<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996
REGISTRATION NO. 333-09143
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ALYN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0709359
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION) 3299
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
16761 HALE AVENUE
IRVINE, CA 92606
(714) 475-1525
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBIN A. CARDEN
ALYN CORPORATION
16761 HALE AVENUE
IRVINE, CA 92606
(714) 475-1525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GERALD A. EPPNER, ESQ. STEVEN DELLA ROCCA, ESQ.
BATTLE FOWLER LLP LATHAM & WATKINS
PARK AVENUE TOWER 885 THIRD AVENUE
75 EAST 55TH STREET SUITE 1000
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 856-7000 (212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 2,760,000 shares $13.50 $37,260,000 $12,848.25(3)
- -----------------------------------------------------------------------------------
Common Stock, $.001 par
value.................. 402,500 shares $13.50 $ 5,433,750 $ 1,646.59
</TABLE>
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(1) Includes 412,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
ALYN CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
BETWEEN ITEMS REQUIRED IN PART 1 OF REGISTRATION STATEMENT
(FORM S-1) AND INFORMATION IN PROSPECTUS
<TABLE>
<CAPTION>
ITEM
NO. FORM S-1 CAPTION PROSPECTUS PAGE OR CAPTION
---- ---------------- --------------------------
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of Facing Page of Registration Statement;
Prospectus........................ Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Prospectus Summary; Risk Factors;
Charges........................... Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Selected
Financial Data
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Risk Factors; Underwriting
6. Dilution........................... Dilution
7. Selling Security Holders........... N/A
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Description of Capital Stock
Registered........................
10. Interests of Named Experts and Legal Matters; Experts
Counsel...........................
11. Information with Respect to the
Registrant
a. Description of Business....... Prospectus Summary; Risk Factors;
Business
b. Description of Property....... Business
c. Legal Proceedings............. Business
d. Market Price of and Dividends
on the Registrant's Common
Equity and Related Dividend Policy; Capitalization;
Stockholder Matters.......... Shares Eligible for Future Sale
e. Financial Statements.......... Prospectus Summary; Selected Financial
Data; Financial Statements
f. Selected Financial Data....... Prospectus Summary; Selected Financial
Data
g. Supplementary Financial Prospectus Summary; Selected Financial
Information.................. Data
h. Management's Discussion and
Analysis of Financial
Condition and Results of Management's Discussion and Analysis
Operations................... of Financial Condition and Results
of Operations
i. Changes in and Disagreements
with Accountants on N/A
Accounting and Financial
Disclosure...................
j. Directors, Executive Officers,
Promoters and Control Management
Persons......................
k. Executive Compensation........ Management
l. Security Ownership of Certain
Beneficial Owners and Principal Stockholders
Management...................
m. Certain Relationships and Certain Transactions
Related Transactions.........
12. Disclosure of Commission Position
on Indemnification for Securities N/A
Act Liabilities...................
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE +
+SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE +
+TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1996
PRELIMINARY 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. It is currently
estimated that the initial public offering price of the Common Stock will be
between $11.50 and $13.50 per share. See "Underwriting" for information
relating to factors considered in determining the initial public offering
price. 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 $5.5 million (based on the mid-point
of the range set forth above), 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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per share.................................. $ $ $
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Total(3)................................... $ $ $
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</TABLE>
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(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 $ ,
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 $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Furman Selz LLC, New York, New York, on
or about , 1996.
NEEDHAM & COMPANY, INC.
FURMAN SELZ
The date of this Prospectus is , 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 $5.5 million (based on the mid-point
of the estimated initial public offering
price range set forth on the cover page of
this Prospectus)), and (iii) $3.0 million
for marketing activities for Boralyn(R)
products. The remainder of the net proceeds
will be used for working capital and gen-
eral corporate purposes. See "Use of Pro-
ceeds."
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."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
An investment in the shares of Common Stock
offered hereby involves a high degree of
risk and immediate and substantial
dilution.
Nasdaq National Market Symbol...... "ALYN"
</TABLE>
- --------------------
(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)... 8,247
======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
AS
ACTUAL ADJUSTED(3)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $1,078 $29,453
Total assets................................................ 2,650 31,025
Long-term obligations....................................... 2,794 0
Total stockholders' equity (deficit)........................ (378) 30,791
</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 246,513
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 application relating to
bicycle frames was filed in September 1995 and was allowed in June 1996, but
there can be no assurance that the Company's other pending divisional patent
and continuation-in-part patent applications will receive expedited review.
New patent applications recently filed by the Company cover (i) application of
Boralyn(R) in neutron shielding, (ii) application of Boralyn(R) in computer
hard disk drives and (iii) a new soluble core manufacturing method for
Boralyn(R)-based structures. The Company is not aware of any reason why its
pending applications should not be granted with claims that will provide
coverage and, therefore, adequate protection for its anticipated business
activities, although there can be no assurance in that regard. There can also
be no assurance that the Company's existing patent and the divisional patent
application that was allowed, or any other patents that may be granted, will
be
9
<PAGE>
valid and enforceable or provide the Company with meaningful protection from
competitors. Further, there can be no assurance that any pending patent
application will issue as a patent or that any claim thereof will provide
protection against infringement. If the Company's present or future patent
rights are ineffective in protecting the Company against infringement, the
Company's marketing 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 $34.4
million or $12.50 per share (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus) for the
2,750,000 shares being offered hereby. Accordingly, existing stockholders will
realize an effective appreciation of $12.50 per share of Common Stock in the
value of the shares they currently own as a result of this offering. See
"Dilution."
USE OF PROCEEDS FOR REPAYMENT OF STOCKHOLDER INDEBTEDNESS
A portion of the net proceeds of this offering will be used to repay all
amounts owing under the Subordinated Credit Line 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 $5.5 million (based on the
mid-point of the estimated initial public offering price range set forth on
the cover page of this Prospectus) for their respective accounts or those of
their affiliates or designees. See "Certain Transactions--Agreement and Plan
of Merger; Repayment of Stockholder Loans."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), or otherwise, could have an adverse effect on the
price of the shares of Common Stock. Upon consummation of this offering, the
Company will have outstanding 10,750,000 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
$12.50 (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus) are estimated to be $31.2 million
($36.0 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 $5.5 million (based on the mid-point of the estimated initial
public offering price range set forth on the cover page of this Prospectus),
for their respective accounts or those of their affiliates or designees. The
indebtedness outstanding under the Subordinated Credit Line obtained in May
1996 and expected to be repaid bears interest at the annual rate of 8.0%. The
Company may from time to time incur other borrowings, as needed for its
working capital and general corporate requirements, although it does not
currently have a credit facility and there can be no assurance that the
Company will be able to borrow funds on acceptable terms now or in the future.
The remaining net proceeds from this offering (including any proceeds received
from the exercise of the over-allotment option) are expected to be utilized
for working capital and general corporate purposes.
The amounts and timing of actual expenditures will depend upon numerous
factors, including, primarily, the 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."
14
<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) 31,163
Accumulated deficit...................................... (383) (383)
------ -------
Total stockholders' equity (deficit)..................... (378) 30,791
------ -------
Total capitalization....................................... $2,416 $30,791
====== =======
</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 $12.50 per
share (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus), the net tangible book value of
the Company at June 30, 1996, would have been $29.8 million, or $2.77 per
share, representing an immediate increase in net tangible book value of $2.95
per share to existing stockholders, and an immediate dilution in net tangible
book value of $9.73 per share (or 77.8%) to investors purchasing shares at the
assumed initial public offering price ("New Investors"). The following table
illustrates the per share dilution to New Investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.50
Net tangible book value per share before this offering...... $(0.18)
Increase in net tangible book value per share attributable
to New Investors........................................... 2.95
------
As adjusted, net tangible book value per share as of June
30, 1996, after this offering.............................. 2.77
------
Dilution in net tangible book value to new investors........ $ 9.73
======
</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 $3.10 per share, which would result in dilution to new investors in
this offering of $9.40 (or 75.2%) 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% $34,375,000 99.98% $ 12.50
------------- -------- ----------- ------
Total................. 10,750,000 100.0% $34,380,300 100.00%
============= ======== =========== ======
</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)......... 8,247
======
</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 $29,453
Total assets............. 178 198 219 193 128 2,650 31,025
Long-term obligations.... 128 128 128 128 128 2,794 0
Total stockholders' eq-
uity (deficit).......... 27 26 (99) (245) (490) (378) 30,791
</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 246,513
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 $5.5 million (based on the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), for their respective accounts or those of their affiliates or
designees.
The Company currently intends, following this offering, to seek a loan
commitment from one or more lenders for a working capital credit facility,
subject to satisfaction of such collateral and other requirements as may be
required by the lender. There can be no assurance that any such facility will
be obtained. The Company believes that the net proceeds of this offering,
together with cash flow from operations, will be sufficient to finance its
working and other capital requirements for a period of approximately 24 months
from the date of this Prospectus. Pending the aforementioned uses, the net
proceeds from this offering will be invested in interest bearing government
securities or short-term, investment grade securities.
INFLATION
Inflation has not had a material impact on operating results and the Company
does not expect it to have such an impact in the future. There can be no
assurance, however, that the Company's business will not be affected by
inflation.
22
<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 application relating to bicycle frames was filed in
September 1995 and was allowed in June 1996, but there can be no assurance
that the Company's other pending divisional patent and continuation-in-part
applications will receive expedited review. New patent applications recently
filed by the Company cover (i) application of Boralyn(R) in neutron shielding,
(ii) application of Boralyn(R) in computer hard disk drives and (iii) a new
soluble core manufacturing method for Boralyn(R)-based structures. The Company
is not aware of any reason why its pending applications should not be granted
with claims that will provide coverage and, therefore, adequate protection for
its anticipated business activities, although there can be no assurance in
that regard.
There can be no assurance that the Company's existing patent and the
divisional patent application that was allowed, or any other patents that may
be granted, will be valid and enforceable or provide the Company with
meaningful protection from competitors. There also can be no assurance that
any pending patent application will issue as a patent or that any claim
thereof will provide protection against infringement. If the Company's present
or future patent rights are ineffective in protecting the Company against
infringement, the Company's marketing efforts and future revenues could be
materially and adversely affected. Moreover, if a competitor were to infringe
the Company's patent, the costs of enforcing the Company's patent rights may
be substantial or even prohibitive. The Company currently has only limited
patent protection for its technology outside the United States, and may be
unable to obtain even limited protection for its proprietary technology in
certain foreign countries. See "Risk Factors--Dependence on Patents."
The Company believes that its current and anticipated business does not
infringe on any patent owned by others, although there can also be no
assurance that the Company's products will not infringe the patent rights of
others or that it will not be forced to expend substantial funds to defend
against infringement claims of, or to obtain licenses from, third parties.
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
37
<PAGE>
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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<PAGE>
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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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robin A. Carden......... 38 President, Chief Executive Officer and a Director
Walter R. Menetrey...... 62 Executive Vice President, Chief Operating Officer and a Director
Phillip R. Gustavson.... 52 Vice President, Finance and Administration
Harry Edelson........... 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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<PAGE>
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
42
<PAGE>
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.
43
<PAGE>
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
44
<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 $5.5 million (based on the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), for their respective accounts or those of their affiliates or
designees.
In 1990, the Company borrowed $128,000 from Robin A. Carden, the President,
Chief Executive Officer and a Director of the Company. The outstanding
principal amount of such loan, plus accrued and unpaid interest, was repaid in
May 1996 with a portion of the initial proceeds of the Subordinated Credit
Line.
ANDROMEDA ENTERPRISES, INC.
Andromeda Enterprises, Inc., a Delaware corporation ("Andromeda"), received
$100,000 from the Company in May 1996 for sales, marketing and consulting
services performed by Andromeda on behalf of Old Alyn and on behalf of the
Company. Mr. Udi Toledano, a Director and a principal stockholder of the
Company, is the President of Andromeda, and, together with his wife,
beneficially owns all of its outstanding capital stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.01
par value per share (the "Preferred Stock"). As of June 30, 1996, there were
8,000,000 shares of Common Stock outstanding held by 29 stockholders and no
shares of Preferred Stock issued or outstanding.
COMMON STOCK
The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the stockholders, and a majority vote is required for action to
be taken by the stockholders. In the event of liquidation, 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 , 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............................................
Needham & Company, Inc. ...................................
---------
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 $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the commencement of
the public offering, the offering price and other selling terms may be changed
by the Representatives.
The Company has granted the Underwriters an option to purchase up to 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 $ 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 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 $ (225%
of the initial public offering 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
51
<PAGE>
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.
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
52
<PAGE>
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).
53
<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.. 8,246,513
=========
</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 246,513 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
-----------
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................................................................. 24
Management............................................................... 41
Principal Stockholders................................................... 47
Certain Transactions..................................................... 48
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Glossary of Certain Technical Terms...................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,750,000 SHARES
[LOGO OF ALYN CORPORATION APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
FURMAN SELZ
NEEDHAM & COMPANY, INC.
OCTOBER , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the securities being registered
hereunder. All of the amounts shown are estimates (except for the SEC and NASD
registration fees).
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................... $ 14,495
National Association of Securities Dealers, Inc. filing fee..... 4,770
NASDAQ listing fee.............................................. 46,940
Transfer agent's and registrar's fee............................ 5,000
Printing expenses............................................... 250,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 150,000
Blue sky filing fees and expenses (including counsel fees)...... 15,000
Miscellaneous expenses.......................................... 13,795
--------
Total......................................................... $800,000
</TABLE>
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Certificate of Incorporation (the "Certificate") provides that no director
shall be personally liable to the Company or any stockholder for monetary
damages for breach of fiduciary duty as a director, except for liability: (i)
arising from payment of dividends or approval of a stock purchase in violation
of Section 174 of the DGCL; (ii) for any breach of the duty of loyalty to the
Company or its stockholders; (iii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; or (iv)
for any action from which the director derived an improper personal benefit.
While the Certificate provides protection from awards for monetary damages for
breaches of the duty of care, it does not eliminate the director's duty of
care. Accordingly, the Certificate will not affect the availability of
equitable remedies, such as an injunction, based on a director's breach of the
duty of care. The provisions of the Certificate described above apply to
officers of the Company only if they are directors of the Company and are
acting in their capacity as directors, and does not apply to officers of the
Company who are not directors.
In addition, the Company's By-Laws provide that the Company shall indemnify
its officers and directors, and any employee who serves as an officer or
director of any corporation at the Company's request, to the fullest extent
permitted under and in accordance with the DGCL. Under the DGCL, directors and
officers as well as employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation as a derivative action) if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Reference is made to Section 8 of the Underwriting Agreement (Exhibit 1.1 to
this Registration Statement), which provides for indemnification of the
Company's officers, directors and controlling persons by the Underwriters
against certain civil liabilities, including certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Company has applied for a director and officer liability insurance
policy, under which each director and certain officers of the Company would be
insured against certain liabilities.
II-1
<PAGE>
15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant and its predecessors have issued the following securities
without registration under the Securities Act during the last three years (with
all share and per share data presented before giving effect to the Merger and
the 80-for-one stock split):
(1) On April 3, 1994, Old Alyn granted to three individuals, in
consideration of payment of $75,000, options to purchase up to 20% of Old
Alyn's capital stock.
(2) On May 4, 1994, Old Alyn issued, upon partial exercise of the options
referred to above, to:
A. Art Liang, 100,000 shares of Series B common stock for $1.00 per
share; and
B. Larry Liou, 200,000 shares of Series B common stock for $1.00 per
share.
(3) On May 1, 1996, the Registrant issued to:
A. Stephen and Rosalie Balog, 400 shares of common stock for $0.10
per share;
B. Gary and Stephanie Escandon, 800 shares of common stock for $0.10
per share;
C. Frontier PTY Limited, Trustee for Frontier Trust, 1,200 shares of
common stock for $0.10 per share;
D. First Pacific Capital, 800 shares of common stock for $0.10 per
share;
E. Herbert and Edith Turk, 4,300 shares of common stock for $0.10 per
share;
F. Udi Toledano, 1,900 shares of common stock for $0.10 per share;
G. Janet Toledano, 3,450 shares of common stock for $0.10 per share;
H. James M. Stuart, Jr., 360 shares of common stock for $0.10 per
share;
I. James M. Stuart, Jr., Trustee under agreement dated May 1, 1987,
for the benefit of John E. Stuart, 360 shares of common stock for $0.10
per share;
J. James M. Stuart, Jr. and John E. Stuart, Trustees under agreement
dated January 1, 1989, for the benefit of Mary E. Stuart, 80 shares of
common stock for $0.10 per share;
K. Fred Fraenkel, 400 shares of common stock for $0.10 per share;
L. Edelson Technology Partners III, 6,000 shares of common stock for
$0.10 per share;
M. Kingdon Associates, L.P., 5,260 shares of common stock for $0.10
per share;
N. Kingdon Partners, L.P., 5,260 shares of common stock for $0.10 per
share;
O. M. Kingdon Offshore NV, 15,580 shares of common stock for $0.10
per share;
P. Steve Hourigan, 2,000 shares of common stock for $0.10 per share;
Q. Bergen Enterprises Corp., 500 shares of common stock for $0.10 per
share;
R. Janet Toledano, Trustee under agreement dated 9/2/93 for the
benefit of Alexander and Anna Toledano, 1,000 shares of common stock
for $0.10 per share;
S. Judith Green, 150 shares of common stock for $0.10 per share;
T. Stephanie Bier Toledano, 150 shares of common stock for $0.10 per
share;
U. Gideon Toledano, 150 shares of common stock for $0.10 per share;
V. Robert Lax, 150 shares of common stock for $0.10 per share;
W. Jennifer Thompson, 50 shares of common stock for $0.10 per share;
X. Rachel Turk Balter, 1,350 shares of common stock for $0.10 per
share; and
Y. Miriam Turk, 1,350 shares of common stock for $0.10 per share.
II-2
<PAGE>
(4) On May 2, 1996, the Registrant issued, in exchange for all
outstanding shares of Old Alyn, in connection with the Merger, to:
A. Robin A. Carden, 39,150 shares of Common Stock;
B. Walter R. Menetrey, 3,000 shares of Common Stock;
C. Charles Rosenblum 2,500 shares of Common Stock; and
D. Art Liang 2,350 shares of Common Stock;
The issuances described above were made in reliance upon the exemption from
the registration requirements of the Securities Act provided by Section 4(2)
of the Securities Act for transactions by an issuer not involving a public
offering. The recipients of the securities in each of the above-referenced
transactions represented their intentions to acquire the securities for
investment only and not with a view to or a sale in connection with any
distribution thereof. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant. No
underwriter or underwriting discount or commission was involved in any of such
sales.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are filed herewith and made a part hereof:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1 Form of Revised Underwriting Agreement.
+3.1 Restated Certificate of Incorporation of the Registrant.
+3.2 By-Laws of the Registrant.
4.1 Specimen Copy of Stock Certificate for shares of Common Stock.
+4.2 Stockholders Agreement, dated as of May 1, 1996, by and among the
Registrant and certain stockholders of the Registrant.
4.3 Form of Warrant Agreement, dated as of October , 1996, between
the Registrant and Furman Selz LLC.
5.1 Opinion of Battle Fowler as to the securities being offered.
+10.1 Loan Agreement, dated as of May 1, 1996, between certain persons
and the Registrant.
10.2 1996 Stock Incentive Plan of the Registrant, as amended.
+10.3 Employment Agreement between the Registrant and Robin A. Carden,
dated as of April 1, 1996, as amended by Amendment Number One,
dated as of April 30, 1996.
10.4 [Designation not used.]
+10.5 Lease, dated as of June 12, 1996, between the Registrant and
Taylor-Longman, with respect to premises at 16761 Hale Avenue,
Irvine, California.
+10.6 Sale of Goods Agreement and Exclusive License (the "Sale of Goods
and Exclusive License Agreement"), dated as of September 10,
1996, by and between Taylor Made Golf Company, Inc. and the
Registrant (for which confidential treatment has been
requested).
10.7 Amendment No. 1 to the Sale of Goods and Exclusive License
Agreement, dated as of the 14th day of October, 1996, by and
between Taylor Made Golf Company, Inc. and the Registrant.
10.8 Employment Agreement, dated as of April 1, 1996, between the
Registrant and Walter R. Menetrey.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.9 Employment Agreement, dated as of June 14, 1996, between the
Registrant and Phillip Gustavson.
10.10 Employment Agreement, dated as of June 13, 1996, between the
Registrant and William Harrigan.
10.11 Employment Agreement, dated as of June 13, 1996, between the
Registrant and R. L. Stanish.
10.12 Employment Agreement, dated as of July 8, 1996, between the
Registrant and Tom Flessner.
10.13 Employment Agreement, dated as of August 12, 1996, between the
Registrant and Tom Miller.
23.1 Consent of Battle Fowler LLP (included in its opinion filed as
Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
+24 Power of Attorney (included in the signature page hereto).
+27.1 Financial Data Schedule for the year ended December 31, 1995.
+27.2 Financial Data Schedule for the six month period ended June 30,
1996.
+99.1 U.S. Patent Number 5,496,223, dated January 23, 1996.
</TABLE>
- ---------------------
+ Previously filed.
(b) Financial Statement Schedules
All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.
17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its By-Laws, the
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
directors, officers or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
IRVINE, STATE OF CALIFORNIA, ON OCTOBER 22, 1996.
Alyn Corporation
By: /s/ Robin A. Carden
---------------------------------
ROBIN A. CARDEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Alyn Corporation, a Delaware corporation, and each person whose signature
appears below constitutes and appoints Robin A. Carden, Michael Markbreiter,
and Udi Toledano, and each of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution, for him and
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits and schedules thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact, full power and authority to
do and perform each and every act and thing necessary or desirable to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, thereby ratifying and confirming all that said attorney-
in-fact, or his substitute, may lawfully do or cause to be done by virtue
hereof.
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND OF THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robin A. Carden President, Chief October 22, 1996
- ------------------------------------- Executive Officer
ROBIN A. CARDEN and a Director
(Principal
Executive Officer)
* Vice President, October 22, 1996
- ------------------------------------- Finance and
PHILLIP R. GUSTAVSON Administration
(Principal
Financial and
Accounting Officer)
* Director October 22, 1996
- -------------------------------------
HARRY EDELSON
* Director October 22, 1996
- -------------------------------------
MICHAEL MARKBREITER
* Director October 22, 1996
- -------------------------------------
WALTER R. MENETREY
* Director October 22, 1996
- -------------------------------------
UDI TOLEDANO
*By: /s/ Robin A. Carden
--------------------------------
Attorney-in-Fact and Agent
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1 Form of Revised Underwriting Agreement.
+3.1 Restated Certificate of Incorporation of the
Registrant.
+3.2 By-Laws of the Registrant.
4.1 Specimen Copy of Stock Certificate for shares of Common
Stock.
+4.2 Stockholders Agreement, dated as of May 1, 1996, by and
among the Registrant and certain stockholders of the
Registrant.
4.3 Form of Warrant Agreement, dated as of October , 1996,
between the Registrant and Furman Selz LLC.
5.1 Opinion of Battle Fowler as to the securities being
offered.
+10.1 Loan Agreement, dated as of May 1, 1996, between
certain persons and the Registrant.
10.2 1996 Stock Incentive Plan of the Registrant, as
amended.
+10.3 Employment Agreement between the Registrant and Robin
A. Carden, dated as of April 1, 1996, as amended by
Amendment Number One, dated as of April 30, 1996.
10.4 [Designation not used.]
+10.5 Lease, dated as of June 12, 1996, between the
Registrant and Taylor-Longman, with respect to
premises at 16761 Hale Avenue, Irvine, California.
+10.6 Sale of Goods Agreement and Exclusive License (the
"Sale of Goods and Exclusive License Agreement"),
dated as of September 10, 1996, by and between Taylor
Made Golf Company, Inc. and the Registrant (for which
confidential treatment has been requested).
10.7 Amendment No. 1 to the Sale of Goods and Exclusive
License Agreement, dated as of the 14th day of
October, 1996, by and between Taylor Made Golf
Company, Inc. and the Registrant.
10.8 Employment Agreement, dated as of April 1, 1996,
between the Registrant and Walter R. Menetrey.
10.9 Employment Agreement, dated as of June 14, 1996,
between the Registrant and Phillip Gustavson.
10.10 Employment Agreement, dated as of June 13, 1996,
between the Registrant and William Harrigan.
10.11 Employment Agreement, dated as of June 13, 1996,
between the Registrant and R. L. Stanish.
10.12 Employment Agreement, dated as of July 8, 1996, between
the Registrant and Tom Flessner.
10.13 Employment Agreement, dated as of August 12, 1996,
between the Registrant and Tom Miller.
23.1 Consent of Battle Fowler LLP (included in its opinion
filed as Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
+24 Power of Attorney (included in the signature page
hereto).
+27.1 Financial Data Schedule for the year ended December 31,
1995.
+27.2 Financial Data Schedule for the six month period ended
June 30, 1996.
+99.1 U.S. Patent Number 5,496,223, dated January 23, 1996.
</TABLE>
- ---------------------
+ Previously filed.
<PAGE>
EXHIBIT 1.1
ALYN CORPORATION
2,750,000 Shares of Common Stock, $.001 Par Value
UNDERWRITING AGREEMENT
----------------------
October __, 1996
FURMAN SELZ LLC
NEEDHAM & COMPANY, INC.
As Representatives of the
several Underwriters
c/o Furman Selz LLC
230 Park Avenue
New York, New York 10169
Dear Ladies and Gentlemen:
1. Introduction; Certain Definitions. Alyn Corporation, a Delaware
corporation (the "Company"), proposes to issue and sell to the several
-------
Underwriters named in Schedule I hereto (the "Underwriters"), for which Furman
------------
Selz LLC and Needham & Company, Inc. are acting as representatives (the
"Representatives"), an aggregate of 2,750,000 shares (the "Firm Shares") of the
- ---------------- -----------
Company's common stock, $.001 par value (the "Common Shares"). In addition, the
-------------
Company is granting to the Underwriters an option to purchase up to an
additional 412,500 Common Shares (the "Additional Shares") from the Company for
-----------------
the purpose of covering over-allotments in connection with the sale of the Firm
Shares. The "Offered Shares" shall mean the Firm Shares and the Additional
Shares, if any. The Company will also grant 211,000 warrants (the "Warrants")
--------
to Furman Selz LLC to purchase an aggregate of 211,000 shares of common stock
(the "Warrant Shares"). The Warrants will be issued pursuant to a warrant
--------------
agreement (the "Warrant Agreement") to be dated the date hereof between the
-----------------
Company and Furman Selz LLC. The words "you" and "your" refer to the
Representatives of the Underwriters.
The Company hereby agrees with the several Underwriters as follows:
2. Representations and Warranties. The Company represents, warrants and
agrees with each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-09143) under
the Securities Act of 1933, as amended (the "Act"), with respect to the
---
Offered Shares, including a form of prospectus subject to completion, has
been prepared by the Company in conformity with the
<PAGE>
requirements of the Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder
----------
(the "Rules and Regulations"). Such registration statement has been filed
---------------------
with the Commission under the Act, and one or more amendments to such
registration statement may also have been so filed. The Company represents
and warrants that copies of such registration statement (including all
amendments thereto) have heretofore been delivered by the Company to you.
After the execution of this Agreement, the Company shall file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet
(as hereinafter defined) relating to the Offered Shares, that shall
identify the Preliminary Prospectus (as hereinafter defined) that it
supplements and containing such information as is required or permitted by
Rules 434, 430A and 424(b) under the Act or (B) if the Company does not
rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement filed with the
Commission (or, if no such amendment shall have been filed, in such
registration statement), with such insertions and changes as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act, and
in the case of either clause (i)(A) or (i)(B) of this sentence as shall
have been provided to and approved by the Representatives prior to the
filing thereof or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, a further amendment to such registration statement, including a form
of prospectus, a copy of which amendment has been furnished to and approved
by the Representatives prior to the filing thereof. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto; the Registration
Statement shall be deemed to include any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion contained in such Registration Statement
or any amendment thereto (including the prospectus subject to completion,
if any, included in the Registration Statement or any amendment thereto or
filed pursuant to Rule 424(a) under the Act at the time it was or is
declared effective); the term "Prospectus" means: (A) if the Company relies
on Rule 434 under the Act, the Term Sheet relating to the Offered Shares
that is first filed pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or (C) if the Company does not rely on Rule 434 under the
Act and if no prospectus is required to be filed pursuant to Rule 424(b)
under the Act, the prospectus included in the Registration Statement; and
the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference to the "date" of a Prospectus
that contains a Term Sheet shall mean the date of such Term Sheet. The
Company has timely made any filing required under rule 462(b) under the Act
("Rule 462(b)") and such filing complies in form with the applicable Rules
-----------
and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of the Registration Statement or any Preliminary Prospectus and has
not instituted or, to the best of our knowledge, threatened to institute
any proceedings with respect to such an order. When any Preliminary
Prospectus was filed with the Commission it (i) contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act and the Rules and
Regulations and (ii) did not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein,
2
<PAGE>
in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or
is declared effective, it (1) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and the
Rules and Regulations and (2) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading. When the Prospectus
or any Term Sheet that is a part thereof and when any amendment or
supplement to the Prospectus is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or part thereof or such amendment or
supplement is not required to be so filed, when the Registration Statement
and when any amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective) and at all times subsequent
thereto up to and including the Closing Date (as defined in Section 3
hereof) and the Option Closing Date (as defined in Section 9 hereof), the
Prospectus, as amended or supplemented at any such time, (A) contained or
will contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements of, the Act and the Rules and Regulations and (B) did not or
will not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (b) shall not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon, and in conformity with, information furnished in
writing to the Company by or on behalf of the Underwriters through the
Representatives expressly for use therein.
(c) The Company (i) is a duly incorporated, validly existing
corporation and is in good standing under the laws of the state of
Delaware, with full power and authority (corporate and other) to own or
lease its properties and to conduct its business as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and (ii) is duly
qualified to do business and is in good standing in each jurisdiction in
which the nature of its properties or the conduct of its business requires
such qualification (except for those jurisdictions in which the failure so
to qualify has not had and will not have a Material Adverse Effect (as
hereinafter defined)). The Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization. The Company
does not own, lease or license any property or conduct any business outside
the United States of America. "Material Adverse Effect" means, when used
in connection with the Company, any development, change or effect that, by
itself or in combination with other developments, changes or effects of any
nature whatsoever, is materially adverse to the business, properties,
assets, liabilities, net worth, condition (financial or other), results of
operations or prospects of the Company.
