be
vested with all the powers and shall perform all the duties of the Treasurer
and Secretary, respectively, in the absence or disability of such officer,
unless or until the Board of Directors shall otherwise determine. In addition,
Assistant Treasurers and Assistant Secretaries shall have such powers and shall
perform such duties as shall be assigned to them by the Board.
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the Corporation
shall be kept in such depositories as shall from time to time be prescribed by
the Board of Directors. All checks or other orders for the payment of money
shall be signed by the President or the Treasurer or such other person or agent
as may from time to time be authorized and with such countersignature, if any,
as may be required by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The President or
Treasurer, or such other officer or officers as may from time to time be
authorized by the Board of Directors, shall have power to sign and execute on
behalf of the Corporation deeds, conveyances and contracts, and any and all
other documents requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The President
or the Treasurer, or such other officer or agent as shall be authorized by the
-12-
C/M: 11458.0002 362423.1
<PAGE>
Board of Directors, shall have the power and authority, on behalf of the
Corporation, to attend and to vote at any meeting of stockholders of any
corporation in which the Corporation holds stock and may exercise, on behalf of
the Corporation, any and all of the rights and powers incident to the ownership
of such stock at any such meeting, including the authority to execute and
deliver proxies and consents on behalf of the Corporation.
SECTION 12. DELEGATION OF DUTIES. In the absence, disability or
refusal of any officer to exercise and perform his duties, the Board of
Directors may delegate to another officer such powers or duties. S
ECTION 13. RESIGNATION AND REMOVAL. Any officer of the Corporation
may be removed from office for or without cause at any time by the Board of
Directors. Any officer may resign at any time in the same manner prescribed
under Section 3 of Article III of these By-Laws.
SECTION 14. VACANCIES. The Board of Directors shall have power to
fill vacancies occurring in any office.
ARTICLE V
STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number and class of shares of stock in the
Corporation owned by him. Any or all of the signatures on the
-13-
C/M: 11458.0002 362423.1
<PAGE>
certificate may be a facsimile. The Board of Directors shall have the power to
appoint one or more transfer agents and/or registrars for the transfer or
registration of certificates of stock of any class, and may require stock
certificates to be countersigned or registered by one or more of such transfer
agents and/or registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the Corporation
shall be transferable upon its books by the holders thereof, in person or by
their duly authorized attorneys or legal representatives, upon surrender to the
Corporation by delivery thereof to the person in charge of the stock and
transfer books and ledgers. Such certificates shall be cancelled and new
certificates shall thereupon be issued. A record shall be made of each
transfer. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented, both the transferor and
transferee request the Corporation to do so. The Board shall have power and
authority to make such rules and regulations as it may deem necessary or proper
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 3. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate previously issued by the Corporation,
alleged to have been lost, stolen, destroyed or mutilated, and the Board of
Directors may, in their discretion, require the owner of such lost, stolen,
destroyed or mutilated certificate, or his legal representative, to give the
Corporation a bond, in such sum as the Board may direct, not exceeding double
the value of the stock, in order to indemnify the Corporation against any
claims that may be made against it in connection therewith.
-14-
C/M: 11458.0002 362423.1
<PAGE>
SECTION 4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
thereof, in fact, and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise
expressly provided by law.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting, provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may at any regular or special meeting,
out of funds legally available therefor, declare dividends upon the stock of
the Corporation. Before the declaration of any dividend, the Board of Directors
may set apart, out of any funds of the Corporation available for dividends,
such sum or sums as from time to time in their discretion may be deemed proper
for working capital or as a reserve fund to meet contingencies or for such
other purposes as shall be deemed conducive to the interests of the
Corporation.
-15-
C/M: 11458.0002 362423.1
<PAGE>
SECTION 7. FRACTIONAL SHARES. The Company shall have the complete
discretion to issue fractional shares.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written notice is required to be
given by law, the Certificate of Incorporation or these By-Laws, such notice,
if mailed, shall be deemed to be given when deposited in the United States
mail, postage prepaid, addressed to the person entitled to such notice at his
address as it appears in the books and records of the Corporation. Such notice
may also be sent by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given
by law, the Certificate of Incorporation or these By-Laws, a written waiver
thereof signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the stockholders, directors,
or members of a committee of the Board need be specified in any written waiver
of notice.
-16-
C/M: 11458.0002 362423.1
<PAGE>
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed or
new By-Laws may be adopted by the affirmative vote of a majority of the Board
of Directors at any regular or special meeting of the Board. If any By-Law
regulating an impending election of directors is adopted, amended or repealed
by the Board, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors the ByLaw(s) so adopted, amended, or
repealed, together with a precise statement of the changes made. By-Laws
adopted by the Board of Directors may be amended or repealed by shareholders.
ARTICLE VIII
SECTION 1. SEAL. The seal of the Corporation shall be circular in
form and shall have the name of the Corporation on the circumference and the
jurisdiction and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall end
on December 31 of each year, or such other twelve consecutive months as the
Board of Directors may designate.
-17-
C/M: 11458.0002 362423.1
<PAGE>
ARTICLE IX
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. The Corporation
shall be required to indemnify a person in connection with a proceeding (or
part thereof) initiated by such person only if the proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
SECTION 2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be
-18-
C/M: 11458.0002 362423.1
<PAGE>
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
SECTION 3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days (60) after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the Corporation shall have the burden of proving that
the claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article IX shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 5. OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or nonprofit enterprise.
SECTION 6. INSURANCE. The Board of Directors may authorize, by a vote
of a majority of a quorum of the Board of Directors, the Corporation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or
-19-
C/M: 11458.0002 362423.1
<PAGE>
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, member, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article IX or of the General Corporation Law of the State of Delaware.
SECTION 7. DEFINITIONS. For the purposes of this Article IX,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, member, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article IX with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued. For purposes of this Article IX,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or
-20-
C/M: 11458.0002 362423.1
<PAGE>
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article IX.
SECTION 8. LIABILITY OF DIRECTORS. No director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided, however, that
this limitation shall not eliminate or limit the liabilities of the directors
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, under Section 174 of the
General Corporation Law of the State of Delaware, or for any transaction from
which the director derived an improper personal benefit; provided further, that
this limitation shall not eliminate or limit the liability of a director for
any act or omission occurring prior to the adoption of these By-Laws.
SECTION 9. AMENDMENT OR REPEAL. Any repeal or modification of
the foregoing provisions of this Article IX shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
Date of Adoption: April 30, 1996 (or the effective date, if later,
of the merger of Alyn Corporation with and into AC
Acquisition Corp.).
-21-
C/M: 11458.0002 362423.1
Exhibit 4.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
Dated as of
May 1, 1996
by and among
ALYN CORPORATION
AND
ROBIN CARDEN, ART LIANG, CHARLES ROSENBLUM, WALTER MENETREY,
UDI TOLEDANO, STEPHEN BALOG, ROSALIE BALOG, GARY ESCANDON,
STEPHANIE ESCANDON, FRONTIER PTY LIMITED, TRUSTEE FOR FRONTIER
TRUST, FIRST PACIFIC CAPITAL, FRED FRAENKEL, HERBERT TURK, EDITH
TURK, JANET TOLEDANO, JAMES M. STUART JR., JAMES M. STUART
JR., TRUSTEE U/A DATED MAY 1, 1987 F/B/O JOHN E. STUART, AND
JAMES M. STUART JR., JOHN E. STUART, TRUSTEES U/A DATED
JANUARY 1, 1989 F/B/O MARY E. STUART, STEVE HOURIGAN, BERGEN
ENTERPRISES CORP., JANET TOLEDANO, TRUSTEE U/A DATED 9/2/93
F/B/O ALEXANDER & ANNA TOLEDANO, JUDITH GREEN, STEPHANIE BIER
TOLEDANO, GIDEON TOLEDANO, ROBERT LAX, JENNIFER THOMPSON,
RACHEL TURK BALTER, MIRIAM TURK, KINGDON ASSOCIATES, L.P.,
KINGDON PARTNERS, L.P., AND M. KINGDON OFFSHORE NV, and
EDELSON TECHNOLOGY PARTNERS III.
C/M: 11458.0002 356505.6
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE 1 DEFINITIONS............................................... 1
ARTICLE 2 ELECTION OF DIRECTORS; CERTAIN VOTING REQUIREMENTS ....... 4
2.1 Board of Directors of the Corporation..................... 4
2.2 Election of Directors..................................... 4
2.3 Initial Designees......................................... 5
2.5 Underwritten Offering..................................... 5
2.6 Restrictions and Limitations.............................. 5
ARTICLE 3 TRANSFER OF STOCK; FIRST REFUSAL RIGHTS; THIRD PARTY
OFFER; TAG-ALONG RIGHTS................................... 6
3.1 No Transfer or Encumbrance Except as Herein Provided...... 6
3.2 First Refusal Rights...................................... 6
3.3 Legends................................................... 7
3.4 Third Party Offer; Tag-Along Rights....................... 7
3.5 Legally Binding Obligation................................ 9
3.6 Violations of this Agreement.............................. 9
ARTICLE 4 REGISTRATION RIGHTS....................................... 9
4.1 Demand Registration....................................... 9
4.2 Incidental Registrations.................................. 11
4.3 Form S-3.................................................. 11
4.4 Registration Procedures................................... 12
4.5 Registration Expenses..................................... 14
4.6 "Market Stand-Off" Agreement.............................. 15
4.7 Indemnification........................................... 15
4.8 Transfer or Assignment of Registration Rights............. 16
4.9 Rule 144 Requirements..................................... 16
ARTICLE 5 EFFECTIVE DATE AND TERM OF AGREEMENT...................... 17
5.1 Effective Date............................................ 17
5.2 Term...................................................... 17
ARTICLE 6 MISCELLANEOUS............................................. 17
6.1 Specific Performance...................................... 17
6.2 Authority................................................. 17
6.3 Other Parties............................................. 17
6.4 After-Acquired Shares..................................... 17
6.5 Notice.................................................... 18
6.6 Governing Law............................................. 19
6.7 Section Headings.......................................... 19
6.8 Counterparts.............................................. 19
6.9 Effective Date............................................ 19
C/M: 11458.0002 356505.6
<PAGE>
Section Page
6.10 Entire Agreement........................................ 19
6.11 Further Assurances...................................... 20
6.12 Amendments and Waiver................................... 20
6.13 Successors and Assigns.................................. 20
6.14 Severability............................................ 20
6.15 Limited Indemnification................................. 20
Exhibits
Exhibit 1.1 Loan Agreement
Schedules
Schedule A Toledano, Kingdon and Edelson Stockholders
Schedule B Original Stockholders
C/M: 11458.0002 356505.6
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement, dated as of May 1, 1996, by and among
Robin Carden, Art Liang, Charles Rosenblum and Walter Menetrey (each an
"Original Stockholder" and collectively the "Original Stockholders"), and Udi
Toledano ("Toledano"), Stephen Balog, Rosalie Balog, Gary Escandon, Stephanie
Escandon, Frontier PTY Limited, Trustee for Frontier Trust, First Pacific
Capital, Fred Fraenkel, Herbert Turk, Edith Turk, Janet Toledano, James M.
Stuart Jr., James M. Stuart Jr., Trustee U/A Dated May 1, 1987 F/B/O John E.
Stuart, and James M. Stuart Jr., John E. Stuart, Trustees U/A Dated January 1,
1989 F/B/O Mary E. Stuart, Steve Hourigan, Bergen Enterprises Corp., Janet
Toledano, Trustee U/A Dated 9/2/93 F/B/O Alexander & Anna Toledano, Judith
Green, Stephanie Bier Toledano, Gideon Toledano, Robert Lax, Jennifer Thompson,
Rachel Turk Balter and Miriam Turk (collectively, the "Toledano Group"), (the
Toledano Group, each a "Toledano Stockholder" and collectively, the "Toledano
Stockholders"), Kingdon Associates, L.P., Kingdon Partners, L.P., and M.
Kingdon Offshore NV (collectively, the "Kingdon Group"), (the Kingdon Group,
each a "Kingdon Stockholder" and collectively, the "Kingdon Stockholders"),
Edelson Technology Partners III (the "Edelson Group" or "Edelson Stockholder"),
and ALYN CORPORATION, a Delaware corporation (the "Corporation"). The Toledano
Stockholders, the Kingdon Stockholders, the Edelson Stockholder, and the
Original Stockholders, are each referred to herein as a "Stockholder" and are
collectively referred to herein as the "Stockholders".
R E C I T A L S:
WHEREAS, each of the Stockholders owns Restricted Securities (as
defined below) of the Corporation as of the date hereof;
WHEREAS, such parties desire to promote their mutual interests and
the interests of the Corporation by imposing certain obligations and
restrictions on the Restricted Securities owned by the Stockholders; and
WHEREAS, the Stockholders deem it in their best interests and in the
best interest of the Corporation to provide consistent and uniform management
for the Corporation and desire to enter into this Agreement in order to
effectuate that purpose.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
indicated meanings:
C/M: 11458.0002 356505.6
<PAGE>
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
"Common Stock" shall mean the Common Stock of the Corporation, $.01
par value per share.
"Edelson Stockholder" shall mean the Edelson Stockholders listed on
Schedule "A" hereto, and any of their Permitted Transferees.
"Holder" shall mean any holder (including, without limitation, a
Permitted Transferee) of Restricted Securities.
"Immediate Family" shall mean any surviving ancestor, living
descendant (adopted or natural) brother, sister, spouse, sister-in-law or
brother-in-law of a Stockholder, or of the spouse of such Stockholder, or any
custodian or trustee for the account or benefit of any such person.
"Kingdon Stockholder" shall mean the Kingdon Stockholders listed on
Schedule "A" hereto, and any of their Permitted Transferees.
"Loan Agreement" shall mean the Loan Agreement by and among the
Corporation and the Lenders a party thereto, dated the date hereof, a copy of
which is attached hereto as Exhibit 1.1.
"Majority in Interest" shall mean the holders of 50.1% of the issued
and outstanding shares of Common Stock held by any
Stockholder Group.
"Merger" shall mean the merger of Alyn Corporation, a California
corporation, with and into the Corporation.
"Original Stockholders" shall mean the Original Stockholders listed
on Schedule "B" hereto, and any of their Permitted Transferees.
"Permitted Transferee" shall mean (a) any person or entity within a
particular stockholders' respective Stockholder Group, (b) in the case of an
individual, the Immediate Family of such person, a trust solely for the benefit
of such person and/or his Immediate Family, the estate or legal representatives
of such person and any partnership, corporation or other entity wholly owned,
directly or indirectly, by such person or persons, (c) in the case of a
partnership, any of its partners (general and/or limited), the estates of such
partners and any, partnership, corporation or other entity wholly owned by such
partnership or such partners, (d) in the case of a corporation, any corporation
controlled by, controlling, or under common control with such transferor
corporation, provided that during the term of this Agreement such transferee
corporation shall remain a corporation controlled by, controlling or under
common control with such transferor corporation, (e) in the case of a trust of
any of its beneficiaries, (f) with respect to any of the Toledano Group, the
Kingdon Group or the Edelson Group, any person or entity who becomes a Lender
(as defined in the Loan Agreement) under the Loan Agreement. For purposes of
this definition, "control" shall mean (x) direct or indirect beneficial
ownership of more than fifty percent (50%) of each class of voting securities
of the
-2-
C/M: 11458.0002 356505.6
<PAGE>
controlled corporation and (y) the power to elect a majority of the Board of
Directors (or similar management committee) of the controlled corporation and
(g) any transfers permitted pursuant to the Loan Agreement. The Transferee of
any capital stock in the Corporation permitted hereby, shall take his shares of
capital stock subject to all of the terms, conditions and provisions of this
Agreement.
"Pro Rata According to Ownership" shall mean with respect to a
Stockholder, the ratio of the number of shares of Common Stock owned by such
Stockholder to the total number of shares of Common Stock owned by all
Stockholders.
"Public Company" shall mean when the Corporation has (a) closed a
public offering of its capital stock pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission, or (b)
the Corporation has closed a merger or other business combination with another
company such that the Corporation's business continues as a publicly traded
corporation.
"Register," "registered," and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Restricted Securities" shall mean (a) the shares of Common Stock
held by Stockholders, (b) shares of Common Stock held by Permitted Transferees
and (c) securities issued in respect of the securities referred to in classes
(a) and (b) above by way of a stock dividend, stock split or in connection with
a stock combination, recapitalization, merger, consolidation or other
reorganization.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body
or agency succeeding to the functions thereof.
"Stockholder Group" shall mean the respective persons or entities
which are, collectively, Original Stockholders, Toledano Stockholders, Kingdon
Stockholders or Edelson Stockholders, as the case may be.
"Toledano Stockholder" shall mean the Toledano Stockholders listed on
Schedule "A" hereto, and any of their Permitted Transferees.
"Transfer or Transferred" shall mean any sale, transfer, assignment,
pledge, hypothecation or other disposition.
-3-
C/M: 11458.0002 356505.6
<PAGE>
ARTICLE 2
ELECTION OF DIRECTORS; CERTAIN VOTING REQUIREMENTS
2.1 Board of Directors of the Corporation. Pursuant to the By-Laws of
the Corporation, the number of directors comprising the Corporation's Board of
Directors (the "Board") has been fixed by resolution of the Board at (i) five
(5) while any portion of the Corporation's indebtedness under the Loan
Agreement remains outstanding, and (ii) thereafter, at six (6). Each of the
Stockholders shall take such action as is necessary and appropriate, including,
without limitation, the voting of shares of Common Stock owned or controlled by
such Stockholder on all of the matters set forth in this Article 2 on which the
Stockholders of the Corporation vote.
2.2 Election of Directors.
(a) Immediately upon receiving notice of any stockholders' meeting at
which members of the Board are to be elected, the Stockholders shall designate
candidates as follows:
(i) the Toledano Group shall be entitled to designate
one (1) candidate for election to the Board,
(ii) the Kingdon Group shall be entitled to
designate one (1) candidate for election to the
Board,
(iii) the Edelson Group shall be entitled to
designate one (1) candidate for election to the
Board, and
(iv) the Original Stockholders, shall be entitled to
designate two (2) (three (3) if the number of
directors has been increased to six (6) pursuant to
Section 2.1) candidates for election to the Board.
