AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 2000
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
APA OPTICS, INC.
(Exact Name of registrant as specified in its charter)
MINNESOTA 3827 41-1347235
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification
Number)
-------------------------------
2950 N.E. 84TH LANE, BLAINE, MINNESOTA 55449 (763) 784-4995
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
-------------------------------
ANIL K. JAIN, CHIEF EXECUTIVE OFFICER
APA OPTICS, INC.
2950 N.E. 84TH LANE
BLAINE, MINNESOTA 55449
TELEPHONE: (763) 784-4995 TELEFAX: (763) 784-2038
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------------
COPIES TO:
JANNA R. SEVERANCE, ESQ.
MOSS & BARNETT, A PROFESSIONAL ASSOCIATION
4800 NORWEST CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-4129
TELEPHONE: (612) 347-0367
-------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time, commencing as soon as practicable after the effective
date of this Registration Statement.
If the only 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 being
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 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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (1) (1) (1) $26,400
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares of common stock will be offered from time to time at prices based on
current market prices up to a maximum aggregate offering price of
$100,000,000. Pursuant to Rule 457(o) under the Securities Act, the
registration fee is calculated on the aggregate maximum offering price of
the common stock, and the table does not specify information about the
number of shares to be registered or the proposed maximum offering price
per share.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH 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.
================================================================================
<PAGE>
APA OPTICS, INC.
COMMON STOCK
This prospectus relates to up to $100,000,000 worth of the common
stock, par value $.01 per share, of APA Optics, Inc., a Minnesota corporation.
Our common stock is traded in the Nasdaq SmallCap Market under the symbol APAT.
On March 31, 2000, the closing sale price for the common stock as reported in
the Nasdaq SmallCap Market was $29.375 per share.
This prospectus is part of the registration statement we filed with the
Securities and Exchange Commission using a "shelf" registration process. This
means:
* We may issue up to $100,000,000 of our common stock from time to
time.
* We will circulate a prospectus supplement each time we plan to
issue our common stock.
* The prospectus supplement will inform you about the specific terms
of that offering and also may add, update or change information
contained in this prospectus.
* You should read this prospectus and any prospectus supplement
carefully before you invest.
* We have engaged Ladenburg Thalmann & Co. Inc. as our exclusive
placement agent for this offering on a "best efforts" basis.
SEE "RISK FACTORS" BEGINNING AT PAGE 5 TO READ ABOUT FACTORS
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------------------------
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.
No person has been authorized by us to give any information or to make
any representations about the offering of common stock made by this prospectus
other than the information and representations contained in this prospectus.
Accordingly, you should not rely on information outside of this prospectus. This
prospectus is not an offer to sell or buy any security other than the common
stock offered by this prospectus; it is not an offer to sell or buy securities
in any jurisdiction in which such offer is not qualified; and it is not an offer
to buy or sell securities to any person to whom such offer would be unlawful.
The information in this prospectus is current as of the date of this prospectus.
Your receipt of this prospectus does not mean that there has been no change in
the affairs of APA Optics, Inc. since the date of this prospectus or that the
documents which are incorporated by reference in this prospectus are correct as
of any date after the date of such documents.
THE DATE OF THIS PROSPECTUS IS _____________, 2000.
ii
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
iii
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
APA Optics is subject to the informational requirements of the
Securities Exchange Act of 1934, and files reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information can be inspected and copies can be made at:
* the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549
* the regional offices of the Commission located at 500 West Madison
Street, Chicago, Illinois 60601 and at 7 World Trade Center, New
York, New York 10048
* the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C.
These materials may also be accessed electronically by means of the
Securities and Exchange Commission's home page on the Internet
(http://www.sec.gov).
This prospectus is a part of a registration statement on Form S-3 that
APA Optics has filed with the Securities and Exchange Commission. You may obtain
copies of the registration statement from the Commission at the addresses in the
preceding paragraph. This prospectus does not contain all of the information set
forth in the registration statement and its exhibits. The registration statement
provides further information about us and the shares. While we believe this
prospectus provides the material information regarding the contracts and
documents described in it, the statements contained in this prospectus about the
contents of any contract or any other documents are not necessarily complete
and, in each such instance, you should inspect the copy of such contract or
document filed as an exhibit to the registration statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by APA Optics with the Commission
pursuant to the Securities Exchange Act of 1934 (File No. 0-16106) are
incorporated by reference in this prospectus, except as otherwise superseded or
modified herein:
Our annual report on Form 10-K for the fiscal year ended March 31,
1999.
Our quarterly reports on Form 10-Q for the fiscal quarters ended June
30, 1999, September 30, 1999 and December 31, 1999.
Our registration statement on Form 8-A, dated July 28, 1987,
registering our common stock under Section 12(g) of the Securities Exchange Act
of 1934.
Our proxy statement on Schedule 14A for our annual shareholders meeting
for the fiscal year ended March 31, 1999.
All other reports and documents filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act since March 31, 1999 and prior to the
termination of the offering of the common stock, are also deemed to be
incorporated by reference into this prospectus.
Any statement in any document incorporated or deemed to be incorporated
by reference is modified or superseded to the extent that a statement in this
prospectus or in any other subsequently filed document incorporated by reference
modifies or supersedes such statement.
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We will furnish you, without charge, with a copy of any or all of the
documents referred to above (other than exhibits to such documents). Requests
for copies should be directed, orally or in writing, to:
Anil K. Jain, Chief Executive Officer
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55434
Telephone: (763) 784-4995
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<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.............................................................1
THE COMPANY....................................................................2
RISK FACTORS...................................................................5
FORWARD-LOOKING STATEMENTS....................................................14
USE OF PROCEEDS...............................................................15
PRICE RANGE OF COMMON STOCK...................................................15
PLAN OF DISTRIBUTION..........................................................15
INTERESTS OF NAMED EXPERTS AND COUNSEL........................................16
MATERIAL CHANGES..............................................................16
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION..........................17
ANTITAKEOVER STATUTE..........................................................17
vi
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS INFORMATION ABOUT APA OPTICS, INC.,
SOMETIMES REFERRED TO AS "APA OPTICS" OR THE "COMPANY." IT MAY NOT CONTAIN ALL
THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE
PROSPECTUS, THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE IN THE PROSPECTUS,
INCLUDING THE FINANCIAL DATA AND RELATED NOTES, AND THE OTHER INFORMATION
CONTAINED IN THE FORM S-3 REGISTRATION STATEMENT BEFORE MAKING AN INVESTMENT
DECISION. THE REFERENCES TO "WE," "US," AND "OUR" MEAN APA OPTICS, EXCEPT WHERE
IT IS CLEAR BY THE CONTEXT THAT THE REFERENCE IS TO SOMEONE ELSE.
THE COMPANY
APA Optics is engaged in the business of designing, manufacturing, and
marketing optical components and various optoelectronic products. Currently, we
are focused on two product areas: dense wavelength division multiplexer (DWDM)
components for fiber optic communications and gallium nitride-based ultraviolet
(UV) detectors (both components and integrated detector/electronic/display
packages). We selected these areas of concentration because we believe they have
significant potential markets and because we have significant expertise and/or
patent positions relating to them.
For several years we received significant revenues from providing
research and development services in connection with projects sponsored by
various government agencies. In fiscal 1998, we determined to shift our emphasis
from research and development to product development, realizing that this shift
would significantly reduce revenues and increase losses until we realize
revenues from our products. If we are successful in manufacturing and marketing
our products, we expect to significantly increase revenues and achieve
profitability.
APA Optics was incorporated in Minnesota in March 1979 and became a
publicly owned company in 1986. Our principal offices are located at 2950 N.E.
84th Lane, Blaine, Minnesota 55434, and our telephone number is (763) 784-4995.
RISK FACTORS
An investment in our common stock involves a high degree of risk and is
not appropriate for persons who cannot afford to lose their entire investment.
See "Risk Factors."
THE OFFERING
If we sold common stock for gross proceeds of $100 million at $29.375
per share, which was the closing sale price of the common stock on March 31,
2000, 3,404,255 shares of common stock would be added to our issued and
outstanding common stock. As of the date of this prospectus, we do not know
whether any shares will be sold or the price at which sales may be made. Certain
information about this offering is summarized below:
Common stock offered (1)..................... 3,404,255 shares
Common stock outstanding after issuance (1).. 12,402,247 shares
Use of proceeds.............................. The proceeds of sale of
the common stock will be
used primarily for
expansion of production
facilities, sales and
marketing of our
DWDM-based product line,
<PAGE>
working capital, and
general corporate
purposes.
