<PAGE>
As Filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IRVINE SENSORS CORPORATION
(Name of registrant as specified in its charter)
DELAWARE 33-0280334
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or jurisdiction)
3001 REDHILL AVENUE
COSTA MESA, CALIFORNIA 92626
(714) 549-8211
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JAMES D. EVERT, CHIEF EXECUTIVE OFFICER
IRVINE SENSORS CORPORATION
3001 REDHILL AVENUE, BUILDING III
COSTA MESA, CALIFORNIA 92626
(714) 549-8211
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
--------------------
WITH COPY TO:
DEBRA K. WEINER
GROVER T. WICKERSHAM, P.C.
430 CAMBRIDGE AVENUE, SUITE 100
PALO ALTO, CALIFORNIA 94306
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[_]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
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, check the following box and list the Securities Act
registration statement number of the earlier effectiveregistration statement for
the same offering.[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 6,668,272(2)(3) $1.40625 $9,377,257.50 $2,766.30
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c) and equal to the closing price of the Common Stock on The
Nasdaq SmallCap Market(SM) on January 28, 1998.
(2) Registered for resale by certain Selling Stockholders.
(3) Pursuant to Rule 416, there are also being registered an indeterminate
number of additional shares of Common Stock issuable pursuant to the anti-
dilution provisions of the warrants owned by certain of the Selling
Stockholders.
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 EXCHANGE 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.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. 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 January 30, 1998
6,668,272 SHARES
IRVINE SENSORS CORPORATION
COMMON STOCK
This Prospectus covers 6,668,272 shares (the "Shares") of the Common Stock,
par value $0.01 per share (the "Common Stock") of Irvine Sensors Corporation
(the "Company") for reoffer or resale from time to time by the certain selling
stockholders of the Company's securities (the "Selling Stockholders"), or by
their pledgees, donees, transferees or other successors in interests ( sometimes
referred to as "Sellers"). See "Selling Stockholders." Of the Shares, 1,114,810
were issued to certain of the Selling Stockholders upon conversion of 8%
Convertible Subordinated Debentures Due 1998 purchased in private transactions
(the "Debentures"). The Debentures were acquired in offshore transactions in
February and March 1996. Pursuant to a prospectus dated May 10, 1996, 2,997,000
additional shares of Common Stock issued upon conversion of a portion of the
Debentures sold in the 1996 offshore offering were registered for resale by
certain of the Selling Stockholders named herein and others. The Company
believes, but cannot assure, that all of those shares have been resold. Of the
remaining Shares offered hereby, 3,900,000 Shares were either issued in or are
issuable upon conversion of Preferred Stock issued in private placements
conducted in December 1997 and January 1998, 871,740 Shares were issued for
services rendered to the Company during 1996 and 1997 or for retirement of debt,
362,000 Shares are issuable upon exercise of outstanding Warrants, 390,000
Shares are issuable upon exercise of outstanding Warrants issued to the
Company's selling agent or are issuable upon conversion of Preferred Stock
issuable upon exercise of additional selling agent's Warrants and 29,722 shares
are shares purchased by an affiliate of the Company in a private transaction.
The Shares may be offered by the Sellers from time to time in brokerage
transactions (which may include block transactions), in the over-the-counter
market or negotiated transactions at prices and terms prevailing at the times of
such sales, at prices related to such market prices or at negotiated prices.
Such shares may be sold directly to purchasers, through broker-dealers acting as
agents for the Sellers or to broker-dealers who may purchase the Sellers' Shares
as principals and thereafter sell the Shares from time to time in the over-the-
counter market, in negotiated transactions or otherwise, or by a combination of
these methods. Broker-dealers who effect these transactions may receive
compensation in the form of discounts or commissions from the Sellers or from
the purchasers of the Shares for whom the broker-dealers may act as an agent or
to whom they may sell as a principal, or both. See "Plan of Distribution."
The Company will not receive any part of the proceeds from the resale of
the Shares by the Selling Stockholders. The Selling Stockholders and broker-
dealers, if any, acting in connection with such sales, might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commission received by them and any profit on the resale of such securities
might be deemed to be underwriting discounts and commissions under the
Securities Act.
The Company's Common Stock is currently traded on The Nasdaq SmallCap
Market(SM) under the symbol "IRSN" and on the Boston Stock Exchange under the
symbol "ISC." On January 28, 1998, the closing sale price of the Common Stock on
Nasdaq was $1-13/32 per share.
The securities offered hereby are speculative, involve a high degree of
risk and should not be purchased by any investors who cannot afford the loss of
their entire investment. See "Risk Factors" on page 7 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the Commission.
Furthermore, the Common Stock is listed on the Nasdaq SmallCap Market and
similar information concerning the Company can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Act with respect to the securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement, including exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained by mail at prescribed rates from the Public Reference Branch of the
Commission at450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are by this reference incorporated in and made a part of this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997, filed pursuant to Section 13 of the
Exchange Act;
(ii) The Company's Definitive Proxy Statement for the February 27,
1998 Annual Meeting of Stockholders;
(iii) All reports filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the
termination of this offering; and
(iv) The description of the Company's Common Stock contained in Form
8-A, filed pursuant to Section 12(g) of the Exchange Act.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will cause to be furnished without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any documents described above,
other than certain exhibits to such documents. Request should be addressed to:
Irvine Sensors Corporation, 3001 Redhill Avenue, Building III, Costa Mesa,
California 92626, Attention: Secretary, telephone (714) 549-8211.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the facts
herein set forth since the date hereof.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1997, which is incorporated by reference herein,
include certain statements that may be deemed to be "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements, other than statements of historical facts,
included in this Prospectus that address activities, events or developments that
the Company expects,believes or anticipates will or may occur in the future,
including, but not limited to, such matters as future product development,
business development, marketing arrangements, future revenues from contracts,
business strategies, expansion and growth of the Company's operations and other
such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its experience
and perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including the risk factors discussed below, general economic and business
conditions, the business opportunities (or lack thereof) that may be presented
to and pursued by the Company, changes in law or regulations and other factors,
many of which are beyond the control of the Company. Prospective investors are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in the forward-looking statements.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus.
