<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-09143
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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)
16871 NOYES AVENUE
IRVINE, CA 92606
(714) 475-1525
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBIN A. CARDEN
ALYN CORPORATION
16871 NOYES AVENUE
IRVINE, CA 92606
(714) 475-1525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GERALD A. EPPNER, ESQ. STEVEN DELLA ROCCA, ESQ.
BATTLE FOWLER LLP LATHAM & WATKINS
PARK AVENUE TOWER 885 THIRD AVENUE
75 EAST 55TH STREET SUITE 1000
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 856-7000 (212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,760,000 shares $13.50 $37,260,000 $12,848.25
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 360,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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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
---- ---------------- --------------------------
<C> <C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus........................ Facing Page of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors;
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
Registered........................ Description of Capital Stock
10. Interests of Named Experts and
Counsel........................... Legal Matters; Experts
11. Information with Respect to the
Registrant
a. Description of Business....... Prospectus Summary; Risk Factors;
Business
b. Description of Property....... Business
c. Legal Proceedings............. Business
d. Market Price of and Dividends
on the Registrant's Common
Equity and Related
Stockholder Matters.......... Dividend Policy; Capitalization;
Shares Eligible for Future Sale
e. Financial Statements.......... Prospectus Summary; Selected Financial
Data; Financial Statements
f. Selected Financial Data....... Prospectus Summary; Selected Financial
Data
g. Supplementary Financial
Information.................. Prospectus Summary; Selected Financial
Data
h. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................... Management's Discussion and Analysis
of Financial Condition and Results of
Operations
i. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure................... N/A
j. Directors, Executive Officers,
Promoters and Control
Persons...................... Management
k. Executive Compensation........ Management
l. Security Ownership of Certain
Beneficial Owners and
Management................... Principal Stockholders
m. Certain Relationships and
Related Transactions......... Certain Transactions
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... N/A
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE +
+SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE +
+TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1996
PRELIMINARY PROSPECTUS
2,400,000 SHARES
(LOGO)
COMMON STOCK
All of the 2,400,000 shares of Common Stock of Alyn Corporation ("Alyn" or
the "Company") offered hereby are being sold by the Company. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that a trading market will develop after the completion of this
offering, or, if developed, that it will be sustained. It is currently
estimated that the initial public offering price of the Common Stock will be
between $11.50 and $13.50 per share. See "Underwriting" for information
relating to factors considered in determining the initial public offering
price. Application will be made for the Common Stock to be approved for
quotation on the Nasdaq National Market under the symbol "ALYN."
Certain 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 $3.3 million of the
approximately $4.5 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>
- --------------------------------------------------------------------------------
(1) Excludes five-year warrants to purchase 240,000 shares of Common Stock at
an exercise price equal to 125% 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 360,000 additional shares of Common Stock solely to cover over-
allotments, if any, on the same terms and conditions as the shares of
Common Stock offered hereby. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Furman Selz LLC, New York, New York, on
or about , 1996.
FURMAN SELZ NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1996.
<PAGE>
[PHOTOGRAPH OF BICYCLE] [PHOTOGRAPH OF BICYCLE CRANK]
Bicycle Bicycle Crank
The Company believes that Boralyn(R) bicycle frames
and components offer a combination of light weight
and strength that improve riding efficiency.
[PHOTOGRAPH OF GOLF CLUB] [PHOTOGRAPH OF HARD DISKS]
Golf Club with Boralyn(R) head Boralyn(R) Hard Disk
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 capabilities and higher data
titanium golf club heads and provide transfer rates than computer hard
for a larger "sweet spot" and "more disk drives in use today.
forgiving" golf club.
----------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Boralyn(R) is a registered trademark and Ceralyn(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).
1
<PAGE>
The Company has entered into an agreement with Taylor Made Golf Company, Inc.
("Taylor Made") under which Taylor Made will purchase a minimum of $42.75
million of Boralyn(R) golf club metalwood heads for sale between July 1, 1997,
and June 30, 1999, of which $9.0 million is the minimum required for orders in
the twelve months ending June 30, 1998, and $33.75 million is the minimum
required for orders during the twelve months ending June 30, 1999. 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 product, for
sale in the quarter ending September 30, 1997. Products delivered under the
agreement will prominently and independently display the "Boralyn(R)" name.
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 the minimum annual and quarterly order volume requirements.
Additionally, Taylor Made and the Company are exclusively discussing an
extension of their relationship to include golf club shafts and iron and putter
heads. Under the Taylor Made agreement, the Company will also meet with Taylor
Made's parent, Salomon Group (of France), to determine how products
manufactured or marketed by other members of Salomon Group, including Salomon
Ski products (skis, boots, bindings and snowboards), Mavic cycling components
and in-line skates could incorporate Boralyn(R). The Company anticipates that
the Boralyn(R)-based metalwood golf club heads manufactured for Taylor Made
will be a premium-priced product.
Bicycle Components and Frames. The U.S. retail market for bicycles, bicycle
components and related products and services was estimated by industry sources
to be approximately $5 billion in 1994. The Company believes that approximately
220,000 premium-priced (over $600 at retail) bicycles were sold in 1995. The
Company has received orders for prototype components or frames from Campagnolo
S.R.L., Cannondale Corporation and Trek Bicycle Corporation, each a leading
manufacturer of bicycle components and/or frames. The higher specific strength
and specific stiffness of Boralyn(R) compared to aluminum and specialty steel
allows for the production of lighter bicycle components and frames with no
decrease in strength or stiffness, or if weight is not a dominant
consideration, for stiffer components and frames with no increase in weight.
These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and stiffness are
important include tennis and other sports racquets, baseball bats and arrows.
The Company has received orders from Spalding Sports Worldwide, Inc., a
division of Spalding & Evenflo Cos., Inc., for prototype racquetball and tennis
racquets.
COMPUTER HARD DISKS. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high-speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company is producing preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk drive
manufacturers, 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, 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 automotive and motorcycle components, where the Company is
producing prototype motorcycle brake drums for Honda R&D North America, Inc.
and connecting rods for Maverick Racing; marine applications, where the Company
is producing prototype drive shafts for Power Ski International Inc.;
structural components for aircraft, where the
2
<PAGE>
Company is producing prototype sensor housings for Rosemount Aerospace, a
division of BF Goodrich, Inc.; semiconductors, where the Company is producing
prototype semiconductor packaging for Motorola, Inc.; satellite components,
where the Company is producing samples for Endgate Corporation; and armor for
government and military vehicles and for personal protection.
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 the other business
developments described in this section. 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 fourth quarter of 1996. 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 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 16871
Noyes Avenue, Irvine, California 92606, where its telephone number is (714)
475-1525, and its fax number is (714) 475-1531, until its newly leased
facility, located nearby at 16761 Hale Avenue, Irvine, California 92606 is
ready for occupancy in the fourth quarter of 1996.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Compa- 2,400,000 shares
ny...............................
Common Stock to be Outstanding af- 10,400,000 shares(1)
ter the Offering.................
Use of Proceeds................... Approximately (i) $12.6 million for capital
expenditures for new production facilities,
equipment and tooling and management infor-
mation systems; (ii) $4.5 million to repay
approximately $4.4 million principal amount
of stockholder loans and accrued interest
incurred since May 1996 (including approxi-
mately $3.3 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.
Proposed Nasdaq National Market "ALYN"
Symbol...........................
</TABLE>
- --------------------
(1) Does not include 1,240,000 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) 240,000 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
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS 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 expenses......... 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
<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(3)................. $ (356)
======
Supplemental net loss per
share(3)................ $(0.04)
======
Supplemental weighted
average number of common
shares outstanding(3)... 8,246
======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
AS
ACTUAL ADJUSTED(2)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $1,078 $25,584
Total assets................................................ 2,650 26,927
Long-term obligations....................................... 2,794 0
Total stockholders' equity (deficit)........................ (378) 26,693
</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) As adjusted to reflect the sale of 2,400,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom, after giving pro
forma effect to the Merger. See "Use of Proceeds."
(3) 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 245,626
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.
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. The Company has not received a production order
for Boralyn(R) since late 1994, when it ceased supplying a bicycle frame
manufacturer in order to pursue what it believed to be more promising
marketing and distribution channels in the high-end bicycle frame and
components market. The Company had 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. Unless and until the Company achieves
a significant level of sales of Boralyn(R) or Boralyn(R)-based products, the
Company will have substantial production overcapacity and underabsorbed costs
that would cause the Company to incur substantial operating losses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NO MANUFACTURING EXPERIENCE; RELIANCE ON MANUFACTURING FACILITIES
The Company currently has no internal manufacturing capacity and no
experience in manufacturing its products in commercial quantities. The Company
intends to manufacture a substantial portion of its products at its newly-
leased facility in Irvine, California. The new facility, when fully equipped,
will include sintering, casting (including soluble core) and extrusion
capabilities, although there can be no assurance that these capabilities will
be adequate for all of the Company's future fabrication requirements, or, on
the other hand, that the Company will be able to fully utilize the plant's
capacity. The manufacturing process for Boralyn(R) utilizes high temperature
and high pressure processes and may be subject to volatile chemical reactions.
A mechanical or human failure or unforeseen condition, including natural
disasters such as earthquakes, characteristic of Southern California, could
result in temporary interruption of the Company's manufacturing capacity.
Moreover,
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 obtain business interruption insurance with coverage for lost
profits and out-of-pocket expenses of $1.0 million per occurrence, and
presently maintains and intends to continue to maintain other property and
casualty coverage that it believes to be adequate, any extended interruption
of operations at the Company's manufacturing facility would have a material
adverse effect on the business of the Company. See "Business--Manufacturing
and Supply."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The Company operates in a rapidly evolving field--advanced composite
materials--that is likely to be affected by future technological developments.
The Company's ability to anticipate changes in technologies, markets and
industry trends and to develop and introduce new and enhanced products on a
timely basis will be a critical factor in its ability to grow and remain
competitive. There can be no assurance that new products will be completed or
that any new products can be marketed successfully. In addition, the
anticipated development schedules for new or improved products are inherently
difficult to predict and are subject to change as a result of shifting
priorities in response to customers' requirements and competitors' new product
introductions. Moreover, the Company expects that it will devote substantial
resources to research and development efforts. The costs of those efforts will
be expensed as they are incurred, notwithstanding that the benefits, if any,
from the Company's research and development efforts (in the form of increased
revenues or decreased product costs) may not be reflected, if at all, until
subsequent periods.
In order to realize the benefits of Boralyn(R), hard disk drive
manufacturers will have to modify existing hard disk drive designs. The
Company believes that hard disk drive manufacturers will be motivated to
modify or introduce new hard disk drive designs only after a substantial
testing period and significant marketing efforts by the Company. The Company
expects to incur substantial expenses in connection with those testing and
marketing efforts, and anticipates ultimately that disks based on Boralyn(R)
will be accepted by hard disk drive manufacturers, if at all, only if such
disks can be demonstrated to have superior characteristics and can be offered
at competitive prices. Further, the Company expects that use of disks based on
Boralyn(R) will commence with, and could be limited to, high-end computer hard
disk drives, which constitute a small but significant percentage of the
current market for computer hard disks.
DEPENDENCE ON PATENTS
The Company has obtained one United States patent that it believes provides
protection for its proprietary Boralyn(R) technology and contains claims that
cover the use of Boralyn(R), particularly in high-end sporting goods, as well
as in certain other markets targeted by the Company. The Company has also
filed additional patent applications, including divisional patent applications
and continuation-in-part applications that stem from the Company's original
patent application. The divisional patent applications relate to methods of
fabricating Boralyn(R) and to bicycle frames that were disclosed in the
original patent application. The continuation-in-part patent applications
expand the scope of the claims in the original patent, and cover the Company's
processes of fabricating Boralyn(R). Divisional patent applications and
continuation-in-part patent applications generally are likely to complete the
U.S. Patent Office review process on an expedited basis and, with respect to
claims having a common subject matter with those in the original patent, are
entitled to the date of filing of the original patent for purposes of
considering patentability. The divisional patent application relating to
bicycle frames was filed in September 1995 and was allowed in June 1996, but
there can be no assurance that the Company's other pending divisional patent
and continuation-in-part patent applications will receive expedited review.
New patent applications recently filed by the Company cover (i) application of
Boralyn(R) in neutron shielding, (ii) application of Boralyn(R) in computer
hard disk drives and (iii) a new soluble core manufacturing method for
Boralyn(R)-based structures. The Company is not aware of any reason why its
pending applications should not be granted with claims that will provide
coverage and, therefore, adequate protection for its anticipated business
activities, although there can be no assurance in that regard. There can also
be no assurance that the Company's existing patent and the divisional patent
application that was allowed, or any other patents that may be granted, will
be
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 $4.4 million of the Subordinated Credit Line had been drawn upon
as of September 1, 1996. All of the amounts owing under the Subordinated Credit
Line will be repaid with a portion of the net proceeds of this offering. The
Company's ability to obtain future debt financing will be dependent in part on
the quality and amount of the Company's trade receivables and inventory. The
Company believes that internally generated funds and cash on hand, together
with the net proceeds of this offering, should satisfy the Company's
anticipated capital needs for the next 24 months. However, there can be no
assurance that those funds will be sufficient to support the Company's business
strategy or that, if additional financing is required, it will be available in
amounts and on terms satisfactory to the Company, if at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON TRADEMARKS FOR CURRENT AND FUTURE MARKETS
The market for the Company's products is and will remain dependent upon the
goodwill engendered by its trademarks and trade names. Trademark protection is
therefore material to the Company's business. Although Boralyn(R) is registered
in the United States, there can be no assurance that the Company will be
successful in asserting trademark or trade name protection for its significant
marks and names in the United States or other markets, and the costs to the
Company of such efforts may be substantial. See "Business--Patents and
Trademarks."
DEPENDENCE ON PRINCIPAL SUPPLIERS
The Company presently purchases its principal raw material, boron carbide,
from a limited number of suppliers, including one supplier, Micro-Abravsivos,
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."
POSSIBLE DEPENDENCE ON SIGNIFICANT CUSTOMERS
In view of the very early stage nature of the Company's business, currently
it has only a limited number of customers, each of whom is material to the
Company's present results of operations. Even after the Company matures,
however, certain customers may be material to the business, operations and
future prospects of the Company. There can be no assurance that one or more
principal customers will not suffer business or financial setbacks resulting in
reduction or cancellation of product orders or the Company being unable to
obtain payment from such customers at any time or from time to time. The loss
of sales to one or more significant customers could have a material adverse
effect on the business and operations of the Company. 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. 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 in
which the benefits offered by a proposed exclusive arrangement would justify
the Company committing to an exclusive relationship as regards a product or
product line for a period of months or years. However, there can be no
assurance that the prospective benefits of such an exclusive relationship
would, in fact, materialize, and the existence of exclusive relationships
11
<PAGE>
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 81.2% 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
78.4% if the Underwriters' over-allotment option is exercised in full).
Consequently, the present stockholders will have the ability to elect all the
Company's directors and to control the outcome of all other issues submitted
to the Company's stockholders, and new stockholders who acquire shares of
Common Stock in this offering will not have the ability to elect any of the
Company's directors or to control the outcome of other matters submitted to
the stockholders. Additionally, the Company's Board of Directors has the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by the stockholders. The rights of holders of Common
Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future. Although the
Company has no present intention to issue shares of Preferred Stock, any
issuance of Preferred Stock, while potentially providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Certain provisions of
Delaware law applicable to the Company may also discourage third-party
attempts to acquire control. See "Principal Stockholders" and "Description of
Capital Stock."