Nasdaq symbol................................ APAT
Transfer Agent and Registrar................ Norwest Shareowner
Services, South St. Paul,
Minnesota
(1) Assumes issuance at $29.375 per share, which was the closing sale
price of the common stock on March 31, 2000.
(2) Assumes no exercise of any warrants or options for common stock or
conversion of any securities convertible to common stock. As of
March 15, 2000 we had reserved for issuance:
(a) 151,358 shares for various warrants, not including additional
warrants in an amount not currently calculable which may be
issued in connection with certain bond financing;
(b) 1,246,338 shares under employee benefit plans, a directors
option plan, and other options;
(c) 307,500 shares issuable under our 2% Series A Preferred Stock
and related warrants (including shares reserved in case
dividends are accreted to stated value rather than paid in
cash); and
(d) an indeterminate number of shares for warrants that may be
issued to placement agents or underwriters in this offering
(see "PLAN OF DISTRIBUTION").
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended December 31 Year Ended March 31
----------------------------- -------------------
(unaudited)
Statement of operations data: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 239,142 $ 629,122 $ 722,030 $ 2,190,637
Net income (loss) (2,860,842) (1,755,353) (2,513,798) (967,767)
Net income (loss) per share (basic) (.33) (.21) (.30) (.12)
Net income (loss) per share (diluted) (.33) (.21) (.30) (.12)
<CAPTION>
December 31, 1999 March 31
----------------- --------
(unaudited)
Balance sheet data: 1999 1998
---- ----
Working capital $ 1,860,158 $ 2,864,549 $ 5,345,480
Total assets 5,741,421 6,804,976 9,629,912
Shareholders' equity 2,408,527 3,389,295 5,859,863
</TABLE>
THE COMPANY
Since the founding of APA Optics in 1979, we have focused on leading
edge research in sophisticated optoelectronic and optical system areas with the
primary goal of developing advanced products for subsequent marketing and
fabrication. We currently manufacture DWDM optical components, offer a range of
gallium nitride (GaN) based devices and services, and market custom optics
products.
For the last several years our goal has been to manufacture and market
products and components based on our technology developments. We have selected
two product areas based on significant potential markets and our expertise
and/or patent positions: dense wavelength division multiplexer (DWDM)
2
<PAGE>
components for fiber optic communications and gallium nitride-based ultraviolet
(UV) detectors (both components and integrated detector/electronic/display
packages). If we are successful in manufacturing and marketing these products,
we expect to significantly increase revenues and achieve profitability.
PRODUCTS
Our current products are as follows:
* Optical Lens Systems. We design and build multi-element lens
systems and components, including mounting structures, for
precision quality optical needs in many applications, including
laser-based systems, imaging systems, inspection systems, display
systems, display optics, focusing optics for ultraviolet fire
alarms, alignment verification optics for dual magnetic recording
heads, and multi-magnification optics systems for optical
comparators.
* Optical Thin Film Coatings. We custom design, develop, and
fabricate optical thin film coatings for optical components of
lasers, laser systems, optical instruments, and optical devices. We
use optical thin film coating services in two major ways: to apply
antireflective coatings onto Company-fabricated lens components,
and to design, develop and fabricate coatings for lens components
supplied by customers.
* Optoelectronics Devices. We are focusing research and development
efforts on several optoelectronic devices. Optoelectronic devices
are vital components of communication systems and optical
instruments.
Currently, we are developing the following products:
* Dense Wavelength Division Multiplexer (DWDM). Recently, we
demonstrated the feasibility of a DWDM capable of transmitting
several channels through a single optical fiber for communication
applications. We developed the DWDM based on our development of
optical modulator (single channel) technology during the early
1990s for fiber optic communication. These modulators have the
capability of direct high speed (several billion bits per second)
data loading and unloading on laser beams going through optical
fibers, either for short distance or long distances. The DWDM, a
small part of the modulator, utilizes high frequency halographic
gratings. Our new DWDM is a major break-through because it enables
transmission of information on several different channels within a
single fiber (a simple analogy is the expansion of a single lane
highway to multi-lane throughway). As a result, the DWDM provides
higher speed as well as increased and regulated data handling
capabilities as compared to a single channel modulator. We are
currently performing environmental packaging of the DWDM. We filed
the first patent related to the DWDM Optical Modulator in June
1994, which was allowed on May 8, 1995. Since then, we have filed
for four additional patents related to DWD
Multiplexer/Demultiplexer devices. We were awarded two of these
patents in March 1997 and February 1998. The other two applications
are still pending.
* UV Detector. The UV Detector is a high response solid state
detector based on single-crystal gallium nitride (GaN). The GaN
detector is expected to have applications in spectrometry, solar
radiation measurement, excimer-laser measurement and calibration,
biomedical instrumentation, and flame detection and monitoring. The
detector is visible blind, which allows detection of UV radiation
in the presence of room lights without a filter. We believe the
3
<PAGE>
GaN detector has advantages over photomultiplier tubes because of
its ruggedness and chemical inertness, which suit it for
application in high-vibration and harsh environments as well as
high-temperature operation. We have been awarded at least four
patents in nitride related technologies.
* Other Products. We are in the process of introducing several other
products by packaging our UV detectors with electronics and
displays for many applications. Among these are a solar sensing
watch to detect potential cancer causing UV radiation for consumer
applications, UV radiation based flame sensors for industrial
applications, and UV radiation meters for laboratory and industrial
applications. All of these products have significant similarities
and, therefore, do not require significant financial resources for
development.
MARKETING AND DISTRIBUTION
We delivered a limited number of alpha units of our DWDM to customers
during fiscal 1999 and 2000. We have sold several UV detectors to more than 30
customers, as well as a few detector/electronics packages. During this time, we
have been aggressively marketing both products by advertising in relevant
professional magazines, showcasing our products in trade shows, direct mailing,
personal visits, and distributors in various countries, including Japan,
Germany, Italy and France. We also maintain product information on our Web page.
Our DWDM product manager focuses on sales of DWDM and two persons work on
marketing and sales of gallium nitride-based products.
SOURCES OF RAW MATERIALS
Two of the principal materials used in our business are optical glass
and optical chips. Optical glass is commercially available through several
distributors. We currently use at least two vendors for optical chips and
continuously look for additional vendors for these parts. Certain chemicals and
other materials necessary for our products are routinely available from several
sources.
ENVIRONMENTAL COMPLIANCE
Because we handle a number of chemicals in our operations, we must
comply with federal, state and local laws and regulations regarding the handling
and disposal of such chemicals. The cost of such compliance is not material.
MAJOR CUSTOMERS
In prior years, we provided research and development services under
contracts with various governmental agencies. Currently, we have no material
contracts with any of such agencies.
Revenues from the following unrelated customers constituted more than
ten percent of our total operating revenues in the last three fiscal years:
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Year Ended March 31
Name 1999 1998 1997
- ------------------------------------ ------------- ------------- ------------
Air Force 23% 20% 42%
Army 0% 25% 22%
Navy 18% 38% 36%
ARPA 59% 17% -0%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
COMPETITION
Competition in the optoelectronics and optics fabrication businesses is
significant. Many of the companies engaged in these businesses are well-financed
and have significantly greater research, development, production, and marketing
resources than we do. However, we believe that we have a competitive advantage
due to our patents and the uniqueness of our devices. In particular, we believe
that our DWDM is the most efficient (lowest insertion loss) and compact device
currently available.
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 1999, 1998, and 1997 we spent
approximately $382,000, $339,000, and $375,000, respectively, on research and
development sponsored by the Company, all of which was related to the DWDM, UV
detector and related products. In addition, in each of those years, we spent
approximately $837,000, $1,431,000, and $1,610,000, respectively, on research
activities sponsored by customers. During the 11 months ended February 29, 2000,
we spent approximately $299,000, on research and development sponsored by the
Company, all of which was related to the DWDM, UV detector and related products
and approximately $181,000, on research activities sponsored by customers.
EMPLOYEES
As of March 15, 2000, we employed 36 full-time employees (including
executive officers).
RISK FACTORS
BEFORE YOU INVEST IN THE COMMON STOCK YOU SHOULD CONSIDER THAT THE
VALUE OF THE SHARES IN THE SECONDARY MARKET IS SUBJECT TO VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS OR CASH FLOWS COULD BE ADVERSELY AFFECTED.
IN THOSE CASES, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT. THESE RISKS SHOULD BE EVALUATED TOGETHER
WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE YOU DECIDE TO
PURCHASE ANY OF THE SHARES WHICH ARE OFFERED. SPECIFIC RISK FACTORS WHICH YOU
SHOULD CONSIDER INCLUDE THE FOLLOWING:
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING. Although we have been
involved in the manufacturing of optical components for several years, and have
manufactured limited quantities of UV detectors and alpha DWDMs, we have not
engaged in high volume manufacturing of these products. We may be unable to
manufacture products that satisfy the volume and quality requirements of our
customers, and, as a result, we may not achieve significant revenues or
profitability.