THE COMPANY
Irvine Sensors Corporation ("ISC" or the "Company") is the developer of
proprietary technologies to produce extremely compact packages of solid state
microcircuitry, which offer volume, power, weight and operational advantages
versus less miniaturized alternatives. These advantages result from ISC's
ability to assemble microelectronic chips in a three-dimensional "stack" instead
of alongside each other on a flat surface, as is the case with more conventional
methods. These stacking technologies have also led to ISC's development of
collateral technologies for the design of low power and low noise chips,
thinning of chips and various specialized applications of chips and stacked chip
assemblies in fields ranging from image processing to digital photography. ISC's
core chip-stacking technology was originally conceived and developed as a means
of addressing the demands of space-based surveillance. However, the degree of
miniaturization realizable from ISC's technologies has attracted R&D sponsorship
from various U.S. government funding agencies for a wide variety of potential
military and space applications. Sinceits inception, ISC has derived most of its
revenues from such funded research and development. Since the early 1990s, ISC
has sought to commercially exploit its technologies and has received an
increasing share of its revenues from the sale of commercial products. During
June 1992, ISC entered into a joint development agreement with IBM(R) to
commercialize ISC's chip-stacking technology for computer memory applications.
In April 1996, ISC purchased a memory-stacking line in Essex Junction, Vermont
from IBM, and in October 1997, disposed of that line and consolidated that
sector of its business with its California operation. In October 1995, ISC
formed a subsidiary, Novalog, Inc. ("Novalog"), to commercially exploit its low
power chip technology. In April 1997, ISC formed a subsidiary, MicroSensors,
Inc. ("MSI"), to commercially exploit its technologies for low noise readout
electronics and miniaturized inertial sensors.
Novalog designs, develops and sells proprietary integrated circuits ("ICs")
for use in wireless infrared communication. Novalog's initial products,
trademarked SIRComm(TM), SIR2(TM), SIRFIR(TM), MiniSIR(TM) and BayBeamer(TM),
enable infrared, line-of-sight data transfer between computers, electronic
organizers, printers, modems and other electronic devices that have compatible
ports. Novalog is an active participant in the standards body of the Infrared
Data Association ("IrDA"), which establishes the hardware and software protocols
for such products. Novalog believes its products have advantages in terms of
power consumption, dynamic range, size and economics as compared to the products
of its competitors. As of September 28, 1997, Novalog has shipped nearly one and
one-half million of its packaged ICs to manufacturers servicing the IrDA
marketplace and, although there can be no assurance, management anticipates
growing demand for such products.
MSI was formed to develop and sell proprietary micromachined sensors and
related electronics. Micromachining involves the use of semiconductor
manufacturing processes to build electromechanical devices with feature sizes
measured in microns or fractions thereof. As prices have declined for
micromachined devices, such solid-state units have migrated from initial
aerospace and military applications to automotive, industrial process-control
and medical applications. SRI Consulting (Menlo Park, CA) has reported that some
observers expect sensors built in this manner to eventually replace virtually
all electromechanical sensors, creating a market of several billion dollars
annually. There is no assurance that MSI will be able to capitalize on this
market opportunity. MSI has received a U. S. government contract for development
of a proprietary micro gyro with projected performance features heretofore
achievable only at much higher cost. Effective October 1997, MSI has negotiated
its first commercial contract and has commenced development of a multi-channel
readout chip pursuant to that contract. MSI believes, although there can be no
assurance, that these contracts have positioned MSI to effectively compete in
this emerging marketplace.
ISC was incorporated in Delaware in January 1988. Pursuant to a merger
effective in May 1988 with a corporation of the same name incorporated in
California in December 1974, the Company succeeded to all of the assets and
liabilities of such predecessor corporation. Its principal executive offices are
located at 3001 Redhill Avenue, Building. 3, Costa Mesa, California 92626, and
its telephone number is (714) 549-8211.
Novalog was incorporated in California in October 1995. Its principal
executive offices are located at 125 Kalmus Drive, #K-1, Costa Mesa, California
92626, and its telephone number is (714) 429-1122. Novalog is a consolidated
subsidiary of ISC.
MSI was incorporated in Delaware in April 1997. Its principal executive
offices are located at 3001 Redhill Avenue, Building 3, Costa Mesa, California
92626, and its telephone number is (714) 444-8729. MSI is a consolidated
subsidiary of ISC.
<PAGE>
THE OFFERING
Common Stock Offered by the Selling Stockholders... 6,668,272 shares
Common Stock Outstanding........................... 22,874,140 shares as of
January 20, 1998(1)
Risk Factors....................................... An investment herein
involves a high degree of
risk and should not be
considered by investors who
cannot afford to lose their
entire investment. See
"Risk Factors."
Use of Proceeds.................................... The Company will receive no
proceeds from the sale of
the Shares offered hereby
by the Selling
Stockholders.
Nasdaq Symbol...................................... IRSN
Boston Stock Exchange Symbol....................... ISC
__________
(1) Does not include (i) up to 1,405,500 shares issuable upon exercise of
outstanding options granted pursuant to the Company's stock option plans
and 613,800 shares issuable upon exercise of outstanding options granted to
a related party; (ii) up to 1,030,000 shares issuable upon exercise of
outstanding warrants, including 752,000 warrants, the underlying shares of
which are being offered for resale hereby, 377,500 shares of which are
issuable upon conversion of Preferred Stock, which itself is issuable upon
exercise of certain of the outstanding warrants; (iii) up to 4,537,950
shares issuable upon conversion of outstanding shares of Series B, C and D
Convertible Preferred Stock.
<PAGE>
SUMMARY FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, OCTOBER 2, OCTOBER 3,
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Total revenues $ 13,693,200 $ 12,024,200 $ 8,041,400 $ 5,139,400 $ 4,286,300
Loss from operations $(14,809,200) (11,154,700) (3,071,500) (2,629,500) (1,552,100)
Net loss $(14,875,600) (15,914,700) (4,137,500) (2,463,900) (1,507,600)
Net loss per common
and common equivalent
share $ (0.73) $ (0.94) $ (0.28) $ (0.18) $ (0.12)
Weighted average
number of shares
outstanding 20,475,100 16,874,300 14,966,500 14,141,500 12,865,800
CONSOLIDATED BALANCE SHEET DATA:
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, OCTOBER 2, OCTOBER 3,
1997 1996 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets $ 6,637,200 $ 9,648,200 $ 9,927,500 $ 6,795,500 $2,135,900
Current liabilities $ 7,395,600 5,787,100 3,545,400 1,355,400 739,000
Working capital $ (758,400) 3,861,100 6,382,100 5,440,100 1,396,900
Total assets $ 9,449,300 21,742,200 15,609,200 10,355,400 3,897,500
Long-term debt $ 1,207,000 3,165,600 201,200 81,100 62,600
Shareholders' equity $(2,939,900) 8,312,700 9,494,100 8,800,400 2,977,400
</TABLE>
The Company has not paid cash dividends on any class of its stock since its
incorporation. Under Delaware law there are certain restrictions which limit the
Company's ability to pay cash dividends in the future.
Loss per common and common equivalent shares includes, where applicable,
cumulative dividends on Preferred Stock which have not been declared or paid.