(d) As of June 30, 1996, the Company had a duly authorized and validly
outstanding capitalization as set forth under the Caption "Capitalization"
in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and the Company will have the Pro Forma As
Adjusted capitalization set forth therein on the Closing Date, based on the
assumptions set forth therein. The securities of the Company conform to the
descriptions thereof contained in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus). The outstanding
shares of capital stock of the Company have been duly authorized and
validly issued by the Company and are fully paid and nonassessable. Except
as created hereby or pursuant
3
<PAGE>
to the Company's 1996 Stock Incentive Plan (the "Stock Option Plan") or
-----------------
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), there are no outstanding options,
warrants, rights or other arrangements requiring the Company at any time to
issue any capital stock. No holders of outstanding shares of capital stock
of the Company are entitled as such to any preemptive or other rights to
subscribe for any of the Offered Shares and neither the filing of the
Registration Statement nor the offering or sale of the Offered Shares as
contemplated by this Agreement give rise to any rights for or relating to
the registration of any securities of the Company. The issuance and sale of
the Offered Shares and the Warrants by the Company under this Agreement and
the Warrant Agreement have been duly authorized by the Company. On the
Closing Date, after payment for the Firm Shares in accordance with the
terms of this Agreement, (i) the Firm Shares to be issued by the Company
hereunder will be validly issued, fully paid and non-assessable and will
not be issued in violation of any preemptive, subscription or other similar
rights and (ii) good title to the Firm Shares will pass to the Underwriters
on the Closing Date free and clear of any and all liens, encumbrances,
charges, security interests, claims or other restrictions on title
whatsoever. On the Option Closing Date, after payment for the Additional
Shares in accordance with the terms of this Agreement, (i) the Additional
Shares to be issued by the Company hereunder will be validly issued, fully
paid and non-assessable and will not be issued in violation of any
preemptive, subscription or other similar rights and (ii) good title to the
Additional Shares will pass to the Underwriters on the Option Closing Date
free and clear of any and all liens, encumbrances, charges, security
interests, claims or other restrictions on title whatsoever. The Warrant
Shares, when issued and paid for upon exercise of the Warrants, in
accordance with the terms of the Warrant Agreement, (i) will be validly
issued, fully paid and non-assessable and will not be issued in violation
of any preemptive, subscription or other similar rights and (ii) good title
to the Warrant Shares will pass to Furman Selz LLC free and clear of any
and all liens, encumbrances, charges, security interests, claims or other
restrictions on title whatsoever. No Common Shares have been issued in
violation of preemptive rights or other rights to subscribe for any of the
Offered Shares. The Company has received approval to have the Offered
Shares quoted on the Nasdaq National Market and the Company knows of no
reason or set of facts which is likely to adversely affect any such
approval.
(e) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial condition, results of
operations, cash flows, changes in stockholders' equity and other
information purported to be shown therein of the Company on the basis
stated in the Registration Statement at the respective dates and for the
respective periods to which they apply. Such financial statements and the
related notes and schedules thereto have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved (except as otherwise noted therein), and all
adjustments necessary for a fair presentation of the results for such
periods have been made. Such financial statements as are audited have been
examined by Price Waterhouse LLP, who is and during all periods covered by
its reports was, an independent public accountant with regard to the
Company within the meaning of the Act and the Rules and Regulations, as
indicated in its report filed therewith. The financial information and data
(including, without limitation, pro forma and adjusted financial
information or data) set forth in the sections of the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
entitled "Summary Financial Data," "Capitalization," "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the other financial information
4
<PAGE>
and statistical data set forth in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), have been
properly derived from the financial statements and other operating records
of the Company.
(f) The Company has filed all necessary federal, state and local
income, franchise and other material tax returns and has paid or has caused
to be paid all taxes due in connection therewith other than those contested
in good faith for which adequate reserves have been provided. The Company
has no knowledge of any material tax deficiency which might be assessed
against the Company.
(g) The Company maintains insurance of the types and in amounts which
it reasonably believes to be adequate for its business, in such amounts and
with such deductibles as is customary for companies in the same or similar
business, all of which insurance is in full force and effect.
(h) Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there is no
pending or, to the best of our knowledge, threatened action, suit,
proceeding or investigation before or by any court arbitrator or other
tribunal, or any regulatory body or administrative agency or any other
governmental agency or body, domestic or foreign, which (i) questions the
validity of the capital stock of the Company or this Agreement or any
action taken or to be taken by the Company pursuant to or in connection
with this Agreement (ii) is required to be disclosed in the Registration
Statement and which is not so disclosed (and such proceedings, if any, as
are summarized in the Registration Statement or incorporated therein by
reference are accurately summarized in all respects), or (iii) would
otherwise interfere with or adversely affect the issuance and validity of
the Offered Shares.
(i) The Company has full legal right, power and authority to enter
into this Agreement and the Warrant Agreement and to consummate the
transactions provided for herein and therein. This Agreement and the
Warrant Agreement have been duly authorized, executed and delivered by the
Company and, assuming they are binding agreements of each other party
hereto and thereto, constitute legal, valid and binding agreements of the
Company enforceable against the Company in accordance with their terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles relating to the availability of
remedies and except as rights to indemnity or contribution may be limited
by federal or state securities laws and the public policy underlying such
laws) and none of the Company's execution or delivery of this Agreement,
the Warrant Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, its
application of the net proceeds of the offering in the manner set forth
under the caption "Use of Proceeds" or the conduct of its business as
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), conflicts or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or causes
or will cause (or permits or will permit) the maturation or acceleration of
any liability or obligation or the termination of any right under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to the terms of (i) the
Certificate of Incorporation or bylaws (or similar governing instruments)
of the Company, (ii) any indenture, mortgage, deed of trust, voting trust
agreement, stockholders' agreement, note agreement or other agreement or
instrument to which
5
<PAGE>
the Company is a party or by which it is or may be bound or to which its
property is or may be subject or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its activities or properties.
(j) The Warrants have been duly and validly authorized for issuance
and sale to Furman Selz LLC by the Company pursuant to the Warrant
Agreement and, when issued in accordance with the terms of the Warrant
Agreement and delivered against payment therefor in accordance with the
terms thereof, will be the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles relating to the availability of
remedies and except as rights to indemnity or contribution may be limited
by federal or state securities laws and the public policy underlying such
laws).
(k) All agreements filed as exhibits to the Registration Statement to
which the Company is a party or by which it is or may be bound or to which
any of its assets, properties or businesses is or may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles relating to the availability of
remedies and except as rights to indemnity or contribution may be limited
by federal or state securities laws and the public policy underlying such
laws). The descriptions in the Registration Statement of such contracts
and other documents are accurate and fairly present the information
required to be shown with respect thereto by the Act and the Rules and
Regulations, and there are no contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have
been filed are complete and correct copies of the documents of which they
purport to be copies.
(l) Subsequent to the most recent dates as of which information is
given in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), and except as expressly contemplated
therein, the Company has not (i) incurred, other than in the ordinary
course of its business, any material liabilities or obligations, direct or
contingent, (ii) purchased any of its outstanding capital stock, (iii) paid
or declared any dividends or other distributions on its capital stock or
(iv) entered into any material transactions not in the ordinary course of
business, and there has been no material change in capital stock or debt or
any material adverse change in the business, properties, assets,
liabilities, net worth, condition (financial or other), results of
operations or prospects of the Company. The Company (or the manner in which
it conducts its business) is not in breach or violation of, or in default
under, any term or provision of (X) its Certificate of Incorporation or
bylaws (or similar governing instruments), (Y) any indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note
agreement or other material agreement or instrument to which it is a party
or by which it is or may
6
<PAGE>
be bound or to which any of its property is or may be subject, or any
indebtedness or (Z) any statute, judgment, decree, order, rule or
regulation applicable to the Company or of any arbitrator, court,
regulatory body, administrative agency or any other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(m) The Company is not involved in any labor disputes nor, to the
Company's knowledge, are any such disputes threatened, which disputes could
reasonably be expected to, either singly or in the aggregate, have a
Material Adverse Effect.
(n) Since its inception, the Company has not incurred any liability
arising under or as a result of the application of the provisions of the
Act or the Rules and Regulations.
(o) No consent, approval, authorization or order of or filing, notice
or declaration to or with any court, regulatory body, administrative agency
or any other governmental agency or body is required for the performance of
this Agreement or the Warrant Agreement or the consummation of the
transactions contemplated hereby and thereby, except such as have been or
may be obtained under the Act or may be required under state securities or
Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Offered Shares.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities under the Registration Statement
(other than those that have been disclosed in the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
that have not been waived with respect to the Registration Statement.
(q) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) nor, to the
Company's best knowledge, any of the persons set forth under the caption
"Principal Stockholders" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) has taken, directly or
indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might in the
future reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate the
sale or resale of the Offered Shares or otherwise.
(r) The Company has good and marketable title to, or valid and
enforceable leasehold interests in, all properties and assets owned or
leased by it, free and clear of any and all liens, mortgages, pledges,
encumbrances, charges, security interests, restrictions, equities, claims
and defects, except (A) such as are described in the Registration Statement
and Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or such as do not materially adversely affect the
value of any of such properties or assets taken as a whole and do not
materially interfere with the use made and proposed to be made of any of
such properties or assets and (B) liens for taxes not yet due and payable
as to which appropriate reserves have been established and reflected in the
financial statements included or incorporated by reference in the
Registration Statement. The Company owns or leases all such properties as
are necessary to its operations as now conducted, and as proposed to be
conducted as set forth in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and the properties and business of the Company conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the
7
<PAGE>
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All the material leases and subleases of the
Company under which the Company holds properties or assets as lessee or
sublessee constitute valid leasehold interests of the Company, free and
clear of liens, mortgages, pledges, encumbrances, charges, security
interests, restrictions, equities, or defects and are in full force and
effect, and the Company is not in default in respect of any such material
leases or subleases, and the Company has no notice of any claim which has
been asserted by anyone adverse to the Company's rights as lessee or
sublessee under any material lease or sublease, or affecting or questioning
the Company's right to the continued possession of the leased or subleased
premises under any such material lease or sublease, which could reasonably
be expected to have a Material Adverse Effect. Each material agreement
pursuant to which the Company has the right to acquire land constitutes the
legal, valid and binding obligation of the Company, the owner of such land
and any other party thereto, no such party is in default under any such
agreement and each such agreement is enforceable by the Company, according
to its terms.
(s) The Company has not violated any applicable existing federal,
state, local or foreign statutes, laws, rules or regulations, including,
but not limited to, (i) any foreign, federal, state or local statute, law,
rule or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) any federal or state statute,
------------------
law, rule or regulation relating to discrimination in the hiring, promotion
or pay of employees, (iii) any applicable federal or state wages and hours
laws and (iv) any provisions of the Employee Retirement Income Security Act
and the rules and regulations promulgated thereunder, which in each case
could reasonably be expected to result in a Material Adverse Effect.
(t) All franchises, licenses, permits, approvals, certificates and
other authorizations from federal, state, local, foreign and other
governmental or regulatory authorities, including, without limitation,
under any applicable Environmental Laws, necessary to the ownership,
leasing and operation of the properties of the Company or required for the
Company's operations as now conducted, and as proposed to be conducted as
set forth in the Registration Statement and the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus) are
in full force and effect and the Company is in compliance therewith except
where any non-compliance herewith would not have a Material Adverse Effect.
(u) The Company owns or possesses, free and clear of any security
interest, mortgage, pledge, claim, lien, charge or encumbrance, all
patents, patent rights, licenses, inventions, copyrights, know-how
(including, without limitation, trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
"Intellectual Property") material to the business of the Company. The use
------------ --------
of such Intellectual Property in connection with the business and
operations of the Company does not, to the Company's best knowledge,
infringe on the rights or claimed rights of any person. No other person is,
to the Company's best knowledge, infringing upon any of the Intellectual
Property or has notified the Company that it is claiming ownership of, or
the right to use, any Intellectual Property. The Company has taken all
reasonable steps to protect the Intellectual Property from infringement by
any other person. The Company has not received (i)
8
<PAGE>
any notice of infringement of or conflict with assessed rights of others
with respect to any Intellectual Property or (ii) any notice of an action
or proceeding seeking to limit, cancel or question the validity of any
Intellectual Property, which singly or in the aggregate, if the subject of
any unfavorable decision, ruling or finding, might have a Material Adverse
Effect.
(v) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company shall retain
Price Waterhouse LLP to oversee the production of the Company's quarterly
financial statements until such time as Price Waterhouse LLP deems the
Company's accounting systems to be adequate for the purposes intended.
(w) No transaction has occurred between or among the Company and any
of its officers or directors or any affiliate or affiliates of any such
officer or director, that is required to be described in and is not
described in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(x) Except as set forth in the Registration Statement, the Company has
not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(y) The Company is neither (A) an "Investment Company" within the
meaning of the Investment Company Act of 1940, as amended (the "'40 Act"),
-------
nor (B) a "Holding Company" or a "Subsidiary Company" of a "Holding
Company" within the meaning of the Public Utility Holding Company Act of
1935, as amended (the "'35 Act"), and the offer and sale of the Offered
-------
Shares will not subject the Company to regulation under, or result in a
violation of, either of such acts.
3. Purchase, Sale and Delivery of the Offered Shares. On the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, the Firm Shares set forth opposite such Underwriter's
name on Schedule I hereto at a purchase price of $_____ per share.
Delivery of certificates and payment of the purchase price for the Firm
Shares shall be made at the offices of Furman Selz LLC at 230 Park Avenue, New
York, New York 10169, or such other location as shall be agreed upon by the
Company and the Representatives. Such delivery and payment shall be made at
9:00 a.m., New York City time, on October __, 1996 or at such other time and
date not more than ten business days thereafter as shall be agreed upon by the
Representatives and the Company. The time and date of such delivery and payment
are herein called the "Closing Date." Delivery of the certificates for the Firm
Shares shall be made to the Representatives for the respective accounts of the
several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price for the Firm Shares by certified or
official bank check in New York Clearing House (next day) funds or, at the
request
9
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of the Company and at its expense, immediately available funds, in either case
drawn to the order of the Company for the Firm Shares sold by it. The
certificates for the Firm Shares to be so delivered will represent Firm Shares
in fully registered form, will bear no restrictive legends and will be in such
denominations and registered in such names as the Representatives shall request,
not less than three full business days prior to the Closing Date. The Company
will make the certificates for the Firm Shares available to the Representatives
at such office or such other place as the Representatives may designate for
inspection, checking and packaging not later than 9:30 a.m., New York City time,
on the business day prior to the Closing Date.
4. Public Offering of the Offered Shares. It is understood that the
Underwriters propose to make a public offering of the Offered Shares at the
prices and upon the other terms set forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use all reasonable efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
practicable. If required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period
required by Rules 434, 430A and 424(b) under the Act. During any time when
a prospectus relating to the Offered Shares is required to be delivered
under the Act, the Company (A) will comply with all requirements imposed
upon it by the Act and the Rules and Regulations to the extent necessary to
permit the continuance of sales of or dealings in the Offered Shares in
accordance with the provisions hereof and of the Prospectus, as then
amended or supplemented and (B) will not file with the Commission the
prospectus, Term Sheet or the amendment referred to in Section 2(a) hereof,
any amendment or supplement to such prospectus, Term Sheet or any amendment
to the Registration Statement of which the Representatives shall not
previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the
Representatives shall not have given their consent, which consent shall not
be unreasonably withheld. If the Company has made a filing under Rule
462(b), the Company shall timely transfer by wire sufficient funds to the
proper account of the Commission as required for such filing.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives (A) when the Registration
Statement, as amended, has become effective, if the provisions of Rule 430A
promulgated under the Act will be relied upon, when the Prospectus has been
filed in accordance with said Rule 430A and when any post-effective
amendment to the Registration Statement becomes effective, (B) of any
request made by the Commission for amending the Registration Statement, for
supplementing any Preliminary Prospectus or the Prospectus or for
additional information or (C) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or the institution or threat of any investigation or
proceeding for that purpose, and will use all reasonable efforts to prevent
the issuance of any such order and, if issued, to obtain the lifting
thereof as soon as possible.
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(c) The Company will (A) use all reasonable efforts to arrange for the
qualification of the Offered Shares for offer and sale under the state
securities or Blue Sky laws of such jurisdictions as the Representatives
may designate, (B) continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Offered Shares and (C)
make such applications, file such documents and furnish such information as
may be required for the purposes set forth in clauses (A) and (B) hereof;
provided, however, that the Company shall not be required to qualify as a
foreign corporation or file a general or unlimited consent to service of
process in any such jurisdiction.
(d) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Underwriters and all dealers to
whom the Offered Shares may be sold, in connection with the offering or
sale of the Offered Shares and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith. If,
at any time when a prospectus relating to the Offered Shares is required to
be delivered under the Act, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it becomes
necessary at any time to amend or supplement the Prospectus to comply with
the Act or the Rules and Regulations, the Company promptly will so notify
the Representatives and, subject to Section 5(a) hereof, will prepare and
file with the Commission an amendment to the Registration Statement or an
amendment or supplement to the Prospectus which will correct such statement
or omission or effect such compliance, each such amendment or supplement to
be reasonably satisfactory to counsel to the Underwriters.
(e) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company will
make generally available to its security holders, in the manner specified
in Rule 158(b) of the Rules and Regulations, and to the Representatives, an
earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act or the Rules and Regulations, covering a period
of at least 12 consecutive months after the effective date of the
Registration Statement.
(f) For a period of five years after the date hereof, the Company will
furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants)
and unaudited quarterly reports of earnings, and will deliver to the
Representatives:
(i) concurrently with furnishing such quarterly reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding quarter, together with statements of operations,
stockholders' equity and cash flows of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer or a copy of the
Company's Quarterly Report on Form 10-Q filed with the Commission;
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(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
public accountants, or a copy of the Company's Annual Report on Form
10-K filed with the Commission;
(iii) as soon as they are available, copies of all information
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
National Association of Securities Dealers, Inc. ("NASD") or any
----
securities exchange; and
(v) every press release and every material news item in respect
of the Company or its affairs which was released or prepared by the
Company.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
(g) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of organization of the Company, a registrar (which may be
the same entity as the transfer agent) for its Common Shares.
(h) The Company will furnish, without charge, to the Representatives
or on the Representatives' order, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (one
of which copies will be manually signed and will include all financial
statements and exhibits) and the Prospectus, and all amendments and
supplements thereto, in each case as soon as available and in such
quantities as the Representatives may reasonably request. Without limiting
the application of this Section 5(h), the Company, not later than (A) 6:00
p.m., New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 12:00 Noon,
New York City time, on such date or (B) 6:00 p.m., New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 12:00 Noon, New York City time,
on such date, will deliver to the Representatives, without charge, as many
copies of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders
that are expected to settle on the Closing Date.
(i) The Company will not, for a period of nine months following the
date of the Prospectus, directly or indirectly, without the prior written
consent of the Representatives, offer, sell, contract to sell, grant any
option to purchase, or otherwise dispose of any Common Shares or any
security convertible into or exercisable or exchangeable for such Common
Shares or in any other manner transfer all or a portion of the economic
consequences associated with the ownership
12
<PAGE>
of any such Common Shares (except to the Underwriters pursuant to this
Agreement or pursuant to the Company's Stock Option Plan).
(j) The Company will cause each person listed on Schedule II hereto to
enter into an agreement to the effect that they will not, for a period of
nine months following the date of the Prospectus, directly or indirectly,
without the prior written consent of the Representatives, offer, sell,
contract to sell, grant any option to purchase, or otherwise dispose of any
Common Shares or any security convertible into or exercisable or
exchangeable for such Common Shares or in any other manner transfer all or
a portion of the economic consequences associated with the ownership of any
such Common Shares, except that Common Shares may be pledged as long as the
pledgee agrees in writing to be bound by all of the restrictions applicable
to the pledgor relating to such Common Shares (each, a "Prohibited
----------
Transfer"). The Company will also cause Robin A. Carden and Walter R.
Menetrey to agree not to offer, sell or otherwise dispose (or announce any
offer, sale or other disposition) of more than 107,500 shares of Common
Shares during any three-month period in the six months following the
expiration of the initial nine-month period. The Company also agrees to
take such other actions as the Representatives may reasonably request to
prevent parties listed on Schedule II hereto from consummating a Prohibited
Transfer.
(k) The Company will cause the Offered Shares to be duly included for
quotation on the Nasdaq National Market prior to the Closing Date and the
Company will use its best efforts to maintain such inclusion for a period
of five years after the effective date of the Registration Statement.
(l) The Company will cooperate and assist in any filings required to
be made with the NASD and in the performance of any due diligence
investigation by any broker/dealer participating in the sale of the Offered
Shares.
(m) Neither the Company nor any of its officers or directors, nor
affiliates of the Company (within the meaning of the Rules and
Regulations), will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the
Company.
(n) The Company will apply the net proceeds of the offering received
by it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(o) The Company will timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Rules
and Regulations, the Securities Exchange Act of 1934 (the "Exchange Act"),
------------
the rules and regulations thereunder, and any applicable foreign securities
laws or regulations and all such reports, forms and documents filed will
comply as to form and substance with the applicable requirements under the
Act, the Rules and Regulations, the Exchange Act, the rules and regulations
thereunder and any applicable foreign securities laws or regulations.
(p) Except as required by law and pursuant to the advice of its
counsel, the Company shall, prior to the Closing Date, issue no press
release or other communication directly or indirectly and hold no press
conference with respect to the Company, its condition (financial or
13
<PAGE>
otherwise), results of operations, business, properties, assets,
liabilities, net worth or prospects or the offering of the Offered Shares
without the prior written consent of the Representatives.
(q) To reserve and continue to reserve as long as any Warrants are
outstanding, a sufficient number of Common Shares for issuance upon
exercise of the Warrants.
(r) The Company will use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement and the
Warrant Agreement by it prior to the Closing Date or the Option Closing
Date, as the case may be, and to satisfy all conditions precedent to the
delivery of the Offered Shares.
6. Expenses. (a) Regardless of whether the transactions contemplated in
this Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the Company will pay, and hereby agrees to indemnify
and hold each Underwriter harmless from and against, all fees and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, (i) fees and expenses of accountants
and counsel for the Company, (ii) all costs and expenses incurred in connection
with the preparation, duplication, printing (including, without limitation, word
processing costs), filing, delivery and shipping of copies of the Registration
Statement and any pre-effective or post-effective amendments thereto, any
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto (including postage costs related to the delivery by the Underwriters of
any Preliminary Prospectus or Prospectus, or any amendment or supplement
thereto), this Agreement, the Warrant Agreement, any Selected Dealer Agreement,
Underwriters' Questionnaire, Underwriters' Power of Attorney, and all other
documents in connection with the transactions contemplated herein, including,
without limitation, the cost of all copies thereof, (iii) fees and expenses
relating to qualification of the Offered Shares under state securities or Blue
Sky laws, including, without limitation, the cost of preparing and mailing the
preliminary and final Blue Sky memoranda and filing fees and disbursements and
fees of counsel and other related expenses, if any, in connection therewith,
(iv) filing fees of the Commission and the NASD relating to the Offered Shares,
including, without limitation, the admission of the Company to the Nasdaq
National Market, (v) costs and expenses incident to the preparation, issuance
and delivery to the Underwriters of any certificates evidencing the Offered
Shares, including, without limitation, transfer agent's and registrar's fees,
and (vi) costs and expenses incident to any meetings with prospective investors
in the Offered Shares (other than as shall have been specifically approved by
the Representatives to be paid for by the Underwriters).
(b) If the purchase of the Offered Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company shall reimburse
the several Underwriters for their out-of-pocket expenses (including reasonable
counsel fees and disbursements) in connection with any investigation made by
them, and any preparation made by them in respect of marketing of the Offered
Shares or in contemplation of the performance by them of their obligations
hereunder.
7. Conditions of the Underwriters' Obligations. The several obligations
of the Underwriters to purchase and pay for the Offered Shares, as provided
herein, shall be subject to the absence from any certificates, opinions, written
statements or letters furnished pursuant to this Section 7 to the Underwriters
or to Underwriters' counsel of any misstatement or omission and to the
satisfaction of each of the following additional conditions:
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<PAGE>
(a) All of the representations and warranties of the Company contained
herein shall be true and correct on the date hereof and on the Closing Date
with the same force and effect as if made on and as of the date hereof and
the Closing Date, respectively. The Company shall have performed or
complied with all of the agreements herein contained and required to be
performed or complied with by it at or prior to the Closing Date.
(b) The Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed pursuant to Rule 430A
under the Securities Act Regulations, such post-effective amendment shall
become effective) not later than 5:00 p.m., New York City time, on the date
of this Agreement or at such later time and date as shall have been
consented to in writing by the Representatives and all filings, if any,
required by Rules 424, 434 and 430A under the Act shall have been timely
made. At or prior to the Closing Date no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued and no proceedings therefor shall have been
initiated or, to the best of our knowledge, threatened by the Commission;
and every request for additional information on the part of the Commission
(including, without limitation, any request or comment with respect to the
Registration Statement, the Prospectus or any document incorporated by
reference therein) shall have been complied with in all material respects.
No stop order suspending the sale of the Offered Shares in any jurisdiction
designated by the Representatives shall have been issued and no proceedings
for that purpose shall have been commenced or be pending or, to the best
knowledge of the Company, be contemplated.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or regulatory authority which would, as of the Closing Date, prevent
the issuance of the Offered Shares; and no action, suit or proceeding shall
have been commenced and be pending against or affecting or, to the best
knowledge of the Company, threatened against, the Company before any court
or arbitrator or any governmental body, agency or official that, if
adversely determined, could reasonably be expected to result in a Material
Adverse Effect.
(d) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, and except as disclosed therein
or contemplated thereby, (i) there shall not have been any material adverse
change, or any development that is reasonably likely to result in a
material adverse change, in the capital stock or the long-term debt, or
material increase in the short-term debt, of the Company from that set
forth in the Registration Statement and the Prospectus, (ii) no dividend or
distribution of any kind shall have been declared, paid or made
by the Company on any class of its capital stock and (iii) the Company
shall not have incurred any liabilities or obligations, direct or
contingent, that are material, individually or in the aggregate, to the
Company and that are required to be disclosed on a balance sheet or notes
thereto in accordance with generally accepted accounting principles and are
not disclosed on the latest balance sheet or notes thereto included in the
Registration Statement and the Prospectus or otherwise disclosed or
contemplated in the Prospectus. Since the date hereof and since the dates
as of which information is given in the Registration Statement and the
Prospectus, there shall not have occurred any material adverse change in
the business, properties, assets, liabilities, net worth, condition
(financial or other), results of operations or prospects of the Company.
15
<PAGE>
(e) The Underwriters shall have received a certificate, dated the
Closing Date, signed on behalf of the Company by (i) Robin A. Carden,
President and Chief Executive Officer and (ii) Walter R. Menetrey,
Executive Vice President, Chief Operating Officer and Secretary, in form
and substance reasonably satisfactory to the Underwriters, confirming, as
of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and
(d) of this Section 7 and that, as of the Closing Date, the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and stating that each signer of such certificate has examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein (in the case
of the Prospectus, in the light of the circumstances under which such
statements were made) not misleading and (B) since the date the
Registration Statement was declared effective, no event has occurred as a
result of which it is necessary to amend or supplement the Registration
Statement or Prospectus in order to make the statements therein not untrue
or misleading in any material respect and (C) there has been no document
required to be filed under the Exchange Act and the regulations thereof
that upon such filing would be incorporated by reference into the
Prospectus that has not been so filed.
(f) At the Closing Date, the Underwriters shall have received the
opinion of Battle Fowler LLP, counsel for the Company, dated the Closing
Date, in form and substance reasonably satisfactory to the Underwriters and
Underwriters' counsel, to the effect set forth in Exhibit A hereto.
(g) At the Closing Date, the Underwriters shall have received the
opinion of Cooper & Dunham LLP, special patent counsel for the Company,
dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to the Underwriters' counsel, to the effect set
forth in Exhibit B hereto.
(h) At the time this Agreement is executed and at the Closing Date the
Underwriters shall have received from Price Waterhouse LLP, independent
certified public accountants for the Company, dated as of the date of this
Agreement and as of the Closing Date, customary comfort letters addressed
to the Underwriters and in form and substance satisfactory to the
Underwriters and counsel to the Underwriters with respect to the financial
statements and certain financial information of the Company contained in
the Registration Statement and the Prospectus.
(i) Latham & Watkins shall have been furnished with such documents, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
this Section 7 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
(j) On or prior to the Closing Date, the Underwriters shall have
received the executed agreements referred to in Section 5(j) hereof.
(k) The Company shall have entered into the Warrant Agreement and the
Underwriters shall have received counterparts, conformed as executed,
thereof.
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(l) Prior to the Closing Date, the Company shall have furnished to the
Underwriters such further information, certificates and documents as the
Underwriters may reasonably request.
(m) The Offered Shares shall have been duly authorized for quotation
on the Nasdaq National Market.
If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Underwriters or to
Underwriters' counsel pursuant to this Section 7 shall not be reasonably
satisfactory in form and substance to the Underwriters and to Underwriters'
counsel, all of the obligations of the Underwriters hereunder may be cancelled
by the Underwriters at, or at any time prior to, the Closing Date.
8. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any and all costs, losses, claims, damages, expenses and liabilities,
joint or several (and actions in respect thereof), to which such Underwriter or
such controlling person may become subject, under the Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the information
deemed to be a part of the Registration Statement pursuant to Rule 430A(b)
promulgated under the Act, if applicable, or the Prospectus (including any
amendment or supplement thereto) or any preliminary prospectus, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading and will reimburse, as incurred, such Underwriter or such controlling
persons for any reasonable legal or other expenses incurred by such Underwriter
or such controlling persons in connection with investigating, defending or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with information furnished in
writing to the Company on behalf of such Underwriter through the Representatives
expressly for use therein. The indemnity agreement in this paragraph (a) shall
be in addition to any liability which the Company may otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any and all costs, losses, claims, damages, expenses
and liabilities (and actions in respect thereof) to which the Company or any
such director, officer, or controlling person may become subject, under the Act
or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such costs, losses, claims, damages, expenses or
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) promulgated under
the Act, if applicable, or the Prospectus (including any amendment or supplement
thereto) or any preliminary prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in
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the case of the Prospectus, in light of the circumstances under which they were
made) not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing by that Underwriter through the Representatives to the Company
expressly for use therein; and will reimburse, as incurred, all reasonable legal
or other expenses incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discounts and commissions received by such Underwriter, as set
forth on the cover page of the Prospectus. The Company acknowledges that the
statements with respect to the public offering of Offered Shares set forth under
the heading "Underwriting" and the stabilization legend in the Prospectus have
been furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. The indemnity agreement contained
in this paragraph (b) shall be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under paragraph (a) or (b) of this Section 8 except to the extent
that the indemnifying party was materially adversely affected by such omission.
In case any such action is brought against an indemnified party and it notifies
an indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there are legal defenses that it and/or other
indemnified parties may assert which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses (other than the reasonable costs of investigation) subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party has employed such counsel in connection with the
assumption of such different or additional legal defenses in accordance with the
proviso to the immediately preceding sentence, (ii) the indemnifying party has
not employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized
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in writing the employment of counsel for the indemnified party at the expense of
the indemnifying party, provided, however, that the indemnifying party under
paragraph (a) or (b) above, shall only be liable for the legal expenses of one
counsel (in addition to any local counsel) for all indemnified parties in each
jurisdiction in which any claim or action is brought. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
(d) If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b)
above in respect of any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such costs, losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (i) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Offered Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such costs, losses, claims, damages, expenses or liabilities,
as well as any other relevant equitable considerations. In any case where the
Company is the contributing party and the Underwriters are the indemnified
party, the relative benefits received by the Company on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Offered Shares (before deducting
expenses) bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the costs, losses, claims, damages, expenses or liabilities
(or actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Offered Shares purchased by the
Underwriters hereunder. The Underwriters' obligations to contribute pursuant to
this paragraph (d) are several in proportion to their respective underwriting
obligations, and are not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), (i) each person, if any,
who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter and (ii) each director of the Company, each officer of the
Company who has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought (x) from any
other obligation it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not
materially adversely affected by such omission. No party shall be liable for
contribution with respect to any action or claim settled without its written
consent; provided, however, that such written consent was not unreasonably
withheld. The contribution agreement set forth in this paragraph (d) shall be
in addition to any liabilities which any indemnifying party may otherwise have.