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WE MAY NOT BE ABLE TO REDUCE OUR MANUFACTURING COSTS SUFFICIENTLY OR
PLAN OUR MANUFACTURING EXPANSION accurately. We expect the price of our existing
products to decline due to various factors, such as increased competition,
including from companies with lower labor and production costs; a limited number
of potential customers with significant bargaining leverage; introduction of new
products by competitors; and greater economies of scale for higher volume
manufacturers. To increase our revenues, we must increase our unit volumes and
our manufacturing capacity. Adding capacity increases our fixed costs and the
levels of unit shipments we must produce to achieve positive gross margins. As a
result, if we are unable to increase our revenues or continuously reduce our
manufacturing costs, our gross margins will not improve and we will continue to
incur losses.
We are increasing our manufacturing capacity at our existing facilities
in Aberdeen, South Dakota. Developing manufacturing capabilities involves
significant risks which could materially adversely affect our gross margins and
revenues, including:
* Our inability to qualify a new manufacturing line for all of our
customers;
* unanticipated cost increases;
* unavailability or late delivery of equipment;
* unforeseen environmental or engineering problems; and
* personnel recruitment delays.
Expanding our manufacturing capacity requires substantial time to build
out and equip facilities and train personnel. If we receive orders substantially
in excess of our planned capacity, we might not be able to fulfill them quickly
enough to meet customer requirements. Our inability to deliver products timely
could enable competitors to win business from our customers.
WE MAY NOT BE ABLE TO EFFECTIVELY INCREASE PRODUCTION AND MAINTAIN
ACCEPTABLE MANUFACTURING YIELDS, RESULTING IN DELAY OF PRODUCT SHIPMENTS AND
IMPAIRMENT OF OUR GROSS MARGINS. Manufacturing our products is highly complex
and labor intensive. As we rapidly increase production and hire more people, our
manufacturing yield, which is the percentage of our products which meet customer
specifications, could decline, resulting in product shipment delays, possible
lost revenue opportunities, higher customer returns, and impaired gross margins.
Some of our manufacturing lines have experienced lower than expected yields,
which could continue in the future. Rapid increases in production levels to meet
demand may also result in higher overtime costs and other expenses.
WE HAVE HAD LIMITED SALES AND EXPECT LOSSES. To date, we have had only
limited sales of UV detectors and DWDMs. As of December 31, 1999, we had an
accumulated deficit of $9,256,929. We expect operating losses to continue until
sales of these products reach a level sufficient to cover operating costs. We
may never generate sales at the required levels or become profitable. Our
auditors' opinion concerning our financial statements for the fiscal year ended
March 31, 1999 states that our accumulated deficit and recurring losses from
operations raise substantial doubt about our ability to continue as a going
concern.
Our ability to achieve profitability will depend on our ability to
develop and bring new proprietary products to market. Our ability to become
profitable will also depend upon a variety of other factors, including the
following:
6
<PAGE>
* The price, volume and timing of sales of products;
* Variations in gross margins of our products, which may be affected
by sales mix and competitive pricing pressures;
* Changes in the level of our research and development; and
* Acquisitions of products, technology or companies.
Our long-term success will also be affected by expenses, difficulties
and delays frequently encountered in developing and commercializing new
products, competition, and the regulatory environment in which we operate. We
cannot be certain that we will ever achieve significant revenues or profitable
operations.
WE MUST CONTINUE TO FUND PRODUCT DEVELOPMENT. The continued existence
and the growth and profitability of the Company depend upon the success of our
product manufacturing and marketing efforts. In order for new products to be
successfully marketed, they must satisfy the needs of potential customers by
performing under the conditions in which such customers intend to use the
products. We must continue development of these products and their packaging to
ensure that these products will meet such requirements. However, our products
may not perform as anticipated or as needed by customers.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN ADEQUATE FUNDING IN A
TIMELY MANNER. We expect that we will need substantial additional funding. Our
business, results of operations and cash flows will be adversely affected if we
fail to obtain adequate funding in a timely manner. Our funding requirements
will depend on many factors, including:
* The progress of our research and development programs;
* Revenue growth, if any;
* The amount of cash generated, if any, by our operations;
* The costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual
property rights;
* Competing technological and market developments; and
* The need for additional manufacturing facilities to accommodate
growth.
Without giving effect to the sale of any of our common stock in the
offering covered by this prospectus, we anticipate that our existing capital
resources as of the date of this prospectus will be adequate to fund operations
and capital expenditures at least through March 31, 2001. However, if we
experience unanticipated cash requirements during this period, we could require
additional funds much sooner. We may receive funds from the sale of equity
securities, or the exercise of outstanding warrants and options to acquire
common stock. However, we cannot assure you that any of those fundings will
occur, or if they occur, that they will be on terms favorable to us. Also, the
dilutive effect of those fundings could adversely affect our results per share.
7
<PAGE>
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS WILL HARM OUR
RESULTS OF OPERATIONS REGARDLESS OF SUCCESS. Our business will be harmed if
competitors develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, if our trade secrets
are disclosed or if we cannot effectively protect our rights to unpatented trade
secrets.
We actively seek patent protection for our proprietary products and
technologies. We have a number of United States patents and also have licenses
to or assignments of numerous issued United States patents. However, litigation
may be necessary to protect our patent position, and we cannot be certain that
we will have the required resources to pursue the necessary litigation or
otherwise to protect our patent rights. Our efforts to protect our patents may
fail. In addition to pursuing patent protection in appropriate cases, we also
rely on trade secret protection for unpatented proprietary technology. However,
trade secrets are difficult to protect.
Claims may be brought against us in the future based on patents held by
others. These persons could bring legal actions against us claiming damages and
seeking to enjoin manufacturing and marketing of the affected product. If any of
these actions are successful, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to
manufacture or market the affected product. We cannot assure you whether we
would prevail in any of these actions or that we could obtain any licenses
required under any of these patents on acceptable terms, if at all.
We know of no pending patent infringement suits, discussions regarding
possible patent infringements or threats of patent infringement litigation
either related to:
* patents held by us; or
* our products or proposed products.
There could be significant litigation in our industry regarding patent
and other intellectual property rights. If we become involved in any litigation,
it could consume a substantial portion of our resources, regardless of the
outcome of the litigation.
WE EXPERIENCE STRONG COMPETITION AND CHANGES IN TECHNOLOGY COULD RESULT
IN MORE COMPETITION. The business in which we engage is highly competitive. Many
of our competitors include large, well-financed and established companies who
have far greater marketing, product development, and financial resources than we
do.
We may not be able to successfully anticipate changes in technology,
industry standards, customer requirements and product offerings, yet our ability
to develop and introduce new and enhanced products will impact our position as a
leader in the deployment of high-capacity solutions. The accelerating pace of
deregulation in the telecommunications industry will likely intensify the
competition for improved technology. There has been an increase in the funding
of new companies intending to develop new products for the rapidly evolving
telecom industry. These companies have time-to-market advantages due to the
narrow and exclusive focus of their efforts. New companies may provide
additional competition for our existing product lines as well as potential
future products. The introduction of new products embodying new technologies or
the emergence of new industry standards could render our existing products
uncompetitive from a pricing standpoint, obsolete or unmarketable. Any of these
outcomes would have a material adverse effect on our business, financial
condition and results of operations.
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Because many of our competitors have greater financial and other
resources than we do, they may be able to more quickly:
* respond to new technologies or technical standards;
* react to changing customer requirements and expectations;
* manufacture, market and sell current products;
* develop new products or technologies; and
* deliver competitive products at lower prices.
As a result of these factors, our customers could decide to purchase
products from our competitors and reduce their purchases from us.
In addition, our competitors or customers may acquire our suppliers and
potential suppliers. Our customers may also develop their own internal sources
of supply in competition with us. For example, Corning has announced an
expansion of its ability to produce thin film optical filters by a factor of ten
as well as the acquisition of Oak Industries, a maker of components used in WDM
systems. Lucent Technologies, has announced an investment in privately-held
Horizon Photonics, Inc., a provider of automated manufacturing of passive
optical components. Lucent has also commented publicly that it sells a large
portion of its components on the merchant market in addition to supplying its
own needs. Cisco Systems, an emerging player in WDM systems, has announced the
acquisition of Pirelli Optical Systems and a strategic investment of $100
million in Pirelli's optical components and submarine optical transmission
system businesses. In addition, Nortel Networks has announced a $400 million
investment in its optical networking and components business, including a new
facility for the fabrication of optical components.
