<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1997
REGISTRATION NO. 333-24421
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LASER POWER CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 3827 95-3423358
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
12777 HIGH BLUFF DRIVE
SAN DIEGO, CA 92130
(619) 755-0700
(ADDRESS, TELEPHONE NUMBER, OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
12777 HIGH BLUFF DRIVE
SAN DIEGO, CA 92130
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
------------------------
GLENN H. SHERMAN, PH.D.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
LASER POWER CORPORATION
12777 HIGH BLUFF DRIVE
SAN DIEGO, CA 92130
(619) 755-0700
(NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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D. BRADLEY PECK, ESQ. PAUL E. KREUTZ, ESQ.
EDWARD C. Y. YIP, ESQ. REBECCA SCHMITT, ESQ.
ALEXANDER A. FITZPATRICK, ESQ. MARK LEHBERG, ESQ.
COOLEY GODWARD LLP GRAY CARY WARE & FREIDENRICH
4365 EXECUTIVE DRIVE, SUITE 1100 4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CA 92121 SAN DIEGO, CA 92121
(619) 550-6000 (619) 677-1400
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
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. [ ]
------------------------
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CALCULATION OF REGISTRATION FEE
==============================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value................... 2,760,000 $8.50 $23,460,000 $7,109
==============================================================================================================================
</TABLE>
(1) Includes 360,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 6, 1997
PROSPECTUS
2,400,000 SHARES
LOGO
COMMON STOCK
------------------------
Of the 2,400,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Laser Power Corporation ("Laser Power" or the "Company") and
400,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any portion of the
proceeds from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is estimated that the initial public offering price
will be between $6.50 and $8.50 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "LPWR."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
PROSPECTIVE INVESTORS SHOULD CONSIDER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
DISCOUNTS PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
=======================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act"). The Company has also agreed
to sell to the Representatives of the Underwriters warrants to purchase up
to 200,000 shares of Common Stock exercisable at 130% of the initial public
offering price per share (the "Representatives' Warrants"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $912,500,
including the Representatives' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 360,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, when,
as and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject any orders in whole or in
part. It is expected that delivery of share certificates will be made against
payment therefor at the offices of Cruttenden Roth Incorporated in Irvine,
California, or through the facilities of Depository Trust Company, on or about
, 1997.
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CRUTTENDEN ROTH L.H. FRIEND, WEINRESS,
INCORPORATED FRANKSON & PRESSON, INC.
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
A WORLD OF APPLICATIONS
HIGH PERFORMANCE OPTICS
[photographs of various types of high performance laser optics]
Laser Power provides high performance precision optics for a wide range of
demanding industrial, medical and military applications.
INDUSTRIAL FABRICATION
[photograph of high power laser cutting sheet metal]
Thousands of high power CO(2) laser systems employing the Company's optics
operate throughout the world precisely cutting metal and other materials. With
laser cutting, there is rarely any need for further finishing of the edges
before these parts are assembled in an increasing number of products such as
automobiles, recreational vehicles, farm equipment, office furniture and
construction equipment.
. . . OPTICS FOR TODAY
HIGH POWER TECHNOLOGY
[photograph of a transmission gear ]
Growing acceptance of laser material processing is rapidly increasing the number
of high power applications, for example in the automated CO(2) laser welding of
transmission gears.
LASER BEAM
[drawing of the focusing optic of a laser]
Laser Power's patented Turbo-Cooled technology allows focusing optics to handle
the power of multikilowatt CO(2) lasers for deep-penetration welding and
thick-section cutting in a wide range of metals.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
------------------------
The Company intends to furnish annual reports to stockholders containing
audited financial statements, quarterly reports and such other periodic reports
as it may determine to be appropriate or as may be required by law.
------------------------
Turbo-Cooled(R), Laser Power (stylized)(R), and the Laser Power logo are
registered trademarks, and MP-5 is a trademark of the Company. All other
trademarks or service marks used in this Prospectus are the property of their
respective holders.
2
<PAGE> 4
PROJECTION DISPLAY
Laser Power believes that projectors based on its microlasers will be superior
to existing electronic projectors in color accuracy, color range, brightness,
uniformity, operating efficiency and lifetime performance. These advantages will
be important, in the emerging application of electronic cinema. Laser Power also
anticipates that both front and rear microlaser-based projectors will gain
acceptance and use for a wide range of applications, including location based
entertainment, auditoriums, control rooms, video walls, simulators and technical
conferencing.
[Photograph of dermatological procedure performed using a laser]
[Photograph of dental procedure performed using a laser]
[Photograph of laser use in a medical operating room]
. . . MICROLASERS FOR TOMORROW
[Drawing of a microlaser and a photograph of a movie theater]
ADVANCED MEDICINE
Laser Power believes that several applications now addressed by conventional
lasers of substantially larger size and lower operating efficiencies represent
immediate opportunities for its green and blue microlasers. The Company believes
that microlasers can be used in the existing markets for opthomology, biomedical
analysis, vein, lesion and tattoo removal and the emerging market for teeth
whitening and curing of fillings.
<PAGE> 5
[continuation of photograph of movie theater]
FIBER OPTIC TELECOMMUNICATIONS
Fiber optic based telecommunications systems provide significant performance
advantages over traditional systems which use copper wire and cable, including
longer distances before amplification, greater bandwidth and information
handling capacity and higher resistance to electronic interference. Laser
Power's tunable 1550 nanometer microlasers currently under development are
designed for use in head-end and dense WDM fiber optic telecommunications
applications for CATV and telephone use. The Company anticipates that its 1550
nanometer microlasers will deliver higher quality voice, video and data
information at a lower cost than existing technologies.
[Depiction of a fiber optic based telecommunications network]
<PAGE> 6
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option, the Representatives' Warrants, other warrants outstanding
as of the date of this Prospectus, or options granted or reserved under the
Company's stock option plans, (ii) assumes no conversion of the outstanding
Series A Convertible Subordinated Debentures (the "Debentures"), (iii) reflects
the 1-for-1.5 reverse stock split of the Common Stock effected on April 25,
1997, and (iv) reflects the exchange of all outstanding shares of the Company's
Preferred Stock for 1,193,252 shares of Common Stock immediately prior to the
closing of this offering. See "Certain Transactions," "Principal and Selling
Stockholders," "Description of Capital Stock," "Underwriting" and Note 5 of
Notes to Consolidated Financial Statements.
THE COMPANY
Laser Power Corporation ("Laser Power" or the "Company") designs,
manufactures and markets high performance laser optics for industrial, medical
and military lasers and laser systems. Laser optics are precision lenses,
reflectors and mirrors used to reflect, collect and focus laser beams. The
Company's products are sold to laser system OEMs and end users as original and
replacement components in high power CO(2) and other lasers. The Company's core
competencies lie in its surface finishing and thin film coatings, which are key
elements involved in all high-performance laser optics. The Company believes
that its expertise in these areas provides it with a significant competitive
advantage.
The Company's customers use high power CO(2) lasers in a variety of
industrial processing applications, such as sheet metal cutting, automobile body
welding, surface hardening for engine components and scribing and drilling
delicate ceramic circuits. The Company also sells high performance laser optics
to medical equipment OEMs for lower power CO(2) lasers used in certain
therapeutic and cosmetic procedures, including surgery and skin wrinkle removal.
In addition, the Company has developed very low absorption thin film coatings
for optics for laser anti-missile systems. The Company also conducts contract
research in the development and applications of advanced solid state lasers.
Substantially all of the Company's product revenues to date are attributable to
the sale of laser optics products for the industrial processing and medical
industries.
The Company has leveraged its expertise in thin film coatings, surface
finishing and solid state lasers to develop proprietary miniature solid state
lasers that are excited or "pumped" by diode lasers. These "microlasers" have
significant size advantages, are generally 100 times more energy efficient and
have longer estimated lifetimes than conventional gas and solid state lasers.
Laser Power shipped the first microlaser evaluation units in March 1997, and
expects to begin commercial deliveries of microlasers to a medical equipment OEM
to replace gas lasers in dermatology systems by the end of fiscal 1997. The
Company believes that microlasers can replace other lasers in additional medical
equipment. The Company is also developing microlasers for projection display and
telecommunications applications.
The Company's strategy is to expand its existing high performance laser
optics business through a continual improvement in quality and customer service
while introducing new products, such as the Company's low absorption,
non-radioactive MP-5 thin film coatings and Turbo-Cooled optics. The Company
also plans to leverage its optics expertise to enter new high margin markets for
high performance optics for yttrium aluminum garnet and visible lasers and thin
film filters for dense wavelength division multiplexers. In addition, to
increase margins on optics sales, the Company plans to increase manufacturing
automation and transfer additional labor intensive operations to its facility in
Mexico.
The Company's strategy is also to build its microlaser infrastructure by
entering lower volume medical, biotechnology and industrial markets where the
Company's blue and green microlasers can replace other lasers. This
infrastructure will then serve as the platform for launching microlasers in
higher volumes for projection display applications. In addition, the Company has
developed prototypes of microlaser based projectors for the high end, high
resolution projector market. The Company also is developing a microlaser for
fiber optic telecommunications applications. The Company's strategy is to use
this microlaser as a platform to build a family of telecommunications products.
The Company was incorporated in California in August 1979 and
reincorporated in Delaware in July 1983. The Company's executive offices are
located at 12777 High Bluff Drive, San Diego, California 92130, and its
telephone number is (619) 755-0700.
3
<PAGE> 7
THE OFFERING
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Common Stock offered by the Company.......... 2,000,000 shares
Common Stock offered by Selling 400,000 shares
Stockholders...............................
Common Stock outstanding after the 6,202,354 shares(1)
offering...................................
Use of Proceeds.............................. Additions to plant and equipment, repayment of
debt, working capital and other general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... LPWR
</TABLE>
- ---------------
(1) Excludes: (i) 1,291,619 shares of Common Stock reserved for issuance upon
exercise of options outstanding as of March 31, 1997; (ii) 386,660 shares of
Common Stock issuable upon exercise of warrants outstanding as of March 31,
1997; (iii) 200,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants; (iv) up to 368,888 shares of Common Stock
issuable upon conversion of the Debentures; and (v) an aggregate of
1,250,000 shares of Common Stock reserved for future issuance under the
Company's 1997 Equity Incentive Plan (the "1997 Plan") and Employee Stock
Purchase Plan.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, FEBRUARY 29/28,
--------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------- ------- ------- -------
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales............................. $8,622 $8,720 $10,158 $11,859 $15,194 $ 6,880 $ 7,995
Contract research and development......... 1,149 963 1,727 2,714 3,713 1,682 3,129
------ ------ ------- ------- ------- ------- ------
Total revenues..................... 9,771 9,683 11,885 14,573 18,907 8,562 11,124
Cost of revenues:
Product sales............................. 5,125 5,392 6,550 7,994 9,888 4,601 5,475
Contract research and development......... 941 766 1,308 2,059 2,942 1,262 2,502
------ ------ ------- ------- ------- ------- ------
Total cost of revenues............. 6,066 6,158 7,858 10,053 12,830 5,863 7,977
Gross profit:
Product sales............................. 3,497 3,328 3,608 3,865 5,306 2,279 2,520
Contract research and development......... 208 197 419 655 771 420 627
------ ------ ------- ------- ------- ------- ------
Total gross profit................. 3,705 3,525 4,027 4,520 6,077 2,699 3,147
Income (loss) from operations............... 485 (629) (745) (1,920) (918) (845) 480
Net income (loss)........................... $ 312 $ (816) $(1,013) $(2,269) $(1,231) $(1,004) $ 313
Pro forma net income (loss) per share(1).... $ (0.29) $ 0.06
Shares used in per share computations(1).... 4,311 4,887
OTHER DATA:
Effect of microlaser operations on income
(loss) from operations(2)............... $ -- $ (294) $ (983) $(2,104) $(2,035) $(1,161) $ (164)
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
-------- --------------
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CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents.................................................. $ 128 $ 11,951
Working capital............................................................ 1,992 14,886
Total assets............................................................... 12,728 24,551
Long-term debt, net of current portion..................................... 687 582
Subordinated convertible debentures........................................ 1,660 1,660
Total stockholders' equity................................................. 5,557 18,557
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the pro forma net income (loss) per share and the
number of shares used in the pro forma per share calculation.
(2) The Company's investment in microlaser technology and product development
has had a material effect on the Company's results of operations. Because of
its materiality, the effect of microlaser operations on income (loss) from
operations is presented separately. The effect of microlaser operations on
income (loss) from operations includes gross profit (loss), research and
development expenses and incremental selling, general and administrative
expenses. It does not include any allocations of corporate expenses,
interest or taxes.
(3) As adjusted to reflect the exchange of all outstanding convertible Preferred
Stock for 1,193,252 shares of Common Stock immediately prior to the closing
of this offering and to give effect to the sale of 2,000,000 shares of
Common Stock to be sold in the offering by the Company hereby at an assumed
initial public offering price of $7.50 and after deducting estimated
underwriting discounts and commissions and offering expenses and the
application of the net proceeds from the sale of such shares. See "Use of
Proceeds" and "Capitalization."
4
<PAGE> 8
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
Prospectus.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
As a result of substantial investments in research and development, the
Company incurred operating losses in each of the last three fiscal years and, at
February 28, 1997, had an accumulated deficit of $4.9 million. The development,
sales, marketing and support of new products will require continued substantial
expenditures for the foreseeable future, which could result in additional
operating losses. The Company has funded a substantial portion of its product
development efforts through development contracts. Any failure by the Company to
maintain its external funding sources could result in increased operating
losses. There can be no assurance that the Company will maintain its external
funding sources or be profitable in the future or that the net proceeds of this
offering, together with any funds provided by operations and present capital,
will be sufficient to fund the Company's future capital requirements. See "Use
of Proceeds," "Selected Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Research and Development."
COMPETITION
The industries in which the Company sells its products, and will sell its
products under development, are highly competitive. In each of the markets it
serves, the Company faces intense competition from established competitors, many
of which have substantially greater financial, engineering, research and
development, manufacturing, sales, marketing, service and support resources,
including greater name recognition, a larger installed base of products and
longer standing customer relationships. There can be no assurance that the
Company will be able to compete successfully in the laser optics, laser and
laser systems industries in the future, that the Company will be able to make
the technological advances necessary to maintain its competitive position or
that its new products will receive market acceptance. In addition, there can be
no assurance that technological changes or development efforts by the Company's
competitors will not render the Company's products or technologies obsolete or
uncompetitive. See "Business -- Competition."
DEVELOPMENT RISKS RELATING TO MICROLASER TECHNOLOGIES
The Company has devoted substantial resources to developing its microlasers
and future microlaser based products. To date, sales of the Company's
microlasers have been limited to customer evaluation sales. Other microlasers
and microlaser based products are still in the early stages of development.
There can be no assurance that the Company will successfully develop any
microlaser or microlaser based products. There also can be no assurance that the
Company's microlasers will be successfully designed into customers' products or
that the Company's products under development will achieve commercial sales
volumes. The Company believes that it will be necessary to continue to reduce
the cost of manufacturing and to broaden the variety of wavelengths provided by
its microlaser to achieve commercial acceptance. If the Company is unable to
successfully gain market acceptance of its microlasers and microlaser based
products, its business, operating results and financial condition will be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Products and
Products under Development," "-- Laser Power's Strategy" and "-- Research and
Development."