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information set forth in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing any of the Common
Stock offered hereby. This Prospectus contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed in this
Prospectus. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Prospectus
and in the Company's documents incorporated herein by reference:
History of Losses; Accumulated Deficit. Since its inception, ISC has
operated at a loss as government contract revenues and other sources of income
were insufficient to cover the research and development and other costs incurred
by ISC. This imbalance has been exacerbated in the last several years as a
result of ISC's purchase of a high-fixed-cost facility from IBM for the stacking
of memory chips, contributing to a net loss of $14,875,600 in fiscal 1997 on a
consolidated basis, including a one time write-down of nearly $6 million related
to the closure of this IBM line. Management believes that shut down of the IBM
stacking line will materially improve the Company's operating results in fiscal
1998, but can make no assurances that it will achieve profitable operations in
the foreseeable future, if at all. ISC had an accumulated deficit of $49,579,500
at September 28, 1997.
Shift in Business Focus. Since commencing operations, ISC has developed
technology, principally under government research contracts, for various
defense-based applications. Since 1992, ISC has been implementing a fundamental
shift in its business, broadening its focus to include commercial exploitation
of its technology. This shift has been manifested by the purchase and later shut
down of the IBM cubingline, the "carve-out" of the Novalog and MSI subsidiaries
and the development of various stacked-memory products intended for military and
aerospace markets. To date, these changes have materially increased ISC's
revenues but have also increased its losses. Because of this limited and not-yet
successful history, there can be no assurance that ISC's present and
contemplated future products will be widely accepted in commercial marketplaces.
Financing Needs. ISC has substantial needs for financing, both to fund
business plans and to retire existing obligations. Disposition of the IBM-based
line left a residual debt of approximately $1.7 million to a bank lendor, of
which approximately $1.5 million was unsecured. ISC has entered into a "work-
out" arrangement with this lendor which has retired $500,000 of this debt
through conversion to equity and has made an additional lump sum payment of
$250,000 to further partially retire this debt. ISC will be required to continue
servicing the remaining portion of the debt through calendar year 1998 until
fully retired. Servicing of this debt will divert working capital to non-
operating needs, thereby increasing the Company's needs for working capital
financing. In addition, ISC's business plans have identified
7
<PAGE>
needs for financing of new products and business areas. There can be no
assurance that such financing will be available on terms acceptable to ISC.
Change in Nasdaq Listing Requirements. ISC's Common Stock is publicly
traded on the Nasdaq SmallCap Market. In August 1997, new regulations were
adopted for listing maintenance on this market which will be applicable to the
Company as of February 23, 1998. Due to recent equity transactions, ISC believes
that it meets all of the existing and pending new Nasdaq maintenance standards
as of January 20, 1998. However, there can be no assurance that the Company will
continue to meet these standards. Furthermore, because the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1997 indicated a
capital and surplus deficiency with respect to current Nasdaq listing
requirements, the Company must demonstrate that these recent transactions have
cured the Company's deficiency in order to maintain its Nasdaq listing. The
Company intends to provide this demonstration by filing a pro-forma balance
sheet in its Quarterly Report on Form 10-Q for the fiscal quarter ended December
28, 1997 showing the effect of the recent equity transactions. However, because
of the Company's historical financial results, the Nasdaq staff may also require
a demonstration that these transactions and improvements in the Company's
operating results have provided a sufficient margin to ensure the Company's
continued compliance with the new standards. If ISC is unable to demonstrate
this compliance to the satisfaction of the Nasdaq staff, its securities could be
subject to delisting. Trading, if any, in ISC's securities would thereafter be
conducted on the NASD OTC Bulletin Board or the "pink sheets" maintained by the
National Quotation Bureau. As a result, an investor might find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, ISC's
securities.
In addition, if ISC were to fail to meet the maintenance requirements for
listing on Nasdaq and the price of ISC's Common Stock was below $5 at such time,
such securities would come within the definition of "penny stock" as defined in
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and be
covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors. From transactions
covered by Rule 15g-9, the broker-dealer must make a special suitability
determination for the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale. Consequently, Rule 15g-9, if it were to
become applicable, would affect the ability or willingness of broker-dealers to
sell ISC's securities and therefore would affect the ability of purchasers in
this offering to sell their securities in the public market.
Dependence on Defense Contract Revenues. Although ISC has been shifting its
focus to include commercial exploitation of its technology, it expects to
continue to be dependent upon research and development contracts with federal
agencies and their contractors for a substantial, but diminishing portion of its
revenues for the foreseeable future. General political and economic conditions,
which cannot be accurately predicted, directly and indirectly affect the
quantity and allocation of expenditures by federal agencies. Even the timing of
incremental funding commitments to existing, but partially-funded contracts can
be affected by such factors. Therefore, cutbacks in the federal budget could
have a material adverse impact on ISC's results
8
<PAGE>
of operations as long as research and development contracts remain an important
element of its business.
Market Acceptance of New Products. Both ISC and its subsidiaries are
focused on markets that are emerging in nature and potentially subject to rapid
growth. Market reaction to new products in such circumstances can be difficult
to predict. There can be no assurance that the present or future products of ISC
or its subsidiaries will be favorably accepted by such markets on a sustained
basis. In addition, because ISC has a limited history of competing in the
intensely competitive commercial electronics industry, there is no assurance
that it will successfully be able to develop, manufacture and market additional
commercial product lines or that such product lines will be accepted in the
commercial marketplace.
Need for Ongoing Product Development and Substantial Additional Funds. Even
if the existing or presently-contemplated products of ISC or its subsidiaries
achieve initial levels of commercial success, ISC and its subsidiaries are
engaged in industries that are characterized by rapid product obsolescence and
the need for ongoing product development. Although ISC has a history of
successfully attracting government funded R&D contracts, there can be no
assurance that such resources will continue to be available or will be adequate
to meet the needs of future product development. Furthermore, there can be no
assurance that sufficient funding will be available from other external sources
or from internally generated cash flow to successfully develop products for
volume production, or that such products will be successfully developed even if
funding is available.
Patents and Proprietary Right Protection; Infringement. ISC believes that
its ultimate success, and that of its subsidiaries, will depend, in part, on the
strength of its existing patent protection and the additional patent protection
that it and its subsidiaries may acquire in the future. As of the date hereof,
ISC owns 40 U.S. patents and nine foreign patents and has other patent
applications pending before the U.S. Patent and Trademark Office as well as
various foreign jurisdictions. Although ISC believes many of these patents to be
fundamental in nature, there can be no assurance that any existing or future
patents will survive a challenge or will otherwise provide meaningful protection
from competition. Furthermore, there is also no assurance that ISC or its
subsidiaries will have the financial resources to provide vigorous defense or
enforcement of patents.
