<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-09143
PROSPECTUS
2,750,000 SHARES
[LOGO OF ALYN CORPORATION APPEARS HERE]
COMMON STOCK
All of the 2,750,000 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. The initial public
offering price of the Common Stock is $13.50 per share. See "Underwriting" for
information relating to factors considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "ALYN."
Certain existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who hold approximately $3.4 million of the
approximately $4.7 million of indebtedness that will be repaid by the Company
with a portion of the net proceeds of this offering, intend to purchase
approximately 440,000 of the shares of Common Stock offered hereby for an
aggregate purchase price of approximately $5.9 million, for their respective
accounts or those of their affiliates or designees. See "Principal
Stockholders" and "Underwriting."
----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 8 AND "DILUTION" ON PAGE 16.
----------------
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> <C>
Per share............................... $13.50 $0.95 $12.55
- --------------------------------------------------------------------------------
Total(3)................................ $37,125,000 $2,598,750 $34,526,250
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Excludes five-year warrants to purchase 211,000 shares of Common Stock at
an exercise price equal to 150% of the initial public offering price. 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 $800,000,
payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 412,500 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 $42,693,750, $2,988,563 and $39,705,187, 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 October 25, 1996.
FURMAN SELZ NEEDHAM & COMPANY, INC.
The date of this Prospectus is October 22, 1996.
<PAGE>
[GRAPHIC] [GRAPHIC]
Boralyn(R) Bicycle Boralyn(R) Bicycle Crank
The Company believes that Boralyn(R) bicycle frames and components offer a
combination of light weight and strength that improve riding efficiency.
[GRAPHIC] [GRAPHIC]
The Company believes that golf clubs The Company believes that Boralyn(R)
manufactured with Boralyn(R) heads disks will allow for greater storage
achieve greater distance than titanium capabilities and higher data transfer
golf club heads and provide for a rates than computer hard disk drives
larger "sweet spot" and "more forgiving" in use today.
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 FOR
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(R) is a trademark of the
Company. All other trade names and trademarks appearing in this Prospectus are
the property of their respective holders.
<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 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).
The Company has entered into an agreement with Taylor Made Golf Company, Inc.
("Taylor Made") under which Taylor Made will purchase Boralyn(R) golf club
metalwood heads between July 1, 1997, and June 30, 1999,
1
<PAGE>
and pursuant to which Taylor Made has been granted an exclusive world-wide
license regarding Boralyn(R) metalwood golf club heads through June 30, 1999,
subject to its meeting certain minimum annual and quarterly order volume
requirements. If Taylor Made does not purchase Boralyn(R) metalwood golf club
heads in those minimum volumes, the Company's sole remedy is to terminate the
exclusivity of Taylor Made's license rights. The Company and Taylor Made are
developing club head designs, molds, manufacturing, tooling and production and
promotional programs in order to permit deliveries of Boralyn(R) metalwood club
heads by July 1, 1997, and Taylor Made has delivered its first purchase order
under the agreement for $2.25 million of metalwood golf club heads, for sale in
the quarter ending September 30, 1997. Products delivered under the agreement
will independently display the "Boralyn(R)" name. The Company anticipates that
the Boralyn(R)-based metalwood golf club heads manufactured for Taylor Made
will be a premium-priced product. The agreement also provides the framework for
ongoing discussions between the Company and Taylor Made and between the Company
and Taylor Made's parent, France-based Salomon Group, regarding an extension of
their relationship and the possible inclusion of Boralyn(R) in additional golf
club equipment and in other sporting goods made by members of Salomon Group.
There can be no assurance that the Company will enter into any other agreements
or receive any additional production or purchase orders from Taylor Made, or
will enter into any agreement with any other golf club producer or any other
member of Salomon Group.
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, and from several smaller
bicycle component and/or frame manufacturers. 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 baseball bats, tennis and other sports racquets, and arrows.
The Company has received orders from Worth, Inc., for prototype baseball bats,
and 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, and has received a small prototype order from Seagate
Technology, Inc. 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 of existing substrates, 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.
OTHER INDUSTRIAL APPLICATIONS. Other industrial applications of Boralyn(R)
include its use in components for the aerospace/defense sector, where the
Company is producing prototype satellite component samples for Endgate
Corporation, prototype engine components for Pratt & Whitney, Inc., and
prototype sensor housings for Rosemount Aerospace, a division of BF Goodrich,
Inc.; assembly equipment, where the Company is
2
<PAGE>
producing prototypes for Cartesian Data, Inc. and Speedfam Corporation, a
subsidiary of Famtec International, Inc.; automotive and motorcycle components,
where the Company is producing prototype motorcycle brake drums for Honda R&D
North America, Inc. and prototype connecting rods for Maverick Racing; marine
applications, where the Company is producing prototype drive shafts for Power
Ski International, Inc. and prototype underwater pressure vessels for Scripps
Institute of Technology; semiconductor packaging, where the Company is
producing prototypes for Motorola, Inc.; speakers, where the Company is
producing prototypes for Peavy Electronics Corp.; and armor for government and
military vehicles and for personal protection.
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. Although the
Company has had preliminary discussions with an international nuclear plant
construction company concerning prototype disposal containers, the Company has
elected to defer delivering prototypes in the neutron shielding field in order
that it may concentrate its efforts currently on high-end sporting goods,
computer hard disks and other industrial applications. The Company does not
anticipate production orders for neutron shielding applications until at least
late 1997, and there can be no assurance that any production orders will be
obtained.
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.
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 has been engaged in the sale of boron carbide powder since 1990,
but the Company has been unprofitable since its commencement of operations
through the year ended December 31, 1995, and expects to incur significant
operating losses for the year ended December 31, 1996, as a result of start-up
expenses in anticipation of production orders. No production revenues for
Boralyn(R) have been recognized since late 1994, and none are anticipated prior
to the second quarter of 1997. The Company has received a definitive production
order from Taylor Made but, in view of pre-production requirements, will not
achieve significant sales of Boralyn(R) prior to the third quarter of 1997, and
there can be no assurance that any significant sales from other customers will
be achieved.
3
<PAGE>
The Company's principal executive offices are currently located at 16761 Hale
Avenue, Irvine, California 92606, where its telephone number is (714) 475-1525,
and its fax number is (714) 475-1531.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Compa-
ny............................... 2,750,000 shares
Common Stock to be Outstanding af-
ter the Offering................. 10,750,000 shares(1)
Use of Proceeds................... Approximately (i) $12.6 million for capital
expenditures for new production facilities,
equipment and tooling and management infor-
mation systems; (ii) $4.7 million to repay
approximately $4.6 million principal amount
of stockholder loans and accrued interest
as of September 30, 1996 (including approx-
imately $3.4 million principal amount of
loans held by certain existing stockholders
who intend to purchase, for their respec-
tive accounts, approximately 440,000 of the
shares of Common Stock offered hereby for
an aggregate purchase price of approxi-
mately $5.9 million), and (iii) $3.0 mil-
lion for marketing activities for
Boralyn(R) products. The remainder of the
net proceeds will be used for working capi-
tal and general corporate purposes. See
"Use of Proceeds."
Risk Factors and Dilution......... Prospective investors should carefully con-
sider the matters set forth under the cap-
tions "Risk Factors--Emerging Technology;
Substantial Risk of Uncertain Market Ac-
ceptance;--Limited Operating History; Prior
Losses;--No Manufacturing Experience; Reli-
ance on Manufacturing Facilities;--Rapid
Technological Change and New Product Devel-
opment;--Dependence on Patents;--Product
Liability Risks;--Dependence on Manage-
ment;--Need for Additional Management In-
formation Systems;--Competition;--Need for
Future Capital;--Dependence on Trademarks
for Current and Future Markets;--Dependence
on Principal Suppliers;--Possible Depen-
dence on Significant Customers;--Quarterly
Fluctuations in Operating Results;--Control
by Existing Stockholders; Anti-takeover
Provisions;--Dilution; Benefits of the Pub-
lic Offering to the Company's Affiliates
and Principal Stockholders;--Use of Pro-
ceeds for Repayment of Stockholder Indebt-
edness;--Shares Eligible for Future Sale;--
Absence of Prior Public Market;--Possible
Volatility of Stock Price," and "Dilution."
An investment in the shares of Common Stock
offered hereby involves a high degree of
risk and immediate and substantial
dilution.
</TABLE>
4
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<TABLE>
<S> <C>
Nasdaq National Market Symbol........................................... "ALYN"
</TABLE>
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(1) Does not include 1,211,000 shares of Common Stock, consisting of (i)
1,000,000 shares of Common Stock reserved for future issuance under the
Company's stock incentive plan, and (ii) 211,000 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to Furman Selz
LLC. See "Management--The 1996 Stock Incentive Plan" and "Underwriting."
Also assumes no exercise of the Underwriters' over-allotment option.