5
<PAGE> 9
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS
Certain materials and components used in the manufacture of the Company's
products are currently obtained from single or limited source suppliers. The
Company purchases all of its zinc selenide (a critical raw material used in the
manufacture of the Company's optics) from Morton International, Inc. ("Morton").
In addition, the Company believes that Cerac Incorporated ("Cerac"), from which
the Company purchases all of its thorium fluoride for use in its low absorption
thin film coatings, is the sole source for high quality thorium fluoride. Any
interruption or cessation of supply by Morton or Cerac would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company does not have long term or volume purchase agreements
with its suppliers, and there can be no assurance that materials and components
needed by the Company will be available in the quantities required by the
Company, if at all. See "Business -- Manufacturing."
DEPENDENCE ON NEW PRODUCTS AND PROCESSES
To meet its strategic objectives, the Company must continue to develop,
manufacture and market new products, develop new processes and improve its
existing processes. As a result, the Company expects to continue to make
significant investments in research and development and to consider from time to
time the strategic acquisition of businesses, products, or technologies
complementary to the Company's business. The success of the Company in
developing, introducing and selling new and enhanced products depends upon a
variety of factors, including product selection, timely and efficient completion
of product design and development, timely and efficient implementation of
manufacturing and assembly processes, effective sales and marketing and product
performance in the field. There can be no assurance that the Company will be
able to develop and introduce new products or enhancements to its existing
products and processes in a manner that satisfies customer needs or achieves
market acceptance. The failure to do so would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Laser Power's Strategy" and "-- Research and Development."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on the Company's ability,
and the ability of its licensees and licensors, to obtain patents for its
technologies and any products resulting from the application of such
technologies, to defend such patents once obtained and to maintain trade
secrets, both in the United States and in foreign countries. The commercial
success of the Company will also depend upon avoiding the infringement of
patents issued to others and maintaining the technology licenses upon which
certain of the Company's current products are, or any future products might be,
based.
The Company owns certain U.S. patents and has filed additional patent
applications in the United States and foreign jurisdictions. There can be no
assurance that other patents will be issued to the Company or its licensors as a
result of pending or future patent applications or that, if issued, such patents
will contain claims sufficiently broad to afford protection against competitors
with similar technology. Although the Company may file additional patent
applications outside the United States, the Company believes that obtaining
foreign patents may be more difficult than obtaining U.S. patents because of
differences in patent laws and believes the protection provided by foreign
patents, if obtained, and any other foreign intellectual property protection may
be weaker than that provided in the United States. There can be no assurance
that any patents issued to the Company or for which the Company has license
rights, will not be challenged, narrowed, invalidated or circumvented, or that
the rights granted under such patents will provide competitive advantages to the
Company. Litigation, which could result in substantial cost to the Company, may
be necessary to enforce the Company's patent and license rights, to enforce or
defend an infringement claim, or to determine the scope and validity of others'
proprietary rights. Some of the Company's competitors have, or are affiliated
with companies having, substantially greater resources than the Company, and
such competitors may be able to sustain the costs of complex patent litigation
to a greater degree and for longer periods of time than the Company.
Uncertainties resulting from the initiation and continuation of any patent or
related litigation could have a material adverse effect on the Company's
business, financial condition and results of operations. If others file patent
applications that claim technology also claimed by the Company, the Company may
have to
6
<PAGE> 10
participate in interference proceedings declared by the U.S. Patent and
Trademark Office (the "USPTO") to determine the priority of invention, or
opposition proceedings in a foreign patent office, either of which could result
in substantial cost to the Company, even if the outcome is favorable to the
Company. An adverse outcome could subject the Company to significant liabilities
to third parties and require the Company to cease using the technology or to
license disputed rights from third parties, which licenses may not be available
at reasonable cost, if at all.
The Company has acquired a license to a Leland Stanford Junior University
("Stanford") owned patent covering certain technology used in its blue
microlaser from ATx Telecom Systems, Inc. ("ATx Telecom"). The Company has
received a letter from a third party claiming that the Company's license was
transferred improperly by Stanford and ATx Telecom. While the Company believes
that such license was properly transferred, there can be no assurance that the
Company's license would not be voided if subjected to a legal challenge. In such
an event, there can be no assurance that the Company would be able to obtain a
replacement license on favorable terms, if at all. Failure to obtain such a
license would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is aware that patents held by other parties may relate to the
Company's microlaser technology. The Company believes that it does not infringe
on such patents or believes that it has adequate design-arounds if it is held to
infringe such patents. The Company may, however, decide to enter into license
agreements with such patent holders to avoid costly litigation. There can be no
assurance that the Company will obtain any licenses that it might seek on
favorable terms, if at all. If it is determined that the patents held by these
other laser companies cover the Company's technology, the Company's inability to
obtain licenses for such technology could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has developed certain of its proprietary technology pursuant to
development contracts, including contracts with federal government agencies.
Under standard provisions in government contracts, the government may retain
certain rights in technology developed under such contracts. In addition, under
its other development contracts, the Company has granted significant rights to
third parties. The Company's strategy is to continue to develop a significant
portion of its proprietary technology pursuant to funding received from
development contracts. There can be no assurance that the Company will be able
to continue to obtain funding for the development of its proprietary technology,
or that, if received, the Company will obtain rights to such technology
sufficient to permit the Company to develop and market new products or to
prevent third parties from using such technology to compete with the Company.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that such agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors.
The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. There is considerable pressure
on academic institutions to publish discoveries in the high technology and
physics fields. There can be no assurance that such publication would not
adversely affect the Company's ability to obtain patent protection for certain
technologies in which the Company may have a commercial interest. See
"Business -- Patents and Proprietary Rights."
LIMITED MICROLASER MANUFACTURING EXPERIENCE; SCALE-UP RISK
The Company has no experience in producing microlasers other than in small
developmental quantities. The Company's microlasers are assembled from component
parts at the Company's San Diego facility. The Company purchases component parts
for its microlasers, including laser crystals, nonlinear crystals and diode
lasers, from various sources around the world. However, none of the Company's
suppliers of microlaser component parts has experience in supplying components
with the Company's specifications at increased volumes. The Company does not
have long term or volume purchase agreements with any of its
7
<PAGE> 11
suppliers and currently purchases components on a purchase order basis. There
can be no assurance that these suppliers will be able to provide components to
the Company in the quantities, with the quality or at the prices necessary for
production quantities of the Company's products under development. The Company
must increase its manufacturing capacity to polish and coat crystals and to
perform the required complex assembly steps. Such an increase in its
manufacturing capacity will require significant scale-up expenditures and
additions to the Company's facilities. See "Use of Proceeds." In the event the
Company is unable to locate sufficient sources of microlaser component parts, or
is unable to expand its manufacturing capacity to produce microlasers and
microlaser based products, the Company will not be able to manufacture its
products on commercially reasonable terms, if at all, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
LIMITED MICROLASER SALES, MARKETING AND DISTRIBUTION EXPERIENCE
The Company has only limited experience marketing and selling its
microlasers, and does not have experience marketing and selling such products in
commercial quantities. The Company intends to sell its microlasers and
microlaser based products through a direct sales force in North America and a
direct sales force and distributors in Europe. In Asia, the Company intends to
sell its microlasers and microlaser based products primarily through agreements
with distributors or representatives, although the Company has not entered into
any such agreements or arrangements to date. To the extent that the Company
enters into distribution or representation arrangements for the sale of its
microlasers and microlaser based products, the Company will be dependent upon
the efforts of third parties. There can be no assurance that the Company will be
able to build a direct sales force or marketing organization for microlasers or
microlaser based products, that establishing such a direct sales force or
marketing organization will be cost effective, or that the Company's sales and
marketing efforts will be successful. There can be no assurance that the Company
will be able to enter into agreements with distributors or representation
arrangements on a timely basis, if at all, or that such distributors or
representatives will devote adequate resources to selling the Company's
microlasers and microlaser-based products. Failure to build an effective sales
and marketing organization or to establish effective distribution or
representation arrangements for the Company's microlaser products would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Sales and Marketing."
FUTURE CAPITAL REQUIREMENTS
Although the Company believes that the net proceeds from the sale by the
Company of Common Stock in this offering, together with existing cash balances,
cash flow from operations and available lines of credit, will be sufficient to
meet its capital requirements for at least the next 12 months, the Company may
seek additional equity or debt financing to compete effectively in the markets
it serves. The timing and amount of the Company's capital requirements cannot be
precisely determined at this time and will depend on a number of factors,
including the demand for the Company's products and products under development.
There can be no assurance that such additional financing will be available when
needed, or, if available, will be on terms satisfactory to the Company. If
additional funds are raised by issuing equity securities, further dilution to
the then existing stockholders will result. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
FLUCTUATION IN QUARTERLY PERFORMANCE
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. The Company may incur
significant losses in the future due to product design, development,
manufacturing and marketing expenditures, especially in connection with its
microlasers and microlaser based products. If significant variations were to
occur between forecasts and actual orders with respect to its laser optics
business or microlasers and microlaser based products, the Company may not be
able to reduce its expenses proportionately and in a timely manner, and
operating results could be adversely affected. Such variations have occurred in
the past and could occur again in the future as a result of increases in
development expenditures for proposed new products, product introductions by
competitors, changes in customer ordering
8
<PAGE> 12
patterns and other factors. In addition, the Company's ability to fill orders in
a timely and responsive manner is dependent upon maintaining adequate
manufacturing capacity and significant inventories of raw material and finished
optics for replacement orders. The Company has experienced capacity constraints
in the past which have resulted in delays in order fulfillment and reduced gross
margins. Future delays in order fulfillment could lead to declines in product
sales. If product sales or prices were to decline substantially, inventory
writedowns could occur. Price reductions or increases in material costs could
also have an adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 43%, 45%, 44%, 43% and 48%
of the Company's total revenues in fiscal years 1994, 1995, 1996 and the six
months ended February 29, 1996 and February 28, 1997, respectively, and the
Company expects that international sales will continue to account for a
substantial portion of total revenues. Sales to Europe and the Asia Pacific
region accounted for 25%, 26%, 36%, 25% and 34% and 14%, 14%, 13%, 12% and 10%,
respectively, of the Company's total international sales for fiscal years 1994,
1995, 1996 and the six months ended February 29, 1996 and February 28, 1997,
respectively. The Company may continue to expand its operations outside of the
United States and to enter additional international markets, both of which will
require significant management attention and financial resources. International
sales are subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, political and economic
instability in foreign markets, difficulties in staffing and management and
integration of foreign operations, longer payment cycles, greater difficulty in
accounts receivable collection, currency fluctuations and potentially adverse
tax consequences. Since substantially all of the Company's foreign sales are
denominated in U.S. dollars, the Company's products may also become less price
competitive in countries in which local currencies decline in value relative to
the U.S. dollar. The Company's business and operating results may also be
materially and adversely affected by lower sales levels which typically occur
during the summer months and the calendar year end in Europe and certain other
overseas markets. The sales of many of the Company's OEM customers are dependent
on international sales, which increases the Company's exposure to the risks
associated with international sales. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations," "Business -- Sales and
Marketing" and "-- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the experience and continuing services
of certain scientists, engineers and production and management personnel.
Competition for the services of these personnel is intense, and there can be no
assurance that the Company will be able to retain or attract the personnel
necessary for the Company's success. The loss of the services of the Company's
key personnel would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Employees,"
"Management -- Executive Officers and Directors" and "-- Other Key Employees."
ENVIRONMENTAL, HEALTH AND SAFETY CONCERNS
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use and disposal of hazardous
materials used by the Company in connection with the manufacture of laser
optics. Both the governmental regulations and the costs associated with
complying with such regulations are subject to change in the future. There can
be no assurance that any such change will not have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company has made and continues to make substantial investments in protective
equipment, process controls, manufacturing procedures and training to minimize
the risks to employees, surrounding communities and the environment due to the
presence and handling of such hazardous materials. The failure to properly
handle such materials could lead to harmful exposure to employees or to the
improper discharge of hazardous materials. Since the Company does not carry
environmental impairment insurance, such a failure could result in a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Environmental, Health and Safety Matters."
9
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing security holders could have an adverse
effect on the market price of the Company's Common Stock. Upon completion of
this offering, the Company will have outstanding 6,202,354 shares of Common
Stock. In addition to the 2,400,000 shares sold in this offering, which are
freely tradable, approximately 230,000 shares, which are currently outstanding,
will be eligible for immediate sale on the date of this Prospectus. In addition,
upon the expiration of lock-up agreements, 180 days after the effective date of
the registration statement of which this Prospectus is a part (the "Effective
Date"), an aggregate of approximately 3,570,000 shares will be eligible for sale
subject to compliance in some cases with Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). Approximately an additional 1,426,000
shares issuable upon exercise or conversion of outstanding vested options,
warrants and Debentures will also be eligible for sale upon expiration of the
lock-up agreements, 180 days after the Effective Date, subject in some cases to
compliance with Rule 144. Commencing one year after the completion of this
offering, Proxima Corporation ("Proxima") and Union Miniere Inc. ("Union
Miniere"), which beneficially own an aggregate of approximately 2,200,000 shares
of Common Stock (including up to 368,888 shares issuable upon conversion of
outstanding Debentures), will be entitled to certain registration rights with
respect to such shares. The exercise of such rights by either Proxima or Union
Miniere could result in a large number of shares being sold in the public market
after one year from the closing of this offering. Future sales of shares by
existing stockholders could have an adverse effect on the market price of the
Common Stock or otherwise impair the Company's ability to raise additional
capital. See "Certain Transactions," "Description of Capital Stock" and "Shares
Eligible for Future Sale."
RIGHTS TO ACQUIRE SHARES
As of the date of this Prospectus, options to purchase 950,290 shares under
the Company's option plans, additional options to purchase 341,329 shares and
warrants to purchase 386,660 shares of Common Stock are outstanding. In
addition, the Debentures will remain outstanding following the offering and will
be convertible into up to 368,888 shares of Common Stock. At the completion of
this offering, the Representatives will receive the Representatives' Warrants to
purchase up to 200,000 shares of Common Stock at an exercise price equal to 130%
of the initial public offering price per share. The Representatives' Warrants
will be exercisable during a period of four years commencing one year from the
date of this Prospectus. During the terms of the outstanding options, warrants,
Debentures and the Representatives' Warrants, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock, and
their exercise or conversion of such options, warrants, Debentures or
Representatives' Warrants will dilute the ownership interest of existing
stockholders, including investors in this offering. The existence of the
options, warrants, Debentures and Representatives' Warrants may adversely affect
the market price of the Common Stock or otherwise impair the Company's ability
to raise additional capital. See "Management -- Stock Option Plans," "Certain
Transactions," "Description of Capital Stock -- Debentures" and "Underwriting."