Protection of Proprietary Information. ISC and its subsidiaries treat
technical data as confidential and rely on internal nondisclosure safeguards,
including confidentiality agreements with employees, and on laws protecting
trade secrets, to protect proprietary information. There can be no assurance
that these measures will adequately protect the confidentiality of the
proprietary information of ISC or its subsidiaries or that others will not
independently develop products or technology that are equivalent or superior to
those of ISC or its subsidiaries. ISC or its subsidiaries may receive in the
future communications from third parties asserting that the products of ISC or
its subsidiaries infringe the proprietary rights of third parties. There can be
no assurance that any such claims would not result in protracted and costly
litigation. There can be no assurance that any particular aspect of the
technology owned by ISC or its subsidiaries will not be found to infringe the
products of other companies. Other companies may hold or obtain
9
<PAGE>
patents or inventions or may otherwise claim proprietary rights to technology
useful or necessary to ISC's or its subsidiaries' business. The extent to which
ISC or its subsidiaries may be required to seek licenses under such proprietary
rights of third parties and the cost or availability of such license, cannot be
predicted. While it may be necessary or desirable in the future to obtain
licenses relating to one or more of its proposed products or relating to current
or future technologies, there can be no assurance that ISC or its subsidiaries
will be able to do so on commercially reasonable terms.
Government Rights. Whatever degree of protection, if any, is afforded ISC
or its subsidiaries through its patents, proprietary information and other
intellectual property, this protection will not extend to government markets
that utilize certain segments of ISC's technology. The government has the right
to royalty-free use of technologies which ISC has developed under government
contracts, including portions of ISC's stacked circuitry technology. ISC is free
to commercially exploit such government-funded technologies and may assert its
intellectual property rights to seek to block other non-government users
thereof, but there can be no assurance of success in such endeavors.
Competition. ISC and its subsidiaries face strong competition. Most
competitors have considerably greater financial, marketing and technological
resources than does ISC or its subsidiaries. There is no assurance that ISC or
its subsidiaries will be able to compete successfully with such other companies.
Dependence on Suppliers. ISC and its subsidiaries extensively use
suppliers in the manufacture of their products. Novalog currently uses the
services of a single foundry but is in the process of identifying and qualifying
additional foundry sources. There is no assurance, however, that it will be able
to qualify alternative sources of supply for the Novalog products which will be
able to manufacture the products to the Company's specifications at favorable
prices to the Company. Any material disruption in the sole source of supply
could have a material adverse impact on Novalog and therefore on the Company's
consolidated results. At the projected level of operations, both ISC and its
subsidiaries have identified sources that are believed to be adequate to meet
identified needs. However, there is no assurance that ISC or its subsidiaries
will be able to cover changing manufacturing needs in the future. Failure to do
so will have a material adverse impact on the operations of ISC and its
subsidiaries.
Possible Technological Advances. ISC and its subsidiaries are in
industries characterized by continuing technological development and,
accordingly, will be required to devote substantial resources to improve already
technologically complex products. Many companies in these industries devote
considerably greater resources to research and development than does ISC or its
subsidiaries. Developments by any of these companies could have a materially
adverse effect on ISC.
Dependence on Key Personnel. ISC and its subsidiaries will depend to a
large extent on the abilities and continued participation of certain key
employees. The loss of key employees could have a material adverse effect on the
businesses of ISC and its subsidiaries. ISC and its subsidiaries have adopted
employee stock option plans designed to attract and retain key
10
<PAGE>
employees. The value of the options in the subsidiaries will be strongly
dependent upon whether, in the future, the subsidiaries become public companies,
for which there currently are no specific plans and no assurance that any of the
Company's subsidiaries will at any time in the future become public companies.
Accordingly, there is no guarantee that the options granted to key personnel in
the subsidiaries will assure that the subsidiaries can retain their key
employees. Neither ISC or its subsidiaries presently maintain "key man"
insurance on any key employees. ISC believes that, as its activities and those
of its subsidiaries increase and change in character, additional, experienced
personnel will be required to implement the business plans of ISC and its
subsidiaries. Competition for such personnel is intense and there is no
assurance that they will be available when required, or that ISC or its
subsidiaries will have the ability to attract them.
Future Sales of Securities. ISC's Certificate of Incorporation, as amended
and currently in effect, authorizes the issuance of up to 500,000 shares of
Preferred Stock, approximately 51,550 of which are outstanding as of January 20,
1998. The Board of Directors has been granted the authority to fix and determine
the relative rights and preferences of Preferred Stock, as well as the authority
to issue such shares, without further stockholder approval. As a result, the
Board of Directors could authorize the issuance of a series of Preferred Stock
that would grant to holders preferred rights to the assets of ISC upon
liquidation, the right to special voting privileges, the right to receive
dividends before dividends would be declared upon the Common Stock or the
Preferred Shares and the right to redemption of such shares, together with a
premium, prior to the redemption of Common Stock or the Preferred Shares. Common
stockholders and existing Preferred stockholders have no redemption rights. The
ability of the Board to issue large blocks of Preferred Stock could have a
potential anti-takeover effect, and the issuance of Preferred Stock in
accordance with such authority may delay or prevent a change of control of ISC.
A similar feature enabling the issuance of up to 5,000,000 shares of "blank
check" Preferred Stock is contained in the Articles of Incorporation of Novalog
and in the Certificate of Incorporation of MSI.
Lack of Dividends. ISC has never paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. ISC currently intends to retain future earnings, if any, to fund the
development and growth of its business.
Stock Market Volatility. There have been periods of extreme volatility in
the stock market that, in many cases, were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected
securities. General market price declines or volatility in the future could
adversely affect the price of ISC's Common Stock. Short-term trading strategies
of certain investors can have a significant effect on the price of specific
securities.
11
<PAGE>
USE OF PROCEEDS
The Company will receive no part of the proceeds of any sales or
transactions made by the Selling Stockholders and/or their respective pledgees,
donees, transferees or other successors in interest hereunder. The Company will
pay substantially all of the expenses incident to the offering of the Shares,
other than any discounts, concessions or commissions payable to any
underwriters, dealers or agents, which expenses will be borne by the respective
Selling Stockholders.
12
<PAGE>
SELLING STOCKHOLDERS
An aggregate of 6,668,272 Shares of Common Stock may be offered by certain
security holders of the Company (the "Selling Stockholders") who acquired these
Shares in private transactions. Of these Shares, (i) 1,114,810 Shares were
issued upon conversion of previously outstanding Debentures issued in 1996; (ii)
3,775,000 Shares issuable upon conversion of Preferred Stock issued in a recent
private placement; (iii) 125,000 Shares issued in a recent private placement;
(iv) 752,000 Shares issuable upon exercise of outstanding Warrants, including
377,500 Shares issuable upon conversion of Preferred Stock that is itself
issuable upon exercise of outstanding Warrants; (v) 871,740 Shares of Common
Stock issued for services rendered in fiscal years 1996 and 1997 or other
payment of outstanding indebtedness; and (vi) 29,722 Shares sold in a single
private transaction to an affiliate of the Company.