WE CURRENTLY HAVE LIMITED MARKETING EXPERTISE AND PERSONNEL AND EXPECT
TO INCUR SUBSTANTIAL MARKETING COSTS. Our growth is dependent upon our ability
to implement an aggressive, strong, and consistent marketing program for the
Company's new products. During fiscal 1999, we hired two individuals to serve as
marketing and sales managers. In addition, we currently market our products
through independent distributors in several foreign countries. We believe that
it is necessary to significantly expand our marketing efforts to market our new
products successfully. Accordingly, we expect to incur substantial costs in
connection with marketing and sales efforts. However, we cannot be sure that our
efforts will result in significantly greater product recognition or market
penetration, or significantly increased levels of revenues.
ACCEPTANCE OF OUR NEW PRODUCTS IS UNCERTAIN. Although we have received
several indications of interest from potential customers, we have not received
any significant production orders. Because our products are relatively new in
the market and are still being evaluated by potential customers, we cannot
predict accurately the volume or timing of any orders.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE
COMMERCIAL ACCEPTANCE OF OUR NEW PRODUCTS. Although we have delivered evaluation
units of our DWDM and UV detector products, we do not yet have products that can
be manufactured or distributed on a commercial basis. The maturing process from
laboratory prototype to commercial acceptance involves a number of steps,
including:
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* successful completion of product development;
* validation of manufacturing methods;
* extensive quality assurance and reliability testing; and
* identification and qualification of component suppliers.
Each of these steps in turn presents serious risks of failure, rework
or delay, any one of which could materially and adversely affect the speed and
scope of product introduction and marketplace acceptance of the products. In
addition, unexpected intellectual property disputes, failure of critical design
elements, and a host of other execution risks may delay or even prevent the
introduction of these products. We have not yet demonstrated commercial
acceptance of these products and commercialization may require substantial sales
and marketing efforts over lengthy sales cycles. Our best efforts may not be
successful in attaining significant commercial acceptance and purchase of our
products.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS. The
production of new fiberoptic systems with high technology content involves
occasional problems as the technology and manufacturing methods mature. If
significant reliability, quality or monitoring problems develop, a number of
material adverse effects could result, including:
* manufacturing rework costs;
* high service and warranty expense;
* high levels of product returns;
* delays in collecting accounts receivable;
* reduced orders from existing customers; and
* declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs
could exceed these amounts.
IF OUR NEW PRODUCT INTRODUCTIONS ARE DELAYED, OR IF OUR NEW PRODUCTS
HAVE DEFECTS, OUR REVENUES WOULD BE HARMED AND OUR COSTS COULD INCREASE. If we
do not introduce new products in a timely manner, we will not obtain incremental
revenues from these products or be able to replace more mature products with
declining revenues or gross margins. Customers could decide to purchase
components from our competitors, resulting in lost revenue over a longer term.
We could also incur unanticipated costs if new product introductions are delayed
or we need to fix defective new products.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE RAPID GROWTH. If we are
successful in marketing our products, and if we receive orders for volume
manufacturing, we will need to develop an infrastructure able to support growth,
including comprehensive and reliable management information systems and
additional manufacturing and other personnel. We may be unable to develop such
systems or locate, hire, train and retain necessary personnel.
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WE ARE DEPENDENT ON KEY PERSONNEL. Although we have hired a business
manager for fiber optic products, as well as marketing and sales managers, we
are still dependent upon the continued services of Dr. Anil K. Jain. The loss of
his services could have a significant adverse impact upon the Company's
operations and development. We do not have an employment agreement or a
noncompete agreement with Dr. Jain, although we maintain $1,000,000 in key man
life insurance on him.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO
SUCCEED. If we cannot hire and retain technical personnel with advanced skills
and experience in the specialized field of fiber optics, our product development
programs may be delayed and our customer support efforts may be less effective.
If we are unable to hire the necessary managerial, sales and marketing
personnel, we may not be able to increase our revenues.
WE ARE DEPENDENT ON SUPPLIERS. We rely on outside vendors to supply
certain of the raw materials and other components of our products. For certain
components, we may rely on single sources of supply, which could result in the
unavailability of or interruptions in delivery of such components, manufacturing
delays caused by such unavailability or interruptions, and fluctuations in the
quality and price of such components. Delivery delays, quality problems and
price increases could hurt our ability to supply our customers with products in
a timely manner, which can cause our shipments and revenues to decline.
IF WE ARE UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, OUR
BUSINESS MAY BE HARMED. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. We currently maintain a supply of
several hazardous materials at our facilities. We might be required to incur
significant cost to comply with environmental laws and regulations. In the event
of an accident, we could be held liable for any damages that result, and the
liability could exceed our resources.
BECAUSE CURRENT OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR
STOCK, THESE SHAREHOLDERS MAY BE ABLE TO CONTROL APA OPTICS AND ALSO PREVENT
POTENTIALLY BENEFICIAL ACQUISITIONS OF APA OPTICS. As of March 15, 2000 our
officers and directors beneficially owned approximately 30% of the outstanding
shares of our common stock. Beneficial ownership includes shares of our common
stock subject to options exercisable within 60 days of March 15, 2000.
These shareholders, if acting together, may be able to elect all of our
directors, and otherwise significantly influence matters requiring approval by
our shareholders. This concentration of ownership and the lack of cumulative
voting may also delay or prevent a third party from acquiring us.
These shareholders may have interests that differ from other
shareholders of APA Optics, particularly in the context of potentially
beneficial acquisitions of APA Optics. For example, to the extent that these
stockholders are employees of APA Optics, they may be less inclined to vote for
acquisitions of APA Optics involving the termination of their employment or
diminution of their responsibilities or compensation.
WE DO NOT INTEND TO PAY DIVIDENDS. We intend to use any cash flows from
operations to finance further growth of the Company's business. Accordingly,
investors should not purchase the shares with a view towards receipt of
dividends.
OUR STOCK PRICE MAY EXHIBIT VOLATILITY AND THE TRADING PRICE OF OUR
STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR CONTROL. Our common stock price has
experienced substantial volatility in the past and is likely to remain volatile
in the future. Volatility can arise as a result of the activities of short
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sellers and risk arbitrageurs and may have little relationship to our financial
results or prospects. The trading prices of our common stock is also affected by
the following factors, among others:
* Variations in anticipated or actual results of operations;
* Announcements of new products or technological innovations by
competitors; and
* Changes in earnings estimates of operational results by analysts.
Volatility can also result from divergence between our actual or
anticipated financial results and/or status of product development or
commercialization, and published expectations of analysts and announcements we
may make. We attempt to address possible divergence through our public
announcements and reports; however, the degree of specificity we can offer in
such announcements, and the likelihood that any forward-looking statements we
make will prove correct in actual results, can and will vary.
Our revenues and operating results have fluctuated significantly from
quarter-to-quarter in the past and may fluctuate significantly in the future as
a result of several factors, some of which are outside of our control. These
factors include:
* the size and timing of customer orders;
* our ability to manufacture and ship our products on a timely basis;
* our ability to obtain sufficient supplies to meet our product
manufacturing needs;
* our ability to meet customer product specifications and
qualifications;
* long and unpredictable sales cycles of up to a year or more;
* our ability to sustain high levels of quality across all product
lines; changes in our product mix;
* customer cancellations or delivery deferrals;
* seasonality of customer demand; and
* difficulties in collecting accounts receivable.
Due to these factors, results are difficult to predict and you should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. It is possible that, in future periods,
our results of operations may be below the expectations of public market
analysts and investors.
Moreover, the stock market from time to time has experienced extreme
price and volume fluctuations, which have particularly affected the market
prices for emerging growth companies and which have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of our common stock.
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During the past three years from the date of this prospectus, the
market price per share of our common stock has fluctuated between approximately
$3.50 and $60.
OUR BUSINESS MAY BE HARMED IF WE BECOME SUBJECT TO SECURITIES CLASS
ACTION LITIGATION. In the past, following periods of volatility in the market
price of a company's common stock, securities class action litigation has been
brought against the issuing company. This type of litigation could be brought
against us in the future. The litigation could be expensive and divert
management's attention and resources, which could adversely affect our business
and results of operations whether or not our defense is successful. If the
litigation is determined against us, we could also be subject to significant
liabilities.
WE MAY NOT EARN A FAVORABLE RETURN WITH THE PROCEEDS OF THIS OFFERING.
Our management can spend the proceeds from this offering in ways with which you
may not agree. We cannot predict that the proceeds will be invested to yield a
favorable return.