19
<PAGE>
9. Right to Increase Offering. At any time during a period of 30 days
from the date of the Prospectus (or, if such 30th day shall be a Saturday or
Sunday or a holiday, on the next business day thereafter when the New York Stock
Exchange is open for trading), the Underwriters, by no less than two business
days' prior notice to the Company, may designate a closing (which may be
concurrent with, and part of, the closing on the Closing Date with respect to
the Firm Shares or may be a second closing held on a date subsequent to the
Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Underwriters may purchase all or less than
- --------------------
all of the Additional Shares in accordance with the provisions of this Section 9
at the purchase price to be paid for the Firm Shares. In no event shall the
Option Closing Date be later than three business days after written notice of
election to purchase Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree severally, and not jointly, to purchase such Additional
Shares on the Option Closing Date. Such Additional Shares shall be purchased
for the account of each Underwriter in the same proportion as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule I hereto
bears to the total number of Firm Shares (subject to adjustment by you to
eliminate fractional shares) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of this
Agreement relating to the transactions contemplated to occur on the Closing Date
for the sale of the Firm Shares shall apply, mutatis mutandis, to the Option
Closing Date for the sale of the Additional Shares.
10. Survival of Certain Provisions. The respective representations,
warranties, agreements, covenants, indemnities and statements of, and on behalf
of, the Company and its officers and the Underwriters, respectively, set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters, and
will survive delivery of and payment for the Offered Shares. Any successors to
the Underwriters shall be entitled to the indemnity, contribution and
reimbursement agreements contained in this Agreement.
11. Effective Date and Termination. (a) This Agreement shall become
effective upon the later of (i) the execution of this Agreement or (ii) when the
Underwriters and the Company shall have received notification from the
Commission of the effectiveness of the Registration Statement, unless prior to
such time the Representatives shall have received written notice from the
Company that it elects that this Agreement shall not become effective, or the
Representatives shall have given written notice to the Company that the
Representatives on behalf of the Underwriters elect that this Agreement shall
not become effective; provided, however, that the provisions of this Section 11
and of Section 6 and Section 8 hereof shall at all times be effective. For
purposes of this Section 11(a), the Offered Shares to be purchased hereunder
shall be deemed to have been so released upon the earlier of notification by the
Representatives to securities dealers releasing such Offered Shares for offering
or the release by the Representatives for publication of the first newspaper
advertisement which is subsequently published relating to the Offered Shares.
20
<PAGE>
(b) This Agreement (except for the provisions of Sections 6 and 8 hereof)
may be terminated by the Representatives by notice to the Company in the event
that the Company has failed to comply in any material respect with any of the
provisions of this Agreement required on its part to be performed at or prior to
the Closing Date or the Option Closing Date, respectively, or if any of the
representations or warranties of the Company is not accurate in any material
respect or if the covenants, agreements or conditions of, or applicable to, the
Company herein contained have not been complied with in any material respect or
satisfied within the time specified on the Closing Date or the Option Closing
Date, respectively, or if prior to the Closing Date or the Option Closing Date,
respectively:
(i) the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity or act of God of such a character as to
interfere materially with the conduct of the business and operations of the
Company, regardless of whether or not such loss was insured;
(ii) trading in the Offered Shares shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally
on the New York Stock Exchange or the Nasdaq National Market shall have
been suspended or a material limitation on such trading shall have been
imposed or minimum or maximum prices shall have been established on any
such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities, or a moratorium in foreign exchange trading by
major international banks or persons shall have been declared;
(iv) there shall have been an outbreak or escalation of hostilities
between the United States and any foreign power or an outbreak or
escalation of any other insurrection or armed conflict involving the United
States; or
(v) there shall have been a material adverse change in (A) general
economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company that,
in the Representatives' judgment, makes it impracticable or inadvisable to
make or consummate the public offering, sale or delivery of the Offered
Shares on the terms and in the manner contemplated in the Prospectus and
the Registration Statement.
(c) Termination of this Agreement under this Section 11 or Section 12 after
the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. Substitution of Underwriters. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Offered Shares shall not exceed 10% of the Firm Shares or Additional Shares
required to be purchased on the Closing Date or the Option Closing Date, as the
case may be, then, each of the non-defaulting Underwriters shall purchase and
21
<PAGE>
pay for (in addition to the number of such Offered Shares which it has severally
agreed to purchase hereunder) that proportion of the number of Offered Shares
which the defaulting Underwriter or Underwriters shall have so failed or refused
to purchase on such Closing Date or Option Closing Date, as the case may be,
which the number of Offered Shares agreed to be purchased by such non-defaulting
Underwriter bears to the aggregate number of Offered Shares so agreed to be
purchased by all such nondefaulting Underwriters on such Closing Date or Option
Closing Date, as the case may be. In such case, you shall have the right to
postpone the Closing Date or the Option Closing Date, as the case may be, to a
date not exceeding seven full business days after the date originally fixed as
such Closing Date or the Option Closing Date, as the case may be, pursuant to
the terms hereof in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under the
provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the case of
the Closing Date, the number of Firm Shares agreed to be purchased by such
Underwriter or Underwriters upon tender to you of such Firm Shares in accordance
with the terms hereof or (b) in the case of the Option Closing Date, the number
of Additional Shares agreed to be purchased by such Underwriter or Underwriters
upon tender to you of such Additional Shares in accordance with the terms
hereof, and the number of such Offered Shares shall exceed 10% of the Firm
Shares or Additional Shares required to be purchased by all the Underwriters on
the Closing Date or the Option Closing Date, as the case may be, then (unless
within 48 hours after such default arrangements to your satisfaction shall have
been made for the purchase of the defaulted Offered Shares by an Underwriter or
Underwriters), this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or on the part of the Company except as otherwise
provided in Sections 6 and 8 hereof. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
paragraph. Nothing in this Section 12, and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
13. Notices. All communications hereunder shall be in writing and if sent
to the Representatives or the Underwriters shall be mailed or delivered, or sent
by facsimile transmission and confirmed by letter, or telecopied and confirmed
by letter to c/o Furman Selz LLC at 230 Park Avenue, New York, New York 10169,
Attention: Syndicate Department or, if sent to the Company, shall be mailed or
delivered, or sent by facsimile transmission and confirmed by letter, or
telecopied and confirmed by letter to Alyn Corporation, 16761 Hale Avenue,
Irvine, CA 92606, Attention: Robin A. Carden, President.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and each Underwriter and the Company's and each
Underwriter's respective successors and assigns, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, indemnities and contribution agreements of the
Company contained in this Agreement shall also be for the benefit of any person
or persons, if any, who control any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, and except that the Underwriters'
indemnity and contribution agreements shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons, if any, who control the
Company within the meaning of Section 15 of the Act or Section 20
22
<PAGE>
of the Exchange Act. No purchaser of Offered Shares from the Underwriters will
be deemed a successor because of such purchase.
15. Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the choice of law or conflict of law principles thereof. Each party
hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
16. Headings. The headings of the paragraphs and sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
[Signature Page to Follow]
23
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
the Underwriters' acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
ALYN CORPORATION
By:
------------------------------------------
Name: Robin A. Carden
Title: President, Chief Executive Officer
and Director
<PAGE>
Accepted as of the date first
above written:
FURMAN SELZ LLC
NEEDHAM & COMPANY, INC.
By: Furman Selz LLC
Acting on its own behalf and as
one of the Representatives of
the several Underwriters
referred to in the foregoing
Agreement
By:
-------------------------
Name:
Title:
By: Needham & Company, Inc.
Acting on its own behalf and as
one of the Representatives of
the several Underwriters
referred to in the foregoing
Agreement
By:
-------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Number of Common Shares
Underwriters to be Purchased
- ------------ ----------------------------
Furman Selz LLC ................................................................
Needham & Company, Inc. ........................................................
--------------
Total 2,750,000
26
<PAGE>
SCHEDULE II
Stockholder Lock-ups
--------------------
1. Robin A. Carden
2. Walter R. Menetrey
3. Charles Rosenblum and Diana Chandler
4. Art Liang
5. Larry Liou
6. Stephen and Rosalie Balog
7. Gary and Stephanie Escandon
8. Frontier PTY Limited, Trustee for Frontier Trust
9. First Pacific Capital
10. Herbert V. and Edith Turk
11. Udi Toledano
12. Janet Toledano
13. James M. Stuart, Jr.
14. James M. Stuart, Jr. Trustee under agreement dated May 1, 1987, for the
benefit of John E. Stuart
15. James M. Stuart, Jr. and John E. Stuart, Trustees under agreement dated
January 1, 1989, for the benefit of Mary E. Stuart
16. Fred Fraenkel
17. Edelson Technology Partners III
18. Kingdon Associates, L.P.
19. Kingdon Partners, L.P.
20. M. Kingdon Offshore NV
21. Kingdon Capital Management Corp.
22. Steve Hourigan
23. Bergen Enterprises Corp.
24. Janet Toledano, as trustee under an agreement dated September 2, 1993, for
the benefit of Alexander and Anna Toledano
25. Judith Green
26. Stephanie Bier Toledano
27. Gideon Toledano
28. Robert Lax
29. Jennifer Thompson
30. Rachel Turk Balter
31. Miriam Turk
32. Harry Edelson
33. Michael Markbreiter
34. Phillip R. Gustavson
27
<PAGE>
EXHIBIT A
---------
Form of Opinion of Battle Fowler LLP
[To be provided]
28
<PAGE>
EXHIBIT B
---------
Form of Opinion of Cooper & Dunhan LLP
[To be provided]
29
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
AC
COMMON STOCK
$.001 PAR VALUE
[LOGO OF ALYN APPEARS HERE]
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 022611 10 7
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
Alyn Corporation transferable upon the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are subject to the laws of the State of Delaware and to the Certificate
of Incorporation and the By-laws of the Corporation as from time to time
amended.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, Alyn Corporation has caused its facsimile corporate
seal and the facsimile signatures of its duly authorized officers to be hereunto
affixed.
CERTIFICATE OF STOCK
Dated:
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+COUNTERSIGNED AND REGISTERED: +
+CONTINENTAL STOCK TRANSFER & TRUST COMPANY +
+(Jersey City, NJ) +
+TRANSFER AGENT AND REGISTRAR, +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[SIGNATURE APPEARS HERE] [SEAL APPEARS HERE] [SIGNATURE APPEARS HERE]
SECRETARY PRESIDENT
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right ofsurvivorship and not as tenants in
common
UNIF GIFT MIN ACT-- Custodian
------------- -------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
----------------
(State)
UNIF TRF MIN ACT-- Custodian (until age )
------------- -------------
(Cust)
------------- under Uniform Transfers
(Minor)
to Minors Act
----------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
-------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.3
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of October 25, 1996 among ALYN CORPORATION,
a Delaware corporation (the "Company") and FURMAN SELZ LLC (including any
successors or assigns, the "Holder").
WHEREAS, the Company proposes to issue warrants, as hereinafter
described (the "Warrants"), to purchase up to an aggregate of 211,000 shares of
common stock, $.001 par value per share (the "Common Stock"), of the Company
(the Common Stock issuable on exercise of the Warrants being referred to herein
as the "Warrant Shares"), subject to adjustment as provided herein, to the
Holder;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. Certificates for the Warrants
--------------------
("Warrant Certificates") shall be substantially in the form of Exhibit A. Each
Warrant Certificate shall represent such of the outstanding Warrants as shall be
specified therein, as the same may be adjusted pursuant to Section 8 hereof.
SECTION 2. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of the Company by its President or a Vice President
(each an "Executing Officer"). Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the Executing
Officer and may be imprinted or otherwise reproduced on the Warrant Certificates
and for that purpose the Company may adopt and use the facsimile signature of
any person who shall have been an Executing Officer. Any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be an Executing Officer to sign
such Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
SECTION 3. Transfers and Exchanges.
-----------------------
The Holder will not sell, transfer, assign, pledge or hypothecate any
of the Warrants until October 21, 1997, except to its officers, partners or
successors. When Warrants or Warrant Shares are presented to the Company with a
request (i) to register the transfer of the Warrants or Warrant Shares, as the
case may be, or (ii) to exchange such Warrants or Warrant Shares for an equal
number of Warrants or Warrant Shares, as the case may be, of other
denominations, then, in each case, the Company shall register the transfer or
make the exchange, provided that the Warrants or Warrant Shares presented or
surrendered for transfer or exchange (a) shall be duly endorsed or accompanied
by a written instruction of transfer, duly executed by the Holder or by his
attorney, duly authorized in writing, and (b) in the case of a Registrable
Security (as defined below), shall be accompanied by a certification of the
Holder that (i) such Registrable Security is being delivered to the Company by
the Holder for registration in the name of the Holder, without transfer, (ii)
such Registrable Security is being transferred to a "qualified institutional
buyer," as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Act"), in accordance with Rule 144A under the Act, (iii) such Registrable
Security is being transferred pursuant to an exemption from registration in
accordance with Rule 144 under the Act (and, in the case of this clause (iii),
based on an opinion of counsel if the Company so requests), (iv) such
Registrable Security is being transferred pursuant to an effective registration
statement under the Act, (v) such Registrable Security is being transferred to
an institutional "accredited investor," within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Act pursuant to a private placement exemption from the
registration requirements of the Act, (vi) such Registrable Security is being
<PAGE>
transferred pursuant to an exemption from registration in accordance with Rule
904 under the Act (and, in the case of this clause (vi), based on an opinion of
counsel if the Company so requests), or (vii) such Registrable Security is being
transferred in reliance on another exemption from the registration requirements
of the Act (and, in the case of this clause (vii), based on an opinion of
counsel if the Company so requests).
"Registrable Security" means any Warrant Share or other security
issued or issuable with respect to the Warrants or the Warrant Shares by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
until such date as such security (a) is effectively registered under the Act and
disposed of in accordance with a registration statement or (b) is distributable
to the public pursuant to Rule 144 under the Act.
Except for any Registrable Security sold or transferred as discussed
in the next succeeding paragraph, each Warrant Certificate (and all Warrant
Certificates issued in exchange therefor or substitution thereof) and each
certificate representing the Warrant Shares shall bear a legend in substantially
the following form:
"UNTIL OCTOBER 21, 1997, THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED TO ANYONE OTHER THAN AN OFFICER, PARTNER OR
SUCCESOR OF FURMAN SELZ LLC. THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (2) TO THE ISSUER OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OR ANY SECURITY ISSUED IN EXCHANGE FOR OR IN SUBSTITUTION HEREOF OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
Upon any sale or transfer of a Registrable Security pursuant to an
effective registration statement under the Act or pursuant to Rule 144 under the
Act, or upon delivery to the Company of an opinion of counsel reasonably
satisfactory to the Company that no legend is required with respect to a
Registrable Security, the Company shall permit the Holder to exchange such
Registrable Security for a
2
<PAGE>
security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Registrable Security.
All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, entitled to the same
benefits under this Warrant Agreement, as the Warrants surrendered upon such
registration of transfer or exchange. No service charge shall be made to the
Holder for any registration, transfer or exchange.
SECTION 4. Term of Warrants; Exercise of Warrants.
--------------------------------------
Upon the terms and subject to the conditions set forth in this
Agreement and the Warrant Certificates, the Holder shall have the right from and
after 5:00 p.m. on October 21, 1997 and until 5:00 p.m., New York City time, on
October 21, 2001 (the "Expiration Time") to receive from the Company the number
of fully paid and nonassessable Warrant Shares which the Holder may at the time
be entitled to receive on exercise of such Warrants and payment of the Exercise
Price (as defined herein) then in effect for such Warrant Shares. Each Warrant
not exercised prior to the Expiration Time shall become void and all rights
thereunder and all rights in respect thereof under this Agreement and the
Warrant Certificates shall cease as of such time. No adjustments as to dividends
will be made upon exercise of the Warrants.
A Warrant may be exercised upon surrender to the Company at the
principal executive offices of the Company of the certificate or certificates
evidencing the Warrants to be exercised with the form of election to purchase on
the reverse thereof duly filled in and signed and upon payment to the Company of
the exercise price (the "Exercise Price") set forth in the form of Warrant
Certificate attached hereto as Exhibit A, as adjusted as provided herein, for
each of the Warrant Shares in respect of which a Warrant is then exercised.
Payment of the aggregate Exercise Price shall be made in cash or by certified or
official bank check to the order of the Company, or, in the alternative, the
Holder may exercise its right to receive Warrant Shares on a net basis, such
that without the exchange of any funds, the Holder receives that number of
Warrant Shares otherwise issuable upon exercise of its Warrants less that number
of Warrant Shares having a fair market value equal to the aggregate Exercise
Price that would otherwise have been paid by the Holder. For purposes of the
foregoing sentence, "fair market value" of the Warrant Shares shall be the
current market price of the Warrant Shares on the date immediately preceding the
date of payment of the Exercise Price as determined by the procedures set forth
in Section 8(f).
Upon such surrender of Warrants and payment of the Exercise Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Holder, and in such name or names as the Holder
may designate, a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrants together with cash as
provided in Section 9. Such certificate or certificates shall be deemed to have
been issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the Holder,
either in full or from time to time in part, and, in the event that a Warrant
Certificate evidencing Warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the Expiration
Time, the Company shall issue to the Holder a new Warrant Certificate or Warrant
Certificates evidencing the remaining Warrant or Warrants.
The Company shall pay all documentary stamp taxes attributable to the
initial issuance of Warrant Shares upon the exercise of Warrants.
3
<PAGE>
SECTION 5. Mutilated or Missing Warrant Certificates. In case any of
-----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent number of Warrants, upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and, if requested, indemnity satisfactory to the Company.
SECTION 6. Reservation of Warrant Shares.
-----------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock, for the purpose of enabling it to satisfy any and all obligations to
issue Warrant Shares upon exercise of Warrants, the maximum number of shares of
Common Stock which may then be deliverable upon the exercise of all outstanding
Warrants.
Before taking any action which would cause an adjustment pursuant to
Section 8 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company shall take any and all corporate action which
may be necessary in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. The
Company hereby covenants not to take any action to increase the par value per
share of the Common Stock.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights, free from all taxes, and free from all liens, charges,
security interests and other encumbrances of any and every kind, with respect to
the issue thereof.
SECTION 7. Obtaining Stock Exchange Listings. The Company shall from
---------------------------------
time to time take any and all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchanges and markets, if any, on which other
shares of Common Stock are then listed or quoted.
SECTION 8. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable.
- --------
The Exercise Price and the number of Warrant Shares issuable upon the
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 8. For purposes of this
Section 8 only, "Common Stock" means shares now or hereafter authorized of any
class of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
(a) Adjustment for Change in Capital Stock. If the Company (i) pays
--------------------------------------
a dividend or makes a distribution on its Common Stock payable in shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, (iv) makes a distribution on its Common Stock
in shares of its capital stock other than Common Stock or (v) issues by
reclassification of its Common Stock any shares of its capital stock, then, in
each case, the Exercise Price and the number and kind of shares of capital stock
of the Company issuable upon the exercise of a Warrant (as in effect immediately
prior to such action) shall be proportionately adjusted so that any Warrant
thereafter exercised shall entitle the Holder,
4
<PAGE>
upon payment of the aggregate adjusted Exercise Price, the aggregate number and
kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised, upon
payment of the Exercise Price prior to adjustment, immediately prior to such
action (or, in the case of a dividend or distribution of Common Stock,
immediately prior to the record date therefor). The adjustment shall become
effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) Adjustment for Rights Issue. If the Company distributes any
---------------------------
rights, options or warrants to all holders of its Common Stock entitling them to
purchase shares of Common Stock at a price per share less than the current
market price per share on that record date, the Exercise Price shall be adjusted
in accordance with the formula:
O + N x P
-----
E' = E x M
---------------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record date.
The adjustment pursuant to this subsection (b) shall be made
successively whenever any such rights, options or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive the rights, options or warrants. If at the end
of the period during which such rights, options or warrants are exercisable, not
all rights, options or warrants shall have been exercised, the Exercise Price
shall be immediately readjusted to what it would have been if "N" in the above
formula had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes
----------------------------------
to all holders of its Common Stock any of its assets or debt securities or any
rights, options or warrants to purchase assets, debt securities or other
securities of the Company, the Exercise Price shall be adjusted in accordance
with the formula:
E' = E x M - F
-----
M
where:
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<PAGE>
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on the record date.
F = the fair market value on the record date of the assets, debt
securities, rights or warrants applicable to one share of Common
Stock, as determined in good faith by the board of directors of the
Company.
The adjustment pursuant to this subsection (c) shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive the distribution.
Notwithstanding the foregoing, if "F" in the above formula equals or
exceeds "M" in the above formula, then "M" in the above formula shall be equal
to the fair value per share of the Common Stock on the record date as determined
in good faith by the board of directors of the Company.
This subsection (c) does not apply to distributions paid exclusively
in cash. This subsection also does not apply to rights, options or warrants
referred to in subsection (b) or to any transaction referred to in subsection
(a) of this Section 8.
(d) Adjustment for Common Stock Issue. If the Company issues shares
---------------------------------
of Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Exercise Price shall be adjusted in accordance with the formula:
P
-
E' = E x O + M
-----
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance of
such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the current market price per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the issuance of
such additional shares.
The adjustment pursuant to this subsection (d) shall be made
successively whenever any such issuance is made and shall become effective
immediately after such issuance.
6
<PAGE>
This subsection (d) does not apply to (i) any of the transactions
described in subsections (a), (b) and (c) of this Section 8, (ii) the exercise
of the Warrants or the conversion or exchange of other securities convertible
into or exercisable or exchangeable for Common Stock, (iii) Common Stock issued
upon the exercise of rights or warrants issued to the holders of Common Stock,
(iv) Common Stock issued to employees of or consultants providing bona fide
technical or professional (other than financial) services to the Company or any
of its subsidiaries under bona fide employee benefit or incentive plans adopted
by the board of directors of the Company and approved by the holders of Common
Stock when required by applicable state law, (v) Common Stock issued to
shareholders of any person which merges into the Company in proportion to their
stock holdings of such person immediately prior to such merger, upon such
merger, (vi) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or (vii) Common Stock issued in a bona fide private
placement through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any discount
from the current market price attributable to restrictions on transferability of
the Common Stock, as determined in good faith by the Board of Directors and
described in a Board resolution, shall exceed 20%).
(e) Adjustment for Convertible Securities Issue. If the Company
-------------------------------------------
issues any securities convertible into or exchangeable or exercisable for Common
Stock (collectively, "Convertible Securities") for a consideration per share of
Common Stock initially deliverable upon conversion or exchange of such
Convertible Securities less than the current market price per share on the date
of issuance of such Convertible Securities, the Exercise Price shall be adjusted
in accordance with the formula:
P
-
E' = E x O + M
-----
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance of
such Convertible Securities.
P = the aggregate consideration received for the issuance of such
Convertible Securities.
M = the current market price per share on the date of issuance of such
Convertible Securities.
D = the maximum number of shares deliverable upon conversion of or in
exchange for such Convertible Securities at the initial conversion or
exchange rate.
The adjustment pursuant to this subsection (e) shall be made
successively whenever any such issuance is made and shall become effective
immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
7
<PAGE>
This subsection (e) does not apply to (i) any of the transactions
described in subsections (a), (b), (c) or (d) of this Section 8, (ii)
Convertible Securities issued to employees of or consultants providing bona fide
technical or professional (other than financial) services to the Company or any
of its subsidiaries under bona fide employee benefit or incentive plans adopted
by the board of directors of the Company and approved by the holders of Common
Stock when required by applicable state law, (iii) convertible securities issued
to shareholders of any person which merges into the Company, or with a
subsidiary of the Company, in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger, (iv) convertible securities
issued in a bona fide public offering pursuant to a firm commitment underwriting
or (v) convertible securities issued in a bona fide private placement through a
placement agent which is a member firm of the National Association of Securities
Dealers, Inc. (except to the extent that any discount from the current market
price attributable to restrictions on transferability of Common Stock issuable
upon conversion, as determined in good faith by the Board of Directors and
described in a Board resolution, shall exceed 20% of the then current market
price).
(f) Current Market Price. For purposes of this Section 8, the
--------------------
current market price per share of Common Stock on any date is the average of the
Quoted Prices of the Common Stock for the 30 consecutive trading days commencing
45 trading days before the date in question. The "Quoted Price" of the Common
Stock is the last reported sales price of the Common Stock as reported by
NASDAQ, National Market System, or if the Common Stock is listed on a securities
exchange, the last reported sales price of the Common Stock on such exchange
which shall be for consolidated trading if applicable to such exchange, or if
neither so reported or listed, the last reported bid price of the Common Stock.
In the absence of one or more such quotations, the Board of Directors of the
Company shall determine the current market price on the basis of such quotations
as it in good faith considers appropriate.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to subsections (d) and (e) of this
Section 8, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration, in whole or in part, other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the board of directors of the Company
(irrespective of the accounting treatment thereof); and
(iii) in the case of the issuance of Convertible Securities, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such Convertible
Securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this subsection (g)).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 8 shall be made to the nearest 1/100th of a
cent or to the nearest 1/100th of a share, as the case may be.
8
<PAGE>
(i) Notice of Certain Transactions. If (i) the Company takes any
------------------------------
action that would require an adjustment in the Exercise Price pursuant to
subsection (a), (b), (c), (d) or (e) of this Section 8 or an adjustment in the
number of Warrant Shares issuable upon exercise of a Warrant pursuant to Section
8(k), (ii) the Company takes any action described in Section 8(j), or (iii)
there is a liquidation or dissolution of the Company, then the Company shall
deliver to the Holder a notice stating the proposed record date for a dividend
or distribution or the proposed effective date of a subdivision, combination,
reclassification, issuance, consolidation, merger, transfer, lease, liquidation
or dissolution. With respect to all transactions set forth in this subsection
(i), the Company shall deliver the notice at least 15 days before such date.
(j) Reorganization of the Company. If the Company consolidates or
-----------------------------
merges with or into, or transfers or leases all or substantially all its assets
to, any person, upon consummation of such transaction the Warrants shall
automatically become exercisable for the kind and amount of securities, cash or
other assets which the holder of a Warrant would have owned immediately after
the consolidation, merger, transfer or lease if the holder had exercised the
Warrant immediately before the effective date of the transaction. Concurrently
with the consummation of such transaction, the corporation formed by or
surviving any such consolidation or merger if other than the Company, or the
person to which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section 8. The successor Company shall mail to
Warrant holders a notice describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
If this subsection (j) applies, subsections (a), (b), (c), (d) and (e)
of this Section 8 shall not apply.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to this Section 8, or upon the occurrence of any event
or action that would require an adjustment of the Exercise Price pursuant to
this Section 8 but for Section 8(h), each Warrant outstanding prior to the
making of the adjustment in the Exercise Price shall thereafter evidence the
right to receive upon payment of the adjusted Exercise Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N'= N x E
-----
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price (without giving effect to the provisions
of Section 8(h)).
E = the Exercise Price prior to adjustment.
9
<PAGE>
(l) Form of Warrants. Irrespective of any adjustments in the
----------------
Exercise Price or the number or kind of shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
SECTION 9. Fractional Interests. The Company shall not be required
--------------------
to issue fractional Warrant Shares on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the current market price per
Warrant Share as determined pursuant to Section 8(f) on the day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction.
SECTION 10. Notices to Holder.
-----------------
Upon each adjustment of the Exercise Price pursuant to Section 8 and
upon each adjustment pursuant to Section 8(k) of the number of Warrant Shares
issuable upon exercise of a Warrant in the absence of an adjustment to the
Exercise Price due to Section 8(h), the Company shall promptly thereafter cause
to be delivered to the Holder a certificate signed by the principal accounting
officer of the Company setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Warrant
Shares (or portion thereof) issuable after such adjustment upon exercise of a
Warrant and payment of the adjusted Exercise Price. Where appropriate, such
certificate may be given in advance and included as a part of the notice
required to be mailed under the other provisions of this Section 10.
In case (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants,
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than dividends
payable in shares of Common Stock or distributions referred to in subsection (a)
of Section 8 hereof), (c) of any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the Company is required,
or of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock, (d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company or (e) the Company proposes to take any
action (other than actions of the character described in Section 8(a)) which
would require an adjustment of the Exercise Price pursuant to Section 8 or an
adjustment in the number of Warrant Shares issuable upon exercise of a Warrant
pursuant to Section 8(k), then, in each case, the Company shall cause to be
delivered to the Holder, at the time notice thereof is delivered to holders of
the Common Stock (but in any event at least five days prior to the applicable
record date hereinafter specified), or if no such notice is delivered, at least
20 days (or 10 days in any case specified in clauses (a) or (b) above) prior to
the applicable record date hereinafter specified, or promptly in the case of
events for which there is no record date, a written notice stating (i) the date
as of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
(ii) the initial expiration date set forth in any tender offer or exchange offer
for shares of Common Stock or (iii) the date on which any such reclassification,
consolidation, merger, conveyance,
10
<PAGE>
transfer, dissolution, liquidation or winding up is expected to become effective
or consummated, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up.
SECTION 11. Registration Rights.
-------------------
(a) Piggyback Registration Right. Subject to the last sentence of
----------------------------
this subsection (a), whenever the Company proposes to register any shares of
Common Stock or any Convertible Securities with the Securities and Exchange
Commission (the "Commission") under the Act (except with respect to registration
statements for primary offerings on Form S-4 or Form S-8 or other similar forms)
and the registration form to be used may be used for the registration of
Registrable Securities (a "Registration"), the Company shall deliver written
notice to the Holder, at least 30 days prior to the anticipated initial filing
date, of its intention to effect such a Registration, which notice will specify
the proposed offering price, the kind and number of securities proposed to be
registered, the distribution arrangements and such other information that at the
time would be appropriate to include in such notice, and shall, subject to
subsection (b) below, include in such Registration all Registrable Securities
with respect to which the Company has received written requests from the Holder
for inclusion therein within 20 days after the delivery of such notice. Except
as may otherwise be provided in this Agreement, Registrable Securities with
respect to which such request for registration has been received shall be
registered by the Company and offered to the public in a Registration pursuant
to this Section 11 on terms and conditions at least as favorable as those
applicable to the registration of shares of Common Stock or Convertible
Securities to be sold by the Company and by any other person selling under such
Registration.
(b) In the case of an underwritten Registration, if the managing
underwriter or underwriters advise the Holder in writing that, in its or their
reasonable opinion, the number or kind of securities proposed to be sold in such
Registration (including Registrable Securities to be included pursuant to
subsection (a) above) would have a material adverse effect on the success of
such offering, the Company will include in such Registration the number of
securities which, in the opinion of such underwriter or underwriters, could be
sold as follows: (i) first, the shares the Company proposes to sell and (ii)
second, the shares requested to be included in such Registration by the Holder
and all other holders of registration rights requesting inclusion proportionate
in accordance with the number of shares requested to be included in the
offering by all holders of registration rights; provided, however, that if (A)
pursuant to this Section 11(b), Registrable Securities are not included in any
Registration pursuant to which the Holder properly notified the Company of their
inclusion pursuant to Section 11(a) and (B) such Registrable Securities are not
at that time eligible for sale by the Holder pursuant to Rule 144 under the Act,
the Company shall, if requested by the Holder, cooperate with the Holder to
register such Registrable Securities as promptly as practicable following such
Registration.