The Selling Stockholders, or their pledgees, donees, transferees or other
successors in interests, may offer the Shares of Common Stock owned by them for
sale as principals for their own accounts at any time and from time to time, on
the Nasdaq SmallCap Market or in the over-the-counter market or otherwise at
prices and terms at prices then prevailing or related to the then current market
price. The Selling Stockholders, or their pledgees, donees, transferees or other
successors in interests, may also offer the Shares in private sales at prices to
be negotiated. The Selling Shareholders may also offer the Shares in private
sales at prices to be negotiated or pursuant to Rule 144, if the conditions of
the Rule are then satisfied. See "Plan of Distribution." The Company will not
receive any of the proceeds from the sale of such securities. Selling
Stockholders are not obligated to reimburse the Company any portion of the
expenses incurred by the Company in this offering.
The following table sets forth the name of each such security holder for
whom the Company is registering Shares of Common Stock for resale to the public
and (ii) the shares of Common Stock beneficially owned by each such holder as of
January 20, 1998 and immediately after the offering (assuming the sale of all of
their Shares offered hereby, of which there is no assurance). Material
relationships between certain of the Selling Stockholders and the Company are
set forth in the footnotes to the table. Except as indicated in the footnotes to
this table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NUMBER OF SHARES FOLLOWING OFFERING
BENEFICIALLY OWNED SHARES ------------------------
PRIOR TO THE TO BE NUMBER OF PERCENT
NAME OFFERING SOLD SHARES OWNED
- ---------------------------- ---------------------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Leonardo, L.P. (1) 1,048,924 1,048,924 0 --
Raphael, L.P. (1) 105,886 105,886 0 --
Buchanan Partners Limited (1) 50,000 50,000 0 --
Buchanan Fund Atlantic (1) 50,000 50,000 0 --
Purling Holdings Limited (1) 90,000 (2) 90,000 0 --
Bronia Gmbh (1) 500,000 (4) 500,000 0 --
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Banque Privee Edmond de Rothschild (1) 600,000 (5) 600,000 0 --
</TABLE>
(See footnotes on following pages.)
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIAL OWNERSHIP
BENEFICIALLY OWNED SHARES FOLLOWING OFFERING
-----------------------
PRIOR TO THE TO BE NUMBER OF PERCENT
NAME OFFERING SOLD SHARES OWNED
- ------------------------------------------ ---------------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Glenbrook Capital Limited Partnership(6) 500,000 (7) 500,000 0 --
Terivian Enterprises, Inc. (1) 250,000 (8) 250,000 0 --
Preston Assets Management (1) 200,000 (9) 200,000 0 --
Faisal Finance (Switzerland) S. A. (1) 200,000 (9) 200,000 0 --
BFC Banque Financiere de la Cite (1) 150,000 (10) 150,000 0 --
Nutley Investments (1) 150,000 (10) 150,000 0 --
Oxcal Venture Fund, L.P. (11) 125,000 (12) 125,000 0 --
Cresta Limited(1) 100,000 (13) 100,000 0 --
Felcom Capital Corporation(1) 100,000 (13) 100,000 0 --
MLPF & S FPO Uible & Poe
FBO HF Poe 100,000 (13) 100,000 0 --
Xavier Roland 100,000 (13) 100,000 0 --
Bergmont Limited(1) 75,000 (14) 75,000 0 --
Bruce Bailey (15) 684,200 (16) 72,200 (16) 222,000 *
Eide Family Trust (17) 50,000 (18) 50,000 0 --
Claude Eyraud 50,000 (18) 50,000 0 --
Paddington Investments, Inc. (1) 50,000 (18) 50,000 0 --
Marc Rebagliati 50,000 (18) 50,000 0 --
Charles B. Krusen 50,000 (18) 50,000 0 --
Tatkit Nominees(1) 40,000 (19) 40,000 0 --
Lorenzo Delco 40,000 (19) 40,000 0 --
C. S. Rennie 25,000 (20) 25,000 0 --
Meadowland Limited(1) 25,000 (20) 25,000 0 --
Andrew Olear II 25,000 (20) 25,000 0 --
Stuart Family Trust (21) 457,917 (22) 15,000 442,917 1.9
Alexiou Family Trust (23) 802,663 (24) 10,000 792,663 3.5
David & Madeline Pinto Trust (25) 115,655 (26) 5,000 110,655 *
Howard Bank, N.A. 550,000 550,000 0 --
Grover T. Wickersham, P.C. (27) 100,000 100,000 0 --
Thomas J. Plante (28) 115,900 65,000 50,900 *
R.G. Hansen & Co. 39,000 39,000 0 --
Itzhak Sapir 30,000 30,000 0 --
John Wursthorn 30,000 30,000 0 --
Joseph T. Yanus 15,000 15,000 0 --
Tony Johnson 12,500 12,500 0 --
James D. Evert (29) 45,222 29,722 15,500 *
Anthony J. Tether 223,000 (30) 223,000 0 --
Kenneth T. Lian 268,329 (31) 54,000 214,329 1.0
Edda Brown 105,000 (32) 30,000 75,000 *
Lookout Mountain Group 30,000 (33) 30,000 0 --
Joe Minahan 8,000 2,000 6,000 *
John P. Murray 5,600 5,600 0 --
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Bruce Lee 5,500 2,500 3,000 *
Harvey Allard 5,000 5,000 0 --
Brian Massicotte 5,000 5,000 0 --
Ronald P. Edgerton 4,500 4,500 0 --
Michael Seagraves 4,440 4,440 0 --
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIAL OWNERSHIP
BENEFICIALLY OWNED SHARES FOLLOWING OFFERING
-----------------------
PRIOR TO THE TO BE NUMBER OF PERCENT
NAME OFFERING SOLD SHARES OWNED
- ------------------------------------------ ---------------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Frank Pietryka 3,000 3,000 0 --
Dorene Quesnel 1,000 1,000 0 --
Bailey & Company Inc.(34) 612,000 (35) 390,000 222,000 *
Serge Dubois 50,000 50,000 0 --
North American Trust Co. Ttee
Latham & Watkins Thrift &
FBO Marc Rappel 25,000 25,000 0 --
Alfred S. and Mae M. Kenrick Trust 50,000 50,000 0 --
</TABLE>
____________
* Less than 1%.