5
<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 six months ended June 30, 1995, for the period from
January 1, 1996 to May 1, 1996 and the period from May 2, 1996 to June 30,
1996, and the balance sheet of the Company at June 30, 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 June
30, 1996, and for the six months ended June 30, 1995, for the period from
January 1, 1996 to May 1, 1996 and the period from May 2, 1996 to June 30,
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 period from January 1, 1996 to May 1, 1996 and the period from
May 2, 1996 to June 30, 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 May 1, 1996,
Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. 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 financial information set forth below presents
the Company's results as if the Merger had occurred as of January 1, 1995. See
Note (1) below.
<TABLE>
<CAPTION>
OLD ALYN ALYN
------------------------------------------- -----------
PERIOD FROM PERIOD FROM
YEARS ENDED SIX MONTHS JANUARY 1, MAY 2,
DECEMBER 31, ENDED 1996 TO 1996 TO
------------------- JUNE 30, MAY 1, JUNE 30,
1993 1994 1995 1995 1996 1996
----- ----- ----- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ 540 $ 309 $ 319 $216 $104 $ 32
Costs and expenses:
Cost of goods sold..... 265 92 203 102 34 7
General and administra-
tive.................. 259 352 219 89 53 337
Selling and marketing.. 114 143 52 10 23 31
Research and develop-
ment.................. 24 180 79 19 7 19
----- ----- ----- ---- ---- ------
Total costs and ex-
penses................ 662 767 553 220 117 394
----- ----- ----- ---- ---- ------
Operating loss........ (122) (458) (234) (4) (13) (362)
Other income (expense),
net.................... (3) (11) (10) (6) (2) (20)
----- ----- ----- ---- ---- ------
Loss before provision
for income taxes....... (125) (469) (244) (10) (15) (382)
Provision for income
taxes.................. 1 1 1 1 1 1
----- ----- ----- ---- ---- ------
Net loss................ $(126) $(470) $(245) $(11) $(16) $ (383)
===== ===== ===== ==== ==== ======
Net loss per share(1)... $(0.05)
======
Weighted average common
shares outstanding(1).. 8,000
======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OLD ALYN ALYN
---------------------------------------- -----------
PERIOD FROM PERIOD FROM
YEARS ENDED SIX MONTHS JANUARY 1, MAY 2,
DECEMBER 31, ENDED 1996 TO 1996 TO
---------------- JUNE 30, MAY 1, JUNE 30,
1993 1994 1995 1995 1996 1996
---- ---- ------ ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Pro forma net loss(1).... $ (322) $ (42)
====== ======
Pro forma net loss per
share(1)................ $(0.04) $(0.01)
====== ======
Pro forma weighted aver-
age common shares out-
standing(1)............. 8,000 8,000
====== ======
Supplemental net
loss(2)................. $ (356)
======
Supplemental net loss per
share(2)................ $(0.04)
======
Supplemental weighted
average number of common
shares outstanding(2)... 8,228
======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
AS
ACTUAL ADJUSTED(3)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $1,078 $32,010
Total assets................................................ 2,650 33,582
Long-term obligations....................................... 2,794 0
Total stockholders' equity (deficit)........................ (378) 33,348
</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. As discussed above, this data reflects the Merger,
including the amortization of intangible assets of $77,000 and $26,000 for
the year ended December 31, 1995 and the period from January 1, 1996 to May
1, 1996, respectively, and the 80-for-one stock split. See Notes to
Financial Statements.
(2) Presented on a supplemental basis to reflect the reduction in the net loss
for the interest accrued of $27,000 on the credit facility from
stockholders for the period from May 2, 1996 to June 30, 1996 and to
reflect the increase of the weighted average shares outstanding by 227,820
for the assumed repayment of the credit facility from stockholders assuming
shares were sold at the initial public offering price at May 2, 1996. See
Notes to Financial Statements.
(3) As adjusted to reflect the sale of 2,750,000 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."
7
<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. Until its receipt of a purchase order from Taylor
Made in September 1996, the Company had 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 a net loss of $399,000 for the six months
ended June 30, 1996, compared with a net loss of $11,000 for the six months
ended June 30, 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 approximately
$12.6 million of the net proceeds of this offering, to provide that facility
with significant production capability. Until the Company achieves a
significant level of sales of Boralyn(R) or Boralyn(R)-based products, whether
under the Taylor Made agreement or otherwise, 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,
8
<PAGE>
the Company's manufacturing operations will use certain equipment which, if
damaged or otherwise rendered inoperable or unavailable, could result in the
disruption of the Company's manufacturing operations. Although the Company
intends to continue to maintain business interruption insurance with coverage
for lost profits and out-of-pocket expenses of $1.0 million per occurrence and
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 applications relating to
bicycle frames and fabricating methods were filed in September 1995 and were
allowed in June and September 1996, respectively, but there can be no
assurance that the Company's other pending 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 applications that were allowed, or any other patents
that may be granted, will be valid and enforceable or provide the Company with
meaningful
9
<PAGE>
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 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."
10
<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 $4.6 million of the Subordinated Credit Line had been drawn upon
as of September 30, 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, Micro-Abrasivos,
S.A. DE C.V., a Mexican company, that provides approximately 50% of the
Company's present requirements. There are no written contracts between the
Company and the supplier, and boron carbide is purchased using individual
purchase orders, with customary terms regarding payment, quality and delivery.
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."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
In view of the 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, particularly Taylor Made, may or will 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,
including Taylor Made, could have a material adverse effect on the business
and operations of the Company. The Company currently has granted an exclusive
world-wide license covering metalwood golf club heads to Taylor Made, and is
exclusively discussing other related products. Although Taylor Made has agreed
to purchase a minimum amount of metalwood golf club heads, if Taylor Made does
not purchase such minimum requirements, the Company's sole remedy is to
terminate the exclusivity of Taylor Made's license rights. See "Prospectus
Summary" and "Business--Products and Applications." Although the Company
generally does not intend to enter into exclusive production or distribution
arrangements with most customers, there may be circumstances, such as with
Taylor Made, in which the potential benefits offered by a proposed exclusive
arrangement would justify the Company committing to an exclusive relationship
11
<PAGE>
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."
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 78.5% of the outstanding shares of voting stock, including
approximately 440,000 shares offered hereby that certain existing stockholders
of the Company, consisting of M. Kingdon Offshore NV, Kingdon Associates,
L.P., Kingdon Partners, L.P. and Edelson Technology Partners III, 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
75.6% 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. Specifically,
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 approximately $37.1
million or $13.50 per share for the 2,750,000 shares being offered hereby.
Accordingly, existing stockholders will realize an effective appreciation of
$13.50 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 to principal stockholders of
the Company. The Company will apply approximately $4.7 million of the proceeds
of this offering to repay the Subordinated Credit Line, which includes a
principal amount of $4.6 million and accrued interest thereon as of September
30, 1996. Accordingly, approximately 15% of the
12
<PAGE>
net proceeds of this offering will be paid directly to certain principal
stockholders of the Company, although certain existing stockholders of the
Company, consisting of M. Kingdon Offshore NV, Kingdon Associates, L.P.,
Kingdon Partners, L.P. and Edelson Technology Partners III, who hold
approximately $3.4 million of the indebtedness that will be repaid, intend to
purchase approximately 440,000 of the shares of Common Stock offered hereby,
for an aggregate purchase price of approximately $5.9 million 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 10,750,000 shares of Common Stock. The 2,750,000
shares of Common Stock offered hereby (3,162,500 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, including, among others, Robin A. Carden, Walter R. Menetrey, M.
Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P., Udi
Toledano and Edelson Technology Partners III, 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, 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. Robin A. Carden and
Walter R. Menetrey, the only current stockholders of the Company who are also
executive officers of the Company, have also agreed not to offer, sell or
otherwise dispose of more than 107,500 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, unstable conditions or unfavorable
announcements by companies in the Company's industry, release of unfavorable
economic news and other events or factors,
13
<PAGE>
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."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$13.50 are estimated to be $33.7 million ($38.9 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 400,000 pounds per month by the third quarter of 1997, and for
management information systems; (ii) approximately $4.7 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 existing stockholders of the Company, consisting of M.
Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and
Edelson Technology Partners III, who hold approximately $3.4 million of the
indebtedness that will be repaid, intend to purchase approximately 440,000 of
the shares of Common Stock offered hereby for an aggregate purchase price of
approximately $5.9 million, 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 timing and size of orders, particularly
from Taylor Made, 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."
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<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
(i) at June 30, 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 2,750,000 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>
JUNE 30, 1996
-------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long-term debt(1).......................................... $2,794 $ 0
Stockholders' equity(2):
Preferred stock, $0.01 par value, 5,000,000 shares autho-
rized; no shares issued and outstanding................. -- --
Common stock, $0.001 par value; 20,000,000 shares autho-
rized; 8,000,000 shares issued and outstanding;
10,750,000 shares issued and outstanding, as adjust-
ed(3)................................................... 8 11
Additional paid in capital............................... (3) 33,720
Accumulated deficit...................................... (383) (383)
------ -------
Total stockholders' equity (deficit)..................... (378) 33,348
------ -------
Total capitalization....................................... $2,416 $33,348
====== =======
</TABLE>
- -------------------
(1) Certain stockholders provided a $5 million credit facility (approximately
$4.6 million outstanding as of September 30, 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, and the credit facility will terminate.