THE MARKET PRICE OF OUR STOCK MAY FALL IF OTHER SHAREHOLDERS SELL THEIR
STOCK. If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a price we deem appropriate.
As of March 15, 2000 we had 8,997,992 shares of our common stock
outstanding. Substantially all of these shares are eligible for sale in the
public market. In addition, we are currently registering for public sale 250,000
shares of common stock which may be offered upon conversion of our outstanding
2% Series A Convertible Preferred Stock and related warrants, and an
indeterminate number of shares of common stock (but not in excess of $100
million) offered directly by the Company.
THE VALUE OF YOUR STOCK MAY DECREASE IF OTHER SECURITY HOLDERS EXERCISE
THEIR OPTIONS OR WARRANTS OR CONVERT CONVERTIBLE SECURITIES. As of March 15,
2000 we had reserved 1,697,696 shares of our common stock for future issuance
upon exercise of outstanding options, warrants and convertible securities. If
these securities are exercised or converted, you may experience dilution in the
book value and earnings per share of your common stock. This may cause the
market price of our common stock to fall.
WE MAY ISSUE ADDITIONAL STOCK WITHOUT YOUR CONSENT. The Company has
authorized 20 million shares of common stock, of which 8,997,992 shares are
issued and outstanding as of March 15, 2000. We may seek shareholder
authorization to increase that amount at our next annual shareholders meeting.
The Board of Directors has authority, without action or vote of the
shareholders, to issue all or part of the authorized but unissued shares.
Additional shares may be issued in connection with future financings,
acquisitions, employee plans, or otherwise. Any such issuance will dilute the
percentage ownership interest of existing shareholders, and may dilute the book
value of the common stock. We currently intend to sell up to $100 million in
common stock from time to time at prices related to current market prices
(subject to discount in some circumstances) in a registered public offering to
institutional investors. We do not know the number or price of shares to be
sold, or whether any shares will be sold. In addition, the Company is authorized
to issue up to 5 million undesignated shares, of which 1,500 shares have been
designated as 2% Series A Convertible Preferred Stock. As of March 15, 2000, 500
shares of 2% Series A Convertible Preferred Stock had been issued and were
outstanding. The Board of Directors can issue additional preferred stock in one
or more series and fix the terms of such stock without approval by shareholders.
Preferred stock may include the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of preferred stock could affect the
rights of the holders of common stock adversely and reduce the value of the
common
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stock. In addition, specific rights granted to holders of preferred stock could
be used to restrict the Company's ability to merge with or sell its assets to a
third party.
OUR DIRECTORS' LIABILITY IS LIMITED UNDER MINNESOTA LAW. Our Articles
of Incorporation, as amended and restated, state that our directors are not
liable for monetary damages for breach of fiduciary duty, except for a breach of
the duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Minnesota law, and for any transaction in which
the director derived an improper personal benefit. In addition, our bylaws
provide that we shall indemnify our officers and directors to the fullest extent
permitted by Minnesota law for all expenses incurred in the settlement of any
actions against them in connection with their service as officers or directors
of the Company.
ANTI-TAKEOVER PROVISIONS. Minnesota law provides Minnesota corporations
with anti-takeover protections. These protective provisions could delay or
prevent a change in control of the Company by requiring shareholder approval of
significant acquisitions of voting stock of the Company. These provisions
operate even when many shareholders may think a takeover would be in their best
interests.
FORWARD-LOOKING STATEMENTS
This prospectus and the information which is incorporated by reference
in this prospectus include "forward-looking statements" within the meaning of
the securities laws. Statements about us and our expected financial position,
business and financing plans are forward-looking statements. Forward-looking
statements can be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"pro forma," "anticipates," "intends," or other variations or comparable
terminology, or by discussions of strategy or intentions. Although we believe
that the expectations reflected in our forward-looking statements are
reasonable, we cannot assure you that our expectations will prove to be correct.
Forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise and involve known and unknown risks,
uncertainties and other factors. Accordingly, you should not consider our
forward-looking statements as predictions of future events or circumstances. A
number of factors could cause our actual results, performance, achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by our forward-looking statements. These
factors include, but are not limited to: the competitive environment in our
industry; changes in economic conditions in general and in our business; changes
in prevailing interest rates and the availability of and terms of financing to
fund our business; our ability to attract and retain qualified personnel;
changes in our acquisition and capital expenditure plans; and other factors
discussed in this prospectus including, without limitation, those in our filings
with the Securities and Exchange Commission. Given these uncertainties, you
should not rely on our forward-looking statements in making an investment
decision. We disclaim any obligation to update you on any factors that may
affect the likelihood of realization of our expectations and we do not intend to
announce publicly the results of any revisions to any of our forward-looking
statements to reflect future events or developments. All written and oral
forward-looking statements attributable to us (including statements before and
after the date of this prospectus) are expressly qualified by these cautionary
statements.
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USE OF PROCEEDS
Each time we sell our common stock, we will provide a prospectus
supplement that will contain information about how we intend to use the net
proceeds from our common stock sold at that time.
Unless otherwise indicated in the applicable prospectus supplement, we
plan to use the net proceeds from the sale of our common stock primarily for
expansion of production facilities, sales and marketing of our DWDM-based
product line, working capital, and for general corporate purposes, including
capital expenditures and to meet working capital needs. In addition, we expect
from time to time to evaluate the acquisition of businesses and products for
which a portion of the net proceeds may be used.
Pending these uses, we will invest the net proceeds in interest-bearing
securities.
PRICE RANGE OF COMMON STOCK
Our common stock is traded under the symbol "APAT" in the Nasdaq
SmallCap Market. The following table shows the high and low closing sale prices
as reported by the Nasdaq SmallCap Market during the last two fiscal years ended
March 31, 1998 and 1999 and the first three quarters of our fiscal year ending
March 31, 2000.
- --------------------------------------------------------------------------------
FISCAL YEAR 1998 1998 1999 1999 2000 2000
SALE PRICE LOW HIGH LOW HIGH LOW HIGH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Quarter $5.25 $6.50 $5.62 $6.75 $5.25 $8.50
- --------------------------------------------------------------------------------
Second Quarter 5.37 6.62 4.25 6.00 3.50 7.93
- --------------------------------------------------------------------------------
Third Quarter 6.12 9.25 4.00 5.00 3.88 19.50
- --------------------------------------------------------------------------------
Fourth Quarter 5.50 8.00 4.75 10.00 -- --
- --------------------------------------------------------------------------------
We have never declared or paid a dividend on our common stock and the
Board of Directors currently intends to retain all earnings, if any, for use in
the business for the foreseeable future. Any future determination as to
declaration and payment of dividends will be made at the discretion of the Board
of Directors, subject to covenants in any loan documents restricting the payment
of dividends. Our current loan agreements restrict our ability to pay dividends.
PLAN OF DISTRIBUTION
We have engaged Ladenburg Thalmann & Co. Inc. as our exclusive
placement agent for this offering on a best efforts basis. Ladenburg Thalmann
has agreed with us that it will seek to identify institutional investors who may
wish to purchase our common stock from time to time on specific terms to be
negotiated between us and such institutional investors. Ladenburg Thalmann is
not committed to purchase any of our securities, regardless of whether Ladenburg
Thalmann does or does not successfully identify others to purchase our
securities. Also, Ladenburg Thalmann has advised us that they will not purchase
any of our securities for their own account or for any discretionary accounts
managed by them.
We have agreed to pay Ladenburg Thalmann a placement fee equal to 3% of
the gross proceeds to APA Optics from each such sale. We have also agreed to
issue Ladenburg Thalmann at the closing of the first placement 3-year warrants
to purchase common stock in an amount equal to 3% of $50,000,000
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divided by 125% of the market price on the day prior to such initial placement.
After Ladenburg Thalmann has placed at least $50,000,000 of common stock for us,
we will issue to them additional 3-year warrants for common stock equal to 3% of
the gross proceeds from each such placement divided by 125% of the market price
on the day prior to such transaction. The exercise price of each such warrant
shall be 125% of the market price of the common stock on the day prior to
closing such particular placement.
We have also given Ladenburg Thalmann a $35,000 non-accountable expense
allowance and a right of first refusal for a period of one year from the
placement of $50,000,000 of common stock pursuant to this offering to provide
certain additional financing for us. We have also agreed to give Ladenburg
Thalmann customary underwriter's indemnification against liabilities under the
Securities Act.
Any variance from those underwriting terms will be disclosed in a
prospectus supplement.