(c) Registration Procedures. With respect to any Registration, the
-----------------------
Company will as expeditiously as practicable:
(1) prepare and file with the Commission a registration statement or
registration statements (the "Registration Statement") relating to the
Registration on any appropriate form under the Act, which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof (provided that the
Company shall include in any Registration Statement on a form other than
Form S-1 all information that the Holder shall reasonably request if such
information otherwise could have been incorporated by reference therein)
and shall use its best efforts to cause such Registration Statement to
become effective;
11
<PAGE>
(2) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for a
period of at least 120 days, or such shorter period as will terminate when
all Registrable Securities covered by such Registration Statement have been
sold; upon the occurrence of any event that would cause any such
Registration Statement or any prospectus (a "Prospectus") contained therein
(A) to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Registrable Securities during the period
required by this Agreement, the Company shall promptly file an appropriate
amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either
clause (A) or (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(3) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the period specified in
Section 11(c)(2); cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(4) advise the managing underwriters, if any, and the Holder promptly
and, if requested, to confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any Registration Statement or any post-
effective amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the qualification
of the Registrable Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Registrable Securities under state
securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(5) furnish to the Holder and each of the managing underwriters, if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of
the Holder and managing underwriters, if any, for a period of at least five
business days, and the Company shall not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or
12
<PAGE>
Prospectus (including all such documents incorporated by reference) to
which the Holder or the managing underwriters, if any, shall reasonably
object within five business days after the receipt thereof (it being
understood that the Holder or a managing underwriter, if any, shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed
to be filed, contains a material misstatement or omission);
(6) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the Holder and to the managing
underwriters, if any, make the Company's representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
the Holder or any managing underwriter, if any, reasonably may request;
(7) make available at reasonable times for inspection by the Holder,
any managing underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by the
Holder or any of the managing underwriters, all pertinent financial and
other records, pertinent corporate documents and properties of the Company
and cause the Company's officers, directors and employees to supply all
information reasonably requested by the Holder, any managing underwriter or
any such attorney or accountant in connection with such Registration
Statement subsequent to the filing thereof and prior to its effectiveness;
(8) if requested by the Holder or the managing underwriters, if any,
promptly incorporate in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information
as the Holders or any managing underwriters, if any, may reasonably request
to have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Registrable Securities,
information with respect to the amount of Registrable Securities being sold
to such managing underwriters, the purchase price being paid therefor and
any other terms of the offering of the Registrable Securities to be sold in
such offering; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(9) furnish to the Holder and each of the managing underwriters, if
any, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits thereto
(including exhibits incorporated therein by reference);
(10) deliver to the Holder and each of the managing underwriters, if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
persons reasonably may request; the Company hereby consents to the use of
the Prospectus and any amendment or supplement thereto by the Holder and
each of the managing underwriters, if any, in connection with the offering
and the sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(11) enter into such customary agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order
to expedite or facilitate the disposition of the Registrable Securities
pursuant to any Registration Statement contemplated by this Agreement
13
<PAGE>
as may be reasonably requested by the Holder or any managing underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration, the Company shall:
(A) furnish to the Holder and each underwriter, if any, in such
substance and scope as they reasonably may request and as are
customarily made by issuers to underwriters in underwritten offerings,
upon the date of effectiveness of the Registration Statement:
(i) a certificate, dated the date of effectiveness of the
Registration Statement, signed by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company, confirming, as of the date thereof, such
representations, warranties and other matters as the Holder or
managing underwriters, if any, may request in the exercise of
their reasonable discretion;
(ii) an opinion, dated the date of effectiveness of the
Registration Statement, of counsel for the Company, covering such
customary matters as the Holder or the managing underwriters, if
any, may request in the exercise of their reasonable discretion,
and including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, the Holder's
representatives, the Holder's counsel, the managing underwriters'
representatives and the managing underwriters' counsel in
connection with the preparation of such Registration Statement
and the related Prospectus and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing, no
facts came to such counsel's attention that caused such counsel
to believe that the applicable Registration Statement, at the
time such Registration Statement or any post-effective amendment
thereto became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such Registration
Statement as of its date, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and other financial
data included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(iii) a customary comfort letter, dated as of the date of
effectiveness of the Registration Statement, from the independent
accountants of the Company, in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings;
14
<PAGE>
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of subsection (e) below with respect to all of the parties
to be indemnified pursuant to said subsection; and
(C) deliver such other documents and certificates as may be
reasonably requested by the Holder or the managing underwriters, if
any, to evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause (11).
If requested by the managing underwriter, the Holder agrees to enter into a
customary underwriting agreement. The Holder further agrees to enter into a
customary lock-up agreement for a maximum of 120 days if the Company and
its officers, directors and securityholders of 5% or more of the Company's
securities enter into lock-up agreements for the same or longer period of
time. The provisions of this clause (11) shall be applicable at each
closing under such underwriting or similar agreement, as and to the extent
required thereunder, and if at any time the representations and warranties
of the Company contemplated in clause (A)(i) above cease to be true and
correct, the Company shall so advise the managing underwriters, if any, and
the Holder promptly and, if requested, shall confirm such advice in
writing;
(12) prior to any public offering of Registrable Securities,
cooperate with the Holder, the managing underwriters, if any, and their
respective counsel in connection with the fregistration and qualification
of the Registrable Securities under the securities or Blue Sky laws of such
jurisdictions as the Holder or managing underwriters, if any, may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement;
(13) cooperate with the Holder and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the Holder or the managing
underwriters, if any, may request;
(14) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Holder or the managing underwriters, if any, to consummate the
disposition of such Registrable Securities;
(15) if any fact or event contemplated by clause (4)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Registrable
Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(16) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD") and
in the performance of any due diligence investigation by any underwriter
(including, without limitation, any "qualified independent underwriter"
that is required to be retained in accordance with the rules and
regulations of the NASD), and use its reasonable best efforts to cause such
Registration Statement to become
15
<PAGE>
effective and approved by such governmental agencies or authorities as may
be necessary to enable the Holder to consummate the disposition of
Registrable Securities;
(17) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
for the twelve-month period (A) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to underwriters in a firm or best
efforts underwritten offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement;
(18) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed or if such similar
securities are not then listed on any securities exchange, then use their
best effort to cause all Registrable Securities to be listed on the New
York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market; and
(19) provide promptly to the Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The Company may require the Holder to furnish to the Company such
information regarding the proposed distribution of Registrable Securities as the
Company may from time to time reasonably request in writing.
The Holder agrees that, upon receipt of any notice from the Company of
the existence of any fact of the kind described in Section 11(c)(4)(D) hereof,
the Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the applicable Registration Statement until the receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
11(c)(15) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. In the event that the Company shall give any such notice, the
time period regarding the effectiveness of such Registration Statement set forth
in Section 11(c)(2) shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
11(c)(4)(D) hereof to and including the date when the Holder shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
11(c)(15) hereof or shall have received the Advice.
(d) Registration Expenses.
---------------------
(1) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company regardless
of whether a Registration Statement becomes effective, including,
without limitation: (i) all registration and filing fees and expenses
(including, without limitation, filings made with the NASD (including,
if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel, as may be required by the rules and
regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws,
including, without limitation, the cost of preparing and mailing the
preliminary and final Blue Sky memoranda and filing fees and
disbursements and fees of counsel and other
16
<PAGE>
related expenses, if any, in connection therewith; (iii) all expenses
of printing (including printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of
counsel for the Company and, subject to subsection (d)(2) below, the
Holder; (v) all application and filing fees in connection with listing
the Registrable Securities on a securities exchange pursuant to the
requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including,
without limitation, the expenses of any special audit and comfort
letters required by or incident to such performance). Notwithstanding
the foregoing or anything in this Agreement to the contrary, the
Holder shall pay all underwriting discounts and commissions of any
underwriters with respect to Registrable Securities sold by it.
The Company will, in any event, bear its expenses (including,
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any
annual audit and the fees and expenses of any person, including,
without limitation, special experts, retained by the Company.
(2) In connection with any Registration Statement required by
this Agreement, the Company shall reimburse the Holder for the
reasonable fees and disbursements of not more than one counsel chosen
by the Holder.
(e) Indemnification.
---------------
(1) Indemnification by the Company. The Company shall indemnify
------------------------------
and hold harmless the Holder, its affiliates and each person, if any,
who controls the Holder or any of its affiliates within the meaning of
either the Act or the Exchange Act (a "Controlling Person") and its
affiliates, and the respective directors, officers, agents and
employees of the Holder, any Controlling Persons and their affiliates
(each such entity or person, an "Indemnified Holder") from and against
any losses, claims, damages, judgments, assessments, costs and other
liabilities (collectively "Liabilities"), and will reimburse each
Indemnified Holder for all fees and expenses (including the reasonable
fees and expenses of counsel) (collectively, "Expenses") as they are
incurred in investigating, preparing, pursuing or defending any claim,
action, proceeding or investigation, whether or not in connection with
pending or threatened litigation and whether or not any Indemnified
Holder is a party (collectively, "Actions"), arising out of, resulting
from, relating to or otherwise in connection with any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (including any amendments thereof
and supplements thereto) or by any omission or alleged omission to
state therein a material fact necessary to make the statements therein
not misleading (other than untrue statements or alleged untrue
statements in, or omission or alleged omissions from, information
relating to the Holder furnished in writing by the Holder expressly
for use in the Registration Statement or Prospectus). The Company also
agrees to reimburse each Indemnified Holder for all Expenses that are
incurred in connection with enforcing such Indemnified Holder's rights
under this Section 11(e).
Upon receipt by an Indemnified Holder of actual notice of an
Action against such Indemnified Holder with respect to which indemnity
may be sought under this Agreement, such Indemnified Holder shall
promptly notify the Company in writing; provided that the failure so
to notify the Company shall not relieve the Company from any liability
that the Company may have on account of this indemnity or otherwise,
except to the extent the
17
<PAGE>
Company shall have been materially prejudiced by such failure. The
Company shall assume the defense of any such Action, including the
employment of counsel reasonably satisfactory to the Indemnified
Holders. Any Indemnified Holder shall have the right to employ
separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Holder, unless (i) the Company has failed
to assume the defense and employ counsel reasonably satisfactory to
the Indemnified Holders or (ii) the named parties to any such Action
(including any impleaded parties) include such Indemnified Holder and
the Company, and such Indemnified Holder shall have been advised by
counsel that there may be one or more legal defenses available to it
that are different from or in addition to those available to the
Company; provided that the Company shall not in such event be
responsible hereunder for the fees and expenses of more than one firm
of separate counsel in connection with any Action in the same
jurisdiction, in addition to any local counsel. The Company shall not
be liable for any settlement of any Action effected without its
written consent. In addition, the Company shall not, without the prior
written consent of each Indemnified Holder, settle, compromise or
consent to the entry of any judgment in or otherwise seek to terminate
any pending or threatened Action in respect of which indemnification
or contribution has been sought hereunder (whether or not any
Indemnified Holder is a party thereto) unless such settlement,
compromise, consent or termination includes a full and unconditional
release of each Indemnified Holder from all Liabilities arising out of
such Action for which such Indemnified Holder is entitled to
indemnification hereunder.
(2) Indemnification by the Holder. The Holder shall indemnify
-----------------------------
and hold harmless the Company, its affiliates, their Controlling
Persons, if any, and the affiliates of such Controlling Persons, and
the respective directors, officers, agents and employees of the
Company, any Controlling Persons and their affiliates (each such
entity or person, an "Indemnified Issuer") to the same extent as the
foregoing indemnity from the Company to the Indemnified Holders, but
only with respect to Liabilities and Expenses incurred in
investigating, preparing, pursuing or defending Actions arising out
of, resulting from, relating to or otherwise in connection with
information relating to the Holder furnished in writing by the Holder
expressly for use in the Registration Statement or Prospectus. In
case any Action shall be brought against any Indemnified Issuer in
respect of which indemnification may be sought against the Holder, the
Holder shall have the rights and duties given to the Company and the
Indemnified Issuer shall have the rights and duties given to each
Indemnified Holder by clause (e)(1) of this Section. Notwithstanding
the foregoing, in no event shall the liability of the Holder hereunder
be greater than the dollar amount of the proceeds received by the
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(3) Contribution. In the event that the indemnification
------------
provided for in the foregoing paragraphs (1) and (2) above is
judicially determined to be unavailable to an indemnified party (other
than in accordance with the terms hereof), the indemnifying party
shall contribute to the Liabilities and Expenses paid or payable by
such indemnified party in such proportion as is appropriate to reflect
the relative fault of the Company, on the one hand, and the Holder, on
the other hand, in connection with the statements or omissions to
which such Liabilities or Expenses relate, as well as any other
relevant equitable considerations. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company or by the
18
<PAGE>
Holder, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue
statement or omission. In no event shall the Company be required to
contribute less than the amount necessary to ensure that the Holder is
not liable for any Liabilities and Expenses in excess of the dollar
amount of the proceeds received by the Holder upon the sale of the
Registrable Securities giving rise to such Liabilities and Expenses.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 11(e)(3) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in the immediately preceding paragraph. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(e) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 12. Mandatory Exercise. After October 25, 1998, if the price
------------------
per common share of the Common Stock exceeds 150% of the Exercise Price for 60
consecutive days, then the Company may require the Holder to exercise the
Warrants at a price equal to the Exercise Price hereunder. Provided,
however, that the Company must provide written notice to the Holder at least 15
days prior to such exercise setting forth the date of such required exercise.
SECTION 13. Reports. So long as any Warrants or Warrant Shares are
-------
outstanding, the Company will furnish to the Holder (i) all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports required to be filed with the
Commission on Form 8-K. In addition, the Company hereby agrees that, for so
long as any Registrable Securities remain outstanding and during any period in
which the Company is not subject to Section 13 or 15(d) of the Exchange Act to
make available, upon request of the Holder, to the Holder and any prospective
purchaser of such Registrable Securities, the information required by Rule
144A(d)(4) under the Act.
SECTION 14. Notices. Any notice or demand authorized by this
-------
Agreement to be given or made to or on the Company shall be sufficiently given
or made when delivered to the Company as follows:
Alyn Corporation
16871 Noyes Avenue
Irvine, CA 92606
Attention: President
or to such other address as to which the Company shall notify the Holder.
Any notice pursuant to this Agreement to be given by the Company to
the Holder shall be sufficiently given when delivered to the Holder as follows:
Furman Selz LLC
101 California Street, Suite 4300
San Francisco, CA 94111
Attention: Eric Edmondson
or to such other address or addresses as to which the Holder shall notify the
Company.
19
<PAGE>
SECTION 15. Termination. This Agreement shall survive the Expiration
-----------
Time if, as of such date and time, any Registrable Securities shall be
outstanding, in which case this Agreement shall terminate only at such time as
no Registrable Securities are outstanding.
SECTION 16. Successors. This Agreement shall inure to the benefit of
----------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders.
SECTION 17. Governing Law. THIS AGREEMENT AND EACH WARRANT
-------------
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
SECTION 18. Submission to Jurisdiction. The Company hereby submits
--------------------------
to the jurisdiction of any federal or state court in the City of New York,
Borough of Manhattan, State of New York where any suit or proceeding arising out
of this Agreement may be filed.
SECTION 19. Severability. The provisions of this Warrant Agreement
------------
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Warrant Agreement in any jurisdiction.
SECTION 20. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Signature Page Follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
ALYN CORPORATION
By:
-------------------------------
Name:
Title:
FURMAN SELZ LLC
By:
-------------------------------
Name:
Title:
21
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
No. 211,000 Warrants
Warrant Certificate
ALYN CORPORATION
This Warrant Certificate certifies that Furman Selz LLC, or its
assigns, is the registered holder of Warrants (the "Warrants") to purchase
Common Stock, $0.001 par value per share (the "Common Stock"), of Alyn
Corporation, a Delaware corporation ("the Company"). Each Warrant entitles the
holder upon exercise to receive from the Company from and after October 21, 1997
and until on or before 5:00 p.m. New York City time on October 21, 2001 (or such
later time as provided in the Warrant Agreement referred to on the reverse side
hereof), one fully paid and nonassessable shares of Common Stock (a "Warrant
Share") at the initial exercise price (the "Exercise Price") of $___ per share
payable in cash, by certified or official bank check or without the exchange of
funds pursuant to the net exercise provisions of Section 4 of the Warrant
Agreement.
The Warrants represented by this Warrant Certificate may be exercised
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the principal executive office of the Company. The Exercise Price and number of
Warrant Shares issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York City time, on
October 21, 2001 (or such later time as provided in the Warrant Agreement), and
to the extent not exercised by such time such Warrants shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall be governed by and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, Alyn Corporation has caused this Warrant
Certificate to be signed by its President or a Vice President, by his signature
or a facsimile thereof.
Dated: ALYN CORPORATION
By:
-------------------------------
Name:
Title:
A-1
<PAGE>
[Form of Warrant Certificate]
[Reverse]
UNTIL OCTOBER 21, 1997, THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED TO ANYONE OTHER THAN AN OFFICER, PARTNER OR SUCCESSOR
OF FURMAN SELZ LLC. THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OR ANY SECURITY ISSUED IN EXCHANGE FOR
OR IN SUBSTITUTION HEREOF OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants entitling the Holder on exercise to receive shares
of Common Stock, $0.001 par value per share, of the Company, and are issued or
to be issued pursuant to a Warrant Agreement dated as of October 25, 1996 (the
"Warrant Agreement") between the Company and Furman Selz LLC, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
Holder. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Warrant Agreement.
Warrants may be exercised at any time on or before the Expiration
Time. The Holder may exercise the Warrants by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment of the Exercise Price in cash, by
certified or official bank check or without the exchange of funds pursuant to
the net exercise provisions of Section 4 of the Warrant Agreement. In the event
that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby, the
Company shall issue to the Holder a new Warrant Certificate evidencing the
number of Warrants not exercised. No adjustment shall be made for any dividends
on any Common Stock issuable upon exercise of this Warrant.
A-2
<PAGE>
The Warrant Agreement provides that, upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted and in certain other
circumstances, the Warrant Agreement provides that the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrant, but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement.
Warrant Certificates may be exchanged in the manner and subject to the
limitations provided in the Warrant Agreement.
A-3
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise ________
Warrants containing the right, represented by this Warrant Certificate, to
receive ___________ shares of Common Stock and herewith (check item) tenders
payment for such shares to the order of Alyn Corporation in the amount of $____
per share of Common Stock in accordance with the terms hereof, as follows:
$________ in cash or by certified or official bank check to the order
of Alyn Corporation;
or
By surrender of Warrant Shares having a fair market value of
$_________.
The undersigned requests that a certificate for such shares be
registered in the name of ________________, whose address is
_______________________________, and that such shares be delivered to
________________, whose address is ___________ ______________________.
If said number of shares is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate for ______ Warrants representing the remaining balance of such
Warrants be registered in the name of ______________, whose address is
_________________________, and that such Warrant Certificate be delivered to
________________, whose address is __________________.
-------------------------------
Signature
Date:
--------------------------
A-4
<PAGE>
EXHIBIT 5.1
(212) 856-7000
(212) 339-9150
October 22, 1996
Alyn Corporation
16871 Noyes Avenue
Irvine, CA 92606
Re: Initial Public Offering of Common Stock
---------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Alyn Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), of a Registration Statement on
Form S-1 (File No. 333-09143) (the "Registration Statement"), and the Prospectus
forming a part thereof (the "Prospectus"), providing for the Company's
registration of 2,750,000 shares of Common Stock, par value $.001 per share
(the "Common Stock"), of the Company (3,162,500 shares if the underwriters' over
allotment option is exercised in full). Unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings given or
ascribed thereto in the Registration Statement. You have requested that we
furnish our opinion as to matters hereinafter set forth.
For purposes of this letter, we have examined originals or copies of
the following:
(a) Registration Statement, as filed with the Commission on July 30,
1996, as amended on September 11, 1996, and as further amended on
September 19, 1996;
<PAGE>
October 22,1996
(b) Amendment No. 3 to the Registration Statement, as filed today with
the Commission (the"Amendment");
(c) Restated Certificate of Incorporation of the Company, as filed as an
exhibit to the Registration Statement;
(d) By-Laws of the Company, as filed as an exhibit to the Registration
Statement;
(e) Proposed Form of Stock Certificate representing shares of Common
Stock as filed as an exhibit to the Amendment;
(f) Proposed form of the Underwriting Agreement, as filed as an exhibit
to the Registration Statement (the "Underwriting Agreement"); and
(g) Minutes books of the Company, as certified by the Company.
In rendering the opinion herein expressed we have assumed the
genuineness of all signatures, the authenticity of all documents, instruments
and certificates submitted to us as originals, the conformity with the original
documents, instruments and certificates of all documents, instruments and
certificates submitted to us as copies and the legal capacity to sign of all
individuals executing documents. We have assumed the completeness of the
corporate records provided to us by the Company. We have relied upon
representations of the Company as to certain factual matters relevant hereto.
We are not admitted to the practice of law in any jurisdiction other
than the State of New York, and we do not express any opinion as to the laws of
any states or jurisdictions other than the laws of the State of New York, the
federal law of the United States and the General Corporation Law of the State of
Delaware. No opinion is expressed as to the effect that the law of any other
jurisdiction may have upon the subject matter of the opinions expressed herein
under conflicts of law principles, rules and regulations or otherwise.
Based upon and subject to the foregoing examination, we are of the
opinion that the Common Stock to be sold by the Company pursuant to the
Registration Statement has been duly and validly authorized and, when issued and
delivered in accordance with the Underwriting Agreement, will be validly issued,
fully paid and nonassessable.
<PAGE>
3
October 22, 1996
We herby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required by Section 7 of the Act
or the rules or regulations of the Commission thereunder.
Very truly yours,
<PAGE>
EXHIBIT 10.2
ALYN CORPORATION
1996 STOCK INCENTIVE PLAN
1. Purpose
-------
The purpose of this plan (the "Plan") is to secure for Alyn Corporation
----
(the "Company"), and its stockholders, the benefits arising from the ownership
-------
of stock options by directors, officers, key employees of, and consultants to,
the Company or Subsidiaries (as defined in Section 18 hereof) who are expected
to contribute to the Company's future growth and success.
2. Types of Plan Benefits and Administration
-----------------------------------------
(a) Types of Awards. Under the Plan, the Company may in its sole
---------------
discretion grant, with respect to the Company's common stock, par value $.001
per share ("Common Stock"), options ("Options") to directors, officers, key
------------ -------
employees and consultants (the "Participants"), as authorized by action of the
------------
Board of Directors of the Company (or a committee designated by the Board of
Directors), and, in addition, the Company shall, subject to the terms and
conditions hereof, grant to each director of the Company who is not an employee
(an "Eligible Director"), Options in accordance with the formula set forth in
-----------------
Section 7 hereof. As used in the Plan, an "Award" shall mean an Option and an
-----
"Award Owner" shall mean the owner of an Option. Options granted pursuant to
-----------
the Plan to Participants who are employees of the Company (or a Subsidiary) may
be either incentive stock options ("Incentive Stock Options") meeting the
-----------------------
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-statutory options ("Non-Statutory Stock Options"), which
---- ---------------------------
are not intended to or do not meet the requirements of Code Section 422.
Options granted to non-employees shall be only Non-Statutory Stock Options.
(b) Administration. The Plan will be administered by the Board of
--------------
Directors of the Company, except to the extent the Board of Directors appoints
from among its members a committee to administer the Plan (in either case, the
group administering the Plan is hereinafter referred to as the "Committee").
---------
The Committee's construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. The Committee may in its sole
discretion grant Options to purchase shares of the Company's Common Stock to
directors, officers, key employees and consultants and issue shares upon
exercise of such Options, as provided in the Plan. The Committee shall grant
Options to purchase shares of the Company's Common Stock to the Eligible
Directors, and issue shares upon exercise of such Options, as provided in the
Plan. The Committee shall have authority, subject to the express provisions of
the Plan, including, but not limited to Section 7 hereof, to construe the
respective Award agreements and the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the respective Award agreements, which need not be identical; to advance the
lapse of any waiting or installment periods and exercise dates;
<PAGE>
and to make all other determinations in the sole judgment of the Committee
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Award agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and such determination shall be in the
sole and final judgement of the Committee. No director shall be liable for any
action or determination taken or made under or with respect to the Plan or any
Award in good faith.
3. Eligibility
-----------
(a) Generally. Except as provided in paragraph (b) of this Section 3 and
---------
Section 7 hereof, Awards shall be granted only to persons selected by the
Committee who are, at the time of grant, directors, officers, key employees of,
or consultants to, the Company or any Subsidiary of the Company. A Participant
who has been granted an Award may, if he or she is otherwise eligible, be
granted one or more additional Awards if the Committee shall so determine.
(b) Incentive Stock Options. No person shall be granted any Incentive
-----------------------
Stock Option under the Plan unless, at the time such Option is granted, such
person is an employee of the Company or any Subsidiary of the Company, and does
not own, directly or indirectly, Common Stock of the Company possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any Subsidiary (unless the requirements of Section 6(f)(i) are
satisfied).
4. Stock Subject to Plan
---------------------
Subject to adjustment as provided in Sections 13 and 14 below, the maximum
number of shares of Common Stock of the Company that may be issued and sold
pursuant to Options granted under the Plan is 1,000,000 shares in the aggregate
(one share per Option). The Company shall reserve for the purposes of the Plan,
out of its authorized but unissued shares of Common Stock or out of shares held
in the Company's treasury, or partly out of each, such number of shares of
Common Stock as shall be determined by the Committee. If Options granted under
the Plan shall expire or terminate for any reason without having been exercised
in full, the shares subject to the unexercised portions of such Options shall
again be available for subsequent Award grants under the Plan. Common Stock
issuable upon exercise of Options may be subject to such restrictions on
transfer, repurchase rights or other restrictions as shall be determined by the
Committee.
5. Form of Option Agreements
-------------------------
As a condition to the grant of an Option under the Plan, each recipient of
a discretionary Option shall execute an Option Agreement, substantially in the
form of Exhibit A to the Plan (in the case of Incentive Stock Options) or
---------
Exhibit B to the Plan (in the case of Non-Statutory Stock Options) or in such
- ---------
other form not inconsistent with the Plan as shall be specified by the
-2-
<PAGE>
Committee at the time such Option is granted. Each Eligible Director, as a
condition to the grant of Options to him or her pursuant to Section 7(a) hereof,
shall execute an Option Agreement, substantially in the form of Exhibit C to the
---------
Plan and/or Exhibit D to the Plan as appropriate.
---------
6. Discretionary Grants of Awards to Participants
----------------------------------------------
(a) Committee of Non-Employee Directors. Any Participant who is a
-----------------------------------
director or officer of the Company shall be granted Awards only if such person
has been selected for participation and the terms and provisions of such Awards
have been determined, solely by, and in the sole discretion of, and any actions
with respect to such Awards are taken by the Board of Directors or a Committee
of two or more directors each of whom is a "non-employee director." For purposes
of the Plan, a person shall be deemed to be a "non-employee director" only if
such person qualifies as a "non-employee director" within the meaning of Rule
16b-3 of the Securities and Exchange Commission (the "SEC"). The term "officer"
shall have the same meaning as in Rule 16a-1(f). The foregoing provisions do not
apply to any grant which occurs prior to the date the Company first registers
its Common Stock under Section 12 of the Securities Exchange Act of 1934.
(b) Purchase Price. The purchase price per share of stock issuable upon
--------------
the exercise of an Option granted pursuant to this Section 6 shall be the Fair
Value (as defined in Section 18 hereof) on the date that such Option is granted.
Notwithstanding anything to the contrary contained herein, in the case of an
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Value of such stock at the date of grant of such Option, or less than 110%
of such Fair Value in the case of Options described in Section 6(f)(i).
(c) Exercise Period. Each discretionary Award to a Participant shall
---------------
expire on such date as the Committee shall determine, but in no event after the
expiration of ten years from the date on which such Award is granted, and in all
cases each Award shall be subject to earlier termination as provided in the
Plan. In no event may any Option granted pursuant to this Section 6 be
exercised prior to the initial public offering of the Company's Common Stock.
(d) Vesting of Awards. An Award granted to a Participant may be
-----------------
exercised, and payment shall be made upon exercise of such Award, only to the
extent that such Award has vested. Awards shall vest in accordance with the
schedule or terms set forth in the Award agreement executed by the Award Owner
and a duly authorized officer of the Company. The Committee may accelerate the
vesting of any Option granted pursuant to this Section 6. Notwithstanding the
foregoing, unless the Committee specifically authorizes a different vesting
schedule with respect to an Award, a discretionary Award shall become
exercisable based on the number of full years of service that such Award Owner
has completed with the Company or a Subsidiary since the date of the grant of
such Award, in accordance with the following schedule:
-3-
<PAGE>
<TABLE>
<CAPTION>
Number of Years of Service Percentage of Award Available
Since First Date of Grant for Exercise (Cumulative)
-------------------------- -----------------------------
<S> <C>
1 33 1/3%
2 66 2/3%
3 100%
</TABLE>
(e) Effect of Termination of Service. No discretionary Award may be
--------------------------------
exercised unless, at the time of such exercise, the Participant is, and
continuously since the date of grant of his or her Award has been, engaged by
the Company or a Subsidiary, except that subject to Section 6(d) and if and to
the extent the Award agreement or instrument so provides:
(i) if the Participant ceases to be engaged by the Company or a
Subsidiary for any reason other than death or disability or a discharge for
"cause" (as defined in (iv) below), the right to exercise the Award shall
terminate three months after such cessation (or within such other period as may
be specified in the Award agreement or instrument);
(ii) if the Participant dies while engaged by the Company or
within three months after the Participant ceases to be so engaged, the Awards
may be exercised by the administrator of the Participant's estate, or by the
person to whom the Options are transferred by will or the laws of descent and
distribution, within the period of one year after the date of death (or within
such other period as may be specified in the Award agreement or instrument);
(iii) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code) while engaged by the Company or a Subsidiary, the
Awards may be exercised within the period of one year after the date the
Participant ceases to be engaged by the Company or Subsidiary because of such
disability (or within such other period as may be specified in the Award
agreement or instrument); and
(iv) if the Participant, prior to the expiration date of an Award
ceases his or her services with the Company or a Subsidiary, because he or she
is discharged for "cause" (as defined below), the right to exercise an Option
shall terminate immediately upon such cessation of such services. "Cause" shall
mean: willful misconduct in connection with the Participant's performance of
services for the Company or willful failure to perform his or her services in
the best interest of the Company, as determined by the Committee, which
determination shall be conclusive;
provided, however, that in no event may any Award be exercised after the
- -------- -------
expiration date of the Award. Any Award or portion thereof that is not
exercised during the applicable time period specified above (or any shorter
period specified in the Award agreement or instrument) shall be deemed
terminated at the end of the applicable time period for purposes of Section 4
hereof.
-4-
<PAGE>
(f) Incentive Stock Options. Options granted under the Plan that are
-----------------------
intended to be Incentive Stock Options shall be specifically designated as
intending to be Incentive Stock Options and shall be subject to the following
additional terms and conditions:
(i) 10% Stockholder. If any Participant to whom an Incentive
---------------
Stock Option is to be granted under the Plan is at the time of the grant of such
Option the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary, then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual: (x) the exercise price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of the Fair
Value (as defined in Section 18) of one share of Common Stock at the time of
grant; and (y) the option exercise period shall not exceed five years from the
date of grant.
(ii) Dollar Limitation. Common Stock of the Company that is
-----------------
acquired pursuant to the exercise of an Incentive Stock Option granted to a
Participant under the Plan shall be deemed to be acquired pursuant to the
exercise of an Incentive Stock Option under Code Section 422, only to the extent
that the aggregate Fair Value (determined as of the respective date or dates of
grant) of the Common Stock with respect to which such Incentive Stock Option,
and all other Incentive Stock Options that are granted to such Participant under
the Plan (and under any other incentive stock option plans of the Company or any
Subsidiary), are exercisable for the first time by such Participant in any one
calendar year, does not exceed $100,000. To effectuate the provisions of this
Section 6(f), the Committee may designate the shares of Common Stock that are
treated as acquired pursuant to the exercise of an Incentive Stock Option by
issuing a separate certificate for such shares and identifying such certificates
as Incentive Stock Option stock in its stock transfer records.