(b) Each Stockholder hereby binds itself to vote its shares of Common
Stock for, or give its written consent to, the election of the candidates
designated by the Original Stockholders, the Toledano Stockholders, the Kingdon
Stockholders and the Edelson Stockholders as set forth in Section 2.2(a) and in
conformance with the By-laws of the Corporation.
(c) In the event any director ("Director") elected to the Board after
being designated as a candidate for membership pursuant to this Section 2.2
dies, resigns, is removed or otherwise ceases to serve as a member of the
Board, the Corporation shall give notice thereof to the Stockholders having
designated such Director, either the Original Stockholders, the Toledano
Stockholders, the Kingdon Stockholders or the Edelson Stockholders, as the case
may be, and such Stockholders agree to designate a successor and notify the
Corporation of their selection.
(d) Any designation pursuant to this Article 2 shall be in writing
and shall be signed by a Majority in Interest with respect to the Original
Stockholders, the Toledano
-4-
C/M: 11458.0002 356505.6
<PAGE>
Stockholders, the Kingdon Stockholders or the Edelson Stockholders with respect
to their respective designees.
(e) Each Stockholder agrees to cast its votes for, or give its
written consent to, the removal with or without cause, of any designee on the
Board pursuant to this Article 2 at any time upon receipt of instructions in
writing to such effect, signed by a Majority in Interest with respect to the
Original Stockholders, the Toledano Stockholders, the Kingdon Stockholders or
the Edelson Stockholders with respect to their respective designees.
2.3 Initial Designees. The initial designee of the Toledano
Stockholders pursuant to Section 2.2 is Udi Toledano. The initial designees of
the Original Stockholders pursuant to Section 2.2 are Robin Carden and Walter
Menetrey. The initial designee of the Kingdon Stockholders pursuant to Section
2.2 is Michael Markbreiter. The initial designee of the Edelson Stockholders
pursuant to Section 2.2 is Harry Edelson.
2.4 Transferees. It shall be a condition to the transfer of any
shares of Common Stock or any Restricted Securities that the transferee thereof
agrees to be bound by the provisions of this Agreement. The transferee shall
become a member of the Stockholder Group, if any, to which his transferor
belongs or belonged under this Agreement and shall be entitled to participate
with the other members of such Stockholder Group in selecting candidates for
the Board, if permitted to do so under this Agreement.
2.5 Underwritten Offering. Each of the Stockholders unconditionally
agrees to cause its respective designee(s) to resign from the Board at the
written request of an underwriter or underwriters of an underwritten offering
of any capital stock of the Corporation. Each affected Stockholder shall have
the right to designate a replacement designee subject to the approval of the
underwriter or underwriters, which approval shall not be unreasonably withheld.
2.6 Restrictions and Limitations. The Corporation shall not, without
the vote or written consent of the holders of sixty percent (60%) in voting
power of all then outstanding shares of Common Stock:
(a) Incur any indebtedness for money borrowed, other than
indebtedness under the Loan Agreement, in excess of $ 1.0 million;
(b) Authorize or issue, or obligate itself to issue, any additional
shares of its capital stock or securities convertible into or exchangeable for
its capital stock, unless (i) the gross proceeds to the Corporation from such
issuance do not exceed $1.0 million, or (ii) the effective cash price per share
received by the Corporation from such issuance exceeds $100.00 (adjusted for
changes in capitalization after the effective date of this Agreement) provided,
however, that if such shares are acquired by the Toledano, Kingdon and/or
Edelson Stockholders and/or an affiliate of any such stockholder, they shall be
voted as to all matters set forth in this Section 2.6 in accordance with the
vote or written consent of a majority of the Original Stockholders;
(c) Authorize or enter into any merger or consolidation of the
Corporation with or into any other corporation or entity (except with or into a
wholly-owned subsidiary of
-5-
C/M: 11458.0002 356505.6
<PAGE>
the Corporation, provided such merger or consolidation does not vary the equity
interests of the Stockholders in the Corporation), or authorize or enter
into the sale of substantially all of the assets of the Corporation; or
(d) Amend the certificate of incorporation or the by-laws of the
Corporation in any manner which adversely affects the Original Stockholders.
ARTICLE 3
TRANSFER OF STOCK; FIRST REFUSAL RIGHTS;
THIRD PARTY OFFER; TAG-ALONG RIGHTS
3.1 No Transfer or Encumbrance Except as Herein Provided. Except in
connection with the Corporation becoming a Public Company, as described in
Section 1, or sales of securities of the Corporation under Rule 144 under the
Securities Act, or as otherwise permitted or required by this Agreement, each
Stockholder agrees that it will not, except in the case of a transfer to a
Permitted Transferee, directly or indirectly, sell, assign, exchange or
otherwise dispose of or transfer, including, without limiting the generality of
the foregoing, by gift, bequest, pledge, hypothecation or otherwise, any of the
shares of Common Stock or any other equity securities of the Corporation (or
any interest therein), whether presently owned or hereafter acquired from
another stockholder of the Corporation or by stock dividend, split up,
exchange, combination, reclassification, reorganization, consolidation, merger
or otherwise.
3.2 First Refusal Rights.
(a) Except for the issuance of Common Stock, (i) in connection with
the Corporation becoming a Public Company; or (ii) in connection with employee
or management stock plans or programs approved by the Board (x) which shall not
exceed in the aggregate at any one time ten (10%) of the issued and outstanding
shares of Common Stock, and (z) shall not be at a price per share less than the
initial public offering price per share of Common Stock sold in connection with
the Corporation becoming a Public Company, all Common Stock issued by the
Company after the date hereof shall be first offered for sale to each
Stockholder Pro Rata According to Ownership. Each Stockholder will be entitled
to purchase such stock or securities at the same price and on the same terms as
such stock or securities are to be offered to any other persons.
(b) Subject to subparagraph (c) of this Section 3.2, each Stockholder
must exercise its purchase rights hereunder within 30 days after receipt of
written notice from the Corporation describing in reasonable detail the stock
or securities being offered, the purchase price thereof, the payment terms and
such Stockholder's percentage allotment Pro Rata According to Ownership. If all
of the stock and securities offered to the Stockholders is not fully subscribed
by all of the Stockholders, the remaining stock and securities will be
reoffered to the Stockholders that have purchased their full allotment upon the
terms set forth in this Section 3.2, except that those Stockholders must
exercise their additional purchase rights within ten (10) days after receipt of
such reoffer. If any of the shares of Common Stock remain unpurchased after
such ten (10) day period, then the Stockholders may purchase an amount greater
than their pro rata amount as such Stockholders may agree among themselves,
-6-
C/M: 11458.0002 356505.6
<PAGE>
provided however, such Stockholders must consummate that purchase within
five (5) days after that tenth (10) day after receipt of such reoffer.
(c) Upon the expiration of the offering periods described above, the
Corporation will be free to sell such stock or securities which Stockholders
have not elected to purchase during the 60 days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to the Stockholders. Any stock or securities offered or sold by the
Corporation to non-Stockholders after such 60-day period must be reoffered to
the Stockholders pursuant to the terms of this Section 3.2.
3.3 Legends. Each certificate for the Restricted Securities will be
imprinted with a legend substantially in the following form (the "Securities
Act Legend") until such securities have ceased to be Restricted Securities:
"The shares of Common Stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or
under any state securities laws. The sale, assignment, transfer,
pledge, encumbrance or other disposition of the shares of Common
Stock represented by this certificate is subject to certain
restrictions and conditions specified in a Stockholders' Agreement,
dated as of May 1, 1996, among the issuer (the "Corporation") and the
holders of its Common Stock, and the Corporation reserves the right
to refuse the transfer of such shares of Common Stock until such
restrictions and conditions have been fulfilled with respect to such
sale, assignment, transfer, pledge, encumbrance or other disposition.
A copy of such restrictions and conditions will be furnished by the
Corporation to the holders of its Common Stock upon written request
and without charge."
3.4 Third Party Offer; Tag-Along Rights. Except with respect to
Permitted Transferees, if a Stockholder (the "Stockholder Offeree") receives a
bona fide written offer (the "Offer") from a potential transferee or one or
more potential transferees acting in concert (the "Offeror") to purchase any or
all of the shares of Common Stock owned by the Stockholder Offeree and such
Stockholder Offeree shall propose to accept such Offer, the Stockholder Offeree
shall comply with the appropriate provisions of this Section 3.4 prior to
taking any such action.
(a) The Stockholder Offeree shall give a notice (the "Third Party
Notice") to the Corporation and the other Stockholders (the "Other
Stockholders") stating that he or it proposes to effect such transaction, the
name and address of the Offeror, the price to be paid by the Offeror (the
"Offeror Price"). The Third Party Notice shall be accompanied by copies of the
documents or other evidence hereinafter specified in Sections 3.4(a)(i) and
(iii). No Stockholder shall have any right to give Third Party Notice pursuant
to this Section 3.4 unless all of the following conditions shall be met:
(i) The Offeror shall have delivered to the Stockholder Offeree a
copy of the Offer signed by the Offeror, offering to effect the proposed
transaction on or before a date 60 days from the date of the Offer, subject
only to the following conditions: an Offer may be conditioned on (1) the truth
as of the closing of the transactions contemplated by the Offer of
representations and warranties reasonably acceptable to
-7-
C/M: 11458.0002 356505.6
<PAGE>
the Stockholder Offeree and its counsel and (2) the delivery of a customary
legal opinion.
(ii) The Third Party Notice shall propose an Offeror Price wholly in
cash; and
(iii) The Offeror shall furnish reasonable evidence as to the
Offeror's financial ability to consummate the proposed purchase.
(b) The Other Stockholders shall have a period of 30 days after the
giving of the Third Party Notice (the "Election Period") within which to
exercise the option set forth in Section 3.4(c).
(c) The Other Stockholders shall, as a group, have the right to
purchase from such Stockholder Offeree all (but not less than all) of the
Common Stock of the Stockholder Offeree subject to the Offer at the purchase
price and on the terms set forth in the Offer. Each of the Other Stockholders
shall cooperate with each other in determining whether or not each Other
Stockholder wishes to purchase the Stockholder of the Stockholder Offeree. If
more than one Other Stockholder elects to purchase such shares of Stockholder
under this Section 3.4(c), such Other Stockholder shall purchase such shares of
Common Stock on a pro rata basis equal to the ratio of the shares of Common
Stock owned by such Other Stockholders which elect to purchase hereunder to the
total number of shares of Common Stock owned by all Other Stockholders who
elect to purchase hereunder unless otherwise agreed among such Other
Stockholders. The Other Stockholders that elect to purchase the Common Stock
from the Stockholder Offeree shall notify the Stockholder Offeree in writing
during the Election Period of the number of shares that each such Other
Stockholder shall purchase. Such written notification shall operate as a
binding commitment on each such Other Stockholder to purchase all of the shares
of Common Stock that such Other Stockholder elects to purchase. If an effective
election is made under this Section 3.4(c) to purchase all (but not less than
all) of the shares of Common Stock of the Stockholder Offeree subject to the
Offer the Stockholder Offeree shall sell the Common Stock to the Other
Stockholders at the offeree Price and other terms and conditions of the Offer
as provided above within sixty (60) days after the giving of the Third Party
Notice.
(d) Subject to Section 3.4(e), if no effective election is made to
purchase shares of Common Stock under Section 3.4(c), the Stockholder Offeree
may sell its shares of Common Stock subject to the Offer at the Offeree Price
and on the other terms and conditions of the Offer within sixty (60) days after
receipt of the Offer. If the shares of Common Stock are not sold in accordance
with the terms of the Offer within sixty (60) days of the date of the Offer,
any such sale shall again be subject to the terms and conditions of this
Section 3.4.
(e) Notwithstanding anything to the contrary in Section 3.4 of this
Agreement, with respect to any proposed sale of shares of Common Stock by a
Stockholder(s) to an Offeror pursuant to Section 3.4 for at least twenty-five
(25%) percent of the Common Stock issued and outstanding, each other
Stockholder (other than the Stockholder Offeree(s) shall have the right to
participate in such sale by requiring the Offeror to purchase from each of them
up to the number of whole shares of Common Stock as the shares of Common Stock
subject to the Offer owned by such other Stockholder(s) equalling (on a class
of shares of Common Stock basis to the extent applicable) the number derived by
multiplying the total
-8-
C/M: 11458.0002 356505.6 07/18/96
<PAGE>
number of such other Stockholder'(s) shares of Common Stock by a fraction, the
numerator of which is the total number of the Stockholder Offeree(s) shares of
Common Stock to be purchased by the Offeror and the denominator of which is the
total number of shares of Common Stock owned by the Stockholder Offeree(s). Any
shares of Common Stock purchased from other Stockholders pursuant to this
Section 3.4(e) shall be at the Offeree Price and on the other terms and
conditions of the Offer. Any other Stockholder desiring to exercise this
participation right may exercise such right by delivery of a written notice
("Participation Notice") to the Company and the Stockholder Offeree(s) within
fifteen (15) days following the first thirty (30) days of the Election Period.
In the event a Participation Notice is delivered during the time period
required above, the Offeree shall purchase the shares of Common Stock subject
thereto at the same time and on the same terms and conditions as the
Stockholder Offeree'(s) shares of Common Stock are purchased pursuant to
Section 3.4(e). In the event that the Offeree does not purchase such other
Stockholder shares of Common Stock on the same terms and conditions, then the
sale by the Stockholder Offeree(s) to such third party shall be invalid.
3.5 Legally Binding Obligation. The giving of Notice and the making
or failing to make an election within the stated period, in each case as
provided in Section 3.4, shall create a legally binding obligation to buy or
sell, as the case may be, subject shares of Common Stock as provided in such
Section 3.4. No transfer of shares of Common Stock pursuant to this Article 3
shall be effective unless and until the transferee shall execute and deliver to
the Company an appropriate instrument in which such transferee agrees to be
bound by the terms of this Agreement and to observe and comply with this
Agreement and with all obligations and restrictions imposed hereby.
3.6 Violations of this Agreement. For purposes of this Article 3, any
party who has failed to give notice of the election of an option hereunder
within the specified time period will be deemed to have waived his rights in
such option on the day after the last day of such period. Any sale, assignment,
transfer, pledge, encumbrance or other disposition made in violation of Article
3 of this Agreement shall be null and void. The Corporation shall not be
required (a) to transfer on its books any securities of the Corporation
transferred in violation of any provisions of this Agreement or (b) to treat as
owner of such securities, or to accord the right to vote as such owner, or to
pay dividends to, any transferee to whom such securities are transferred in
violation of this Agreement.
ARTICLE 4
REGISTRATION RIGHTS
4.1 Demand Registration.
(a) At any time after the first to occur of (x) the first day of the
ninth (9th) month after the date of the Corporation becoming a Public Company,
or (y) March 31, 1998, the Stockholders may, upon an affirmative vote of no
less than 20% of all outstanding Common Stock owned by the Stockholders,
request that the Corporation effect the registration under the Securities Act
of the Stockholders' Restricted Securities and specifying the intended method
of disposition thereof and whether or not such requested registration is
-9-
C/M: 11458.0002 356505.6
<PAGE>
to be an underwritten offering (such notice is hereinafter referred to as an
"Stockholder Request"), the Corporation will promptly, upon receipt of such
Stockholder Request, give written notice of such requested registration to all
other Holders of Restricted Securities and thereupon the Corporation will, as
expeditiously as possible, use its best efforts, to effect the registration
under the Securities Act on Form S-1 or other appropriate form of:
(i) the Restricted Securities which the Corporation has been so
requested to register by such Stockholder Request; and
(ii) all other Restricted Securities which the Corporation has been
requested to register by any other Holders by written request given to the
Corporation within 30 days after the giving of such written notice by the
Corporation (which request shall specify the intended method of disposition of
such Restricted Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Restricted Securities so to be registered.
provided, however, that the Corporation shall not be obligated to undertake
more than one registration statement pursuant to this Section 4.1.
(b) Subsequent to the requests made pursuant to Section 4.2(a)
hereof, the Corporation shall use its best efforts to achieve such
effectiveness promptly. The Corporation may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed ninety (90) days, but no more than once in any twelve (12) month
period, if (i) the Corporation has been advised by legal counsel that such
filing would require the disclosure of a material transaction, or other factor,
and the Corporation determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Corporation; or (ii) in
the good faith determination of the Corporation's Board of Directors, the
Corporation will be materially and adversely affected by the required
registration.
(c) Holders shall have the right, by giving written notice to the
Corporation within 20 days after the Corporation provides its notice, to elect
to have included in such registration such of their Restricted Securities as
such Holders may request in such notice of election, subject to the approval of
the underwriter managing the offering.
(d) Registrations under this Section 4.1 shall be on such appropriate
registration form of the Commission (i) as shall be selected by the Corporation
and as shall be reasonably acceptable to the Holders of more than 20% (by
number of shares) of the Stockholders' Restricted Securities so to be
registered and (ii) as shall permit the disposition of such Restricted
Securities in accordance with the intended method or methods of disposition
specified in their request for such registration. The Corporation agrees to
include in any such registration statement all information which Holders of
Restricted Securities being registered shall reasonably request.
(e) If a requested registration pursuant to this Section 4.1 involves
an underwritten offering, the underwriter or underwriters thereof shall be
selected by the Holders of more than 51% (by number of shares) of the
Stockholders' Restricted Securities to be so registered, subject to the
Corporation's approval which will not be unreasonably withheld. The
-10-
C/M: 11458.0002 356505.6
<PAGE>
Corporation shall enter into an underwriting agreement in customary form with
such underwriter.
(f) If a requested registration pursuant to this Section 4.1 involves
an underwritten offering, and the managing underwriter shall advise the
Corporation in writing (with a copy to each Holder of Restricted Securities
requesting registration) that, in its opinion, the number of shares proposed to
be included in such offering should be limited due to market conditions, the
Corporation will include in such registration, to the extent of the number
which the Corporation is so advised can be sold in such offering, Restricted
Securities requested to be included in such registration, pro rata among the
Holders requesting such registration on the basis of the percentage of the
Restricted Securities of the Corporation held by the Holders which have
requested that such Restricted Securities be included.