CONTROL BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATED ENTITIES
Upon completion of this offering, the Company's executive officers and
directors and their affiliated entities will, in the aggregate, beneficially own
approximately 56.3% of the outstanding shares of Common Stock. As a result,
these stockholders will be able to exercise control over matters requiring
stockholder approval, including the election of directors, mergers,
consolidations and sales of all or substantially all of the assets of the
Company. This control may prevent or discourage tender offers for the Company's
Common Stock unless the terms are approved by such stockholders. See
"Management" and "Principal and Selling Stockholders."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this offering will incur immediate, substantial
dilution of $4.67 per share, assuming an initial public offering price of $7.50
per share. To the extent options or warrants to purchase
10
<PAGE> 14
Common Stock are exercised or the Debentures are converted into Common Stock,
there will be further dilution. See "Dilution" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") and Bylaws, including the inability
of stockholders to effect actions by written consent or to remove directors
without cause, may have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. Certain
provisions of the Restated Certificate allow the Company to issue Preferred
Stock without any vote or further action by the stockholders. These provisions
may make it more difficult for stockholders to take certain corporate actions
and could have the effect of delaying or preventing a change in control of the
Company. See "Management" and "Description of Capital Stock."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Certificate limits, to the maximum extent permitted by the
Delaware General Corporation Law ("Delaware Law"), the personal liability of
directors for monetary damages for any breach of fiduciary duty as a director.
The Company's Bylaws provide that the Company shall indemnify its executive
officers and directors and may indemnify its other officers, employees and
agents to the fullest extent permitted by law. The Company will enter into
indemnification agreements with its directors and certain officers containing
provisions which are in some respects broader than the specific indemnification
provisions contained in Delaware Law. The indemnification agreements may require
the Company, among other things, to indemnify such officers and directors
against certain liabilities arising by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. The Company has
purchased directors' and officers' liability insurance, however, there can be no
assurance that the Company will be able to obtain such liability insurance in
the future. Section 145 of the Delaware Law provides that a corporation may
indemnify a director, officer, employee or agent made or threatened to be made a
party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection with
such action if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, if he had no reasonable cause to believe
his conduct was unlawful. Delaware Law does not permit a corporation to
eliminate a director's duty of care, and the provisions of the Restated
Certificate have no effect on the availability of equitable remedies, such as
injunction or rescission, for a director's breach of the duty of care. See
"Management -- Limitations of Directors Liability and Indemnification."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price has been determined by negotiations between the Company and the
Representatives. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of the Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, the gain or loss of significant
orders, changes in earning estimates by analysts, announcements of technological
innovations or new products by the Company or its competitors, general
conditions in the laser optics and laser industries and other events or factors.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price for many companies in
industries similar or related to that of the Company and that have been
unrelated to the operating performance of those companies. These market
fluctuations may materially and adversely affect the market price of the Common
Stock.
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $7.50 per share, after deducting estimated underwriting discounts and
commissions and initial offering expenses payable by the Company, are estimated
to be approximately $13.0 million (approximately $15.5 million if the
Underwriters' over-allotment option is exercised in full). The Company will not
receive any proceeds of the sale of the shares of Common Stock offered by the
Selling Stockholders.
The Company anticipates that it will use approximately $4.7 million in net
proceeds of this offering for expansion of its manufacturing, research and
administrative facilities and additions to its equipment for production of its
current products, microlasers and microlaser based products under development.
The Company intends to use approximately $1.0 million in net proceeds for
prepayment of its term loan and repayment of amounts outstanding under its line
of credit with Wells Fargo Bank N.A. used for working capital, and approximately
$0.2 million in net proceeds for payment of certain promissory notes issued to
Proxima in connection with the financing of certain equipment used to develop
microlasers. At March 31, 1997, the term loan, the line of credit and the
Proxima promissory notes bore interest at the annual rates of 10.50%, 9.75% and
10.00%, respectively, and have due dates of December 31, 1997, March 1, 1998 and
May 30, 1999, respectively. The Company intends to use the remaining net
proceeds for working capital and general corporate purposes. The Company may use
a portion of the net proceeds to acquire other businesses, products or
technologies; the Company currently has no plans, agreements or commitments,
oral or written, with respect to any such transaction. Pending such uses, the
net proceeds will be invested in interest bearing investment grade securities.
Although the Company believes that the net proceeds from the sale of the Common
Stock in this offering, together with existing cash balances, cash flow from
operations and available lines of credit, will be sufficient to meet its capital
requirements for at least the next 12 months, the Company may be required to
seek additional equity or debt financing. There can be no assurance that such
additional financing will be available when needed, or, if available, will be on
terms satisfactory to the Company.
DIVIDEND POLICY
To date, the Company has not declared nor paid any cash dividends on its
Common Stock. The Company currently intends to retain any future earnings to
finance the growth and development of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's credit agreement with Wells Fargo Bank prohibits the payment of cash
dividends on its capital stock without the consent of the bank, and the
Debentures restrict payment of cash dividends in accordance with certain
financial covenants. See "Description of Capital Stock -- Convertible
Subordinated Debentures."
12
<PAGE> 16
CAPITALIZATION
The following table sets forth as of February 28, 1997 (i) the actual
capitalization of the Company and (ii) the pro forma capitalization as adjusted
to give effect to the exchange of all outstanding shares of Preferred Stock for
1,193,252 shares of Common Stock and the sale of 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $7.50 per share (after deducting the estimated underwriting discounts and
commissions and offering expenses) and the application of the estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Short-term debt, including current portion of long-term debt........... $ 1,178 $ 106
======= =======
Long-term debt, net of current portion(1).............................. $ 687 $ 582
Subordinated convertible debentures(1)................................. 1,660 1,660
------- -------
Total long term debt......................................... 2,347 2,242
Stockholders' equity:
Preferred Stock, $0.125 par value, 3,000,000 shares authorized,
1,610,891 shares issued and outstanding actual; $0.001 par value,
3,000,000 shares authorized and no shares issued and outstanding,
pro forma as adjusted............................................. 201 --
Common Stock, $0.001 par value, 15,000,000 shares authorized,
3,009,102 shares issued and outstanding actual; $0.001 par value
15,000,000 shares authorized and 6,202,354 issued and outstanding,
pro forma as
adjusted (2)...................................................... 3 6
Additional paid-in capital........................................... 10,264 23,462
Foreign currency translation adjustment.............................. 6 6
Accumulated deficit.................................................. (4,917) (4,917)
------- -------
Total stockholders' equity........................................ 5,557 18,557
------- -------
Total capitalization......................................... $ 7,904 $20,799
======= =======
</TABLE>
- ---------------
(1) See Note 3 of the Notes to Consolidated Financial Statements for a
description of the Company's long-term obligations and the Debentures.
(2) Excludes: (i) 1,224,953 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $3.92 per share;
(ii) 386,660 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $3.21 per share; (iii) 200,000 shares of
Common Stock issuable upon exercise of the Representatives' Warrants at an
exercise price equal to 130% of the initial public offering price per share;
(iv) up to 368,888 shares issuable upon conversion of Debentures; and (v) an
aggregate of 1,250,000 shares reserved for future issuance under the 1997
Plan and the Employee Stock Purchase Plan. See "Management -- Stock Option
Plans," "-- Employee Stock Purchase Plan," "Certain Transactions,"
"Description of Capital Stock" and Note 5 of the Notes to Consolidated
Financial Statements.
13
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company, as of February 28,
1997, was approximately $4.6 million or $1.09 per share. Pro forma net tangible
book value per share is equal to the Company's total tangible assets less its
total liabilities, divided by the number of outstanding shares of Common Stock,
assuming the exchange of all outstanding shares of Preferred Stock for 1,193,252
shares of Common Stock. After giving effect to the sale of the 2,000,000 shares
of Common Stock offered by the Company hereby (at an assumed initial public
offering price of $7.50 per share and after deducting estimated underwriting
discounts and commissions and offering expenses), the pro forma net tangible
book value of the Company at February 28, 1997 would have been approximately
$17.6 million or $2.83 per share. This represents an immediate increase in such
net tangible book value of $1.74 per share to existing stockholders and an
immediate dilution of $4.67 per share to new investors purchasing shares in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $7.50
Pro forma net tangible book value per share as of February 28, 1997........ $1.09
Increase per share attributable to this offering........................... 1.74
-----
Pro forma net tangible book value per share after this offering.............. 2.83
-----
Dilution per share to new investors.......................................... $4.67
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of February 28,
1997, the differences between the number of shares purchased from the Company,
assuming the exchange of all outstanding shares of Preferred Stock for Common
Stock, the total consideration paid and the average price paid per share by the
existing holders of Common Stock and by the new investors at an assumed initial
public offering price of $7.50 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 4,202,354 68% $10,495,000 41% $2.50
New investors....................... 2,000,000 32 15,000,000 59 $7.50
--------- --- ----------- ---
Total..................... 6,202,354 100% $25,495,000 100%
========= === =========== ===
</TABLE>
- ---------------
(1) The sale of 400,000 shares by the Selling Stockholders in this offering will
reduce the number of shares held by existing stockholders to 3,802,354 or
60% of the total shares of Common Stock outstanding and will increase the
number of shares held by new investors to 2,400,000 or 40% of the total
shares of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders."
The foregoing tables excludes: (i) 1,224,953 shares of Common Stock
reserved for issuance upon exercise of outstanding options at a weighted average
exercise price of $3.92 per share; (ii) 386,660 shares of Common Stock issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$3.21 per share; (iii) 200,000 shares of Common Stock issuable upon exercise of
the Representatives' Warrants at an exercise price equal to 130% of the initial
public offering price per share; (iv) up to 368,888 shares issuable upon
conversion of the Debentures; and (v)an aggregate of 1,250,000 shares of the
Common Stock reserved for future issuance under the 1997 Plan and the Employee
Stock Purchase Plan. To the extent that options, warrants or Debentures are
exercised or converted in the future, there will be further dilution to new
stockholders. See "Management -- Stock Option Plans," "-- Employee Stock
Purchase Plan," "Certain Transactions," "Description of Capital Stock" and Note
5 of the Notes to Consolidated Financial Statements.
14
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The Consolidated Statements
of Operations Data for the years ended August 31, 1992, 1993, 1994, 1995 and
1996 and the Consolidated Balance Sheets Data as of August 31, 1992, 1993, 1994,
1995 and 1996 are derived from the Company's Consolidated Financial Statements,
which financial statements have been audited by Ernst & Young LLP, independent
auditors. The Consolidated Statements of Operations Data for the six months
ended February 29, 1996 and February 28, 1997 and the Consolidated Balance
Sheets Data as of February 28, 1997, are derived from the unaudited financial
statements of the Company. The results of operations for the six months ended
February 28, 1997 are not necessarily indicative of the results for the full
year or future periods. The unaudited financial statements have been prepared on
a basis consistent with the Company's audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that
management believed necessary for a fair presentation of the Company's financial
position and results of operations for such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, FEBRUARY 29/28,
---------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales............................ $8,622 $ 8,720 $10,158 $11,859 $15,194 $ 6,880 $ 7,995
Contract research and development........ 1,149 963 1,727 2,714 3,713 1,682 3,129
------ ------- ------- ------- ------- ------- -------
Total revenues.................... 9,771 9,683 11,885 14,573 18,907 8,562 11,124
------ ------- ------- ------- ------- ------- -------
Costs and expenses:
Product sales............................ 5,125 5,392 6,550 7,994 9,888 4,601 5,475
Contract research and development........ 941 766 1,308 2,059 2,942 1,262 2,502
Microlaser internal research and
development............................ -- 294 983 2,071 1,968 1,115 99
Other internal research and
development............................ 481 890 585 786 721 346 290
Selling, general and administrative...... 2,739 2,971 3,204 3,583 4,306 2,083 2,278
------ ------- ------- ------- ------- ------- -------
Total costs and expenses.......... 9,286 10,313 12,630 16,493 19,825 9,407 10,644
------ ------- ------- ------- ------- ------- -------
Income (loss) from operations.............. 485 (630) (745) (1,920) (918) (845) 480
Interest expense, net...................... 128 186 268 326 300 152 145
------ ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.......... 357 (816) (1,013) (2,246) (1,218) (997) 335
Income taxes............................... 45 -- -- 23 13 7 22
------ ------- ------- ------- ------- ------- -------
Net income (loss)................. $ 312 $ (816) $(1,013) $(2,269) $(1,231) $(1,004) $ 313
====== ======== ======== ======== ======== ======== ========
Pro forma net income (loss) per share(1)... $ (0.29) $ 0.06
======== ========
Shares used in per share computations(1)... 4,311 4,887
======== ========
OTHER DATA:
Effect of microlaser operations on income
(loss) from operations(2).............. $ -- $ (294) $ (983) $(2,104) $(2,035) $(1,161) $ (164)
====== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------------------------- FEBRUARY 28,
1992 1993 1994 1995 1996 1997
------ ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents.................. $ 621 $ 109 $ 394 $ 257 $ 298 $ 128
Working capital............................ 2,457 1,745 1,723 2,311 2,838 1,992
Total assets............................... 8,005 7,899 9,444 10,207 11,194 12,728
Long-term debt, net of current portion..... 895 943 1,049 802 559 687
Subordinated convertible debt.............. 1,660 1,660 1,660 1,660 1,660 1,660
Total stockholders' equity................. 3,783 3,234 3,787 4,670 5,320 5,557
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the pro forma net income (loss) per share and the
number of shares used in the pro forma per share calculation.
(2) The Company's investment in microlaser technology and product development
has had a material effect on the Company's results of operations. Because of
its materiality, the effect of microlaser operations on income (loss) from
operations is presented separately. The effect of microlaser operations on
income (loss) from operations includes gross profit (loss), research and
development expenses and incremental selling, general and administrative
expenses. It does not include any allocations of corporate expenses,
interest or taxes.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following contains forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ materially from the
results discussed. Factors that might cause such a difference include, but are
not limited to, those discussed in "Risk Factors," as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
Laser Power designs, manufactures and sells a broad range of optics and
optical assemblies for lasers used in industrial, medical and military
applications. The Company sells its optics products to major domestic and
foreign laser and laser system manufacturers and end users as original and
replacement components in high power CO2 and other lasers. The Company also
conducts contract research in advanced applications of lasers and optics,
primarily for U.S. government departments and agencies. The Company has also
developed miniature solid state lasers, or microlasers, which it expects to
manufacture, market and sell by the end of fiscal 1997.
The Company manufactures optics primarily for customer orders for scheduled
deliveries and to a lesser extent for inventory for same day delivery orders,
and ships in annual volumes ranging from several units to end user customers to
thousands of units to OEM customers and major distributors. As manufacturing
volume has increased, the Company has experienced longer manufacturing cycle
times due to capacity constraints in its polishing and coating operations. The
Company has recently made investments in additional manufacturing equipment and
facilities in the United States and Mexico that it believes will result in
reduced manufacturing costs when fully integrated into operations. See "Risk
Factors -- Dependence on New Products and Processes" and "-- Fluctuations in
Quarterly Performance."
Contract research and development allows the Company to develop
technologies that the Company believes may have significant commercial
applications without bearing all of the economic risks of such development.
Revenues from contract research are recognized based on the ratio of costs
incurred to total estimated costs. Typically, contract gross margins are lower
than gross margins on product sales. Revenues from contract research are
expected to remain relatively stable in absolute dollar terms and to decrease as
a percentage of revenues due to the higher anticipated growth rate of sales of
optics and the anticipated commencement of sales of microlasers.
Since inception, the Company has been a supplier of optics and research and
development support to various military departments and agencies. Military
product sales were $1.1 million, $0.9 million, $1.5 million, $0.9 million and
$0.6 million for the years ended August 31, 1994, 1995 and 1996 and the six
month periods ended February 29, 1996 and February 28, 1997, respectively.
Military contract research revenues were $1.5 million, $1.9 million, $2.4
million, $1.5 million and $1.5 million for the years ended August 31, 1994, 1995
and 1996 and the six month periods ended February 29, 1996 and February 28,
1997, respectively. Foreign military sales were not material.