(iii) If a Participant makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any share
or shares of Common Stock issued to such Participant pursuant to the exercise of
an Incentive Stock Option within the two-year period commencing on the day after
the date of the grant or within the one-year period commencing on the day after
the date of transfer of such share or shares to the Participant pursuant to such
exercise, the Participant shall, within ten (10) days of such disposition,
notify the Company thereof, by delivery of written notice to the Company at its
principal executive office.
Except as modified by the preceding provisions of this Section 6(f),
all the provisions of the Plan applicable to Options shall be applicable to
Incentive Stock Options granted hereunder.
(g) Options Granted at Initial Public Offering Price. If, prior to the
------------------------------------------------
IPO, Options are authorized or committed to be granted at the IPO Price, such
Options shall be granted upon effectiveness of the IPO.
7. Non-discretionary Formula Grants of Awards to Eligible Directors
----------------------------------------------------------------
-5-
<PAGE>
(a) Non-discretionary Grants. Notwithstanding anything to the contrary
------------------------
contained in this Plan, Eligible Directors shall be granted Options ("Director
Options") as follows: (i) coincident with the initial public offering of shares
of Common Stock, each Eligible Director shall be granted (A) 10,000 Director
Options to purchase 10,000 shares of Common Stock in the aggregate, subject to
partial vesting as provided in Section 7(d) below and (B) 5,000 Director Options
to purchase 5,000 shares of Common Stock in the aggregate, which shall be fully
vested on the date of grant; and (ii) on the first business day following the
annual meeting of shareholders of the Company to elect directors in 1997, and
thereafter on the first business day following each successive annual meeting of
shareholders so long as Director Options remain available for grant, (A) each
person who is elected as a director at that meeting and is an Eligible Director
or who continues to serve as a director after that meeting, and is an Eligible
Director, shall be granted 10,000 Director Options to purchase 10,000 shares of
Common Stock in the aggregate, subject to partial vesting as provided in Section
7(d) below and (B) each person who is first elected as a director at that
meeting and is an Eligible Director shall be granted 5,000 Director Options to
purchase 5,000 shares of Common Stock in the aggregate which shall be fully
vested on the date of grant.
(b) Purchase Price. The purchase price per share of stock issuable upon
--------------
the exercise of an Option granted pursuant to this Section 7 shall be (i) with
respect to an Option granted coincident with the initial public offering, the
IPO Price, and (ii) with respect to an Option granted thereafter, the Fair Value
on the date that such Option is granted.
(c) Exercise Period. The term of each Option granted pursuant to this
---------------
Section 7 shall be ten years from the date of the grant thereof, subject to
earlier termination as herein provided. Any Option that is not exercised during
the applicable time period specified in this Section 7 shall be deemed
terminated at the end of the applicable time period for purposes of Section 4
hereof. In no event may any Option granted pursuant to this Section 7 be
exercised prior to the initial public offering of the Company's Common Stock or
after the expiration date thereof.
(d) Vesting of Awards. Director Options shall be exercisable by an
-----------------
Eligible Director only to the extent that they have vested, and to the extent
not fully vested on grant shall vest based on years of service as follows:
<TABLE>
<CAPTION>
Number of Years of Service Percentage of Award Available
Since First Date of Grant for Exercise (Cumulative)
-------------------------- -----------------------------
<S> <C>
Date of Grant 33 1/3%
1 66 2/3%
2 100%
</TABLE>
(e) Effect of Termination of Services or Death. If an Eligible Director
------------------------------------------
ceases to
-6-
<PAGE>
serve as a director of the Company, the Options that have been previously
granted to that Eligible Director and that are vested as of the date of such
cessation may be exercised by the Eligible Director after the date such Eligible
Director ceases to be a director of the Company or Subsidiary. If an Eligible
Director dies while a director of the Company or a Subsidiary, the Options that
have been previously granted to that Eligible Director and that are vested as of
the date of such death may be exercised by the administrator of the Eligible
Director's estate, or by the person to whom such Options are transferred by will
or the laws of descent and distribution. In no event, however, may any Option
be exercised after the expiration date of such Option. Any Option or portion
thereof that is not exercised during the applicable time period specified above
shall be deemed terminated at the end of the applicable time period for purposes
of Section 4 hereof.
8. Method of Exercise
------------------
An Award Owner may exercise an Option granted hereunder by delivering to
the Company at its main office (to the attention of the Secretary) written
notice of exercise, which notice shall specify the number of shares with respect
to which the Option is being exercised, together with payment of the purchase
price in exchange for the Company's issuance and delivery of certificates
therefor. The purchase price for any shares of Common Stock purchased pursuant
to the exercise of an Option shall be paid in full upon such exercise by any one
or a combination of the following: (i) cash (by check), (ii) transferring
shares of fully paid Common Stock to the Company with a Fair Value equal to the
aggregate purchase price, or (iii) solely with respect to Options that are not
Director Options, by cash payments in installments or pursuant to a full
recourse promissory note, in either case, upon such terms as the Committee deems
appropriate. Notwithstanding the foregoing, the Committee shall have discretion
to determine at the time of grant of each Option (other than a Director Option)
or at any later date (up to and including the date of exercise) the form of
payment acceptable in respect of the exercise of such Option. The written
notice pursuant to this Section 8 may also provide instructions to the Company
that upon receipt of the purchase price in cash from the Award Owner's broker or
dealer, designated as such on the written notice, in payment for any shares
purchased pursuant to the exercise of an Option, the Company shall issue such
shares directly to the designated broker or dealer. Any shares transferred to
the Company as payment of the purchase price under an Option shall be valued at
their Fair Value on the day preceding the date of exercise of such Option. If
requested by the Committee, the Award Owner shall deliver the related Award
agreement to the Secretary of the Company who shall endorse thereon a notation
of such exercise and return such agreement to the Award Owner. No fractional
shares (or cash in lieu thereof) shall be issued upon exercise of an Option and
the number of shares that may be purchased upon exercise shall be rounded to the
nearest number of whole shares.
9. Reload Options
--------------
Options (other than Director Options) granted under the Plan may, in the
discretion of the Committee, include the right to acquire a reload option
("Reload Option"). The term "Reload Option" shall mean the right to purchase a
number of shares of Common Stock equal
-7-
<PAGE>
to the number of shares tendered by a Participant in exercising an Option, and
the number of whole shares, if any, withheld by the Company in satisfaction of
Withholding Taxes (as defined in Section 20). A Reload Option shall have a
purchase price equal to the Fair Value of Common Stock on the date the
Participant receives the Reload Option and a term extending to the expiration
date of the Option with respect to which the Reload Option was granted.
10. Transferability of Awards
-------------------------
No Award granted under the Plan shall be assignable or transferable by the
person to whom it is granted, either voluntarily or by operation of law, except
by will or the laws of descent and distribution. During the life of the
recipient, the Award shall be exercisable only by or on behalf of such person.
Notwithstanding the foregoing and provided the Award holder receives no
consideration, the Committee may permit Awards (other than Director Options and
Incentive Stock Options) to be transferable to a member of the Award holder's
"immediate family," a trust established by an Award holder for the benefit of
one or more members of such holders "immediate family" or a partnership in which
such "immediate family" members are the only partners. The term "immediate
family" shall have the meaning of such term in Rule 16a-1 of the SEC.
11. General Restrictions
--------------------
(a) Award Owner Representations. The Company may require a person to
---------------------------
whom an Award is granted, as a condition of exercising such Award, to:
(i) give such written assurances, in substance and form
satisfactory to the Company, as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws, including,
without limitation, that such person is acquiring the Common Stock subject to
the Award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same;
(ii) with respect to an Award Owner of a discretionary Option
only, grant to the Company the right, which may be upon such terms as the
Committee, in its sole discretion, prescribes, to repurchase from the Award
Owner any or all shares acquired by such Award Owner through the exercise of an
Award which such Award Owner may at any time desire to sell, transfer or
otherwise dispose of; and
(iii) if the Award Owner is a director or officer, give written
assurances, in substance and form satisfactory to the Company, that such person
has consulted with competent counsel as to the application of Section 16(b) of
the Securities Exchange Act of 1934 (the "Exchange Act") to such exercise.
------------
Certificates representing shares issued upon exercise of the Award shall bear
such legends as are deemed appropriate by legal counsel to the Company, unless
the Award Owner provides a
-8-
<PAGE>
written opinion of legal counsel, satisfactory to the Company, that any such
legend is not required.
(b) Compliance With Securities Laws.
-------------------------------
(i) Each Award shall be subject to the requirement that, if at
any time counsel to the Company shall determine that the listing, registration
or qualification of such Award or the shares subject to such Award upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with the grant or exercise of such Award or the issuance or
purchase of shares thereunder, such Award shall not be effective or may not be
accepted or exercised in whole or in part (as applicable) unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration, qualification, consent or approval.
(ii) The Company shall provide each Award Owner with such
information, statements, discussions and analyses with respect to the Company in
such manner and at such times as may be required under state or federal
securities laws.
12. Rights as a Stockholder
-----------------------
The Award Owner shall have no rights as a stockholder with respect to any
shares covered by the Award until the date upon which the stock certificates are
issued to him or her for such shares. Except as otherwise expressly provided in
the Plan, no adjustment shall be made for dividends or other rights for which
the record date is prior to the date on which such stock certificate is issued.
13. Recapitalization
----------------
In the event that the outstanding shares of Common Stock of the Company are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, stock dividend, combination or subdivision, an appropriate and
proportionate adjustment shall be made in the number and kind of shares subject
to the Plan and in the number, kind, and per share exercise price, of shares
subject to unexercised Options or portions thereof granted prior to such
adjustment. Any such adjustment to an outstanding Option shall be made without
change in the total price applicable to the unexercised portion of such Option
as of the date of the adjustment. No such adjustment shall be made with respect
to an Incentive Stock Option that would, within the meaning of any applicable
provisions of the Code, constitute a modification, extension or renewal of any
Option or a grant of additional benefits to the holder of an Option.
-9-
<PAGE>
14. Reorganization
--------------
In the event that without the prior approval of the Board of Directors (i)
the Company is merged or consolidated with another entity or person other than
an Affiliate, and the Company is not a surviving entity, or (ii) all or
substantially all of the assets or more than 20% of the outstanding stock of the
Company entitled to vote for directors is acquired by any other entity or person
other than an Affiliate or an entity or person or any affiliate thereof owning
5% or more of the outstanding voting stock of the Company prior to the effective
date of the initial public offering of the Company's Common Stock, or (iii)
there is a reorganization or liquidation of the Company, the Committee, or the
board of directors of any corporation assuming the obligations of the Company,
shall, as to outstanding Awards, either (x) in the case of a merger,
consolidation or reorganization of the Company, make appropriate provision for
the protection of any such outstanding Awards by the substitution on an
equivalent basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation that will be issuable in
respect of the shares of Common Stock of the Company (provided that no
additional benefits shall be conferred upon Award Owners as a result of such
substitution), or (y) upon written notice to the Award Owners, provide that all
unexercised Awards must be exercised within a specified number of days of the
date of such notice or they will be terminated, or (z) upon written notice to
the Award Owners, provide that all unexercised Awards shall be purchased by the
Company or its successor within a specified number of days of the date of such
notice at a price equal to the value the Award Owners would have received if
they then exercised all their Awards and immediately received full payment in
respect of such exercise, as determined in good faith by the Committee.
15. No Special Rights
-----------------
Nothing contained in the Plan or in any Award granted under the Plan shall
confer upon any Award Owner any right with respect to the continuation of his or
her service with the Company (or any Subsidiary) or interfere in any way with
the right of the Company (or any Subsidiary), subject to the terms of any
separate agreement to the contrary, at any time to terminate such engagement or
to increase or decrease the compensation of the Award Owner from the rate in
existence at the time of the grant of an Award. Whether an authorized leave of
absence, or absence in military or government service, shall constitute
termination or cessation of services for purposes of this Plan shall be
determined by the Committee.
16. No Special Directorship Rights
------------------------------
Nothing contained in the Plan or in any Award granted under the Plan shall
constitute evidence of any agreement or understanding, express or implied, that
a director has a right to continue as a director for any period of time.
-10-
<PAGE>
17. Other Employee Benefits
-----------------------
The amount of any income deemed to be received by an Award Owner as a
result of the exercise of an Award or the sale of shares received upon such
exercise will not constitute "compensation" or "earnings" with respect to which
any other benefits of such person are determined by the Company, including
without limitation benefits under any pension, profit sharing, life insurance or
salary continuation plan.
18. Definitions
-----------
(a) Affiliate. The term "Affiliate" shall mean a corporation or other
---------
entity or person which, at the time of reference, directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Company.
(b) Fair Value. The term "Fair Value" of a share of Common Stock shall
----------
mean (i) if the Common Stock is traded on a national securities exchange, the
closing price for such stock on the day immediately preceding the date of
determination or if there is no closing price on such date, the last preceding
closing price, (ii) if the Common Stock is not traded on a national securities
exchange, the mean of the high bid and ask quotes of such stock as reported in
the NASDAQ/NMS reports or the National Quotation Bureau Inc.'s pink sheets or in
the NASD Bulletin Board on the day immediately preceding the date of
determination or if there were no high bid and ask quotes on such date, the last
preceding day that there were, and (iii) if neither (i) or (ii) are applicable,
as determined in good faith by the Committee.
(c) Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3 of the SEC
----------
(or any successor rule).
(d) Subsidiary. The term "Subsidiary" shall mean any corporation in an
----------
unbroken chain of corporations beginning with the Company if, at the time of the
grant of the Award, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
19. Amendment of the Plan
---------------------
(a) Except as provided in Section 7 hereof, the Board may at any time and
from time to time modify or amend the Plan in any respect, provided that, the
Board shall not modify or amend the Plan without the approval of the
stockholders of the Company if such approval were required or desired for
compliance with (i) an exemption afforded by Rule 16b-3 or (ii) Section 422 of
the Code. The termination or any modification or amendment of the Plan shall
not, without the consent of an Award Owner, affect his or her rights under an
Award previously granted to him or her. With the consent of the Award Owners
affected, the Committee may amend outstanding Award agreements in a manner not
inconsistent with the Plan.
-11-
<PAGE>
(b) Notwithstanding the provisions of Sections 19(a)(i) and (iii), the
Board shall have the right, but not the obligation, without the consent of the
Company's stockholders, to (i) amend or modify the terms and provisions of the
Plan and of any outstanding Incentive Stock Options granted under the Plan to
the extent necessary to qualify any or all such options for such favorable
federal income tax treatment (including deferral of taxation upon exercise), as
may be afforded incentive stock options under Section 422 of the Code; and (ii)
amend or modify the terms and provisions of the Plan and of any outstanding
Award granted under the Plan to the extent necessary to comply with any
securities law to which, in the opinion of counsel to the Company, the Plan or
Award is subject.
20. Withholding
-----------
At such times as an Award Owner recognizes taxable income in
connection with the receipt of shares of Common Stock hereunder (a "Taxable
Event"), the Award Owner shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
shares. In satisfaction of the obligation to pay Withholding Taxes to the
Company, the Committee may, in its discretion and subject to compliance with
applicable securities laws and regulations, withhold Common Stock having an
aggregate Fair Value on the date preceding the date of such issuance equal to
the Withholding Taxes.
21. Effective Date and Duration of the Plan
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
--------------
Board, but no award granted under the Plan (other than Director Options granted
pursuant to Section 7 hereof) shall become exercisable unless and until the Plan
shall have been approved by the Company's stockholders within twelve months
before or after the date of such adoption. If such stockholder approval is not
obtained within such period, any Award previously granted under the Plan (other
than Director Options, which shall remain in effect) shall terminate and no
further Awards shall be granted. Subject to this limitation, Awards may be
granted under the Plan at any time after the effective date and before the date
fixed for termination of the Plan.
(b) Termination. The Plan shall terminate upon the earlier of (i)
-----------
June 30, 2006 or (ii) the date on which all shares available for issuance under
the Plan shall have been issued pursuant to the exercise of Awards granted under
the Plan. If the date of termination is determined under (i) above, then Awards
outstanding on such date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such Awards.
22. Governing Law
-------------
The Plan and all Award agreements issued hereunder shall be governed by the
laws of the State of Delaware.
-12-
<PAGE>
23. Expenses of Administration
--------------------------
All costs and expenses incurred in the operation and administration of this
Plan shall be borne by the Company.
The Plan was adopted by the Board of Directors on July __, 1996 and
approved by the stockholders on July __, 1996.
-13-
<PAGE>
Exhibit A
ALYN CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Options
----------------
Alyn Corporation, a Delaware corporation (the "Company"), hereby grants to
___________________________ (the "Optionee"), __ Options (the "Options"),
pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), to purchase an
aggregate of _______ shares of common stock, $.001 par value per share ("Common
Stock"), of the Company at a price of $_______ per share (the "Exercise Price
Per Share"), purchasable as set forth in and subject to the terms and conditions
of this Option Agreement and the Plan. All undefined capitalized terms herein
shall have the same meaning as set forth in the Plan.
2. Incentive Stock Options
-----------------------
These Options are intended to qualify as incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
3. Exercise of Options and Provisions for Termination
--------------------------------------------------
(a) Exercisability of Options. The Options shall become exercisable and
-------------------------
option shares may be purchased based on the number of full years of service for
the Company or a Subsidiary that have expired since the date of grant (set forth
on the signature page hereof), in accordance with the following schedule:
Percentage of Option Shares
Number of Years of Service Available
Since Date of Grant for Purchase (Cumulative)
------------------- ---------------------------
1 33 1/3%
2 66 2/3%
3 100%
Notwithstanding the foregoing, the Options shall not be exercisable prior to the
initial public offering of the Company's Common Stock and unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all other applicable laws and regulations (including state securities
laws) and the requirements of any securities exchange on which the shares of
Common Stock are listed.
A-1
<PAGE>
(b) Expiration Date. Except as otherwise provided in this Option Agreement
---------------
or the Plan, the Options may not be exercised after the date (hereinafter the
"Expiration Date") that is the date prior to the tenth anniversary of the date
- ----------------
of grant, or, if the Optionee is a 10% Stockholder as described in Section 6 of
the Plan, the date prior to the fifth anniversary of the date of grant.
(c) Effect of Termination of Employment. The Options may not be exercised
-----------------------------------
by an Optionee unless, at the time of such exercise, the Optionee is, and
continuously since the date of grant of his or her Options has been, an employee
of the Company or a Subsidiary, except that subject to the Options vesting as of
the date of termination of employment:
(i) if the Optionee ceases to be an employee of the Company or a
Subsidiary for any reason other than death or disability or a discharge for
"cause" (as defined in (iv) below), the right to exercise the Options shall
terminate three months after such cessation;
(ii) if the Optionee dies while an employee of the Company or a
Subsidiary, or within three months after the Optionee ceases to be such an
employee, the Options may be exercised by the administrator of the Optionee's
estate, or by the person to whom the Options are transferred by will or the laws
of descent and distribution, within the period of one year after the date of
death, however, Options exercised more than three months after the Optionee
ceased to be an employee may not qualify for treatment as Incentive Stock
Options;
(iii) if the Optionee becomes disabled (within the meaning of the
Plan) while an employee of the Company or a Subsidiary, the Options may be
exercised within the period of one year after the date the Optionee ceases to be
an employee of the Company or Subsidiary because of such disability; and
(iv) if the Optionee, prior to the expiration date of the Options,
ceases his or her services as an employee of the Company or a Subsidiary,
because he or she is discharged for "cause" (as defined below), the right to
exercise the Options shall terminate immediately upon such cessation of such
services. "Cause" shall mean: willful misconduct in connection with the
Optionee's performance of services for the Company or willful failure to perform
his or her services in the best interest of the Company, as determined by the
Board of Directors, which determination shall be conclusive;
provided, however, that in no event may the Options be exercised after the
- -------- -------
expiration date thereof.
(d) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement and, if applicable, Section 6 of the Plan, the Options shall be
exercised by the Optionee's delivery of written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased and
the Exercise Price Per Share to be paid therefor and accompanied by payment in
accordance with Section 4 hereof. The Optionee may purchase less than the total
number of
A-2
<PAGE>
shares covered hereby, provided that no exercise of less than all the Options
may be for less than 100 whole shares.
4. Payment of Purchase Price
-------------------------
Payment of the Exercise Price Per Share for shares purchased upon exercise
of an Option shall be made by delivery to the Company of the purchase price,
payable in cash (by check) or any other method of payment that is permitted by
the Plan and specifically authorized by the Committee on or before the time of
exercise.
5. Delivery of Shares
------------------
The Company shall, upon payment of the Exercise Price Per Share for the
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee. No shares shall be issued and delivered upon exercise of an
Option unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law, including state
securities laws, or of any regulatory bodies having jurisdiction over such
issuance and delivery, shall have been fully complied with.
6. Non-transferability of Options
------------------------------
Except as provided in Section 3(c)(ii) hereof, the Options are personal and
no rights granted hereunder may be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise), except by
will or the laws of descent and distribution, nor shall any such rights be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of an Option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon any Option or such rights, this Option
Agreement and such rights shall, at the election of the Company, become null and
void.
7. No Special Employment Rights
----------------------------
Nothing contained in the Plan or this Option Agreement shall be construed
or deemed by any person under any circumstances to bind the Company to continue
the services of the Optionee for the period within which the Options may be
exercised. However, during the period in which the Optionee is rendering
services, the Optionee shall render diligently and faithfully the services which
are assigned to him or her from time to time by the Board of Directors or by the
executive officers of the Company and shall at no time take any action which
directly or indirectly would be inconsistent with the best interests of the
Company.
A-3
<PAGE>
8. Rights as a Stockholder
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
shares which may be purchased by exercise of the Options unless and until a
certificate representing such shares is duly issued to the Optionee. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on such
stock certificate.
9. Recapitalization
----------------
In the event that the outstanding shares of Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split, stock dividend, combination or subdivision, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares subject to the Plan and in the number, kind, and per share exercise
price, of shares subject to unexercised Options or portions thereof granted
prior to such adjustment. Any such adjustment to an outstanding Option shall be
made without change in the total price applicable to the unexercised portion of
such Option as of the date of the adjustment. No such adjustment shall be made
with respect to an Option that would, within the meaning of any applicable
provisions of the Code, constitute a modification, extension or renewal of any
Option or a grant of additional benefits to the Optionee.
10. Reorganization
--------------
In the event that without the prior approval of the Board of Directors (i)
the Company is merged or consolidated with another entity and the Company is not
a surviving entity, or (ii) all or substantially all of the assets or more than
20% of the outstanding voting stock of the Company entitled to vote for
directors is acquired by any other entity or person other than an Affiliate or
any entity or person or any affiliate thereof owning 5% or more of the
outstanding voting stock of the Company prior to the effective date of the
initial public offering of the Company's Common Stock, or (iii) there is a
reorganization or liquidation of the Company, prior to the Expiration Date or
termination of this Option Agreement, the Optionee shall, with respect to the
Options or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 14 of the
Plan.
11. Withholding Taxes
-----------------
The Company's obligation to deliver shares upon the exercise of an Option
shall be subject to the Optionee's satisfaction of all applicable federal, state
and local income and employment tax withholding requirements ("Withholding
Taxes") with respect to the Option. The Optionee shall pay the Withholding
Taxes to the Company in cash prior to the issuance, or release from escrow, of
shares of Common Stock. In satisfaction of the Withholding Taxes, the Committee
may, in its discretion and subject to compliance with applicable securities laws
and regulations, withhold a portion of the shares issuable to the Optionee upon
exercise of the
A-4
<PAGE>
Option having an aggregate Fair Value on the date preceding the date of such
issuance equal to the Withholding Taxes.
12. Optionee Representations; Legend
--------------------------------
(a) Representations. The Optionee represents, warrants and covenants that
---------------
he or she has had such opportunity as he or she has deemed adequate to obtain
from representatives of the Company such information as is necessary to permit
the Optionee to evaluate the merits and risks of his or her investment in the
Company. The Optionee understands that there may be restrictions on his or her
ability to resell any shares acquired on exercise of an Option, including
insider trading laws and the Company's insider trading policy, as well as other
restrictions that will apply if the Optionee is an "affiliate" of the Company.
By making payment upon exercise of an Option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 12.
(b) Legend on Stock Certificate. The Optionee understands that, any shares
---------------------------
of Common Stock acquired upon exercise of an Option may not have been registered
under the Securities Act, nor the securities laws of any state. Accordingly,
unless all such registrations are then in effect, all stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of an
Option shall have affixed thereto a legend substantially in the following form,
in addition to any other legends required by applicable state law:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR THE SECURITIES LAW OF ANY STATE. CONSEQUENTLY, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS."
13. Limitation on Disposition of Incentive Stock Option Shares
----------------------------------------------------------
It is understood and intended that these Options shall qualify as Incentive
Stock Options, as defined in Section 422 of the Code. Accordingly, the Optionee
understands that in order to obtain the benefits of an Incentive Stock Option
under Section 421 of the Code, no sale or other disposition may be made of any
shares acquired upon exercise of an Option within the one year period beginning
on the day after the day of the issuance of such shares to him or her, nor
within the two year period beginning on the day after the date of grant of such
Option. If the Optionee disposes of any such shares (whether by sale, exchange,
gift, transfer or otherwise) prior to the expiration of either such period, he
or she will notify the Company in writing within ten days after such
disposition.
Notwithstanding the foregoing, nothing herein shall be deemed to be or
interpreted as a representation, guarantee or other undertaking on the part of
the Company that these Options
A-5
<PAGE>
are or will be determined to be Incentive Stock Options within the meaning of
Section 422 of the Code or any other Code Section.
14. Miscellaneous
-------------
In the event that the Plan terminates prior to the expiration date of the
Options granted hereunder, this Option Agreement shall incorporate by reference
all applicable provisions of the Plan until the earlier of (i) the close of
business on the day the Option(s) granted hereunder expire, or (ii) the date on
which all shares available for issuance hereunder shall have been issued
pursuant to the exercise of Options granted hereunder.
All notices under this Option Agreement shall, unless otherwise provided
herein, be mailed or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other address as may be
designated in writing by either of the parties to the other.
This Option Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
This Option Agreement shall be binding upon and inure to the heirs,
successors and assigns of the Optionee (subject, however, to the limitations set
forth herein with respect to assignment of the Options or rights therein) and
the Company, and shall be construed in a manner that is consistent with the
provisions of the Plan.
Date of Grant: Alyn Corporation
___________________________________________
By:
Title:
Address:
Optionee
___________________________________________
Name:
Address:
A-6
<PAGE>
Exhibit B
ALYN CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
1. Grant of Options
----------------
Alyn Corporation, a Delaware corporation (the "Company"), hereby grants to
___________________________ (the "Optionee"), __ Options (the "Options"),
pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), to purchase an
aggregate of _______ shares of common stock, $.001 par value per share ("Common
Stock"), of the Company at a price of $_______ per share (the "Exercise Price
Per Share"), purchasable as set forth in and subject to the terms and conditions
of this Option Agreement and the Plan. All undefined capitalized terms herein
shall have the same meaning as set forth in the Plan.
2. Exercise of Options and Provisions for Termination
--------------------------------------------------
(a) Exercisability of Options. The Options shall become exercisable and
-------------------------
option shares may be purchased based on the number of full years of service for
the Company or a Subsidiary that have expired since the date of grant (set forth
on the signature page hereof), in accordance with the following schedule:
Percentage of Option Shares
Number of Years of Service Available
Since Date of Grant for Purchase (Cumulative)
------------------- ----------------------------
1 33 1/3%
2 66 2/3%
3 100%
Notwithstanding the foregoing, the Options shall not be exercisable prior to the
initial public offering of the Company's Common Stock and unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all other applicable laws and regulations (including state securities
laws) and the requirements of any securities exchange on which the shares of
Common Stock are listed.
(b) Expiration Date. Except as otherwise provided in this Option Agreement
----------------
or the Plan, the Options may not be exercised after the date (hereinafter the
"Expiration Date") that is the tenth anniversary of the date of grant.
---------------
B-1
<PAGE>
(c) Effect of Termination of Service. The Options may not be exercised by
--------------------------------
an Optionee unless, at the time of such exercise, the Optionee is, and
continuously since the date of grant of his or her Options has been, rendering
services to the Company or a Subsidiary, except that subject to the Options
vesting as of the date of termination of services:
(i) if the Optionee ceases to be engaged by the Company or a
Subsidiary for any reason other than death or disability or a discharge for
"cause" (as defined in (iv) below), the right to exercise the Options shall
terminate three months after such cessation;
(ii) if the Optionee dies while engaged by the Company or a
Subsidiary, or within three months after the Optionee ceases to be so engaged,
the Options may be exercised by the administrator of the Optionee's estate, or
by the person to whom the Options are transferred by will or the laws of descent
and distribution, within the period of one year after the date of death;
(iii) if the Optionee becomes disabled (within the meaning of the
Plan) while an employee of the Company or a Subsidiary, the Options may be
exercised within the period of one year after the date the Optionee ceases to be
engaged by the Company or Subsidiary because of such disability; and
(iv) if the Optionee, prior to the expiration date of the Options,
ceases his or her services as an employee of the Company or a Subsidiary,
because he or she is discharged for "cause" (as defined below), the right to
exercise the Options shall terminate immediately upon such cessation of such
services. "Cause" shall mean: willful misconduct in connection with the
Optionee's performance of services for the Company or willful failure to perform
his or her services in the best interest of the Company, as determined by the
Board of Directors, which determination shall be conclusive;
provided, however, that in no event may the Options be exercised after the
- -------- -------
expiration date thereof.
(d) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement and, if applicable, Section 6 of the Plan, the Options shall be
exercised by the Optionee's delivery of written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased and
the Exercise Price Per Share to be paid therefor and accompanied by payment in
accordance with Section 3 hereof. The Optionee may purchase less than the total
number of shares covered hereby, provided that no exercise of less than all the
Options may be for less than 100 whole shares.
3. Payment of Purchase Price
-------------------------
Payment of the Exercise Price Per Share for shares purchased upon exercise
of an Option shall be made by delivery to the Company of the purchase price,
payable in cash (by
B-2
<PAGE>
check) or any other method of payment that is permitted by the Plan and
specifically authorized by the Committee on or before the time of exercise.
4. Delivery of Shares
------------------
The Company shall, upon payment of the Exercise Price Per Share for the
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee. No shares shall be issued and delivered upon exercise of an
Option unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law, including state
securities laws, or of any regulatory bodies having jurisdiction over such
issuance and delivery, shall have been fully complied with.
5. Non-transferability of Options
------------------------------
Except as provided in Section 2(c)(ii) hereof, the Options are personal and
no rights granted hereunder may be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise), except by
will or the laws of descent and distribution, nor shall any such rights be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of an Option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon any Option or such rights, this Option
Agreement and such rights shall, at the election of the Company, become null and
void.
6. No Special Rights
-----------------
Nothing contained in the Plan or this Option Agreement shall be construed
or deemed by any person under any circumstances to bind the Company to continue
the services of the Optionee for the period within which the Options may be
exercised. However, during the period in which the Optionee is rendering
services, the Optionee shall render diligently and faithfully the services which
are assigned to him or her from time to time by the Board of Directors or by the
executive officers of the Company and shall at no time take any action which
directly or indirectly would be inconsistent with the best interests of the
Company.
7. Rights as a Stockholder
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
shares which may be purchased by exercise of the Options unless and until a
certificate representing such shares is duly issued to the Optionee. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on such
stock certificate.