(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.
(3) Does not include 1,211,000 shares of Common Stock, consisting of (i)
1,000,000 shares of Common Stock reserved for future issuance under the
Company's stock incentive plan and (ii) 211,000 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to Furman Selz
LLC. See "Management--The 1996 Stock Incentive Plan" and "Underwriting."
15
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at June 30, 1996,
was a negative $1,413,000, or ($0.18) 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 2,750,000 shares of Common Stock offered hereby at $13.50 per
share, the net tangible book value of the Company at June 30, 1996, would have
been $32.3 million, or $3.01 per share, representing an immediate increase in
net tangible book value of $3.19 per share to existing stockholders, and an
immediate dilution in net tangible book value of $10.49 per share (or 77.7%)
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............. $13.50
Net tangible book value per share before this offering...... $(0.18)
Increase in net tangible book value per share attributable
to New Investors........................................... 3.19
------
As adjusted, net tangible book value per share as of June
30, 1996, after this offering.............................. 3.01
------
Dilution in net tangible book value to new investors........ $10.49
======
</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 $3.36 per share, which would result in dilution to new investors in
this offering of $10.14 (or 75.1%) per share of Common Stock.
The following table summarizes at June 30, 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 stockhold-
ers(1)................. 8,000,000 74.42% $ 5,300 0.02% $0.0007
New investors........... 2,750,000 25.58% $37,125,000 99.98% $ 13.50
------------- -------- ----------- ------
Total................. 10,750,000 100.0% $37,130,300 100.00%
============= ======== =========== ======
</TABLE>
- ---------------------
(1) Does not reflect that certain existing stockholders of the Company,
consisting of M. Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon
Partners, L.P. and Edelson Technology Partners III, who hold indebtedness
which will be repaid with a portion of the net proceeds of this offering,
intend to purchase approximately 440,000 of the shares of Common Stock
offered hereby at the initial public offering price, for their respective
accounts.
16
<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 June 30, 1996, and for the six months
ended June 30, 1995, for the period from January 1, 1996 to May 1, 1996 and
the period from May 2, 1996 to June 30, 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 period from January 1, 1996 to May 1, 1996 and the period from
May 2, 1996 to June 30, 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 May 1,
1996, Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. 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 financial information set forth
below presents the Company's results as if the Merger had occurred as of
January 1, 1995. See Note (1) below.
<TABLE>
<CAPTION>
OLD ALYN ALYN
-------------------------------------------------------- -----------
PERIOD FROM PERIOD FROM
SIX MONTHS JANUARY 1, MAY 2,
YEARS ENDED DECEMBER 31, ENDED 1996 TO 1996 TO
-------------------------------- JUNE 30, MAY 1, JUNE 30,
1991 1992 1993 1994 1995 1995 1996 1996
---- ---- ----- ----- ------ ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $319 $377 $ 540 $ 309 $ 319 $216 $ 104 $ 32
Costs and expenses:
Cost of goods sold..... 224 273 265 92 203 102 34 7
General and administra-
tive.................. 39 53 259 352 219 89 53 337
Selling and marketing.. 38 32 114 143 52 10 23 31
Research and develop-
ment.................. 19 19 24 180 79 19 7 19
---- ---- ----- ----- ------ ---- ------ ------
Total costs and ex-
penses................ 320 377 662 767 553 220 117 394
---- ---- ----- ----- ------ ---- ------ ------
Operating loss........ (1) 0 (122) (458) (234) (4) (13) (362)
Other income (expense),
net.................... 0 0 (3) (11) (10) (6) (2) (20)
---- ---- ----- ----- ------ ---- ------ ------
Loss before provision
for income taxes....... (1) 0 (125) (469) (244) (10) (15) (382)
Provision for income
taxes.................. 1 1 1 1 1 1 1 1
---- ---- ----- ----- ------ ---- ------ ------
Net loss................ $ (2) $ (1) $(126) $(470) $ (245) $(11) $ (16) $ (383)
==== ==== ===== ===== ====== ==== ====== ======
Net loss per share(1)... $(0.05)
======
Weighted average common
shares outstanding(1).. 8,000
======
Pro forma net loss(1)... $ (322) $ (42)
====== ======
Pro forma net loss per
share(1)............... $(0.04) $(0.01)
====== ======
Pro forma weighted
average common shares
outstanding(1)......... 8,000 8,000
====== ======
</TABLE>
- ---------------------
See notes on the following page.
17
<PAGE>
<TABLE>
<CAPTION>
OLD ALYN ALYN
----------------------------------------------- -----------
PERIOD FROM PERIOD FROM
SIX MONTHS JANUARY 1, MAY 2,
YEARS ENDED DECEMBER 31, ENDED 1996 TO 1996 TO
------------------------ JUNE 30, MAY 1, JUNE 30,
1991 1992 1993 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Supplemental net
loss(2)................ $ (356)
======
Supplemental net loss
per share(2)........... $(0.04)
======
Supplemental weighted
average number of
common shares
outstanding(2)......... 8,228
======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
---------------------------- ----------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
---- ---- ---- ----- ----- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
cit).................... $152 $145 $ 18 $(133) $(382) $1,078 $32,010
Total assets............. 178 198 219 193 128 2,650 33,582
Long-term obligations.... 128 128 128 128 128 2,794 0
Total stockholders' eq-
uity (deficit).......... 27 26 (99) (245) (490) (378) 33,348
</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. As discussed above, this data reflects the Merger,
including the amortization of intangible assets of $77,000 and $26,000 for
the year ended December 31, 1995 and the period from January 1, 1996 to
May 1, 1996, respectively, and the 80-for-one stock split. See Notes to
Financial Statements.
(2) Presented on a supplemental basis to reflect the reduction in the net loss
for the interest accrued of $27,000 on the credit facility from
stockholders for the period from May 2, 1996 to June 30, 1996 and to
reflect the increase of the weighted average shares outstanding by 227,820
for the assumed repayment of the credit facility from stockholders
assuming shares were sold at the initial public offering price at May 2,
1996. See Notes to Financial Statements.
(3) As adjusted to reflect the sale of 2,750,000 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."
18
<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 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 a large portion 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 six months 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. Prior to and during the development
of Boralyn(R), the Company operated as a seller of other materials,
principally boron carbide and had significant revenues from these products.
The Company continues to sell materials as it transitions to a manufacturer of
Boralyn(R)-based products. No production revenues for Boralyn(R) have been
recognized since late 1994, and none are anticipated prior to the second
quarter of 1997. For reasons discussed below, the Company does not expect to
achieve significant sales of Boralyn(R) prior to the third quarter of 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 June 30, 1996, the Company recognized less than one-third
of its total revenues from sales of Boralyn(R). The balance of the Company's
revenues through June 30, 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.
19
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996, Compared to Six Months Ended June 30, 1995
For purposes of comparison with the six month period ended June 30, 1995,
the results of operations for the period from January 1, 1996 through May 1,
1996 and the period from May 2, 1996 through June 30, 1996 have been
aggregated.
Net sales in the six months ended June 30, 1996, decreased 37.0% to
$136,000, from $216,000 in the six months ended June 30, 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 59.8% to $41,000 in the six months ended June
30, 1996, from $102,000 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 30.1% in the six months ended June 30, 1996, from
47.2% 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 increased 338.2% to $390,000 in the six
months ended June 30, 1996, from $89,000 in the comparable period in 1995. As
a percentage of net sales, these expenses increased to 286.8% in the six
months ended June 30, 1996, from 41.2% in the comparable period in 1995.
General and administrative expenses will increase substantially in the several
quarters following the quarter ended June 30, 1996 to support anticipated
growth in the Company's business activities.
Selling and marketing expenses increased 440.0% to $54,000 in the six months
ended June 30, 1996 from $10,000 in the comparable period in 1995. As a
percentage of net sales, these expenses increased to 39.7% in the six months
ended June 30, 1996, from 4.6% in the comparable period in 1995. This increase
was a result of increased sales and marketing staff and an increase in
marketing expenses, primarily printing costs, incurred in renewing marketing
efforts for Boralyn(R) products. Such expenses are expected to increase
substantially over the several quarters following the quarter ended June 30,
1996, as Boralyn(R)-related marketing and sales activities increase.
Research and development expenses increased 36.8% to $26,000 in the six
months ended June 30, 1996, from $19,000 in the comparable period in 1995. As
a percentage of net sales, these expenses increased to 19.1% in the six months
ended June 30, 1996, from 8.8% in the comparable period in 1995. This increase
was primarily a result of completion of certain contract development programs
and the addition of one staff member. The Company expects research and
development personnel expenses to increase substantially in the second half of
1996 and thereafter.
As a result of the foregoing factors, loss before provision for income taxes
increased 3,870.0% to $397,000 in the six months ended June 30, 1996, from a
loss of $10,000 in the comparable period in 1995.