DILUTION; BENEFITS OF THE PUBLIC OFFERING TO THE COMPANY'S AFFILIATES AND
PRINCIPAL STOCKHOLDERS
The initial public offering price of a share of Common Stock is
substantially in excess of the net tangible book value per share of Common
Stock, which results in a benefit to all existing stockholders. For instance,
8,000,000 shares of Common Stock were acquired by the existing stockholders
for an effective cash consideration of $5,300, or an average of $0.0007 per
share, as compared to new investors who will be paying $30 million or $12.50
per share (the mid-point of the estimated initial public offering price range
set forth on the cover page of this Prospectus) for the 2,400,000 shares being
offered hereby. Accordingly, existing stockholders will realize an effective
appreciation of $12.50 per share of Common Stock in the value of the shares
they currently own as a result of this offering. See "Dilution."
USE OF PROCEEDS FOR REPAYMENT OF STOCKHOLDER INDEBTEDNESS
A portion of the net proceeds of this offering will be used to repay all
amounts owing under the Subordinated Credit Line indebtedness to principal
stockholders of the Company. The Company will apply approximately $4.5 million
of the proceeds of this offering to repay the Subordinated Credit Line, which
includes a principal amount of $4.4 million and accrued interest thereon.
Accordingly, approximately 15% of the net
12
<PAGE>
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 $3.3 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 10,400,000 shares of Common Stock. The 2,400,000
shares of Common Stock offered hereby (2,760,000 if the Underwriters' over-
allotment option is exercised in full) will be freely transferable without
restriction or further registration under the Securities Act. The remaining
8,000,000 outstanding shares of Common Stock will be "restricted securities,"
as that term is defined in Rule 144, and may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption
from registration thereunder, including exemptions provided by Rule 144. In
addition, the Company has contractually granted certain of its existing
stockholders, 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, pledge,
or otherwise dispose of, any shares of Common Stock or other equity securities
of the Company or other securities convertible into or exercisable for such
shares of Common Stock or other equity securities for nine months from the
date of this Prospectus without the prior written consent of the Company and
Furman Selz LLC; and (ii) not to exercise their registration rights for a
period of nine months from the date of this Prospectus. 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 104,000 shares of Common Stock during any
three-month period in the six months following expiration of the nine-month
period, other than in an underwritten public offering, without the consent of
Furman Selz LLC. See "Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common
Stock will develop or continue after the offering. The initial public offering
price per share of Common Stock has been determined by negotiation between the
Company and the representative of the Underwriters and does not necessarily
bear any relationship to the Company's assets, book value, revenues or other
established criteria of value, and should not be considered indicative of the
price at which the Common Stock will trade after completion of the offering.
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
Trading volume and prices for the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operations, results,
announcements with respect to sales and earnings, as well as technological
innovations, and new product developments and other events or factors, which
cannot be foreseen
13
<PAGE>
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 2,400,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.50 (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus) are estimated to be $27.3 million
($31.4 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discount and offering expenses payable
by the Company.
The Company intends to use the net proceeds as follows: (i) approximately
$12.6 million for capital expenditures for new production facilities,
equipment and tooling intended to provide a production capacity of up to
approximately 125,000 pounds of Boralyn(R) per month by the first quarter of
1997, and up to 500,000 pounds per month by the third quarter of 1997, and for
management information systems; (ii) approximately $4.5 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 $3.3 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 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 2,400,000 shares of Common
Stock offered hereby, and the receipt by the Company of the estimated net
proceeds from this offering (after deducting the underwriters' discount and
estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
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 au-
thorized; no shares issued and outstanding............. --
Common stock, $0.001 par value; 20,000,000 shares autho-
rized; 8,000,000 shares issued and outstanding;
10,400,000 shares issued and outstanding, as adjust-
ed(3).................................................. 8 10
Additional paid in capital.............................. (3) 27,066
Accumulated deficit..................................... (383) (383)
------ -------
Total stockholders' equity............................. (378) 26,693
------ -------
Total capitalization....................................... $2,416 $26,693
====== =======
</TABLE>
- -------------------
(1) Certain stockholders provided a $5 million credit facility (approximately
$4.4 million outstanding as of September 1, 1996) to the Company, all due
and payable in April 2001. The outstanding principal amount, plus accrued
interest will be repaid with a portion of the net proceeds of this
offering.
(2) The amounts in the table give effect to the amendment of the Company's
certificate of incorporation to increase the number of authorized shares
of Common Stock from 110,000 to 20,000,000 and to authorize 5,000,000
shares of preferred stock, and the 80-for-one stock split effective July
16, 1996.
(3) Does not include 1,240,000 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) 240,000 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 $1,184,000, or ($0.15) per share of Common Stock. "Net tangible
book value" per share is equal to the total tangible assets of the Company
reduced by the Company's total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the estimated net proceeds
from sale of the 2,400,000 shares of Common Stock offered hereby at $12.50 per
share (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus), the net tangible book value of
the Company at June 30, 1996, would have been $25.9 million, or $2.49 per
share, representing an immediate increase in net tangible book value of $2.64
per share to existing stockholders, and an immediate dilution in net tangible
book value of $10.01 per share (or 80.1%) 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...... $(0.15)
------
Increase in net tangible book value per share attributable
to New Investors........................................... 2.64
------
As adjusted, net tangible book value per share as of June
30, 1996, after this offering.............................. 2.49
------
Dilution in net tangible book value to new investors........ $10.01
======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $2.79 per share, which would result in dilution to new investors in
this offering of $9.71 (or 77.7%) 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 76.92% $ 5,300 0.02% $0.0007
New investors........... 2,400,000 23.08% $30,000,000 99.98% $ 12.50
------------- -------- ----------- ------
Total................. 10,400,000 100.0% $30,005,300 100.00%
============= ======== =========== ======
</TABLE>
- ---------------------
(1) Does not reflect that certain 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS 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 expenses......... 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Supplemental net
loss(3)................ $ (356)
======
Supplemental net loss
per share(3)........... $(0.04)
======
Supplemental weighted
average number of
common shares
outstanding(3)......... 8,246
======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------ ----------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(2)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
cit)................... $152 $145 $ 18 $(133) $(382) $1,078 $25,584
Total assets............ 178 198 219 193 128 2,650 26,927
Long-term obligations... 128 128 128 128 128 2,794 0
Total stockholders' eq-
uity (deficit)......... (27) (26) (99) (245) (490) (378) 26,693
</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) As adjusted to reflect the sale of 2,400,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom in the manner
contemplated under the caption "Use of Proceeds" after giving effect to the
Merger.
(3) 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 245,626
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.
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 approximately 44% of the Boralyn(R) sales in each of 1993 and 1994 being
production tubes for one bicycle manufacturer. In 1995, the Company stopped
supplying that manufacturer in order to pursue what it considered to be more
promising marketing alternatives. In 1995 and the first 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 fourth
quarter of 1996. For reasons discussed below, the Company does not expect to
achieve significant sales of Boralyn(R) prior to 1997, and there can be no
assurance that any significant sales will be achieved.
Historically, the Company has financed its operations from capital and loans
provided by existing stockholders and funds generated by operations, and its
lack of sufficient working capital until the second quarter of 1996 had
limited its ability to pursue its long-term marketing goals. Obtaining the
Subordinated Credit Line from new investors in May 1996 allowed the Company,
for the first time, to pursue a comprehensive marketing program oriented to
long-term sales growth and market penetration. The anticipated reduction in
sales of Boralyn(R) in the second and third quarters of 1996 is the result of
a termination of active selling efforts at the request of the new investors
who simultaneously acquired an equity interest in the Company and provided it
with the Subordinated Credit Line in May 1996. Sales efforts were initially
suspended while those investors conducted their pre-investment due diligence,
particularly relating to the Company's patent position. Following the receipt
of the investors' commitments and initial loan proceeds, sales efforts were
not resumed while the Company's management prepared a comprehensive business,
marketing and manufacturing plan that took into account the working capital
made available by the Subordinated Credit Line and the flexibility afforded
thereby, including its enhancement of the Company's ability to attract senior
management and engineering personnel, as well as the possibility of a public
offering of the Company's Common Stock. Sales efforts have now resumed.
From 1993 through June 30, 1996, the Company recognized approximately
$396,000 in 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>
The following table sets forth the relative contribution of Boralyn(R) and
other sources of revenue to total Company revenues since 1993, in thousands of
dollars and as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- --------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boralyn(R).............. $ 96 17.7% $109 35.2% $111 34.8% $ 30 13.9% $ 80 58.8%
Boron carbide powders
and other.............. $444 82.3% $200 64.8% $208 65.2% $ 186 86.1% $ 56 41.2%
---- ----- ---- ----- ---- ----- ----- ------ ----- ------
Total revenues.......... $540 100.0% $309 100.0% $319 100.0% $ 216 100.0% $ 136 100.0%
==== ===== ==== ===== ==== ===== ===== ====== ===== ======
</TABLE>
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 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.
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.
20
<PAGE>
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Net sales in the year ended December 31, 1995, increased 3.2% to $319,000
from $309,000 in the year ended December 31, 1994. The increase reflected a
slight increase in Boralyn(R) sales, as well as an increase in sales of boron
carbide powders and ceramics products.
Cost of goods sold increased 120.7% to $203,000 in the year ended December
31, 1995, from $92,000 in the prior year. Cost of goods sold increased as a
percentage of net sales to 63.6% in 1995 from 29.8% in the prior year. The
increase was primarily attributable to the price of boron carbide, which
adversely affected the margins on sales of boron carbide powder.
General and administrative expenses decreased 37.8% to $219,000 in the year
ended December 31, 1995, from $352,000 in the prior year. As a percentage of
net sales, general and administrative expenses decreased to 68.7% in 1995 from
113.9% in the prior year. The decrease in expenses was primarily a result of
expense reduction efforts to conserve cash.
Selling and marketing expenses decreased 63.6% to $52,000 in the year ended
December 31, 1995, from $143,000 in the prior year. As a percentage of net
sales, selling and marketing expenses decreased to 16.3% in 1995 from 46.3% in
the prior year. The decrease in expenses was primarily a result of a reduction
in selling expenses as the Company reduced expenses to conserve cash.
Research and development expenses decreased 56.1% to $79,000 in the year
ended December 31, 1995, from $180,000 in the prior year. As a percentage of
net sales, research and development expenses decreased to 24.8% in 1995 from
58.3% in the prior year. The decrease in expenses was primarily a result of
the lower level of product development contracts, and a reduction in research
and development efforts in order to conserve cash.
As a result of the foregoing, loss before provision for income taxes
decreased 48.0% to $244,000 in the year ended December 31, 1995, from a loss
of $469,000 in the prior year.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Net sales in the year ended December 31, 1994, decreased 42.8% to $309,000
from $540,000 in the year ended December 31, 1993. The decrease was primarily
the result of the Company's decision to pursue its long-term strategic goals
by focusing its efforts on selling Boralyn(R) tubes for bicycle frames and
castable products, rather than rely on sales of lower margin boron carbide
powders and ceramics products in order to generate cash. The Company sold
common stock during 1994 to finance its activities.
Cost of goods sold decreased 65.3% to $92,000 in the year ended December 31,
1994, from $265,000 in the prior year. Cost of goods sold decreased as a
percentage of net sales to 29.8% in 1994 from 49.1% in the prior year,
primarily a result of the change in the product mix to include a greater
proportion of higher margin Boralyn(R) product sales.
General and administrative expenses increased 35.9% to $352,000 in the year
ended December 31, 1994, from $259,000 in the prior year. As a percentage of
net sales, general and administrative expenses increased to 113.9% in 1994
from 48.0% in the prior year. The increase was primarily a result of personnel
added to assist in new business development and in reviewing the contracts
entered into as a result of these efforts.
Selling and marketing expenses increased 25.4% to $143,000 in the year ended
December 31, 1994 from $114,000 in the prior year. As a percentage of net
sales, selling and marketing expenses increased to 46.3% in 1994 from 21.1% in
the prior year. This increase was primarily a result of the increased
marketing of the Company's Boralyn(R) products.
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
21
<PAGE>
58.3% in 1994 from 4.4% in the prior year. The increase was primarily a result
of customer-supplied funds being available for Boralyn(R) product development.
As a result of the foregoing, loss before provision for income taxes
increased 275.2% to a loss of $469,000 in the year ended December 31, 1994,
from a loss of $125,000 in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations from capital and loans
provided by existing stockholders and funds generated by operations. At June
30, 1996, the Company's working capital was $1,078,000, compared to working
capital deficits of $382,000 and $133,000 at December 31, 1995 and 1994,
respectively. Net cash used in investing activities in 1994, 1995 and the
first six months of 1996 was $3,000, $4,000, 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
$4.4 million as of September 1, 1996), plus accrued interest, will be repaid
with a portion of the net proceeds of this offering. 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, $3.3 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 $5.0 million (based on the mid-
point of the estimated initial public offering price range set forth on the
cover page of this Prospectus), for their respective accounts or those of
their affiliates or designees.
The Company currently intends, following this offering, to seek a loan
commitment from one or more lenders for a working capital credit facility,
subject to satisfaction of such collateral and other requirements as may be
required by the lender. There can be no assurance that any such facility will
be obtained. The Company
22
<PAGE>
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.
23
<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
24
<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.
Bicycle Frames and/or Components Campagnolo S.R.L.
Cannondale Corporation
Trek Bicycle Corporation
Bebop, Inc.
Caramba Cycles, Ltd.
CMB Telai, S.R.L.
Sports Racquets Spalding Sports Worldwide, a division of
Spalding & Evenflo Cos.
Baseball Bats Worth, 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
Semiconductor Packaging Motorola, Inc.
Aerospace/Defense Endgate Corporation
Rosemount Aerospace, a division of BF Good-
rich, Inc.
Marine Power Ski International, Inc.
Automotive/Motorcycle Honda R&D North America, Inc.
Maverick Racing
Assembly Equipment Cartesian Data, Inc.
Speedfam Corporation, a subsidiary of
Famtec International, Inc.
Underwater Pressure Vessels Scripps Institute of Technology
Aircraft Engines Pratt & Whitney, 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
25
<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
(ART)
26
<PAGE>
Specific Strength. Figure 2 indicates the greater specific strength of two
grades of Boralyn(R) when compared to titanium alloy, aluminum alloy and
specialty steel products with which it will compete in markets selected by the
Company. As shown, the specific strength range (dependent somewhat on the
grade) of Boralyn(R) is higher by a considerable margin than that of titanium
and aluminum. Specific strength is particularly significant in applications
such as bicycle components.
FIGURE 2
(ART)
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
(ART)
Specific Strength/Specific Stiffness. Figure 4 compares the combination of
specific strength and specific stiffness, characteristics that are important
for any structure, such as premium-priced golf clubs and high-end bicycle
frames and components, where the combination of strength, stiffness and light
weight is important. As shown, Boralyn(R) exhibits a significantly superior
combination of specific strength and specific stiffness compared to the other
competing materials. For many applications, far less Boralyn(R) is required to
provide necessary strength and stiffness; conversely, for the same density,
Boralyn(R) provides significantly more strength and
27
<PAGE>
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
(ART)
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.
28
<PAGE>
Fatigue and Corrosion Resistance. Figure 5 shows a comparison of Boralyn(R)
to an aluminum alloy. Boralyn(R), in a 5% salt moist environment, will endure
a large number of stress cycles. This property makes Boralyn(R) superior to
aluminum alloy for applications in which many stress cycles are encountered,
particularly in corrosive environments. Any structural support where stress is
applied repeatedly needs high fatigue characteristics. Bicycle frames and
components, airplane structures, motorcycle frames, piston rods and satellite
supports are some of the applications where high fatigue resistance is
necessary, and many of those applications take place in areas characterized by
salt and moist atmospheric conditions.
FIGURE 5
(ART)
29
<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.