4.2 Incidental Registrations.
(a) If at any time after a Public Offering the Corporation proposes
to register any of its securities under the Securities Act on a registration
statement (other than an S-8 form or in a Rule 145 transaction, whether of its
own accord or at the request or demand of any Holder of such securities, and if
the registration form proposed to be used may be used for the registration of
Restricted Securities, the Corporation will thereupon give prompt written
notice to the Holders of Restricted Securities of its intention to proceed with
the registration (hereinafter the "Incidental Registration"), the Corporation
will use its best efforts to cause all such Restricted Securities, the Holders
of which have so requested the registration thereof, to be included in such
Incidental Registration.
(b) If an Incidental Registration is in connection with an
underwritten public offering, and if the managing underwriters advise the
Corporation in writing that in their opinion the amount of securities requested
to be included in such registration (whether by the Corporation or Holders)
exceeds the amount of such securities which can be sold in such offering, the
Corporation will include in such offering the amount of securities requested to
be included which in the opinion of such underwriters can be sold as follows:
(i) first, all the shares shall be included which are proposed to be sold by
the Corporation; (ii) if shares can still be included, the number of shares of
capital stock that may be included shall be allocated among all Holders of
Restricted Securities in proportion, as nearly as practicable, to the
respective amounts of shares of stock which they had requested to be included
in such registration at the time of filing the registration statement.
(c) No Holder of Restricted Securities may participate in any
underwritten Incidental Registration unless such Holder (i) agrees to sell such
Restricted Securities on the basis provided in any underwriting arrangement
approved by the Corporation and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting arrangements and other documents
required under the terms of such underwriting arrangements.
4.3 Form S-3. If the Corporation becomes eligible to use Form S-3
under the Securities Act or a comparable successor form, the Corporation shall
use its best efforts to continue to qualify at all times for registration on
Form S-3 or such successor form. At any time and from time to time after the
Corporation becomes eligible to use Form S-3 or such successor form, the
Holders of an aggregate of not less than the lesser of 20% of the number
-11-
C/M: 11458.0002 356505.6
<PAGE>
of Restricted Securities then outstanding or shares proposed for sale under
such Form S-3 having a fair market value of at least one million dollars
($1,000,000), shall have the right to request and have effected a registration
of shares of Restricted Securities on Form S-3 or such successor form for a
public offering of shares of Restricted Securities (such requests shall be in
writing and shall state the number of shares of Restricted Securities to be
disposed of and the intended method of disposition of such shares by such
Holder or Holders). The Corporation shall use its best efforts to achieve such
effectiveness as promptly as is reasonably practicable. The Corporation may
postpone the filing of any registration statement required hereunder for a
reasonable period of time, not to exceed ninety (90) days but no more than once
in any twelve (12) month period, if (i) the Corporation has been advised by
legal counsel that such filing would require the disclosure of a material
transaction or other factor and the Corporation determines reasonably and in
good faith that such disclosure would have a material adverse effect on the
Corporation; or (ii) in the good faith determination of the Corporation's Board
of Directors, the Corporation would be materially and adversely affected by the
required registration. The Corporation shall give notice to all Holders of the
receipt of a request for registration pursuant to this Section 4.3 and shall
provide a reasonable opportunity for such Holders to participate in the
registration. Subject to the foregoing, the Corporation will use its best
efforts to effect promptly the registration of all Restricted Securities on
Form S-3 or such successor form to the extent requested by the Holders thereof
for purposes of disposition. Subject to the foregoing, if so requested by any
Holder in connection with a registration under this Section 4.3, the
Corporation shall use its best efforts to take such steps as are required to
register such Holder's Restricted Securities for sale on a delayed or
continuous basis under Rule 415, and to use its best efforts to keep such
registration effective for a period of not less than two (2) years or such
shorter period until all of such Holder's Restricted Securities registered
thereunder are sold. Notwithstanding the foregoing, the Corporation shall not
be required to effect a registration under this Section 4.3 if, in the
unqualified opinion of counsel for the Corporation reasonably acceptable to
such Holders, such Holders may then sell all Restricted Securities proposed to
be sold in the manner proposed without registration under the Securities Act
and without any restrictions as to volume or manner of sale.
4.4 Registration Procedures. In connection with any registration of
any Restricted Securities under the Securities Act as provided in this Article
4, the Corporation will:
(a) prepare and file with the Securities and Exchange Commission a
registration statement, and use its best efforts to keep such registration
statement effective for a period of not less than six months or such shorter
period in which the disposition of all securities in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement shall be completed and to comply with the
provisions of the Securities Act (to the extent applicable to the Corporation)
with respect to such disposition;
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
-12-
C/M: 11458.0002 356505.6
<PAGE>
(c) furnish to each seller of such Restricted Securities and any
underwriter (i) at least 7 days prior to the filing thereof with the
Commission, a copy of the registration statement in the form which the
Corporation proposes to file with the Commission and not later than the
effective date thereof, a copy of any and all amendments to such registration
statement, (ii) within 5 days of the filing thereof with the Commission, a copy
of all post-effective amendments to such registration statement; and (iii) such
number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and the final prospectus), and (iv) such
other documents as such seller or any underwriter may reasonably request in
order to facilitate the disposition of the Restricted Securities owned by such
seller;
(d) provide a transfer agent and registrar for all such Restricted
Securities covered by such registration statement not later than the effective
date of such registration statement;
(e) notify each Seller of the entry of any stop order suspending the
effectiveness of such registration statement or the initiation of any
proceeding for that purpose, and, if such stop order should be entered, use its
best efforts promptly to cause such stop order to be lifted or removed.
(f) notify each seller of such Restricted Securities and any
underwriter at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading; each seller will immediately upon receipt of such
notice of the occurrence of such event discontinue its disposition of the
Restricted Securities pursuant to the registration statement until its receipt
of a supplement or amendment to such prospectus which shall cause such
prospectus not to contain an untrue statement of a material fact or not to
state any fact necessary to make the statements therein not misleading, and if
so directed by the Corporation will then deliver to the Corporation all copies
other than permanent file copies of the prospectus covering such Restricted
Securities which was current at the time of receipt of such notice;
(g) cause all such Restricted Securities to be listed on each
securities exchange on which the same class of securities issued by the
Corporation is then listed;
(h) if the Incidental Registration is in connection with an
underwritten distribution, enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as is
reasonably required in order to expedite or facilitate the disposition of such
Restricted Securities;
(i) make available for inspection by any seller of Restricted
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
-13-
C/M: 11458.0002 356505.6
<PAGE>
(j) use its best efforts to register or qualify all Restricted
Securities and other securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each seller
thereof shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and take
any other action which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Corporation shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not, but for the requirements
of this subdivision (i), be obligated to be so qualified;
(k) furnish to each seller of Restricted Securities a signed
counterpart, addressed to such seller, except as provided in (2) below (and the
underwriters, if any), of,
(1) an opinion of counsel for the Corporation, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such seller, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel
delivered to the underwriters in underwritten public offerings, and such
other legal matters as such seller (or the underwriters, if any) may
reasonably request, and
(2) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
certified the Corporation's financial statements included in such
registration statement, addressed to each seller, to the extent the same
can be reasonably obtained, and addressed to the underwriters, if any,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and with respect to events
subsequent to the date of such financial statements, as are customarily
covered in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other financial
matters as such seller (or the underwriters, if any) may reasonably
request;
(l) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security Holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act; and
(m) take all such other actions as the Holders of a majority of the
Restricted Securities being sold and the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Restricted
Securities (including without limitation effecting a stock split or combination
of shares).
4.5 Registration Expenses. All expenses incurred by the Corporation
in complying with this Article 4, including without limitation (i) all
registration and filing fees
-14-
C/M: 11458.0002 356505.6
<PAGE>
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), (ii) all printing expenses, (iii) all fees and
disbursements of counsel and accountants for the Corporation and one counsel
for the Holders of the Restricted Securities being sold, (iv) all blue sky fees
and expenses and (v) the expense of any audits, review or due diligence
incident to or required by any such registration, shall be paid by the
Corporation. Notwithstanding the foregoing, all underwriting discounts and
selling commissions applicable to sales of Restricted Securities in connection
with any registration shall be borne by such persons who are selling Restricted
Securities pursuant to such registration statement pro rata in proportion to
the dollar value of the shares of Restricted Securities being sold by each such
seller.
4.6 "Market Stand-Off" Agreement. Each Holder of Restricted
Securities agrees that, if requested by the Corporation and any underwriter of
Common Stock (or other securities) of the Corporation, it will not effect any
public sale or distribution of any Common Stock of the Corporation, including
any sale pursuant to Rule 144 under the Securities Act, held by it during the
90-day period (180-day period in the case of the Company's initial public
offering) following the effective date of a registration statement of the
Corporation filed under the Securities Act, except for shares which are the
subject of such registration statement, provided that all Holders of more than
five percent (5%) of the Common Stock and officers and directors of the
Corporation enter into similar agreements. Such agreement shall be in writing
in a form reasonably satisfactory to the Corporation and such underwriter. The
Corporation may impose stop-transfer instructions with respect to the shares
(or securities) subject to the foregoing restriction until the end of such
90-day (or 180-day) period.
4.7 Indemnification.
(a) The Corporation hereby agrees to indemnify, to the extent
permitted by law, each Holder of Restricted Securities, its officers and
directors, if any, and each person, if any, who controls such Holder within the
meaning of the Securities Act, against all losses, claims, damages, liabilities
and expenses (under the Securities Act or common law or otherwise) caused by
any material untrue statement of a material fact contained in any registration
statement or prospectus or other document (including any related registration
statement, notification or the like) incident to registration or qualification
or compliance in connection therewith (and as amended or supplemented if the
Corporation has furnished any amendments or supplements thereto) or any
preliminary prospectus or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Corporation of the
Securities Act or any rule or regulation thereof applicable to the Corporation
and relating to action or inaction required of the Corporation in connection
with any registration, qualification or compliance, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement contained in or by any omission or alleged omission from information
furnished to the Corporation by such Holder in connection with a registration,
provided the Corporation will not be liable pursuant to this subparagraph if
such losses, claims, damages, liabilities or expenses have been caused by any
selling Holder's failure to deliver a copy of the registration statement or
prospectus, or any amendments or supplements thereof, after the Corporation has
furnished such Holder with a sufficient amount of copies of the same.
-15-
C/M: 11458.0002 356505.6
<PAGE>
(b) In connection with any registration statement in which a Holder
of Restricted Securities is participating, each such Holder shall furnish to
the Corporation in writing such information as is reasonably requested by the
Corporation for use in any such registration statement or prospectus and shall
indemnify, to the extent permitted by law, the Corporation, its directors and
officers and each person, if any, who controls the Corporation within the
meaning of the Securities Act, against any losses, claims, damages, liabilities
and expenses resulting from any untrue statement or alleged untrue statement of
a material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement or prospectus or any amendment
thereof or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent such losses, claims, damages, liabilities or
expenses are caused by an untrue statement or alleged untrue statement
contained in or by an omission or alleged omission from information so
furnished by such Holder in connection with the registration.
(c) Each party entitled to indemnification under this Section 4.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense. Omission so to notify
the Indemnifying Party will release the Indemnifying Party from any liability
which it may have to any Indemnified Party under this paragraph (but only if it
was prejudicial to the ability of the Indemnifying Party to defend), but not
otherwise. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
4.8 Transfer or Assignment of Registration Rights. The rights to
cause the Corporation to register the Restricted Securities granted to the
Stockholders by the Corporation under Sections 4.1 and 4.2 may be transferred
or assigned by a Stockholder to a transferee or assignee of any of such
Stockholder's Restricted Securities, provided that the Corporation is given
written notice by such Stockholder at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights is not deemed by the
board of directors of the Corporation, in its reasonable judgment, to be a
competitor of the Corporation, and provided further that the transferee or
assignee of such rights assumes the obligations of such Stockholder under this
Agreement.
4.9 Rule 144 Requirements. If the Corporation becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the Securities
Exchange Act, as amended, the Corporation will use its best efforts to file
with the Commission such
-16-
C/M: 11458.0002 356505.6
<PAGE>
information as the Commission may require under either of said Sections; and
in such event, the Corporation shall use its best efforts to take all action as
may be required as a condition to the availability of Rule 144 under the
Securities Act (or any successor exemptive rule hereafter in effect). The
Corporation shall furnish to any Holder of Restricted Securities upon request a
written statement executed by the Corporation as to the steps it has taken to
comply with the current public information requirement of Rule 144 or such
successor rule.
ARTICLE 5
EFFECTIVE DATE AND TERM OF AGREEMENT
5.1 Effective Date. The effective date of this Agreement shall be the
date set forth in the first sentence of this Agreement.
5.2 Term. Except to the extent provided herein, and except for the
right to specific performance specified in Section 6.1 of this Agreement and
any other rights arising out of the failure of any party to perform any of its
rights under this Agreement, this Agreement shall continue in effect from and
after the date set forth in Section 5.1 hereof until the earlier to occur of
(a) the date the Corporation is merged or consolidated into a new or surviving
company and the Stockholders own less than a majority of the ordinary voting
power to elect directors of the new or surviving company (on a fully-diluted
basis), or (b) the date there is a sale of all of the Corporation's capital
stock in any transaction or series of related transactions, or (c) the date
there is a sale of all or substantially all of the Corporation's assets in any
transaction or series of transactions, or (d) the tenth anniversary of this
Agreement. Notwithstanding the foregoing, Articles 2 and 3 of this Agreement
shall terminate upon the Corporation becoming a Public Company.
ARTICLE 6
MISCELLANEOUS
6.1 Specific Performance. The failure of any party to perform its
obligations hereunder, or the taking of any action by any party which is
contrary to, or which will cause any action to be taken by the Corporation
which is contrary to, the terms and provisions of this Agreement, shall result
in irreparable injury and damage to the other parties, which injury and damage
cannot be adequately compensated for by money damages in an action at law. It
is therefore agreed that, in addition to any other rights and remedies that any
one of the parties may ask, the obligation to each of the other parties shall
be enforceable by specific performance and by such other forms of equitable
relief as may be deemed appropriate under the circumstances. If any party shall
institute an action to enforce its rights against any other party, the
prevailing party in such action shall be entitled to such reasonable attorneys'
fees as the court may award.
6.2 Authority. Each of the parties represents and warrants that such
party is authorized to enter into this Agreement and to carry out the terms
hereof.
-17-
C/M: 11458.0002 356505.6
<PAGE>
6.3 Other Parties. If the Corporation issues any Common Stock to any
other person other than pursuant to a Public Offering, the Corporation shall
cause the recipient of such Common Stock to execute a counterpart of this
Agreement whereby such recipient shall be bound by this Agreement; and
whereupon such recipient shall be deemed a "Holder" for all purposes under this
Agreement.
6.4 After-Acquired Shares. All of the provisions of this Agreement
shall apply to all the Common Stock now owned or which may be issued or
transferred hereafter to a Holder or to its transferees in consequence of any
additional issuance, purchase, exchange, reclassification, reorganization,
recapitalization, merger, consolidation, stock-split, stock dividend, or which
are acquired by a Holder in any other manner.
6.5 Notice. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given (i) upon personal delivery,
(ii) upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid and evidence of delivery and receipt of
same, (iii) upon delivery by a nationally recognized overnight courier service
with postage and fees prepaid, signature required, addressed to the other party
hereto at his address hereinafter shown below his signature or at such other
address as such party may designate by ten days' advance written notice to the
other party hereto, or (iv) by facsimile transmission and establishment of
evidence of receipt of same
If to the Corporation, to it at:
Alyn Corporation
2925 College Avenue
Costa Mesa, California 92626
Attn: President
Tel: (714) 641-8021
Fax: (714) 641-9170
If to the Original Stockholders:
to the addresses set forth next to
their names on Schedule "B" hereto
If to the Toledano Stockholders:
to the addresses set forth next to
their names on Schedule "A" hereto
-18-
C/M: 11458.0002 356505.6
<PAGE>
with copies to:
Andromeda Enterprises, Inc.
545 Madison Avenue, Suite 800
New York, New York 10022
Attn: Udi Toledano
Tel: (212) 750-6410
Fax: (212) 750-5439
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: Gerald A. Eppner, Esq.
Tel: (212) 856-7000
Fax: (212) 339-9135
If to the Kingdon Stockholders:
to the addresses set forth next to
their names on Schedule "A" hereto
If to the Edelson Stockholders:
to the addresses set forth next to
their names on Schedule "A" hereto
and with any notice, a courtesy copy to:
Law Offices of Harri J. Keto
228 West Main Street
Tustin, CA 92680
Attn: Harri J. Keto, Esq.
Tel: (714) 730-6420
Fax: (714) 838-0608
6.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
6.7 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
when taken together shall constitute but one and the same instrument.
-19-
C/M: 11458.0002 356505.6
<PAGE>
6.9 Effective Date. This Agreement shall not be binding upon any of
the signatories hereto unless and until it has been executed by all of the
entities or persons whose signature is provided for herein.
6.10 Entire Agreement. This Agreement contains the entire agreement
between the parties thereto and supersedes all prior agreements and
undertakings between the parties hereto relating to the subject matter thereof.
6.11 Further Assurances. Each of the parties agrees, at its own cost
and expense, to execute and deliver such documents, instruments and agreements
as may be reasonably necessary for the purpose of more fully and finally
effecting the transactions contemplated hereby.
6.12 Amendments and Waiver. This Agreement may not be amended,
modified, or discharged, nor may any of its terms be waived, except by an
instrument in writing signed by holders of not less than sixty six and
two-thirds percent (66 2/3%) of voting shares of the Corporation, provided that
such amendment not signed by a party hereto shall not reduce such party's
rights or increase such party's obligations. The waiver of any breach of any
term or condition hereof or of any default under any provision hereof shall not
be deemed to constitute a waiver of any other term or condition hereof or of
any subsequent breach or default of any kind or nature.
6.13 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
executors, administrators, successors and assigns.
6.14 Severability. If any of the provisions of this Agreement shall
be held by a court of competent jurisdiction to be void or unenforceable, the
balance of the provisions of this Agreement shall remain in effect and be
enforced so as to give effect as nearly as possible to the intentions of the
parties hereto.