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.
20
<PAGE>
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.
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 its stockholders and funds generated by operations. At June 30,
1996, the Company's working capital was $1,078,000, compared
21
<PAGE>
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 six months of 1996 was $4,000, $0, and $43,000, 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 May 1, 1996 was limited to $325,000, representing proceeds
from the sales of Common Stock in early 1994. Net cash provided from financing
activities from May 2, 1996 through June 30, 1996 was $2,666,000, representing
proceeds from the Subordinated Credit Line discussed below.
Inventory levels decreased from $154,000 at December 31, 1994 to $16,000 at
December 31, 1995. In 1995, the Company's Boralyn(R) sales were primarily the
result of prototype orders. The balance of the revenues resulted primarily
from the sale of boron carbide powders and silicon nitride composites,
comprising approximately 19,000 pounds of material, activities not anticipated
to recur in the future. As the Company sold powders and composites, it
purposefully did not replace that inventory in order to manage its limited
resources, choosing instead to direct its efforts towards development of its
Boralyn(R) products. This inventory management policy has remained consistent.
Raw materials are readily available from suppliers.
The increase of $158,000 in accrued and other current liabilities from 1994
to 1995 was primarily the result of deferred compensation of $94,000 payable
to one employee and major shareholder, to be paid at a future date (which was
paid in the second quarter of 1996), and a customer advance of $40,000 paid in
December 1995 to the Company for contract research and development services
which were to be provided in 1996. Other accrued liabilities were for audit
fees and outside services. None of these amounts were past due at December 31,
1995 or as of the date of this Prospectus.
In anticipation of the net proceeds from this offering, the Company has
initiated the process of building its infrastructure. Key management, sales
and technical staff have been sought and hired. This was made possible as cash
became available from the advances under the Subordinated Credit Line. The
proceeds of this offering will enable the Company to finance its future
growth. See "Use of Proceeds."
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
$4.6 million as of September 30, 1996), plus accrued interest, will be repaid
with a portion of the net proceeds of this offering, and the Subordinated
Credit Line will terminate. Certain stockholders of the Company, consisting of
M. Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and
Edelson Technology Partners III, who hold, or whose affiliates hold, $3.4
million of the indebtedness which will be repaid, intend to purchase at least
440,000 of the shares of Common Stock offered hereby for an aggregate purchase
price of approximately $5.9 million, 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
<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 manufacturing plan that takes into account the working
capital made available by the debt financing as well
23
<PAGE>
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.
SELECTED CUSTOMERS
<TABLE>
<CAPTION>
APPLICATION CUSTOMER
----------- --------
<S> <C>
HIGH-END SPORTS EQUIPMENT
Golf Club Heads and/or Shafts Taylor Made Golf Company, Inc. (production
order)
Bicycle Frames and/or Components Bebop, Inc.
Campagnolo S.R.L.
Cannondale Corporation
Caramba Cycles, Ltd.
CMB Telai, S.R.L.
Trek Bicycle Corporation
Baseball Bats Worth, Inc.
Sports Racquets Spalding Sports Worldwide, Inc., a division
of Spalding & Evenflo Cos., Inc.
COMPUTER HARD DISKS Seagate Technology, Inc.
(The Company is producing preliminary sam-
ple disk substrates of Boralyn(R) for sev-
eral other major disk drive manufacturers.)
OTHER INDUSTRIAL
Aerospace/Defense Endgate Corporation
Pratt & Whitney, Inc.
Rosemount Aerospace, a division of BF Good-
rich, Inc.
Assembly Equipment Cartesian Data, Inc.
Speedfam Corporation, a subsidiary of
Famtec International, Inc.
Automotive/Motorcycle Honda R&D North America, Inc.
Maverick Racing
Marine Power Ski International, Inc.
Scripps Institute of Technology
Semiconductor Packaging Motorola, Inc.
Speakers Peavy Electronics Corp.
NEUTRON SHIELDING
Waste Containment None, currently (although certain prelimi-
nary discussions have been held).
</TABLE>
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
24
<PAGE>
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
<TABLE>
<CAPTION>
Density (Figure 1)
-----------------------------------------------
<S> <C>
Material g/cc
-------- ----
Boralyn 2.68
Steel 17-4 7.83
Titanium (Ti 3/2.5) 4.51
Aluminum (Al 6061) 2.70
</TABLE>
25
<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 aluminum
and, depending on the grade of Boralyn(R), of titanium as well. Specific
strength is particularly significant in applications such as bicycle
components.
FIGURE 2
<TABLE>
<CAPTION>
Specific Strength (Figure 2)
----------------------------------------------------
<S> <C>
Material 10/3/ In
-------- ----------
Boralyn 6092 701
Boralyn 7093 990
Steel 17-4 674
Titanium (Ti 3/2.5) 766
Aluminum (Al 6061) 459
</TABLE>
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
<TABLE>
<CAPTION>
Specific Stiffness (Figure 3)
----------------------------------------------------
<S> <C>
Material 10/6/ In
-------- ----------
Boralyn 149
Steel 17-4 101
Titanium (Ti 3/2.5) 102
Aluminum (Al 6061) 104
</TABLE>
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, certain grades of Boralyn(R) exhibit 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
26
<PAGE>
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
SPECIFIC STRENGTH VS SPECIFIC STIFFNESS (FIGURE 4)
- --------------------------------------------------
<TABLE>
<CAPTION>
Material Specific Strength Specific Stiffness
(10/3/ In) ( 10/6/ In)
- -------------------------------------------------------------------------------
<S> <C> <C>
Boralyn 6092 701 148
Boralyn 7093 990 148
Steel 17-4 674 101
Titanium 766 93
Aluminum 459 102
</TABLE>
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
<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 larger 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
Fatigue resistance (Figure 5)
<TABLE>
<CAPTION>
Cycles to Failure Boralyn Aluminum
- --------------------------------------------------------------------------------
<S> <C> <C>
10(3)
10(4) 30 22
10(5) 23 16
10(6) 20 6
10(7) 16
10(8)
10(9)
10(10)
</TABLE>
28
<PAGE>
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, characteristics that will allow for greater storage capabilities and
faster data transfer rates.
FIGURE 6A
RESONANCE AMPLITUDE (FIGURES 6A, 6B)
- ------------------------------------
<TABLE>
<CAPTION>
Aluminum Glass Boralyn
RPM 0.0315" Thickness 0.0315" Thickness 0.0315" Thickness
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
500 5.65 8.14
750 6.9 9.24
1000 23.6 61.71 10.85
1250 10.76 13.59
1500 9.23 11.28
1750 6.05 7.53
2000 5.62 7.1 8.27
2250 4.52 10.56
2500 7.91 5.24
2750 4.13 2.29
3000 11.88 17.08 8.25
3250 3.51 3.06
3500 3.12 3.38 7.05
3750 2.52 6.32
4000 3.74 3.89 7.1
4250 3.27 3.08
4500 2.86 14.43
4750 2.07 3.61
5000 3.54 4.14 5.31
5250 4.53 3.88
5500 2.12 2.58 4.97
5750 1.44 3
6000 1.19 2.24 4.94
6250 2.63 1.49
6500 1.53 2.43
6750 2.09 4.4
7000 1.94 3.68 4.55
7250 0.66 2.39 2.59
7500 1.02 1.69
7750 3.18 2.31
8000 3.03 2.67 1.6
8250 0.68 0.98
8500 2.97 3.16
8750 2.52 1.35
9000 1.88 0.45 0.48
9250 1.17 0.87
9500 2.31 1.56
9750 1.36 2.17
10000 2.38 1.4 0
</TABLE>
29
<PAGE>
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
RESONANCE AMPLITUDE (FIGURES 6A, 6B)
- ------------------------------------
<TABLE>
<CAPTION>
Aluminum, Glass, Boralyn,
RPM 0.0315" Thickness 0.0315" Thickness 0.0315" Thickness
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
7250 0.66 2.39 2.59
7500 1.02 1.69
7750 3.18 2.31
8000 3.03 2.67 1.6
8250 0.68 0.98
8500 2.97 3.16
8750 2.52 1.35
9000 1.88 0.45 0.48
9250 1.17 0.87
9500 2.31 1.56
9750 1.36 2.17
10000 2.38 1.4 0
</TABLE>
30
<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 the
Company believes 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
AREAL DENSITY FOR BORALYN COUPONS (FIGURE 7A)
- ---------------------------------------------
<TABLE>
<CAPTION>
Position Sample 1 Sample 2 Sample 3 Sample 4
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.833333333 0.02015 0.01992 0.01996 0.02008
1.666666667 0.01989 0.01989 0.02013 0.02026
2.5 0.02006 0.01993 0.01976 0.02025
3.333333333 0.01978 0.02003 0.02025 0.02022
4.166666667 0.01974 0.01975 0.01998 0.02003
</TABLE>
31
<PAGE>
FIGURE 7B
MEASURED AND CALCULATED BORON-10 AREAL DENSITY VS.