A substantial portion of microlaser internal research and development has
been funded by the Company through the sale of equity securities. In the future,
the Company anticipates funding these development activities through funds
provided by operations or research and development contracts.
While optics and contract research operations (excluding interest and
taxes) have been profitable for all periods presented, the investment in
microlaser internal research and development has resulted in consolidated losses
for fiscal 1994, 1995 and 1996. Microlaser research has been primarily funded by
contracts since July 1996. As a result, the Company has operated profitably for
the six months ended February 28, 1997. Continued profitable operations will
depend on the cost of and the time required to complete development and
commercialization of microlasers, pricing and other factors which determine
customer acceptance of these new products, and the success of competing products
and alternative technologies. The carrying value of microlaser assets at
February 28, 1997 was $1.4 million.
16
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations and other
data expressed as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED AUGUST ENDED
31, FEBRUARY 29/28,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales.................................. 85.5% 81.4% 80.4% 80.4% 71.9%
Contract research and development.............. 14.5 18.6 19.6 19.6 28.1
----- ----- ----- ----- -----
Total revenues......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of product sales(1)....................... 64.5 67.4 65.1 66.9 68.5
Contract research and development(1)........... 75.7 75.9 79.2 75.1 80.0
Microlaser internal research and
development(2).............................. 8.3 14.2 10.4 13.0 0.9
Other internal research and development........ 4.9 5.4 3.8 4.0 2.6
Selling, general and administrative............ 27.0 24.6 22.8 24.3 20.5
Total cost and expenses................ 106.3 113.2 104.9 109.8 95.7
Income(loss) from operations..................... (6.3) (13.2) (4.9) (9.8) 4.3
Interest expense, net............................ 2.2 2.2 1.6 1.8 1.3
Income(loss) before income taxes................. (8.5) (15.4) (6.5) (11.6) 3.0
Income taxes................................... -- 0.2 -- 0.1 0.2
Net income(loss)................................. (8.5) (15.6) (6.5) (11.7) 2.8
OTHER DATA:
Effect of microlaser operations on income
(loss) from operations(3)................... (8.3) (14.4) (10.8) (10.4) (1.9)
</TABLE>
- ---------------
(1) Cost of product sales and cost of contract research and development revenues
are stated as percentages of product sales and contract research and
development revenues, respectively.
(2) The Company's investment in microlaser technology and product development
has had a material effect on the Company's results of operations. Because of
its materiality, the effect of microlaser operations on income (loss) from
operations is presented separately. The effect of microlaser operations on
income (loss) from operations includes gross profit (loss), research and
development expenses and incremental selling, general and administrative
expenses. It does not include any allocations of corporate expenses,
interest or taxes.
(3) The effect of microlaser operations on income (loss) from operations
includes gross margin, research and development expenses and incremental
selling, general and administrative expenses. It does not include any
allocations of corporate expenses, interest or taxes.
Six Months Ended February 28, 1997 Compared to Six Months Ended February 29,
1996
For the six months ended February 28, 1997, product sales were $8.0 million
compared to $6.9 million for the same period in fiscal 1996, an increase of $1.1
million or 16%. Contract research and development revenues were $3.1 million for
the six months ended February 28, 1997 compared to $1.7 million for the same
period in fiscal 1996, an increase of $1.4 million or 86%. The increase in
product sales was primarily due to increased worldwide demand for the Company's
laser optics as OEM customers increased sales of high power CO(2) lasers and
laser systems, the installed base of such systems increased, and end users
replaced optics more frequently due to increased utilization. The increase in
contract research and development revenues was due
17
<PAGE> 21
primarily to work performed on a commercial microlaser display development
contract that began in July 1996.
The Company's ability to maintain or improve on the increased product sales
in the first six months for the remainder of fiscal 1997 will depend on
maintaining increased orders for products, integrating into operations
additional manufacturing equipment purchased and facilities leased during the
first six months of fiscal 1997, hiring and training new employees for its
expanded facility in Mexico and commencing planned shipments of microlasers for
medical and other applications. The growth in contract research and development
revenues is expected to slow for the full year because the commercial display
development contract is scheduled to be completed prior to year end.
Gross profit on product sales was $2.5 million for the six months ended
February 28, 1997 compared to $2.3 million for the same period in fiscal 1996,
an increase of $241,000 or 11%. Gross profit on contract research and
development revenues was $627,000 for the six months ended February 28, 1997
compared to $420,000 for the same period in fiscal 1996, an increase of $207,000
or 49%. Gross margin on product sales decreased to 31.5% for the six months
ended February 28, 1997 from 33.1% for the same period in fiscal 1996. The
decrease was primarily due to manufacturing inefficiencies related to capacity
constraints and facility expansion to accommodate the increased volume of orders
and to a lesser extent reduced average selling prices of optics in certain
markets. Gross margin on contract research and development revenues decreased to
20.0% for the six months ended February 28, 1997 from 25.0% for the same period
in fiscal 1996 due to the lower negotiated gross profit on the commercial
display development contract.
Microlaser internal research and development expenses were $99,000 for the
six months ended February 28, 1997, compared to $1.1 million for the same period
in fiscal 1996, a decrease of $1.0 million or 91%. The decrease was due to the
transition of funding for certain microlaser development efforts from internal
sources to contract sources. Microlaser internal research and development
expenses are expected to increase over the last six months of fiscal 1997.
Selling, general and administrative expenses were $2.3 million for the six
months ended February 28, 1997 compared to $2.1 million for the same period in
fiscal 1996, an increase of $194,000 or 9%. These expenses have decreased as a
percentage of revenues as absolute spending has increased at a slower rate than
the growth in revenues.
Income taxes were $22,000 for the six months ended February 28, 1997
compared to $7,000 for the same period in fiscal 1996, an increase of $15,000 or
218%. The increase was due to increased taxable income. The Company's effective
tax rate was reduced substantially by the utilization of federal and state tax
net operating loss carryforwards. The future availability of carryforwards may
be limited by the application of rules relating to a change in control as a
result of this offering.
Fiscal Year Ended August 31, 1996 Compared to Fiscal Year Ended August 31,
1995
Product sales were $15.2 million in fiscal 1996 compared to $11.9 million
in fiscal 1995, an increase of $3.3 million or 28%. Contract research and
development revenues were $3.7 million in fiscal 1996 compared to $2.7 million
in fiscal 1995, an increase of $1.0 million or 37%. The increase in product
sales was due to increased acceptance of the Company's OEM customers' lower
power lasers for certain industrial and medical applications and increased
worldwide demand for laser optics for new high power lasers and as replacement
parts in installed lasers. The increase in contract research and development
revenues was due to the increased number and average size of contracts awarded
to the Company.
Gross profit on product sales was $5.3 million in fiscal 1996 compared to
$3.9 million in fiscal 1995, an increase of $1.4 million or 37%. Gross profit on
contract research and development revenues was $771,000 in fiscal 1996 compared
to $655,000 in fiscal 1995, an increase of $116,000 or 18%. Gross margin on
product sales increased to 34.9% in fiscal 1996 from 32.6% in fiscal 1995. The
increase in gross margin was primarily due to improved manufacturing
efficiencies resulting from higher manufacturing volume and from increased
production in Mexico. Gross margin on contract research and development revenues
decreased to 20.8% in fiscal 1996 from 24.1% in fiscal 1995. The decrease was
primarily due to a cost-sharing contract that
18
<PAGE> 22
supplemented internal funding of technology development for microlasers and
microlaser based projection displays.
Microlaser internal research and development expenses were $2.0 million in
fiscal 1996 compared to $2.1 million in fiscal 1995, a decrease of $103,000 or
5%, due to the transition of certain microlaser development from internal
funding to contract funding late in fiscal 1996.
Selling, general and administrative expenses were $4.3 million in fiscal
1996 compared to $3.6 million in fiscal 1995, an increase of $724,000 or 20%,
due primarily to the addition of personnel necessary to support the growth in
product sales and the anticipated production of microlasers and to a lesser
extent Company-wide bonus accruals; no bonuses were accrued in 1995. These
expenses decreased as a percentage of revenues as absolute spending increased at
a slower rate than the growth in revenues.
Fiscal Year Ended August 31, 1995 Compared to Fiscal Year Ended August 31,
1994
Product sales were $11.9 million in fiscal 1995 compared to $10.2 million
in fiscal 1994, an increase of $1.7 million or 17%. Contract research and
development revenues were $2.7 million in fiscal 1995 compared to $1.7 million
in fiscal 1994, an increase of $1.0 million or 57%. The increase in product
sales was due to increased worldwide demand in both industrial and medical
markets for laser optics for new lasers and as replacement parts in installed
lasers. The increase in contract research and development revenues was due to
the increased number and average size of contracts awarded to the Company.
Gross profit on product sales was $3.9 million in fiscal 1995 compared to
$3.6 million in fiscal 1994, an increase of $257,000 or 7%. Gross profit on
contract research and development revenues was $655,000 in fiscal 1995 compared
to $419,000 in fiscal 1994, an increase of $236,000 or 56%. Gross margin on
product sales decreased to 32.6% in fiscal 1995 from 35.5% in fiscal 1994,
primarily due to competitive pricing pressures. Gross margin on contract
research and development revenues decreased to 24.1% in fiscal 1995 from 24.3%
in fiscal 1994, due to cost increases that were not covered by increased prices.
Microlaser internal research and development expenses were $2.1 million in
fiscal 1995 compared to $1.0 million in fiscal 1994, an increase of $1.1 million
or 111%. Fiscal 1995 expenditures included a full year of development activity
under a joint development agreement with Proxima compared to seven months in
fiscal 1994. Other internal research and development expenses were $786,000 in
fiscal 1995 compared to $585,000 in fiscal 1994, an increase of $201,000 or 34%,
due to increased internal funding of new product development of laser optics and
optical assemblies.
Selling, general and administrative expenses were $3.6 million in fiscal
1995 compared to $3.2 million in fiscal 1994, an increase of $378,000 or 12%,
due to the addition of personnel and related increases in compensation. These
expenses have decreased as a percentage of revenues as absolute spending has
increased at a slower rate than the growth in revenues.
Net interest expense was $326,000 in fiscal 1995 compared to $268,000 in
fiscal 1994, an increase of $58,000 or 22%, due primarily to higher interest
rates on the portion of the Company's debt with interest rates based on the
prime rate.
Income taxes were $23,000 in fiscal 1995 and were for state income taxes.
There were no income taxes in fiscal 1994.
19
<PAGE> 23
QUARTERLY RESULTS
The following table presents certain unaudited consolidated quarterly
financial information for fiscal 1996 and the first two quarters of fiscal 1997.
In the opinion of the Company, this information has been prepared on the same
basis as the audited consolidated financial statements appearing elsewhere in
this Prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the unaudited quarterly
results set forth herein. Operating results for any quarter are not necessarily
indicative of results for any future period or for a full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
FISCAL 1996 FISCAL 1997
---------------------------------------- -------------------
NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1996 1996 1996 1996 1997
-------- -------- ------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales............................... $3,352 $ 3,528 $4,262 $4,052 $4,060 $ 3,935
Contract research and development........... 782 900 980 1,051 1,562 1,567
------ ------ ------ ------ ------ ------
Total revenues...................... 4,134 4,428 5,242 5,103 5,622 5,502
------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of product sales....................... 2,224 2,377 2,879 2,408 2,730 2,745
Contract research and development........... 581 681 769 911 1,315 1,187
Microlaser internal research and development(1)... 477 638 554 299 48 51
Other internal research and development..... 179 167 172 203 152 138
Selling, general and administrative......... 1,039 1,044 1,079 1,144 1,169 1,109
------ ------ ------ ------ ------ ------
Total cost and expenses............. 4,500 4,907 5,453 4,965 5,414 5,230
------ ------ ------ ------ ------ ------
Income (loss) from operations................. (366) (479) (211) 138 208 272
Interest expense, net....................... 70 82 74 74 67 78
------ ------ ------ ------ ------ ------
Income (loss) before income taxes............. (436) (561) (285) 64 141 194
Income taxes.................................. 4 3 3 3 12 10
------ ------ ------ ------ ------ ------
Net income (loss)............................. $ (440) $ (564) $ (288) $ 61 $ 129 $ 184
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF REVENUES)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales............................... 81.1% 79.7% 81.3 % 79.4% 72.2% 71.5%
Contract research and development........... 18.9 20.3 18.7 20.6 27.8 28.5
------ ------ ------ ------ ------ ------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of product sales(2).................... 66.3 67.4 67.6 59.4 67.2 69.8
Contract research and development(2)........ 74.3 75.7 78.5 86.6 84.2 75.8
Microlaser internal research and
development(1)........................... 11.5 14.4 10.6 5.9 0.9 0.9
Other internal research and development..... 4.3 3.8 3.3 4.0 2.7 2.5
Selling, general and administrative......... 25.1 23.6 20.6 22.4 20.8 20.2
Total cost and expenses............. 108.9 110.8 104.0 97.3 96.3 95.1
Income (loss) from operations................. (8.9) (10.8) (4.0) 2.7 3.7 4.9
Interest expense, net....................... 1.7 1.8 1.4 1.5 1.2 1.4
Income (loss) before income taxes............. (10.6) (12.6) (5.4) 1.2 2.5 3.5
Income taxes........................ 0.1 0.1 0.1 -- 0.2 0.2
Net income (loss)............................. (10.7) (12.7) (5.5) 1.2 2.3 3.3
</TABLE>
- ---------------
(1) Prior to fiscal 1997, microlaser research was funded internally primarily
using funds provided through the sale of equity securities.
(2) Cost of product sales and cost of contract research and development revenues
are stated as percentages of product sales and contract research and
development revenues, respectively.
The Company's results of operations may vary significantly from time to
time due to a number of factors, including the timing of receipt of orders from
customers, the timing of new product introductions, variations in product mix,
competitive pricing pressures, the delay between incurring expense to expand
manufacturing
20
<PAGE> 24
capacity and the realization of benefits from the added capacity, and seasonal
and foreign exchange factors related to international sales. See "Risk
Factors -- Fluctuation in Quarterly Performance."
Product sales include high unit price orders for custom optics and coating
and diamond turning services. Shipments of custom orders can cause significant
fluctuations in product sales from quarter to quarter. For example, the results
of operations for the quarter ended May 31, 1996 included unusually high product
sales attributable to custom orders. In addition, actions taken by the Company
to increase capacity in the latter part of the first quarter and throughout the
second quarter of fiscal 1997 restricted the Company's ability to maintain
shipments to keep pace with increased orders. As a result, product sales were
slightly lower in the second quarter of fiscal 1997 when compared to the
preceding three quarters, and the backlog of product orders increased 20% from
the start of the fiscal year to $3.6 million at February 28, 1997. The Company
believes that recent expansion of operations in Mexico and the addition of
polishing and thin film coating equipment will enable it to increase product
shipments to meet customer demand.
In the second quarter of fiscal 1997, gross margin on product sales was
30.2%, compared to an average of 36.7% for the preceding two quarters. The lower
gross margin was due to the impact on ongoing operations of facility expansion
in the United States and Mexico, additional engineering and material costs to
improve manufacturing processes and discounts provided to foreign distributors
to offset the impact of the stronger U.S. dollar.