6.15 Limited Indemnification. Robin Carden agrees to indemnify and
hold harmless the Toledano Group, the Kingdon Group and the Edelson Group, from
and against any and all liabilities, damages, losses, or claims (including, but
not by way of limitation, counsel and other fees, costs and expenses to the
defense thereof) in connection with, related to, or arising from any sale or
other disposition or purchase, or other acquisition of any of the shares of
Common Stock or any other equity securities of the Alyn Corporation, a
California corporation, by any person other than a Stockholder; provided,
however, that the foregoing indemnification shall not apply to (i) any sale,
disposition, purchase or other acquisition in connection with or subsequent to,
an initial public offering of any of the shares of Common Stock or any other
equity securities of the Corporation subsequent to the Merger; or (ii) any sale
of securities by the Corporation in connection with any equity financing of the
Corporation subsequent to the Merger.
-20-
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
CORPORATION:
ALYN CORPORATION
By: /s/ Robin A. Carden
-------------------
Name: Robin Carden
Title: President
ORIGINAL STOCKHOLDERS:
/s/ Robin A. Carden
-----------------------------
Robin Carden
/s/ Art Liang
-----------------------------
Art Liang
/s/ Charles Rosenblum
-----------------------------
Charles Rosenblum
/s/ Walter Menetrey
-----------------------------
Walter Menetrey
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
TOLEDANO STOCKHOLDERS:
/s/ Udi Toledano
-------------------------------------------------
* Udi Toledano
Pro se and as Attorney-in-Fact
*
-------------------------------------------------
Stephen Balog
*
-------------------------------------------------
Rosalie Balog
*
------------------------------------------------
Gary Escandon
*
------------------------------------------------
Stephanie Escandon
Frontier PTY Limited, Trustee for Frontier Trust
By: *
-------------------------------------------
First Pacific Capital
By: *
-------------------------------------------
*
-----------------------------------------------
Fred S. Fraenkel
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
*
-------------------------------------------------
Herbert Turk
*
-------------------------------------------------
Edith Turk
*
-------------------------------------------------
Janet Toledano
*
-------------------------------------------------
James M. Stuart Jr.
*
-------------------------------------------------
James M. Stuart Jr., John E. Stuart, Trustees U/A
Dated May 1, 1987 F/B/O John E. Stuart
*
-------------------------------------------------
James M. Stuart Jr., Trustee U/A Dated January
1, 1989 F/B/O Mary E. Stuart
*
-------------------------------------------------
Steve Hourigan
Bergen Enterprises Corp.
By: *
---------------------------------------------
*
-------------------------------------------------
Janet Toledano, Trustee U/A Dated 9/2/93 F/B/O
Alexander & Anna Toledano
-23-
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
*
--------------------------------------------
Judith Green
*
--------------------------------------------
Stephanie Bier Toledano
*
--------------------------------------------
Gideon Toledano
*
--------------------------------------------
Robert Lax
*
--------------------------------------------
Jennifer Thompson
*
--------------------------------------------
Rachel Turk Balter
*
--------------------------------------------
Miriam Turk
-24-
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
KINGDON STOCKHOLDERS:
Kingdon Associates, L.P.
By: /s/ M. Kingdon
----------------------------------------
Kingdon Partners, L.P.
By: /s/ M. Kingdon
----------------------------------------
M. Kingdon Offshore NV
By: /s/ M. Kingdon
----------------------------------------
-25-
C/M: 11458.0002 356505.6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
EDELSON STOCKHOLDERS:
Edelson Technology Partners III
By: /s/ Harry Edelson
---------------------------------------
-26-
C/M: 11458.0002 356505.6
<PAGE>
EXHIBIT 1.1
Loan Agreement
See Attached Page(s).
-27-
C/M: 11458.0002 356505.6
<PAGE>
SCHEDULE A
Toledano, Kingdon and Edelson Stockholders
See Attached Page(s).
-28-
C/M: 11458.0002 356505.6
<PAGE>
SCHEDULE B
Original Stockholders
See Attached Page(s).
-29-
C/M: 11458.0002 356505.6
Exhibit 10.1
LOAN AGREEMENT
This LOAN AGREEMENT (this "Loan Agreement"), dated as of May 1, 1996,
between Udi Toledano ("Toledano"), as Attorney-In-Fact and Agent as for each of
the persons and entities identified on Schedule B hereto (collectively, the
"Toledano Group"), each of the persons and entities set forth on Schedule C
hereto (the "Kingdon Group"), each of the persons and entities identified on
Schedule D hereto (the "Edelson Group" and, together with the Toledano Group
and the Kingdon Group, the "Lenders," and individually each a "Lender"), and
Alyn Corporation, a Delaware corporation ("Borrower").
WHEREAS, simultaneous with the execution and delivery of this Loan
Agreement, Alyn Corporation, a California corporation ("Alyn California") was
merged with and into Borrower, under an Agreement and Plan of Merger, dated the
date hereof (the "Merger Agreement");
WHEREAS, certain of the initial stockholders of the Borrower prior to
such merger were each members of the Toledano Group, the Kingdon Group or the
Edelson Group;
WHEREAS, the other initial stockholders of the Borrower (the
"Non-Lender Stockholders") are holders of Borrower common stock; WHEREAS, each
of Borrower and Lenders deems it in their respective best interest that
Borrower and Lenders enter into this Loan Agreement;
NOW THEREFORE, in consideration of the mutual agreement and covenants
herein contained, the parties hereto hereby agree as follows:
SECTION 1. Advances. Each Lender, individually, and not jointly,
subject to the terms herein, agrees to loan funds to Borrower and Borrower
agrees to borrow funds from Lenders, on a monthly basis (each such loan an
"Advance") as set forth and in accordance with the payment schedule set forth
in Schedule A attached hereto (the "Payment Schedule").
C/M: 11458.0002 356490.8
<PAGE>
Each Advance shall be a secured loan as more fully described herein, for
general corporate purposes, up to a maximum amount at any time outstanding
excluding interest not to exceed $5,000,000. Simultaneously upon each Advance,
Borrower agrees to enter into and deliver to the Toledano Group, the Kingdon
Group or the Edelson Group, as the case may be, a Secured Promissory Note (the
"Note(s)") substantially in the form set forth in Exhibit A attached hereto.
The initial advance hereunder shall be in the principal amount of $1,500,000
and shall be loaned by in part by each of the Toledano Group, the Kingdon Group
and the Edelson Group, as the case may be, to Borrower on the date hereof, and
each subsequent Advance shall be made by the particular Lender and on the dates
as more fully set forth in the Payment Schedule. Failure to fund any Advance
shall be non-recourse to Lenders except for certain rights granted to the (i)
Non-Defaulting Lenders (as defined in Section 4) to fulfill the obligation of
the Defaulting Lender (as defined in Section 4) and to cause a divestiture of
some of the capital stock of Borrower owned by the Defaulting Lender, and (ii)
Borrower to cause divestiture of some of the Capital Stock owned by the
Defaulting Lender, all as more fully described in Section 4, below.
SECTION 2. Interest. The aggregate principal amount of the Advances
from time to time outstanding under all of the Note(s) (and, to the extent
permitted by law, any accrued and overdue interest) shall bear simple interest
at a fixed rate per annum equal to eight (8%) percent. All accrued and unpaid
interest on the Advances shall be paid quarterly to the extent of Available
Cash Flow (as defined below), until all the obligations have been paid in full.
"Available Cash Flow" shall mean any cash flow not required for operations,
debt service of more senior obligations, or capital expenditures and, in
addition, until May 1, 1997, shall not include any other cash flow which the
Borrower's chief executive officer determines in his discretion should be
retained as reserves, for future working capital needs or for other
-2-
C/M: 11458.0002 356490.8
<PAGE>
corporate purposes. Upon Borrower's failure to pay principal at maturity,
Borrower's interest rate, to the extent permitted by law, shall increase to ten
percent (10%) per annum commencing on the maturity date, until paid in full,
provided however, that the payment of ten percent (10%) per annum shall not be
deemed a waiver of any other rights or remedies Lender may have for failure to
pay interest or principal when due or otherwise for breach of this Loan
Agreement.
SECTION 3. Conditions to Advances. Each Advance hereunder is subject
to the satisfaction of Lenders of the following: (i) Borrower and Acquisition
Corporation shall have entered into and delivered the Merger Agreement and the
merger contemplated thereby shall have become effective under the laws of the
State of Delaware in accordance with the terms thereof; (ii) this Agreement and
the Note(s) shall be duly authorized, executed and delivered by Borrower, and
shall be valid, binding and in full force and effect; (iii) there shall be no
Event of Default (as defined herein), or event which with notice or the passage
of time would constitute an Event of Default, which has occurred and is
continuing at the time of a scheduled Advance; and (iv) the representations and
warranties made by Borrower and/or the Management Stockholder (as defined in
the Merger Agreement) in Sections 3.2, 3.4, 3.7, 3.11, 3.18 and 3.19(b) of the
Merger Agreement shall be true and correct in all material respects as of the
date hereof. SECTION 4. Remedies for Failure to Make Advance. A. If any Lender
has failed to fund all or any part of any Advance within three (3) business
days (which for this Loan Agreement shall mean days on which commercial banks
in the City of New York are open for business) of the date of the scheduled
Advance from that Lender as set forth in the Payment Schedule (the "Defaulting
Lender(s)"), then the parties hereto shall have the following rights and
obligations, it being understood that for the purpose of being subject to
Defaulting
-3-
C/M: 11458.0002 356490.8
<PAGE>
Lender obligations, and exercising rights granted to Lenders which
have not defaulted in payment of a particular Advance ("Non-Defaulting
Lender(s)"), in this Section 4, each of the Toledano Group, the Kingdon Group
and the Edelson Group shall be considered as separate parties with respect to
both failure to fund and becoming a Defaulting Lender, and exercising rights as
a Non-Defaulting Lender: (i) The Non-Defaulting Lender(s) has the unconditional
right to fund the defaulted scheduled Advance on behalf of Defaulting Lender(s)
within one (1) business day after the third (3rd) day from the scheduled
advance date, in which event the Defaulting Lender(s) shall and does hereby
agree to grant to the Non-Defaulting Lender(s) an option to acquire, from the
Defaulting Lender(s), that number of shares of Common Stock, $.01 par value per
share (the "Common Stock") of Borrower set forth below the Defaulting
Lender'(s) name on the Payment Schedule opposite the date of the scheduled
Advance (or pro rata amount thereof if less than the full Advance is defaulted
upon by the Defaulting Lender and funded by the Non-Defaulting Lender(s)), free
and clear of all liens, security interests, claims or other encumbrances, for a
purchase price of $0.10 per share.
(ii) If the Non-Defaulting Lender(s) does not exercise its right to
fund the defaulted scheduled Advance on or prior to the fourth (4th) business
day from the scheduled advance date, then each of the parties hereto agrees
that the Non-Lender Stockholder(s) shall have the unconditional right to fund
the defaulted scheduled Advance on behalf of Defaulting Lender(s) within one
(1) business day after the fourth (4th) day from the scheduled advance date, in
which event the Defaulting Lender(s) shall and does hereby agree to grant to
the Non-Lender Stockholder(s) an option to acquire the number of shares of
Common Stock of Borrower set forth below the Defaulting Lender'(s) name on the
Payment Schedule opposite the date of the scheduled Advance (or pro rata amount
thereof if less than the full Advance
-4-
C/M: 11458.0002 356490.8
<PAGE>
is defaulted upon by the Defaulting Lender and funded by the Lender
Stockholder(s), free and clear of all liens, security interests, claims or
other encumbrances, for a purchase price of $0.10 per share.
(iii) If neither of the Non-Defaulting Lender(s) or the Non-Lender
Stockholder(s) exercises its right to fund the Advance on or prior to the sixth
(6th) business day from the scheduled advance date, then each of the parties
hereto agrees to the following:
(a) if immediately prior to the date of a scheduled Advance a Lender
has not asserted that any condition to funding under Section 3 hereof has
failed to be satisfied, then the Defaulting Lender(s) shall be entitled to
retain ownership of all of the Common Stock set forth below such Defaulting
Lender(s)' name on the Payment Schedule for which Advances have been previously
made, but the Defaulting Lender(s) shall and does hereby grant an option to
Borrower, and Borrower shall have the unconditional right to purchase from the
Defaulting Lender(s) that number of shares of Common Stock owned by the
Defaulting Lender(s) set forth below the Defaulting Lender(s)' name on the
Payment Schedule opposite the date of the Scheduled Advance plus that number of
shares of Common Stock set forth below the Defaulting Lender(s)' name on the
Payment Schedule corresponding to each subsequent Scheduled Advance from that
day forward (such an event a "Partial Divestiture Event"), free and clear of
all liens, claims, security interests and encumbrances, for a purchase price of
$0.10 per share; and
(b) regardless of the aggregate amount of all prior Advances funded,
immediately prior to the date of the scheduled Advance if a Lender reasonably
and in good faith asserts that any material condition to the funding under
Section 3 hereof has failed to be satisfied, and as a result thereof does not
fund an Advance, that Defaulting Lender(s) shall be
-5-
C/M: 11458.0002 356490.8
<PAGE>
entitled to retain ownership of all of the Common Stock below such Defaulting
Lender(s)' name on the Payment Schedule for past and any additional future
scheduled Advances.
B. Any dispute of the matters referred to herein shall be determined,
and the rights of the parties shall be governed by arbitration before Judicial
Arbitration and Mediation Services, Inc. at its New York office. The fees of
such arbitration shall be borne by the non-prevailing party; provided, however,
that if it is determined by the parties or the arbitration that the conditions
to Advances in Section 3 hereof were satisfied notwithstanding the assertion of
a failure of condition, the Defaulting Lender shall be subject to a Partial
Divestiture Event, unless the Defaulting Lender, within three (3) business days
of such determination, cures the failure to Advance by making the full amount
of the defaulted Advance. The Lenders and Non-Lender Stockholders agree to
cooperate with each other in good faith in the exercise of rights and the
fulfillment of obligations in accordance with this Section 4, including,
without limitation, the pro rata sharing of rights as a Non-Defaulting
Lender(s) or Non-Lender Stockholder(s).
C. The parties' sole and exclusive remedy for a failure to make an
Advance, or the failure of a condition to an Advance, shall be as set forth in
this Section 4.
D. Each Lender agrees in good faith that it will give prompt written
notice to the Company if it determines to not fund its next required scheduled
Advance, or if it has been notified in writing by another Lender that such
other Lender has determined to not fund the next required scheduled Advance of
that other Lender.
SECTION 5. Termination; Repayments of Advances. This Loan Agreement
shall terminate, and the principal amount of the Note(s) and the accrued and
unpaid interest (the "Outstanding Balance") thereon shall be due and payable on
(i) April 27, 2001 (the "Stated Maturity Date"); provided, however, that the
obligations of the Lenders to fund any scheduled
-6-
C/M: 11458.0002 356490.8
<PAGE>
Advances shall terminate as to any Advances not then due on the date that
either (a) Borrower has closed a public offering of its capital stock pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission, with gross cash proceeds to the Borrower of
not less than $15 million provided, that the aggregate value of the Borrower
prior to the consummation of any such transaction is at least $40 million
("Qualifying Public Company"), or (b) Borrower has closed a merger or other
business combination with another company such that Borrower's business
continues as part of a Qualifying Public Company. The parties hereto
acknowledge and understand that pursuant to the terms of the Stockholders'
Agreement (the "Stockholders' Agreement"), by and among Borrower and the
stockholders of Borrower, that the Lenders, as stockholders of Borrower, are
authorized to commence either (a) an initial public offering of the capital
stock of Borrower or (b) a merger or other business combination with another
company such that Borrower continues as part of a Qualifying Public Company.
SECTION 6. No Senior or Other Indebtedness. Borrower has represented
that it has no indebtedness outstanding except for (i) those obligations set
forth in the Exhibits 3.12(a) and 3.12(b) to the Merger Agreement or (ii)
standard trade payables incurred in the ordinary course of business, on the
date hereof. The obligations and liabilities of Borrower to Lender under this
Loan Agreement and the Note(s) shall be junior in right of payment to any
future indebtedness for money borrowed by the Borrower; provided, however, that
(i) Borrower can make, and the Lenders can receive scheduled interest payments
provided Borrower is not in default of principal payment to such senior
indebtedness, and (ii) Borrower can make, and the Lender can receive repayments
of principal at the Stated Maturity Date, whether or not Borrower is in default
under any senior indebtedness.
-7-
C/M: 11458.0002 356490.8
<PAGE>
SECTION 7. Collateral Security. To secure the full payment and
performance of all of Borrower's liabilities and obligations to Lenders under
this Loan Agreement and the Note(s), Borrower shall grant Lender a first
priority security interest in all of Borrower's real and personal property and
other assets existing on the date hereof, and a first priority security
interest in all of Borrower's other assets, including, without limitation,
inventory and accounts receivable, acquired after the date hereof, other than
such interests which may be granted from and after the date of this Agreement
to third-party lenders with respect to accounts receivable, inventory financing
and lease financing entered into after the date hereof and purchase money
security interest in equipment and fixtures. The rights of Lenders with respect
to their security interests in Borrower's assets shall be subordinate to such
interests.
SECTION 8. Events of Default. Upon the occurrence (without giving
effect to notice or the passage of time) of any of the following events of
default ("Events of Default"): (a) a case or proceeding under the bankruptcy
laws of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Borrower or all or any
substantial part of its properties and such petition or application is not
dismissed within ninety (90) days after the date of its filing or Borrower
shall file any answer admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner; or (b) a case or
proceeding under the bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or equity) is filed by
Borrower or for all or any part of its property; or (c) Borrower shall fail to
pay as and when due (whether
-8-
C/M: 11458.0002 356490.8
<PAGE>
at stated maturity, by mandatory prepayment, acceleration or otherwise) any
principal on the Note(s) when due or interest on the Note(s) within ten (10)
business days after the same becomes due and payable, then, and in each and
every such case, the entire unpaid principal amount of the Note(s) and any
accrued and unpaid interest thereon shall automatically become due and payable;
provided, however, that Lenders by written notice to Borrower may waive any
default and/or rescind and annul any such acceleration, but no such waiver or
rescission and annulment shall extend to or affect any subsequent default or
impair any right consequent thereon or any term, provision or covenant herein.