NEUTRON ATTENUATION (FIGURE 7B)
<TABLE>
<CAPTION>
Neutron Calculated Boron-10 Measured Boron-10
Attenuation Fraction Areal Density Areal Density
- ----------------------------------------------------------------------
<S> <C> <C>
0.854 0.0137 0.0145
0.895 0.0161 0.0171
0.955 0.0219 0.022
0.975 0.026 0.0258
0.991 0.0329 0.0339
0.994 0.0358 0.037
</TABLE>
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.
32
<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 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).
On September 10, 1996, the Company and Taylor Made, a leading golf club
manufacturer, entered into a Sale of Goods Agreement and Exclusive License (as
amended in October 1996, the "Agreement and License") which provides for the
production and purchase of Boralyn(R)-based metalwood golf club heads through
June 30, 1999, and an exclusive license through that date should specified
minimum volume requirements be met. Under the Agreement and License, Taylor
Made will work with the Company to develop club head designs, molds,
manufacturing, tooling and production and promotional programs in order to
permit deliveries of Boralyn(R)-based metalwood golf club heads for sale by
July 1, 1997. Following completion of product designs, molds and manufacturing
tooling, Taylor Made will purchase a minimum of $42.75 million of Boralyn(R)
golf club metalwood heads between July 1, 1997, and June 30, 1999. If Taylor
Made does not purchase Boralyn(R) metalwood golf club heads in that minimum
amount, the Company's sole remedy is to terminate the exclusivity of Taylor
Made's license rights. Taylor Made has placed its first purchase order under
the Agreement and License, covering $2.25 million of metalwood golf club heads
for sale in the quarter ending September 30, 1997.
Taylor Made has been provided an exclusive world-wide license regarding
Boralyn(R) metalwood golf club heads through June 30, 1999, subject to its
meeting minimum annual and quarterly order volume requirements specified in
the Agreement and License as follows: minimum orders of $9.0 million for the
twelve months ending June 30, 1998, with orders in any quarter in that period
to be not less than $1.5 million; and minimum orders of $33.75 million for the
twelve months ending June 30, 1999, with orders in any quarter in that period
to be not less than $6.375 million. The order minimums are subject to
adjustment under certain circumstances, including late deliveries. Taylor Made
is required to give the Company notice at least 90 days prior to any calendar
quarter in which Taylor Made will not or does not expect to meet the minimum
order volume requirement for that quarter, and the Company may then terminate
the exclusivity of Taylor Made's license rights as its sole remedy.
Manufacturing of products for delivery under the Agreement and License are to
be made at the Company's plant. If that facility has insufficient capacity to
process order volume at any time, however, Boralyn(R)-based products to be
delivered to Taylor Made will be manufactured at one or more second sources
approved by the Company at facilities under the direct control and supervision
of the Company. Products delivered to Taylor Made under the Agreement and
License will independently display the "Boralyn(R)" name. The Company
anticipates that the Boralyn(R)-based metalwood golf club heads manufactured
for Taylor Made will be a premium-priced product.
The Agreement and License also provides the framework for ongoing
discussions between the Company and Taylor Made and between the Company and
Taylor Made's parent, France-based Salomon Group, regarding an extension of
their relationship and the possible inclusion of Boralyn(R) in additional golf
club equipment and in other sporting goods made by members of Salomon Group.
33
<PAGE>
Prior to entering into the Agreement and License, the Company had produced
prototype golf club heads for Taylor Made. The Company has also produced or is
producing prototype golf club heads for certain other major golf club or
sporting goods equipment producers, 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 or purchase order. The Company will complete those
prototype orders which were received prior to the date of the Agreement and
License with Taylor Made, but will cease further activities and negotiations
with those companies in accordance with the Agreement and License. Should the
Company and Taylor Made fail to reach an agreement to extend their
relationship to include Boralyn(R) in additional golf club equipment, however,
the Company expects to resume activities concerning such other golf club
equipment with one or more of those other companies, and may initiate similar
activities with other golf club producers.
There can be no assurance that the Company will enter into any other
agreements or receive any additional production or purchase orders from Taylor
Made, or will enter into any agreement with any other golf club producer or
any other member of Salomon Group.
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, and from
several smaller bicycle component and/or frame manufacturers. 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 baseball bats, tennis and other sports racquets, and arrows.
The Company has received orders from Worth Inc., for prototype baseball bats,
and 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, and has received a small prototype order from Seagate
Technology, Inc. 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 of existing substrates, 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, and
such modifications may be substantial. 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. The Company does not anticipate
34
<PAGE>
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.
Other Industrial Applications. Other industrial applications of Boralyn(R)
include its use in components for the aerospace/defense sector, where the
Company is producing prototype satellite component samples for Endgate
Corporation, prototype engine components for Pratt & Whitney, Inc., and
prototype sensor housings for Rosemount Aerospace, a division of BF Goodrich,
Inc.; assembly equipment, where the Company is producing prototypes for
Cartesian Data, Inc. and Speedfam Corporation, a subsidiary of Famtec
International, Inc.; automotive and motorcycle components, where the Company
is producing prototype motorcycle brake drums for Honda R&D North America,
Inc. and prototype connecting rods for Maverick Racing; marine applications,
where the Company is producing prototype drive shafts for Power Ski
International, Inc. and prototype underwater pressure vessels for Scripps
Institute of Technology; semiconductor packaging, where the Company is
producing prototypes for Motorola, Inc.; speakers, where the Company is
producing prototypes for Peavy Electronics Corp.; and armor for government and
military vehicles and for personal protection.
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. Although the
Company has had preliminary discussions with an international nuclear plant
construction company concerning prototype disposal containers, the Company has
elected to defer delivering prototypes in the neutron shielding field in order
that it may concentrate its efforts currently on high-end sporting goods,
computer hard disks and other industrial applications. The Company does not
anticipate production orders for neutron shielding applications until at least
late 1997, and there can be no assurance that any production orders will be
obtained.
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 exhibited Boralyn(R) bicycle components and frames at the annual
Interbike Exhibition in Anaheim, California, 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 Company's
marketing activities will
35
<PAGE>
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. 5,486,223, 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 applications relating to bicycle frames and fabricating
methods were filed in September 1995 and were allowed in June and September
1996, respectively, but there can be no assurance that the Company's other
pending 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 applications that were 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.
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
36
<PAGE>
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. See "Risk Factors--Dependence on Principal
Suppliers."
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.
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
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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 17 persons as of August 31, 1996, including three
Company executive officers, six manufacturing personnel and five 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 12
additional manufacturing, four additional research and product development and
three 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 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.
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"), formerly a
subsidiary of Zurn Industries, Inc.
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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. In August 1996, ownership of Lynx was sold to a new
group of investors. There have been no further communications from or to Lynx,
its new owners or its counsel since July 1996.
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.
The Company believes, and has advised both Lynx and its former 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.
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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........... 60 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.
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 ten years. Edelson
Technology Partners and its related funds have invested in more than 70
companies involved in a wide range of technologies, including
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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 January 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 public 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. Messrs. Edelson,
Markbreiter and Toledano were elected as Directors of the Company pursuant to
the terms of a Stockholders' Agreement, dated as of May 1, 1996 (the
"Stockholders' Agreement"), by and among the Company and certain stockholders
of the Company. The voting arrangements in the Stockholders' Agreement will
terminate upon the consummation of this offering.
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."
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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 been the Director of Marketing and Sales of the
Company since August 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.
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 $29,975 -- -- -- --
President and Chief Ex-
ecutive 1994 $74,961 -- -- -- --
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
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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. 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 (or, in the case of Mr. Miller, a one-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
Compensation Committee of 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 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,
consultants, officers and other 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.
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 340,000
shares of Common Stock will have been granted under the 1996 Plan. The Company
may in its sole discretion grant Options to non-employee Directors,
consultants, officers and other key employees of the Company ("Discretionary
Options") 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 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 and consultants shall
be NQSOs.
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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 participants
who will receive grants of Discretionary Options, the number of shares of
Common Stock subject to each Discretionary Option, the grant date, the
expiration date and other terms and conditions for the Discretionary Options.
Options granted to non-employee Directors pursuant to the Formula are
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 optionee at the time of grant, in accordance with the terms and
conditions of the 1996 Plan.
A Discretionary Option 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,
Discretionary Options 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 an optionee's service with the Company is terminated for any reason other
than death or disability or a discharge for cause, any outstanding
Discretionary 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 an optionee dies
or becomes totally and permanently disabled while engaged by the Company or a
subsidiary, or dies within three months after the optionee ceases to provide
services to the Company, any outstanding Discretionary Option, to the extent
that it has vested, may be exercised by the optionee (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 an optionee is discharged for "cause" (as defined in the
1996 Plan), the right of such optionee to exercise a Discretionary 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.
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 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
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<PAGE>
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
Discretionary Options 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.
Options granted pursuant to the 1996 Plan (other than Director Options and
ISOs) may, in the discretion of the Committee, be transferable to members of
the optionee's immediate family, a trust established for the benefit of one or
more members of the optionee's immediate family or a partnership in which such
family members are the only partners. The optionee may not receive any
consideration for the transfer.