EXPERTS AND LEGAL MATTERS
The financial statements of APA Optics, Inc. as of March 31, 1999 and
1998, and for each of the three years in the period ended March 31, 1999,
incorporated by reference in this prospectus and in the registration statement
of which this prospectus is a part have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the ability of APA Optics to continue as a going concern, as described in Note 2
to the financial statements) also incorporated by reference herein. Such
financial statements have been incorporated by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The validity of the shares of common stock offered by this prospectus
has been passed upon for the Company by Moss & Barnett, A Professional
Association, Minneapolis, Minnesota.
MATERIAL CHANGES
There have been no material changes in the financial condition or
business of the Company since its Report on Form 10-Q for the quarter ended
December 31, 1999 except for our placement of $5 million in 2% Series A
convertible preferred stock and related warrants for purchase of 50,000 shares
of common stock in March 2000.
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation limit personal liability for breach of
the fiduciary duty of our directors, to the fullest extent provided by the
Minnesota Business Corporation Act. The Articles eliminate the personal
liability of directors for damages occasioned by breach of fiduciary duty,
except for liability based on the director's duty of loyalty to APA Optics,
liability for acts or omissions not made in good faith, liability for acts or
omissions involving intentional misconduct, liability based on payments of
improper dividends, liability based on violations of state securities laws, and
liability occurring prior to the date such provision was added. Any amendment to
or repeal of these provisions will not be applied retroactively to adversely
affect any right or protection of a director with respect to any acts or
omissions occurring prior to the amendment or repeal. In addition, the Minnesota
Business Corporation Act and our Bylaws provide that our officers and directors
have the right to indemnification from the Company for liability arising out of
certain actions to the fullest extent permissible by law.
This indemnification may be available for liabilities arising in
connection with this offering. However, in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act of 1933 is against public policy as expressed in the Act and is
therefore unenforceable.
ANTITAKEOVER STATUTE
Section 302A.671 of the Minnesota Business Corporation Act (the
"Minnesota Act") applies, with certain exceptions, to any acquisition of voting
stock of APA Optics, including the receipt of a proxy, from a person other than
APA Optics, and other than in connection with certain mergers and exchanges to
which APA Optics is a party, that results in the beneficial ownership by the
acquiring party of 20% or more of the Company's voting stock then outstanding.
Under Section 302A.671 any such acquisition must be approved by a majority vote
of our shareholders. In general, in the absence of such approval, shares
exceeding the threshold are denied voting rights and may be redeemed by us at
the then fair market value within 30 days after the acquiring person fails to
give a timely information statement to the Company or after the date that
shareholders vote not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Act generally prohibits any business
combination by a Minnesota company with any shareholder that purchases 10% or
more of the company's voting shares (an "interested shareholder") within four
years following the interested shareholder's share acquisition date, unless the
business combination is approved by a committee of all of the disinterested
members of the Board of Directors of the company before the share acquisition.
These statutory provisions could delay or prevent a change in control
of APA Optics.
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$100,000,000
APA OPTICS, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
________________, 2000
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution
of the Common Stock registered hereby, other than underwriting discounts and
fees, are set forth in the following table:
SEC registration fee.............................. $26,400
Legal fees and expenses........................... 10,000
Accounting fees and expenses...................... 5,000
Blue Sky fees and expenses........................ 1,000
Printing and engraving expenses................... 5,000
Miscellaneous..................................... 1,000
-------
Total......................................... $48,400
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Unless prohibited in a corporation's articles or bylaws, Minnesota
Statutes ss.302A.521 requires indemnification of officers, directors, employees
and agents, under certain circumstances, against judgments, penalties, fees,
settlements and reasonable expenses (including attorneys' fees and
disbursements) incurred by such person in connection with a threatened or
pending proceeding with respect to the acts or omissions of such person in his
or her official capacity. The general effect of Minnesota Statutes ss.302A.521
is to reimburse (or pay on behalf of) directors and officers of the registrant
any personal liability that may be imposed for certain acts performed in their
capacity as directors and officers of the registrant, except where such persons
have not acted in good faith. The Bylaws of the Registrant provide for such
indemnification to the maximum extent permitted by Minnesota Statutes.
ITEM 16. EXHIBITS
Exhibit No. Description of Exhibit
1.1 Placement Agency Agreement dated March 16, 2000
between APA Optics and Ladenburg Thalmann & Co. Inc.
*3.1 Restated Articles of Incorporation, as amended
*3.2 Bylaws, as amended
5.1 Opinion and Consent of Counsel to APA Optics
23.1 Consent of Ernst & Young LLP
23.2 Consent of Counsel to APA Optics (filed as part of
Exhibit 5.1)
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- -------------------------
* Incorporated by reference to exhibit filed as a part of Form 10-KSB for
the fiscal year ended March 31, 1995.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the issuer pursuant to the foregoing
provisions or otherwise, the issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the issuer of expenses
incurred or paid by a director, officer or controlling person of the issuer 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 issuer 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 Act and will be governed by the final adjudication of
such issue.
(b) Because the registration statement incorporates Exchange Act
documents filed subsequent to the effective date of the registration statement,
the Company hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (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) that is
incorporated by reference in the registration statement 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.
(c) If the Company relies upon Rule 430A under the Act, the Company
undertakes that, for determining any liability under the Act, it will:
(1) Treat 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 under Rule 424(b)(1) or (4)
or 497(h) under the Act as part of this registration statement as of
the time the Commission declared it effective.
(2) Treat each post-effective amendment that contains a form
of prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
(d) Insofar as the Company is registering securities under Rule 415 of
the Securities Act, the Company will:
(1) file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to include any additional or changed material information on the plan
of distribution.
(2) for determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
20
<PAGE>
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, 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 authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Minneapolis, State of Minnesota, on April 3,
2000.
APA OPTICS, INC.
By: /s/ Anil K. Jain
-------------------------------------
Anil K. Jain, Chief Executive Officer
(Principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Anil K. Jain, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in 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
sign any registration statement for the same offering covered by Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that said attorney-in-fact and agent or his substitute, may lawfully
do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Anil K. Jain Chief Executive Officer and Chief April 3, 2000
- -------------------------- Financial Officer (Principal
Anil K. Jain executive officer and principal
financial officer)
/s/ Kenneth A. Olsen Director April 3, 2000
- --------------------------
Kenneth A. Olsen
/s/ Gregory J. Von Wald Director April 3, 2000
- --------------------------
Gregory J. Von Wald
/s/ Michael A. Gort Director April 3, 2000
- --------------------------
Michael A. Gort
22
<PAGE>
/s/ William R. Franta Director April 3, 2000
- --------------------------
William R. Franta
/s/ Randal J. Becker Principal accounting officer April 3, 2000
- --------------------------
Randal J. Becker
*Executed by the undersigned as attorney-in-fact
for the named signatory
- ---------------------------
Anil K. Jain
23
Exhibit 1.1 to
Ladenburg Thalmann S-3
[LOGO] LADENBURG
THALMANN
March 16, 2000
Anil Jain
Chairman/ Chief Financial Officer
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
Dear Mr. Jain:
The purpose of this letter agreement (the "Agreement") is to set forth the terms
and conditions pursuant to which Ladenburg Thalmann & Co. Inc. ("LTCO") shall
serve as exclusive placement agent in connection with the proposed offering (the
"Offering") of equity securities (the "Securities") of APA Optics, Inc. (the
"Company") pursuant to a registration statement on Form S-3. The gross proceeds
from the Offering will be up to $100,000,000. All references to dollars shall be
to U.S. dollars. The terms of such Offering and the Securities shall be as
agreed to between the Company and the purchasers thereof. The Company may accept
or reject any offer to purchase the Securities, in whole or in part, in its sole
discretion.
Upon the terms and subject to the conditions of this Agreement, the
parties hereto agree as follows:
1. APPOINTMENT. (a) Subject to the terms and conditions of this
Agreement hereinafter set forth, the Company hereby retains LTCO, and LTCO
hereby agrees to act as the Company's exclusive placement agent and financial
advisor in connection with the Offering, effective as of the date hereof. The
Company expressly acknowledges and agrees that LTCO's obligations hereunder are
on a reasonable best efforts basis only and that the execution of this Agreement
does not constitute a commitment by LTCO to purchase the Securities and does not
ensure the successful placement of the Securities or any portion thereof or the
success of LTCO with respect to securing any other financing on behalf of the
Company. LTCO shall not commence any selling efforts until the registration
statement has been declared effective by the SEC.