(1) The Selling Stockholder is an offshore corporation or partnership that has
invested either as principal or on behalf of its clients. In the latter
circumstances, the laws of certain jurisdictions protect the identity of
such clients from public disclosure.
(2) Includes 90,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(3) Intentionally left blank.
(4) Includes 500,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(5) Includes 600,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(6) Glenbrook Capital LLP is a limited liability partnership, the general
partner of which is Wickersham Asset Management. The beneficial owner of
Glenbrook Capital LLP is Paul F. Shoen. Grover T. Wickersham may be deemed
to be a beneficial owner because of his investment control. Mr. Wickersham
disclaims such beneficial ownership.
(7) Includes 500,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(8) Includes 250,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(9) Includes 200,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(10) Includes 150,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(11) Oxcal Venture Fund, LP is a limited partnership, the general partner of
which is Oxcal Venture Corp. The beneficial owners of Oxcal Venture Fund
are Paul F. Shoen, Stevan A. Birnbaum and Oxcal Venture Corp. Grover T.
Wickersham may be deemed to be a beneficial owner because of his investment
control. Mr. Wickersham disclaims such beneficial ownership.
(12) Includes 125,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(13) Includes 100,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(14) Includes 75,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(15) Bruce Bailey is the Chairman and sole shareholder of Bailey & Company Inc.,
which served as selling agent in connection with the private sales of
securities conducted by the Company in December 1997 and January 1998. As
such, he is the beneficial owner of securities owned by Bailey & Company
Inc. and accordingly, the securities owned by Bailey & Company Inc. are
included in the total shares beneficially owned by Mr. Bailey.
(16) Includes (i) 50,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock; (ii) 222,000 shares of Common Stock owned by
Bailey & Company Inc.; and (iii) 390,000 shares of Common Stock issuable
upon exercise of outstanding Warrants or the conversion of the underlying
Preferred Stock issuable upon exercise of outstanding Warrants owned by
Bailey & Company Inc. Beneficial Ownership Following Offering reflects
sales of Shares by Bailey & Company Inc. as well as Mr. Bailey. See Note
(35).
(17) The Selling Stockholder is the family trust of Floyd Eide, a Vice President
of the Company.
(18) Includes 50,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(19) Includes 40,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(20) Includes 25,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock.
(21) The Selling Stockholder is the family trust of John J. Stuart, Jr., the
Chief Financial Officer of the Company.
15
<PAGE>
(22) Includes (i) 45,367 shares of Common Stock issuable upon conversion of
Preferred Stock held in the Company's Employee Stock Bonus Plan ("ESBP")for
the account of Mr. Stuart; and (ii) 15,000 shares of Common Stock issuable
upon conversion of Preferred Stock owned directly by the Selling
Stockholder. By virtue of his voting and investment control, Mr. Stuart may
also be deemed to be the beneficial owner of all of the shares of Common
and PreferredStock owned by the Company's ESBP, as to which he disclaims
beneficial ownership of all shares other than those allocated to his
account. Those disclaimed shares are not included in the total for the
Selling Stockholder.
(23) The Selling Stockholder is the family trust of James Alexiou, the Chairman
of the Board of the Company.
(24) Includes (i) 306,900 shares of Common Stock issuable upon exercise of an
option to retire accrued royalties and sell patent rights; (ii) 68,942
shares issuable upon conversion of Preferred Stock held in the Company's
ESBP for the account of Mr. Alexiou; and (iii) 10,000 shares of Common
Stock issuable upon conversion of Preferred Stock owned directly by the
Selling Stockholder. By virtue of his voting and investment control, Mr.
Alexiou may also be deemed to be the beneficial owner of all of the shares
of Common and Preferred Stock owned by the Company's ESBP, as to which he
disclaims beneficial ownership of all shares other than those allocated to
his account. Those disclaimed shares are not included in the total for the
Selling Stockholder.
(25) The Selling Stockholder is the family trust of David Pinto, the Company's
Treasurer.
(26) Includes (i) 36,642 shares of Common Stock issuable upon conversion of
Preferred Stock held in the Company's ESBP for the account of Mr. Pinto;
and (ii) 5,000 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock held directly by the Selling Stockholder.
(27) The Selling Stockholder is a professional corporation that serves as legal
counsel to the Company. The shareholders of the corporation are Grover T.
Wickersham and Debra K. Weiner. None of the shares owned by Glenbrook
Capital Limited Partnership or Oxcal Venture Fund, LP are included in the
totals for the Selling Stockholder, although Mr. Wickersham may be deemed
to be the beneficial owner of such shares. See Notes (6) and (11).
(28) The Selling Stockholder serves as patent counsel to the Company.
(29) The Selling Stockholder is the Company's President and Chief Executive
Officer.
(30) Includes 223,000 shares of Common Stock issuable upon exercise of
outstanding warrants which become exercisable on the earlier of one year
from the date of issuance or the effective date of a registration statement
covering the resale of the underlying Common Stock.
(31) Includes 50,000 shares issuable upon exercise of outstanding warrants which
become exercisable on the earlier of one year from the date of issuance or
the effective date of a registration statement covering the resale of the
underlying Common Stock. The Selling Stockholder is a former executive
officer of the Company.
(32) Includes (i) 30,000 shares of Common Stock held in the name of Lookout
Mountain Group, as to which the Selling Stockholder may be deemed to be the
beneficial owner (see Note (33)); 30,000 shares of Common Stock issuable
upon exercise of outstanding warrants that become exercisable on the
earlier of one year from the date of issuance or the effective date of a
registration statement covering the resale of the underlying Common Stock.
The Selling Stockholder is a principal in Richmont Consulting Group, Inc.,
which firm provides certain financial public relations services to the
Company.
(33) The 30,000 shares owned by the Selling Stockholder are also included in the
total shares beneficially owned by Edda Brown because, due to her voting
and investment control over the Selling Stockholder, should may be deemed
to be the beneficial owner of such shares. See Note (32).
(34) The Selling Stockholder is a corporation the beneficial owner of which is
Bruce Bailey. See Note (16). The Selling Stockholder has served as selling
agent for the Company in connection with its recent sales of privately-
placed securities.
(35) Includes 390,000 shares of Common Stock issuable upon exercise of
outstanding Warrants or upon the conversion of Preferred Stock issuable
upon exercise of outstanding Warrants, all of which Warrants become
exercisable on the earlier of one year from the date of issuance or the
effective date of a registration statement covering the resale of the
underlying Common Stock.
16
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus covers the resale of the shares of Common Stock by holders
of outstanding Common Stock, outstanding Convertible Preferred Stock and/or
holders of outstanding Warrants (the"Selling Stockholders"), or their pledgees,
donees, transferees or other successors in interests (collectively, the
"Sellers").