SECTION 9. Representations and Warranties. (a) Borrower hereby
represents and warrants that (i) each of the representations and warranties
made by Borrower and its Management Stockholder in the Merger Agreement are
incorporated by reference herein, and, as of the date hereof, are true and
correct in all material respects and (ii)(a) it is a corporation duly
incorporated and validly existing, in good standing, under the laws of
Delaware, and has full power, authority and legal right to make this Loan
Agreement and perform its obligations hereunder and under the Note(s) and has
applied to be duly qualified as a foreign corporation in the State of
California, (b) the making and performance by Borrower of this Loan Agreement
and the Note(s) have been duly authorized by all necessary corporate action,
have been duly executed and delivered by Borrower, do not violate any provision
of any applicable law, rule or regulation, any order, writ or injunction of any
court or other agency or government or any provision of its charter or by-laws,
or any agreement or instrument to which Borrower is a party or any of its
properties or assets is bound, and do not and will not result in the breach of,
or constitute a default under (with or without the lapse of time), or require
any consent under, any indenture or other agreement or instrument to which it
is a party or by which it or its properties may be bound or affected, (c) no
authorization or approval of any public
-9-
C/M: 11458.0002 356490.8
<PAGE>
regulatory body is required in connection with the execution, delivery or
performance by it of this Loan Agreement or the Note(s), and (d) this Loan
Agreement and the Note(s) constitute the legal, valid and binding obligations
of Borrower enforceable against it in accordance with their respective terms.
(b) Each of the Lenders represents and warrants, severally and not
jointly, that (i) each of them has the requisite power and authority to execute
and deliver this Loan Agreement and to perform the obligations arising pursuant
to the terms and conditions hereunder, and (ii) that this Loan Agreement
constitutes a legal, valid and binding obligation of each Lender, enforceable
against such Lender in accordance with its terms. SECTION 10. No Amendments.
This Loan Agreement may not be amended or modified except by a duly authorized
written agreement of Lenders and Borrower.
SECTION 11. Successors and Assigns. This Loan Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided that, without the express prior consent of Lenders, Borrower may not
assign any of its rights hereunder, and provided further that there shall be no
third party beneficiaries of this Loan Agreement other than the Non-Lender
Stockholder(s).
SECTION 12. Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to a party at the following addresses:
To Borrower:
Alyn Corporation
2925 College Avenue
Costa Mesa, California 92626
Attention: President
Tel: (714) 641-8021
Fax: (714) 641-9170
-10-
C/M: 11458.0002 356490.8
<PAGE>
To Lenders:
Toledano Group
c/o Andromeda Enterprises, Inc.
545 Madison Avenue, Suite 800
New York, New York 10022
Attention: Udi Toledano, as Agent
Tel: (212) 750-6410
Fax: (212) 750-5439
Kingdon Group
c/o Kingdon Capital Management Corp.
152 West 57th Street
New York, New York 10019
Attention: Michael Markbreiter
Tel: (212) 333-0122
Fax: (212) 582-2636
Edelson Group
c/o Edelson Technology Partners
300 Tice Boulevard
Woodcliff Lake, New Jersey 07675
Attention: Harry Edelson
Tel: (201) 930-9898
Fax: (201) 930-8899
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Gerald A. Eppner, Esq.
Tel: (212) 856-7000
Fax: (212) 339-9150
and with any notice, a courtesy copy to:
Law Offices of Harri J. Keto
228 West Main Street
Tustin, California 92680
Attention: Harri J. Keto, Esq.
Tel: (714) 730-6420
Fax: 714) 838-0608
-11-
C/M: 11458.0002 356490.8
<PAGE>
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (b) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, three (3) days
after mailing.
SECTION 13. Governing Law. This Loan Agreement shall be construed in
accordance with and governed by the law of the State of New York. SECTION 14.
Waiver of Jury Trial. Borrower hereby waives all right to trial by jury in any
action, proceeding or counterclaim arising out of or relating to this Loan
Agreement, the Note(s) or any other agreement or instrument contemplated
hereby.
SECTION 15. Waivers. Any waiver, permit, consent, or approval by
Lenders of any specific event of default or breach of any condition, covenant
or obligation of Borrower hereunder shall be effective only to the extent in
writing, and shall not be deemed a waiver of the exercise of any other rights,
powers or privileges hereunder. No failure or delay on the part of Lenders in
the exercise of any right, power or privilege hereunder shall be deemed a
waiver thereto or preclude the exercise of any right, or power or privilege.
SECTION 16. Cumulative Remedies. All rights and remedies existing
under this Loan Agreement or the Note(s) are cumulative to, and not exclusive
of, any rights or remedies otherwise available under applicable law. S
ECTION 17. Expenses; Indemnification. Borrower does and hereby agrees
to pay all reasonable costs and expenses of Lenders in connection with the
negotiation, execution and delivery of this Loan Agreement, the Note(s) and
other documents contemplated hereby in accordance with Section 9.9 of the
Merger Agreement which costs and expenses
-12-
C/M: 11458.0002 356490.8
<PAGE>
shall be reimbursed out of or deducted from the initial Advances under this
Loan Agreement. Borrower does and hereby agrees to pay all costs and expenses
of Lenders in connection with the performance of Lenders rights and obligations
hereunder, the Note(s) and the other documents contemplated hereby are
thereunder, and indemnifies and holds Lenders harmless against all liabilities,
claims, losses, damages, and costs and expenses related thereto.
SECTION 18. Counterparts. This Loan Agreement may be executed
simultaneously by any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 19. No Stockholder Liability. The terms and provisions of
this Agreement shall in no way impose any personal liability upon any
Stockholder (as defined in the Merger Agreement) to repay the loan herein.
-13-
C/M: 11458.0002 356490.8
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been duly executed as of
the day and year first above written.
BORROWER:
ALYN CORPORATION
By: /s/ Robin A. Carden
Name:
Title:
LENDERS:
THE TOLEDANO GROUP:
/s/ Udi Toledano
Udi Toledano, as
Agent and Attorney-In-Fact
THE KINGDON GROUP:
Kingdon Associates, L.P.
By: /s/ M. Kingdon
Kingdon Partners, L.P.
By: /s/ M. Kingdon
M. Kingdon Offshore NV
By: /s/ M. Kingdon
THE EDELSON GROUP:
Edelson Technology Partners III
By: /s/ Harry Edelson
C/M: 11458.0002 356490.8
<PAGE>
<TABLE>
PAYMENT SCHEDULE
Advances and Repayments SCHEDULE A
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Date Advance Toledano Kingdon Edelson Total Toledano Kingdon Edelson Non-Lender
Group Group Group Lender Shares Group Group Group Stockholders
Closing 1,500,000 $382,500 $892,500 $225,000 12,000 3,060 7,140 1,800 3,900
6/1/96 1,000,000 255,000 595,000 150,000 8,000 2,040 4,760 1,200 2,600
7/1/96 1,400,000 357,000 833,000 210,000 11,200 2,856 6,664 1,680 3,640
8/1/96 250,000 63,750 148,750 37,500 2,000 510 1,190 300 650
9/1/96 250,000 63,750 148,750 37,500 2,000 510 1,190 300 650
10/1/96 250,000 63,750 148,750 37,500 2,000 510 1,190 300 650
11/1/96 350,000 89,250 208,250 52,500 2,800 714 1,666 420 910
$5,000,000 $1,275,000 $2,975,000 $750,000 40,000 10,200 23,800 6,000 13,000
</TABLE>
C/M: 11458.0002 356490.8
<PAGE>
SCHEDULE B
TOLEDANO GROUP Individual Loan Percentages
relative to the Entire Group
Stephen & Rosalie Balog 3.9216%
Gary & Stephanie Escandon 7.8431%
Frontier PTY Limited, Trustee for Frontier Trust 11.7646%
First Pacific Capital 7.8431%
Fred S. Fraenkel 3.9216%
Herbert Turk 28.4314%
Udi Toledano 28.4314%
James M. Stuart, Jr. 3.9216%
James M. Stuart, Jr., Trustee U/A Dated 3.9216%
--------
May 1, 1987 F/B/O John E. Stuart
100.00%
C/M: 11458.0002 356490.8
<PAGE>
SCHEDULE C
KINGDON GROUP Individual Loan Percentages
relative to the Entire Group
Kingdon Associates, L.P. 20.1681%
Kingdon Partners, L.P. 20.1681%
M. Kingdon Offshore NV 59.6638%
--------
100.00%
C/M: 11458.0002 356490.8
<PAGE>
SCHEDULE D
EDELSON GROUP Individual Loan Percentages
relative to the Entire Group
Edelson Technology Partners III 100.00%
C/M: 11458.0002 356490.8
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the first day of April, 1996, by and between Alyn Corporation
("Employer") and Robin Carden ("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, on the term and conditions set forth herein.
2. Duties:
(a)Employee shall advise and counsel the Board of Directors of
Employer on all matters pertaining to the business, affairs, and activities of
Employer, handle such affairs of Employer, Employer subsidiary(ies),
affiliate(s), or parent as the Board of Directors of Employer shall determine
from time to time, and act in such offices or capacities as the Board shall
request.
(b)So long as he shall be elected to such offices, Employee shall
continue to occupy the position of and perform all the acts and duties of Chief
Executive Officer & President of Employer. Employer's Board of Directors may
extend Employee's duties and titles from time to time; provided, however, that
during the term of this Agreement, Employee's responsibilities shall be at
least equal to or greater than his current responsibilities as Chief Executive
Officer & President of Employer.
(c)Employee shall be required to devote his entire time, ability and
attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein
provided, the term of employment of Employee shall be three (3) years,
beginning May 1, 1996 and ending May 1, 1999. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the
expiration of the initial three-year term, and for successive one-year renewal
terms thereafter, unless either party gives the other written notice ("Notice")
to terminate the Agreement at the expiration of the initial five-year term or
of the first one-year renewal term or of any such successive one-year renewal
tern. The Notice must be given at least sixty (60) days prior to the expiration
of any such term; and, provided further, that in any event the automatic
renewal clause in this Agreement shall not be effective to renew this Agreement
in excess of ten (10) terms of one (1) year each.
4. Compensation:
(a)Base Salary. The compensation to be paid Employee by Employer for
all services rendered to Employer during the term of this Agreement, including
services as an officer, director, or member of any committee of Employer, or of
a parent or subsidiary of Employer, shall be determined by the Board of
Directors of Employer, but in no event shall such annual salary be less than
one hundred fifty thousand dollars ($150,000.00) ("Base Salary"), payable in
twenty-four (24) equal semi-monthly installments in arrears, on the last day of
each week after the effective date hereof.
C/M 12156.0001 386579.1
<PAGE>
The Base Salary shall be reduced by income tax and other applicable
withholdings, and may be payable by Employer, or by a parent or subsidiary of
Employer, at the Employer's discretion. The Base Salary shall be increased not
less than the annually C.P.I., but can be increased by way of board approval.
(b)Bonus. In addition to his Base Salary, the Employee shall be
entitled to a bonus for each fiscal year that he is employed by the Employer
pursuant to the terms of this Agreement in an amount up to 100% of the Base
Salary. The scaled Bonus structure will be based upon meeting certain annual
after tax profit targets.
5. Vacation: Employee shall be entitled vacation time commensurate
with the position.
6. Working Facilities: Employee shall be furnished with a private
office, stenographic and other necessary secretarial assistance, and such other
facilities, amenities and services as are presently or may be hereinafter
furnished to senior management officers of Employee and as are appropriate for
Employee's position and adequate for the performance of his duties.
7. Other Benefits:
(a)Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in pension, profit-sharing,
stock-option, deferred compensation, savings, hospitalization, medical,
disability, and life insurance programs in accordance with such plans as
Employer or its corporate parent may now have in effect or may adopt from time
to time in the future.
(b)Employer shall provide a leased automobile at a monthly lease rate
not to exceed $600.00, in addition to a reserve parking space at Employer's
office facility.
(c)Employee shall also receive such other additional compensation,
rights and other benefits as the Board of Directors of Employer shall from time
to time, in its absolute and sole discretion, grant to him.
(d)The benefits and prerequisites provided from time to time to the
Employee
may not be unilaterally reduced or diminished by the Employer.
8. Expenses: Employee is authorized to incur reasonable expenses on
behalf of Employer expenses in connection with the performance of his duties
hereunder or in promoting or furthering the business of Employer, including
dues for social clubs, expenses for entertainment, travel, lodging and similar
items, in accordance with the standards and policies that the Board of
Directors of Employer may establish from time to time. All such expenses are to
be paid, insofar as possible, by use of credit cards in Employer's name
furnished to Employee. Any such charges that cannot be charged on a credit card
may be paid for directly by Employee, who shall be reimbursed by Employer upon
the submission to Employer's Treasurer of an itemized account of such
expenditures.
9. Location: The office at which Employee will be employed is located
in Orange County, California or North County, San Diego, CA. Employee will not
be required to relocate outside of the Orange County or San Diego, California,
area without his voluntary consent for a period of three years. The withholding
of such consent shall not be grounds for any action taken against Employee.
2
C/M 12156.0001 386579.1
<PAGE>
10. Confidentiality: Except as required in the ordinary course of
Employer's Business, Employee shall hold in confidence and not disclose to any
person or entity without the express prior written authorization of Employer,
either during the term of this Agreement or any time thereafter, the names or
addresses of any of Employer's customers; Employer's past or prospective
dealings with its customers; the parties, dates, or terms, if any, of
Employer's contracts; any information, trade secrets, systems, processes or
business methods, or any other secret or confidential matter relating to the
customers or the business affairs of Employer or any companies affiliated with
Employer. Employee acknowledges that in the course of performing his duties he
may have access to confidential information, the ownership and confidential
status of which are highly important to Employer and he agrees to comply with
all known policies and procedures of Employer for the protection of said
confidential information. The term "confidential information" as used in this
Agreement means (1) proprietary information of Employer including, but not
limited to, formulas, procedures, processes, materials, client lists and vendor
lists, (2) information marked or designated by Employer as confidential, (3)
information whether or not in written form which is known by the Employee to be
treated by Employer as confidential, and (4) information provided to Employee
by third parties which Employer is obligated to keep confidential. Employee
agrees as follows:
(a) That he will not copy, transmit, reproduce,
summarize, quote or make any commercial or other use
whatsoever of Employer's confidential information
except as may be necessary in the performance of his
duties for Employer.
(b) Employee agrees to exercise the highest degree of
care in safeguarding Employer's confidential
information against loss, theft or other inadvertent
disclosure and agrees generally to take all steps
necessary to ensure the maintenance of
confidentiality.
(c) Upon termination of his employment, or as otherwise
requested by Employer, will deliver promptly to
Employer all of Employer's confidential information
in whatever form that may be in their possession or
under their control.
(d) Employee agrees not to disclose Employer's
confidential information directly or indirectly
under any circumstances or by any means to any third
person without the express written consent of
Employer.
11. Non-Competition: While employed and for a period of two years
after the termination of employment, Employee shall not, without the prior
written consent of Employer, compete with Employer, its subsidiaries,
successors, or assigns, either directly or indirectly, as an owner, member,
partner, employee, officer, director or agent of any sole proprietorship,
association, partnership or corporation. For the purposes of this paragraph,
the terms "compete" and "competition" and "competitor" shall refer to: the
development, design, manufacture or wholesale distribution of advanced
ceramics, ceramic powders, metal matrix composites and other materials.
Should any term or condition of these covenants against competition
be found to be unreasonable or excessive by any court of competent
jurisdiction, the parties agree to accept as binding in lieu thereof any lesser
restrictions which said court may deem reasonable.
Both Employer and the Employee recognize that no adequate remedy at
law exists in which to enforce the terms and conditions of this Agreement.
Therefore, in the event the Employee
3
C/M 12156.0001 386579.1
<PAGE>
breaches the confidentiality or covenant not-to-compete provisions of this
Agreement, then Employer shall be entitled to injunctive relief prohibiting the
continued breaches of the Agreement by the Employee.
12. Right to Employer Materials: Employee agrees that all documents
are intangible media relating to Employer's Business, including, but not
limited to, the following: advertising literature, drawings, blueprints, notes,
memorandum, specification, devices, mechanical parts, formula, lists,
materials, books, files, reports, correspondence, records and other documents
("Employer Materials") relating to the Business of Employer, shall remain the
property of Employer. Employer Materials constitute trade secrets of Employer
and shall not be disclosed to any other party except as expressly authorized by
Employer. Upon termination of employment, for any reason, all Employer
Materials shall be returned immediately to Employer, and Employee shall not
make or retain any copies thereof. Employee acknowledges and agrees that any
knowledge, information and materials in Employee's possession relating to the
Business which Employee possessed prior to the transfer of the Business to
Employer shall also be deemed to constitute part of Employer Materials for
purposes of this Section.
13. Inventions and Patents: Employee agrees that he will promptly and
from time to time fully inform and disclose to Employer all inventions,
designs, improvements, and discoveries which he now has or may hereafter have
during the term of this Agreement which pertain to or relate to the Business of
Employer or to any experimental work carried on by Employer, whether conceived
by the Employee alone or with others and whether or not conceived during
regular working hours. All such inventions, designs, improvement and
discoveries shall be the exclusive property of Employer. Employee shall assist
Employer to obtain patents on all such inventions, designs, improvements, and
discoveries deemed patentable by Employer and shall execute all documents and
do all things necessary to obtain letters patent, vest Employer with full and
exclusive title thereto, and protect the same against infringement by others.
This provision shall apply with equal force and effect to any items that may be
subject to copyright or trademark protection. This provision does not apply to
an invention for which no equipment, supplies, facility or trade secret
information of the Employer was used and which was developed entirely on the
Employee's own time, and (a) which does not relate, at the time the invention
is conceived or reduced to practice, to (1) the Business of Employer, or (2)
actual or demonstrably related anticipated research or development of Employer,
or (b) which does not result from any work performed by the Employee for the
Employer. The provisions set forth in the preceding sentence shall not,
however, in any way authorize Employee to engage in any such activities set
forth therein in contravention of the provisions of his duties and obligations
hereunder.