<PAGE>
(b) Except as set forth below in this Section 1, during the
effectiveness of this Agreement, neither the Company nor any of its subsidiaries
or affiliates shall, directly or indirectly, through any officer, director,
employee, agent or otherwise (including, without limitation, through any
placement agent, broker, investment banker, attorney or accountant retained by
the Company or any of its subsidiaries or affiliates), solicit, initiate or
encourage the submission of any proposal or offer (an "Investment Proposal")
from any person or entity (including any of such person's or entity's officers,
directors, employees, agents and other representatives) relating to any issuance
of the Company's or any of its subsidiaries' equity securities (including debt
securities with any equity feature) or relating to any other transaction having
a similar effect or result on the Company's or any of its subsidiaries'
capitalization, or participate in any discussions or negotiations regarding, or
furnish to any other person or entity any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage any effort or attempt by any other person or entity to do or seek to
do any of the foregoing. The Company shall immediately cease and cause to be
terminated any and all contacts, discussions and negotiations with third parties
regarding any Investment Proposal. The Company shall promptly notify LTCO if any
such Investment Proposal, or any inquiry or contact with any person or entity
with respect thereto, is made. The Company shall not provide or release any
information with respect to this Agreement or the Offering except as required by
law. This Section 1(b) shall not apply to the Company's 2% Convertible Preferred
Stock.
(c) Notwithstanding anything to the contrary contained herein, in the
event that LTCO shall not provide to the Company within three months after the
effective date of the registration statement one or more qualified institutional
investors reasonably acceptable to the Company willing to invest in the
aggregate at least $25,000,000 in the Offering on substantially the same terms
as agreed to between the Company and such investors, the Company shall have the
right to terminate this Agreement and/or to solicit and pursue other Investment
Proposals (subject to LTCO's rights to compensation under Section 3(b)). No
break-up fee shall be payable under Section 2(d) if the Company terminates this
Agreement pursuant to this Section 1(c).
2. FEES AND COMPENSATION. In consideration of the services rendered by
LTCO in connection with the Offering, the Company agrees to pay LTCO the
following fees and other compensation:
(a) 1) 3% warrant coverage on $50 million as commitment fee payable
immediately upon the initial closing which will be the date of
the completion of the initial draw down under the Offering;
after the Company draws down at least $50 million under the
Offering, 3% warrant coverage on the amount draw down by the
Company at each subsequent closing payable at the applicable
subsequent closing which will be the date of the completion of
2
<PAGE>
the applicable subsequent draw down under the Offering. The
warrant coverage shall be determined as follows: 3% * (for the
initial closing) $50,000,000 or (for subsequent closings) the
amount drawn down by the Company at the applicable subsequent
closing / 125% of the VWAP of the Company's common stock on
the trading day immediately preceding the applicable closing.
The Warrants shall have a term of three years and a strike
price equal to 125% of the VWAP of the Company's common stock
on the trading day immediately preceding the applicable
closing ("VWAP" shall mean the daily volume weighted average
price of the Company's Common Stock as reported by Bloomberg
Financial using the AQR function); and
2) a cash fee payable upon the initial and each subsequent
closing equal to 3% of the amount drawn down by the Company at
each such closing; and
(b) $35,000 non-accountable expense allowance.
(c) All amounts payable hereunder shall be paid to LTCO out of an
attorney escrow account at the closing or by such other means
acceptable to LTCO.
(d) If (i) LTCO has provided a qualified institutional investor,
as set forth in Section 1(c), who is acceptable to the
Company, and who is willing to invest at substantially the
terms agreed to between the Company and the investor, (ii) the
Company rejects the investor's offer and no sale of Securities
is made to such investor, and (iii) the Company terminates the
Agreement prior to March 31, 2001 (the "Termination Date"),
for reasons other than a breach of this Agreement by LTCO, the
Company will pay $200,000 to LTCO as a "break-up" fee.
3. TERMS OF RETENTION. (a) Unless extended or terminated in writing by
the parties hereto in accordance with the provisions hereof, this Agreement
shall remain in effect until the Termination Date of March 31, 2001.
(b) Notwithstanding anything herein to the contrary, the obligation to
pay the Fees and Compensation and Expenses described in Section 2, if any, and
paragraphs 2, 6, and 8 of Exhibit A and all of Exhibit B and Exhibit C attached
hereto, each of which exhibits is incorporated herein by reference, shall
survive any termination or expiration of the Agreement. It is expressly
understood and agreed by the parties hereto that any private financing of equity
or debt or other capital raising activity of the Company within 24 months of the
termination or expiration of this Agreement, with any investors (the number of
such investors shall not exceed seven without the Company's prior written
3
<PAGE>
approval) to whom the Company was introduced by LTCO or who was contacted by
LTCO while this Agreement was in effect and disclosed to the Company in writing,
shall result in such fees and compensation being due and payable by the Company
to LTCO under the same terms of Section 2 above.
(c) In no event shall the number of shares of Common Stock issued in
the Offering, together with the number of shares issued and issuable pursuant to
the Company's 2% Convertible Preferred Stock and related warrants reach or
exceed 20% of the number of shares of common stock outstanding as of the date of
issuance of the 2% Convertible Preferred Stock, unless issuance in an amount of
20% or more has been approved by the shareholders.
4. RIGHT OF FIRST REFUSAL. If the investors to whom the Company was
introduced by LTCO pursuant hereto purchase in the aggregate at least
$50,000,000 of Securities under the Offering, then upon completion of the sale
of such $50,000,000 of Securities, LTCO shall have an irrevocable right of first
refusal for a period of one year to provide all private financing (i.e.
registered public offerings of debt and equity are excluded) for the Company
(other than conventional banking arrangements, borrowing and commercial debt
financing and discrete unrelated transactions of not more than $250,000 where no
investment banking fee is being paid). LTCO shall exercise such right in writing
within five (5) business days of receipt of a written term sheet describing such
proposed transaction in reasonable detail.
5. INFORMATION. The Company recognizes and confirms that in completing
its engagement hereunder, LTCO will be using and relying on publicly available
information and on data, material and other information furnished to LTCO by the
Company or the Company's affiliates and agents. It is understood and agreed that
in performing under this engagement, LTCO will rely upon the accuracy and
completeness of, and is not assuming any responsibility for independent
verification of, such publicly available information and the other information
so furnished. Notwithstanding the foregoing, it is understood that LTCO will
conduct a due diligence investigation of the Company and the Company will
cooperate in all respects with such investigation as a condition of LTCO's
obligations hereunder.
6. REGISTRATION. Promptly following execution of this Agreement, the
Company shall prepare and file with the SEC a registration statement. From time
to time in connection with any particular sale of Securities, the Company will,
at its own expense, obtain any registration or qualification required to sell
any Securities under the Blue Sky laws of any applicable jurisdictions, as
reasonably requested by LTCO.
7. NO GENERAL SOLICITATION. The Securities will be offered only by
approaching prospective purchasers on an individual basis. No general
solicitation or general advertising in any form will be used in connection with
the
4
<PAGE>
offering of the Securities. From and after the filing of the registration
statement, the Company shall pre-clear any proposed press release with LTCO.
8. CLOSING. The closing of the sale of the Securities shall be subject
to customary closing conditions, including the provision at closing by the
Company of officers' certificates, and opinion of counsel as to registration of
the Securities.
9. MISCELLANEOUS. This Agreement together with the attached Exhibits A
through C constitutes the entire understanding and agreement between the parties
with respect to its subject matter and there are no agreements or understandings
with respect to the subject matter hereof which are not contained in this
Agreement. This Agreement may be modified only in writing signed by the party to
be charged hereunder.
If the foregoing correctly sets forth our agreement, please confirm
this by signing and returning to us the duplicate copy of this letter.
We appreciate this opportunity to be of service and are looking forward
to working with you on this matter.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By: /s/ David B. Boris
-------------------------------
Name: David B. Boris
Title: Executive Vice President
Agreed to and accepted
as of the date first written above:
APA Optics, Inc.
By: /s/ Anil Jain
---------------------------------
Name: Anil Jain
Title: President
5
<PAGE>
Exhibit 1.1 to
Ladenburg Thalmann S-3
EXHIBIT A
STANDARD TERMS AND CONDITIONS
1. The Company shall promptly provide LTCO with all relevant information
about the Company (to the extent available to the Company in the case
of parties other than the Company) that shall be reasonably requested
or required by LTCO, which information shall be accurate in all
material respects at the time furnished.
2. LTCO shall keep all information obtained from the Company strictly
confidential except: (a) information which is otherwise publicly
available, or previously known to, or obtained by LTCO independently of
the Company and without breach of LTCO's agreement with the Company;
(b) LTCO may disclose such information to its employees and attorneys,
and to its other advisors and financial sources on a need to know basis
only and shall ensure that all such employees, attorneys, advisors and
financial sources will keep such information strictly confidential; and
(c) pursuant to any order of a court of competent jurisdiction or other
governmental body or as may otherwise be required by law, provided that
LTCO shall provide prior notice of such disclosure to the Company to
enable it to seek a protective order or other relief.