Such sales may be made on one or more exchanges (if the Common Stock is
then listed, which it is not as of the date hereof) or in the over-the-counter
market, or otherwise at prices and at terms then prevailing or at prices related
to the then current market price, or in negotiated transactions. The Shares may
be sold by one or more of the following: (i) a block trade in which the broker
or dealer so engaged will attempt to sell the Shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(ii) purchase by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus;(iii) an exchange
distribution in accordance with the rules of such exchange, if the Company's
Common Stock is then listed on an exchange, which it is not as of the date
hereof; (iv) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (iv) in negotiated transactions or otherwise, or a
combination of such methods. In effecting sales, brokers or dealers engaged by
the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated immediately prior to the sale.
The Common Stock covered by this Prospectus may be sold under Rule 144
instead of under this Prospectus. In general, under Rule 144, "restricted
securities" may be sold after a one-year holding period in ordinary market
transactions through a broker or with a market maker subject to volume
limitations as follows: within any three-month period, a number of shares may
be sold which does not exceed the greater of 1% of the number of outstanding
shares of Common Stock or the average of the weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Sales under Rule 144
require the filing of a Form 144 with the Securities and Exchange Commission.
However, if the shares have been held for more than two years by a person who is
not an "affiliate," there is no limitation on the manner of sale or the volume
of shares that may be sold and no such filing is required.
The Selling Stockholders have been advised by the Company that during the
time each is engaged in distribution of the Common Stock covered by this
Prospectus, each must comply with Rule 10b-5, Rule 102, Rule 104 and Rule 105
under the Exchange Act, and pursuant thereto: (i) each must not engage in any
stabilization activity in connection with the Company's securities; (ii) each
must furnish each broker through which the Common Stock covered by this
Prospectus may be offered the number of copies of this Prospectus which are
required by each broker; and (iii) each must not bid for or purchase any
securities of the Company or attempt to induce any person to bid for or purchase
any of the Company's securities or engage in certain short selling activities
other than as permitted under the Exchange Act.
The Company will amend or supplement this Prospectus in the following
circumstances and to the following extent: (i) if the securities are to be sold
at a price other than the prevailing
17
<PAGE>
market price, to disclose such price; (ii) if the securities are to be sold in
block transactions and the purchaser intends to resell, to disclose the nature
and extent of such arrangements; or (iii) if the compensation to be paid to
broker-dealers is other than usual and customary discounts, concessions or
commissions, to disclose the terms of such broker-dealer compensation. In the
above-circumstances, no offers or sales may be made by the Selling Stockholder
until an effective amendment or prospectus supplement is available.
In connection with any transaction involving the Common Stock, broker-
dealers or others may receive from the Sellers, and may in turn pay to other
broker-dealers or others, compensation in the form of commissions, discounts or
concessions in amounts to be negotiated at the time. The Sellers and broker-
dealers, if any, acting in connection with such sales, might be deemed to be
"underwriters" within the meaning of section 2(11) of the Act and any commission
received by them and any profit on the resale of such securities may be deemed
to be underwriting discounts and commissions under the Act.
To comply with the securities laws of certain states, if applicable, the
Common Stock may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, shares of Common Stock may not be sold
unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with
under applicable state securities laws.
The Company will not receive any portion of the proceeds of the Common
Stock sold by the Selling Shareholders. There is no assurance that the Selling
Shareholders will sell any or all of the Common Stock offered hereby.
18
<PAGE>
EXPERTS
The consolidated financial statements of the Company incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
September 28, 1997 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The statements contained in the section entitled "Business Patents,
Trademarks and Licenses" of the Annual Report on Form 10-K for the fiscal year
ended September 28, 1997, incorporated by reference in this Prospectus, are
included in reliance upon the opinion of Thomas J. Plante, Esq. Irvine,
California, patent counsel for the Company, and upon his authority as an expert.
LEGAL MATTERS
Certain legal matters in connection with the sale of the securities offered
hereby will be passed upon for the Company by Grover T. Wickersham, P.C., Palo
Alto, California. Such firm is the owner of 100,000 shares of Common Stock,
which shares are being registered for resale on the registration statement of
which this Prospectus is a part.
19
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAVE BEEN NO CHANGES IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
______________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.............................................. 2
Incorporation of Certain Information by Reference.................. 3
Prospectus Summary................................................. 4
Risk Factors....................................................... 7
Recent Developments................................................ 11
Use of Proceeds.................................................... 12
Selling Stockholders............................................... 13
Plan of Distribution............................................... 17
Experts............................................................ 19
Legal Matters...................................................... 19
</TABLE>
================================================================================
6,668,272 SHARES
IRVINE SENSORS
CORPORATION
Common Stock
________________
PROSPECTUS
________________
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered are estimated to be as
follows:
<TABLE>
<S> <C>
SEC registration fee...................... $ 2,766.30
Accounting fees and expenses.............. 7,500.00 *
Legal fees and expenses................... 15,000.00 *
Blue sky legal fees and expenses.......... 1,000.00 *
Miscellaneous expenses.................... 3,000.00 *
------------
Total.................................. $29,266.30 *
============
</TABLE>
______________
* Estimated expenses
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware (the "General
Corporation Law") provides for the indemnification of directors, officers,
employees and other agents of the corporation under certain circumstances as set
forth in section 145. Section 145 permits a corporation to indemnify its agents,
typically directors and officers, for expenses incurred or settlements or
judgments paid in connection with certain legal proceedings. Only those legal
proceedings arising out of such persons' actions as agents of the corporation
may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends
upon whether the agent wins, loses or settles the suit and upon whether a third
party or the corporation itself is the plaintiff. The section provides for
mandatory indemnification, no matter who the plaintiff is, when an agent is
successful on the merits of a suit. In all other cases, indemnification is
permissive.
If the agent loses or settles a suit brought by a third party, he or she
may be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon a finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or she
is adjudged liable to the corporation, the court in which such proceeding was
held must determine whether it would be fair and reasonable to indemnify him or
her for expenses which such court shall determine. If the agent settles such a
II-1
<PAGE>
suit with court approval, he or she may be indemnified for expenses incurred in
connection with the defense and settlement of the suit, upon a finding that the
agent acted in good faith and in a manner he or she reasonably believed to be in
the best interests of the corporation and its stockholders.
Under Section 145, the indemnification discussed above may be authorized by
a majority vote of the disinterested directors or stockholders (the person to be
indemnified is excluded from voting his or her shares) or the court in which the
proceeding was brought.
Under Section 145, a corporation may authorize, by by-law, agreement or
otherwise, the indemnification of its agents in excess of that expressly
permitted by Section 145. The Registrant's By-laws provide that indemnification
shall be mandatory in all cases where it is permitted by Section 145.