B-3
<PAGE>
8. Recapitalization
----------------
In the event that the outstanding shares of Common Stock of the Company are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, stock dividend, combination or subdivision, an appropriate and
proportionate adjustment shall be made in the number and kind of shares subject
to the Plan and in the number, kind, and per share exercise price, of shares
subject to unexercised Options or portions thereof granted prior to such
adjustment. Any such adjustment to an outstanding Option shall be made without
change in the total price applicable to the unexercised portion of such Option
as of the date of the adjustment.
9. Reorganization
--------------
In the event that without the prior approval of the Board of Directors (i)
the Company is merged or consolidated with another entity and the Company is not
a surviving entity, or (ii) all or substantially all of the assets or more than
20% of the outstanding voting stock of the Company entitled to vote for
directors is acquired by any other entity or person other than an Affiliate or
an entity or person or any affiliate thereof owning 5% or more of the
outstanding voting stock of the Company prior to the effective date of the
initial public offering of the Company's Common Stock, or (iii) there is a
reorganization or liquidation of the Company, prior to the Expiration Date or
termination of this Option Agreement, the Optionee shall, with respect to the
Options or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 14 of the
Plan.
10. Withholding Taxes
-----------------
The Company's obligation to deliver shares upon the exercise of an Option
shall be subject to the Optionee's satisfaction of all applicable federal, state
and local income and employment tax withholding requirements ("Withholding
Taxes") with respect to the Option. The Optionee shall pay the Withholding
Taxes to the Company in cash prior to the issuance, or release from escrow, of
shares of Common Stock. In satisfaction of the Withholding Taxes, the Committee
may, in its discretion and subject to compliance with applicable securities laws
and regulations, withhold a portion of the shares issuable to the Optionee upon
exercise of the Option having an aggregate Fair Value on the date preceding the
date of such issuance equal to the Withholding Taxes.
11. Optionee Representations; Legend
--------------------------------
(a) Representations. The Optionee represents, warrants and covenants that
---------------
he or she has had such opportunity as he or she has deemed adequate to obtain
from representatives of the Company such information as is necessary to permit
the Optionee to evaluate the merits and risks of his or her investment in the
Company. The Optionee understands that there may be restrictions on his or her
ability to resell any shares acquired on exercise of an Option, including
insider trading laws and the Company's insider trading policy, as well as other
B-4
<PAGE>
restrictions that will apply if the Optionee is an "affiliate" of the Company.
By making payment upon exercise of an Option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 11.
(b) Legend on Stock Certificate. The Optionee understands that, any shares
---------------------------
of Common Stock acquired upon exercise of an Option may not have been registered
under the Securities Act nor the securities laws of any state. Accordingly,
unless all such registrations are then in effect, all stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of an
Option shall have affixed thereto a legend substantially in the following form,
in addition to any other legends required by applicable state law:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR THE SECURITIES LAW OF ANY STATE. CONSEQUENTLY, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS."
12. Miscellaneous
-------------
In the event that the Plan terminates prior to the expiration date of the
Options granted hereunder, this Option Agreement shall incorporate by reference
all applicable provisions of the Plan until the earlier of (i) the close of
business on the day the Option(s) granted hereunder expire, or (ii) the date on
which all shares available for issuance hereunder shall have been issued
pursuant to the exercise of Options granted hereunder.
Except as provided herein or in the Plan, this Option Agreement may not be
amended or otherwise modified unless evidenced in writing and signed by the
Company and the Optionee.
All notices under this Option Agreement shall, unless otherwise provided
herein, be mailed or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other address as may be
designated in writing by either of the parties to the other.
This Option Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
B-5
<PAGE>
This Option Agreement shall be binding upon and inure to the heirs,
successors and assigns of the Optionee (subject, however, to the limitations set
forth herein with respect to assignment of the Options or rights therein) and
the Company, and shall be construed in a manner that is consistent with the
provisions of the Plan.
Date of Grant: Alyn Corporation
___________________________________________
By:
Title:
Address:
Optionee
___________________________________________
Name:
Address:
B-6
<PAGE>
Exhibit C
ALYN CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
FOR ELIGIBLE DIRECTORS
INITIAL GRANT
1. Grant of Options
----------------
Alyn Corporation, a Delaware corporation (the "Company"), hereby grants to
___________________________ (the "Optionee"), pursuant to the Company's 1996
Stock Incentive Plan (the "Plan"), 5,000 Options (the "Options"), to purchase an
aggregate of 5,000 shares of common stock, $.001 par value per share ("Common
Stock"), of the Company at a price of $______ per share (the "Exercise Price Per
Share"), purchasable as set forth in and subject to the terms and conditions of
this Option Agreement and the Plan. All undefined capitalized terms herein
shall have the same meaning as set forth in the Plan.
2. Exercise of Options and Effect of Termination of Services or Death.
-------------------------------------------------------------------
(a) Exercisability of Options. The Options are fully vested and
-------------------------
exercisable and option shares may be purchased by the Optionee at any time,
subject to the terms of this Agreement. Notwithstanding the foregoing, the
Options shall not be exercisable prior to the initial public offering of the
Company's Common Stock and unless such exercise is in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), all other applicable
laws and regulations (including state securities laws) and the requirements of
any securities exchange on which the shares of Common Stock are listed.
(b) Expiration Date. Except as otherwise provided in this Option Agreement
----------------
or the Plan, the Options may not be exercised after the date (hereinafter the
"Expiration Date") that is the tenth anniversary of the date of grant.
- ----------------
(c) Effect of Termination of Services or Death. The Optionee may exercise
------------------------------------------
the Options at any time prior to the Expiration Date after the date such
Optionee ceases to be a director of the Company or Subsidiary. If the Optionee
dies while a director of the Company or a Subsidiary, the Options may be
exercised at any time prior to the Expiration Date by the administrator of the
Optionee's estate, or by the person to whom such Options are transferred by will
or the laws of descent and distribution. In no event, however, may any Option
be exercised after the Expiration Date of such Option.
C-1
<PAGE>
(d) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement and, if applicable, Section 7 of the Plan, the Options shall be
exercised by the Optionee's delivery of written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased and
the Exercise Price Per Share to be paid therefor and accompanied by payment in
accordance with Section 3 hereof. The Optionee may purchase less than the total
number of shares covered hereby, provided that no exercise of less than all the
Options may be for less than 100 whole shares.
3. Payment of Purchase Price
-------------------------
Payment of the Exercise Price Per Share for shares purchased upon exercise
of an Option shall be made by delivery to the Company of the purchase price,
payable in cash (by check) or any other method of payment that is permitted by
the Plan.
4. Delivery of Shares
------------------
The Company shall, upon payment of the Exercise Price Per Share for the
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee. No shares shall be issued and delivered upon exercise of an
Option unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law, including state
securities laws, or of any regulatory bodies having jurisdiction over such
issuance and delivery, shall have been fully complied with.
5. Non-transferability of Options
------------------------------
Except as provided in the Plan, the Options are personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise), except by will or the laws of
descent and distribution, nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Option or of such rights contrary to the
provisions hereof, or upon the levy of any attachment or similar process upon
any Option or such rights, this Option Agreement and such rights shall, at the
election of the Company, become null and void.
6. No Special Directorship Rights
------------------------------
Nothing contained in the Plan or in this Option Agreement shall constitute
evidence of any agreement or understanding, express or implied, that the
Optionee has a right to continue as a director for any period of time.
C-2
<PAGE>
7. Rights as a Stockholder
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
shares which may be purchased by exercise of the Options unless and until a
certificate representing such shares is duly issued to the Optionee. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on such
stock certificate.
8. Recapitalization
----------------
In the event that the outstanding shares of Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split, stock dividend, combination or subdivision, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares subject to the Plan and in the number, kind, and per share exercise
price, of shares subject to unexercised Options or portions thereof granted
prior to such adjustment. Any such adjustment to an outstanding Option shall be
made without change in the total price applicable to the unexercised portion of
such Option as of the date of the adjustment.
9. Reorganization
--------------
In the event that without the prior approval of the Board of Directors (i)
the Company is merged or consolidated with another entity and the Company is not
a surviving entity, or (ii) all or substantially all of the assets or more than
20% of the outstanding voting stock of the Company entitled to vote for
directors is acquired by any other entity or person other than an Affiliate or
any entity or person or any affiliate thereof owning 5% or more of the
outstanding voting stock of the Company prior to the effective date of the
initial public offering of the Company's Common Stock, or (iii) there is a
reorganization or liquidation of the Company, prior to the Expiration Date or
termination of this Option Agreement, the Optionee shall, with respect to the
Options or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 14 of the
Plan.
10. Withholding Taxes
-----------------
The Company's obligation to deliver shares upon the exercise of an Option
shall be subject to the Optionee's satisfaction of all applicable federal, state
and local income and employment tax withholding requirements, if any.
11. Optionee Representations; Legend
--------------------------------
(a) Representations. The Optionee represents, warrants and covenants that
---------------
he or she has had such opportunity as he or she has deemed adequate to obtain
from representatives of the Company such information as is necessary to permit
the Optionee to evaluate the merits and risks of his or her investment in the
Company. The Optionee understands that there may be
C-3
<PAGE>
restrictions on his or her ability to resell any shares acquired on exercise of
an Option, including insider trading laws and the Company's insider trading
policy, as well as other restrictions that will apply if the Optionee is an
"affiliate" of the Company. By making payment upon exercise of an Option, the
Optionee shall be deemed to have reaffirmed, as of the date of such payment, the
representations made in this Section 11.
(b) Legend on Stock Certificate. The Optionee understands that, any shares
---------------------------
of Common Stock acquired upon exercise of an Option may not have been registered
under the Securities Act nor the securities laws of any state. Accordingly,
unless all such registrations are then in effect, all stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of an
Option shall have affixed thereto a legend substantially in the following form,
in addition to any other legends required by applicable state law:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR THE SECURITIES LAW OF ANY STATE. CONSEQUENTLY, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS."
12. Miscellaneous
-------------
In the event that the Plan terminates prior to the expiration date of the
Options granted hereunder, this Option Agreement shall incorporate by reference
all applicable provisions of the Plan until the earlier of (i) the close of
business on the day the Option(s) granted hereunder expire, or (ii) the date on
which all shares available for issuance hereunder shall have been issued
pursuant to the exercise of Options granted hereunder.
Except as provided herein or in the Plan, this Option Agreement may not be
amended or otherwise modified unless evidenced in writing and signed by the
Company and the Optionee.
All notices under this Option Agreement shall, unless otherwise provided
herein, be mailed or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other address as may be
designated in writing by either of the parties to the other.
This Option Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
C-4
<PAGE>
This Option Agreement shall be binding upon and inure to the heirs,
successors and assigns of the Optionee (subject, however, to the limitations set
forth herein with respect to assignment of the Options or rights therein) and
the Company, and shall be construed in a manner that is consistent with the
provisions of the Plan.
Date of Grant: ALYN CORPORATION
---------------------------------------
By:
Title:
Address:
Optionee
---------------------------------------
Name:
Address:
C-5
<PAGE>
Exhibit D
ALYN CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
FOR ELIGIBLE DIRECTORS
ANNUAL GRANT
1. Grant of Options
----------------
Alyn Corporation, a Delaware corporation (the "Company"), hereby grants to
___________________________ (the "Optionee"), pursuant to the Company's 1996
Stock Incentive Plan (the "Plan"), 10,000 Options (the "Options"), to purchase
an aggregate of 10,000 shares of common stock, $.001 par value per share
("Common Stock"), of the Company at a price of $_______ per share (the "Exercise
Price Per Share"), purchasable as set forth in and subject to the terms and
conditions of this Option Agreement and the Plan. All undefined capitalized
terms herein shall have the same meaning as set forth in the Plan.
2. Exercise of Options and Effect of Termination of Services or Death.
-------------------------------------------------------------------
(a) Exercisability of Options. The Options shall become exercisable and
-------------------------
option shares may be purchased in accordance with the following schedule:
Percentage of Option Shares
Number of Years of Service Available
Since Date of Grant for Purchase (Cumulative)
------------------- -----------------------------
Date of Grant 33 1/3%
1 66 2/3%
2 100%
Notwithstanding the foregoing, the Options shall not be exercisable prior to the
initial public offering of the Company's Common Stock and unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all other applicable laws and regulations (including state securities
laws) and the requirements of any securities exchange on which the shares of
Common Stock are listed.
(b) Expiration Date. Except as otherwise provided in this Option Agreement
----------------
or the Plan, the Options may not be exercised after the date (hereinafter the
"Expiration Date") that is the tenth anniversary of the date of grant.
- ----------------
D-1
<PAGE>
(c) Effect of Termination of Services or Death. If the Optionee ceases to
------------------------------------------
serve as a director of the Company or a Subsidiary, the Options that have been
previously granted to the Optionee and that are vested as of the date of such
cessation may be exercised by the Optionee after the date such Optionee ceases
to be a director of the Company or Subsidiary. If the Optionee dies while a
director of the Company or a Subsidiary, the Options that have been previously
granted to the Optionee and that are vested as of the date of such death may be
exercised by the administrator of the Optionee's estate, or by the person to
whom such Options are transferred by will or the laws of descent and
distribution. In no event, however, may any Option be exercised after the
Expiration Date of such Option.
(d) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement and, if applicable, Section 7 of the Plan, the Options shall be
exercised by the Optionee's delivery of written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased and
the Exercise Price Per Share to be paid therefor and accompanied by payment in
accordance with Section 3 hereof. The Optionee may purchase less than the total
number of shares covered hereby, provided that no exercise of less than all the
Options may be for less than 100 whole shares.
3. Payment of Purchase Price
-------------------------
Payment of the Exercise Price Per Share for shares purchased upon exercise
of an Option shall be made by delivery to the Company of the purchase price,
payable in cash (by check) or any other method of payment that is permitted by
the Plan.
4. Delivery of Shares
------------------
The Company shall, upon payment of the Exercise Price Per Share for the
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee. No shares shall be issued and delivered upon exercise of an
Option unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange on which stock of the
same class is then listed, and any other requirements of law, including state
securities laws, or of any regulatory bodies having jurisdiction over such
issuance and delivery, shall have been fully complied with.
5. Non-transferability of Options
------------------------------
Except as provided in the Plan, the Options are personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise), except by will or the laws of
descent and distribution, nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Option or of such rights contrary to the
provisions hereof, or upon the levy of any attachment or similar process upon
any Option or
D-2
<PAGE>
such rights, this Option Agreement and such rights shall, at the election of the
Company, become null and void.
6. No Special Directorship Rights
------------------------------
Nothing contained in the Plan or in this Option Agreement shall constitute
evidence of any agreement or understanding, express or implied, that the
Optionee has a right to continue as a director for any period of time.
7. Rights as a Stockholder
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
shares which may be purchased by exercise of the Options unless and until a
certificate representing such shares is duly issued to the Optionee. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on such
stock certificate.
8. Recapitalization
----------------
In the event that the outstanding shares of Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split, stock dividend, combination or subdivision, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares subject to the Plan and in the number, kind, and per share exercise
price, of shares subject to unexercised Options or portions thereof granted
prior to such adjustment. Any such adjustment to an outstanding Option shall be
made without change in the total price applicable to the unexercised portion of
such Option as of the date of the adjustment.
9. Reorganization
--------------
In the event that without the prior approval of the Board of Directors (i)
the Company is merged or consolidated with another entity and the Company is not
a surviving entity, or (ii) all or substantially all of the assets or more than
20% of the outstanding voting stock of the Company entitled to vote for
directors is acquired by any other entity or person other than an Affiliate or
any entity or person or any affiliate thereof owning 5% or more of the
outstanding voting stock of the Company prior to the effective date of the
initial public offering of the Company's Common Stock, or (iii) there is a
reorganization or liquidation of the Company, prior to the Expiration Date or
termination of this Option Agreement, the Optionee shall, with respect to the
Options or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 14 of the
Plan.
D-3
<PAGE>
10. Withholding Taxes
-----------------
The Company's obligation to deliver shares upon the exercise of an Option
shall be subject to the Optionee's satisfaction of all applicable federal, state
and local income and employment tax withholding requirements, if any.
11. Optionee Representations; Legend
--------------------------------
(a) Representations. The Optionee represents, warrants and covenants that
---------------
he or she has had such opportunity as he or she has deemed adequate to obtain
from representatives of the Company such information as is necessary to permit
the Optionee to evaluate the merits and risks of his or her investment in the
Company. The Optionee understands that there may be restrictions on his or her
ability to resell any shares acquired on exercise of an Option, including
insider trading laws and the Company's insider trading policy, as well as other
restrictions that will apply if the Optionee is an "affiliate" of the Company.
By making payment upon exercise of an Option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 11.
(b) Legend on Stock Certificate. The Optionee understands that, any shares
---------------------------
of Common Stock acquired upon exercise of an Option may not have been registered
under the Securities Act nor the securities laws of any state. Accordingly,
unless all such registrations are then in effect, all stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of an
Option shall have affixed thereto a legend substantially in the following form,
in addition to any other legends required by applicable state law:
"THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR THE SECURITIES LAW OF ANY STATE. CONSEQUENTLY, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS."
12. Miscellaneous
-------------
In the event that the Plan terminates prior to the expiration date of the
Options granted hereunder, this Option Agreement shall incorporate by reference
all applicable provisions of the Plan until the earlier of (i) the close of
business on the day the Option(s) granted hereunder expire, or (ii) the date on
which all shares available for issuance hereunder shall have been issued
pursuant to the exercise of Options granted hereunder.
Except as provided herein or in the Plan, this Option Agreement may not be
amended or otherwise modified unless evidenced in writing and signed by the
Company and the Optionee.
D-4
<PAGE>
All notices under this Option Agreement shall, unless otherwise provided
herein, be mailed or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other address as may be
designated in writing by either of the parties to the other.
This Option Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
This Option Agreement shall be binding upon and inure to the heirs,
successors and assigns of the Optionee (subject, however, to the limitations set
forth herein with respect to assignment of the Options or rights therein) and
the Company, and shall be construed in a manner that is consistent with the
provisions of the Plan.
Date of Grant: ALYN CORPORATION
__________________________________________
By:
Title:
Address:
Optionee
__________________________________________
Name:
Address:
D-5
<PAGE>
EXHIBIT 10.7
Amendment No. 1
---------------
This Amendment No. 1 to the Sale of Goods Agreement and Exclusive License
entered into as of the 10th day of September, 1996 (referred to hereinafter as
the "Agreement") by and between TAYLOR MADE GOLF COMPANY, INC. ("Taylor Made
Golf"), a California corporation, and ALYN CORPORATION ("Alyn"), a Delaware
corporation, is entered into as of this 14th day of October, 1996 and comes
retroactively into force as of the 10th day of September, 1996 (the "Effective
Date"), by and between Taylor Made Golf and Alyn. All capitalized terms used
herein and not otherwise defined shall have the meaning ascribed to them in the
Agreement.
WHEREAS, the Parties and their affiliates are desirous of amending certain
provisions of the Agreement so that they accurately reflect the general spirit
of their negotiations and mutual commitments and enable them to develop a
long-lasting, mutually beneficial relationship in order that they may work
together as partners in the creation and development of enhanced, advanced
Boralyn based products.
WHEREAS, Taylor Made Golf hereby reaffirms its intent to commit appropriate
reasonable resources to marketing, advertising and sales efforts to enhance the
market for Products.
NOW, THEREFORE, for and in consideration of the promises and the mutual promises
and benefits contained herein, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereto hereby agree as follows:
The Agreement is hereby amended as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
1.18
"Approved Specifications" of each product shall mean design in accordance with
specifications of Taylor Made Golf delivered to Alyn by Taylor Made Golf and
approved by Alyn.
Approved Specifications shall define performance and quality of the product,
including but not limited to:
. Measured performance (distance, accuracy, trajectory, direction, dispersion)
. Perception as compared to competing benchmarks
. Durability (breakage, resistance to wear)
. Conformance to drawing tolerances.
ARTICLE 4
---------
PURCHASE ORDERS AND DELIVERY
----------------------------
SECTION 4.1 of the Agreement is hereby amended by deleting the last sentence of
section 4.1 and inserting the following, in lieu thereof:
"Taylor Made Golf shall be required to (a) place Purchase Orders for the minimum
amount of each Product in each Sales Quarter and each Sales Year, respectively,
as is set forth opposite the name of such Product in Schedule 4.1 and (b) advise
------------
Alyn in writing not less than 90
<PAGE>
days prior to the commencement of any Sales Quarter whether it expects or does
not expect to meet the minimum order, volume requirements for that Sales Quarter
set forth in Schedule 4.1, provided, however, that notwithstanding the foregoing
------------ -------- -------
and any other provision of this Agreement, including, without limitation,
Section 5.1(e) and Section 13.12, Alyn's sole remedy for Taylor Made's non
observance to place Purchase Orders required to maintain exclusivity or to
provide such written advice shall be transformation of Taylor Made's exclusive
license rights into non exclusive license rights as provided under Article 5 of
this Agreement.
ARTICLE 5
---------
EXCLUSIVE LICENSE
-----------------
ARTICLE 5.1 SECTION (c) is deleted and modified as follows:
"This exclusive worldwide license is non transferable.
In case of non observance by Taylor Made to purchase the minimum amount of a
Product or several Products in any Sales Quarter or in any Sales Year to
maintain exclusivity in accordance with Schedule 4.1 and the delivery to Taylor
Made Golf by Alyn of written notice of such non observance within ten (10) days
after the end of such Sales Quarter or Sales Year, as the case may be, the
license shall become a non exclusive license but only for the Product or the
Products concerned by non observance of minimum quantities and shall remain
exclusive for other Products.
Notwithstanding the foregoing, the license shall remain exclusive if non
observance of minimum quantities to maintain exclusivity arises in accordance
with the terms and conditions hereof.
Anything in the foregoing to the contrary notwithstanding, if Alyn shall first
deliver Product to Taylor Made Golf on a date subsequent to July 1, 1997 (the
"Late Delivery Date"), then:
Points A and B as worded in the Agreement remain unchanged from (A) "If the
Late delivery" up to "Taylor Made Golf have under this Agreement"
<PAGE>
SECTION (e): Is deleted and replaced by the following in lieu thereof: "The
transformation of the exclusive license and rights into a non-exclusive license
and rights according to Article 5 shall be Alyn's sole remedy for any non
observance by Taylor Made Golf to purchase (in accordance with the terms and
conditions of this Agreement) the minimum amount of such Product in any Sales
quarter or in any Sales Year in accordance with Schedule 4.1".
3. "All five other provision of the Agreement remain unchanged and in full
force and effect.
This Amendment shall be made immediately public by Alyn in the framework of
Alyn's IPO and become an exhibit of or an addendum to the prospectus.
The Agreement as amended hereby, constitutes the entire Agreement between the
Parties concerning the subject matter hereof and supersedes all written or oral
prior agreements or understandings with respect thereto, and all prior
communications relating to minimum purchase requirements under the Agreement.
IN WITNESS WHEREOF, the Parties have caused this Amendment No.1 to the Agreement
to be executed by their duly authorized officers on the respective dates
hereinafter set forth".
TAYLORMADE GOLF COMPANY, Inc
By /s/ Jean Hue 10-16-96
- -------------------------
Jean Hue
Vice President of Research and
Development
ALYN CORPORATION
By /s/ Robin A. Carden 10-14-96
- -----------------------------
Robin A. Carden
President and Chief Executive
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
first day of April, 1996, by and between Alyn Corporation ("Employer"), and Mr.
Walter R. Menetrey ("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby accepts
----------
employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
continue to occupy the position of and perform all the acts and duties of Chief
Operating Officer of Employer. Employer's Board of Directors may extend
Employee's duties and titles from time to time; provided, however, that during
the term of this Agreement, Employee's responsibilities shall be commensurate
with his current responsibilities as Chief Operating Officer of Employer.
(b) Employee shall be required to devote his entire time, ability and
attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided, the
----
term of employment of Employee shall be twenty-four (24) months, beginning
May 1, 1996, and ending May 1, 1998. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term or of the first one-year renewal
term or of any such successive one-year renewal term. In view of the significant
confidential information, including proprietary trade secrets, that will be
provided to Employee by Employer, the notice must be given at least six (6)
months prior to the expiration of any such Term; provided, however, Employer may
shorten such Notice period in the event Employer is terminating Employee's
employment for Cause (in accordance with section 14 hereof), and Employee may
shorten such Notice period in the event Employee is terminating Employee's
employment hereunder for Employer's Breach (in accordance with section 14(e)
hereof). The Initial Term and any one-year renewal term or subsequent successive
renewal term shall be collectively referred to as the "Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer for
-----------
all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Compensation
Committee of the Board of the Employer, but in no event shall such annual salary
be less than One hundred thousand dollars ($100,000.00) ("Base Salary"), payable
in twenty-four (24) equal bi-weekly installments in arrears, on the last day of
each week after the effective date hereof. The Base Salary shall be reduced by
income
<PAGE>
tax and other applicable withholdings, and may be payable by Employer, or by a
parent or subsidiary of Employer, at the Employer's discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall be
-----
considered for an annual bonus in accordance with the Employer's bonus plan, and
based on company and individual performance.
5. Vacation: Employee shall be entitled each year to a vacation of not
--------
less than three (3) weeks, during which time his compensation shall be paid in
full. For vacation purposes, a year shall be deemed to run from July 1 to July
1. Employee's entitlement to such paid vacation shall accrue ratably over each
such year.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in stock option, deferred
compensation, savings, hospitalization, medical, disability, and life insurance
programs in accordance with such plans as Employer or its corporate parent may
now have in effect or may adopt from time to time, commensurate with the
Employee position.
(b) Employee shall also receive such other additional compensation,
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
reasonable expenses in connection with the performance of his duties hereunder
or in promoting or furthering the business of Employer, including dues for
reasonable expenses for entertainment, travel, lodging and similar items, in
accordance with the standards and policies that the Management of Employer may
establish from time to time. Any such charges may be paid for directly by
Employee, who shall be reimbursed by Employer upon the submission to Employer's
Treasurer of an itemized account of such expenditures.
9. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight metal matrix composites under the name Boralyn (R)
and silicon nitride blanks and finished shapes sold under the Ceralyn (TM)
name), Employee shall hold in confidence and not disclose to any person or
entity without the express prior written authorization of Employer, either
during the term of this Agreement or any time thereafter, the names or addresses
of any of Employer's customers; Employer's past or prospective dealings with its
customers; the parties, dates, or terms of any of Employer's contracts; any
information, trade
2
<PAGE>
secrets, systems, processes or business methods, or any other secret or
confidential matter relating to the customers or the business affairs of
Employer or any companies affiliated with Employer. Employee acknowledges that
in the course of performing his duties he may have access to confidential
information, the ownership and confidential status of which are highly important
to Employer and he agrees to comply with all known policies and procedures of
Employer for the protection of said confidential information. The term
"confidential information" as used in this Agreement means (1) proprietary
information of Employer including, but not limited to, formulas, procedures,
processes, materials, client lists and vendor lists (2) information marked or
designated by Employer as confidential (3) information whether or not in written
form which is known by the Employee to be treated by Employer as confidential
and (4) information provided to employee by third parties which Employer is
obligated to keep confidential. Employee agrees as follows:
(a) Employee will not copy, transmit, reproduce, summarize, quote or make
any commercial or other use whatsoever of Employer's confidential
information except as may by necessary in the performance of his
duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps necessary
to ensure the maintenance of confidentiality.
(c) Upon termination of Employee's employment, or as otherwise requested
by Employer, Employee will deliver promptly to Employer all of
Employer's confidential information in whatever form that may be in
Employee's possession or under Employee's control.
(d) Employee will not to disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to any
third person without the express written consent of Employer.
10. Non-Competition: During the Term of Employment and for a period of two
(2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, officer, director or agent of any sole proprietorship,
association, partnership or corporation. For the purposes of this paragraph, the
terms "compete" and "competition" and "competitor" shall refer to activities
commercially similar to those that constitute all or any reasonably material
part of Employer's Business, as such was constituted, or as Employee knew or
reasonably expected was contemplated, at any time during the Term of Employment.
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lessor restrictions
which said court may deem reasonable.
3
<PAGE>
Both Employer and Employee recognize that no adequate remedy at law exists
in which to enforce the terms and conditions of this Agreement. Therefore, in
the event Employee breaches the confidentiality or covenant not-to-compete
provisions of this Agreement, Employer shall be entitled to injunctive relief
prohibiting the continued breaches of the Agreement by the Employee.
11. Right to Employer Materials: Employee agrees that all documents
---------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials,books, files, reports,
correspondence, records and other documents or similar electronic material
("Employer Materials"), shall remain the property of Employer. Employer
Materials constitute trade secrets of Employer and shall not be disclosed to any
other party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employee shall not make or retain any copies thereof.
Employee acknowledges and agrees that any knowledge, information and materials
in Employee's possession relating Employer's Business which Employee possessed
at any time, shall also be deemed to constitute part of Employer Materials for
purposes of this Section.
12. Inventions and Patents: Employee agrees that he will promptly
----------------------
and from time to time fully inform and disclose to Employer all inventions,
designs, improvements, and discoveries which he now has or may hereafter have
during the term of this Agreement which pertain to or relate to the Business of
Employer or to any experimental work carried on by Employer, whether conceived
by the Employee alone or with others and whether or not conceived during regular
working hours. All such inventions, designs, improvement and discoveries shall
be the exclusive property of Employer. Employee shall assist Employer to
obtain patents on all such inventions, designs, improvements, and discoveries
deemed patentable by Employer and shall execute all documents and do all things
necessary to obtain letters patent, vest Employer will full and exclusive title
thereto, and protect the same against infringement by others. This provision
shall apply with equal force and effect to any items that may be subject to
copyright or trademark protection. This provision does not apply to an
invention for which no equipment, supplies, facility or trade secret information
of the Employer was used and which was developed entirely on the Employee's own
time, and (a) which does not relate, at the time the invention is conceived or
reduced to practice, to (1) the Business of Employer, or (2) actual or
demonstrably related anticipated research or development of Employer; or
(b) which does not result from any work performed by the Employee for the
Employer. The provisions set forth in the preceding sentence shall not,
however, in any way authorize Employee to engage in any such activities set
forth therein in contravention of the provisions of his duties and obligations
hereunder.
4
<PAGE>
13. Termination:
-----------
(a) The Employer may terminate the employment of Employee hereunder for
Cause at any time and without prior Notice or for any other reason on six (6)
months' Notice in writing to the Employee. Employee may terminate his employment
hereunder at any time on six (6) months' written Notice to the Employer, or on
two (2) weeks' notice after the last period provided in Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause" (as
defined below) or Employee terminates his employment for any reason other than
an Employer's Breach (as defined herein) then the Employer shall pay Employee
all accrued and unpaid Base Salary and benefits (including accrued but unused
vacation time) through the termination date and Employer shall have no further
obligations hereunder.
(c) If the Employer terminates Employee's employment other than for Cause,
or if Employee terminates his employment on account of an Employer's Breach or
as a result of Employee's death or disability, then the Employer shall, subject
to the Employee's compliance with Sections 10, 11, 12 and 13 hereof, pay
Employee (i) all accrued and unpaid Base Salary and benefits (including accrued
but unused vacation time) through the termination date and (ii) continued Base
Salary until the earlier of (A) the expiration of the then current Term without
any further extensions thereof or (B) the date which is six (6) months after the
termination date and thereafter Employer shall have no further obligations
hereunder. Any amount paid pursuant to this Section 14(c) shall be reduced by
the amount of any disability benefits or life insurance proceeds paid to
Employee or Employee's beneficiary pursuant to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12, or 13 of this
Agreement;
(ii) material breach of any other provision of this Agreement by
Employee (other than any such breach resulting from Employee's incapacity
due to physical or mental illness), if that breach is not remedied within
30 days after written notice to Employee describing the acts alleged to
constitute Cause:
(iii) any act of fraud, misappropriation, embezzlement or similar
willful and malicious conduct by Employee against the Employer; or
(iv) indictment of Employee for a felony or any conviction of, or
guilty plea by Employee to, a crime involving moral turpitude if that crime
of moral turpitude tends or would reasonably tend to bring the Employer
into disrepute.