14. Termination:
(a) The employment of Employee may be terminated at any time by:
(i) Mutual agreement; or
(ii) The death of Employee; or
(iii) Action of the Board of Directors of Employer if Employee
is in material and willful default in the performance of his obligations,
services, or duties hereunder, or has materially and willfully breached any
provision of this Agreement, or has committed any act of dishonesty, fraud,
misrepresentation, or other act of moral turpitude that would prevent the
effective performance of Employee's duties; or
4
C/M 12156.0001 386579.1
<PAGE>
(iv) Action of Employee if Employer is in material and willful
default in the performance of its obligations or duties hereunder, or has
materially and willfully breached any provision of this Agreement; or has
committed any act of dishonesty, fraud, misrepresentation, or other act of
moral turpitude that would prevent the effective performance of Employee's
duties; or
(v) Either party in the event Employee shall not be elected to
the office of Chief Executive Officer of Employer. In the event Employer
terminates the employment pursuant to this provision, Employer shall continue
to pay Employee for the remainder of the term of the Agreement the compensation
specified in paragraph 4 of this Agreement, except and to the extent that
Employee is being paid more than the minimum amount set forth in paragraph 4,
then Employee shall be entitled to the remaining payments at the increased
rate; however, the other benefits to which Employee is entitled pursuant to
paragraph 7 of this Agreement shall cease as of the effective date of
Employee's termination or;
(vi) A determination by the Board of Directors that the Employee
has become so physically or mentally disabled as to be incapable of
satisfactorily performing his duties under this Agreement for a period of
ninety (90) consecutive days.
(b) Thirty (30) days' written notice to the other party shall be
given prior to termination by either party under subparagraphs 14(a), (iii),
(iv), or (v).
(c) Termination under subparagraphs 14(a)(iii) or (iv) shall not be
in limitation of any other right or remedy which the terminating party may have
under this Agreement or otherwise.
(d) All obligations of Employer hereunder shall terminate upon the
date of Employee except:
(i) Employer shall have a life insurance policy for $750,000 in the
name of the employee, paid by the employer.
15. Disability: Anything to the contrary in this Agreement
notwithstanding, in the event that Employee is prevented from performing his
obligations, services, or duties hereunder by reason of any physical or mental
disability, the employment of Employee hereunder shall be deemed to continue
for the initial term set forth under paragraph 3 of this Agreement, or for the
remainder of any renewal term thereafter, and Employee shall be entitled to
continue to receive the compensation as specified in this Agreement for said
term or renewal term; provided, however, that any proceeds received by Employee
under any disability insurance policy maintained by Employer shall be treated
as a reduction of Employer's obligations hereunder, so that the sum of the
disability insurance proceeds plus the amounts paid to Employee by Employer
shall equal the salary to which Employee was entitled. For the purposes of this
Agreement, the term "disability" shall mean the inability of Employee to
perform his duties hereunder on a full-time basis due to his physical or mental
incapacity. In the event of any dispute between Employer and Employee as to
whether any disability exists, such dispute shall be submitted to a duly
licensed and practicing physician designated by the president of the Orange
County Medical Association, whose decision shall be binding on the parties.
16. Successors and Assigns: The rights and obligations of Employer
under this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of Employer, and
5
C/M 12156.0001 386579.1
<PAGE>
the rights and obligations of Employee under this Agreement shall inure and be
binding upon his heirs, executors and administrators.
17. Definitions: For purposes of this Agreement unless the context
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other
corporation or corporations.
18. Notices: Any notice to be given to Employer under the terms of
this Agreement shall be addressed to the Chairman of Employer's Board of
Directors, and any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of Employer, or at such other
address as either party may hereafter designate in writing to the other. Any
such notice (except notice of a change of address) shall have been deemed duly
given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited (postage and registry or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government. Notice of a change of address shall
be deemed given only when received.
19. Waiver: Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
20. Governing Law and Binding Effect: This Agreement shall be
interpreted and construed in accordance with the laws of the State of
California and shall inure to the benefit of and be binding upon the parties
hereto and their heirs, personal representatives, successors and assigns.
21. Captions and Paragraph Headings: Captions and paragraph headings
used herein are for convenience only, are not a part of this Agreement, and
shall not be used in construing it.
22. Severability: The invalidity or unenforceability of any provision
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
23. Counterparts: This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
24. Entire Agreement: This Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination, or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
25. Key man Insurance: Employee will be required to take medical
tests for implementation of a keyman insurance policy.
6
C/M 12156.0001 386579.1
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first set forth above.
EMPLOYER: Alyn Corporation
A California Corporation
By: /s/ Robin A. Carden
Title:
EMPLOYEE:
/s/ Robin A. Carden
Robin A. Carden
7
C/M 12156.0001 386579.1
<PAGE>
AMENDMENT NUMBER ONE
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER ONE (this "Amendment"), dated as of April 30th,
1996, to the Employment Agreement (the "Employment Agreement"), made and
entered into as of the first day of April, 1996, by and between Alyn
Corporation, a California corporation ("Employer"), and Robin A. Carden
("Employee").
The parties wish to amend the Employment Agreement to reflect changes
in certain termination provisions thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the meaning ascribed to them in the Employment Agreement.
2. Section 14.(a)(iv) is hereby amended and restated in its entirety
to read as follows:
"14.(a)(iv)Action of Employee if Employer is in material and
willful default in the performance of its obligations or duties
hereunder, or has materially and willfully breached any provision of
this Agreement, or has committed any act of dishonesty, fraud,
misrepresentation, or other act of moral turpitude that would prevent
the effective performance of Employee's duties; provided, however,
that a change by Employer in Employee's title or responsibilities
shall not constitute a default under, or breach of this Agreement, or"
3. Section 14.(a)(v) is hereby deleted in its entirety.
4. This amendment shall take effect upon its execution by the parties
to this Amendment.
5. This Amendment shall be construed and enforced in accordance with
and governed by the internal substantive laws of the State of California.
6. In an event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms of this
Amendment shall govern. In all other respects, the Agreement as amended,
modified and supplemented hereby shall remain in full force and effect.
7. This Amendment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute one
agreement, notwithstanding that all of the parties may not signatories to the
original or the same counterpart, or that signature pages from different
counterparts are combined. The signature of any party to any counterpart shall
be deemed to be a signature to and may be appended to any other counterpart.
8
C/M 12156.0001 386579.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered to Employer's and Employee's proper records as
of the date written above.
EMPLOYER
By: /s/ Robin A. Carden
Name: Robin A. Carden
Title: C.E.O.
EMPLOYEE
By: /s/ Robin A. Carden
Robin A. Carden
9
C/M 12156.0001 386579.1
Exhibit 10.5
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only
June 12, 1996, is made by and between Taylor-Longman, a California general
partnership ("Lessor") and Alyn Corporation, a Delaware corporation ("Lessee")
(collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 16761 Hale, Irvine, CA, located in the County of
Orange, State of California, and generally described as (describe briefly the
nature of the property) a freestanding 48,043 square foot industrial building
located at A.P. #435-061-06 ("Premises"). (See Paragraph 3 for further
provisions).
1.3 Term: Five (5) years and 0 months ("Original Term") commencing
September 1, 1996 ("Commencement Date") and ending August 31, 2001 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: Upon building vacancy (See Addendum) ("Early
Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $21,140.00 per month ("Base Rent"), payable on the
First (1st) day of each month commencing October 1, 1996 (See Addendum). (See
Paragraph 4 for further provisions.) |X| If this box is checked, there are
provisions in this Lease for the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $21,140.00 as Base Rent for the
period September 1 - September 30, 1996.
1.7 Security Deposit: $84,560.00 (See Addendum) ("Security Deposit").
(See Paragraph 5 for further provisions.)
1.8 Permitted Use: General office, warehouse, manufacturing, and
distribution of Lessee's products, as permitted by the City of Irvine and other
legal uses.
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): Voit
Commercial Brokerage represents [X] Lessor exclusively ("Lessor's Broker"); [ ]
both Lessor and Lessee, and CB Commercial represents [X] Lessee exclusively
("Lessee's Broker"); [ ] both Lessee and Lessor. (See Paragraph 15 for further
provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by NOT APPLICABLE ("Guarantor"). (See Paragraph 37 for further
provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 53 and Exhibits , all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
roof and loading doors, if any, in the Premises, other than those constructed
by Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within
forty-five (45) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that at the time of completion of building's construction
the improvements on the Premises complied with all applicable covenants or
restrictions of record and applicable building codes, regulations and
ordinances in effect. Said warranty does not apply to the use to which Lessee
will put the Premises or to any Alterations or Utility Installations (as
defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do
not comply with said warranty, Lessor shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense. See Addendum.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the
Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
Page 1
C/M 12156.0001 386601.1
<PAGE>
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1, 4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease until Lessor delivers possession of the Premises to Lessee. If possession
of the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10)
day period, Lessee's right to cancel this Lease shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. Security Deposit.
Lessee shall deposit with Lessor upon execution hereof the Security
Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessor (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease. See Addendum.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee's assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a
written notification of the same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health,
safety or welfare, the environment or the Premises, (ii) regulated or monitored
by any governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with all Applicable Law
(as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation
or use of any above or below ground storage tank, (ii) the generation,
possession, storage, use, transportation, or disposal of a Hazardous Substance
that requires a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any governmental
authority. Reportable Use shall also include Lessee's being responsible for the
presence in, on or about the Premises of a Hazardous Substance with respect to
which any Applicable Law requires that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but in compliance with
all Applicable Law, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of Lessee's business
permitted on the Premises, so long as such use is not a Reportable Use and does
not
Page 2
C/M 12156.0001 386601.1
<PAGE>
expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or
injury and/or liability therefrom or therefor, including, but not limited to,
the installation (and removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the
Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to, all such documents as may
be involved in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement. See
Addendum.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or
not reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time
during normal business hours, with 24 hours prior written notice, in the case
of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections. See Addendum.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, the elements of the age of such portion of
the Premises), including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior non-structural), ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through the
plumbing or sanitary sewer system) and shall promptly, at Lessee's expense,
take all investigatory and/or remedial action reasonably recommended, whether
or not formally ordered or required, for the cleanup of any contamination of,
and for the maintenance, security and/or monitoring of the Premises, the
elements surrounding same, or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in good order, condition and state of repair. If Lessee occupies the Premises
for five (5) years or more, Lessor may require Lessee to repaint the exterior
of the buildings on the Premises as reasonably required, but not more
frequently than once every five (5) years. See Addendum.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating,
Page 3
C/M 12156.0001 386601.1
<PAGE>
air conditioning and ventilation equipment, (ii) boiler, fired or unfired
pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, and Lessee shall have
qualified contractors available, (v) for roof covering and drain maintenance
and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether non structural,
all of which obligations are intended to be that of the Lessee under Paragraph
7.1 hereof. It is the intention of the Parties that the terms of this Lease
govern the respective obligations of the Parties as to maintenance and repair
of the Premises. See Addendum.
7.3 Utility Installations; Trade Fixtures; Alterations. See Addendum.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as
defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility Installations
to the interior of the Premises (excluding the roof), as long as they are not
visible from the outside, do not involve puncturing, relocating or removing the
roof or any existing walls, and the cumulative cost thereof during the term of
this Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications thereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics'
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to
one and one-half times the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain
upon and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term shall
be prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance. Lessor and Lessee shall each receive copies
of all such insurance policies. See Addendum.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against
Page 4
C/M 12156.0001 386601.1
<PAGE>
claims for bodily injury, personal injury and property damage based
upon, involving or arising out of the ownership, use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall be on
an occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises" Endorsement and contain the "Amendment of the Pollution Exclusion"
for damage caused by heat, smoke or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance -- Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than
full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Premises required to be demolished
or removed by reason of the enforcement of any building, zoning, safety or land
use laws as the result of a covered cause of loss. Said policy or policies
shall also contain an agreed valuation provision in lieu of any coinsurance
clause, waiver of subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a factor of not
less than the adjusted U.S. Department of Labor Consumer Price Index for All
Urban Consumers for the city nearest to where the Premises are located. If such
insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c). (b)
Rental Value. The Insuring Party shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B-1, V or such other rating as may be required by a Lender
having a lien on the Premises, as set forth in the most current issue of
"Best's Insurance Guide." Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in this Paragraph 8.
If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with the insureds and loss payable
clauses as required by this Lease. No such policy shall be cancellable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. If the Insuring Party shall fail to procure and maintain the insurance
required to be carried by the Insuring Party under this Paragraph 8, the other
Party may, but shall not be required to, procure and maintain the same, but at
Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the right
to recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving,
Page 5
C/M 12156.0001 386601.1
<PAGE>
or in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified. Lessor and Lessee shall look first to the
insurance policies on such indemnity.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same is accessible
or not. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land
and Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage -- Insured Loss. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or
the insurance proceeds are not sufficient to effect such repair, the Insuring
Party shall promptly contribute the shortage in proceeds (except as to the
deductible which is Lessee's responsibility) as and when required to complete
said repairs. In the event, however, the shortage in proceeds was due to the
fact that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor
with the funds to cover same, or adequate assurance thereof, within ten (10)
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten
(10) day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If Lessor does not receive such funds or assurance within said
period, Lessor may nevertheless elect by written notice to Lessee within ten
(10) days thereafter to make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this
Lease shall remain in full force and effect. If in such case Lessor does not so
elect, then this Lease shall terminate sixty (60) days following the occurrence
of the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor for any funds contributed by Lessee
to repair any such damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage -- Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following Lessee's said
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
and the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss
Page 6
C/M 12156.0001 386601.1
<PAGE>
or was caused by a negligent or willful act of Lessee. In the event, however,
that the damage or destruction was caused by Lessee, Lessor shall have the
right to recover Lessor's damages from Lessee except as released and waived in
Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of occurrence
of such damage. Provided, however, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, within twenty (20) days following the occurrence of the
damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("Exercise Period"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Lessee duly exercises such
option during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall,
at Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage - Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period ruing which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee
shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been or is not then required to be, used by Lessor under the
terms of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) Advance Payment. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the
right, at Lessor's option, to estimate the current Real Property Taxes
applicable to the Premises, and to require such current year's Real Property
Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum
amount equal to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the payment of the
Base Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount which, over the
Page 7
C/M 12156.0001 386601.1
<PAGE>
number of months remaining before the month in which the applicable tax
installment would become delinquent (and without interest thereon), would
provide a fund large enough to fully discharge before delinquency the estimated
installment of taxes to be paid. When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payment shall be
adjusted as required to provide the fund needed to pay the applicable taxes
before delinquency. If the amounts paid to Lessor by Lessee under the
provisions of this Paragraph are insufficient to discharge the obligations of
Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay
to Lessor, upon Lessor's demand, such additional sums as are necessary to pay
such obligations. All monies paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a),
at the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term
"Real Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to or in the Improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. Lessee will not be responsible for increases in taxes due to the
sale of the premises.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alternations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in
Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36.
(b) [Intentionally omitted].
(c) [Intentionally omitted].
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c).
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to operational
responsibility of the proposed assignee or sublessee, including but not limited
to the intended use and/ or required modification of the Premises, if any.
Lessee agrees to provide Lessor with such other or additional information
and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply
with each and every term, covenant, conditional and obligation herein to be
observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
12.3 Additional Terms and Conditions Applicable to Subletting.
Page 8
C/M 12156.0001 386601.1
<PAGE>
The following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed included in all
subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges due
and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges to
Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against said sublessee, or until
the Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor. See Addendum.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligations
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior
Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor or Lessee in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs as
rent due and payable to cure said Default. A "Default" is defined as a failure
by the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach" is
defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises; provided, however, that so long as
Lessee pays the Base Rent and other charges, Lessee shall not be in default or
breach under this provision.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) or (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf
of Lessor to Lessee; provided, however, that if the nature of Default is such
that more than thirty (30) days are reasonably required for its cure, then it
shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences
such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this subparagraph (e) is contrary
to any applicable law, such provision shall be of no force or effect, and not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee was materially false.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
Page 9
C/M 12156.0001 386601.1
<PAGE>
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and abandonment and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under the Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 [Intentionally omitted].
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days, unless
Lessee's use of the premises is materially affected, after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor
has not been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Lessor shall not be in breach of
this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. Condemnation.
If the Premises or any portion thereof are taken under the power of
eminent domain or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the Base Rent shall be reduced in the
same proportion as the rentable floor area of the Premises taken bears to the
total rentable floor area of the building located on the Premises. No reduction
of Base Rent shall occur if the only portion of the Premises taken is land on
which there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however,
Page 10
C/M 12156.0001 386601.1
<PAGE>
that Lessee shall be entitled to any compensation separately awarded to Lessee
for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and above the
legal and other expenses incurred by Lessor in the condemnation matter, repair
any damage to the Premises caused by such condemnation, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair. Lessee reserves all rights
to any condemnation awards which may be due Lessee under law from the
condemning agency.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said brokers (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $ per the listing agreement) for
brokerage services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation
of an escalation clause herein, then as to any of said transactions, Lessor
shall pay said Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed
to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall
be a third party beneficiary of the provisions of this Paragraph 15 to the
extent of its interest in any commission arising from this Lease and may
enforce that right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any, named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth, if Lessor has submitted a formal application and such
application has been accepted, Lessor has accepted an offer to purchase, and
such lender/buyer requests such financial information.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants
under this Lease thereafter to be performed by the Lessor. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent
jurisdiction, shall in no way affect the validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer.
This Lease contains all agreements between the Parties with respect to any
matter mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility
of the other Party
Page 11
C/M 12156.0001 386601.1
<PAGE>
to this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes.
Either Party may by written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the
same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail.
If notice is received on a Sunday or legal holiday, it shall be deemed received
on the next business day.
24. Waivers.
No waiver by Lessor of the Default or Breach of any term, covenant or
condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording.
Either Lessor or Lessee shall, upon request of the other, execute,
acknowledge and deliver to the other a short form memorandum of this Lease for
recording purposes. The Party requesting recordation shall be responsible for
payment of any fees or taxes applicable thereto.
26. No Right To Holdover.
Lessee has no right to retain possession of the Premises or any part
thereof beyond the expiration or earlier termination of this Lease.
27. Cumulative Remedies.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
28. Covenants and Conditions.
All provisions of this Lease to be observed or performed by Lessee are
both covenants and conditions.