FIGURE 6A
(ART)
30
<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
(ART)
31
<PAGE>
Neutron Absorption. Neutron absorption (attenuation) in boron carbide-based
materials such as Boralyn(R) is primarily a function of the density (referred
to as areal density) and degree of uniformity of distribution (i.e.,
homogeneity) of boron carbide particles within the material. The absorption is
primarily accomplished by the B-10 isotope contained in the boron carbide
material. Figure 7A shows the uniformity of the B-10 areal density of four
separate samples of Boralyn(R) when measured over five separate positions on
each sample during a scanning test, reflected in the flatness and closeness in
proximity to each other of the lines. Figure 7B shows the small variations
between actual measured boron carbide areal density and the theoretical, or
calculated, boron carbide areal density, determined in accordance with
engineering standards, as a function of neutron attenuation fraction (the
fraction of neutrons that were absorbed), illustrating the predictability of
the material in this application. The predictable homogeneity of Boralyn(R)
allows for the design of structures to customer requirements without
incorporating additional material, compared with competing materials that can
require as much as 40% additional material to compensate for irregular
distribution of neutron-absorbing particles (i.e., relative lack of
homogeneity) and therefore achieve adequate levels of uniform absorption.
Accordingly, Boralyn(R) can produce the same neutron absorbing results as
competing materials, but with less Boralyn(R), thereby reducing the weight and
cost of the structure.
FIGURE 7A
(ART)
32
<PAGE>
FIGURE 7B
(ART)
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.
33
<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
(the "Agreement and License") which provides for the production and purchase
of minimum quantities of Boralyn(R)-based metalwood golf club heads through
June 30, 1999, and an exclusive license through that date should the specified
minimum volume requirements be met. 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. Under the Agreement and License, 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, and 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 club heads for sale by July 1, 1997. Products delivered to Taylor
Made under the Agreement and License will prominently and independently
display the "Boralyn(R)" name. Taylor Made has placed its first purchase order
under the Agreement and License, covering $2.25 million of product 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. 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. The
Company anticipates that the Boralyn(R)-based metalwood golf club heads
manufactured for Taylor Made will be a premium-priced product.
Upon entering into the Agreement and License, the Company and Taylor Made
commenced exclusive discussions concerning an extension of their relationship
to include golf club shafts and iron and putter heads. Pursuant to the
Agreement and License, the Company has ceased discussions with any other party
concerning the manufacture or marketing of any of the foregoing products for a
reasonable period of time if Taylor Made remains in good faith negotiations
with the Company with respect to the inclusion of golf club shafts, iron heads
and/or putter heads in the Agreement and License or in a substantially similar
agreement.
34
<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 the Agreement and
License to Boralyn(R)-based golf club shafts, iron and/or putter heads,
however, the Company expects to resume activities concerning shafts, iron
and/or putter heads, as the case may be, with one or more of those other
companies, and may initiate similar activities with other golf club producers.
Pursuant to the Agreement and License, the Company currently is meeting with
representatives of Salomon Group for the purposes of determining how other
products manufactured or marketed or under contemplation by any member of the
Salomon Group may benefit from the inclusion of Boralyn(R), with a goal of
negotiating and concluding reasonable contracts with respect thereto. Among
the possibilities that the Company and Salomon Group intend to explore in
accordance with the foregoing are Salomon Ski products (skis, boots, bindings
and snowboards), Mavic cycling components and in-line skates.
There can be no assurance that the Company will enter into any other
agreements or receive any production or purchase order from Taylor Made
(except pursuant to the Agreement and License), or 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. The higher
specific strength and specific stiffness of Boralyn(R) compared to aluminum
and specialty steel allows for the production of lighter bicycle components
and frames with no decrease in strength or stiffness, or if weight is not a
dominant consideration, for stiffer components and frames with no increase in
weight. These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and stiffness are
important include tennis and other sports racquets, baseball bats and arrows.
The Company has received orders from Spalding Sports Worldwide, Inc., a
division of Spalding & Evenflo Cos., Inc. for prototype racquetball and tennis
racquets.
Computer Hard Disks. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high-speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company has produced preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk
drive manufacturers, 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, 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
35
<PAGE>
efforts, and anticipates ultimately that disks based on Boralyn(R) will be
accepted by hard disk drive manufacturers, if at all, only if such disks can
be demonstrated to have superior characteristics and can be offered at
competitive prices. Further, the Company expects that use of disks based on
Boralyn(R) will commence with, and could be limited to, high-end computer hard
disk drives, which constitute a small but significant percentage of the
current market for computer hard disks. The Company does not anticipate
production orders for hard disk applications prior to the second half of 1997,
as a result of stringent testing requirements, substantial marketing efforts
and the redesign of computer hard disk drives by disk drive manufacturers that
would be necessary to realize the benefits of disks based on Boralyn(R), and
there can be no assurance that any production orders will be obtained.
Other industrial applications. Other industrial applications of Boralyn(R)
include its use in automotive and motorcycle components, where the Company is
producing prototype motorcycle brake drums for Honda R&D North America, Inc.
and connecting rods for Maverick Racing; marine applications, where the
Company is producing prototype drive shafts for Power Ski International Inc.;
structural components for aircraft, where the Company is producing prototype
sensor housings for Rosemount Aerospace, a division of BF Goodrich, Inc.;
semiconductors, where the Company is producing prototype semiconductor
packaging for Motorola, Inc.; satellite components, where the Company is
producing samples for Endgate Corporation; and armor for government and
military vehicles and for personal protection.
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 the other business
developments described in this section. 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 will exhibit Boralyn(R) bicycle components and frames at the annual
Interbike Exhibition in Las Vegas, Nevada in September 1996. These activities,
if successful, may not result in proportional or any revenue increases in the
same period in which those activities occur. The Company's marketing
activities will
36
<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
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independent test laboratories and specialty subcontractors. The Company's past
research and development effort was focused on various applications for cast,
soluble-core and extruded Boralyn(R) products, and the tooling and methods for
product production, and the formulation of other metal matrix composites using
magnesium and titanium. It is expected that formulations and techniques will
continue to be developed and refined through empirical tests and prototype
development. The Company expects that it will devote substantial resources to
research and development efforts. The costs of those efforts will be recorded
for accounting purposes as expenses as they are incurred, notwithstanding that
the benefits, if any, from the Company's research and development efforts (in
the form of increased revenues or decreased product costs) may not be
reflected in the Company's operating results, if at all, until subsequent
periods.
MANUFACTURING AND SUPPLY
Raw materials used by Alyn are principally aluminum and boron carbide. The
Company presently purchases boron carbide from a limited number of suppliers,
including one supplier that provides approximately 50% of the Company's
present requirements. Although the Company believes that boron carbide is
readily available from other suppliers, there can be no assurance that the
Company will be able to continue to obtain desired quantities of boron carbide
on a timely basis at prices and terms deemed reasonable by the Company. Alyn's
other principal raw material, aluminum, is available from several domestic
suppliers and the Company is not dependent on the availability of supplies
from any other single source.
Unlike a number of other metal-matrix composites, Boralyn(R) is not made
through a molten process. Instead of adding boron carbide powder into the
molten base metal alloy, the various powdered elements are blended dry and
mixed uniformly to avoid stratification and settling. After the particulates
have sufficiently mixed, they are directed into a die and then into a
cylindrical container, where the particulates are subjected to up to 85,000
pounds per square inch (psi) of pressure, transforming the elements into a
solid ingot. These Boralyn(R) ingots are used for casting and to extrude forms
such as plates and tubes for use in various consumer products and other end
uses.
The Company monitors the quality of its products that are produced by
subcontractors by frequent tests and material certification, and intends to
maintain a strict internal quality control system to monitor the quality of
production at its renovated facility. The quality control laboratory is
expected to be capable of conducting both physical and chemical testing. The
Company also maintains product liability insurance at levels it believes to be
adequate.
The Company intends to maintain a sufficient inventory of raw materials and
finished Boralyn(R) in the on-site warehouse that will occupy part of its
newly-leased facility, which is expected to be ready for inventory storage by
October 1996. Finished inventory generally is expected to be warehoused for
distribution by commercial trucking throughout the United States at the
Company's plant, but products produced for third parties are likely to be
immediately released to third party warehouses and not remain at the Company's
plant.
GOVERNMENT REGULATION
The Company's manufacturing and packaging operations will be subject to a
wide range of federal, state and local regulations, including the discharge,
handling and disposal of hazardous wastes regulations contained in the
environmental laws and the plant and laboratory safety requirements of various
occupational safety and health laws that are applicable to all the Company's
facilities and operations.
The Company believes it has complied in all material respects with regard to
governmental regulations applicable to it. To date, those regulations have not
materially restricted or impeded the Company's operations.
COMPETITION
The materials industry is highly competitive. The Company competes in its
chosen markets against several larger multi-national companies, all of which
are well-established in those markets and have substantially greater
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financial and other resources than those of the Company. Competitive market
conditions could adversely affect the Company's results of operations if it
were required to reduce product prices to remain competitive or were unable to
achieve significant sales of its products.
In the golf club market, the Company competes primarily with titanium, used
widely today in premium-priced golf club heads, with the base material being
supplied by companies such as RMI Titanium Company, Tremont Industries, Inc.,
and Titanium Metals Corporation of America (Timet), and with clubs produced by
CoastCast and Sturm Ruger. In the premium-priced bicycle market, the current
market uses titanium, aluminum alloys, and other materials supplied by
companies such as The Aluminum Corporation of America (Alcoa), Reynolds Metals
Co., Easton Aluminum, Inc., Sandvik Steel Co. and Oregon Metallurgical
Corporation (Oremet Titanium). In the computer disk drive market, the disks
currently being used are made from aluminum supplied by Alcoa and other
suppliers. For neutron shielding, current disposal containers typically use
Boral, a material supplied by AAR Brook & Perkins.
PERSONNEL
The Company employed 19 persons as of September 1, 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, to be
available in September 1996, is located on a three-acre site at 16761 Hale
Avenue in Irvine in an industrial park with close proximity to truck, rail and
air (John Wayne Airport, a major regional airport in Orange County)
connections and a highly trained labor pool. Of the total 48,000 square foot
area of the facility, approximately 10,000 square feet will be for office
space and approximately 38,000 square feet will be for manufacturing
operations dedicated to Boralyn(R) ingot manufacturing, including powder
consolidation and sintering (approximately 10,000 square feet), extrusion of
tubes and other shapes (approximately 8,000 square feet), die casting
(approximately 8,000 square feet), and secondary processes and warehousing.
Commencement of manufacturing operations at the new facility, expected in
late 1996, is dependent on obtaining various local permits and approvals. The
Company does not presently anticipate that any of the required permits and
approvals will not be obtained on a timely basis. However, there can be no
assurance in this regard, and a delay in or failure to obtain the required
permits could adversely affect the Company's operations.
The facility is designed for expansion of capacity to match future needs
over the next several years, with additional warehousing to be leased at a
nearby location, if required. There can be no assurance that these facilities
will be adequate for all of the Company's future fabrication requirement, or,
alternatively, that the Company will be able to fully utilize the capacity of
its new facility. The Company believes the new facility will be adequate for
its contemplated needs.
LITIGATION
There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company. Based on certain correspondence
described below, however, the Company believes that litigation against the
Company may be under contemplation by Lynx Golf, Inc. ("Lynx"), a subsidiary
of Zurn Industries, Inc.
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In late August 1995, the Company commenced activities related to the
development for Lynx of a prototype golf club head using Boralyn(R). This
marked the Company's first adaptation of Boralyn(R) for golf club heads. When
Lynx determined in December 1995 that tooling delays were being experienced by
the independent die casting company engaged by Lynx to produce the
developmental club heads to its specifications, Lynx advised the Company to
cease further work. By that time, prototype Boralyn(R) golf club heads had
been produced and delivered to a golf professional sponsored by Lynx, Mr. Fred
Couples. The Company did not hear further from Lynx until April 10, 1996, when
it received from Lynx a draft proposed contract that provided, among other
things, for Lynx to have exclusive rights to the use of Boralyn(R) in the golf
industry. Otherwise than with respect to the limited developmental activities
that had been performed prior to December 1995, there was no prior contract
between the parties. The Company rejected Lynx's proposed contract and offered
a counterproposal that provided for non-exclusivity. Lynx did not respond to
that counterproposal. On May 24, 1996, however, the Company's counsel received
a letter, dated May 17, 1996, from Lynx's counsel alleging that Lynx had been
misled as to Boralyn(R)'s properties and capabilities, but demanding
nevertheless that the Company grant Lynx the exclusive contract it had
proposed on April 10. The Company commenced a review of its patents and
processes in response to the May 17 letter, utilizing the services of new,
independent patent counsel and an outside testing laboratory (see "Business--
Characteristics of Boralyn(R)"). Subsequently, the Company's counsel contacted
Lynx's counsel and advised Lynx's counsel that the Company rejected Lynx's
contentions and urged, instead, that the parties resume negotiations for the
purpose of entering into a fair and reasonable agreement. On May 30, Lynx's
counsel notified the Company's counsel that Lynx was withdrawing its May 17
letter and wished to resume negotiations.
Despite the Company's attempts to resume negotiations with Lynx, the parties
did not meet further and, on June 28, 1996, Lynx's counsel sent the Company's
counsel a letter to the effect that Lynx was of the view that it had suffered
damages of approximately $10 million as a result of the matters first referred
to in the May 17 letter. Of that amount, Lynx claimed approximately $200,000
was for out-of-pocket expenses related to tooling and other golf club
developmental activities, including approximately $84,000 for one unpublished
advertisement, and approximately $9.8 million was for the loss of anticipated
profits from future sales of products. Lynx's counsel offered to settle the
entire matter for a $5 million payment at that time. Following various
communications between counsel on July 19, 1996, counsel for Lynx advised that
his client had authorized action to be taken unless the Company presented a
written offer for a cash settlement by July 23, 1996. On July 23, the Company
informed Lynx that Lynx's claims were without basis and that the Company would
not offer any settlement. At the same time, the Company formally terminated
communications with Lynx. In August 1996, ownership of Lynx was sold to a new
group of investors. There have been no further communications from or to Lynx,
its new owners or its counsel since July 1996.
Each correspondence from Lynx's counsel to the Company's counsel was
accompanied by a notation to the effect that its contents were included solely
for the purpose of "settlement and compromise in regard to pending and/or
otherwise likely litigation" and were not to be disclosed to any third person.
Telephonically, Lynx's counsel advised the Company's counsel that the
foregoing correspondence was not intended to rise to the level of a threatened
claim requiring financial statement or other disclosure and that, in the view
of Lynx's counsel, such disclosure was not required. The Company believes,
however, that disclosure of the foregoing should be made available to
prospective investors in this offering.
The Company believes, and has advised both Lynx and its former corporate
parent, that Lynx's contentions are totally without merit and that the Company
will defend itself vigorously against such contentions should they be brought
in the form of a legal action. If Lynx were to commence litigation against the
Company, the cost to the Company of defending such litigation might be
material. There can be no assurance that the Company would ultimately prevail
in any such proceedings or that the outcome of such proceedings would not have
a materially adverse effect on the Company and its future results of
operations or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robin A. Carden......... 38 President, Chief Executive Officer and a Director
Walter R. Menetrey...... 62 Executive Vice President, Chief Operating Officer and a Director
Phillip R. Gustavson.... 52 Vice President, Finance and Administration
Harry Edelson........... 60 Director
Michael Markbreiter..... 34 Director
Udi Toledano............ 46 Director
</TABLE>
The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.
Robin A. Carden is the founder of the Company and has been the President,
Chief Executive Officer and a Director since its formation in 1990. Prior to
1990, Mr. Carden was employed by Ceradyne Inc., a company engaged in the
development and production of advanced ceramics products, as Senior Sales
Engineer, and was engaged in developing civilian applications for advanced
ceramics products originally developed for military use. Mr. Carden graduated
from Long Beach State University with a Bachelor of Science degree. A number
of United States patents have been issued to Mr. Carden.