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. No amendment of the 1996 Plan,
without the Option holder's consent, may adversely affect any Options
previously granted to him or her.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO OPTIONS
In general, an optionee will not recognize taxable income upon the grant or
exercise of an incentive stock option ("ISO"), and the Company will not be
entitled to any business expense deduction with respect to the grant or
exercise of an ISO. (However, upon the exercise of an ISO, the excess of the
fair market value on the date of exercise of the shares received over the
exercise price of the shares will be treated as an adjustment to alternative
minimum taxable income.) In order for the exercise of an ISO to qualify for
this tax treatment, the optionee generally must be an employee of the Company
or a subsidiary (within the meaning of Section 422 of the Code) from the date
the ISO is granted through the date three months before the date of exercise
(one year preceding the date of exercise in the case of an optionee who is
terminated due to disability). In addition, an option will not be treated as
an ISO to the extent that the fair market value of stock with respect to which
ISOs first become exercisable during any calendar year exceeds $100,000.
If the optionee has held the shares acquired upon exercise of an ISO for at
least two years after the date of grant and for at least one year after the
date of exercise, when the optionee disposes of the shares, the difference, if
any, between the sales price of the shares and the exercise price of the
option will be treated as long-term capital gain or loss. If the optionee
disposes of the shares prior to satisfying these holding period requirements
(a "disqualifying disposition"), the optionee will recognize ordinary income
at the time of the disqualifying disposition, generally in an amount equal to
the excess of the fair market value of the shares at the time the option was
exercised over the exercise price of the options. The balance of the gain
realized, if any, will be long-term or short-term capital gain, depending upon
whether or not the shares were sold more than one year after the option was
exercised. If the optionee sells the shares in a disqualifying disposition, in
a transaction that would permit a loss to be recognized under the Code (were a
loss in fact to be sustained), at a price below the fair market value of the
shares at the time the option was exercised, the amount of ordinary income
will be limited to the amount realized on the sale over the exercise price of
the option. The Company will be allowed a business expense deduction to the
extent the optionee recognized ordinary income, provided, among other things,
that the Company satisfies its withholding obligations with respect to such
income.
In general, an optionee who receives a non-qualified stock option will
recognize no income at the time of the grant of the option. Upon exercise of a
non-qualified stock option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. The optionee's tax basis in
shares acquired upon exercise of a non-qualified stock option will be the fair
market value on the date income is recognized, and the optionee's holding
period will commence on that date. Upon a subsequent sale or exchange of the
shares acquired upon exercise of a non-qualified stock option, the optionee
will generally have capital gain or loss (long-term or short-term depending on
whether the
45
<PAGE>
shares have been held for more than one year) measured by the difference
between the amount realized on the disposition and the tax basis of the
shares. The Company will be entitled to a business expense deduction in the
same amount and at the same time as the optionee recognizes ordinary income,
provided, among other things, that the Company satisfies its withholding
obligations with respect to such income.
1996 STOCK INCENTIVE PLAN BENEFITS
The following table shows in the aggregate the formula awards options that
will be granted to Eligible Directors under the 1996 Plan. Because future
awards to executive officers and employees of the Company are discretionary
and cannot be determined at this time, the table does not reflect any such
awards.
<TABLE>
<CAPTION>
EXERCISE PRICE NUMBER OF
NAME AND POSITION (PER SHARE) SHARES
----------------- ----------------- ---------
<S> <C> <C>
All Directors who are not Fair market value
Executive Officers, as a group on
(three (3) persons)............................... date of grant 45,000
</TABLE>
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."
46
<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(8)
<S> <C> <C> <C>
Robin A. Carden......... 3,132,000 39.15% 29.13%
Kingdon Capital Manage-
ment Corp.(2).......... 2,088,000 26.10% 23.14%
Udi Toledano(3)......... 564,333 7.05% 5.25%
Herbert V. Turk(4)...... 560,000 7.00% 5.21%
Edelson Technology Part-
ners III............... 480,000 6.00% 4.84%
Walter R. Menetrey...... 240,000 3.00% 2.23%
Harry Edelson(5)........ 8,333 * *
Michael Markbreiter(6).. 8,333 * *
All executive officers
and directors of the
Company as a group (six
persons)(7)............ 3,904,999 48.81% 36.33%
</TABLE>
- ---------------------
* Less than 1%.
(1) The address for each of the persons listed in the table is c/o Alyn
Corporation, 16761 Hale 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. Mr. Mark Kingdon is the sole shareholder, director and
executive officer 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 held by 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.
(8) Includes 440,000 shares of Common Stock to be purchased by certain
existing stockholders of the Company, consisting of M. Kingdon Offshore
NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III.
47
<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 $4.6 million as of September 30,
1996), plus accrued interest, will be repaid with a portion of the net
proceeds of this offering. As of September 30, 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 $319,000, $2,766,750, $319,000 and $660,000, respectively, or an
aggregate of approximately $4.1 million of the approximately $4.6 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 existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who together with their affiliates hold approximately
$3.4 million of the indebtedness that will be repaid by the Company with a
portion of the net proceeds of this offering, intend to purchase approximately
440,000 of the shares of Common Stock offered hereby for an aggregate purchase
price of approximately $5.9 million, 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, 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
48
<PAGE>
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.
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 10,750,000 shares of Common Stock outstanding, of which
8,000,000 shares of Common Stock (approximately 74% of the shares to be
outstanding)
49
<PAGE>
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 (107,500 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.
50
<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 October 22, 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:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Furman Selz LLC............................................. 855,000
Needham & Company, Inc. .................................... 855,000
Robert W. Baird & Co. Incorporated.......................... 80,000
Cleary Gull Reiland & McDevitt Inc. ........................ 80,000
Cowen & Company............................................. 80,000
Dain Bosworth Incorporated.................................. 80,000
EVEREN Securities, Inc. .................................... 80,000
Fahnestock & Co. Inc. ...................................... 80,000
Janney Montgomery Scott Inc. ............................... 80,000
Keane Securities Co., Inc. ................................. 80,000
Ladenburg, Thalmann & Co. Inc. ............................. 80,000
Pennsylvania Merchant Group LTD............................. 80,000
The Robinson-Humphrey Company, Inc. ........................ 80,000
The Seidler Companies Incorporated.......................... 80,000
Wm. Smith Securities Incorporated........................... 80,000
---------
Total..................................................... 2,750,000
=========
</TABLE>
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 $0.57 per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.10 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 412,500
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.
In connection with this offering, the Company has agreed to sell to Furman
Selz LLC, for nominal consideration, warrants to purchase 211,000 shares of
Common Stock (the "Warrants"). The Warrants are initially exercisable at a
price of $20.25 per share of Common Stock (150% of the initial public offering
price) for a period of five years, commencing one year from the effective date
of this offering and are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the effective date of the
offering, except to officers, partners or successors of Furman Selz LLC. The
exercise price of the Warrants and the number
51
<PAGE>
of shares of Common Stock issuable upon exercise thereof are subject to
adjustment under certain circumstances. The Warrants grant to the holders
thereof certain rights of registration for the securities issuable upon
exercise of the Warrants. The Warrants are redeemable by the Company, on prior
notice, if the price of the Common Stock two years after the closing of the
offering, exceeds $30.38 (150% of the exercise price) for a 60-day period.
The Company, all of its executive 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. Robin A. Carden and Walter R. Menetrey, the only current stockholders
of the Company who are also executive officers of the Company, have also agreed
not to offer, sell or otherwise dispose of more than 107,500 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 existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who 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 approximately 440,000 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 approximately $88,000 in
the aggregate of the approximately $4.6 million of loans outstanding as of
September 30, 1996 under the Subordinated Credit Line, which amounts will be
repaid with a portion of the net proceeds of this offering. See "Certain
Transactions--Agreement and Plan of Merger; Repayment of Stockholder Loans."
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, among other matters, 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.
52
<PAGE>
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 Alyn as of December 31, 1994, and 1995, and for
each of the three years in the period ended December 31, 1995, 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. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, including the Company, and the
address is (http://www.sec.gov).
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<PAGE>
GLOSSARY OF CERTAIN TECHNICAL TERMS
<TABLE>
<C> <S>
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 Elasticity: A generally accepted measure of the rigidity or
stiffness of a material.
Rockwell B Hardness: A value derived from the net increase in 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 Strength: The stress at which a material exhibits a specified
deviation from proportionality of stress and strain.