Section 102(b) of the General Corporation Law permits corporations to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of the fiduciary duty as a
director. The Registrant's Certificate of Incorporation provides for elimination
of personal liability of directors for breach of fiduciary duty as a director
except for the following: (i) for any breach of such director's duty of loyalty
to the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the General Corporation Law; or (iv) for any
transaction from which such director derived an improper personal benefit. The
Registrant's Certificate of Incorporation further provides that modification or
repeal of this provision may not affect the elimination of liability therein
provided with respect to a director's personal liability for any act or omission
that occurs prior to such modification or repeal.
Finally, a corporation has the power to purchase indemnity insurance for
its agents, even if it would not have the power to indemnify them. The
Registrant has purchased such insurance.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "Act") may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
II-2
<PAGE>
Item 16. EXHIBITS
4.1 Form of specimen Common Stock certificate(1)
5.1 Opinion of Grover T. Wickersham, P.C. re legality
23.1 Consent of Price Waterhouse LLP, independent accountants (see page
II-8 of the Registration Statement
23.2 Consent of Thomas J. Plante, Esq. (see page II-9 of the Registration
Statement)
23.3 Consent of Grover T. Wickersham, P.C. (included in Exhibit 5.1,
above)
25.1 Power of Attorney (included on page II-6 of the Registration
Statement)
_________
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 29, 1991.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Rule 415 Offering
-----------------
The Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the " Securities Act");
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
- -----------------
registration statement is on Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.
(2) That for purposes of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings Incorporating Subsequent Exchange Act Documents by
----------------------------------------------------------
Reference
---------
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934, as amended) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration
II-4
<PAGE>
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Request for Acceleration of Effective Date or filing of
-------------------------------------------------------
Registration Statement on Form S-8
----------------------------------
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions 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 director, officer 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.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized,in the City of Costa Mesa, California, on January 30, 1998.
IRVINE SENSORS CORPORATION
By: /s/ James D. Evert
---------------------
James D. Evert
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James D. Evert and John J. Stuart, Jr.,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution, for him/her and in his/her name, place and stead,in any and all
capacities, to sign any or all amendments to this Registration Statement on Form
S-3, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
with this Registration Statement, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that any of
said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
(Principal Executive Officer)
/s/ James D. Evert President, Chief Executive Officer January 30, 1998
- ---------------------
James D. Evert and Director
/s/ James Alexiou Chairman of the Board January 30, 1998
- ---------------------
James Alexiou
II-6
<PAGE>
(Principal Financial and Accounting
Officer)
/s/ John J. Stuart, Jr. Vice President and
- -----------------------
John J. Stuart, Jr. Chief Financial Officer January 30, 1998
/s/ John C. Carson Director January 30, 1998
- -----------------------
John C. Carson
/s/ Joanne S. Carson Director January 30, 1998
- -----------------------
Joanne S. Carson
/s/ Marc Dumont Director January 30, 1998
- -----------------------
Marc Dumont
/s/Walter E. Garrigan Director January 30, 1998
- -----------------------
Walter E. Garrigan
/s/Frank P. Ragano Director January 30, 1998
- -----------------------
Frank P. Ragano
/s/Vincent F. Sollitto Director January 30, 1998
- -----------------------
Vincent F. Sollitto, Jr.
II-7
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
December 16, 1997, which appears on page 18 of the 1997 Annual Report to
Shareholders of Irvine Sensors Corporation, which is incorporated by reference
in Irvine Sensors Corporation's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997. We also consent to the incorporation by reference of
our report on the Financial Statement Schedules, which appears on page 13 of
such Annual Report on Form 10-K. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/Price Waterhouse
- -------------------
Price Waterhouse LLP
Costa Mesa, California
January 27, 1998
II-8
<PAGE>
Exhibit 23.2
CONSENT OF PATENT COUNSEL
I hereby consent to the reference to me in the section of the Prospectus
entitled, "Experts," contained in the Registration Statement on Form S-3 of
Irvine Sensors Corporation of which this Consent is a part. I also consent to
the incorporation by reference in said Registration Statement on Form S-3 of the
statements contained in the Section entitled "Business -- Patents, Trademarks
and Licenses" of the Annual Report on Form 10-K of Irvine Sensors Corporation
for the fiscal year ended September 28, 1997.
/s/Thomas Plante
----------------
Thomas J. Plante
January 29, 1998
Irvine, California
II-9
<PAGE>
EXHIBIT INDEX
4.1 Form of specimen Common Stock certificate(1)
5.1 Opinion of Grover T. Wickersham, P.C. re legality
23.1 Consent of Price Waterhouse LLP, independent accountants (see page II-8
of the Registration Statement)
23.2 Consent of Thomas J. Plante, Esq. (see page II-9 of the Registration
Statement)
23.3 Consent of Grover T. Wickersham, P.C. (included in Exhibit 5.1, above)
25.1 Power of Attorney (included on page II-6 of the Registration Statement)
_________
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 29, 1991.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GROVER T. WICKERSHAM]
January 30, 1998
Irvine Sensors Corporation
3001 Redhill Avenue, Building III
Costa Mesa, CA 92626
Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") of Irvine Sensors Corporation, a Delaware corporation (the
"Company"), filed with the Securities and Exchange Commission (the "Commission")
on or about January 30, 1998 covering the registration under the Securities Act
of 1933, as amended (the "Act") of an aggregate of 6,668,272 shares of common
stock, $0.01 par value, of the Company (the "Shares") for resale by certain
selling stockholders of the Company (the "Selling Stockholders").
We have examined the Registration Statement, the Certificate of
Incorporation and By-laws of the Company and such records, certificates and
other documents as we have considered necessary or appropriate for the purposes
of this opinion.
Based on the foregoing, it is our opinion that:
1. The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware; and
2. The Shares issued to the Selling Stockholders or issuable upon
conversion of the outstanding convertible Preferred Stock or upon exercise of
outstanding warrants as described in the Registration Statement are duly
authorized and are (or will be, when issued in accordance with the terms of the
respective instruments) validly issued, fully paid and nonassessable.
We hereby consent to the use of our name in the Registration Statement
under the caption "Legal Matters," as counsel who will pass upon the legality of
the Shares for the Company and to the filing of this opinion as an exhibit to
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the Rules and Regulations promulgated thereunder.
This opinion is rendered solely for your benefit and for the benefit of the
purchasers of the Shares being registered on the Registration Statement in
connection with the subject transaction and is not to be otherwise used,
circulated, quoted or referred to without our prior written consent.
Very truly yours,
/s/ Grover T. Wickersham, P.C.
------------------------------
Grover T. Wickersham, P.C.