Walter R. Menetrey has been the Executive Vice President, Chief Operating
Officer and a Director of the Company since May 1996. From August 1992 to
April 1996, he worked as an independent management consultant to numerous
companies engaged in, among other things, the security and software
industries. From April 1988 to July 1992, Mr. Menetrey was Chief Executive
Officer of Meret, Inc., a company engaged in the manufacture and sale of fibre
optics communication equipment. From February 1987 to May 1988, he was Chief
Executive Officer of Cambrian Systems, Inc., a company engaged in disk drive
test equipment manufacture. From March 1985 to December 1986, Mr. Menetrey was
President of Applied Circuit Technology, a company engaged in disk drive test
equipment manufacture. Prior to 1985, he was employed with Xerox Corp., most
recently as a principal of Xerox Development Corp. In July 1995, Mr. Menetrey
filed for personal bankruptcy under Chapter 7 of the Bankruptcy Code, and Mr.
Menetrey was granted a discharge of the claims of certain creditors pursuant
to Section 727 of the Bankruptcy Code in November 1995. Mr. Menetrey received
a Bachelor of Science degree in Physics and a Master of Science degree in
Electrical Engineering from the California Institute of Technology.
Phillip R. Gustavson has been the Vice President, Finance and
Administration, of the Company since June 1996. From March 1995 to June 1996,
Mr. Gustavson was the Corporate Controller for PIA Merchandising, Co., Inc., a
public company engaged in the retail merchandising services industry. From
March 1993 to December 1994, he was the Chief Financial and Administrative
Officer of Aztec Toys, Inc., a toy manufacturing company. From March 1990 to
September 1992, he was the Vice President (Finance and Administration) of
Geneva Capital Markets, Inc., a private investment company. From March 1988 to
March 1990, Mr. Gustavson was the Assistant Corporate Controller of Mattel,
Inc., a toy manufacturing company. From April 1982 to December 1987, he was
Vice President of Finance of Tungsten Carbide Mfg., a division of Smith
International, Inc., a company engaged in the manufacturing of oil field
equipment. From 1974 to 1982, he was a Senior Audit Manager at Price
Waterhouse LLP. Mr. Gustavson is a Certified Public Accountant.
Harry Edelson has been a Director of the Company since May 1996. Mr. Edelson
has been the Managing Partner of Edelson Technology Partners, a venture
capital fund that is an affiliate of Edelson Technology Partners III, a
principal stockholder of the Company, for more than ten years. Edelson
Technology Partners and its related funds have invested in more than 70
companies involved in a wide range of technologies, including
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telecommunications, computers, semiconductors, specialty chemicals,
environmental and publishing, with a focus on funding technologies that could
assist its corporate partners. Mr. Edelson was a financial analyst for over 12
years, covering technology companies for Merrill Lynch & Co., Drexel Burnham
Lambert and First Boston Corporation. He has consulted for dozens of companies
and is a frequent speaker and contributor to leading business magazines in
Europe, Asia and the United States.
Michael Markbreiter has been a Director of the Company since May 1996. Since
August 1995, Mr. Markbreiter has been a portfolio manager for private equity
investments for Kingdon Capital Management Corp., a manager of investment
funds. In April 1994, he co-founded Ram Investment Corp., a venture capital
company. From March 1993 to January 1994, he served as a portfolio manager for
Kingdon Capital Management Corp. From December 1989 to February 1993, he
worked as an analyst at Alliance Capital Management Corp. From July 1983 to
September 1989, he worked as Executive Editor for Arts of Asia magazine. Mr.
Markbreiter graduated from Cambridge University with a degree in Engineering.
Udi Toledano has been a Director of the Company since May 1996. Mr. Toledano
has been the President of Andromeda Enterprises, Inc., a private investment
company, since December 1993. Prior to that he was the President of CR Capital
Inc., a private investment company, for more than five years. He has been an
advisor to various public and private corporations, none of which competes
with the Company. Since May 1996, Mr. Toledano has been a Director of HumaScan
Inc., a 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 entered in an employment agreement to be the
Director of Marketing and Sales of the Company commencing August 12, 1996.
From June 1991 to July 1996, he was the Director of Business Development for
Premier Services Corp., responsible for identifying market opportunities,
product development, business planning and implementation. From August 1986 to
March 1991, he was the President of Industrial Insulations, Inc., a company
engaged in supplying insulation materials. From November 1977 to July 1985, he
was the founder and President of Industrial Furnace Services, Inc., a company
engaged in the design and manufacture of furnaces. Mr. Miller received a
Bachelor of Science degree in Industrial Engineering from Fenn College of
Engineering and a Master of Science degree in Industrial Engineering from
Cleveland State University.
Raymond Lee Stanish, age 46, has been the Director of Manufacturing of the
Company since June 1996. From June 1995 to June 1996, he was a Vice President
at MMC Engineering, Inc. From August 1993 to June 1995, he was the Manager of
Composite Manufacturing for Pacific Metal Craft, Inc., responsible for product
manufacturing. From June 1980 to June 1993, he was a Product/Program Manager
for DWA Composite Specialties, Inc., responsible for supervising the
production of all forms of metal matrix composites.
EXECUTIVE COMPENSATION
The table below summarizes the compensation received by the Company's Chief
Executive Officer for each of the Company's last three completed fiscal years.
No other executive officer of the Company received any compensation during
that period, nor were any grants or exercises of stock options made during the
fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION NUMBER OF
-------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Robin A. Carden......... 1995 $40,348 -- -- -- --
President and Chief Ex-
ecutive 1994 $76,328 -- -- -- --
Officer 1993 $15,550 -- -- -- --
</TABLE>
Employment Agreements. Robin A. Carden has entered into a three-year
employment agreement with the Company in the positions of President and Chief
Executive Officer, commencing May 1, 1996. Subject to the
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<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 with the Company for the position of Chief Operating
Officer, Vice President, Finance and Administration, Director of Casting,
Director of Research and Development, Director of Marketing and Sales and
Director of Manufacturing, respectively. Subject to the termination provisions
provided therein, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's,
Dr. Harrigan's, Mr. Miller's and Mr. Stanish's employment agreements shall
automatically be renewed for a one-year term after the expiration of the
initial two-year term and for successive one-year terms thereafter.
Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's, Dr. Harrigan's, Mr. Miller's
and Mr. Stanish's employment agreements provide for an annual base salary to
be determined by management (or, in the case of Mr. Menetrey, by the Board of
Directors), but in no event shall such annual salary be less than $100,000,
$95,000, $100,000, $95,000, $100,000 and $85,000, respectively. In addition to
an annual base salary, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's, Dr.
Harrigan's, Mr. Miller's and Mr. Stanish's employment agreements provide for a
bonus and a customary benefits package. In the event that the Company
terminates the respective employment agreement without cause, Mr. Menetrey,
Mr. Gustavson, Mr. Flessner, Dr. Harrigan, Mr. Miller and Mr. Stanish would be
entitled to receive their base salary and benefits until the earlier of (i)
the expiration of the then current term of the respective employment agreement
without any further extensions and (ii) the date which is three months (or, in
the case of Mr. Menetrey, six months) after the termination date. Each of the
employment agreements of Mr. Menetrey, Mr. Gustavson, Mr. Flessner, Dr.
Harrigan, Mr. Miller and Mr. Stanish prohibits the employee from (i) competing
with the Company for a period of two years following termination of employment
with the Company and (ii) disclosing confidential information or trade secrets
in any unauthorized manner.
THE 1996 STOCK INCENTIVE PLAN
The Company's 1996 Stock Incentive Plan (the "1996 Plan") was adopted by the
Company's Board of Directors and approved by the Company's stockholders in
July 1996 for the purpose of securing for the Company and its stockholders the
benefits of ownership of Company stock options by non-employee Directors, and
by officers and other key employees (the "Key Employees") of the Company (and
any subsidiary corporations) who are expected to contribute materially to the
Company's future growth and success. No shares of Common Stock have been
issued under the 1996 Plan. No award may be granted under the 1996 Plan after
June 30, 2006.
Under the 1996 Plan, the Company may grant options with respect to a maximum
of 1,000,000 shares of Common Stock ("Options"). It is anticipated that on the
effective date of this offering options with respect to approximately 200,000
shares of Common Stock will have been granted under the 1996 Plan. The Company
may in its sole discretion grant Options to Key Employees and shall grant
Options to the Company's non-employee Directors subject to specified terms and
conditions and in accordance with a specified formula (the "Formula") as
discussed below. Options granted to Key Employees may be either incentive
stock options ("ISOs") meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options
("NQSOs") not meeting the requirements of Section 422 of the Code. Options
granted to non-employee Directors shall be NQSOs.
The 1996 Plan provides that the Plan may be administered by the Board of
Directors or a committee appointed by the Board. The Board has designated the
Compensation Committee (the "Committee") to
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<PAGE>
administer the 1996 Plan. Subject to the terms of the 1996 Plan, the Committee
will determine the Key Employees who will receive grants of Options, the
number of shares of Common Stock subject to each Option, the grant date, the
expiration date and other terms and conditions for the Options. Options
granted to non-employee Directors are governed by the formula discussed below.
The Committee has the authority to construe and interpret the provisions of
the 1996 Plan or the Options granted thereunder. Each grant of Options will be
evidenced by a Stock Option Agreement executed by the Company and the non-
employee Director or Key Employee, as the case may be at the time of grant, in
accordance with the terms and conditions of the 1996 Plan.
An Option granted to a Key Employee shall expire on the date determined by
the Committee, which date may not exceed ten years from the date the Option is
granted. Unless otherwise specified by the Committee for a particular grant,
Options granted to Key Employees vest as follows: 33 1/3% one year after the
date of grant, 66 2/3% two years after the date of grant and 100% three years
after the date of grant, in each case assuming that the recipient has been
continuously employed by the Company or any subsidiary during that time.
If a Key Employee's employment with the Company is terminated for any reason
other than death or disability or a discharge for cause, any outstanding
Option, to the extent that it was exercisable on the date of such termination,
may be exercised by the holder within three months after such termination (or
such shorter time as may be specified by the Committee), but in no event later
than the expiration of the Option. If a Key Employee dies or becomes totally
and permanently disabled while an employee of the Company or a subsidiary, or
dies within three months after the Key Employee ceases to be such an employee,
any outstanding Option, to the extent that it has vested, may be exercised by
the Key Employee (his estate, or by the person to whom the Option is
transferred by will or the laws of descent and distribution, as the case may
be), within the period of one year after the date of death or disability (or
within such lesser period as may be specified by the Committee). If a Key
Employee is discharged for "cause" (as defined in the 1996 Plan), the right of
such Key Employee to exercise an Option will terminate immediately upon
cessation of such services.
Under the formula, each non-employee Director will be granted, immediately
prior to the date of this Prospectus, (x) Options (the "Director Options") to
purchase 10,000 shares of Common Stock in the aggregate, subject to partial
vesting as described below and (y) 5,000 Director Options that will be fully
vested on the date of grant. On the first business day following the annual
meeting of stockholders of the Company to elect directors in 1997 and
thereafter on the first business day following each successive annual meeting
of stockholders, so long as Options remain available to grant to non-employee
Directors, each person who is elected as a director after that meeting and is
a non-employee Director, and each person who continues to serve as a director
after that meeting and is a non-employee Director, shall be granted (x) 10,000
Director Options in recognition of service as a director, subject to partial
vesting, and (y) to the extent such non-employee Director has not previously
served as a non-employee Director, 5,000 Director Options that will be fully
vested on the date of grant. Director Options expire ten years from the date
of grant and vest as follows: 33 1/3% on the date of grant, 66 2/3% one year
after the date of grant and 100% two years after the date of grant, assuming
that the recipient continuously serves as a director during that time.
Director Options that have vested as of the date on which a non-employee
Director ceases to serve as a director, including by reason of his or her
death, remain exercisable until their expiration date.
Options granted under the 1996 Plan must be exercised within ten years of
the grant date, except that an ISO granted to a person owning more than 10% of
the total combined voting power of all classes of stock of the Company or of
any parent or subsidiary of the Company (a "Ten Percent Stockholder") must be
exercised within five years of the grant date.
The exercise price for each Option granted under the 1996 Plan shall not be
less than 100% of the fair market value (the "Fair Value") per share of Common
Stock on the date such Option is granted, which with respect to the Director
Options granted immediately prior to the date of this prospectus shall be
equal to the initial public offering price per share. For ISOs granted to a
Ten Percent Stockholder, the exercise price shall not be less than 110% of the
Fair Value per share of Common Stock. The exercise price may be paid in cash
(by
45
<PAGE>
check) by transferring shares of Common Stock owned by the Option holder and
having a Fair Value on the date of surrender equal to the aggregate exercise
price of the Option, or solely with respect to Options granted to Key
Employees by cash payments in installments or pursuant to a full recourse
promissory note, in either case, upon the terms and conditions as the
Committee shall determine. Upon the exercise of any Option, the Company is
required to comply with all applicable withholding tax requirements.
The Board may amend or terminate the 1996 Plan at any time and in any
respect, including modifying the form of the Stock Option Agreements, except
that the Committee cannot, without the approval of the stockholders of the
Company, amend the 1996 Plan if stockholder approval is required or desired
for compliance with (i) Rule 16b-3 under the Securities Exchange Act of 1934,
as amended or (ii) Section 422 of the Code and such amendment would affect the
status of any ISO under Section 422 of the Code. No amendment of the 1996
Plan, without the Option holder's consent, may adversely affect any Options
previously granted to him or her.
DIRECTOR COMPENSATION
Members of the Board of Directors of the Company presently receive no annual
remuneration for acting in that capacity. The Company anticipates its non-
employee directors will be paid $500 (plus reasonable expenses) for each
attended meeting of the Board of Directors or committee thereof. Certain
members of the Board of Directors of the Company will also be eligible for the
grant of Options under the 1996 Plan that currently provides for each non-
employee Director (currently, Messrs. Edelson, Markbreiter and Toledano) to
receive an initial grant of Options to purchase 15,000 shares of Common Stock
and, beginning in 1997, an annual grant of Options to purchase 10,000 shares
of Common Stock. See "Management--The 1996 Stock Incentive Plan."
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% 30.12%
Kingdon Capital Manage-
ment Corp.(2).......... 2,088,000 26.10% 23.92%
Udi Toledano(3)......... 564,333 7.05% 5.42%
Herbert V. Turk(4)...... 560,000 7.00% 5.38%
Edelson Technology Part-
ners III............... 480,000 6.00% 5.00%
Walter R. Menetrey...... 240,000 3.00% 2.31%
Harry Edelson(5)........ 8,333 * *
Michael Markbreiter(6).. 8,333 * *
All executive officers
and directors of the
Company as a group (six
persons)(7)............ 3,904,999 48.81% 37.55%
</TABLE>
- ---------------------
* Less than 1%.
(1) The address for each of the persons listed below is c/o Alyn Corporation,
16871 Noyes Avenue, Irvine, California 92606.
(2) Includes 1,246,400 shares of Common Stock held by M. Kingdon Offshore NV,
420,800 shares of Common Stock held by Kingdon Associates, L.P. and
420,800 shares of Common Stock held by Kingdon Partners, L.P. Does not
include any shares of Common Stock intended to be purchased by Kingdon
Capital Management Corp. and its affiliates in this offering, and does not
include the shares of Common Stock underlying immediately exercisable
options that appear in the table above opposite the name of Michael
Markbreiter, a Director of the Company and an employee of Kingdon Capital
Management Corp. 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 $4.4 million as of September 1, 1996),
plus accrued interest, will be repaid with a portion of the net proceeds of
this offering. As of September 1, 1996, Mr. Toledano, a Director of the
Company, Kingdon Capital Management Corp., a principal stockholder of the
Company, Herbert V. Turk, a principal stockholder of the Company, and Edelson
Technology Partners III, a principal stockholder of the Company, had advanced
$330,000, $2,640,000, $330,000 and $660,000, respectively, or an aggregate of
approximately $3.96 million of the approximately $4.4 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
$3.3 million of the indebtedness that will be repaid by the Company with a
portion of the net proceeds of this offering, intend to purchase 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 10,400,000 shares of Common Stock outstanding, of which
8,000,000 shares of Common Stock (77% of the shares to be outstanding) were
issued by
49
<PAGE>
the Company in private transactions. Some of these shares are treated as
"restricted securities" pursuant to Rules 144 and 701 under the Securities
Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of
the Company (as that term is defined under the Securities Act), who has
beneficially owned his or her shares for at least two years is entitled to
sell within any three-month period that number of restricted securities that
does not exceed the greater of one percent of the then outstanding shares of
Common Stock (104,000 shares based on the number of shares to be outstanding
after the offering), or the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding such sale, notice and the
availability of current public information about the Company. After three
years have elapsed from the later of the issuance of restricted securities by
the Company or their acquisition from an affiliate, such shares may be sold
without limitations by persons who have not been affiliates of the Company for
at least three months.