Based on all of the above factors, as well as factors discussed elsewhere
in this Prospectus, the Company believes that quarter-to-quarter comparisons of
its results of operations and components thereof are not necessarily meaningful
and should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
From inception, the Company has financed operations through cash generated
by operating activities, private placements of debt and equity securities and
bank loans. In 1987, Union Miniere purchased the Debentures and shares of Common
Stock for total consideration of $2.8 million. From May 1993 to June 1996,
Proxima purchased shares of Common Stock and shares of Series A Preferred Stock
for total consideration of $6.7 million.
For the three year period ended August 31, 1996, purchases of capital
equipment and investments in other assets were funded by equity investments and
by long term borrowings. For the six months ended February 28, 1997, purchases
of capital equipment and investments in other assets were funded by available
cash and bank advances that will be converted to a term loan on August 1, 1997.
The Company maintains a $2.0 million secured bank line of credit which had
outstanding borrowings of $774,000 at February 28, 1997. The line of credit
expires on March 1, 1998 and bears interest at the bank's prime rate plus one
percent. The Company intends to use a portion of the net proceeds to the Company
from the offering to repay the outstanding balance on the line of credit. See
"Use of Proceeds."
Substantial additional capital funds will be required to acquire capital
equipment to increase capacity and automate production of laser optics and to
manufacture, assemble and test planned new microlaser products. The Company will
also require funds for facility expansion and investments in working capital and
other assets. The Company anticipates that net proceeds of this offering,
together with existing sources of cash and anticipated funds from operations,
will satisfy the Company's projected working capital and capital expenditure
requirements for at least the next 12 months. The timing and amount of
additional capital requirements depend on a number of factors, including
successful completion of development and commercialization efforts, the cost of
plant, equipment and infrastructure to support manufacturing of products under
development, and the amount of working capital necessary to start-up and
maintain operations supporting new products. There can be no assurance that
additional capital would be available. The lack of such capital would have a
material adverse effect on the Company's business, financial condition and
results of operations.
INFLATION
The Company does not believe that inflation has had a material impact on
its operations or financial results.
21
<PAGE> 25
BUSINESS
The following contains forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ materially from the
results discussed. Factors that might cause such a difference include, but are
not limited to, those discussed in "Risk Factors," as well as those discussed
elsewhere in this Prospectus.
Laser Power designs, manufactures and markets high performance laser optics
for industrial, medical and military lasers and laser systems. Laser optics are
precision lenses, reflectors and mirrors used to reflect, collect and focus
laser beams. The Company's products are sold to laser system OEMs and end users
as original and replacement components in high power CO(2) and other lasers. The
Company's core competencies lie in its surface finishings and thin film
coatings, which are key elements involved in all high-performance laser optics.
The Company believes that its expertise in these areas provides it with a
significant competitive advantage.
The Company's customers use high power CO(2) lasers in a variety of
industrial processing applications, such as sheet metal cutting, automobile body
welding, surface hardening for engine components and scribing and drilling
delicate ceramic circuits. The Company also sells high performance laser optics
to medical equipment OEMs for lower power CO(2) lasers used in certain
therapeutic and cosmetic procedures, including surgery and skin wrinkle removal.
In addition, the Company has developed very low absorption thin film coatings
for optics for laser anti-missile systems. The Company also conducts contract
research in the development and applications of advanced solid state lasers.
Substantially all of the Company's product revenues to date are attributable to
the sale of laser optics products for the industrial processing and medical
industries.
The Company has leveraged its expertise in thin film coatings, surface
finishing and solid-state lasers to develop proprietary miniature solid-state
lasers that are excited or "pumped" by diode lasers. These "microlasers" have
significant size advantages, are generally 100 times more energy efficient and
have longer estimated lifetimes than conventional gas and solid state lasers.
Laser Power shipped the first microlaser evaluation units in March 1997, and
expects to begin commercial deliveries of microlasers to a medical equipment OEM
to replace gas lasers in dermatology systems by the end of fiscal 1997. The
Company believes that microlasers can replace other lasers in additional medical
equipment. The Company is also developing microlasers for projection display and
telecommunications applications.
INDUSTRY AND MARKET OVERVIEW
LASER TECHNOLOGY
The term "laser" is an acronym for "light amplification by the simulated
emission of radiation." A laser converts energy into an intense beam of light
comprised of a single or limited number of wavelengths. A laser beam may be
strong enough to cut sheet metal or may be precise enough to perform eye
surgery. To create a laser beam, an external source of energy, such as
electricity, light or a chemical reaction, is applied to a lasing medium which
becomes excited and emits light. The emitted light is then collected and
directed through or by a series of precision optics to form a laser beam.
The wavelength of the laser beam and therefore its use are determined by
the lasing medium. The most common types of lasing mediums are gases, such as
CO(2) or argon, semiconductor materials, and solid state crystals, such as
yttrium aluminum garnet ("YAG").
The precision optics which collect, form, reflect and transmit the laser
beam are crucial to a laser's function. In gas lasers, the lasing medium is
encased in a tube with precision optics at either end. These internal optics may
direct the beam from one tube to another, may turn the beam back on itself to
further energize the lasing medium or may allow part of the beam to exit the
tube while turning the rest of the beam back on itself. Conventional solid state
lasers are similar except that the tube is replaced by a laser crystal rod. In
addition to the internal optics, a number of external precision optics may be
used to deliver the beam for its intended application. These external optics may
include mirrors, beam splitters, focusing lenses and other special function
optics.
22
<PAGE> 26
High power CO(2) lasers are widely used in industrial applications, such as
welding automobile bodies, scribing delicate ceramic circuits and sheet metal
cutting. CO(2) lasers offer greater quality, speed, flexibility and automation
than conventional cutting and welding technologies. There are an estimated
24,000 CO(2) laser systems currently installed with approximately 3,200
additional systems estimated to be installed in 1997. These systems generally
contain 10 or more optics which must be replaced regularly as they become worn
or contaminated. The Company estimates that in 1997 the market for optics for
use in high power CO(2) lasers will be approximately $60 million, of which $40
million will be sales of optics to replace worn or contaminated optics.
LINE DRAWING OF CO(2) LASER
Lower power CO(2) lasers and argon lasers are used in medical and cosmetic
procedures, including heart surgery and the removal of tattoos and skin
wrinkles. Laser procedures reduce blood loss and post-operative pain compared to
other procedures.
Lasers employing a semiconductor medium (diode lasers) are used in
printers, compact disk players and telecommunications equipment. Diode lasers
can also be used to excite or "pump" solid state lasers. Solid state lasers,
which employ crystals as the lasing medium and are energized by light from
lamps, are used in various industrial, medical and biotechnology applications.
Recently, laser engineers have developed small, highly efficient solid state
lasers that are energized by diode lasers (diode pumped solid state lasers or
"DPSSLs"). Because of their small size and high efficiency, DPSSLs may address
many of the applications currently served by other lasers and may create new
applications. Microlasers are miniature DPSSLs.
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PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
HIGH PERFORMANCE LASER OPTICS PRODUCTS
The Company produces optics, including total reflectors, output couplers,
beam splitters and lenses, for use in high power industrial, medical, scientific
and military lasers. The Company's expertise in the area of surface finishing
and, in particular, thin film coatings, is critical to producing high
performance laser optics. In general, the performance of an optic is primarily
dependent on the quality of the thin film coating. Thin film coatings include
various reflective coatings for mirrors and transmissive and partially
transmissive coatings for lenses, beam splitters and output couplers. The
Company believes that the high quality of its thin film coatings and its
commitment to customer service enhance its reputation as a supplier of high
power and technically advanced laser optics.
CO(2) Optics. Reliable operation of high power CO(2) lasers requires high
quality, low absorption optical elements. The Company supplies substantially all
types of optics used in CO(2) lasers and laser systems. Such optics fall broadly
into two categories: transmissive zinc selenide and reflective metal optics.
Zinc selenide is the substrate material of choice for high power CO(2)
laser transmissive optics such as lenses, output couplers and beam splitters
because of its low absorption of laser energy. Generally, zinc selenide optics
with low absorption thin film coatings are able to handle up to three kilowatts
of power. As laser power increases to the multi-kilowatt range, reflective metal
optics replace transmissive optics in certain applications.
Reflective metal optics (such as folding mirrors, phase shifting mirrors,
beam bending mirrors and focusing mirrors) utilize a metal substrate, such as
copper. Metal optics are fabricated by conventional polishing or single-point
diamond turning, a process which involves cutting by gem quality diamonds to
create a mirror finish. The Company is a leader in the uses of state-of-the-art,
single-point diamond turning methods to produce both standard metal optics and
those with complicated surfaces such as aspheres, parabolas and hyperbolas,
which are used with higher power CO(2) lasers. The Company's state-of-the-art
fabrication and thin film coating technologies have earned Laser Power a
reputation as a leading manufacturer of zinc selenide and metal optics.
The Company supplies zinc selenide and metal optics to high power CO(2)
laser and laser system manufacturers and to the aftermarket as replacement
parts. The aftermarket portion of the Company's optics business is growing
rapidly as industrial applications of CO(2) lasers proliferate worldwide.
Because CO(2) laser optics wear or become contaminated (average lifetime is
estimated to be 1,000 to 2,000 hours), every new laser installed increases the
market for replacement optics. In order to meet this growing aftermarket demand,
the Company provides same day shipment of critical replacement optics for most
high power CO(2) lasers.
Military Products. Working with Lockheed Martin Corporation ("Lockheed
Martin") and TRW, Inc. ("TRW"), the Company has developed thin film coatings
utilized in ongoing U.S. government programs to develop laser weapons for
missile defense. The Company has developed very low absorption thin film
coatings for uncooled optics, which are critical to a space-based laser for
defense against long range ballistic missiles. By using uncooled optics, the
weight of the laser system is reduced by approximately one-half, allowing the
laser to be boosted into orbit using one rocket instead of two. The Company
continues to develop these coatings for Lockheed Martin. The Company has also
developed coatings for TRW for use in ground-based lasers to defend against
short-range missiles. In addition, the Company has supplied coatings for
uncooled optics to TRW for an airborne laser defense system for use against
shorter range battlefield theater ballistic missiles.
The technology used to produce coatings for these weapons-grade lasers is
derived from technology used by the Company for CO(2) laser optics. The Company
believes that participation in these military programs fosters continued
improvement in CO(2) optics technology and that these improvements provide a
significant competitive advantage.
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PRODUCTS UNDER DEVELOPMENT
Optics Products
At laser power levels above three kilowatts, zinc selenide loses its
ability to resist distortion and is often replaced by more expensive, beam
quality limiting solutions such as aspheric metal optics or aerodynamic windows.
However, the Company's Turbo-Cooled technology enables zinc selenide optics to
function efficiently even at power levels up to the 10 to 20 kilowatt range. In
addition, the Company's MP-5 technology will enhance the performance of zinc
selenide optics because it absorbs 25%-50% less laser energy than many
commercial thin film coatings. Because of its Turbo-Cooled and MP-5
technologies, the Company believes it will continue to be a leading supplier in
CO(2) laser optics as the industrial CO(2) laser industry continues to use
higher laser power.
Turbo-Cooled refers to the Company's patented proprietary cooling design
for optical assemblies. Turbo-Cooled optical assemblies incorporate transmissive
zinc selenide optics that operate with less distortion of the laser beam and at
much higher power levels than conventionally cooled optics. This capacity is
important for the industrial CO(2) laser industry's continual drive for higher
power and better beam quality. The Company has also developed laser output
couplers, focusing systems and beam integrators using this technology.
MP-5 refers to the Company's new class of proprietary low absorption
coatings to replace thorium fluoride based thin film coatings for CO(2) laser
optics. Thorium fluoride, a low-level radioactive material, is used by virtually
every manufacturer of high performance CO(2) laser optics. MP-5 coatings absorb
significantly less laser energy than thorium fluoride based coatings and are
non-radioactive. Low absorption reduces optic heating caused by the laser beam.
Optic heating causes the beam quality to deteriorate which diminishes the
ability of the laser to perform a useful function. In addition, MP-5 technology
will not require the expense of handling, storage and disposal of low level
radioactive wastes associated with thorium fluoride. The Company anticipates
filing a patent application covering the MP-5 technology. The Company believes
that optics manufactured with MP-5 coatings will gain market share and command
premium pricing in certain markets. The Company has performed successful
beta-site testing and expects to release MP-5 products for commercial sale by
the third quarter of fiscal year 1997.
Microlaser Based Products
Recently, the Company has developed microlasers, which are miniature
DPSSLs. The miniaturization is accomplished by reducing the size of the solid
state material to mm or sub-mm dimensions and replacing end mirrors with complex
thin film coatings applied to the polished ends of the laser crystals.
Microlasers have significant size advantages over gas and other lasers in areas
such as medicine, biotechnology and projection displays. In addition,
microlasers are generally 100 times more energy efficient than gas lasers
because they consume less electricity in creating their optical output and
require less cooling. Microlasers also have longer estimated lifetimes than gas
lasers. For example, an argon-ion tube will burnout after 5,000 to 10,000 hours,
compared to an estimated lifetime of 10,000 to 15,000 hours for a microlaser. To
date, revenues from sales of the Company's microlaser products have been
insignificant.
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LINE DRAWING DEPICTING THE DIFFERENCE IN SIZE AND POWER REQUIREMENTS BETWEEN A
MICROLASER AND AN ARGON-ION LASER
Green and Blue Microlasers. The Company's green microlaser has size and
energy efficiency advantages over gas lasers used in certain medical
applications. The Company anticipates manufacturing and selling production
quantities of its green microlaser for use in ophthalmology and dermatology in
the fourth quarter of fiscal 1997.
The Company believes its 0.5 watt blue microlaser is the only high power
all solid state compact blue laser in existence. This laser has a number of
applications in which it can successfully replace argon-ion lasers, such as
certain dentistry, biomedical, dermatology and printing applications.
The Company has developed prototype projectors using its green and blue
microlasers with commercially available red diode lasers to produce high quality
images with color quality equaling color movie film. The Company believes that
such projectors produce higher resolution and more colors than commercially
available projectors. In addition, microlaser based projectors are smaller than
conventional projectors and microlaser light sources have longer estimated
lifetimes compared to conventional light sources. Conventional light sources
have average lifetimes of 500-3,000 hours compared to an estimated lifetime of
10,000-15,000 hours for microlaser light sources. The Company expects that
microlaser based projectors may also provide
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advantages in a number of additional applications, including entertainment
displays, flight simulators, process and system control room displays, portable
large-venue projectors, videowalls and electronic cinema.
The Company has been awarded several government contracts to develop
advanced multi-beam, direct write microlaser projector technology, for which the
Company retains commercial rights. Such direct write technology will impress
video information directly on the microlaser beams. The beam writes the image
directly onto a screen similar to the way an electron beam writes a television
image, except that multiple lines are written simultaneously, which enables
super high resolution up to 5,000 by 4,000 pixels. The Company has been issued a
U.S. patent covering such technology. Since the beam from red diode lasers is
not suitable for use in direct write projection systems, the Company plans to
develop or acquire a suitable red microlaser to complete development of the
technology. There can be no assurance that the Company will be able to complete
development of a red microlaser, or if it is unable to develop such a
microlaser, that it will be able to acquire the rights to a suitable red laser
technology at a commercially reasonable cost, if at all. If development of
direct write technology can be completed, the Company believes that such
technology may be the best method to produce the colorful super high resolution
images required by electronic cinema.