29. Binding Effect; Choice of Law.
This Lease shall be binding upon the parties, their personal
representatives, successors and assigns and be governed by the laws of the
State in which the Premises are located. Any litigation between the Parties
hereto concerning this Lease shall be initiated in the county in which the
Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the
cure of said default before invoking any remedies Lessee may have by reason
thereof. If any Lender shall elect to have this Lease and/or any Option granted
hereby superior to the lien of its Security Device and shall give written
notice thereof to Lessee, this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation
or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or
non-disturbance agreement as is provided for herein.
Page 12
C/M 12156.0001 386601.1
<PAGE>
31. Attorney's Fees.
If any Party or Broker brings an action or proceeding to enforce the terms
hereof or declare rights hereunder, the Prevailing Party (as hereafter defined)
or Broker in any such proceeding, action, or appeal thereon, shall be entitled
to reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term, "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorney's fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorney's fees
reasonably incurred. Lessor shall be entitled to attorney's fees, costs and
expenses incurred in the preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs.
Lessor and Lessor's agents shall have the right to enter the Premises at
any time, in the case of an emergency, and otherwise at reasonable times for
the purpose of showing the same to prospective purchasers, lenders, or lessees,
and making such alterations, repairs, improvements or additions to the Premises
or to the building of which they are a part, as Lessor may reasonably deem
necessary. Lessor may at any time during the last one hundred twenty (120) days
of the term hereof place on or about the Premises any ordinary "For Lease"
signs. All such activities of Lessor shall be without abatement of rent or
liability to Lessee.
33. Auctions.
Lessee shall not conduct, nor permit to be conducted, either voluntarily
or involuntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in
this Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. Signs.
Lessee shall not place any sign upon the Premises, except that Lessee may,
with Lessor's prior written consent, install (but not on the roof) such signs
as are reasonably required to advertise Lessee's own business. The installation
of any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations).
35. Termination; Merger.
Unless specifically stated otherwise in writing by Lessor, the voluntary
or other surrender of this Lease by Lessee, the mutual termination or
cancellation hereof, or a termination hereof by Lessor for Breach by Lessee,
shall automatically terminate any sublease or lesser estate in the Premises;
provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the
holder of any such lesser interest, shall constitute Lessor's election to have
such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are
then reasonable with reference to the particular matter for which consent is
being given.
37. Quiet Possession.
Upon payment by Lessee of the rent for the Premises and the observance and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
38. Options.
38.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
38.2 See Addendum.
38.3 Multiple Options. In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
38.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of Default under Paragraph 13.1, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
Page 13
C/M 12156.0001 386601.1
<PAGE>
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
39. Multiple Buildings.
If the Premises are part of a group of buildings controlled by Lessor,
Lessee agrees that it will abide by, keep and observe all reasonable rules and
regulations which Lessor may make from time to time for the management, safety,
care, and cleanliness of the grounds, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other
occupants or tenants of such other buildings and their invitees, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
40. Security Measures.
Lessee hereby acknowledges that the rental payable to Lessor hereunder
does not include the cost of guard service or other security measures, and that
Lessor shall have no obligation whatsoever to provide same. Lessee assumes all
responsibility for the protection of the Premises, Lessee, its agents and
invitees and their property from the acts of third parties.
41. Reservations.
Lessor reserves to itself the right, from time to time, to grant, without
the consent or joinder of Lessee, such easements, rights and dedications that
Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
42. Performance Under Protest.
If at any time a dispute shall arise as to any amount or sum of money to
be paid by one Party to the other under the provisions hereof, the Party
against whom the obligation to pay the money is asserted shall have the right
to make payment "under protest" and such payment shall not be regarded as a
voluntary payment and there shall survive the right on the part of said Party
to institute suit for recovery of such sum. If it shall be adjudged that there
was no legal obligation on the part of said Party to pay such sum or any part
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
43. Authority.
If either Party hereto is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
44. Conflict.
Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
45. Offer.
Preparation of this Lease by Lessor or Lessor's agent and submission of
same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
46. Amendments.
This Lease may be modified only in writing, signed by the Parties in
interest at the time of the modification. The parties shall amend this Lease
from time to time to reflect any adjustments that are made to the Base Rent or
other rent payable under this Lease. As long as they do not materially change
Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
47. Multiple Parties.
Except as otherwise expressly provided herein, if more than one person or
entity is named herein as either Lessor or Lessee, the obligations of such
Multiple Parties shall be the joint and several responsibility of all persons
or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE
OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
Page 14
C/M 12156.0001 386601.1
<PAGE>
PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Irvine, California Executed at Irvine, California
on June , 1996 on June 12, 1996
by LESSOR: by LESSEE:
TAYLOR-LONGMAN ALYN CORPORATION, a Delaware
A California general partnership corporation
By /s/ Bob Longman By
Name Printed: Bob Longman Name Printed: Robin A. Carden
Title: General Partner Title: President
By /S/ William Taylor By /s/ Walter R. Menetrey
Name Printed: Bill Taylor Name Printed: Walter R. Menetry
Title: General Partner Title: Chief Operating Officer
Address: 16871 Noyes Address: 2925 College Avenue, Suite A-1
Irvine, CA 92714 Costa Mesa, CA 92626
Tel. No. (714) 474-1101
Fax No. (714) 863-9170 Tel. No. (714) 641-8021
Fax No. (714) 641-3076
Page 15
C/M 12156.0001 386601.1
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE - NET ("LEASE")
DATED JUNE 12, 1996
BY AND BETWEEN
TAYLOR-LONGMAN, A CALIFORNIA GENERAL PARTNERSHIP, AS LESSOR
AND
ALYN CORPORATION, A DELAWARE CORPORATION, AS LESSEE
This Addendum shall be incorporated into and shall be a part of the
above-referenced Lease. Where applicable, the paragraph numbers set forth below
correspond to the paragraph numbers set forth in the Lease. This Addendum is
for the purposes of supplementing, not replacing, certain provisions of the
Lease, and to add provisions.
1.4 Lessor shall use its reasonable, good faith efforts to facilitate
obtaining approximately 10,000 square feet of warehouse space in the Premises
for Lessee's use by August 15, 1996, free of rental charges. If such space is
not free of rental charges, Lessee shall have the option to not take such
space.
1.5 The monthly Base Rent (as defined in Paragraph 4.1) payable
during the initial term of this Lease shall be:
Months Amount
1 - 12 $21,140.00
13 -0- Base Rent (Lessee to pay operating costs)
14 - 24 22,100.00
25 - 36 22,965.00
37 - 48 24,022.00
49 - 60 24,982.00
2.3 Lessor shall be responsible, at its sole cost and expense, for
making the main entrance to the Premises and one warehouse area restroom in
compliance with the provisions of the Americans With Disabilities Act ("ADA").
Furthermore, Lessor shall be responsible for all other ADA and energy
regulations compliance costs applicable to the office area of the Premises,
subject to an additional aggregate maximum expenditure of Five Thousand Dollars
($5,000.00). Subject to the above, Lessee, at its sole cost and expense, shall
be responsible for compliance with all ADA and energy regulations resulting
from, arising out of, or related to construction/installation of its
Alterations, Utility Installation, and Trade Fixtures.
5. Provided Lessee is not in default of the Lease, Lessor shall
return one month of Security Deposit ($21,140.00) to Lessee under the following
terms:
(a)In the event Lessee raises $15 million through an IPO, $21,140.00
of the Security Deposit will be returned.
(b)At the end of the twelfth (12th) month of the initial Lease term,
provided Lessee is not in default of the Lease, Lessor will return $21,140.00
of the Security Deposit to Lessee.
(c)At the end of the twenty-fifth (25th) month of the initial Lease
term, provided Lessee is not in default of the Lease, Lessor will return an
additional $21,140.00 of the Security Deposit to Lessee.
6.2 (c) Lessor represents and warrants to the best of its knowledge,
without investigation, that Lessor is not aware of any material defects in the
Premises, or the existence of any Hazardous Substances thereon. Lessee shall
not be responsible for any Hazardous Substances in or around the Premises,
which may have occurred or been placed on, in, or about the Premises prior to
Lessee's occupation thereof.
6.4 Lessee shall not be responsible for the costs and expenses of any
such inspections resulting from any Hazardous Substance which may have occurred
or been placed on, in, or about the Premises prior to Lessee's occupation
thereof.
7.1/7.2/7.3 Lessee shall not be responsible for structural items and
foundations, except such damage which may be as a direct result of Lessee's
construction/installation of its Alterations, Utility Installation, and Trade
Fixtures.
8.1 Lessor and Lessee shall cooperate with each other by exchanging
information and bids in obtaining insurance coverage at the best available
premium rates.
9.7 Lessee shall not be responsible for any Hazardous Substance
conditions, including the cost of remediation thereof, which may have occurred
or been placed on, in, or about the Premises prior to Lessee's occupation
thereof.
12.2 (e) Lessor shall have the right to reasonably approve the
operational responsibility of the proposed Assignee/Sublessee; provided,
however, if Lessee continues to remain liable for the obligation under the
Lease, including payment of Base Rent and other charges, Lessor shall be
liberal in granting such consent.
12.3 (a) Lessee and Lessor shall equally share any "net profits"
received from any sublease or assignment.
The following paragraph shall replace Paragraph 39.2 in the Lease:
39.2 Option Not to Be Separated From Lease. The option granted to
Lessee in this Lease to extend the Lease term as described in Paragraph 50
hereinbelow cannot be voluntarily or involuntarily assigned or exercised by any
person or entity separate and apart from this Lease in any manner, by
reservation or otherwise. If the Lessor approves an Assignment or Sublease of
this Lease in accordance with Paragraph 12, such Assignee/Sublessee may
exercise such option to extend the term of this Lease. Exercise of the option
to extend shall be as to the entire Premises only, not just a part thereof.
Upon exercise of such option by such Assignee/Sublessee, such
Assignee/Sublessee shall become directly obligated to Lessor on this Lease as a
lessee or a new lease shall be prepared and entered into between Lessor and
such Assignee/Sublessee for such extended term. Upon such exercise by an
Assignee/Sublessee, the original Lessee shall no longer be obligated to Lessor
under this Lease for such extended term.
49. Tenant Improvements. Lessor, at Lessor's sole cost and expense,
shall re-paint the exterior of the building, and re-carpet and re-paint the
office portion of the Premises per mutually agreed upon colors. The office area
shall be re-carpeted with mutually agreed upon carpet not to exceed $12.00 per
yard. Lessor shall also, at its sole cost and expense, repair, re-surface, and
re-stripe the parking area.
Furthermore, Lessee, at its sole cost and expense, can make
improvements to the Premises with Lessor's prior approval, which Lessor shall
not unreasonably withhold. Lessor will cooperate with Lessee in processing
Lessee's plans and permits through the City of Irvine and other agencies, at no
cost to Lessor.
50. Option to Extend. Lessor hereby grants to Lessee an option to
extend the term of this Lease for one (1) additional sixty (60) month period,
commencing when the prior term expires, upon each and all of the following
terms and conditions:
50.1 Lessee gives to Lessor at least five (5), but not more than
seven (7) months, prior written notice of Lessee's exercise of the option to
extend this Lease for said additional term. If notice of exercise of said
option is not timely given, the option shall automatically expire.
50.2 The provisions of Paragraph 39, including the provision relating
to a default of Lessee set forth in Paragraph 39.4 of this Lease are conditions
to the option.
50.3 All of the terms and conditions of this Lease, except where
specifically modified by this option, shall apply.
50.4 The monthly Base Rent for each year of the option term shall be
calculated as follows:
(a) On September 1, 2001, the monthly Base Rent payable under
Paragraph 1.5 ("Base Rent") of the Lease shall be adjusted to the "Market
Rental Value" ("MRV") of the Premises as follows:
Five (5) months prior to the MRV adjustment date described above,
Lessor and Lessee shall meet to establish an agreed upon new MRV for
the specified term. If an agreement cannot be reached in thirty (30)
days, then Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish a new MRV within the next
thirty (30) days. Any associated costs of such appraisal shall be split
equally between the parties. If Lessor and Lessee cannot agree upon an
appraiser or broker within seven (7) days to establish the MRV, both
Lessor and Lessee shall each immediately select and pay for an
appraiser or broker of their choice to establish an MRV within the next
thirty (30) days.
If, for any reason, either one of the appraisals is not computed within
the next thirty (30) days as stipulated, then the appraisal that is
completed at that time shall automatically become the new MRV. If both
appraisals are completed and the two appraisers/brokers cannot agree on
a reasonable average MRV, then the appraisers shall immediately select
a third mutually acceptable appraiser/broker to establish a third MRV
within thirty (30) days. The average of the two appraisals closest in
value shall then become the MRV. The cost of the third, appraisal shall
be split equally between Lessor and Lessee.
If the new MRV determined by the Appraisal is less than the Base Rent
payable for the month immediately preceding the date for Base Rent
adjustment, the new MRV will equal an amount equal to the Base Rent,
less fifty percent (50%) of the difference between the existing Base
Rent and the Base Rent determined by the appraisal (i.e., if the
existing Rent = $25,000, and the determined Rent = $20,000, the MRV
would equal $22,500).
Upon the establishment of the new MRV, the new MRV shall become the new
"Base Rent" for such term period. The Base Rent shall then increase
annually during each year of the extended term by the percentage
increase in the Consumer Price Index of the Bureau of Labor Statistics
of the United States Department of Labor for All Urban Consumers, Los
Angeles-Anaheim-Riverside Area (1982-1984 = 100) (the "CPI"). The
monthly Rent payable shall be calculated by multiplying the Base Rent
by a fraction, the numerator of which shall be the CPI of the calendar
month two (2) months prior to the month during which the adjustment is
to take effect, and the denominator of which shall be the CPI of the
calendar month which is two (2) months prior to the first year of the
extended term or previous adjustment date. In the event that the
compilation and/or publication of the CPI shall be transferred to any
other governmental agency or bureau or agency, or shall be
discontinued, then the index most nearly the same as the CPI shall be
used to make such calculation.
If the Lessee exercises its option to extend, the monthly Base Rent
shall be abated for the period of October 1, 2001 to October 31, 2001.
The Lessee shall still be responsible for all operating costs during
the free Base Rent period.
51. Right to Occupy 16871 Noyes. The Lessee shall have the right to
occupy 3,400 square feet of ground floor office at 16871 Noyes free of rental
charges, subject to the non-monetary terms and provisions of this Lease. This
tenancy shall commence upon fully executed leases and shall terminate upon
occupancy of 16761 Hale.
C/M 12156.0001 386601.1
<PAGE>
53. No Other Amendments. Except as set forth in this Addendum, there
are no other amendments, addenda, modifications, or changes to the Lease. In
the event of a conflict between the Lease and this Addendum, the terms and
provisions of this Addendum shall supersede and prevail over the Lease.
"Lessor" "Lessee"
TAYLOR LONGMAN, ALYN CORPORATION,
A California General Partnership A Delaware Corporation
By: /s/ Bob Longman By:
Bob Longman, General Partner Robin A. Carden, President
By: /s/ Bill Taylor By: /s/ Walter R. Menetrey
Bill Taylor, General Partner Walter R. Menetrey, Chief
Operating Officer
C/M 12156.0001 386601.1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 16, 1996, relating
to the balance sheet of Alyn Corporation, formerly AC Acquisition Corp., which
appears in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
July 26, 1996
C/M 12156.0001 388927.1
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 16, 1996, relating
to the financial statements of Alyn Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
July 26, 1996
C/M 12156.0001 388927.1
Exhibit 99.1
United States Patent [19] [11] Patent Number: 5,486,223
Carden [45] Date of Patent: Jan. 23, 1996
- ------------------------------------------------------------------------------
[54] METAL MATRIX COMPOSITIONS AND METHOD OF MANUFACTURE THEREOF
[75] Inventor: Robin A. Carden, Costa Mesa, Calif.
[73] Assignee: Alyn Corporation, Costa Mesa, Calif.
[21] Appl. No.: 183,728
[22] Filed: Jan. 19, 1994
[51] Int. Cl.6 ..........................C22C 29/14; C22C 29/16
[52] U.S. Cl.............................75/244; 419/6; 419/14;
419/17; 419/52
[58] Field of Search.............................419/6; 14, 17,
419/30; 75/244
[56] References Cited
U.S. PATENT DOCUMENTS
3,421,862 1/1969 Shyne et al. ............................29/182.5
4,463,058 7/1984 Hood et al.................................75/229
OTHER PUBLICATIONS
Jenkins et al., Powder Metallurgy: An Overview, 1991, p. 114
Primary Examiner - Donald P. Walsh
Assistant Examiner - Anthony R. Chi
Attorney, Agent, or Firm - Leonard Tachner
[57] ABSTRACT
An improved metal matrix composite which, in a preferred embodiment disclosed
herein, utilizes boron carbide as the ceramic additive to a base material
metal. The metal matrix composite of the present invention begins with the
preparation of the boron carbide powder by particle size selection in a jet
mill. The resulting powder and metal powder are then mixed by blending of
powder of all the various elements such as by means of a conventional blender
to uniformly mix powdered substances and avoid stratification and settling.
After the particles have been sufficiently mixed, they are degassed and then
placed into a die and then into a cylindrical container where the particulates
are subjected to extremely high pressures transforming the elements into a
solid ingot. It is from these ingots that the extrusion tubes or other articles
of manufacture may then be made. The resulting advanced metal matrix composite
is in the boron carbide embodiment of the invention, 60% lighter, 30% stronger,
40-45% stiffer and 50% higher in fatigue strength than any of the top of the
line 7000 series aluminum alloy materials. In the preferred embodiment
disclosed herein the base material metal is preferably an aluminum alloy or
titanium alloy provided in powder form and preferably being approximately 97%
pure with the balance of the material comprising
C/M 12156.0001 386552.1
<PAGE>
various trace metals such as chromium, copper, iron, magnesium, silicon,
titanium and zinc. The boron carbide powder is preferably 99.5% pure boron
carbide having a particulate size in the range of 2-19 microns with a mean or
average size of approximately 8.4 microns. In one typical embodiment of the
invention, the metal base material was selected from an aluminum alloy 606IT-6
to which was added approximately 12% by weight, the aforementioned boron
carbide powder to which was added silicon in an amount of 0.1-0.4%, iron in the
amount of 0.05-0.4% and aluminum in an amount of 0.05-0.4%. The underlying
boron carbide material was approximately 77% boron content and 22% carbon
content.