REGISTRATION RIGHTS. The Company's existing holders of Common Stock and the
Company are parties to an agreement providing certain registration rights,
including one demand registration right exercisable at any time after nine
months from the date of this Prospectus for registration of "restricted
securities" provided the holders of at least 1,600,000 shares join in the
request for registration. Each of the Company's existing holders of Common
Stock has also been granted "piggyback" registration rights for a two-year (in
some instances, three-year) period following their respective purchases of
Common Stock. The Company has agreed to pay all registration expenses (other
than underwriting or sales commissions) incurred in complying with the
registration rights described above. Notwithstanding the foregoing, all
existing stockholders of the Company have agreed (i) to waive their
registration rights with respect to this offering and (ii) without the prior
written consent of the Company and Furman Selz LLC, not to exercise their
registration rights for a period of nine months from the date of this
Prospectus.
Prior to this offering there has been no public market for the Common Stock.
The Company cannot predict the number of shares which may be sold in the
future pursuant to Rule 144 since such sales will depend upon the market price
of Common Stock, the circumstances of individual holders thereof and other
factors. In addition, the Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The Company intends to file a registration statement under the Securities
Act to register all of the shares of Common Stock reserved for issuance under
its 1996 Stock Incentive Plan. Registration would permit the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act.
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 , 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.................................................... 2,400,000
=========
</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 360,000
additional shares of Common Stock at the public offering price less
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. Such option may be exercised at any
time until 30 days after the date of the Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
above table.
In connection with this offering, the Company has agreed to sell to Furman
Selz LLC, for nominal consideration, warrants to purchase 240,000 shares of
Common Stock (the "Warrants"). The Warrants are initially exercisable at a
price of $ per share of Common Stock (125% 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 $ ( % 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 104,000 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 $86,000 in
the aggregate of the approximately $4.4 million of loans outstanding under the
Subordinated Credit Line, which amounts will be repaid with a portion of the
net proceeds of this offering. See "Certain Transactions."
Prior to the offering, there has been no public market for the Common Stock
of the Company. There can be no assurance that any active trading market will
develop for the Common Stock or as to the price at which the Common Stock may
trade in the public market from time to time subsequent to the offering. The
initial price to the public for the Common Stock offered hereby has been
determined by negotiations among the Company and the Representatives and was
based upon the following factors: the financial and operating history and
condition of the Company; the Company's business and financial prospects; the
prospects for the industries in which the Company operates; prevailing market
conditions; the present stage of the Company's development; the
Representatives' assessment of the Company's management team; and the recent
market prices of securities of companies in businesses similar to that of the
Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Battle Fowler LLP, New York, New York, certain legal
matters concerning United States patent laws will be passed upon for the
Company by Cooper & Dunham LLP, New York, New York, and certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Latham & Watkins, New York, New York.
EXPERTS
The financial statements of Old Alyn as of December 31, 1994, and 1995, and
for each of the three years in the period ended December 31, 1995, 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 the 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
========= =========
Supplemental data (Note 1):
Net loss.............................................. $ (356,000)
==========
Net loss per share.................................... $ (0.04)
==========
Weighted average number of common shares outstanding.. $8,245,626
==========
</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
YEAR ENDED SIX MONTHS JANUARY 1, PERIOD FROM
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.
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, 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.
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 245,626 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,
1994 1995 1996
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
customer asserting damages suffered as a result of misrepresentations as to
the properties and capabilities of Boralyn and the customer's loss of
anticipated profits from future sales of products. Management believes that
the customer's assertions are without merit and intends to vigorously defend
any litigation brought by the customer. However, the cost of defending such
litigation may be material and there can be no assurance that 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. This matter is currently in the discovery stage.
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>
[PHOTOGRAPH OF BORALYN(R) PISTONS]
Boralyn(R) Engine Piston
The Company believes that the hardness and
resistance to wear of Boralyn(R) can be used to
advantage in automotive and other applications.
[LOGO]
[TWO PHOTOGRAPHS OF SOLUBLE CORE DIE-CAST STRUCTURES]
Bicycle Cranks 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,400,000 SHARES
(LOGO)
COMMON STOCK
---------------
PROSPECTUS
---------------
FURMAN SELZ
NEEDHAM & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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................... $ 12,848
National Association of Securities Dealers, Inc. filing fee..... 4,226
NASDAQ listing fee.............................................. 46,940
Transfer agent's and registrar's fee............................ 5,000
Printing expenses............................................... 150,000
Legal fees and expenses......................................... 225,000
Accounting fees and expenses.................................... 125,000
Blue sky filing fees and expenses (including counsel fees)...... 15,000
Miscellaneous expenses.......................................... 15,986
--------
Total......................................................... $600,000
</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 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 Underwriting Agreement.
+3.1 Restated Certificate of Incorporation of the Registrant.
+3.2 By-Laws of the Registrant.
*4.1 Specimen Copy of Stock Certificate for shares of Common Stock.
+4.2 Stockholders Agreement, dated as of May 1, 1996, by and among the
Company and certain stockholders of the Registrant.
*5.1 Opinion of Battle Fowler as to the securities being offered.
+10.1 Loan Agreement, dated as of May 1, 1996, between certain persons
and the Registrant.
*10.2 1996 Stock Incentive Plan of the Registrant.
+10.3 Employment Agreement between the Company and Robin A. Carden,
dated as of April 1, 1996, as amended by Amendment Number One,
dated as of April 30, 1996.
*10.4 Form of Employment Agreement between the Company and certain
senior executives.
+10.5 Lease, dated as of June 12, 1996, between the Registrant and
Taylor-Longman, with respect to premises at 16761 Hale Avenue,
Irvine, California.
10.6 Sale of Goods Agreement and Exclusive License, dated as of
September 10, 1996, by and between Taylor Made Golf Company, Inc.
and the Registrant (for which confidential treatment has been
requested).
*23.1 Consent of Battle Fowler LLP (included in its opinion to be filed
as Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
+24 Power of Attorney (included in the signature page hereto).
+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.
* To be filed by amendment.
II-3
<PAGE>
(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. 2 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 SEPTEMBER 19, 1996.
Alyn Corporation
/s/ Robin A. Carden
By: _________________________________
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. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND OF THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Robin A. Carden President, Chief
- ------------------------------------- Executive Officer September 19,
ROBIN A. CARDEN and a Director 1996
(Principal
Executive Officer)
* Vice President,
- ------------------------------------- Finance and September 19,
PHILLIP R. GUSTAVSON Administration 1996
(Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- September 19,
HARRY EDELSON 1996
* Director
- ------------------------------------- September 19,
MICHAEL MARKBREITER 1996
* Director
- ------------------------------------- September 19,
WALTER R. MENETREY 1996
* Director
- ------------------------------------- September 19,
UDI TOLEDANO 1996
/s/ Robin A. Carden
*By: ________________________________
Attorney-in-Fact and Agent
<PAGE>
EXHIBIT 1.1
ALYN CORPORATION
2,400,000 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 2,400,000 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 360,000 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 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 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
<PAGE>
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 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, 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
2
<PAGE>
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 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 (as herein
defined), 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 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
3
<PAGE>
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 by the Company under this 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. 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 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 all taxes due
in connection therewith. 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
4
<PAGE>
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 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 to consummate the transactions provided for herein.
This Agreement has been duly authorized, executed and delivered by the
Company and, assuming it is a binding agreement of each other party hereto,
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its 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, its performance
hereunder, its consummation of the transactions contemplated herein, 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 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) 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
5
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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.
(k) 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 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.
(l) The Company is not involved in any labor disputes nor, to the
Company's knowledge, are any such disputes threatened, which disputes
could, either singly or in the aggregate, have a Material Adverse Effect.
(m) 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.
(n) 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 consummation of the transactions contemplated hereby,
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.
(o) 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
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<PAGE>
existence, the most recent Preliminary Prospectus), that have not been
waived with respect to the Registration Statement.
(p) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) nor, to the
Company's 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.
(q) 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 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 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.
(r) 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
7
<PAGE>
and the rules and regulations promulgated thereunder, which in each of
cases (i), (ii), (iii) or (iv) could result in a Material Adverse Effect.
(s) 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.
(t) 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 knowledge, infringe on
the rights or claimed rights of any person. No other person is, to the
Company's 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) 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.
(u) 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.
(v) 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).
(w) 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.
8
<PAGE>
(x) 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 ___________, 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 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
9
<PAGE>
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.
(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.
10
<PAGE>
(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) During 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, statements of income 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;
(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;
(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
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<PAGE>
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 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 (each, a "Prohibited Transfer"). The Company will also
-------------------
cause Robin A. Carden and Walter R. Menetry to agree not to offer, sell or
otherwise dispose (or announce any offer, sale or other disposition) of
more than 104,000 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 any of them (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.
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<PAGE>
(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
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) The Company will use its best efforts to do and perform all things
required or necessary to be done and performed under this 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, 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
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<PAGE>
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:
(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 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 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
14
<PAGE>
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.
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.
(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.
15
<PAGE>
(j) On or prior to the Closing Date, the Underwriters shall have
received the executed agreements referred to in Section 5(j) hereof.
(k) 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.
(l) 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 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
16
<PAGE>
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, 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
legal or other expenses reasonably 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 may be legal defenses available to it and/or
other indemnified parties 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 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
17
<PAGE>
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
18
<PAGE>
in this paragraph (d) shall be in addition to any liabilities which any
indemnifying party may otherwise have.
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
19
<PAGE>
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Offered Shares.
(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
20
<PAGE>
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 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, 16871 Noyes 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
21
<PAGE>
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 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]
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:
Title:
22
<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:
23
<PAGE>
SCHEDULE I
NUMBER OF COMMON SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ -----------------------
Furman Selz LLC ................................................
Needham & Company, Inc. ........................................
---------
Total 2,400,000
24
<PAGE>
SCHEDULE II
Stockholder Lock-ups
--------------------
[To be provided]
25
<PAGE>
EXHIBIT A
---------
FORM OF OPINION OF BATTLE FOWLER LLP
[To be provided]
26
<PAGE>
EXHIBIT B
---------
FORM OF OPINION OF COOPER & DUNHAN LLP
[To be provided]
27
<PAGE>
Exhibit 10.6
This document is submitted as CONFIDENTIAL
------------
Exemption from disclosure to non-governmental
parties of this document and any copies of it
is claimed under the Freedom of Information
Act and applicable rules and regulations of
the Securities and Exchange Commission. It
is requested that before any disclosure is
------
permitted of this document or any part or
copies of it, timely notice be given to Battle
Fowler LLP, 75 East 55th Street, New York,
New York 10022. (212) 858-7000.
------------------------------
SALE OF GOODS AGREEMENT
and
EXCLUSIVE LICENSE
by and between
TAYLOR MADE GOLF COMPANY, INC.
and
ALYN CORPORATION
dated as of
September 10, 1996
------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS................................................... 2
ARTICLE 2 DESIGN OF PRODUCT; MANUFACTURE OF PRODUCT..................... 4
2.1 Design........................................................ 4
2.2 Molds......................................................... 4
2.3 Tooling Charges............................................... 4
2.4 Manufacturing................................................. 5
2.5 Retail Pricing of Product..................................... 5
ARTICLE 3 PURCHASE PRICE AND PAYMENT TERMS.............................. 5
3.1 Purchase Price................................................ 5
3.2 Payment Terms................................................. 5
ARTICLE 4 PURCHASE ORDERS AND DELIVERY.................................. 6
4.1 Quantity...................................................... 6
4.2 Purchase Orders............................................... 6
4.3 Acknowledgement............................................... 6
4.4 Substantial Performance....................................... 6
4.5 Return Policy................................................. 6
4.6 Terms of Delivery............................................. 6
4.7 Point of Delivery and Risk of Loss............................ 7
4.8 Invoice....................................................... 7
4.9 Taxes......................................................... 7
4.10 Title to Non-Conforming Product............................... 7
4.11 Designation of Carrier; Freight and other Related Charges..... 7
ARTICLE 5 EXCLUSIVE LICENSE............................................. 7
5.1 General License............................................... 7
5.2 Continued Development......................................... 8
5.3 Display of Boralyn(R) Name and Trademark...................... 8
5.4 Right to Approve Taylor Made Golf Products and
Advertisements............................................. 9
5.5 Right to Approve Alyn Advertisements.......................... 9
5.6 Certain Specific, Additional Promotional Requirements......... 9
5.7 Survival of Certain License Provisions........................ 9
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF ALYN........................ 9
6.1 Authority; Binding Effect..................................... 9
6.2 Patents, Trademarks and Lawsuits............................. 10
6.3 Warranties................................................... 10
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF TAYLOR MADE GOLF........... 10
7.1 Authority; Binding Effect.................................... 11
7.2 Warranties................................................... 11
ARTICLE 8 CONFIDENTIALITY.............................................. 12
8.1 Disclosure of Confidential Information....................... 12
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8.2 Exclusions from Confidential Information..................... 12
8.3 Transfer of Ownership; Return of Information................. 12
ARTICLE 9 INDEMNIFICATION.............................................. 13
9.1 Indemnification by Alyn...................................... 13
9.2 Indemnification by Taylor Made Golf.......................... 13
ARTICLE 10 TERMINATION.................................................. 14
10.1 Term......................................................... 14
10.2 Termination by Non-Breaching Party........................... 14
10.3 Effect of Termination........................................ 14
ARTICLE 11 INSURANCE.................................................... 15
11.1 Required Limits.............................................. 15
11.2 Certificates of Insurance.................................... 15
ARTICLE 12 PUBLICITY.................................................... 16
ARTICLE 13 MISCELLANEOUS................................................ 17
13.1 Other Relationships between Salomon Group and Alyn
Corporation................................................ 17
13.2 Certain Activities and Related Matters Between the Date
Hereof and June 30, 1997................................... 17
13.3 Governing Law................................................ 17
13.4 Counterparts................................................. 18
13.5 Headings..................................................... 18
13.6 Severability................................................. 18
13.7 Force Majeure................................................ 18
13.8 Notices...................................................... 18
13.9 Waiver; Modification of Agreement............................ 19
13.10 Entire Agreement............................................. 19
13.11 Assignment................................................... 20
13.12 Remedies..................................................... 20
13.13 Superseding Provisions....................................... 20
SCHEDULES
Schedule 1.8 Product Description
Schedule 3.1 Price Schedule
Schedule 4.1 Minimum Purchases for Exclusivity
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This Sale of Goods Agreement and Exclusive License (referred to
hereinafter as the "Agreement") is entered into as of this 10th day of
September, 1996 (the "Effective Date"), by and between TAYLOR MADE GOLF COMPANY,
INC. ("Taylor Made Golf"), a California corporation, and ALYN CORPORATION
("Alyn"), a Delaware corporation. Throughout this Agreement, Taylor Made Golf
and Alyn shall be referred to collectively as "the Parties."