In addition, the Company currently has a collaborative arrangement with
Laser-Display-Technologic KG ("LDT"), a joint venture between Daimler-Benz AG
and Schneider Rundfunkwerke AG to develop microlasers for a conventional single
beam direct write laser based projection display system. Such systems have been
commercially available using gas lasers for approximately the past 20 years at
very high prices ($200,000 to $500,000). LDT is developing technology which,
when available, and when combined with the Company's microlasers, will enable
compact high resolution projectors to be built with the ultimate aim of
producing high volume, low cost home entertainment systems.
1550 nm Microlaser. Distributed feedback ("DFB") diode lasers emitting at
1550 nm wavelength are used in the telecommunications industry to transmit fiber
optic signals. Such lasers are gaining widespread acceptance in upgrades and new
installations of cable television ("CATV") and other telecommunications systems
worldwide. Microlasers generally create less signal noise and are capable of
generating higher power than DFB lasers. As a result, CATV fiber optic systems
employing 1550 nm microlasers will not require amplification to the same extent
as DFB lasers and will deliver a higher quality, lower noise signal to the
receiver. The Company's 1550 nm microlaser under development employs much of the
same design philosophy and proprietary technology developed for its blue and
green microlasers, especially key aspects which permit scaling to high power.
The Company believes that, if successfully developed, the high output power of a
1550 nm microlaser could eliminate erbium-doped fiber amplifiers ("EDFAs") which
are needed to increase the power of existing DFB lasers in CATV head-ends and
point-to-point transmitters thereby reducing the system costs. The Company
expects to sell its 1550 nm high power microlaser for substantially less than
the typical DFB laser EDFA combination, providing an impetus for industry
adoption of its 1550 nm microlaser in head-end and high power transmitters.
The ability of an EDFA to amplify any wavelength between 1530 nm and 1560
nm provides a cost-effective method of increasing information bandwidth and is
known as dense wavelength division multiplexing ("WDM"). WDM allows multiple
laser beams with different wavelengths to be launched into a single fiber optic
and amplified by a single EDFA. Dense WDM has been rapidly embraced by the
long-haul carriers for digital transmission because of significant cost and time
savings over laying additional fiber optic cable. In addition, the Regional Bell
Operating Companies ("RBOCs") and CATV operators are beginning to use dense WDM
increasingly as the technology advances, cost of equipment decreases and digital
transmission becomes more popular for local traffic. One telecommunications
industry market research firm estimates that the market for dense WDM
transmitters will grow to $1.3 billion in 2000 and $4.3 billion in 2005, a
substantial portion of which will consist of sales of lasers.
The wavelengths used for dense WDM must be precisely controlled. DFB laser
manufacturers are not able to control their semiconductor processes to the level
required to produce precise wavelength devices on demand and therefore existing
manufacturers must go through a selection process to find devices with the
desired wavelengths. Precise temperature control with active feedback is
required to keep the wavelength constant over the lifetime of the device. The
Company's 1550 nm microlaser under development is expected to
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be capable of being tuned to any wavelength over the entire dense WDM band. The
wavelength could be controlled with a low-cost, passive optical element, and all
devices could be manufactured identically, with the desired wavelength selected
with an adjustment of the passive optic element. The Company believes these
characteristics will provide significant advantages for its 1550 nm microlaser
under development in the dense WDM market.
STRATEGY
The Company's strategy is to expand its current precision optics business
and to leverage its core expertise in high performance laser optics, low
absorption thin film coatings and solid-state lasers to become a world leader in
the manufacture, marketing and sale of microlasers and microlaser based
products. Key aspects of the Company's strategy include:
Continue to Grow High Performance CO(2) Laser Optics Business
The Company's core competencies in the design and manufacture of high
performance laser optics, including its advanced super polishing, diamond
turning technologies and thin film coatings have made Laser Power one of the
leading suppliers of such components, especially for high power CO(2) lasers.
The Company's strategy is to continually improve quality and customer service
while lowering production costs and introducing new products, such as the
Company's MP-5 coatings and Turbo-Cooled optics. See "-- Products and Products
under Development." The Company expects the high power CO(2) laser segment to
continue to grow and power levels to continue to rise. As the power of CO(2)
lasers increases, an increasing proportion of optics will be Turbo-Cooled and
metal optics. To meet this increasing demand, the Company will continue to
enhance its Turbo-Cooled and diamond turned metal optics technologies. The
Company believes it is well positioned to meet more stringent requirements for
optics used in higher power CO(2) lasers because of its proprietary and
state-of-the-art technologies.
Expand Markets for High Performance Optics Products
The Company believes that its technologies have applications in markets not
currently served by the Company. The Company has developed a coating technology
for optics used in weapons-grade lasers, which the Company believes is
applicable to the emerging erbium-YAG medical laser optics market as well. The
Company also plans to use its technology base developed for CO(2) laser optics
and microlaser crystal polishing and coating to produce certain optics for
neodymium-YAG lasers, visible lasers and thin film filter coatings for use in
dense WDMs.
In the industrial CO(2) laser market, the Company from time to time designs
solutions to customers' material processing problems with unique
optical-mechanical systems employing the Company's optics and mechanical
components. The Company plans to expand this service in the future to increase
revenues and enhance the Company's technical reputation in the industrial CO(2)
laser market.
Increase Margins on Optics Products
The Company has a multifaceted strategy to reduce costs and increase
margins on its optics products. To reduce costs, the Company plans to increase
automation which will reduce labor costs and improve yields on certain
manufacturing processes. The Company also plans to transfer additional
labor-intensive operations to its facility in Mexico. To increase margins, the
Company plans to intensify its sales efforts on higher margin products such as
Turbo-Cooled optics, and to serve high-performance, high-margin niches in such
markets as the emerging high power neodymium-YAG laser market and the dense WDM
telecommunication market.
Market Microlasers for Existing Industrial and Medical Applications
The Company intends to exploit the superior size and energy efficiency
characteristics of its microlasers to replace existing gas and solid state
lasers currently utilized in certain medical, industrial and other applications.
The Company has recently shipped three prototype green microlasers to a medical
laser OEM
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and negotiated a supply contract under which it expects to begin shipping small
quantities per month prior to fiscal year end 1997.
Develop and Market Microlasers for CATV and Telecommunications Applications
The Company is developing a high power, low noise 1550 nm microlaser that
it believes will provide substantial performance and cost advantages over
certain existing CATV transmission systems that are based on 1550 nm
semiconductor diode DFB lasers and EDFAs. In addition, the ability to tune and
control the microlaser's wavelength at any point over the entire EDFA wavelength
acceptance band will provide advantages over existing lasers used in digital
CATV and telecommunications applications.
Develop and Market Microlasers for High End Projection Display Applications
The Company has developed blue and green microlasers and is developing a
red microlaser, all of which can be arrayed together as the light source for a
high-end display projector. The Company believes that microlaser based
projectors will have significant performance and size advantages over existing
high-end lamp based and CRT based projectors.
Supplement Product Development Activities Through Contract Funding
The Company will opportunistically secure research contracts that will
enhance and advance its products under development. The Company has spent
approximately $9.4 million on microlaser development and related display
technology programs, substantially all of which was paid for through joint
ventures with strategic partners such as the U.S. government, Proxima and LDT.
See "-- Research and Development" and "Certain Transactions."
Expand Capabilities Through Strategic Alliances and Acquisitions
Through alliances with other companies, Laser Power has enhanced its high
performance laser optics technologies, broadened its research activities and
developed its microlaser technology. The Company believes that similar
relationships with leading companies in the medical equipment, high end
projection display and telecommunications industries will facilitate its entry
into those markets. In addition, the Company will continue to acquire
technologies or other companies that complement its current technologies.
SALES AND MARKETING
As of March 31, 1997, Laser Power employed 19 persons in sales and
marketing at sales offices in the U.S. and Belgium. The Company promotes its
optics and intends to promote its microlaser based products to OEM and end-user
customers through a multi-faceted program which includes trade journal
advertising, catalog distribution, direct mail promotion, field sales
presentations, technical seminars, trade show exhibits and direct telemarketing.
The Company sells its optics products through its direct sales force in the U.S.
and Belgium and through its distributors in the rest of the world. The Company
intends to sell its microlaser based products in North America, Europe and Asia
through a direct sales force and distributors.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to complete products under development, to continue to enhance its
existing products and to develop new products. As of February 28, 1997, the
Company had 54 employees performing research and development in the U.S. and
Belgium. The Company spent $2.9 million, $4.9 million and $5.6 million during
fiscal years 1994, 1995 and 1996, respectively, and $2.7 million and $2.9
million in the six months ended February 29, 1996 and February 28, 1997,
respectively, on research and development. The sources of such funds were
contracts with customers and strategic partners as well as internal Company
funds.
The Company expended $0.6, $0.8 and $0.7 million in fiscal years 1994, 1995
and 1996, respectively, and $0.3 and $0.3 million in the six months ended
February 29, 1996 and February 28, 1997, respectively, or approximately 20%,
16%, 13%, 13%, and 10% of the total research and development funds,
respectively, to
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fund core optical research and development and to increase manufacturing
efficiency. For example, the Company has been developing MP-5, a new class of
proprietary low absorption, non-radioactive coatings for high power CO(2)
lasers. The Company also has developed optics and thin film coatings for lasers
used in the defense industry. Current products under development include low
absorption thin film coatings for non-metal uncooled optics in sizes up to
approximately one-half meter in diameter. If adequate contract funding can be
secured, the Company intends to extend this production technology to produce
thin film coatings for uncooled optics in sizes greater than one meter in
diameter. There can be no assurance that the red microlaser, the 1550 nm
microlaser, MP-5, uncooled optics on the scale required by the military or any
of the Company's products under development will be successfully developed or
commercially available in the future. See "-- Products Under Development" and
"Risk Factors -- Development and other Risks Relating to Microlasers
Technologies."
The Company expended $1.2, $1.9 and $3.7 million in fiscal years 1994, 1995
and 1996, respectively, and $1.9 and $2.3 million in the six months ended
February 29, 1996 and February 28, 1997, respectively, or approximately 43%,
39%, 66%, 71% and 78% of the total research and development funds, respectively,
to fund research and development, for microlasers and microlaser based
projection technology. The Company has developed proprietary technologies which
allow the extraction of large amounts of power out of small laser crystals,
enabling the production of lasers producing more visible power per unit volume
than existing gas or solid-state laser technology. The Company's 0.5 watt blue
microlaser and 3.0 watt green microlaser are the first products to be developed
using these technologies. The Company has been able to leverage its microlaser
technology to secure projection display contracts leading to the development of
proprietary, large screen projection display and head-mounted display
technologies. The Company believes that its development stage 1550nm microlaser
has significant advantages over existing 1550nm laser technology. The Company
expects this microlaser, originally developed under a U.S. Air Force satellite
communications contract, to have broad applications for CATV and long-haul,
head-end and dense WDM fiber-optic telecommunications. Additionally, the Company
has contracts with the U.S. Army, Air Force and Navy to develop microlasers for
various other telecommunication applications.
As of March 31, 1997, the Company had contracts with $2.2 million in future
funding for continued research on various display technologies, including the
continued development of the Company's red microlaser for its projector. The
Company is developing a high resolution multimedia microlaser projector in
partnership with Proxima, under a contract with the U.S. Department of Commerce.
In addition, Laser Power is developing what it believes to be the first digital
color technology to project accurate colors for front and rear projection
systems under a contract with Defense Advanced Research Projects Agency. In July
1996, the Company entered into a collaborative agreement with LDT to develop
microlasers for a development stage projection display system. Additionally, the
Company and Evans and Sutherland Computer Corporation have been funded by the
U.S. Air Force to jointly develop advanced microlaser based projection displays
for advanced military training systems.
MANUFACTURING
The Company manufactures high performance laser optics, microlasers and
related components. Some materials and components are available only from single
suppliers. See "Risk Factors -- Dependence on Sole and Limited Source
Suppliers."
The Company manufactures optics at its San Diego and Mexico facilities.
Thorium fluoride and zinc selenide are important to the manufacture of optics.
The Company purchases all of its thorium fluoride for use in its low absorption
thin film coating processes from Cerac, who the Company believes is the sole
source for high quality thorium fluoride. Any interruption or cessation of
supply by Cerac would have a material adverse effect on the Company's business,
financial condition and results of operations. While the Company is developing
MP-5, an alternate low absorption thin film coating technology, there can be no
assurance that such an alternative can be fully developed. See "Risk
Factors -- Dependence on Sole and Limited Source Suppliers."
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In the case of zinc selenide, a critical raw material in the manufacture of
optics, the Company currently relies exclusively on one supplier, Morton's
Advanced Materials Division. To date, the Company has not experienced any
material difficulties in the quantity or the quality of the zinc selenide
delivered. If any such problem arises in the future, the Company would have to
seek an alternate supplier. However, there can be no assurance that the Company
would be able to secure sufficient inventory of zinc selenide to produce
sufficient product to meet its customers' needs. A transition to alternate
arrangements would involve additional costs and delays in production. See "Risk
Factors -- Dependence on Sole and Limited Source Suppliers."
The manufacture of optics is capital-intensive. Future manufacturing
capacity requirements may require substantial investment in equipment and
facilities. See "Risk Factors -- Fluctuation in Quarterly Performance" and "Use
of Proceeds."
The Company's microlasers are assembled from component parts at the
Company's San Diego facility. The Company purchases component parts for its
microlasers, including laser crystals, nonlinear crystals, and semiconductor
diode lasers, from various sources around the world. The Company believes its
suppliers can supply the components in the quantities, with the quality and at
the prices required by the Company for volume production of microlasers for
medical, dental, telecommunications, industrial, display and other general
applications of the Company's microlaser products under development. However,
none of the Company's suppliers of microlaser component parts has experience in
supplying these components with the Company's specifications at the increased
volumes that the Company needs to achieve its growth goals. The Company does not
have long term or volume purchase agreements with any of its suppliers and
currently purchases components on a purchase order basis. See "Risk
Factors -- Limited Microlaser Manufacturing Experience; Scale-up Risk."
Moreover, the Company has no experience in producing microlasers other than
in small developmental quantities. The Company must increase its manufacturing
capability to polish and coat volume quantities of microlaser and nonlinear
crystals and to perform the required complex assembly steps. Such an increase in
its manufacturing capabilities will require significant scale-up expenditures
and additions to the Company's facilities. See "Risk Factors -- Limited
Microlaser Manufacturing Experience; Scale-Up Risk."
PATENTS AND PROPRIETARY RIGHTS
Laser Power's patent portfolio includes four patents issued by the USPTO
and one patent granted by the European Patent Office (the "EPO"), subsequently
filed in five European countries. The Company has filed eight patent
applications with the USPTO, two patent applications in foreign jurisdictions
and has been granted licenses to two patent applications owned by Proxima and
filed with the USPTO. One of the Company's U.S. patents, issued in November
1996, covers certain aspects of the Company's blue microlaser technology and
another, issued in July 1996, covers the Company's direct write concept and
other aspects of display technology associated with microlasers. One of the
Company's U.S. patents, issued in July 1992, covers basic technology behind the
Company's Turbo-Cooled optic products; the Company's patent granted by the EPO
in April 1993 covers this same technology. Many of the Company's pending patent
applications relate to microlaser technology. The two pending U.S. patent
applications licensed from Proxima cover certain aspects of microlaser display
technology.