3. The Company recognizes that in order for LTCO to perform properly its
obligations in a professional manner, it is necessary that LTCO be
informed of and, to the extent practicable, participate in meetings and
discussions between the Company and any third party relating to the
matters covered by the terms of LTCO's engagement.
4. The Company agrees that any report or opinion, oral or written,
delivered to it by LTCO is prepared solely for its confidential use and
shall not be reproduced, summarized, or referred to in any public
document or given or otherwise divulged to any other person without
LTCO's prior written consent, except as may be required by applicable
law or regulation.
5. No fee payable to LTCO pursuant to any other agreement with the Company
or payable by the Company to any agent, lender or investor shall reduce
or otherwise affect any fee payable by the Company to LTCO hereunder.
6. The Company represents and warrants that: (a) it has full right, power
and authority to enter into this Agreement and to perform all of its
obligations hereunder; (b) this Agreement has been duly authorized and
executed and constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms; and (c) the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby does not conflict with or result in a breach of (i)
the Company's certificate of
<PAGE>
incorporation or by-laws or (ii) any agreement to which the Company is
a party or by which any of its property or assets is bound.
7. Nothing contained in this Agreement shall be construed to place LTCO
and the Company in the relationship of partners or joint venturers.
Neither LTCO nor the Company shall represent itself as the agent or
legal representative of the other for any purpose whatsoever nor shall
either have the power to obligate or bind the other in any manner
whatsoever. LTCO, in performing its services hereunder, shall at all
times be an independent contractor.
8. This Agreement has been and is made solely for the benefit of LTCO and
the Company and each of the persons, agents, employees, officers,
directors and controlling persons referred to in Exhibit B and their
respective heirs, executors, personal representatives, successors and
assigns, and nothing contained in this Agreement shall confer any
rights upon, nor shall this Agreement be construed to create any rights
in, any person who is not party to such Agreement, other than as set
forth in this paragraph.
9. The rights and obligations of either party under this Agreement may not
be assigned without the prior written consent of the other party hereto
and any other purported assignment shall be null and void.
10. All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and shall be mailed, hand
delivered, or sent via facsimile and confirmed by letter, to the party
to whom it is addressed at the following addresses or such other
address as such party may advise the other in writing:
To the Company:
Anil Jain
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
TELEPHONE: (612) 784-4995
Facsimile: (612) 784-2038
To LTCO:
Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, NY 10022
Attention: David B. Boris
Telephone: (212) 409-2000
Facsimile: (212) 409-2169
All notices hereunder shall be effective upon receipt by the party to which it
is addressed.
2
<PAGE>
Exhibit 1.1 to
Ladenburg Thalmann S-3
EXHIBIT B
INDEMNIFICATION
The Company agrees that it shall indemnify and hold harmless, LTCO, its
stockholders, directors, officers, employees, agents, affiliates and controlling
persons within the meaning of Section 20 of the Securities Exchange Act of 1934
and Section 15 of the Securities Act of 1933, each as amended (any and all of
whom are referred to as an "Indemnified Party"), from and against any and all
losses, claims, damages, liabilities, or expenses, and all actions in respect
thereof (including, but not limited to, all legal or other expenses reasonably
incurred by an Indemnified Party in connection with the investigation,
preparation, defense or settlement of any claim, action or proceeding, whether
or not resulting in any liability), incurred by an Indemnified Party: (a)
arising out of, or in connection with, any actions taken or omitted to be taken
by the Company, its affiliates, employees or agents, or any untrue statement or
alleged untrue statement of a material fact contained in any of the financial or
other information contained in the registration statement and/or final
prospectus furnished to LTCO by or on behalf of the Company or the omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or (b) with respect to, caused by, or otherwise
arising out of any transaction contemplated by the Agreement or LTCO's
performing the services contemplated hereunder; provided, however, the Company
will not be liable under clause (b) hereof to the extent, and only to the
extent, that any loss, claim, damage, liability or expense is finally judicially
determined to have resulted primarily from LTCO's gross negligence or bad faith
in performing such services.
If the indemnification provided for herein is conclusively determined
(by an entry of final judgment by a court of competent jurisdiction and the
expiration of the time or denial of the right to appeal) to be unavailable or
insufficient to hold any Indemnified Party harmless in respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the Company
shall contribute to the amounts paid or payable by such Indemnified Party in
such proportion as is appropriate and equitable under all circumstances taking
into account the relative benefits received by the Company on the one hand and
LTCO on the other, from the transaction or proposed transaction under the
Agreement or, if allocation on that basis is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and LTCO on the other, but also the
relative fault of the Company and LTCO; provided, however, in no event shall the
aggregate contribution of LTCO and/or any Indemnified Party be in excess of net
compensation actually received by LTCO and/or such Indemnified Party pursuant to
this Agreement.
The Company shall not settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened action,
claim,
<PAGE>
suit or proceeding in which any Indemnified Party is or could be a party and as
to which indemnification or contribution could have been sought by such
Indemnified Party hereunder (whether or not such Indemnified Party is a party
thereto), unless such consent or termination includes an express unconditional
release of such Indemnified Party, reasonably satisfactory in form and substance
to such Indemnified Party, from all losses, claims, damages, liabilities or
expenses arising out of such action, claim, suit or proceeding.
The foregoing indemnification and contribution provisions are not in
lieu of, but in addition to, any rights which any Indemnified Party may have at
common law hereunder or otherwise, and shall remain in full force and effect
following the expiration or termination of LTCO's engagement and shall be
binding on any successors or assigns of the Company and successors or assigns to
all or substantially all of the Company's business or assets.
2
<PAGE>
Exhibit 1.1 to
Ladenburg Thalmann S-3
EXHIBIT C
JURISDICTION
The Company hereby irrevocably: (a) submits to the jurisdiction of any
court of the State of New York or any federal court sitting in the State of New
York for the purposes of any suit, action or other proceeding arising out of the
Agreement between the Company and LTCO which is brought by or against the
Company or LTCO; (b) agrees that all claims in respect of any suit, action or
proceeding may be heard and determined in any such court; and (c) to the extent
that the Company has acquired, or hereafter may acquire, any immunity from
jurisdiction of any such court or from any legal process therein, the Company
hereby waives, to the fullest extent permitted by law, such immunity.
The Company waives, and the Company agrees not to assert in any such
suit, action or proceeding, in each case, to the fullest extent permitted by
applicable law, any claim that: (a) the Company is not personally subject to the
jurisdiction of any such court; (b) the Company is immune from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
the aid of execution, execution or otherwise) with respect to it or its
property; (c) any such suit, action or proceeding is brought in an inconvenient
forum; (d) the venue of any such suit, action or proceeding is improper; or (e)
this Agreement may not be enforced in or by any such court.
Any process against the Company in, or in connection with, any suit,
action or proceeding filed in the United States District Court for the Southern
District of New York or any other court of the State of New York, arising out of
or relating to this Agreement or any transaction or agreement contemplated
hereby, may be served on the Company personally, or by first class mail or
overnight courier (with the same effect as though served upon the Company
personally) addressed to the Company at the address set forth in the Agreement
between the Company and LTCO.
Nothing in these provisions shall affect any party's right to serve
process in any manner permitted by law or limit its rights to bring a proceeding
in the competent courts of any jurisdiction or jurisdictions or to enforce in
any lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to conflicts of law
principles.
EXHIBIT 5.1
April 3, 2000
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for APA Optics, Inc. (the "Company") in
connection with the Registration Statement on Form S-3 (the "Registration
Statement") that relates to the issuance of up to $100,000,000 of common stock
of the Company (the "Shares").
In connection with the registration of the Shares, we have examined
such documents, records and matters of law as we have deemed necessary to the
rendering of the following opinion. Based upon that review, it is our opinion
that upon receipt of payment in full therefor, the Shares being registered, when
issued by the Company, will be validly issued, fully paid and non-assessable.
The foregoing opinion is subject to the qualification that the Shares
or any of them, when issued, will not when taken together with the then issued
and outstanding capital stock of the Company, exceed the authorized capital
stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
MOSS & BARNETT,
A Professional Association
/s/ Janna R. Severance
Janna R. Severance
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts and
Legal Matters" in the Registration Statement (Form S-3 No. 333-00000) and
related Prospectus of APA Optics, Inc. for the registration of $100,000,000 in
shares of its common stock and to the incorporation by reference therein of our
report dated May 14, 1999, with respect to the financial statements of APA
Optics, Inc. included in its Annual Report (Form 10-K) for the year ended March
31, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
April 3, 2000