PRELIMINARY STATEMENTS
WHEREAS, Alyn has been awarded a U.S. Patent and a Divisional Patent for
its boron carbide metal matrix composite known as Boralyn(R), which, among other
things, cover sporting goods and related commercial and industrial applications,
including the manufacture of golf club metalwood heads, iron heads, putter
heads, and shafts, other golf-industry related products and other sporting
equipment; and
WHEREAS, Taylor Made Golf, a major company in the golf business because
of its ongoing commitment to bring to market innovative and superior performing
products with worldwide activities and production facilities in the United
States of America and Japan, desires to incorporate Boralyn(R) in certain golf
club equipment; and
WHEREAS, Taylor Made Golf is a member of the Salomon Group ("Salomon"),
which is involved (among other things) in the conception, development and
manufacture of various other sporting equipment and goods, and Salomon desires
to consider incorporating Boralyn(R) in sporting goods and equipment that are
used in other than the golf industry and that are made or marketed by members of
the Salomon Group other than Taylor Made Golf; and
WHEREAS, initially Taylor Made Golf wishes to buy from Alyn, and Alyn
desires to sell to Taylor Made Golf, pursuant to this Agreement, certain
quantities of metalwood golf club heads (as such term is commonly understood in
the golf club industry), made and/or using Alyn's patented Boralyn(R) material
or processes, upon the terms and conditions set forth herein; and
WHEREAS, the Parties and their affiliates are desirous of creating a
framework for the development of a longlasting and expansive, mutually
beneficial relationship in order that they may work together as partners in the
creation and development of enhanced, advanced materials-based products;
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises and benefits contained herein, the receipt and sufficiency of which is
hereby acknowledged, the Parties hereto hereby agree as follows:
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ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Affiliate," when used with respect to a party in question, means
any natural person, corporation, firm, partnership, or other entity who is an
executive officer or director of such party in question or which, directly
or indirectly, owns, is owned by, or is under common ownership with such party
in question to the extent of more than twenty (20%) percent of the equity having
the power either to vote on or to direct the affairs of such party in question,
or otherwise controls, is controlled by or is under common control with such
party in question.
1.2 "Boralyn(R)" shall mean the name "Boralyn(R)" and the depiction set
forth in Schedule 1.2 hereof.
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1.3 "Confidential Information" means all proprietary Know How (as
hereinafter defined) and other technical data, information and agreements
concerning each and all of the Products, together with documents and data
relating thereto. As used herein, the term "Confidential Information" will (l)
with respect to Know How, information, data, and agreement of Alyn, refer to
Alyn Confidential Information, and (ii) with respect to Know How, information,
data, and agreements of Taylor Made Golf, refer to Taylor Made Confidential
Information.
1.4 "Delivery Date" means any date upon which a Product is to be
delivered by Alyn pursuant to a Purchase Order from Taylor Made Golf.
1.5 "Know How" means all data, instructions, processes, formula, expert
opinions, and information relating to the manufacture, use, sale, marketing, or
marketing forecasts, or information of a commercial nature regarding the
Products. Know How shall include, without limitation, all chemical,
toxicological, physical, analytical, safety, quality control, manufacturing and
other data and information relating to the manufacture, use, or sale of the
Products.
1.6 "Month" means any calendar month; "Sales Quarter" means any three
(3) consecutive Months; "Sales Year" means any twelve (12) consecutive Months;
"Taylor Made's First Sales Quarter" means the Sales Quarter beginning on the
earlier to occur of July 1, 1997, or the date on which Alyn delivers Product to
Taylor Made Golf pursuant to the Purchase Order annexed hereto as Appendix I,
and ending September 30, 1997; and "Taylor Made's First Sales Year" and "Taylor
Made's Second Sales Year" mean a Sales Year ending June 30, 1998 and 1999,
respectively.
1.7 "Non-Conforming Product" shall mean, initially upon execution of
this Agreement, a golf club metalwood head, and thereafter any other product
that has been added to Schedule 1.8 hereof in accordance with the terms and
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conditions hereof, that does not meet the specifications of that Product as
designated by Taylor Made Golf.
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1.8 "Product" or "Products" shall mean, initially upon execution of
this Agreement, golf club metalwood heads, finished and ready for shaft
installation, made with or using Alyn's patented Boralyn /R/ material or
processes, that Taylor Made Golf will use for golf clubs made or marketed under
the Taylor Made /R/ name (or under any other name or mark now or hereafter used
by Taylor Made Golf or any of its Affiliates) and as more fully described in
Schedule 1.8, and, thereafter, the term "Product" or "Products" shall also mean
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any golf club iron head, putter head and/or shaft, and any other golf
industry-related product that, in accordance with the terms and conditions
hereof, is added to (and as is thereupon more fully described in) Schedule 1.8.
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1.9 "Purchase Order," when used with respect to a Product, shall mean
a written and binding order on behalf of Taylor Made Golf submitted to and
accepted by Alyn with respect to the delivery of such Product by Alyn to Taylor
Made Golf, all in accordance with the terms and provisions hereof.
1.10 "Purchase Price" shall have such meaning as is set forth in
Section 3.1 of this Agreement.
1.11 "Unit" means one (1) Product.
1.12 "Year" means any consecutive twelve (12) month period comprised
of four (4) consecutive Sales Quarters.
1.13 "Design" shall have the meaning set forth in Section 2.1 of this
Agreement.
1.14 "Patents and Trademarks" shall have the meaning set forth in
Section 6.2 of this Agreement.
1.15 "Manufacturing Plant" shall have the following meanings:
(a) an "Alyn Manufacturing Plant" shall mean any plant or
facility at which one or more Products is manufactured and that is owned or
operated by Alyn or one of its Affiliates, and shall include (but not be limited
to) Alyn's facility at Irvine, California, that is currently under construction;
(b) an "Alyn-Approved Manufacturing Plant" shall mean any plant
or facility that is not owned or operated by either of the Parties, but is
approved by each of the Parties and at which the manufacture of Products is
under the sole, direct supervision and control of Alyn;
(c) a "Taylor Made Golf Manufacturing Plant" is any plant or
facility owned or operated by Taylor Made Golf or one of its Affiliates (a
"Taylor Made Golf Manufacturing Plant" may also be an "Alyn-Approved
Manufacturing Plant" if it has been both approved by Alyn and is under the sole,
direct supervision and control of Alyn with respect to the manufacture of
Products therein): and
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(d) an "Other Manufacturing Plant" shall be any other manufacturing
facility.
1.16 "Mold" shall have the meaning set forth in Section 2.2 of this
Agreement.
1.17 "Substantially Similar Product" shall mean a golf club metalwood
head, iron head, putter head or shaft made or using Alyn's patented Boralyn(R)
material or processes and having the same or a substantially similar use or
function to a Product or combination of Products that are part of or are
incorporated in or on a golf club that is not made by or for Taylor Made Golf
(or any of its Affiliates) and that competes (on the basis of price or customer
appeal) with a golf club made by or for Taylor Made Golf.
ARTICLE 2
DESIGN OF PRODUCT; MANUFACTURE OF PRODUCT
2.1 Design. The Design of each Product (the "Design") shall be in
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accordance with approved specifications of Taylor Made Golf as set forth in
drawings, in other suitable written, CAD data or physical model format, or in
such other form as is customarily used by Taylor Made Gold, and delivered to
Alyn by Taylor Made Golf. Alyn shall cooperate with respect to the development
and Design of the Products. Notwithstanding the foregoing, however, the Design
of each Product is and shall be considered proprietary to Taylor Made Golf and
Alyn shall not use it, or cooperate with others in using it, in any other golf
club made by Alyn or using Alyn's patented Boralyn(R) material or processes,
unless authorized by Taylor Made Golf. The final Design of each Product will be
the responsibility of Taylor Made Golf, but will in each case be subject to
testing by Alyn to confirm the feasibility of the application or Boralyn(R) to
Taylor Made Golf's Design specifications. Taylor Made Golf shall be the sole
owner of each Product Design and/or Design feature and will protect such Designs
and features with such design patents, utility patents and trademarks as Taylor
Made Golf shall, in its sole discretion, deem appropriate.
2.2 Molds. Manufacturing of certain Products shall require the
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production of a prototype mold (the "Mold") that meets the specifications of the
Design for that Product. Alyn shall cast each Mold in wax or by such other
method as will allow Taylor Made Golf properly to inspect the Mold and
specifically agree to it, such agreement not to be unreasonably withheld. In
furtherance of the foregoing, the Parties shall assist each other and work
cooperatively in the design and development of a suitable Mold for each Product.
To the extent Taylor Made Golf reasonably refuses to accept a Mold, Taylor Made
Golf and Alyn will work jointly on the production of such Mold in a commercially
reasonably manner until the Mold is agreed upon by both Alyn and Taylor Made
Golf.
2.3 Tooling Charges. After the production of the agreed upon Mold for a
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given Product, or the approval by Taylor Made Golf of the first Unit of a
Product that is manufactured by extrusion (and not by casting), Alyn shall
develop the proper tooling for the casting or extrusion of such Product, as the
case may be, using Boralyn(R). Taylor Made
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Golf shall pay Alyn a tooling and tool maintenance charge for each Product which
charge shall be paid in accordance with tool vendor requirements. Once so paid
for by Taylor Made Golf, the tooling for a Product shall belong to and be the
property solely of Taylor Made Golf.
2.4 Manufacturing. Each Product shall be manufactured at an Alyn
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Manufacturing Plant, provided, however, if Alyn shall be unable, in the
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reasonable opinion of Taylor Made Golf, to fulfill timely the Production volume
requirements of any Purchase Order, such Purchase Order shall be sent for
completion to a second source that is an Alyn-Approved Manufacturing Plant
(which may include a Taylor Made Golf Manufacturing Plant as set forth in, and
subject to the conditions of, Section 1.15(c) of this Agreement). All processes
and materials used in the manufacture of any Product shall be proprietary to and
remain the sole property of Alyn, provided, however, a Product in completed
form, when delivered to Taylor Made Golf in accordance with the terms and
conditions hereof, shall become the property of Taylor Made Golf.
2.5 Retail Pricing of Product. The Parties shall cooperate and assist
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each other in ongoing analyses of the retail consumer market for the Products,
it being their joint objective that Products that incorporate Boralyn(R) be
priced at retail to reflect appropriately their unique, superior qualities and
desirability of use and ownership. The parties hereby acknowledge their mutual
conclusion that suggested retail prices of Products should be at the "high end
of the golf club consumer market" (as that phrase is commonly understood in the
golf industry), and the Parties agree to strive to achieve Product price and
status recognition and acceptance consistent with the foregoing.
ARTICLE 3
PURCHASE PRICE AND PAYMENT TERMS
3.1 Purchase Price. The Purchase Price of each Product (the "Purchase
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Price") will be calculated in accordance with that part of Schedule 3.1. Price
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Schedule that relates to such Product, and shall be * per Unit for each golf
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club metalwood head produced and delivered under this Agreement. In all cases,
the Purchase Price shall be FOB Alyn's facility, with all freight, shipping,
taxes and other similar charges being borne by Taylor Made Golf. The Purchase
Price for a given Product will be reviewed by the Parties if there is a
significant change in market conditions relating to that Product subsequent to
the date on which it was last priced for purposes of this Agreement.
3.2 Payment Terms. Taylor Made Golf shall pay the Purchase Price for a
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given Product within thirty (30) days of the delivery of such Product to Taylor
Made Golf. If Taylor Made Golf makes such payment within ten (10) days of the
delivery of the Product by Alyn, Taylor Made Golf shall be entitled to a one
(1%) percent discount on the Purchase Price. The payment shall be increased by a
late fee of one and one-half (1 1/2%) percent of the Purchase Price for any
Units received by Taylor Made Golf for each thirty (30) calendar day period that
payment is past due. Payment will be deemed past due after thirty (30) calendar
days of Alyn's release of the Units in question to Taylor Made Golf's authorized
employee or shipping or other agent at the Alyn Manufacturing Plant or the
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* Confidential Treatment has been requested.
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Alyn-Approved Manufacturing Plant, as the case may be, in accordance with
Section 4.7. Failure by Taylor Made Golf to pay within sixty (60) days after
Alyn's delivery of written notice as described in Section 4.7 herein shall be a
material breach of this Agreement.
ARTICLE 4
PURCHASE ORDERS AND DELIVERY
4.1 Quantity. Solely for the purpose of facilitating Alyn's production
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planning and organization, Taylor Made Golf shall, at or prior to the beginning
of each of Taylor Made's First Sales Year and Taylor Made's Second Sales Year,
advise Alyn in writing with respect to Taylor Made Golf's anticipated minimum
quantities for each Product, on a per Unit basis, for such Sales Year, and
thereafter Taylor Made Golf shall, at the beginning of each Month within such
Taylor Made Sales Year advise Alyn in writing of any change in such anticipated
minimum quantities and the anticipated quantity for each Product, on a per Unit
basis, for the immediately forthcoming month. Anything in the foregoing to the
contrary notwithstanding, however, Taylor Made Golf shall be required to 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.
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4.2 Purchase Orders. Taylor Made Golf shall submit to Alyn Purchase
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Orders specifying, subject to Section 4.1, the quantities of Product, on a Unit
basis, that Taylor Made Golf shall purchase and the Delivery Dates of such
Product; provided, however, that no Delivery Date shall be less than the later
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to occur of ninety (90) days (or such shorter period as shall be discussed and
developed as the production and delivery process becomes industrialized in good
faith by the Parties) from (i) the date of receipt by Alyn of such Purchase
Order and (ii) the approval by both parties of the Mold for the Product covered
by such Purchase Order, and provided further, however, that Delivery Dates for
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each Product, on a Unit basis, shall be spaced over a reasonable period on a
quarterly and annual basis.
4.3 Acknowledgement. Alyn shall acknowledge in writing the receipt of
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each Purchase Order, and shall confirm Delivery Dates for Unit quantities that
are the subject of each Purchase Order.
4.4 Substantial Performance. The obligation of Alyn, pursuant to any
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Purchase Order, to supply a particular number of Units on a Delivery Date shall
be deemed satisfied upon delivery by Alyn of no less than 90% of the number of
Units specified.
4.5 Return Policy. Taylor Made Golf agrees that Taylor Made Golf shall
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not be permitted to return to Alyn any goods delivered pursuant to a Purchase
Order for credit, unless such goods constitute Non-Conforming Products
4.6 Terms of Delivery. Alyn shall make all reasonable efforts to
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deliver the quantities of Units of a Product to Taylor Made Golf on the Delivery
Dates and in the amounts set forth by Taylor Made Golf in the Purchase Orders
related thereto, but in no
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event shall actual delivery occur more than thirty (30) calendar days after such
Delivery Date so set forth. In the event actual delivery occurs more than thirty
(30) calendar days after such Delivery Date, other than as a result of a delay
primarily caused by an event described in Section 13.7, the total Purchase Price
to be paid by Taylor Made Golf to Alyn for the quantity of Units of a Product
ordered for delivery on such Delivery Date shall be reduced by an amount equal
to one (1%) percent of the total Purchase Price for each ten calendar days that
the delivery is delayed after such thirty (30) day period. In the event Alyn
shall fail to supply such Units of a Product in such specified quantities within
ninety (90) calendar days after the Delivery Date set forth in the original
Purchase Order, Taylor Made Golf shall thereupon have no further obligation to
Alyn with respect to such Purchase Order or the payment of the Purchase Price
for such Units.
4.7 Point of Delivery and Risk of Loss. Units of a Product shall be
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delivered FOB the Alyn Manufacturing Plant or the Alyn-Approved Manufacturing
Plant, as the case may be, and Alyn shall provide Taylor Made Golf with written
notice of delivery of such Units. The risk of loss shall pass to Taylor made
Golf upon receipt of the Product by Taylor Made Golf's authorized employees or
shipping or other agents at that facility. If Taylor Made Golf shall fail to
accept any Units within three (3) business days of written notice from Alyn that
such Units are ready for delivery, Taylor Made Golf shall become responsible for
payment with respect to such Units, in accordance with the terms hereof,
immediately following passage of said three (3) business day period.