Because of lesser protection afforded by and the high cost of pursuing
patents in certain foreign jurisdictions, the Company has elected not to seek
patent protection for certain of its inventions covered by its U.S. patents in
foreign jurisdictions. Nevertheless, the Company intends to selectively pursue
foreign patent filings where the cost of and protection afforded by such
patents, if issued, are justified. However, the Company in general believes
that, in certain cases, obtaining foreign patents may be much less useful than
obtaining domestic patents because of differences in patent laws and costs of
patent enforcement, and further believes that the protection provided by foreign
patents, if obtained, and any other foreign intellectual proprietary protection
may be weaker than that provided domestically.
Laser Power's continued success will depend in part on its ability to
obtain patent protection for its products and processes, and to operate without
infringing the proprietary rights of third parties. There can be no assurance
that patent applications filed by Laser Power will result in patents being
issued, that the claims of
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such patents will offer significant protection of the Company's technology, or
that any patents issued to or licensed by Laser Power will not be challenged,
narrowed, invalidated or circumvented. The Company may also be subject to legal
proceedings that result in the revocation of patent rights previously owned by
or licensed to Laser Power, as a result of which the Company may be required to
obtain licenses from others to continue to develop, test or commercialize its
products. There can be no assurance that Laser Power will be able to obtain such
licenses on acceptable terms, if at all.
In addition, there may be pending or issued patents held by parties not
affiliated with Laser Power that relate to the technology utilized by Laser
Power. As a result, Laser Power may need to acquire licenses to assert
infringement of, or contest the validity of, such patents or other similar
patents which may be issued. Laser Power could incur substantial costs in
defending itself against patent infringement claims, interference proceedings,
opposition proceedings or other challenges to its patent rights made by third
parties, or in bringing such proceedings or enforcing any patent rights of its
own.
The laser optics and laser industries have a history of patent litigation
and will likely to continue to have patent litigation suits concerning laser
technologies. A number of laser optic, laser component and laser manufacturing
companies maintain and continue to develop patent positions that could prevent
Laser Power from using technology covered by these patent positions. However,
the commercial success of the Company depends in part on neither infringing
patents or misappropriating proprietary rights of third parties nor breaching
licenses that may relate to the Company's technologies and products. The patent
positions of laser optic, laser component and laser manufacturing companies,
including the Company, are generally uncertain and involve complex legal and
factual questions. In addition, the Company has received invitations from third
parties to license patents owned by third parties. Any action against the
Company or its collaborative partners claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in
addition to subjecting the Company to potential liability for damages, require
the Company or its collaborative partners to obtain a license in order to
continue to develop, manufacture or market the affected products and processes.
There can be no assurances that the Company or its collaborative partners would
prevail in any such action or that any license (including licenses proposed by
third parties) required would be made available on commercially acceptable
terms, if at all. There are a significant number of United States and foreign
patents and patent applications in the Company's area of interest, and the
Company believes that there may be significant litigation in the industry
regarding patent and other intellectual property rights. If the Company becomes
involved in such litigation, it could consume a substantial portion of the
Company's managerial and financial resources, which could have material adverse
effect on the Company's business, financial condition and results of operations.
The Company has acquired a license to a Stanford owned patent covering
certain technology used in its blue microlaser from ATx Telecom. The Company has
received a letter from a third party claiming that the Company's license was
transferred improperly by Stanford and ATx Telecom. While the Company believes
that such license was properly transferred, there can be no assurance that the
Company's license would not be voided if subjected to a legal challenge. In such
an event, there can be no assurance that the Company would be able to obtain a
replacement license on favorable terms, if at all. Failure to obtain such a
license would result in a material adverse effect to the Company's business,
financial condition and results of operations.
The Company is aware that patents held by other laser companies may relate
to the Company's microlaser technology. The Company does not believe it
infringes on such laser companies' patents or believes that it has adequate
design-arounds if it is held to be infringing. Nevertheless, for certain cost or
strategic reasons, the Company believes it may be advantageous to enter into
license agreements with such laser companies. The Company is currently
negotiating to obtain licenses from such parties for certain technology covered
by such patents. However, there can be no assurance that the Company will obtain
the license(s) on favorable terms, if at all. If it is determined that the
patents held by these other laser companies do cover the Company's technology,
the Company's inability to obtain licenses for such technology could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has developed certain of its proprietary technology pursuant to
development contracts including contracts with federal government agencies.
Under standard provisions in government contracts, the
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<PAGE> 36
government may retain certain rights in technology developed under such
contracts. In addition, the Company has granted significant rights to the other
parties under such contracts. The Company's strategy is to continue to develop a
significant portion of its proprietary technology pursuant to funding received
from development contracts. There can be no assurance that the Company will be
able to continue to obtain funding for the development of its proprietary
technology, or that, if received, the Company will obtain rights to such
technology sufficient to permit the Company to develop and market new products
or to prevent third parties from using such technology to compete with the
Company.
In addition to patent protection, Laser Power also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities to expand and bolster its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company. These agreements are
intended to enable the Company to protect its proprietary information by
controlling the disclosure and use of technology to which it has rights and
provide for ownership by the Company of proprietary technology developed at the
Company or with the Company's resources. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's trade
secrets or other confidential information in the event of unauthorized use or
disclosure of such information or that adequate remedies would exist in the
event of such unauthorized use or disclosure. The loss or exposure of trade
secrets possessed by Laser Power could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Patents and Proprietary Rights."
The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. There is considerable pressure
on academic institutions to publish discoveries in the high technology and
physics fields. There can be no assurance that such publication would not
adversely affect the Company's ability to obtain patent protection for certain
technologies in which it may have a commercial interest.
COMPETITION
The industries in which the Company sells its products are highly
competitive. Laser Power's competitive position depends upon a number of
factors, including the price and performance of its products, the level of
customer service, the quality of its manufacturing processes, the compatibility
of its products with existing laser systems and Laser Power's ability to
participate in the growth of emerging technologies, such as microlasers and
their application to industries already served by gas and solid state lasers. In
the optics market, Laser Power primarily competes with II-VI, Inc. ("II-VI"),
Coherent, Inc. ("Coherent") and Sumitomo Electric Industries, Ltd. In the
combined industrial and medical laser optics market, the Company estimates that
it had a 27% market share in 1996, compared to a 50% share held by II-VI for the
same period. In addition, II-VI produces its own supply of zinc selenide. The
Company uses zinc selenide as the substrate for 40% to 50% of the CO(2) laser
optics sold by the Company and purchases this raw material from Morton.
With regard to the Company's microlaser based products under development,
the Company faces competition from gas, solid-state and DFB laser manufacturers
who already service this market as well as from lamp manufacturers who are
developing lamps with extended lives for projection display. Competitive factors
in the market for microlaser applications include price, product performance and
reliability, strong customer support and service, customer relationships and the
breadth of product line. In this market, the Company faces competition from
companies that have substantially greater financial, engineering, research,
development, manufacturing, marketing, service and support resources, greater
name recognition than the Company and long-standing customer relationships.
Specifically, the Company believes that its main competitors for its products
under development will be Spectra-Physics Lasers, Inc., Coherent, Uniphase
Corporation, Lightwave Electronics Corporation, LiCONiX, Omnichrome Corporation
and Edinburgh Instruments Ltd. With respect to CATV 1550 nm microlaser
transmitters for supply to OEMs, the Company believes its competitors will be
Harmonic Lightwaves, Inc., Ortel Corporation, Synchronous Group, Inc., Uniphase
Corporation, SDL, Inc., ATx Telecom, Scientific-Atlanta, Inc., Fujitsu Compound
Semiconductor, Inc., Lucent Technologies Inc. and NORTEL, Ltd. Other CATV
equipment suppliers as well as other laser
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<PAGE> 37
companies who may develop microlaser based products which compete directly with
the Company's microlaser based products may also enter this market.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company uses or generates certain hazardous substances in its research
and manufacturing facilities. The Company believes that its handling and
disposal of such substances is in material compliance with applicable local,
state and federal environmental, safety and health regulations at each operating
location. The Company invests substantially in proper protective equipment,
process controls and specialized training to minimize risks to employees,
surrounding communities and the environment due to the presence and handling of
such hazardous substances. The Company conducts monthly workplace monitoring
regarding such substances. When exposure problems or potential problems have
been indicated, corrective actions have been implemented and re-occurrence has
been minimal or non-existent. The Company does not carry environmental
impairment insurance.
The Company uses a low-level radioactive material called thorium fluoride
to manufacture low absorption thin film coatings. The use, storage and disposal
of this material is governed by the State of California which recently inspected
and licensed the Company's facilities and procedures. All thorium fluoride
bearing by-products are collected and stored on site at the Company until
California develops low-level radioactive waste storage capability. The
Company's non-radioactive coating under development, MP-5, will provide superior
performance to certain thorium fluoride coated optics and lessen the
environmental hazards associated with the special use, storage and handling of
the low-level radioactive substance. See "-- Research and Development."
The generation, use, collection, storage and disposal of all other
hazardous by-products resulting from the Company's manufacturing of its products
and research and development of new products, such as suspended solids
containing heavy metals or airborne particulates, are believed by the Company to
be in material compliance with local, state and federal regulations. The Company
believes that it possesses all of the permits and licenses required for
operation. Although the Company is not aware of any material environmental,
safety and health problems in its properties or processes, there can be no
assurance that problems will not develop in the future which would have a
material adverse effect on the Company.
BACKLOG
With the exception of military contracts, most customer orders for optics
are from stock or for deliveries within one to two months. As a result, backlog
of optics orders is typically two to three times monthly sales and was $3.6
million at March 31, 1997, as compared with $2.7 million at March 31, 1996.
Backlog of research contracts fluctuates based on the timing of contract awards
and was $3.4 million at March 31, 1997, as compared with $3.3 million at March
31, 1996. Backlog of microlaser orders is expected to reflect the longer-term
commitments of OEM customers. At March 31, 1997, microlaser backlog was
$673,000, consisting of development funding and the purchase of several
prototype lasers.
EMPLOYEES
As of March 31, 1997, the Company had 189 full time and 4 part time
employees in the U.S. and 37 full time employees in its foreign subsidiaries. Of
the Company's U.S. employees, 14 were engaged in marketing, sales and related
customer-support services, 50 in research and development and 129 in operations,
administration and finance. See "Risk Factors -- Dependence Upon Key Personnel."
None of the Company's employees is represented by a labor union or covered by a
collective bargaining agreement. The Company has not experienced any work
stoppages and considers its relations with its employees to be good.
FACILITIES
The Company's main facilities and headquarters are located in San Diego,
California. These facilities are leased through December 31, 2001 and may be
purchased pursuant to an option which may be exercised at the expiration of the
lease with a purchase price equal to the prevailing market value of the
property. The Company leases approximately 44,000 square feet of space used for
manufacturing, research and administra-
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<PAGE> 38
tive purposes. The Company also leases facilities in Plymouth, Michigan,
Tijuana, Mexico and Ghent, Belgium, consisting of approximately 1,000, 6,000 and
3,900 square feet, respectively. The lease on the Michigan facility is month to
month and the leases on the Mexico and Belgium facilities expire in September
1998 and December 1999, respectively. The Company believes that its leased
properties are adequately covered by insurance. The Company believes that
following expansion of its manufacturing, research and office space, the
Company's facilities will be adequate for its current and projected needs and
that additional space will be available as needed. See "Risk Factors -- Limited
Microlaser Manufacturing Experience; Scale-up Risk" and "Use of Proceeds."
LEGAL MATTERS
The Company is not a party to any litigation.
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<PAGE> 39
GLOSSARY OF TERMS
<TABLE>
<S> <C>
ABSORPTION.................... The phenomenon that results when a laser beam travels through
a material (e.g., an optic) and loses some of its energy to
the material through which it passes and heat is generated.
CO(2) LASER................... Lasers which use carbon dioxide as the lasing medium.
DISTRIBUTED FEEDBACK
("DFB") DIODE LASER......... Diode lasers where feedback necessary for laser action is
provided by a diffraction grating incorporated into the
longitudinal structure of the laser rather than mirrors at the
ends of the laser.
DIODE LASER................... Lasers which use a semiconductor diode as the lasing medium.
DIODE-PUMPED SOLID STATE LASER
("DPSSL")................... Solid state lasers which are excited or pumped by a diode
laser.
ERBIUM-DOPED FIBER AMPLIFIER
("EDFA").................... Devices used in fiber optic systems which amplify optical
signals in the wavelength range 1530 to 1560 nanometers.
HEAD-END...................... The hub of a cable television system where signals received by
the community antenna are distributed onto multiple cables to
be transmitted to homes.
HIGH POWER CO(2) LASERS....... Lasers with power output which is high compared with other
lasers used for the same general purposes. For industrial
metal-working purposes, high power generally ranges from 1,000
to greater than 10,000 watts; in wood, plastic and fabric
processing, high power generally ranges from 200 to 800 watts;
and in the medical context, high power is generally 50 watts
of output or greater.
LAMP PUMPED SOLID STATE
LASER....................... Solid state lasers in which the excitation source is a krypton
flash lamp or krypton arc lamp.
LASER OPTICS.................. Optics which are specially designed and manufactured to
transmit and manipulate the unique wavelengths and power of
optical energy associated with a particular type of laser.
MICROLASER.................... Miniature DPSSLs, where miniaturization is accomplished by
reducing the size of the solid state laser crystals to mm or
sub-mm dimensions and replacing end mirrors with complex thin
film coatings applied to the polished ends of the laser
crystals.
NANOMETER ("NM").............. One billionth of a meter.
PIXEL......................... The smallest image-forming unit of a video display.
REFLECTIVE OPTICS............. Optical elements such as total reflectors and beam benders,
which reflect all incident optical energy, neglecting
absorption, from the first optical surface and/or its coating.
SOLID STATE LASER............. Lasers which use a very small quantity of a rare earth element
"doped" (i.e., dissolved) into a solid crystal as the lasing
medium.
THORIUM FLUORIDE.............. Low level radioactive compound used in thin film coatings for
CO(2) laser optics by virtue of its low absorption of CO(2)
laser energy.
TRANSMISSIVE OPTICS........... Optical elements such as windows, lenses and partial mirrors
which allow all or a portion of the incident optical energy,
neglecting absorption, to pass through the entrance surface,
the thickness of the optic and the exit surface.
WAVELENGTH DIVISION
MULTIPLEXING ("WDM")........ The process whereby beams of multiple lasers having different
wavelengths are combined and transmitted simultaneously by a
single fiber optic.
YTTRIUM ALUMINUM GARNET
("YAG")..................... Man made crystals, which, when "doped" (i.e., dissolved) with
small amounts of appropriate rare earth elements such as
neodymium or erbium, are the most common medium for solid
state lasers.
ZINC SELENIDE................. A crystalline solid compound of zinc and selenium used in
CO(2) laser windows, lenses and partial mirrors, because of
its minimal absorption at CO(2) laser wavelengths.