</TABLE>
54
<PAGE>
ALYN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
Alyn Corporation
Report of Independent Accountants................................. F-2
Balance Sheet..................................................... F-3
Statement of Operations........................................... F-4
Statement of Stockholders' Deficit................................ F-5
Statement of Cash Flows........................................... F-6
Notes to Financial Statements..................................... F-7 to F-12
</TABLE>
F-1
<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 each
of 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
<PAGE>
ALYN CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
OLD ALYN ALYN
-------------------- -----------
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................................... $ 15,000 $ 77,000 $1,238,000
Accounts receivable, net of allowance for doubtful accounts of $8,000 at June 30, 1996.... 8,000 15,000 20,000
Inventories............................................................................... 154,000 16,000 20,000
Other current assets...................................................................... 34,000
--------- --------- ----------
Total current assets.................................................................... 177,000 108,000 1,312,000
Equipment, furniture and fixtures, net...................................................... 5,000 3,000 45,000
Deferred offering costs (Note 1)............................................................ 229,000
Other assets (Note 7)....................................................................... 258,000
Intangible assets, net...................................................................... 11,000 17,000 806,000
--------- --------- ----------
$ 193,000 $ 128,000 $2,650,000
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................................................... $ 42,000 $ 64,000 $ 138,000
Accrued and other current liabilities..................................................... 268,000 426,000 96,000
--------- --------- ----------
Total current liabilities............................................................... 310,000 490,000 234,000
Note payable to stockholder................................................................. 128,000 128,000
Credit facility from stockholders........................................................... 2,794,000
Commitments and contingencies (Note 7)
Stockholders' deficit:
Alyn:
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.............................................................................. 8,000
Additional paid-in capital................................................................ (3,000)
Old Alyn:
Common stock, Class A, no par value; 10,000,000 shares authorized; 1,700,000 shares issued
and outstanding.......................................................................... 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
Accumulated deficit....................................................................... (571,000) (816,000) (383,000)
--------- --------- ----------
Total stockholders' deficit............................................................. (245,000) (490,000) (378,000)
--------- --------- ----------
- -------------------------------------------------- $ 193,000 $ 128,000 $2,650,000
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ALYN CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OLD ALYN ALYN
------------------------------------------------------ -----------
SIX PERIOD FROM PERIOD FROM
YEAR ENDED MONTHS JANUARY 1, MAY 2,
DECEMBER 31, ENDED 1996 TO 1996 TO
------------------------------- JUNE 30, MAY 1, JUNE 30,
1993 1994 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................................... $ 540,000 $ 309,000 $ 261,000 $216,000 $104,000 $ 7,000
Contract revenue........................................ 58,000 25,000
--------- --------- --------- -------- --------- ---------
Total revenue....................................... 540,000 309,000 319,000 216,000 104,000 32,000
--------- --------- --------- -------- --------- ---------
Costs and expenses:
Cost of goods sold.................................... 265,000 92,000 203,000 102,000 34,000 7,000
General and administrative expenses................... 259,000 352,000 219,000 89,000 53,000 337,000
Selling and marketing................................. 114,000 143,000 52,000 10,000 23,000 31,000
Research and development.............................. 24,000 180,000 79,000 19,000 7,000 19,000
--------- --------- --------- -------- --------- ---------
Total costs and expenses............................ 662,000 767,000 553,000 220,000 117,000 394,000
--------- --------- --------- -------- --------- ---------
Operating loss.................................... (122,000) (458,000) (234,000) (4,000) (13,000) (362,000)
Interest expense........................................ (4,000) (12,000) (12,000) (6,000) (3,000) (27,000)
Other income............................................ 1,000 1,000 2,000 1,000 7,000
--------- --------- --------- -------- --------- ---------
Loss before provision for income taxes.................. (125,000) (469,000) (244,000) (10,000) (15,000) (382,000)
Provision for income taxes.............................. 1,000 1,000 1,000 1,000 1,000 1,000
--------- --------- --------- -------- --------- ---------
Net loss................................................ $(126,000) $(470,000) $(245,000) $(11,000) $ (16,000) $(383,000)
========= ========= ========= ======== ========= =========
Net loss per share...................................... $ (0.05)
=========
Weighted average number of common shares outstanding
(Note 1)............................................... 8,000,000
Unaudited pro forma data
(Notes 1 and 3):
Pro forma net loss...................................... $(322,000) $ (42,000)
========= =========
Pro forma net loss per share............................ $ (0.04) $ (0.01)
========= =========
Pro forma weighted average number of common shares
outstanding (Note 1)................................... 8,000,000 8,000,000
========= =========
Unaudited supplemental data (Note 1):
Net loss.............................................. $(356,000)
=========
Net loss per share.................................... $ (0.04)
=========
Weighted average number of common shares outstanding.. 8,227,820
=========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ALYN CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<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>
OLD ALYN (NOTES 1 AND 6)
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
warrant............... $ 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........ 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)
Unaudited:
Repurchase of common
stock................. (200,000) (217,000) (43,000)
Net loss............... (16,000)
------ ------- ------------ --------- ---------- ----------- ---------
Balance at May 1, 1996
(unaudited)............ -- -- 1,700,000 $1,000 100,000 $ 108,000 $(875,000)
====== ======= ============ ========= ========== =========== =========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C> <C>
ALYN (NOTE 1)
Unaudited:
Issuance of common
stock................. -- -- 4,240,000 $4,000 $ 1,000
Common stock issued in
exchange for Old Alyn
common stock.......... 3,760,000 4,000 (4,000)
Net Loss............... $(383,000)
------- ------- --------- ------ -------- ---------
Balance at June 30, 1996
(unaudited)............ -- $ -- 8,000,000 $8,000 $ (3,000) $(383,000)
======= ======= ========= ====== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ALYN CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
OLD ALYN ALYN
------------------------------------------------------- -----------
PERIOD FROM PERIOD FROM
YEAR ENDED SIX MONTHS JANUARY 1, MAY 2,
DECEMBER 31, ENDED 1996 TO 1996 TO
------------------------------- JUNE 30, MAY 1, JUNE 30,
1993 1994 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(126,000) $(470,000) $(245,000) $(11,000) $ (16,000) $ (383,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................ 5,000 3,000 2,000 1,000 13,000
Provisions for allowance for doubtful accounts....... 8,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable......... (58,000) 50,000 (7,000) (23,000) (30,000) 17,000
Decrease (increase) in inventories................. 56,000 (49,000) 138,000 70,000 7,000 (11,000)
Increase in other current assets................... (34,000)
Increase in deferred offering costs................ (128,000) (101,000)
Increase in other assets........................... (258,000)
Increase in intangible assets...................... (2,000) (6,000) (6,000) (1,000) (35,000)
(Decrease) increase in accounts payable............ 5,000 (7,000) 22,000 (9,000) (4,000) 78,000
Increase in accrued and other current liabilities.. 142,000 126,000 158,000 65,000 94,000 (684,000)
--------- --------- --------- -------- --------- -----------
Net cash provided by (used in) operating
activities....................................... 22,000 (353,000) 62,000 92,000 (69,000) (1,398,000)
--------- --------- --------- -------- --------- -----------
Cash flows from investing activities:
Capital expenditures................................. (3,000) (4,000) (4,000) (39,000)
--------- --------- --------- -------- --------- -----------
Net cash used in investing activities............. (3,000) (4,000) (4,000) (39,000)
--------- --------- --------- -------- --------- -----------
Cash flows from financing activities:
Sale of common stock warrant......................... 75,000
Issuance of Old Alyn common stock, Class B........... 250,000
Payment of stockholder note payable.................. (128,000)
Proceeds from stockholder credit facility............ 2,794,000
--------- --------- --------- -------- --------- -----------
Net cash provided from financing activities....... 325,000 2,666,000
--------- --------- --------- -------- --------- -----------
Net increase (decrease) in cash....................... 19,000 (32,000) 62,000 92,000 (73,000) 1,229,000
Cash at beginning of period........................... 28,000 47,000 15,000 15,000 77,000 9,000
--------- --------- --------- -------- --------- -----------
Cash at end of period................................. $ 47,000 $ 15,000 $ 77,000 $107,000 $ 4,000 $ 1,238,000
========= ========= ========= ======== ========= ===========
Supplemental cash flow information:
Cash paid during the period for income taxes......... $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ --
========= ========= ========= ======== ========= ===========
Cash paid during the period for interest............. $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ======== ========= ===========
Noncash investing and financing activities:
Liability recorded for repurchase of common stock
from stockholder.................................... $ 260,000
=========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
Alyn Corporation (Alyn or the Company) 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 (0.02611-to-one for 47,000 shares pre-
split discussed below). Subsequent to the acquisition, Old Alyn stockholders
owned forty-seven percent of Alyn. As a result of the change in control of Old
Alyn, the acquisition was accounted for as a purchase. Goodwill and other
intangibles of $766,000 were recorded and are amortized on a straight line
basis over their estimated useful life of ten years. Also in connection with
the acquisition, the original stockholders of Alyn provided a $5 million,
five-year credit facility to the Company due and payable in April 2001. See
Note 4.
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(R).
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
for Alyn and loss per share data for Old Alyn have been adjusted to give
retroactive effect for this split.
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.
Funding of Activities
To date the Old Alyn funded its efforts to engage in the design,
development, manufacture and marketing of industrial and consumer products
through equity and debt financing. Alyn intends to expend substantial funds
for capital expenditures for a new production facility and the related
equipment and tooling. Alyn also expects to incur substantial additional
expenditures to develop its manufacturing, sales and marketing capabilities.