4.8 Invoice. Upon delivery of the Units of a Product in accordance with
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a Purchase Order, Alyn shall present to Taylor Made Golf an invoice for the
quantity of the Product covered thereby, in each case at the Purchase Price
determined pursuant to the terms of Article 3.
4.9 Taxes. Any federal, state, county, or municipal sales or use tax,
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excise, or similar charge, or any other tax assessment (other than that assessed
against income), or other charge lawfully assessed or charged by any
governmental agency or authority on the sale, use, or transportation of any
Product pursuant to this Agreement shall be immediately paid by Taylor Made Golf
at the time of payment of the related invoice for the Units of such Product or
when required by applicable law.
4.10 Title to Non-Conforming Products. The Parties agree that title to
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any Non-Conforming Product shall revert to Alyn or its designee upon return of
such Non-Conforming Product by Taylor Made Golf to Alyn.
4.11 Designation of Carrier: Freight and other Related Charges. Taylor
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Made Golf shall be solely responsible for designating and retaining the carrier
for shipment of Product to Taylor Made Golf or for Taylor Made Golf's account
and shall bear all freight, shipping, tax and other similar charges.
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ARTICLE 5
EXCLUSIVE LICENSE
5.1 General License. (a) Upon the terms and conditions set forth
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herein, Alyn hereby grants to Taylor Made Golf during the Term hereof
(determined in accordance with Article 10) an exclusive royalty-free license to
market, sell, and distribute worldwide each Product and any Substantially
Similar Product. Each Product that is the subject of this exclusive license
shall have the trademark "Boralyn(R)" imprinted conspicuously thereon, as more
fully described in Section 5.3.
(b) In furtherance of the exclusive rights granted herein,
Alyn shall refrain from selling, supplying, encouraging, facilitating, or aiding
the use of Boralyn(R) for and/or in the manufacture of any Product or
Substantially Similar Product by any person or entity other than Taylor Made
Golf.
(c) This exclusive worldwide license is non-transferable and
shall cease upon the earlier to occur of:
(i) as to all Products, the termination of this Agreement
in accordance with the provisions of Article 10 hereof; or
(ii) as to a given Product, upon the failure of Taylor
Made Golf to purchase (in accordance with the terms and conditions of this
Agreement) at least the minimum amount of such Product in any Sales Quarter or
in any Sales Year in accordance with Schedule 4.1, and the delivery to Taylor
Made Golf by Alyn of written notice of such failure within ten (10) days after
the end of such Sales Quarter Of Sales Year, as the case may be, provided,
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however, the foregoing shall not apply if such failure to purchase arises from
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or is caused by the failure of Alyn to produce and deliver such Product 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 (A)
if the Late Delivery Date is a date that is prior to September 30, 1997, (x) the
number of Units of product required to be purchased by Taylor Made Golf in
Taylor Made's First Sale Quarter in order to maintain exclusivity under this
Agreement shall be reduced to that number of Units that is determined by
multiplying (i) * by (ii) a fraction, the numerator of which shall be the
difference between 90 and the number of days between July 1, 1997, and the Late
Delivery Date (such number of days being herein referred to as the "Late
Period") and the denominator of which shall be 90, and (y) the number of Units
of Product required to be purchased by Taylor Made Golf in Taylor made's First
Sales year shall be reduced to that number of Units that is determined by
multiplying (i) * by (ii) a fraction, the numerator of which shall be the
difference between 365 and the Late Period and the denominator of which shall be
365, and (B) if the Late Delivery Date is a date that is subsequent to September
30, 1997, Taylor Made Golf shall have the right, exercisable in its sole
discretion by notice to Alyn by October 15, 1997, to terminate this Agreement,
which right to terminate shall be in addition to any other rights and remedies
Taylor Made Golf may have under this Agreement.
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*Confidential Treatment has been requested.
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(d) As soon as is reasonably practicable, and in any event not later
than July 1, 1998, the Parties shall consider the extension of the exclusive
rights granted herein to the Sales Year ending June 30, 2000.
(e) Termination of the exclusive license and rights granted in this
Article 5 shall be in addition to, and not in lieu of, any other remedy or
remedies available to any Party under this Agreement.
5.2 Continued Development. As part of their overall mutual development
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program, Alyn and Taylor Made Golf shall use their respective best efforts and
cooperation, to develop techniques and processes for the design and production
of Products that will improve Product performance, and any such development will
be covered by and subject to the terms, provisions, respective rights and
obligations of this Agreement, without further consideration (except for the
payment of the Purchase Price in accordance with, and compliance with the other
terms and conditions of this Agreement).
5.3 Display of Boralyn(R) Name and Trademark. The name "Boralyn(R)"
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shall be displayed on each Unit of each Product, in a physical location on the
Product such that it can be clearly viewed and read by purchasers of the Taylor
Made golf club product of which it is a component. The delineation and location
of other names and trademarks, and the location of the name "Boralyn(R)", shall
be determined by Taylor Made Golf in its sole discretion, but the Boralyn(R)
mark shall be placed in a manner such that the Boralyn(R) mark could not be
mistaken as not being independent from any other name or trademark. In
accordance with its customary practice, Taylor Made Golf will aggressively and
vigorously enforce trademarks and other intellectual property rights, including
but not limited to protection of the trademark Boralyn(R), related to each
Product.
5.4 Right to Approve Taylor Made Golf Products and Advertisements.
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Samples of (i) each Taylor Made Golf golf club proposed to be marketed and sold
by Taylor Made Golf that will include any Product and of (ii) either (x) all
advertising and/or any other promotional material prepared by or for Taylor Made
Golf and referring to Boralyn(R) or any Product, including but not limited to
brochures, radio or television commercials, worldwide web sites, and magazine
and newspaper advertisements, or (y), at the sole election of Taylor Made Golf,
a general policy (established by Taylor Made Golf and set forth in a writing
delivered to Alyn) covering permissible references to Boralyn(R) in advertising
or promotional materials or activities used or undertaken by or on behalf of
Taylor Made Golf, shall be submitted at least five (5) business days prior to
any proposed sale, shipment, publication or other distribution, to Alyn for its
approval, which approval shall not be unreasonably withheld. Taylor Made Golf
shall not publish or distribute any such advertising and/or any other
promotional material unless and until Taylor Made Golf has received written or
facsimile approval thereof, or of the general policy relating thereto, from
Alyn.
5.5 Right to Approve Alyn Advertisements. Samples of all advertising
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and/or any other promotional material prepared by or for Alyn and referring to
Taylor Made Golf or any Product, including but not limited to brochures, radio
or television commercials, worldwide web sites, and magazine and newspaper
advertisements, shall be submitted at least five (5) business days prior to any
proposed sale, shipment, publication or other
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distribution, to Taylor Made Golf for its approval, which approval shall not be
unreasonably withheld. Alyn shall not publish or distribute any such advertising
and/or any other promotional material unless and until Alyn has received written
or facsimile approval thereof from Taylor Made Golf.
5.6 Certain Specific, Additional Promotional Requirements. In addition
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to, and not by way of limitation of, all the foregoing, Taylor Made Golf shall
expend an appropriate, reasonable amount in connection with annual marketing
programs, including advertisement, quality exposure and other promotion
(including cross industry promotion) of Boralyn(R) and the Products. In
addition, each of the Parties hereto shall promote the other, to the extent
reasonably practicable, at any trade show or other promotional event at which
each is present.
5.7 Survival of Certain License Provisions. The rights and obligations
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set forth in the provisions of Sections 5.3, 5.4 and 5.5 herein shall survive
the termination of this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ALYN
Alyn represents and warrants to Taylor Made Golf as follows:
6.1 Authority; Binding Effect.
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Alyn is a corporation duly organized and existing under the laws of
Delaware; Alyn has the corporate power and authority to execute, deliver, and
perform this Agreement and the transactions contemplated hereby and the
execution and delivery of this Agreement have been duly authorized by Alyn; the
execution, delivery, and performance of this Agreement and the consummation of
the transactions contemplated hereby do not and will not violate or conflict
with any provision of Alyn's Certificate of Incorporation or Bylaws or, to the
best knowledge of the individuals signing this Agreement, any agreement,
instrument, law or regulation to which Alyn is a party or by which Alyn is
bound; no governmental or other approval or authorization of this Agreement or
the acts or transactions contemplated hereby is required by law or otherwise in
order to make this Agreement binding upon Alyn; and this Agreement, and all
other instruments required hereby to be executed and delivered to Taylor Made
Golf by Alyn are, or when delivered to Taylor Made Golf in accordance herewith,
will be, legal, valid and binding instruments of Alyn enforceable in accordance
with its terms.
6.2 Patents, Trademarks and Lawsuits.
--------------------------------
6.2.1 Patents and Trademarks. (a) Alyn owns all patents, rights to
----------------------
patent, patent applications, trademarks and trade names necessary for it to
satisfy the conditions of its performance hereunder (the "Patents and
Trademarks"); (b) the issued Patents and Trademarks are subsisting and have not
been adjudged invalid or unenforceable, in whole or in part, and there is no
litigation or proceeding pending
-10-
<PAGE>
concerning the validity or enforceability of the issued Patents and Trademarks;
(c) to the best of Alyn's knowledge, each of the issued Patents and Trademarks
is valid and enforceable; (d) to the best of Alyn's knowledge, there is no
infringement by others of the issued Patents and Trademarks; and (e) no claim
has been made that the use of any of the Patents and Trademarks does or may
violate the rights of any third person, and to the best of Alyn's knowledge the
use of the Patents and Trademarks does not infringe upon the patent or trademark
rights of any third party.
6.3 Warranties.
----------
(a) Alyn warrants to Taylor Made Golf that each Product delivered to
Taylor Made Golf pursuant to this Agreement will conform to the
specifications regarding that Product as described in Schedule 1.8 and
------------
prescribed in accordance with Section 2.1 of this Agreement.
(b) ALYN MAKES NO REPRESENTATIONS OR WARRANTIES EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT AND ALYN SHALL HAVE NO LIABILITY OR RESPONSIBILITY
FOR, WITH RESPECT TO OR STEMMING FROM ANY PRODUCT EXCEPT (i) TO REPAIR OR
REPLACE ANY PRODUCT THAT IS DEFECTIVE AND IS RETURNED TO IT and (ii) THAT
WHICH IS PROVIDED FOR IN SECTION 9.1 OF THIS AGREEMENT.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF TAYLOR MADE GOLF
Taylor Made Golf represents and warrants to Alyn as follows:
7.1 Authority; Binding Effect.
-------------------------
Taylor Made Golf is a corporation duly organized and existing under the
laws of the State of California; Taylor Made Golf has the power and authority to
execute, deliver, and perform this Agreement and the transactions contemplated
hereby, and the execution and delivery of this Agreement have been duly
authorized by Taylor Made Golf; the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not violate or conflict with any provision of Taylor Made Golf's
Certificate of Incorporation or Bylaws or, to the best of the knowledge of the
individuals signing this Agreement, any agreement, instrument, law, or
regulation to which Taylor Made Golf is a party or by which Taylor Made Golf is
bound; no governmental or other approval or authorization of this Agreement or
the acts or transactions contemplated hereby is required by law or otherwise in
order to make this Agreement binding upon Taylor Made Golf; and this Agreement,
and all other instruments required hereby to be executed and delivered to Alyn
by Taylor Made Golf are, or when delivered will be, legal, valid, and binding
instruments of Taylor Made Golf enforceable in accordance with its terms.
-11-
<PAGE>
7.2 Warranties.
----------
(a) Taylor Made Golf warrants that it will use Products only in
accordance with this Agreement. Taylor Made Golf further warrants that
such intended use does not impinge on any particular trademark or
otherwise contravene or violate any right or property interest, of any
other individual person firm, company, corporation, or other entity.
(b) TAYLOR MADE GOLF MAKES NO REPRESENTATIONS OR WARRANTIES
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN ACCORDANCE WITH
ITS CUSTOMARY WARRANTY POLICIES IN EFFECT AT THE DATE OF THIS AGREEMENT
(OR, AS OF THE APPLICABLE SUBSEQUENT DATE, IF SUCH POLICIES ARE
HEREINAFTER CHANGED BY TAYLOR MADE GOLF, WHICH ALYN ACKNOWLEDGES SHALL
BE THE RIGHT OF TAYLOR MADE GOLF EXERCISABLE AT ITS SOLE DISCRETION).
ARTICLE 8
CONFIDENTIALITY
8.1 Disclosure of Confidential Information.
--------------------------------------
During the term of this Agreement, Alyn will disclose Alyn
Confidential Information to Taylor Made Golf and Taylor Made Golf will disclose
Taylor Made Golf Confidential Information to Alyn on the following terms:
(a) The recipient will receive, maintain, and hold Confidential
Information in strict confidence and will use the same level of care in
safeguarding it that it uses with its own confidential material of a
similar nature;
(b) The recipient will take all such steps as may be reasonably
necessary to prevent the disclosure of Confidential Information; and
(c) The recipient will not utilize Confidential Information,
other than strictly for meeting its obligations hereunder, without first
having obtained the disclosing party's written consent to such
utilization.
8.2 Exclusions from Confidential Information.
----------------------------------------
The commitments set forth in Section 8.1 above shall not extend
to any portion of Confidential Information:
(a) which is known to the recipient prior to disclosure or is
information generally available to the public;
-12-
<PAGE>
(b) which was not acquired, directly or indirectly and/or in any manner,
from the disclosing party and which the recipient lawfully had in its possession
prior to the Effective Date;
(c) which, hereafter, through no act or omission on the part of the
recipient, becomes information generally available to the public;
(d) which corresponds in substance to information furnished to the
recipient on a nonconfidential basis by any third party having a legal fight to
do so; or
(e) which is required in response to legal process, or to the extent a
Party is advised by counsel that such action is required or advisable to comply
with federal or state laws or regulations.
8.3 Transfer of Ownership; Return of Information.
--------------------------------------------
(a) Neither this Agreement nor any disclosure made hereunder by either
party shall be deemed, by implication or otherwise, to vest in the recipient
any ownership right to any patents, trademarks, Know-How, or trade secrets.
(b) At any time upon written request by the disclosing party, (i) the
Confidential Information, including any copies, shall be returned to the
disclosing party (with the exception of a single copy thereof which may be kept
by the recipient to establish the extent of disclosure of Confidential
Information by the disclosing party) and (ii) all documents, drawings, sketches,
models, designs, data, memoranda, tapes, records, and any other material
whatsoever developed by the recipient which relates to such Confidential
Information, including all copies and/or any other form of reproduction and/or
description thereof made by the recipient (with the exception of a single copy
thereof which may be kept by the recipient to establish the extent of disclosure
of Confidential Information by the disclosing party), shall, at the disclosing
Party's option, be returned to the disclosing party or destroyed.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Alyn.
-----------------------
Alyn shall indemnify and hold harmless Taylor Made Golf and its officers,
directors, shareholders, agents, employees, and Affiliates against any and all
liability, damage, loss, cost, or expense (including reasonable attorney's fees
and disbursements) resulting from any third party claim made, investigation, or
suit brought against Taylor Made Golf or such person to the extent such claims,
investigation, or lawsuit arises or is alleged to arise as a result of (i)
Alyn's negligence or willful misconduct; (ii) Alyn's breach of any of the
representations or warranties set forth herein; (iii) Alyn's material breach of
any of the terms of this Agreement, or (iv) the manufacture, storage, or sale of
any
-13-
<PAGE>
Product by Alyn. Upon being notified of any such claim or suit, Taylor Made
Golf shall promptly notify Alyn in writing thereof and shall permit Alyn at its
cost to defend and control the defense of such claim or suit. Taylor Made Golf
shall have the right to participate in the defense of such claim or suit at its
own expense to the extent that such claim or suit exceeds the coverage of
Alyn's insurance carrier, or, subject to the reasonable approval of such
carrier, to the extent Taylor Made Golf's interests may be affected by such
claim or suit.