5
<PAGE>
(c) The phrase "Employer's Breach" shall mean Employer's material
breach of the terms of this Agreement if such breach is not remedied within
45 days after written notice to Employer describing the acts alleged to
constitute such material breach. Notwithstanding anything herein to the
contrary, Employee's termination shall not be on account of Employer's
Breach unless it occurs within five (5) days after the expiration of the
45-day period referred to in this paragraph.
(d) The phrase "disability" shall mean a physical or mental
disability which renders Employee incapable of satisfactorily performing
his duties under the Agreement for a period of 90 days out of any 180
consecutive days.
14. Successors and Assigns: The rights and obligations of Employer under
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Employer, and the rights and obligations of Employee under this
Agreement shall inure and be binding upon his heirs, executors and
administrators.
15. Definitions: For purposes of this Agreement unless the context
-----------
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other corporation
or corporations.
16. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16761 Hale
Avenue, Irvine, CA 92715, with a copy to the Compensation Committee, and any
notice to be given to Employee shall be addressed to him at his home address
last shown on the records of Employer, or at such other address as either party
may hereafter designate in writing to the other. Any such notice (except notice
of a change of address) shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government. Notice of a change of address shall be deemed given only when
received.
17. Waiver: Except as provided in Section 14(e), either party's failure
------
to enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
18. Governing Law and Binding Effect: This Agreement shall be interpreted
--------------------------------
and construed in accordance with the laws of the State of California and shall
inure to the benefit of and be binding upon the parties hereto and their heirs,
personal representatives, successors and assigns.
6
<PAGE>
19. Captions and Paragraph Headings: Captions and paragraph headings
-------------------------------
used herein are for convenience only, are not a part of this Agreement, and
shall not be used in construing it.
20. Severability: The invalidity or unenforceability of any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
21. Counterparts: This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
22. Entire Agreement: This Agreement supersedes all prior agreements
----------------
and understandings between the parties and may not be modified or terminated
orally. No modification, termination, or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By: [SIGNATURE APPEARS HERE]
--------------------------------
Title: C.E.O.
EMPLOYEE:
/s/ Walter R. Menetrey
-------------------------------
Walter R. Menetrey
7
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as June
14, 1996, by and between Alyn Corporation ("Employer"), and Mr. Phillip
Gustavson ("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows;
1. Employment: Employer hereby employs Employee, and Employee hereby
----------
accepts employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
continue to occupy the position of and perform all the acts and duties of Vice
President of Finance and Administration of Employer. Employer's Board of
Directors may extend Employee's duties and titles from time to time; provided,
however, that during the term of this Agreement, Employee's responsibilities
shall be commensurate with his current responsibilities as Vice President of
Finance and Administration of Employer.
(b) Employee shall be required to devote his entire time, ability
and attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided,
----
the term of employment of Employee shall be twenty-four (24) months, beginning
June 10, 1996, and ending June 9, 1998. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term or of the first one-year renewal
term or of any such successive one-year renewal term. In view of the significant
confidential information, including proprietary trade secrets, that will be
provided to Employee by Employer, the Notice must be given by the Employee at
least six (6) months prior to the expiration of any such Term; Employer may give
Notice to Employee at least two (2) months prior to the expiration of any such
Term; provided, however, Employer may shorten such Notice period in the event
Employer is terminating Employee's employment for Cause (in accordance with
section 14 hereof), and Employee may shorten such Notice period in the event
Employee is terminating Employee's employment hereunder for Employer's Breach
(in accordance with section 14(e) hereof). The Initial Term and any one-year
renewal term or subsequent successive renewal term shall be collectively
referred to as the "Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer
-----------
for all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Management of
Employer, but in no event shall such annual salary be less than Ninety Five
thousand dollars ($95,000.00) ("Base Salary"), payable in
<PAGE>
twenty-four (24) equal semi-monthly installments in arrears, on the 1st and 15th
day of the month. The Base Salary shall be reduced by income tax and other
applicable withholdings, and may be payable by Employer, or by a parent or
subsidiary of Employer, at the Employer's discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall be
considered for an annual bonus in accordance with the Employer's bonus plan, and
based on company and individual performance.
5. Vacation: Employee shall be entitled each year to a vacation of three
--------
(3) weeks, during which time his compensation shall be paid in full. For
vacation purposes, a year shall be deemed to run from June 10 to June 10.
Employee's entitlement to such paid vacation shall accrue ratably over each such
year.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in stock option, deferred
compensation, savings, hospitalization, medical, disability, and life insurance
programs in accordance with such plans as Employer or its corporate parent may
now have in effect or may adopt from time to time, commensurate with the
Employee position.
(b) Employee shall also receive such other additional compensation,
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
reasonable expenses in connection with the performance of his duties hereunder
or in promoting or furthering the business of Employer, including dues for
reasonable expenses for entertainment, travel, lodging and similar items, in
accordance with the standards and policies that the Management of Employer may
establish from time to time. Any such charges may be paid for directly by
Employee, who shall be reimbursed by Employer upon the submission to Employer's
Treasurer of an itemized account of such expenditures.
9. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight metal matrix composites under the name Boralyn(R)
and silicon nitride blanks and finished shapes sold under the Ceralyn(TM) name),
Employee shall hold in confidence and not disclose to any person or entity
without the express prior written authorization of Employer, either during the
term of this Agreement or any time thereafter, the names or addresses of any of
Employer's customers; Employer's past or prospective dealings with
2
<PAGE>
its customers; the parties, dates, or terms if any of Employer's contracts; any
information, trade secrets, systems, processes or business methods, or any other
secret or confidential matter relating to the customers or the business affairs
of Employer or any companies affiliated with Employer. Employee acknowledges
that in the course of performing his duties he may have access to confidential
information, the ownership and confidential status of which are highly important
to Employer and he agrees to comply with all known policies and procedures of
Employer for the protection of said confidential information. The term
"confidential information" as used in this Agreement means (1) propriety
information of Employer including, but not limited to, formulas, procedures,
processes, materials, client lists and vendor lists (2) information marked or
designated by Employer as confidential (3) information whether or not in written
form which is known by the Employee to be treated by Employer as confidential
and (4) information provided to employee by third parties which Employer is
obligated to keep confidential. Employee agrees as follows:
(a) Employee will not copy, transmit, reproduce, summarize, quote or
make any commercial or other use whatsoever of Employer's
confidential information except as may be necessary in the
performance of his duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps
necessary to ensure the maintenance of confidentiality.
(c) Upon termination of Employee's employment, or as otherwise
requested by Employer, Employee will deliver promptly to Employer
all of Employer's confidential information in whatever form that
may be in Employee's possession or under Employee's control.
(d) Employee will not to disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to
any third person without the express written consent of Employer.
10. NON-COMPETITION: During the Term of Employment and for a period of
---------------
two (2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, employee, officer, director or agent of any sole
proprietorship, association, partnership or corporation. For the purposes of
this paragraph, the terms "compete" and "competition" and "competitor" shall
refer to activities commercially similar to those that constitute all or any
reasonably material part of Employer's Business, as such was constituted, or as
Employee knew or reasonably expected was contemplated, at any time during the
Term of Employment.
3
<PAGE>
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lesser restrictions
which said court may deem reasonable.
Both Employer and Employee recognize that no adequate remedy at law exists
in which to enforce the terms and conditions of this Agreement. Therefore, in
the event Employee breaches the confidentiality or covenant non-to-compete
provisions of this Agreement, Employer shall be entitled to injunctive relief
prohibiting the continued breaches of the Agreement by the Employee.
11. Right to Employer Materials: Employee agrees that all documents
---------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials, books, files, reports,
correspondence, records and other documents or similar electronic material
("Employer Materials"), shall remain the property of Employer. Employer
Materials constitute trade secrets of Employer and shall not be disclosed to any
other party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employee shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating Employer's Business which Employee possessed at
any time, shall also be deemed to constitute part of Employer Materials for
purposes of this Section.
12. Inventions and Patents: Employee agrees that he will promptly and from
----------------------
time to time fully inform and disclose to Employer all inventions, designs,
improvements, and discoveries which he now has or may hereafter have during the
term of this Agreement which pertain to or relate to the Business of Employer or
to any experimental work carried on by Employer, whether conceived by the
Employee alone or with others and whether or not conceived during regular
working hours. All such inventions, designs, improvement and discoveries shall
be the exclusive property of Employer. Employee shall assist Employer to obtain
patents on all such inventions, designs, improvements, and discoveries deemed
patentable by Employer and shall execute all documents and do all things
necessary to obtain letters patent, vest Employer with full and exclusive title
thereto, and protect the same against infringement by others. This provision
shall apply with equal force and effect to any items that may be subject to
copyright or trademark protection. This provision does not apply to an invention
for which no equipment, supplies, facility or trade secret information of the
Employer was used and which was developed entirely on the Employee's own time,
and (a) which does not relate, at the time the invention is conceived or reduced
to practice, to (1) the Business of Employer, or (2) actual or demonstrably
related anticipated research or development of Employer; or (b) which does not
result from any work performed by the Employee for the Employer. The provisions
set forth in the preceding sentence shall not, however, in any way authorize
Employee to engage in any such activities set forth therein in contravention of
the provisions of his duties and obligations hereunder.
4
<PAGE>
13. Termination:
-----------
(a) The Employer may terminate the employment of Employee hereunder for
Cause at any time and without prior Notice or for any other reason on six (6)
months' Notice in writing to the Employee. Employee may terminate his employment
hereunder at any time on six (6) months' written Notice to the Employer, or on
two (2) weeks' notice after the last period provided in Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause" (as
defined below) or Employee terminates his employment for any reason other than
an Employer's Breach (as defined herein) then the Employer shall pay Employee
all accrued and unpaid Base Salary and benefits (including accrued but unused
vacation time) through the termination date and Employer shall have no further
obligations hereunder.
(c) If the Employer terminates Employee's employment other than for Cause,
or if Employee terminates his employment on account of an Employer's Breach or
as a result of Employee's death or disability, then the Employer shall, subject
to the Employee's compliance with Sections 10, 11, 12 and 13 hereof, pay
Employee (i) all accrued and unpaid Base Salary and benefits (including accrued
but unused vacation time) through the termination date and (ii) continued Base
Salary until the earlier of (A) the expiration of the then current Term without
any further extensions thereof or (B) the date which is six (6) months after the
termination date and thereafter Employer shall have no further obligations
hereunder. Any amounts paid pursuant to this Section 14(c) shall be reduced by
the amount of any disability benefits or life insurance proceeds paid to
Employee or Employee's beneficiary pursuant to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12 or 13 of this
Agreement;
(ii) material breach of any other provision of this Agreement by
Employee (other than any such breach resulting from Employee's incapacity
due to physical or mental illness), if that breach is not remedied within
30 days after written notice to Employee describing the acts alleged to
constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement or similar
willful and malicious conduct by Employee against the Employer; or
(iv) indictment of Employee for a felony or any conviction of, or
guilty plea by Employee to, a crime involving moral turpitude if that crime
of moral turpitude tends or would reasonably tend to bring the Employer
into disrepute.
5
<PAGE>
(e) The phrase "Employer's Breach" shall mean Employer's material
breach of the terms of this Agreement if such breach is not remedied within
45 days after written notice to Employer describing the acts alleged to
constitute such material breach. Notwithstanding anything herein to the
contrary, Employee's termination shall not be on account of Employer's
Breach unless it occurs within five (5) days after the expiration of the
45-day period referred to in this paragraph.
(f) The phrase "disability" shall mean a physical or mental
disability which renders Employee incapable of satisfactorily performing
his duties under the Agreement for a period of 90 days out of any 180
consecutive days.
14. Successors and Assigns: The rights and obligations of Employer under
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Employer, and the rights and obligations of Employee under this
Agreement shall inure and be binding upon his heirs, executors and
administrators.
15. Definitions: For purposes of this Agreement unless the context
-----------
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other corporation
or corporations.
16. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16761 Hale
Avenue, Irvine, CA 92715, with a copy to the Chief Operating Officer, and any
notice to be given to Employee shall be addressed to him at his home address
last shown on the records of Employer, or at such other address as either party
may hereafter designate in writing to the other. Any such notice (except notice
of a change of address) shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government. Notice of a change of address shall be deemed given only when
received.
17. Waiver: Except as provided in Section 14(e), either party's failure
------
to enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
18. Governing Law and Binding Effect: This Agreement shall be interpreted
--------------------------------
and construed in accordance with the laws of the State of California and shall
inure to the benefit of and be binding upon the parties hereto and their heirs,
personal representatives, successors and assigns.
6
<PAGE>
19. Captions and Paragraph Headings: Captions and paragraph headings
-------------------------------
used herein are for convenience only, are not a part of this Agreement, and
shall not be used in construing it.
20. Severability: The invalidity or unenforceability of any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
21. Counterparts: This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
22. Entire Agreement: This Agreement supersedes all prior agreements
----------------
and understandings between the parties and may not be modified or terminated
orally. No modification, termination, or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By:
-------------------------------
Title:
EMPLOYEE:
/s/ Phillip Gustavson
-------------------------------
Phillip Gustavson
7
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
13th day of June, 1996, by and between Alyn Corporation ("Employer"), and Mr.
William Harrigan ("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby
----------
accepts employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
occupy the position of and perform all the acts and duties of Director
(Research, Development and Quality Division) of Employer. Employer's Board of
Directors may extend Employee's duties and titles from time to time; provided,
however, that during the term of this Agreement, Employee's responsibilities
shall be commensurate with his current responsibilities as Director (Research,
Development and Quality Division) of Employer.
(b) Employee shall be required to devote his time, ability and
attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided,
----
the term of employment of Employee shall be twenty-four (24) months, beginning
24 June, 1996, and ending 24 June, 1998. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term, or of the first one-year
renewal term, or of any such successive one-year renewal term. In view of the
significant confidential information, including proprietary trade secrets, that
will be provided to Employee by Employer, the Notice must be given by the
Employee at least three (3) months prior to the expiration of any such Term;
Employer may give Notice to Employee at least three (3) months prior to the
expiration of any such Term; provided, however, Employer may shorten such Notice
period in the event Employer is terminating Employee's employment for Cause (in
accordance with section 14 hereof), and Employee may shorten such Notice period
in the event Employee is terminating Employee's employment hereunder for
Employer's Breach (in accordance with section 14(e) hereof). The Initial Term
and any one-year renewal term or subsequent successive renewal term shall be
collectively referred to as the "Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer
-----------
for all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Management of
Employer, but in no event shall such annual salary be less than Ninety Five
thousand dollars ($95,000.00) ("Base Salary"), payable in
<PAGE>
forty-eight (48) equal semi-monthly installments in arrears, on the 1st and 15th
day of the month, after the effective date hereof. The Base Salary shall be
reduced by income tax and other applicable withholdings, and may be payable by
Employer, or by a parent or subsidiary of Employer, at the Employer's
discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall pay a
-----
minimum annual bonus of $10,000 for good performance, with the possibility of a
greater bonus, in accordance with the Employer's bonus plan, and if company
performance is good.
5. Vacation: Employee shall be entitled each year to a vacation of three
--------
(3) weeks, during which time his compensation shall be paid in full. For
vacation purposes, a year shall be deemed to run from June 24 to June 24.
Employee's entitlement to such paid vacation shall accrue at the rate of 1.25
days per month.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in stock option, deferred
compensation, savings, hospitalization, medical, disability, and life insurance
programs in accordance with such plans as Employer or its corporate parent may
now have in effect or may adopt from time to time, commensurate with the
Employee position.
(b) Employee shall also receive such other additional compensation
(such as ten (10) days of sick leave and ten (10) paid holidays per year),
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
reasonable expenses in connection with the performance of his duties hereunder
or in promoting or furthering the business of Employer, including dues for
reasonable expenses for entertainment, travel, lodging and similar items, in
accordance with the standards and policies that the Management of Employer may
establish from time to time. Any such charges may be paid for directly by
Employee, who shall be reimbursed by Employer upon the submission to Employer's
Treasurer of an itemized account of such expenditures.
9. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight metal matrix composites under the name Boralyn(R)
and silicon nitride blanks and finished shapes sold under the Ceralyn(TM)
name), Employee shall hold in confidence and not disclose to any person or
entity without the express prior written authorization of Employer, either
during the term of this Agreement or any time thereafter, the
2
<PAGE>
names or addresses of any of Employer's customers; Employer's past or
prospective dealings with its customers; the parties, dates, or terms if any of
Employer's contracts; any information, trade secrets, systems, processes or
business methods, or any other secret or confidential matter relating to the
customers or the business affairs of Employer or any companies affiliated with
Employer. Employee acknowledges that in the course of performing his duties he
may have access to confidential information, the ownership and confidential
status of which are highly important to Employer and he agrees to comply with
all known policies and procedures of Employer for the protection of said
confidential information. The term "confidential information" as used in this
Agreement means (1) proprietary information of Employer including, but not
limited to, formulas, procedures, processes, materials, client lists and vendor
lists (2) information marked or designated by Employer as confidential (3)
information in written form which is known by the Employee to be treated by
Employer as confidential and (4) information provided to employee by third
parties which Employer is obligated to keep confidential. Employee agrees as
follows:
(a) Employee will not copy, transmit, reproduce, summarize, quote or
make any commercial or other use whatsoever of Employer's
confidential information except as may be necessary in the
performance of his duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps
necessary to ensure the maintenance of confidentially.
(c) Upon termination of Employee's employment, or as otherwise requested
by Employer, Employee will deliver promptly to Employer all of
Employer's confidential information in whatever form that may be in
Employee's possession or under Employee's control.
(d) Employee will not to disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to any
third person without the express written consent by Employer.
(e) Information that Employee brings to Alyn Corp. prior to his
Employment that is public information or the sole property of the
Employee shall not be deemed or classified to be part of the Employer
confidential information defined herein.
10. Non-Competition: During the Term of Employment and for a period of
---------------
two (2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, employee, officer, director or agent of any sole
proprietorship, association, partnership or corporation. For the purposes of
this paragraph, all terms "compete" and "competition" and "competitor" shall
refer to activities commercially similar to those that constitute all or any
reasonably material part of Employer's Business, in the manufacture and sales of
boron carbide based metal matrix composite materials, as such was
3
<PAGE>
constituted, or as Employee knew or reasonably expected was contemplated, at any
time during the Term of Employment.
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lessor restrictions
which said court may deem reasonable.
Both Employer and Employee reorganize that no adequate remedy at law exists
in which to enforce the terms and conditions of this Agreement. Therefore, in
the event Employee breaches the confidentiality or covenant not-to-compete
provision of this Agreement, Employer shall be entitled to injunctive relief
prohibiting the continued breaches of the Agreement by the Employee.
11. Right to Employer Material: Employee agrees that all documents
--------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials, books, files, reports,
correspondence, records and other documents or similar electronic material
("Employer Material"), shall remain the property of Employer. Employer Materials
constitute trade secrets of Employer and shall not be disclosed to any other
party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employee shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating Employer's Business which Employee possessed at
any time, shall also be deemed to constitute part of Employer Materials for
purposes of this Section.
12. Inventions and Patents: Employee agree that he will promptly and from
----------------------
time to time fully inform and disclose to Employer all inventions, designs,
improvements, and discoveries which he may hereafter have during the term of
this Agreement which pertain to or relate to the Business of Employer to any
experimental work carried on by Employer, whether conceived by the Employee
alone or with others and whether or not conceived during regular working hours.
All such inventions, designs, improvement and discoveries shall be the
exclusive property of Employer. Employee shall assist Employer to obtain patents
on all such inventions, designs, improvements, and discoveries deemed patentable
by Employer and shall execute all documents and do all things necessary to
obtain letters patent, vest Employer with full and exclusive title thereto, and
protect the same against infringement by others. This provision shall apply with
equal force and effect to any items that may be subject to copyright or
trademark protection. This provision does not apply to an invention for which no
equipment, supplies, facility or trade secret information of the Employer was
used and which was developed entirely on the Employee's own time, and (a) which
does not relate, at the time the invention is conceived or reduced to practice,
to (1) the Business of Employer, or (2) actual or demonstrably related
anticipated research or development of Employer; or (b) which does not result
from any work performed by the Employee for the Employer. The provisions set
forth in the preceding sentence
4
<PAGE>
shall not, however, in any way authorize Employee to engage in any such
activities set forth therein in contravention of the provision of his duties and
obligations hereunder
13. Termination:
-----------
(a) The Employer may terminate the employment of Employee
hereunder for Cause at any time and without prior Notice or for any
other reason on three (3) months' Notice in writing to the Employee.
Employee may terminate his employment hereunder at any time on three (3)
months' written Notice to the Employer, or on two (2) weeks' notice
after the last the last period provided in Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause"
(as defined below) or Employee terminates his employment for any reason
other than an Employer's Breach (as defined herein) then the Employer
shall pay Employee all accrued and unpaid Base Salary and benefits
(including accrued but unused vacation time) through the termination
date and Employer shall have no further obligations hereunder.
(c) If the Employer terminates Employee's employment other than for
Cause, or if Employee terminates his employment on account of an
Employer's Breach or as a result of Employee's death or disability, then
the Employer shall, subject to the Employee's compliance with Sections
10, 11, 12 and 13 hereof, pay Employee (i) all accrued and unpaid Base
Salary and benefits (including accrued but unused vacation time) through
the termination date and (ii) continued Base Salary until the earlier of
(A) the expiration of the then current Term without any further
extensions thereof or (B) the date which is six (6) months after the
termination date and thereafter Employer shall have no further
obligations hereunder. Any amounts paid pursuant to this Section 14(c)
shall be reduced by the amount of any disability benefits or life
insurance proceeds paid to Employee or Employee's beneficiary pursuant
to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12 or 13 of this
Agreement;
(ii) material breach of any other provision of this
Agreement by Employee (other than any such breach resulting from
Employee's incapability due to physical or mental illness), if
that breach is not remedied within 30 days after written notice to
Employee describing the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by Employee against the Employer; or,
5
<PAGE>
(iv) indictment of Employee for a felony or any conviction of, or
guilty plea by Employee to, a crime involving moral turpitude if that
crime of moral turpitude tends or would reasonably tend to bring the
Employer into disrepute.
(e) The phrase "Employer's Breach" shall mean Employer's material breach
of the terms of this Agreement if such breach is not remedied within 45 days
after written notice to Employer describing the acts alleged to constitute
such material breach. Notwithstanding anything herein to the contrary,
Employee's termination shall not be on account of Employer's Breach unless
it occurs within five (5) days after the expiration of the 45-day period
referred to in this paragraph.
(f) The phrase "disability" shall mean a physical or mental disability
which renders Employee incapable of satisfactorily performing his duties
under the Agreement for a period of 90 days out of any 180 consecutive days.
14. Successors and Assigns: The rights and obligations of Employer under
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Employer, and the rights and obligations of Employee under this
Agreement shall inure and be binding upon his heirs, executors and
administrators.
15. Definitions: For purposes of this Agreement unless the context indicates
-----------
otherwise, the term "Employer" shall be deemed to also include any corporation
which is in control of, controlled by or under common control with Employer,
whether or not Employee is directly employed by such other corporation or
corporations.
16. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16761 Hale
Avenue, Irvine, CA 92715, with a copy to the Chief Operating Officer, and any
notice to be given to Employee shall be addressed to him at his home address
last shown on the records of Employer, or at such other address as either party
may hereafter designate in writing to the other. Any such notice (except notice
of a change of address) shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government. Notice of a change of address shall be deemed given only when
received.
17. Waiver: Except as provided in Section 14(e), either party's failure to
------
enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
6
<PAGE>
18. Governing Law and Binding Effect: This Agreement shall be interpreted
--------------------------------
and construed in accordance with the laws of the State of California and shall
inure to the benefit of and be binding upon the parties hereto and their heirs,
personal representatives, successors and assigns.
19. Captions and Paragraph Headings: Captions and paragraph headings used
-------------------------------
herein are for convenience only, are not a part of this Agreement, and shall not
be used in construing it.
20. Severability: The invalidity or unenforceability of any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
21. Counterparts: This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
22. Entire Agreement: This Agreement supersedes all prior agreements and
----------------
understandings between the parties and may not be modified or terminated orally.
No modification, termination, or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By: [SIGNATURE APPEARS HERE]
-----------------------------
Title: Chief Operating Officer
Date: 6/24/96
---------------------------
EMPLOYEE:
/s/ William C. Harrigan
--------------------------------
William C. Harrigan
Date: 6/24/96
---------------------------
7
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
13th day of June, 1996, by and between Alyn Corporation ("Employer"), and Mr. R.
L. Stanish ("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby
----------
accepts employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
occupy the position of and perform all the acts and duties of Director
(Manufacturing Division) of Employer. Employer's Board of Directors may extend
Employee's duties and titles from time to time; provided, however, that during
the term of this Agreement, Employee's responsibilities shall be commensurate
with his current responsibilities as Director (Manufacturing Division) of
Employer.
(b) Employee shall be required to devote his time, ability and
attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided,
----
the term of employment of Employee shall be twenty-four (24) months, beginning
24 June, 1996, and ending 24 June, 1998. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term or of the first one-year renewal
term or of any such successive one-year renewal term. In view of the
significant confidential information, including proprietary trade secrets, that
will be provided to Employee by Employer, the Notice must be given by the
Employee at least three (3) months prior to the expiration of any such Term;
Employer may give Notice to Employee at least three (3) months prior to the
expiration of any such Term; provided, however, Employer may shorten such Notice
period in the event Employer is terminating Employee's employment for Cause (in
accordance with section 14 hereof), and Employee may shorten such Notice period
in the event Employee is terminating Employee's employment hereunder for
Employer's Breach (in accordance with section 14(c) hereof). The Initial Term
and any one-year renewal term or subsequent successive renewal term shall be
collectively referred to as the "Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer
-----------
for all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Management of
Employer, but in no event shall such annual salary be less than Eighty Five
thousand dollars ($85,000.00) ("Base Salary"), payable in
<PAGE>
forty-eight (48) equal semi-monthly installments in arrears, on the 1st and 15th
day of the month, after the effective date hereof. The Base Salary shall be
reduced by income tax and other applicable withholdings, and may be payable by
Employer, or by a parent or subsidiary of Employer, at the Employer's
discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall pay a
-----
minimum annual bonus of $10,000 for good performance, with the possibility of a
greater bonus, in accordance with the Employer's bonus plan, and if company
performance is good.
5. Vacation: Employee shall be entitled each year to a vacation of three
--------
(3) weeks, during which time his compensation shall be paid in full. For
vacation purposes, a year shall be deemed to run from June 24 to June 24.
Employee's entitlement to such paid vacation shall accrue at the rate of 1.25
days per month.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in stock option, deferred
compensation, savings, hospitalization, medical, disability, and life insurance
programs in accordance with such plans as Employer or its corporate parent may
now have in effect or may adopt from time to time, commensurate with the
Employee position.
(b) Employee shall also receive such other additional compensation
(such as ten (10) days of sick leave and ten (10) paid holidays per year),
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
reasonable expenses in connection with the performance of his duties hereunder
or in promoting or furthering the business of Employer, including dues for
reasonable expenses for entertainment, travel, lodging and similar items, in
accordance with the standards and policies that the Management of Employer may
establish from time to time. Any such charges may be paid for directly by
Employee, who shall be reimbursed by Employer upon the submission to Employer's
Treasurer of an itemized account of such expenditures.
9. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight mental matrix composites under the name Boralyn(R)
and silicon nitride blanks and finished shapes sold under the Ceralyn(TM)
name), Employee shall hold in confidence and not disclose to any person or
entity without the express prior written authorization of Employer, either
during the term of this Agreement or any time thereafter, the
2
<PAGE>
names or addresses of any of Employer's customers; Employer's past or
prospective dealings with its customers; the parties, dates, or terms if any of
Employer's contracts; any information, trade secrets, systems, processes or
business methods, or any other secret or confidential matter relating to the
customers or the business affairs of Employer or any companies affiliated with
Employer. Employee acknowledges that in the course of performing his duties he
may have access to confidential information, the ownership and confidential
status of which are highly important to Employer and he agrees to comply with
all known policies and procedures of Employer for the protection of said
confidential information. The term "confidential information" as used in this
Agreement means (1) proprietary information of Employer including, but not
limited to, formulas, procedures, processes, materials, client lists and vendor
lists (2) information marked or designated by Employer as confidential (3)
information in written form which is known by the Employee to be treated by
Employer as confidential and (4) information provided to employee by third
parties which Employer is obligated to keep confidential. Employee agrees as
follows:
(a) Employee will not copy, transmit, reproduce, summarize, quote or make
any commercial or other use whatsoever of Employer's confidential
information except as may be necessary in the performance of his
duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps
necessary to ensure the maintenance of confidentiality.
(c) Upon termination of Employee's employment, or as otherwise requested
by Employer, Employee will deliver promptly to Employer all of
Employer's confidential information in whatever form that may be in
Employee's possession or under Employee's control.
(d) Employee will not to disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to any
third person without the express written consent of Employer.
(e) Information that Employee brings to Alyn Corp. prior to his
Employment that is public information or the sole property of the
Employee shall not be deemed or classified to be part of the Employer
confidential information defined herein.
10. Non-Competition: During the Term of Employment and for a period of
---------------
two (2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, employee, officer, director or agent of any sole
proprietorship, association, partnership or corporation. For the purposes of
this paragraph, the terms "compete" and "competition" and "competitor" shall
refer to activities commercially similar to those that constitute all or any
reasonably material part of Employer's Business, in the manufacture and sales of
boron carbide based metal matrix composite materials, as such was
3
<PAGE>
constituted, or as Employee knew or reasonably expected was contemplated, at
any time during the Term of Employment.
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lessor restrictions
which said court may deem reasonable.
Both Employer and Employee recognize that no adequate remedy at law exists
in which to enforce the terms and conditions of this Agreement. Therefore, in
the event Employee breaches the confidentiality or covenant not-to-compete
provisions of this Agreement, Employer shall be entitled to injunctive relief
prohibiting the continued breaches of the Agreement by the Employee.
11. Right to Employer Materials: Employee agrees that all documents
---------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials, books, files, reports,
correspondence, records and other documents or similar electronic material
("Employer Material"), shall remain the property of Employer. Employer Materials
constitute trade secrets of Employer and shall not be disclosed to any other
party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employee shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating Employer's Business which Employee possessed at
any time, shall be deemed to constitute part of Employer Materials for purposes
of this Section.
12. Inventions and Patents: Employee agrees that he will promptly and from
----------------------
time to time fully inform and disclose to Employer all inventions, designs,
improvements,and discoveries which he may hereafter have during the term of this
Agreement which pertain to or relate to the Business of Employer or to any
experimental work carried on by Employer, whether conceived by the Employee
alone or with others and whether or not conceived during regular working hours.