The Company will require additional funds for these purposes in 1996, and, in
the interim, has raised funds through the five-year credit facility obtained
from the stockholders of Alyn. In the future the Company plans to raise funds
through the use of proceeds from a planned initial public offering. The
Company also intends to use the proceeds from the planned offering to repay
all of the outstanding borrowings under the credit facility. The Company'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.
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.
F-7
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Equipment, furniture and fixtures
Equipment, furniture and fixtures, including tooling, 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.
Deferred offering costs
Costs incurred directly related to the Company's planned initial public
offering totaling $229,000 at June 30, 1996 have been capitalized. Upon
successful completion of the Company's planned initial public offering, these
costs will be offset against the proceeds received and charged to
stockholders' deficit.
Intangible assets
Intangible assets consisting of patents for the Boralyn technology and
goodwill are amortized on a straight-line basis over the estimated economic
life of 10 years. Intangible assets are periodically reviewed for impairment
to ensure that they are fairly stated. The Company reviews the recoverability
of intangible assets by comparing cash flows on an undiscounted basis to the
net book value of the assets. In the event the projected undiscounted cash
flows are less than the net book value of the assets, the carrying value of
the assets will be written-down to their fair value, less cost to sell.
Revenue
The Company 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. The
Company performs on-going credit evaluations and maintains reserves for
potential credit losses. Amounts not collected subsequent to December 31, 1994
and 1995 were written-off.
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.
Net loss per share
Net loss per share is based upon the number of weighted average of common
stock shares outstanding during the period from May 2, 1996 to June 30, 1996
after giving retroactive effect to the 80-for-one stock split (Note 1).
Unaudited pro forma net loss and net loss per share
Pro forma net loss per share is based upon the number of weighted average of
common stock shares outstanding during the year ended December 31, 1995 and
the period from January 1, 1996 to May 1, 1996, after giving retroactive
effect for the acquisition of Old Alyn, assuming the change from an S to C-
Corporation tax status as a result of the acquisition, and the 80-for-one
stock split (Note 1). The effect on net loss per share of the acquisition is
to increase the net loss by $77,000 and $26,000 for goodwill amortization for
the year ended December 31, 1995 and the period from January 1, 1996 to May 1,
1996, respectively, and to increase the weighted average shares outstanding by
3,760,000 (post-split). The effect of the change in tax status was not
F-8
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
material. Historical net loss per share of Old Alyn has not been presented for
all periods as such is not deemed meaningful.
Unaudited supplemental data
Supplemental net loss per share is based upon the number of weighted average
of common stock shares outstanding during the period from May 2, 1996 to June
30, 1996 after giving retroactive effect to the 80-for-one stock split (Note
1) and including the number of shares required to repay the credit facility
from stockholders (Note 4) which is to be repaid from the proceeds of the
Company's initial public offering. The effect of the assumed repayment of the
credit facility is to decrease the net loss by $27,000 for the interest
accrued on the debt for the period from May 2, 1996 to June 30, 1996 and to
increase the weighted average shares outstanding by 227,820 assumed to have
been sold at the initial public offering price to repay the credit facility.
Supplemental net loss per share was not presented for the year ended December
31, 1995 and the period from January 1, 1996 to May 1, 1996 as the effect of
the debt to be repaid was not material.
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
The Company sells its products and services to various companies across
several industries, and therefore management believes that no material
concentrations of credit risk exist.
Fair value of financial instruments
The Company'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 June 30, 1996 of Alyn and for the six month
period ended June 30, 1995 and the period from January 1, 1996 to May 1, 1996
of Old Alyn and the period from May 2, 1996 to June 30, 1996 of Alyn, has not
been audited. In the opinion of management, the unaudited interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Company's financial position as
of June 30, 1996, and the results of its operations and its cash flows for the
six month period ended June 30, 1995 and the period from January 1, 1996 to
May 1, 1996 of Old Alyn and the period from May 2, 1996 to June 30, 1996 of
Alyn, and the stockholders' deficit for the period from January 1, 1996 to May
1, 1996 of Old Alyn and the period from May 2, 1996 to June 30, 1996 of Alyn.
New accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting of 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.
F-9
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. BALANCE SHEET COMPONENTS
Inventories:
<TABLE>
<CAPTION>
OLD ALYN ALYN
---------------- -----------
DECEMBER 31, JUNE 30,
---------------- 1996
1994 1995 -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................. $129,000 $ 6,000 $ 2,000
Finished goods................................ 25,000 10,000 18,000
-------- ------- -------
$154,000 $16,000 $20,000
======== ======= =======
</TABLE>
Equipment, furniture and fixtures:
<TABLE>
<CAPTION>
OLD ALYN
------------------
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
Equipment and tooling.................................. $ 11,000 $ 11,000
Furniture and office equipment......................... 2,000 2,000
Leasehold improvements................................. 2,000 2,000
-------- --------
15,000 15,000
Less accumulated depreciation and amortization......... (10,000) (12,000)
-------- --------
$ 5,000 $ 3,000
======== ========
Accrued and other current liabilities:
<CAPTION>
OLD ALYN
------------------
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
Accrued compensation................................... $173,000 $255,000
Accrued professional fees.............................. 49,000 73,000
Customer advance....................................... 40,000
Other.................................................. 46,000 58,000
-------- --------
$268,000 $426,000
======== ========
</TABLE>
3. INCOME TAXES
The Company accounts for income taxes under the liability method.
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 the Company 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 passed to the Old Alyn stockholders.
Alyn is a C-Corporation for income tax purposes and is taxed accordingly.
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.
F-10
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. CREDIT FACILITY FROM STOCKHOLDERS
In May 1996 and in connection with the acquisition discussed in Note 1, the
original stockholders of Alyn provided a $5 million, five-year credit facility
to the Company due and payable in April 2001. Borrowings under the credit
facility bear interest at a rate of 8% per annum payable quarterly, or as
defined by the loan agreement, and are secured by substantially all of the
assets of the Company. Amounts outstanding at June 30, 1996 totalled
$2,794,000.
5. NOTE PAYABLE TO STOCKHOLDER
At December 31, 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 were paid to the stockholder.
6. STOCKHOLDERS' DEFICIT--OLD ALYN
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 executed an agreement to repurchase 200,000 shares
of the Series B common stock for $260,000 in cash. The cash was paid to the
stockholder in May 1996.
7. COMMITMENTS AND CONTINGENCIES
Commitments and leases
Future minimum lease payments required under a non-cancelable operating
lease at December 31, 1995 for a vehicle operated by a former officer of the
Company, who performs legal services from time to time, and for a new five-
year manufacturing facility lease agreement executed in June 1996 and
commencing in September 1996, are as follows:
<TABLE>
<CAPTION>
MANUFACTURING
YEAR ENDING DECEMBER 31: VEHICLE FACILITY
<S> <C> <C>
1996................................................. $5,000 $ 85,000
1997................................................. 3,000 235,000
1998................................................. 269,000
1999................................................. 280,000
2000................................................. 292,000
Thereafter........................................... 200,000
------ ----------
$8,000 $1,361,000
====== ==========
</TABLE>
Rent expense totaled $11,000, $15,000 and $17,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
Included in other assets at June 30, 1996 is a security deposit of $85,000
for the new manufacturing facility and approximately $170,000 of deposits for
equipment purchases.
F-11
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Litigation and claims
In June 1996, the Company received correspondence from the counsel of a
prospective customer asserting damages suffered as a result of alleged
misrepresentations as to the properties and capabilities of Boralyn and the
prospective customer's alleged loss of anticipated profits from future sales
of products. Management believes that the prospective customer's assertions
are without merit and intends to vigorously defend any litigation brought by
the prospective customer. However, the cost of defending such litigation, if
brought, may be material and there can be no assurance that the Company would
ultimately prevail or that the outcome of such litigation would not have a
material adverse effect on the Company's financial position or results of
operations. No action has been commenced against the Company by the
prospective customer.
Also, 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-12
<PAGE>
[GRAPHIC] [GRAPHIC]
Boralyn(R) Engine Piston Boralyn(R) Motorcycle Brake Rotor
The Company believes that the hardness and resistance to wear of Boralyn(R) can
be used to advantage in automotive and other applications.
[LOGO FOR BORALYN]
[GRAPHIC] [GRAPHIC]
Boralyn(R) Bicycle Cranks Borayn(R) Water Pump
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>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION 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 AUTHORIZED BY THE COM-
PANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO 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 INFORMA-
TION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 40
Principal Stockholders................................................... 47
Certain Transactions..................................................... 48
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Glossary of Certain Technical Terms...................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL NOVEMBER 16, 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.
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2,750,000 SHARES
[LOGO OF ALYN CORPORATION APPEARS HERE]
COMMON STOCK
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PROSPECTUS
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FURMAN SELZ
NEEDHAM & COMPANY, INC.
OCTOBER 22, 1996
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