10 Claims, No Drawings
-2-
C/M 12156.0001 386552.1
<PAGE>
1
METAL MATRIX COMPOSITIONS AND
METHOD OF MANUFACTURE THEREOF
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relates generally to metal matrix compositions. Such
composites comprise one or more base material metals such as for example,
aluminum, titanium or magnesium, to which is added a selected percentage of
ceramic materials which alter the properties of the base material metal in a
positive manner. Strength, hardness and drawability are increased. Drawability
facilitates fabrication of various articles of manufacture from such composite
materials. More specifically, the present invention pertains to an improved
metal matrix composite which, in a preferred embodiment, uses boron carbide as
the added ceramic material. The composites result from a novel method of
manufacture producing a composite which is lighter, stronger, stiffer and which
has a higher fatigue strength than other available alloys of the base material
metal and which is also lighter, stronger, stiffer and which has a higher
fatigue strength than prior art metal matrixes, composites and particularly
those metal matrix composites which are of comparable cost.
2. Prior Art
In recent years metal matrix compositions or composites have become
popular materials for a variety of applications. This new family of materials
has become popular because of improvements in stiffness, strength and wear
properties. Basic metal matrix composites are made typically with aluminum,
titanium or magnesium as the base material metal. Then certain percentages of
ceramics are added. Typical ceramics are boron carbide, silicon carbide,
titanium diboride, titanium carbide, aluminum oxide and silicon nitride. Most
known metal matrix composites are made by introducing the ceramics into the
molten metal. In large production runs of metal matrix composites, the ceramic
reinforcement must be wetted by the liquid metal to facilitate incorporation of
the reinforcement into the melt. In those metal matrix composites using silicon
carbide and aluminum, the silicon carbide is thermodynamically unstable in
molten aluminum which leads to the formation of aluminum carbide at the
interface and increased concentration of silicon in the material matrix during
the solidification process. This interface reaction is believed to have
detrimental effects on the mechanical properties of the resulting composite by
reducing the interface strength and changing the composition.
Recently, powder metallurgy consolidation has emerged as a competing
method of fabricating metal matrix composites by consolidating the powders by
means of hot pressing and conventional powder metallurgy operations with vacuum
sintering to achieve a high density green body. By following certain
isopressing and sintering techniques, a 99% theoretical dense billet can be
achieved.
In the present invention it has been found that the most desirable ceramic
candidate for metal matrix composites is boron carbide. Boron carbide is the
third hardest material known and the hardest material produced in tonage. Boron
carbide powders can be formed by a variety of reactions including the carbon
reduction of any of several boron-oxygen compounds including boric oxide, boric
acid, borax, boracite as well as by the direct combination of the elements.
Usually most commercial boron carbide is produced in arc furnaces. Boric acid
is added together with carbon in the form of coke and heated to very high
temperatures. An electric arc is maintained between graphite electrodes inside
a furnace. The synthesis reaction is accompanied by the release of large
volumes of carbon monoxide. Venting and disposal of the carbon monoxide gas
constitutes a major design consideration. Boron carbide is also the lightest of
all of the ceramics typically used in metal matrix composite technology, but it
is very hard and expensive. Its hardness limits its extrudability. Thus it
would be highly advantageous if it were possible to produce an improved metal
matrix composite which utilizes an advanced ceramic such as boron carbide but
which, unlike the prior art, results in an extrudable composite material which
allows easy fabrication of various
-3-
C/M 12156.0001 386552.1
<PAGE>
articles of manufacture so that such resulting articles have the specific
strength and stiffness improvements as compared to equivalent articles of
manufacture using only the base material metals.
SUMMARY OF THE INVENTION
The present invention comprises an improved metal matrix composite which,
in a preferred embodiment disclosed herein, utilizes boron carbide as the
ceramic additive to a base material metal. The fabrication process is unlike
that of a number of other metal matrix composites because it is not made
through molten processes. More specifically, instead of melting the boron
carbide with the aluminum, nickel, zinc, titanium or other base material metal,
the metal matrix composite of the present invention begins with the blending of
powder of all the various elements such as by means of a jet mill which is
basically an air blaster used to uniformly mix powdered substances and avoid
stratification and settling. After the particles have been sufficiently mixed,
they are directed into a die and then into a cylindrical container where the
particulates are subjected to extremely high pressures transforming the
elements into a solid ingot. It is from these ingots that the extrusion tubes
or other articles of manufacture may then be made. The resulting advanced metal
matrix composite is in the boron carbide embodiment of the invention, 60%
lighter, 30% stronger, 40-45% stiffer and 50% higher in fatigue strength than
any of the top of the line 7000 series aluminum alloy materials. In addition,
the inventive material is 7-8% lighter, 26% stronger, 5% stiffer, and has
35-40% greater fatigue strength than most popular metal matrix composites
available in the prior art.
In the preferred embodiment disclosed herein the base material metal is
preferably an aluminum alloy or titanium alloy provided in powder form and
preferably being approximately 97% pure with the balance of the material
comprising various trace metals such as chromium, copper, iron, magnesium,
silicon, titanium and zinc. The boron carbide powder is preferably 99.5% pure
boron carbide having a particulate size in the range of 2-19 microns with a
mean or average size of approximately 8.4 microns. In one typical embodiment of
the invention, the metal base material was selected from an aluminum alloy
606IT-6 to which was added approximately 12% by weight, the aforementioned
boron carbide powder to which was added silicon in an amount of 0.1-0.4%, iron
in the amount of 0.05-0.4% and aluminum in an amount of 0.05-0.4%. The
underlying boron carbide material was approximately 77% boron content and 22%
carbon content. A metal matrix composite made from the aforementioned materials
in accordance with the fabrication process of the present invention to be
described hereinafter, resulted in a composite material which exhibited an
ultimate tensile strength of 70.1, a yield strength of 61.2, and a drawability
factor of 71.9 on a scale of 0-100. Furthermore, the resulting material is
approximately as hard as chromoly steel but has a density which is even lower
than aluminum alloy. Importantly, the material of the present invention is
readily extrudable. In a preferred extrusion step, ingots of the metal matrix
composites of the present invention are extruded through a titanium diboride
die bearing material which exhibits a significant increase in die insert life.
Furthermore, the present invention is readily weldable. In fact, the coated
boron carbide particulates of the material disclosed herein tend to flux and
move into the weld pool which creates a very strong weld joint. Thus the
present invention is not only highly suited for the manufacture of various
shaped articles, but is also suited for interconnecting such articles by
conventional welding processes as will be hereinafter more fully explained.
OBJECTS OF THE INVENTION
It is therefore a principal object of the present invention to provide an
improved metal matrix composite material which exhibits certain advantageous
properties and manufacturability conducive to the fabrication of certain
articles of manufacture having improved characteristics such as reduced weight,
higher strength and increased hardness.
It is an additional object of the present invention to provide an improved
metal matrix composite material which is especially adapted for use as
structural members in lightweight applications such as bicycle frames and the
like while retaining or improving the strength and hardness at the same
relative cost of comparable materials used in similar structures.
-4-
C/M 12156.0001 386552.1
<PAGE>
It is still an additional object of the present invention to provide a
metal matrix composite material which is stiffer and lighter than aluminum
while being as hard as steel and extremely fracture resistant while also being
extrudable and weldable, thus permitting the fabrication of extremely high
strength, lightweight structural members at reasonable cost.
It is still an additional object of the present invention to provide a
method for manufacturing an improved metal matrix composite material to result
in a material having superior hardness, strength and density characteristics
while being extrudable and weldable for use in the manufacture of a variety of
structural members which may be readily connected to one another such as in
bicycle frames, aircraft parts, tooling, sporting equipment, eyewear,
automotive parts, electronic parts, furniture and medical equipment.
DETAILED DESCRIPTION OF A PREFERRED EMBODIMENT
The preferred embodiment of the present invention uses aluminum alloy as a
base material metal and boron carbide as the added ceramic material. In the
preferred embodiment of manufacture the aluminum alloy is provided in the form
of a metal powder which is blended with jet milled boron carbide particulates
that have been processed and have certain chemical and particulate size
attributes. The boron carbide is preferably at least 99.5% pure and has a 2-19
micron particle size with an average particle size of about 8.4 microns.
Included in the boron carbide powder is 0.1-0.4% silicon, 0.05-0.4% iron and
0.05-0.4% aluminum. Trace amounts of magnesium, titanium and calcium may also
be provided. Two exemplary semi-quantitative analyses of acceptable boron
carbide powders for use in the present invention are shown hereinbelow in
Tables I and II.
TABLE I
B 77.3%
Si 0.37
Mg 0.0016
Fe 0.026
Al 0.18
Cu 0.0021
Ti 0.0088
Ca 0.0049
Other elements nil
C, O2 (BAL)
-5-
C/M 12156.0001 386552.1
<PAGE>
TABLE II
B 77.7%
Si 0.14
Mg 0.0017
Fe 0.074
Al 0.13
Cu ND0.0002
Ti 0.017
Ca 0.0048
Other nil
C, O2 (BAL)
The addition of small amounts of pure aluminum, silicon and iron to the
arc furnace during the production of boron carbide, such as by the reaction of
boric acid and carbon, has been found to improve the boron carbide for use in
this metal matrix composite. These metal elements do not go out of solution.
They stay in the boron carbide and provide a chelating opportunity for the base
material aluminum. These additional metals form an inter-metallic chemical bond
with the main metal alloy. However, it will be understood that the
aforementioned additions of pure aluminum, silicon and iron may not be the only
metals which can be used for the aforementioned purpose. By way of example,
virtually any low temperature reacting metal that forms an inter-metallic phase
below the processing temperature of the metal matrix composite ingot would be
useable in the present invention for the purpose indicated. The typical
relative weight contributions of the boron carbide powder and base material
metal powder is 12-15% of the former and 85-88% of the latter depending upon
the specific characteristics desired for the finished product.
After the boron carbide has been jet milled to the selected particulate
size and with the aluminum alloy powder blended together in a double chamber
"V" blender, for two and one-half hours at 20 to 30 RPM in an inert gas, the
powders are degassed at 200 degrees Centigrade for one hour in a vacuum of -5
to -8 Torr and then placed in a latex bag and isopressed at 65,000 psi. The
isopress bag resembles the shape of the ingot that is to be extruded. The latex
bag is degassed and clamped off. The maximum pressure is held for at least a
one minute soak. The resulting ingots are removed from the bag and placed into
a vacuum furnace to undergo a sintering cycle in accordance with the following
preferred embodiment of the process of the present invention.
First, the ingots are heated from room temperature to 300 degrees
Centigrade over a twenty minute ramp period during which time binder and water
are burned off. The ingots are then heated to 450 degrees Centigrade over a
fifteen minute ramp period during which the remaining binder is burned off. The
ingots are then heated to 625 degrees Centigrade over a forty minute ramp
period during which the temperature increases accordingly. At 625 degrees
Centigrade the ingot is held and soaked at that temperature for 45 minutes
during which close grain boundaries are formed. The ingot is then cooled from
625 degrees Centigrade to 450 degrees Centigrade over a twenty minute period by
means of a nitrogen gas backfill. Finally, the ingots are cooled to room
temperature at a rate not faster than 40 degrees Centigrade per minute again
using nitrogen gas. The ingots are then turned down
-6-
C/M 12156.0001 386552.1
<PAGE>
by a metal lathe to bring them into an extruding shape with a typical selected
outer diameter of between 3 1/2 and 7 inches to a tolerance of 15,000ths of an
inch. The ingots are then available for extrusion.
Extruding the metal matrix composite of the present invention first
involves preheating the ingots in a resistance furnace for a minimum period of
one hour at 555 degrees Centigrade. This is normally done in two steps. First
the ingots are heated to 315 degrees Centigrade in a holding furnace and then
heated to a higher temperature and held until the ingot temperature reaches 555
degrees Centigrade. The ingots are then loaded directly into a container or
chamber from the furnace. The chamber temperature should preferably be 488
degrees Centigrade. The face pressure within the chamber depends upon the type
of extrusion dimensions that are desired. Typically, the pressures used are
15-20% higher than extrusion pressures used for 6061 aluminum ingots. For
example, for a 3 1/2 inch outer diameter billet made of the metal matrix
composite of the present invention, 3,500 psi peak (break out) pressure is
typically used and results in an extruding pressure of about 3,000 psi. The
speed of the extrusion could be an average of 15-30 feet per minute and the
exit temperature should be 20 degrees Centigrade cooler than the container
temperature. The speed of the ram used for the extrusion should run 3 1/2
inches every minute on a typical 3 1/2 inch outer diameter ingot.
Although the present invention may be extruded in conventional dies, it
has been found that for maximum die insert life, a die bearing material made of
titanium diboride is preferred. The titanium diboride die bearing material is
preferably hot pressed and then electrodischarge machined to the appropriate
size. A small amount of boron carbide may be used to increase the hardness of
the die. Typically, the die is made of 99.5% pure titanium diboride in an
amount equal to 92-98% by weight, the remaining fraction being 99.5% pure boron
carbide having particulate sizes less than 10 microns. The hot press cycle for
manufacture of the die bearing material is preferably done at 1,800 degrees
Centigrade using a 3,500 psi pressure with the pressure and temperature
maintained until a zero drop in ram travel is obtained.
The extruded metal matrix composite provides the greatest benefit if it is
heat treated using a T6-type heat treatment which comprises two hours at 530
degrees Centigrade with a cold water quench and an artificial aging at 177
degrees Centigrade for ten hours. All welding however has to be accomplished
before heat treatment is applied. Unlike other metal matrix composites which
contain silicon carbide and aluminum oxide where welding can be a problem, the
metal matrix composite of the present invention is readily weldable. Other
metal matrix composites form aluminum carbides as brittle components of a weld.
Aluminum carbides are formed from the chemical reaction of aluminum and silicon
carbide. Because of the surface area of the aluminum oxide particulates and
metal matrixes, clumping and dewetting occurs. These brittle components and
particulates clump together thereby greatly decreasing the strength of a weld
body. The metal matrix composite of the present invention does not have these
problems. The coated boron carbide particulates tend to flux and move into the
weld pool which creates a very strong weld joint. Because boron carbide
particulates have a melting point of 2,450 degrees Centigrade, the boron
carbide is chemically inert at aluminum processing temperatures.
Depending upon the ratio of boron carbide to aluminum and also depending
upon the particular aluminum alloy used as the base material metal, the
resulting material has a density of approximately 2.69 grams per cubic
centimeter which is lower than aluminum 6061. The resulting material also has
an ultimate strength of from 70-104 ksi, a yield strength of 61-98 ksi, and is
extremely fracture resistant and more predictable than other composites.
Furthermore, the resulting material of the present invention has a hardness
which is comparable to that of titanium and chromoly steel, but a density which
is roughly a third of steel and roughly 60% of titanium.
Two advantageous products made from the metal matrix composite of the
invention are bicycle frames and golf club heads. Bicycle frames made from
extruded and welded tubing of the inventive material are lighter, stiffer and
stronger than comparable bicycle frames made of more conventional materials
such as aluminum, steel or titanium. In golf clubs, the lower density of the
inventive material allows for thicker walled heads, better weight distribution,
balance and aerodynamics. Furthermore, a larger "sweet spot" is possible in
tournament legal clubs.
-7-
C/M 12156.0001 386552.1
<PAGE>
Having thus described a preferred embodiment of the material composition
and method of fabrication of the present invention, what is claimed is:
1. An improved metal matrix composite comprising:
a base material metal and boron carbide in a ratio of approximately
between 6 and 10 to 1 by weight, the boron carbide being substantially
homogeneously distributed among the metal, forming close grain boundaries
therewith; and less than about 1.5% by weight of at least one metal additive
having an inter-metallic phase temperature lower than the melting point of said
base material metal, said metal additive being added to the boron carbide
during its production to provide a chelating opportunity for the base material
metal.
2. The composite recited in claim 1 wherein said base material metal is
taken from the group consisting of: aluminum, titanium, alloys of aluminum and
alloys of titanium.
3. The composite recited in claim 1 wherein said metal additive is taken
from the group consisting of:
silicon, iron, aluminum and titanium.
4. The composite recited in claim 1 wherein said base material metal is at
least 97% pure and said boron carbide is at least 99.5% pure.
5. The composite recited in claim 1 wherein said composite is in the form
of an isopressed and sintered ingot formed from a blend of powders of said base
material metal, said boron carbide and said additive metals, and wherein said
boron carbide powder comprises particulates having a size in the range of 2 to
19 microns with an average size of about 6 to 9 microns.
6. A metal matrix composite formed by the process of:
a) blending powders of a base material metal, boron carbide and at least
one metal additive having an intermetallic phase temperature below the
melting point of said base material metal; wherein said boron carbide
constitutes about 10% to 16% of the powders by weight and said additive
constitutes less than about 1.5% of said powders, said metal additive
being added to the boron carbide during its production to provide a
chelating opportunity for the base material metal;
b) degassing said blended powders;
c) isopressing said blended powders at a pressure of at least 65,000 psi;
d) heating said isopressed powders up to at least 625 degrees Centigrade
over a selected period of time;
e) configuring said isopressed and sintered powders to the desired shape;
and
f) heat treating the resulting shape of step e).
7. The metal matrix composite formed by the process recited in claim 6
wherein step e) is performed by extruding said isopressed and sintered powders
at a selected temperature and pressure through an extrusion die of selected
dimensions.
8. The metal matrix composite recited in claim 6 wherein said base
material metal is taken from the group consisting of: aluminum, titanium,
alloys of aluminum and alloys of titanium.
-8-
C/M 12156.0001 386552.1
<PAGE>
9. The metal matrix composite recited in claim 6 wherein said at least one
metal additive is taken from the group consisting of: aluminum, silicon, iron
and titanium.
10. The metal matrix composite recited in claim 6 wherein said boron
carbide powder has a particulate size in the range of 2 to 19 microns and an
average particulate size of about 6 to 9 microns.
* * * * *
-9-
C/M 12156.0001 386552.1