All such inventions, designs, improvement and discoveries shall be the exclusive
property of Employer. Employee shall assist Employer to obtain patents on all
such inventions, designs, improvements, and discoveries deemed patentable by
Employer and shall execute all documents and do all things necessary to obtain
letters patent, vest Employer with full and exclusive title thereto, and protect
the same against infringement by others. This provision shall apply with equal
force and effect to any items that may be subject to copyright or trademark
protection. This provision does not apply to an invention for which no
equipment, supplies, facility or trade secret information of the Employer was
used and which was developed entirely on the Employee's own time, and (a) which
does not relate, at the time the invention is conceived or reduced to practice,
to (1) the Business of Employer, or (2) actual or demonstrably related
anticipated research or development of Employer; or (b) which does not result
from any work performed by the Employee for the Employer. The provisions set
forth in the preceding sentence
4
<PAGE>
shall not, however, in any way authorize Employee to engage in any such
activities set forth therein in contravention of the provisions of his duties
and obligations hereunder
13. Termination:
-----------
(a) The Employer may terminate the employment of Employee hereunder
for Cause at any time and without prior Notice or for any other reason on
three (3) months' Notice in writing to the Employee. Employee may terminate
his employment hereunder at any time on three (3) months' written Notice to
the Employer, or on two (2) weeks' notice after the last period provided in
Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause"
(as defined below) or Employee terminates his employment for any reason
other than an Employer's Breach (as defined herein) then the Employer shall
pay Employee all accrued and unpaid Base Salary and benefits (including
accrued but unused vacation time) through the termination date and Employer
shall have no further obligations hereunder.
(c) If the Employer terminates Employee's employment other than for
Cause, or if Employee terminates his employment on account of an Employer's
Breach or as a result of Employee's death or disability, then the Employer
shall, subject to the Employee's compliance with Sections 10, 11, 12 and 13
hereof, pay Employee (i) all accrued and unpaid Base Salary and benefits
(including accrued but unused vacation time) through the termination date
and (ii) continued Base Salary until the earlier of (A) the expiration of
the then current Term without any further extensions thereof, or (B) the
date which is six (6) months after the termination date and thereafter
Employer shall have no further obligations hereunder. Any amounts paid
pursuant to this Section 14(c) shall be reduced by the amount of any
disability benefits or life insurance proceeds paid to Employee or
Employee's beneficiary pursuant to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12 or 13 of
this Agreement;
(ii) material breach of any other provision of this
Agreement by Employee (other than any such breach resulting from
Employee's incapacity due to physical or mental illness), if that
breach is not remedied within 30 days after written notice to
Employee describing the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by Employee against the
Employer; or
5
<PAGE>
(iv) indictment of Employee for a felony or any conviction
of, or guilty plea by Employee to, a crime involving moral turpitude
if that crime of moral turpitude tends or would reasonably tend to
bring the Employer into disrepute.
(e) The phrase "Employer's Breach" shall mean Employer's material
breach of the terms of this Agreement if such breach is not remedied within
45 days after written notice to Employer describing the acts alleged to
constitute such material breach. Notwithstanding anything herein to the
contrary, Employee's termination shall not be on account of Employer's
Breach unless it occurs within five (5) days after the expiration of the
45-day period referred to in this paragraph.
(f) The phrase "disability" shall mean a physical or mental
disability which renders Employee incapable of satisfactorily performing
his duties under the Agreement for a period of 90 days out of any 180
consecutive days.
14. Successors and Assigns: The rights and obligations of Employer under
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Employer, and the rights and obligations of Employee under this
Agreement shall inure and be binding upon his heirs, executors and
administrators.
15. Definitions: For purposes of this Agreement unless the context
-----------
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other corporation
or corporations.
16. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16761 Hale
Avenue, Irvine, CA 92715, with a copy to the Chief Operating Officer, and any
notice to be given to Employee shall be addressed to him at his home address
last shown on the records of Employer, or at such other address as either party
may hereafter designate in writing to the other. Any such notice (except notice
of a change of address) shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government. Notice of a change of address shall be deemed given only when
received.
17. Waiver: Except as provided in Section 14(e), either party's failure
------
to enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available
under the circumstances.
6
<PAGE>
18. Governing Law and Binding Effect: This Agreement shall be
--------------------------------
interpreted and construed in accordance with the laws of the State of California
and shall inure to the benefit of and be binding upon the parties hereto and
their heirs, personal representatives, successors and assigns.
19. Captions and Paragraph Headings: Captions and paragraph headings
-------------------------------
used herein are for convenience only, are not a part of this Agreement, and
shall not be used in construing it.
20. Severability: The invalidity or unenforceability or any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
21. Counterparts: This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
22. Entire Agreement: This Agreement supersedes all prior agreements and
----------------
understandings between the parties and may not be modified or terminated orally.
No modification, termination, or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By: [SIGNATURE APPEARS HERE]
-----------------------------
Title: Chief Operating Officer
EMPLOYEE:
/s/ R. L. Stanish
-----------------------------------
R. L. Stanish
7
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
July 8, 1996, by and between Alyn Corporation ("Employer"), and Tom Flessner
("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby
----------
accepts employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
continue to occupy the position of and perform all the acts and duties of
Director (Casting Division) of Employer. Employer's Board of Directors may
extend Employee's duties and titles from time to time; provided, however, that
during the term of this Agreement, Employee's responsibilities, shall be
commensurate with his current responsibilities as Director (Casting Division) of
Employer.
(b) Employee shall be required to devote his entire time, ability
and attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided,
----
the term of employment of Employee shall be twenty-four (24) months, beginning
July 8, 1996, and ending July 8, 1998. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term or of the first one-year renewal
term or any such successive one-year renewal term. In view of the significant
confidential information, including proprietary trade secrets, that will be
provided to Employee by Employer, the notice must be given by the Employee at
least six (6) months prior to the expiration of any such Term; Employer may give
Notice to Employee at least two (2) months prior to the expiration of any such
Term provided, however, Employer may shorten such Notice period in the event
Employer is terminating Employee's employment for Cause (in accordance with
section 14 hereof), and Employee may shorten such Notice period in the event
Employee is terminating Employee's employment hereunder for Employer's Breach
(in accordance with section 14(e) hereof). The Initial Term and any one-year
renewal term or subsequent successive renewal term shall be collectively
referred to as the "Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer
-----------
for all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Management of
Employer, but in no event shall such annual salary be less than One hundred
thousand dollars ($100,000.00) ("Base Salary"), payable in twenty-four (24)
equal semi-monthly installments in arrears, on the 1st and 15th days of the
<PAGE>
month.rrr. The Base Salary shall be reduced by income tax and other applicable
withholdings, and may be payable by Employer, or by a parent or subsidiary of
Employer, at the Employer's discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall be
-----
considered for an annual bonus in accordance with the Employer's bonus plan, and
based on company and individual performance, the minimum amount of which shall
be $10,000.
(c) Moving Expense. In addition to his Base Salary, Employee shall
--------------
receive an additional amount of $17,000, within 2 days after Employee's signing
of Agreement. There shall be no additional compensation for moving beyond this
amount.
5. Vacation: Employee shall be entitled each year to a vacation of
--------
three (3) weeks, during which time his compensation shall be paid in full. For
vacation purposes, a year shall be deemed to run from July 8 to July 8.
Employee's entitlement to such paid vacation shall accrue ratably over each such
year.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in stock option, deferred
compensation, savings, hospitalization, medical, disability, and life insurance
programs in accordance with such plans as Employer or its corporate parent may
now have in effect or may adopt from time to time, commensurate with the
Employee position.
(b) Employee shall also receive such other additional compensation,
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
reasonable expenses in connection with the performance of his duties hereunder
or in promoting or furthering the business of Employer, including dues for
reasonable expenses for entertainment, travel, lodging and similar items, in
accordance with the standards and policies that the Management of Employer may
establish from time to time. Any such charges may be paid for directly by
Employee, who shall be reimbursed by Employer upon the submission to Employer's
Treasurer of an itemized account of such expenditures.
9. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight metal matrix composites under the name Boralyn(R)
and silicon nitride blanks and finished shapes sold under the Ceralyn(TM) name),
Employee shall hold in confidence and not disclose to any person or entity
without the express prior written
2
<PAGE>
authorization of Employer, either during the term of this Agreement or any time
thereafter, the names or addresses of any of the Employer's customers;
Employer's past or prospective dealings with its customers; the parties, dates,
or terms if any of Employer's contracts; any information, trade secrets,
systems, processes or business methods, or any other secret or confidential
matter relating to the customers or the business affairs of Employer or any
companies affiliated with Employer. Employee acknowledges that in the course of
performing his duties he may have access to confidential information, the
ownership and confidential status of which are highly important to Employer and
he agrees to comply with all known policies and procedures of Employer for the
protection of said confidential information. The term "confidential information"
as used in this Agreement means (1) proprietary information of Employer
including, but not limited to, formulas, procedures, processes, materials,
client lists and vendor lists (2) information marked or designated by Employer
as confidential (3) information whether or not in written form which is known by
the Employee to be treated by Employer as confidential and (4) information
provided to employee by third parties which Employer is obligated to keep
confidential. Employee agrees as follows:
(a) Employee will not copy, transmit, reproduce, summarize quote or make
any commercial or other use whatsoever of Employer's confidential
information except as may be necessary in the performance of his
duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps
necessary to ensure the maintenance of confidentiality.
(c) Upon termination of Employee's employment, or as otherwise requested
by Employer, Employee will deliver promptly to Employer all of
Employer's confidential information in whatever form that may be in
Employee's possession or under Employee's control.
(d) Employee will not to disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to any
third person without the express written consent of Employer.
10. Non-Competition: During the Term of Employment and for a period of
---------------
two (2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, employee, officer, director or agent of any sole
proprietorship, association, partnership or corporation. For the purposes of
this paragraph, the terms "compete" and "competition" and "competitor" shall
refer to activities commercially similar to those that constitute all or any
reasonably material part of Employer's Business, in the manufacture and sales of
metal matrix composite materials, as such was constituted, or as Employee knew
or reasonably expected was contemplated, at any time during the Term of
Employment.
3
<PAGE>
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lesser restrictions
which said court may deem reasonable.
Both Employer and Employee recognize that no adequate remedy at law
exists in which to enforce the terms and conditions of this Agreement.
Therefore, in the event Employee breaches the confidentiality or covenant
not-to-compete provisions of this Agreement, Employer shall be entitled to
injunctive relief prohibiting the continued breaches of the Agreement by the
Employee.
11. Right to Employer Materials: Employee agrees that all documents
---------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials, books, files, reports,
correspondence, records and other documents or similar electronic material
("Employer Materials"), shall remain the property of Employer. Employer
Materials constitute trade secrets of Employer and shall not be disclosed to any
other party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employee shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating Employer's Business which Employee possessed at
any time, shall also be deemed to constitute part of Employer Materials for
purposes of this Section.
12. Inventions and Patents: Employee agrees that he will promptly and
----------------------
from time to time fully inform and disclose to Employer all inventions, designs,
improvements, and discoveries which he now has or may hereafter have during the
term of this Agreement which pertain to or relate to the Business of Employer or
to any experimental work carried on by Employer, whether conceived by the
Employee alone or with others and whether or not conceived during regular
working hours. All such inventions, designs, improvement and discoveries shall
be the exclusive property of Employer. Employee shall assist Employer to obtain
patents on all such inventions, designs,improvements, and discoveries deemed
patentable by Employer and shall execute all documents and do all things
necessary to obtain letters patent, vest Employer with full and exclusive title
thereto, and protect the same against infringement by others. This provision
shall apply with equal force and effect to any items that may be subject to
copyright or trademark protection. Should a patent be obtained based on Employee
conceptions and effort, a bonus for this effort shall be provided in accordance
with an approved company bonus program. This provision does not apply to an
invention for which no equipment, supplies, facility or trade secret information
of the Employer was used and which was developed entirely on the Employee's own
time, and (a) which does not relate, at the time the invention is conceived or
reduced to practice, to (1) the Business of Employer, or (2) actual or
demonstrably related anticipated research or development of Employer; or (b)
which does not result from any work performed by the Employee for the Employer.
The provisions set forth in the preceding sentence shall not, however, in any
way authorize Employee to engage in any such activities set forth therein in
contravention of the provisions of his duties and obligations hereunder.
4
<PAGE>
13. Termination:
-----------
(a) The Employer may terminate the employment of Employee hereunder
for Cause at any time and without prior Notice or for any other reason on
six (6) months' Notice in writing to the Employee. Employee may terminate
his employment hereunder at the time on six (6) months' written Notice to
the Employer, or on two (2) weeks' notice after the last period provided
in Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause" (as
defined below) or Employee terminates his employment for any reason other
than an Employer's Breach (as defined herein) then the Employer shall pay
Employee all accrued and unpaid Base Salary and benefits (including
accrued but unused vacation time) through the termination date and
Employer shall have no further obligations hereunder.
(c) If the Employer terminates Employee's employment other than for
Cause, or if Employee terminates his employment on account of an
Employer's Breach or as a result of Employee's death or disability, then
the Employer shall, subject to the Employee's compliance with Sections 10,
11, 12, and 13 hereof, pay Employee (i) all accrued and unpaid Base Salary
and benefits (including accrued but unused vacation time) through the
termination date and (ii) continued Base Salary until the earlier of (A)
the expiration of the then current Term without any further extensions
thereof or (B) the date which is six (6) months after the termination date
and thereafter Employer shall have no further obligations hereunder. Any
amount paid pursuant to this Section 14(c) shall be reduced by the amount
of any disability benefits or life insurance proceeds paid to Employee or
Employee's beneficiary pursuant to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12 or 13 of
this Agreement;
(ii) material breach of any other provision of this
Agreement by Employee (other than any such breach resulting from
Employee's incapacity due to physical or mental illness), if that
breach is not remedied within 30 days after written notice to
Employee describing the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by Employee against the
Employer; or
(iv) indictment of Employee for a felony or any conviction
of, or guilty plea by Employee to, a crime involving moral turpitude
if that crime or moral turpitude tends or would reasonably tend to
bring the Employer into disrepute.
5
<PAGE>
(e) The phrase "Employer's Breach" shall mean Employer's material
breach of the terms of this Agreement if such breach is not remedied within
45 days after written notice to Employer describing the acts alleged to
constitute such material breach. Notwithstanding anything herein to the
contrary, Employee's termination shall not be on account of Employer's
Breach unless it occurs within five (5) days after the expiration of the
45-day period referred to in this paragraph.
(f) The phrase "disability" shall mean a physical or mental
disability which renders Employee incapable of satisfactory performing his
duties under the Agreement for a period of 90 days out of any 180
consecutive days.
14. Successors and Assigns: The rights and obligations of Employer under
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Employer, and the rights and obligations of Employee under this
Agreement shall inure and be binding upon his heirs, executors and
administrators.
15. Definitions: For purposes of this Agreement unless the context
-----------
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other corporation
or corporations.
16. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16761 Hale
Ave., Irvine, CA 92715, with a copy to the Chief Operating Officer, and any
notice to be given to Employee shall be addressed to him at his home address
last shown on the records of Employer, or at such other address as either party
may hereafter designate in writing to the other. Any such notice (except notice
of a change of address) shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government. Notice of a change of address shall be deemed given only when
received.
17. Waiver: Except as provided in Section 14(e), either party's failure
------
to enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
18. Governing Law and Binding Effect: This Agreement shall be
--------------------------------
interpreted and construed in accordance with the laws of the State of California
and shall inure to the benefit of and be binding upon the parties hereto and
their heirs, personal representatives, successors and assigns.
6
<PAGE>
19. Captions and Paragraph Headings: Captions and paragraph headings used
-------------------------------
herein are for convenience only, are not a part of this Agreement, and shall not
be used in construing it.
20. Severability: The invalidity or unenforceability of any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or enforceability of any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
21. Counterparts: This Agreements may be executed in counterparts, each of
------------
which shall be deemed and original, but all of which taken together shall
constitute one and the same instrument.
22. Entire Agreement: This Agreement supersedes all prior agreements and
----------------
understandings between the parties and may not be modified or terminated orally.
No modification, termination, or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By:
--------------------------------
Title:
EMPLOYER:
/s/ Thomas Flessner
------------------------------------
Thomas Flessner 6-20-96
7
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
August 12, 1996, by and between Alyn Corporation ("Employer"), and Tom Miller
("Employee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. Employment: Employer hereby employs Employee, and Employee hereby
----------
accepts employment with Employer, on the terms and conditions set forth herein.
2. Duties:
------
(a) So long as he shall be elected to such offices, Employee shall
continue to occupy the position of and perform all the acts and duties of
Director of Sales and Marketing of Employer, which include reporting to the
Chief Executive Officer of the Company and management of the sales and marketing
staff of the Employer. Employer's Board of Directors may extend Employee's
duties and titles from time to time; provided, however, that during the term of
this Agreement, Employer's responsibilities shall be commensurate with his
current responsibilities as Director of Sales of Employer.
(b) Employee shall be required to reasonably devote his entire time,
ability and attention to the business of Employer.
3. Term: Subject to the provisions for termination as herein provided,
----
the term of employment of Employee shall be twelve (12) months, beginning
August 12, 1996, and ending August 12, 1997. Thereafter, this Agreement shall
automatically be renewed for a renewal term of one (1) year after the expiration
of the initial term, and for successive one-year renewal terms thereafter,
unless either party gives the other written notice ("Notice") to terminate the
Agreement at the expiration of the initial term or of the first one-year renewal
term or of any such successive one-year renewal term. In view of the
significant confidential information, including proprietary trade secrets, that
will be provided to Employee by Employer, the notice must be given at least
three (3) months prior to the expiration of any such Term; provided, however,
Employer may shorten such Notice period in the event Employer is terminating
Employee's employment for Cause (in accordance with section 14 hereof), and
Employee may shorten such Notice period in the event Employee is terminating
Employee's employment hereunder for Employer's Breach (in accordance with
section 14(e) hereof). The Initial Term and any one-year renewal term or
subsequent successive renewal term shall be collectively referred to as the
"Term of Employment".
4. Compensation:
------------
(a) Base Salary. The compensation to be paid Employee by Employer
-----------
for all services rendered to Employer during the term of this Agreement, or to a
parent or subsidiary of Employer, shall be determined by the Board of Directors
and the Chairman of the Board and President of Employer or any of the foregoing
as the context may require (such persons, together with the Chief Operating
Officer of Employer, being referred to collectively as the "Management
<PAGE>
of Employer"), but in no event shall such annual salary be less than One hundred
thousand dollars ($100,000.00) ("Base Salary"), payable in twenty-four (24)
equal semi-monthly installments in arrears, on the 1st and 15th day of the
month. The Base Salary shall be reduced by income tax and other applicable
withholdings, and may be payable by Employer, or by a parent or subsidiary of
Employer, at the Employer's discretion.
(b) Bonus. In addition to his Base Salary, the Employee shall be
-----
paid an annual bonus in accordance with the Employer's bonus plan, and based on
company and individual performance, the minimum amount of which for a full year
shall be $40,000. Bonus awards shall be granted at the end of December, on a
pro-rated basis for employment terms less than one year.
(c) Car Allowance. In addition to his base salary, the Employee
-------------
shall be provided an amount of $500 per month for a car allowance.
(d) Awards for Patents. Employee agrees to promptly disclose to
------------------
Employer all inventions, designs, improvements, and discoveries related to the
business of Employer, which Employee has while employed by the Company. In
addition to all other compensation, the Company agrees to pay Employee $10,000
for each patent application the Company elects to file in which Employee is
named as inventor or co-inventor. Should a patent be granted and the Company
sells products embodying any claims of the patent, the Company, its successors
and assigns, shall pay 3% of the gross sales to Employee, or his estate, for
those sales attributable to the invention from the conception date through the
life of the patent. Should the embodiment of the invention constitute only a
portion of the total sales price, 3% of only that portion of the sales price
which may be reasonable attributed to the invention shall be paid to Employee.
Both the Company and Employee agree to consent to binding mutually agreeable
third party arbitration should Employee dispute said valuation.
5. Vacation: Employee shall be entitled each year to a vacation of not
--------
less than three (3) weeks, during which time his compensation shall be paid in
full. For vacation purposes, a year shall be deemed to run from Employee's
start date to twelve months thereafter. Employee's entitlement to such paid
vacation shall accrue ratably over each such year.
6. Working Facilities: Employee shall be furnished with facilities,
------------------
amenities and services as are presently or may be hereinafter furnished to
senior management officers of Employee and as are adequate for the performance
of their duties.
7. Other Benefits:
--------------
(a) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in deferred compensation, savings,
401(K), hospitalization, medical, disability, and life insurance programs in
accordance with such plans as Employer or its corporate parent may now have in
effect or may adopt from time to time, commensurate with the Employee position.
2
<PAGE>
(b) Employee shall also receive such other additional compensation,
rights and other benefits as the Management of Employer shall from time to time,
in its absolute and sole discretion, grant to him.
(c) Employee shall be entitled to participate on a basis consistent
with other executive employees of Employer in the stock option program, with the
opportunity to purchase up to 45,000 shares of Employer's stock in a manner
consistent with the Employer's program. Said program generally being described
as follows: "An option to purchase 45,000 common shares of the Company over a
period of three years, at a price established by the initial public offering,
said purchase being available in incremental quantities, namely one third at the
end of the first year after the employment start date, one third after the
second year, and one third after the third year."
8. Expenses: Employee is authorized to incur on behalf of Employer
--------
expenses in connection with the performance of his duties hereunder or in
promoting or furthering the business of Employer, including dues for expenses
for entertainment, travel, lodging and similar items, in accordance with the
standards and policies that the Management of Employer may establish from time
to time. Any such charges may be paid for directly by Employee, who shall be
reimbursed by Employer upon the submission to Employer's Treasurer of an
itemized account of such expenditures.
9. Location: The office at which Employee will be employed is located in
--------
Orange County. Employee will not be required to relocate outside of the Orange
County, California, area without his voluntary consent. The withholding of such
consent shall not be grounds for any action taken against Employee.
10. Confidentiality: Except as required in the ordinary course of
---------------
Employer's Business (which currently is the design, development, manufacture and
marketing of advanced materials and industrial and consumer products for a
variety of selected markets, including, but not limited to, products and uses
based on the Employer's proprietary patented technology for the application of
boron carbide in lightweight metal matrix composites under the name Boralyn(R)
and silicon nitride blanks and finished shapes sold under the Ceralyn(TM) name),
Employee shall hold in confidence and not disclose to any person or entity
without the express prior written authorization of Employer, either during the
term of this Agreement or any time thereafter, the names or addresses of any of
Employer's customers; Employer's past or prospective dealings with its
customers; the parties, dates, or terms if any of Employer's contracts; any
information, trade secrets, systems, processes or business methods, or any other
secret or confidential matter relating to the customers or the business affairs
of Employer or any companies affiliated with Employer. Employee acknowledges
that in the course of performing his duties he may have access to confidential
information, the ownership and confidential status of which are highly important
to Employer and he agrees to comply with all known policies and procedures of
Employer for the protection of said confidential information. The term
"confidential information" as used in this Agreement means (1) proprietary
information of Employer including, but not limited to, formulas, procedures,
processes, materials, client lists and vendor lists (2) information marked or
designated by Employer as confidential (3) information whether or not in written
form which is known by the Employee to be treated by Employer as
3
<PAGE>
confidential and (4) information provided to employee by third parties which
Employer is obligated to keep confidential. Employee agrees as follows:
(a) Employee will not copy, transmit, reproduce, summarize, quote or make
any commercial or other use whatsoever of Employer's confidential
information except as may be necessary in the performance of his
duties for Employer.
(b) Employee will exercise the highest degree of care in safeguarding
Employer's confidential information against loss, theft or other
inadvertent disclosure and agree generally to take all steps
necessary to ensure the maintenance of confidentiality.
(c) Upon termination of Employee's employment, or as otherwise requested
by Employer, Employee will deliver promptly to Employer all of
Employer's confidential information in whatever form that may be in
Employee's possession or under Employee's control.
(d) Employee will not disclose Employer's confidential information
directly or indirectly under any circumstances or by any means to any
third person without the express written consent of Employer.
11. Non-Competition: During the Term of Employment and for a period of
---------------
two (2) years after Employee's termination of employment, Employee shall not,
without the prior written consent of Employer, compete with Employer, its
subsidiaries, successors, or assigns, either directly or indirectly, as an
owner, member, partner, employee, officer, director or agent of any sole
proprietorship, association, partnership or corporation. For the purposes of
this paragraph, the terms "compete" and "competition" and "competitor" shall
refer to activities commercially similar to those that constitute all or any
reasonably material part of Employer's Business, as such was constituted, or as
Employee knew or reasonably expected was contemplated, at any time during the
Term of Employment.
Should any term or condition of these covenants against competition be
found to be unreasonable or excessive by any court of competent jurisdiction,
the parties agree to accept as binding in lieu thereof any lesser restrictions
which said court may deem reasonable.
Both Employer and Employee recognize that no adequate remedy at law exists
in which to enforce the terms and conditions of this Agreement. Therefore, in
the event Employee breaches the confidentiality or covenant not-to-compete
provisions of this Agreement, Employer shall be entitled to injunctive relief
prohibiting the continued breaches of the Agreement by the Employee.
12. Right to Employer Materials: Employee agrees that all documents
---------------------------
relating to Employer's Business, including, but not limited to the following;
advertising literature, drawings, blueprints, notes, memorandum, specification,
devices, mechanical parts, formula, lists, materials, books, files, reports,
correspondence, records and other documents or similar electronic material
4
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("Employer Materials"), shall remain the property of Employer. Employer
Materials constitute trade secrets of Employer and shall not be disclosed to any
other party except as expressly authorized by Employer. Upon termination of
employment, for any reason, all Employer Materials shall be returned immediately
to Employer, and Employees shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating Employer's Business which Employee possessed at
any time, shall also be deemed to constitute part of Employer Material for
purposes of this Section.
13. Invention and Patents: Subject to the provisions of paragraph 4(d),
---------------------
Employee agrees that he will promptly and from time to time fully inform and
disclose to Employer all inventions, designs, improvements, and discoveries
which he now has or may hereafter have during the term of this Agreement which
pertain to or relate to the Business of Employer or to any experimental work
carried on by Employer, whether conceived by the Employee alone or with others
and whether or not conceived during regular working hours. All such inventions,
designs, improvement and discoveries shall be the exclusive property of
Employer. Employee shall assist Employer to obtain patents on all such
inventions, designs, improvements, and discoveries deemed patentable by Employer
and shall execute all documents and do all things necessary to obtain letters
patents, vest Employer with full and exclusive title thereto, and protect the
same against infringement by others. This provision shall apply with equal force
and effect to any items that may be subject to copyright or trademark
protection. This provision does not apply to an invention for which no
equipment, supplies, facility or trade secret information of the Employer was
used and which was developed entirely on the Employee's own time, and (a) which
does not relate, at the time the invention is conceived or reduced to practice,
to (1) the Business of Employer, or (2) actual, or demonstrably related
anticipated research or development of Employer; or (b) which does not result
from any work performed by the Employee for the Employer. The provision set
forth in the preceding sentence shall not, however, in any way authorize
Employee to engage in any such activities set forth therein in contravention of
the provisions of his duties and obligations hereunder.
14. Termination:
-----------
(a) The Employer may terminate the employment of Employee hereunder
for Cause at any time and without prior Notice or for any other reason on
six (6) months' Notice in writing to the Employee. Employee may terminate
his employment hereunder at any time on three (3) months' Notice to the
Employer, or on two (2) weeks' notice after the last period provided in
Section 14(e) hereof.
(b) If the Employer terminates Employee's employment for "Cause" (as
defined below) or Employee terminates his employment for any reason other
than an Employer's Breach (as defined herein) then the Employer shall pay
Employee all accrued and unpaid Base Salary and benefits (including accrued
but unused vacation time) through the termination date and Employer shall
have no further obligations hereunder.
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(c) If the Employer terminates Employee's employment other than
for Cause, or if Employee terminates his employment on account of an
Employer's Breach or as a result of Employee's death or disability, then
the Employer shall, subject to the Employee's compliance with Sections
10, 11, 12 and 13 hereof, pay Employee (i) all accrued and unpaid Base
Salary and benefits (including accrued but unused vacation time) through
the termination date and (ii) continued Base Salary until the earlier of
(A) the expiration of the then current Term without any further
extensions thereof or (B) the date which is six (6) months after the
termination date and thereafter Employer shall have no further
obligations hereunder. Any amounts paid pursuant to this Section 14(c)
shall be reduced by the amount of any disability benefits or life
insurance proceeds paid to Employee or Employee's beneficiary pursuant
to a policy maintained by Employer.
(d) The phrase "Cause" means any of the following:
(i) breach by Employee of Sections 10, 11, 12 or 13 of
this Agreement;
(ii) material breach of any other provision of this
Agreement by Employee (other than any such breach resulting from
Employee's incapacity due to physical or mental illness), if
that breach is not remedied within 30 days after written notice
to Employee describing the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement
or similar willful and malicious conduct by Employee against
the Employer; or
(iv) indictment of Employee for a felony or any
conviction of, or guilty plea by Employee to, a crime involving
moral turpitude if that crime of moral turpitude tends or would
reasonably tend to bring the Employer into disrepute.
(e) The phrase "Employer's Breach" shall mean Employer's
material breach of the terms of this Agreement if such breach is not
remedied within 45 days after written notice to Employer describing the
acts alleged to constitute such material breach. Notwithstanding
anything herein to the contrary, Employee's termination shall not be on
account of Employer's Breach unless it occurs within five (5) days after
the expiration of the 45-day period referred to in this paragraph.
(f) The phrase "disability" shall mean a physical or mental
disability which renders Employee incapable of satisfactory performing
his duties under the Agreement for a period of 90 days out of 180
consecutive days.
15. Successors and Assigns: The rights and obligations of Employer
----------------------
under this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of Employer, and the rights and obligations of Employee
under this Agreement shall inure and be binding upon his heirs, executors and
administrators.
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16. Definitions: For purposes of this Agreement unless the context
-----------
indicates otherwise, the term "Employer" shall be deemed to also include any
corporation which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other corporation
or corporations.
17. Notices: Any notice to be given to Employer under the terms of this
-------
Agreement shall be addressed to the President of the Employer at 16781 Noyes
Ave., Irvine, CA 92606, and any notice to be given to Employee shall be
addressed to him at his home address last shown on the records of Employer, or
at such other address as either party may hereafter designate in writing to the
other. Any such notice (except notice of a change of address) shall have been
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice of a change of
address shall be deemed given only when received.
18. Waiver: Except as provided in Section 14(e), either party's failure
------
to enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Agreement. The
rights granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
19. Governing Law and Binding Effect: This Agreement shall be interpreted
--------------------------------
and construed in accordance with the laws of the State of California and shall
inure to the benefit of and be binding upon the parties hereto and their heirs,
personal representatives, successors and assigns.
20. Captions and Paragraph Headings: Captions and paragraph headings used
-------------------------------
herein are for convenience only, are not a part of this Agreement, and shall not
be used in construing it.
21. Severability: The invalidity or inability to enforce any provision
------------
hereof or any part of any provision hereof shall in no way affect the validity
or ability to enforce any other provision or part hereof, and this Agreement
shall be interpreted, construed and enforced as though the invalid or
unenforceable provision were not contained herein.
22. Counterparts: This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
23. Entire Agreement: This Agreement supersedes all prior agreements and
----------------
understandings between the parties and may not be modified or terminated orally.
No modification, termination, or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
7
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first set forth above.
EMPLOYER: Alyn Corporation
A Delaware Corporation
By: [SIGNATURE APPEARS HERE]
----------------------------
Title: Chief Operating Officer
----------------------------
EMPLOYEE: /s/ Thomas Miller
----------------------------
Thomas Miller
Date: 7/25/96
8
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 16, 1996, relating
to the financial statements of Alyn Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
October 21, 1996