9.2 Indemnification by Taylor Made Golf.
-----------------------------------
Taylor Made Golf shall indemnify and hold Alyn and its officers,
directors, shareholders, agents, employees and Affiliates harmless against any
and all liability, damage, loss, cost, or expense (including reasonable
attorney's fees and disbursements) resulting from any third party claim made,
investigation, or suit brought against Alyn or such persons to the extent such
claim, investigation, or lawsuit arises or is alleged to arise as a result of
(i) Taylor Made Golf's negligence or willful misconduct; (ii) Taylor Made Golf's
breach of any of the representations or warranties set forth herein; (iii)
Taylor Made Golf's material breach of any of the terms of this Agreement; (iv)
is made in connection with the Product and arises or is alleged to arise other
than from breach of the Product warranties made by Alyn to Taylor Made Golf
herein; or (v) is otherwise caused by or arises or is alleged to arise out of
the marketing, distribution, sale, and use of any Product by Taylor Made Golf.
Upon being notified of any such claim or suit, Alyn shall promptly notify Taylor
Made Golf in writing thereof and shall permit Taylor Made Golf at its cost to
defend and control the defense of such claim or suit. Alyn shall have the right
to participate in the defense of such claim or suit at its own expense to the
extent that such claim or suit exceeds the coverage of Taylor Made Golf's
insurance carrier or, subject to the reasonable approval of such carrier, to the
extent Alyn's interest may be affected by such claim or suit.
ARTICLE 10
TERMINATION
10.1 Term. The term ("Term") of this Agreement shall be from the
----
Effective Date until June 30, 1999, unless earlier terminated in accordance with
the terms and conditions hereof.
10.2 Termination By Non-Breaching Party. In addition and subject to
----------------------------------
Taylor Made Golf's right to terminate this Agreement pursuant to Section 5.1
(c)(ii) hereof, Alyn or Taylor Made Golf may immediately terminate this
Agreement upon giving written notice thereof to the other Party in the event
that the other Party shall have breached or defaulted in any material respect in
the performance of an obligation imposed on such other Party hereunder;
provided, that in the case of a breach or default other than a failure to make a
payment when due, the non-breaching Party shall have notified the breaching
Party in writing of such breach or default, and within thirty (30) calendar days
after the date of such notice, the breaching Party shall not have cured such
breach or default.
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<PAGE>
10.3 Effect of Termination.
---------------------
If this Agreement is terminated pursuant to the provisions of this
Article 10, the provisions of this Agreement that have been designated to
survive such termination shall so survive and, in addition, Taylor Made Golf and
Alyn shall be bound by the following provisions:
10.3.1 Pending Purchase Orders. All pending Purchase
-----------------------
Orders placed by Taylor Made Golf on or before the receipt of a notice of
termination for any Product shall be fulfilled by Alyn, delivered on the
Delivery Dates requested by Taylor Made Golf, and be paid for in accordance with
the terms and provisions hereof, provided, however, if this Agreement is
terminated pursuant to the provisions of Section 10.2 and Taylor Made Golf is
the breaching or defaulting party, than Alyn, upon such termination, shall have
no further obligation to fulfill any outstanding Purchase Order.
10.3.2 Sale of Remaining Inventory. Subsequent to
---------------------------
termination of this Agreement and for up to a period of twelve (12) months after
the last Delivery Date pursuant to the last Purchase Order, Taylor Made Golf
shall have the right to continue to market, sell, and distribute its entire
inventory on hand of any Product, provided, however, if this Agreement is
terminated pursuant to the provisions of Section 10.2 and Taylor Made Golf is
the breaching or defaulting party, then Taylor Made Golf shall liquidate such
entire inventory on hand in a reasonable fashion that is not damaging to the
Boralyn(R) trademark or the value of Boralyn(R) as promptly as reasonably
practicable (but in not more than twelve (12) months after such last Delivery
Date).
10.3.3 Return of Confidential Information. After this
----------------------------------
Agreement is terminated, all Confidential Information shall be immediately
returned by the recipients to the disclosing Parties as set forth in Section
8.3.
ARTICLE 11
INSURANCE
11.1 Required Limits.
---------------
Taylor Made Golf and Alyn shall each maintain insurance in at
least the following amounts:
(a) Commerical General Liability insurance, including premises,
products, operations, and contractual coverage, in the total amount of not
less than $2,000,000 per claim and $10,000,000 annual aggregate;
(b) Umbrella insurance for bodily injury or property damage in
the total amount of not less than $2,000,000 per occurrence and
$10,000,000 annual aggregate; and
(c) Workers' Compensation insurance in the amount required by
law.
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<PAGE>
11.2 Certificates of Insurance.
-------------------------
(a) Taylor Made Golf shall have its insurance carrier or carriers
furnish to Alyn certificates that all insurance required under this
Agreement is in force, such certificates to indicate any deductible and/or
self-insured retention, and the effective expiration dates of policies,
and such certificates to stipulate that Alyn shall be given thirty (30)
days written notice of all cancellation, non-renewal, or material
changes in the policy.
(b) Alyn shall have its insurance carrier or carriers furnish to
Taylor Made Golf certificates that all insurance required under this
Agreement is in force, such certificates to indicate any deductible and/or
self-insured retention, and the effective expiration dates of policies,
and such certificates to stipulate that Taylor Made Golf shall be given
thirty (30) days written notice of all cancellation, non-renewal, or
material changes in the policy.
ARTICLE 12
PUBLICITY
None of Alyn, Taylor Made Golf or any of their respective
Affiliates shall cause or permit the oral or written release of any statement,
advertisement information, or publicity referring to the other Party without
the other Party's prior written approval. None of Alyn, Taylor Made Golf or
any of their respective Affiliates shall issue any press release or make any
public statement regarding this Agreement without the prior written approval
of the other Party. If any of Alyn, Taylor Made Golf or any of their
respective Affiliates determines, upon advice of counsel, that it is required
by law to make a public statement or announcement, then prior to issuing the
legally required statement or announcement, such Party shall notify the other
Party of this determination and provide the other party a reasonable
opportunity to review such statement or announcement and to make such
reasonable changes not conflicting with applicable requirements of law. Taylor
Made Golf recognizes that Alyn plans an initial public offering of its capital
stock and agrees to cooperate with Alyn in good faith with the release of any
publicity in connection with such offering. Alyn and its Affiliates may issue
press releases and may refer to this Agreement and the transactions contemplated
hereby in any filing made by Alyn or its Affiliates pursuant to applicable
securities laws or stock exchange listing obligations, provided Taylor Made Golf
shall be notified in advance thereof and be given an opportunity to review such
release or reference and to make reasonable changes not conflicting with
applicable requirements or laws. In the event that applicable securities laws or
stock exchange listing obligations require the filing of this Agreement, Alyn
and its Affiliates shall apply to have the information contained in Sections 3.1
(at least insofar as it refers to per Unit pricing), 5.1(c)(ii), 13.1 and 13.2
of, Schedules 1.8, 3.1 and 4.1 of, and Appendix I to, this Agreement filed on a
confidential basis.
-16-
<PAGE>
ARTICLE 13
MISCELLANEOUS
13.1 Other relationships between Salomon Group and Alyn. Promptly
--------------------------------------------------
following the Effective Date, representatives of Alyn and representatives of
Salomon shall meet and confer for the purposes of (i) determining whether other
products manufactured or marketed, or under contemplation, by any member of the
Salomon may benefit from the inclusion of Boralyn/(R)/, and, (ii) if so,
negotiating and concluding reasonable contracts with respect thereto: Among the
opportunities that the Parties anticipate exploring in connection with the
foregoing are Mavic cycling components, Salomon Ski products (skis, boots,
bindings and snowboards), and in-line skates. Although Salomon is not a party to
this Agreement, Taylor Made Golf represents to Alyn that Alyn may rely on the
foregoing in entering into this Agreement.
13.2 Certain Activities and Related Matters Between the Date Hereof and
------------------------------------------------------------------
June 30, 1997. Promptly following the Effective Date, the Parties shall
- -------------
undertake the following additional activities:
(a) During the first* following the Effective Date, the Parties
shall meet and confer with respect to the possibility of adding to the coverage
of this Agreement (as supplemented or amended to the extent necessary or
appropriate) Taylor Made Golf golf club iron heads, putter heads and shafts,
including review of relevant quantity and pricing considerations;
(b) During the first* following the Effective Date, the Parties
shall cooperate in the development of a phased pre-production program regarding,
among other things, material understanding, initial casting study, forged face
process development, and creation of production designs; and
(c) During the first* following the Effective Date, cooperate to
develop initial and follow-up product launch and related production and
promotion schedules, it being understood that the first Products are expected to
be offered for sale first in Japan and, subsequently, in the United States.
(d) In furtherance of the foregoing, Alyn agrees that it will not,
directly or indirectly, enter into any agreement concerning the manufacture or
marketing of any golf club iron or putter head or shaft that will incorporate
Boralyn/R/ with any person, firm or entity other than Taylor Made Golf at any
time during the first* following the Effective Date, which* period shall
be extended for successive* periods if, at the end of each such period,
Taylor Made Golf shall be engaged in good faith negotiations with Alyn
concerning the necessary and relevant issues regarding the inclusion of golf
club iron heads, putter heads and/or shafts in this (or a substantially similar)
Agreement.
13.3 Governing Law.
-------------
*Confidential Treatment has been requested.
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<PAGE>
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of California, without giving effect to
the principles of choice of law of such state. The Parties hereby consent to
personal jurisdiction in the United States District Court for the Central
District of California, Southern Division, and waive any and all personal rights
under the law of any jurisdiction to object on any basis (including, without
limitation, inconvenience of forum) to jurisdiction of such court for the
purpose of such litigation to enforce this Agreement or any rights of either
Party with respect to the subject matter hereof.
13.4 Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
13.5 Headings.
--------
The headings of the Articles and Sections of this Agreement are
intended solely for convenience and shall not be deemed to constitute part of
this Agreement or to affect the construction or interpretation hereof.
13.6 Severability.
------------
In the event that a court of competent jurisdiction holder that
particular provisions or requirements of this Agreement are in violation of any
law of the United States or any state thereof, such provisions or requirements
shall not be enforced except to the extent they are not in violation of any such
law, and all other provisions and requirements of this Agreement shall remain in
full force and effect.
13.7 Force Majeure.
-------------
Any delay in the performance of any of the duties or obligations of
either Party hereto (except the payment of money owed) shall not be considered a
breach of this Agreement and the time required for performance shall be extended
for a period equal to the period of such delay, provided that such delay has
been caused by or is the result of any acts of God; acts of the public enemy;
insurrections; riots; embargoes, labor disputes, including strikes, lockouts,
job actions, or boycotts; fires; explosions; floods; shortages of material or
energy; delay in transportation; any discontinuance of the manufacture,
distribution, sale or other operation by Alyn or any of its Affiliates of any
Product by any governmental or regulatory authority; or other unforeseeable
causes beyond the control and without the fault or negligence of the Party so
affected. The Party so affected shall give prompt notice to the other Party of
such cause, and shall take whatever reasonable steps are necessary to relieve
the effect of such cause as rapidly as possible.
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<PAGE>
13.8 Notices.
-------
All notices hereunder shall be delivered (i) personally, (ii) by
registered or certified mail, postage prepaid, or (iii) by overnight courier
service to the following addresses of the respective Parties:
If to Taylor Made Golf, individual copies to:
-------------------------------------------
Taylor Made Golf Company, Inc.
2271 Cosmos Court
Carlsbad, CA 92009
Attn. Jean Hue
----
Fax: 619-931-1988
If to Alyn, individual copies to:
--------------------------------
Robin A. Carden, President and
Chief Executive Officer, and
Walter Menetrey, Chief Operating Officer
Alyn Corporation
16871 Noyes Avenue
Irvine, CA 92715
Fax: 714-475-1531
with a copy to:
Gerald A. Eppner, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Fax: 212-856-7811
Notices shall be effective: (a) upon receipt if personally delivered or
delivered by confirmed facsimile; (b) on the fifth business day following the
date of mailing, if mailed; and (c) upon receipt, if sent by overnight courier
service. A Party may change its address listed above by notice to the other
Party.
13.9 Waiver; Modification of Agreement.
---------------------------------
No waiver or modification or amendment of any of the terms of this
Agreement, including Appendices, shall be valid unless in writing and signed by
authorized representatives of both Parties hereto. Failure by either Party to
enforce any rights under this Agreement shall not be construed as a waiver of
such rights nor shall a waiver by either Party in one or more instances be
construed as a waiver of such rights nor shall a waiver by either Party in one
or more instances be construed as constituting a continuing waiver or as a
waiver in other instances.
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<PAGE>
13.10 Entire Agreement.
----------------
This Agreement 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. No course of dealing or usage
of trade shall be used to modify the terms hereof except as expressly set forth
otherwise herein.
13.11 Assignment.
----------
This Agreement shall not be assigned by either Party without the prior
written consent of the other Party, except that Alyn may delegate its
obligations hereunder to any of its Affiliates so long as Alyn remains liable
for the performance of all such obligations and Taylor Made Golf may enforce
such obligations against Alyn and such Affiliate jointly and severally. Any
assignment to which consent is given shall be binding upon, inure to the benefit
of, and be enforceable by, the assignee and any successors in interest of the
assignee.
13.12 Remedies.
--------
In addition to the right to terminate this Agreement upon the breach
or default of a Party, the other Party shall be entitled to any other remedies
to which it may be entitled at law or in equity including, but not limited to,
monetary damages.
13.13 Superseding Provisions.
----------------------
The provisions of this Agreement shall supersede any inconsistent
provisions in any Purchase Order.
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized officers on the respective dates hereinafter
set forth:
TAYLOR MADE GOLF COMPANY, INC.
By: /s/ Jean Hue
-----------------------------------
Jean Hue
Vice President of Research and
Development
ALYN CORPORATION
By: /s/ Robin A. Carden 9-10-96
-----------------------------------
Robin A. Carden,
President and Chief Executive
Officer
-21-
<PAGE>
SCHEDULE 1.8
PRODUCT DESCRIPTION
Type/Description
of Product
----------
1. Golf Club Metalwood Heads
<PAGE>
SCHEDULE 3.1
PRICE SCHEDULE
Prices for each Product sold by Alyn to Taylor Made Golf shall be in
accordance with the following schedule:
Purchase
Name of Product Price per Unit ($)
--------------- ------------------
1. Golf Club Metalwood Head *
* Confidential treatment has been requested.
<PAGE>
SCHEDULE 4.1
MINIMUM PURCHASES FOR EXCLUSIVITY
FOR THE PERIOD:
Minimum Amount of Purchases to
Maintain Exclusivity (Units) -
Sales Quarter Ended: Metalwood Heads
- ------------------- -------------------
September 30, 1997 * ., ..
December 31, 1997 *
March 31, 1998 *
June 30, 1998 *
September 30, 1998 *
December 31, 1998 *
March 31, 1999 *
June 30, 1999 *
Sales Year Ended:
- ----------------
June 30, 1998 * ., ..
June 30, 1999 * ..
- -------------------
. Taylor Made's First Sales Quarter as set forth in Section 1.6 of this
Agreement.
.. Subject to variation in accordance with Section 5.1(c)(ii) of this Agreement.
* Confidential Treatment has been requested.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 16, 1996, relating
to the financial statements of Alyn Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
PRICE WATERHOUSE LLP
Costa Mesa, California
September 17, 1996