</TABLE>
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of the Company and directors of the Company
continuing after the offering and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Glenn H. Sherman, Ph.D........... 54 Chairman of the Board and Chief Executive Officer
President, Laser Power Research Division, and
Douglas H. Tanimoto, Ph.D........ 57 Director
Richard P. Scherer............... 57 President, Laser Power Optics Division
Dean Hodges, Ph.D................ 53 President, Laser Power Microlasers Division
Arthur P. Minich................. 54 President, Laser Power Display Division
Paul P. Wickman, Jr.............. 47 Senior Vice President and Chief Financial Officer
William G. Fredrick(1)........... 57 Director
Robert G. Klimasewski............ 53 Director
Richard C. Laird(2).............. 50 Director
Kenneth E. Olson(1)(2)........... 60 Director
John C. Stiska(1)(2)............. 55 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Glenn H. Sherman, Ph.D., the founder of the Company, has served as Chairman
of the Board and Chief Executive Officer of the Company since 1979. From 1972 to
1979, Dr. Sherman served as a director and Vice President of II-VI, Inc., an
electro-optical component manufacturer. Dr. Sherman received a B.S., M.S. and
Ph.D. in Electrical Engineering from the University of Illinois at Urbana.
Douglas H. Tanimoto, Ph.D. has served as the President of the Laser Power
Research Division since 1988 and has served as a director of the Company since
1984. Dr. Tanimoto served as the President of the Laser Power Optics Division
from 1986 to 1988. Dr. Tanimoto received a B.A. from the University of
California, Berkeley and an M.S. and Ph.D in Physics from the University of
Oregon.
Richard P. Scherer has served as President of the Laser Power Optics
Division since March 1996. Mr. Scherer served as the Company's Senior Vice
President, Marketing and Business Development, of the Company from 1992 to March
1996. Mr. Scherer received a B.S. in Electrical Engineering from Marquette
University.
Dean T. Hodges, Ph.D. has served as President of the Laser Power
Microlasers Division since March 1996. Dr. Hodges served as President of the
Laser Power Optics Division from March 1994 to March 1996. From 1984 to March
1994, Dr. Hodges served as Senior Vice President of Newport Corporation, a
manufacturer of instruments for the laser and optics industries. Dr. Hodges
received a B.S. in mathematics and physics from Humboldt State College and a
Ph.D. in Applied Physics from Cornell University.
Arthur P. Minich, a consultant of the Company, has served as President of
the Laser Power Display Division since December 1996. Mr. Minich has agreed to
become an employee of the Company upon the closing of this offering. From 1992
to November 1996, Mr. Minich served as Chief Technical Officer and Vice
President, Research and Development, of Proxima Corporation, a manufacturer of
computer display projectors. From 1990 to 1992, Mr. Minich founded and served as
Chairman of the Board of Directors of PIVOTAL Corp., a developer of object
oriented business process engineering software. From 1988 to 1990, Mr. Minich
served as the Business Unit/Group General Manager of Eastman Kodak Company's
digital imaging systems business. Mr. Minich received a B.S. in Electrical
Engineering from Iowa State University and an M.S. in Electrical
Engineering/Computer Science from the Hewlett-Packard Honors Cooperative
Program.
Paul P. Wickman, Jr. has served as Senior Vice President and Chief
Financial Officer of the Company since September 1992. From 1983 to 1992, he
served as Group Vice President, Finance, and Controller of The
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<PAGE> 41
Titan Corporation, a diversified high technology company. Mr. Wickman received a
B.S. in Accounting from San Diego State University and is a Certified Public
Accountant.
William G. Fredrick has served as a director of the Company since 1980. Mr.
Fredrick is the founder and President of Laser Mechanisms, Inc., a laser device
and accessory manufacturer, since 1980, and Oxid Corporation, a laser device and
accessory manufacturer, since 1986. Mr. Fredrick received a B.S. in Engineering
Physics from the University of Michigan.
Robert G. Klimasewski has served as a director of the Company since 1980.
Mr. Klimasewski has been the President and Chief Executive Officer of
Transmation, Inc., an electronic instrumentation manufacturer since 1994. In
1972, Mr. Klimasewski founded Burleigh Instruments, Inc., a scientific
instrument and laser manufacturer, and has been Vice Chairman of Burleigh
Instruments since 1972. Mr. Klimasewski is also a director of Transmation and
Burleigh Instruments. Mr. Klimasewski received a B.S. and M.S. in Optical
Engineering from the University of Rochester.
Richard C. Laird has served as a director of the Company since 1987
representing Union Miniere, s.a., one of the Company's investors. Mr. Laird
joined Union Miniere Inc. in 1980 and currently serves as Executive Vice
President and director. Mr. Laird received a B.S. in Metallurgical Engineering
from Michigan Technological University.
Kenneth E. Olson has served as a director of the Company since October 1994
representing Proxima Corporation. Mr. Olson is Chairman of Board, acting
President and Chief Executive Officer of Proxima. Mr. Olson previously served as
President and Chief Executive Officer of Proxima from December 1990 to January
1996. Mr. Olson is a director of Proxima, Lidak Pharmaceuticals and Applied
Digital Access, Inc. Mr. Olson received an M.B.A. from Pepperdine University.
John C. Stiska has served as a director of the Company since April 1987.
Mr. Stiska served as outside legal counsel to the Company from 1983 to 1990. In
February 1996, Mr. Stiska joined QUALCOMM Incorporated as Corporate Senior Vice
President and has served as General Manager of the Technology Applications
Division since January 1997. From 1990 to January 1996, Mr. Stiska served as
President and Chief Executive Officer of Triton Group Ltd., an operating-holding
company that emerged in 1993 from the Chapter 11 bankruptcy proceedings of
Triton Group Ltd. and Intermark, Inc. Mr. Stiska is a director of Jaymark, Inc.
Mr. Stiska received a B.B.A. and J.D. from the University of Wisconsin.
DIRECTORS NOT CONTINUING AFTER OFFERING
Alain Godefroid, 48, has served as a director of the Company since November
1987. Mr. Godefroid joined Union Miniere, s.a. as General Counsel in 1978 and
currently serves as its Corporate Vice President, Legal and Environmental
Affairs. Mr. Godefroid received an L.L.M. from the University of Texas and a
J.D. from the Universite Libre de Bruxelles, Belgium.
Siegfried Meder, 68, has served as a director of the Company since February
1980. From 1976 until his retirement in 1996, Mr. Meder served as President of
American Schack, Inc., a subsidiary of the Schack Corporation, an engineering
firm specializing in improving the energy efficiency of industrial processes.
Mr. Meder received a Diplom Ingenieur in Chemical Engineering from the Technical
University of Aachen, Germany.
Marc Van Sande, Ph.D., 45, has served as a director of the Company since
July 1993. Since 1993, Dr. Van Sande has served as Business Unit Manager,
Electro Optic Materials, Union Miniere, s.a. From 1989 to 1993, Mr. Van Sande
served as Marketing and Research and Development Manager of the Business Unit
Germanium. Dr. Van Sande received a Ph.D. in Solid State Physics from the
University of Antwerp, Belgium and an Executive Master in Business
Administration from the Institute of Commerce in Antwerp.
OTHER KEY EMPLOYEES
J. Bryan Blasutta, 44, has served as Vice President of North American Sales
of the Laser Power Optics Division since 1995. Prior to 1995, Mr. Blasutta
served in a number of managerial positions at the Company.
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<PAGE> 42
Mr. Blasutta received a B.A. in Communications from Ohio State University and an
A.A.S. in Laser Electro Optics from Texas State Technical Institute.
Dirk Claeys, 46, has served as Commercial Director of Radius Engineering
N.V., a wholly owned subsidiary of the Company since 1993. From 1990 to 1993,
Mr. Claeys served as Sales Manager of Oerlikon Precision Laser, a Swiss
manufacturer of industrial lasers. Mr. Claeys received a degree in electronics
engineering from the S.T.S. Institute in Ghent, Belgium.
Edward J. Danielewicz, Ph.D., 47, has served as Vice President of
International Sales of the Laser Power Optics Division since 1993. Dr.
Danielewicz has served in a number of managerial positions since joining the
Company in 1981. From 1978 to 1981, Dr. Danielewicz served as Section Leader of
the Lasers and Optics Department of the Aerospace Corporation. Dr. Danielewicz
received a B.S. in Electrical Engineering from the University of Pennsylvania
and a Ph.D. in Electrical Engineering from the University of Illinois at Urbana.
David J. Erickson, 47, has served as Vice President of Engineering and
Manufacturing Technology of the Laser Power Optics Division since May 1996. From
1986 to 1996, Mr. Erickson served as Director of Manufacturing of Optical
Corporation of America.
Graham W. Flint, 59, has served as the Company's Chief Technical Officer
and Vice President of the Laser Power Research Division since 1988. From 1977 to
1988, Mr. Flint served as Director of the Air Force Developmental Optics
Facility managed by Martin Marietta Corporation. Mr. Flint received a B.S. in
Physics from the University of Birmingham, United Kingdom.
David E. Hargis, 32, has served as Vice President of Microlaser Technology
of the Laser Power Research Division since 1994. Mr. Hargis joined the Company
in 1990 as a senior scientist. From 1988 to 1990, Mr. Hargis served as Research
Physicist at Energy Compression Research Corporation. Mr. Hargis received a B.S.
and M.S. in Physics from the University of California, San Diego.
Pedram A. Leilabady, Ph.D., 37, has served as Vice President of
Telecommunications Products of the Laser Power Microlasers Division since March
1997. From 1995 to 1997, he served as Market Operations Manager for Lucent
Technologies Inc. From 1988 to 1995, Dr. Leilabady held a variety of managerial
positions at ATx Telecom Systems, Inc., including Director of Product
Management. Dr. Leilabady received a Ph.D. in Physics from the University of
Kent, United Kingdom.
James D. McFarland, 41, has served as Vice President, General Counsel and
Secretary since August 1996. From 1995 to August 1996, Mr. McFarland practiced
with the law firm of Baker, Maxham, Jester & Meador in San Diego and, from 1991
to 1995, with the firm of Blakely, Sokoloff, Taylor & Zafman in Sunnyvale,
California. Mr. McFarland received a B.A. in Economics from the University of
Florida, a B.S. in Electrical Engineering from the University of California, San
Diego and a J.D. from the University of Florida School of Law.
Peter Muys, 44, has served as the General Manager of Radius Engineering
N.V. since 1990. From 1988 to 1990, Mr. Muys served as Manager of Research and
Development at Eurolaser Technology. Mr. Muys received a University Engineer
degree in Computer Science from the University of Leuven, Belgium and a
University Engineer degree in Physics from the University of Ghent, Belgium.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Messrs. Laird, Olson and Stiska. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
The Compensation Committee consists of Messrs. Frederick, Olson and Stiska.
The Compensation Committee makes recommendations regarding the Company's 1997
Plan and Employee Stock Purchase Plan as well as decisions concerning salaries
and incentive compensation for employees and consultants of the Company.
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<PAGE> 43
DIRECTOR COMPENSATION
The Company's outside directors receive $1,000 per meeting and $500 per
committee meeting as payment for their services as a member of the Board of
Directors and are reimbursed for certain expenses in connection with attendance
at Board and committee meetings. In January 1995, the Company issued a warrant
to purchase 16,666 shares of the Company's Common Stock at an exercise price of
$4.50 per share to Kenneth E. Olson. The warrant may be exercised in whole or in
part at any time by the holder as long as the holder remains a member of the
Board of Directors. The warrant expires in January 2005. In December 1996, the
Company issued warrants to purchase up to 20,000 shares of the Company's Common
Stock to Union Miniere Inc. and warrants to purchase up to 6,666 shares of the
Company's Common Stock to each of John Stiska, Kenneth Olson, Siegfried Meder,
Robert Klimasewski and William Fredrick at an exercise price of $4.50 per share.
Such warrants expire in December 2006. Union Miniere Inc.'s warrant may be
exercised in whole or in part at any time by the holder as long as at least one
representative of the holder remains a member of the Board of Directors.
Following the completion of this offering, non-employee directors will be
eligible to participate in the 1997 Plan. In addition, entities affiliated with
certain of the directors have, from time to time, entered into transactions with
the Company. See "-- Stock Option Plans" and "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company was at any time an
officer or an employee of the Company or serves as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee other than Mr. Olson who is a director of Proxima.
40
<PAGE> 44
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company who earned in excess of $100,000
in salary and bonus (collectively, the "Named Executive Officers") for services
rendered to the Company during the year ended August 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) COMPENSATION($)(2)
- ------------------------------------------ ----------- ------- -------- ------------------
<S> <C> <C> <C> <C>
Glenn H. Sherman, Ph.D.................... 1996 170,600 25,000 25,600
Chairman of the Board and Chief
Executive Officer
Douglas H. Tanimoto, Ph.D................. 1996 145,500 14,500 19,800
President, Laser Power Research Division
and Director
Dean T. Hodges, Ph.D...................... 1996 140,500 24,000 15,200
President, Laser Power Microlasers
Division
Richard P. Scherer........................ 1996 139,000 18,000 12,300
President, Laser Power Optics Division
Paul P. Wickman........................... 1996 110,400 16,000 13,900
Senior Vice President and Chief
Financial Officer
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the Named Executive Officers which
are available generally to all salaried employees of the Company and certain
perquisites and other personal benefits received by the Named Executive
Officers which do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table. There were no long-term
compensation awards granted to the Named Executive Officers during the
fiscal year ended August 31, 1996.
(2) Includes premium payments made by the Company for split dollar life
insurance policies that are owned by Named Executive Officers. The policy
owners have assigned to the Company the proceeds from termination of the
policies or from payment of death benefits in an amount equal to the lesser
of the cash surrender value or the cumulative payments made by the Company
on their behalf. The insurance premium payments in fiscal 1996 amounted to
$23,400, $17,400, $14,800, $12,300 and $11,600 for Messrs. Sherman,
Tanimoto, Hodges, Scherer and Wickman, respectively. Also includes 401(k)
Plan employer matching contributions of $2,200, $2,400, $400, $0 and $2,300
for Messrs. Sherman, Tanimoto, Hodges, Scherer and Wickman, respectively.
STOCK OPTION PLANS
1997 Equity Incentive Plan
In March 1997, the Company adopted the 1997 Plan. The 1997 Plan provides
for incentive stock options for employees (including officers and employee
directors), and nonstatutory stock options, stock bonuses, rights to purchase
restricted stock and stock appreciation rights (either independent of or
appurtenant to an option) for employees (including officers and employee
directors) and non-employee directors and consultants. The 1997 Plan is
administered by the Board of Directors, or a Committee appointed by the Board,
which determines the option awards to be granted, including exercise prices,
number of shares subject to the
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<PAGE> 45
awards and the exercisability thereof, provided that such terms comply with the
provisions of the plan under which the option award is granted. The Company has
reserved 1,000,000 shares under the 1997 Plan.
The term of the stock options granted under the 1997 Plan may not exceed 10
years. The exercise price of options granted under the 1997 Plan is determined
by the Board of Directors, but in the case of an incentive stock option, cannot
be less than 100% of the fair market value of the Common Stock on the date of
grant, and, in the case of a nonstatutory stock option, cannot be less than 85%
of the fair market value of the Common Stock on the date of grant. Options
granted under the plans vest at the rate specified in the option agreement. No
stock option may be transferred by the optionee other than by will or the laws
of descent or distribution or, in certain limited instances, pursuant to a
domestic relations order, provided that an optionee may designate a beneficiary
who may exercise the option following the optionee's death and provided further
that a nonstatutory option may be transferred to the extent provided in the
nonstatutory option agreement. An optionee whose relationship with the Company
or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three-month period
following such cessation (unless such options terminate sooner or later by their
terms). Options may be exercised for up to twelve months after an optionee's
relationship with the Company and related corporations ceases due to death or
disability (unless such options terminate sooner or later by their terms).
No incentive stock option or award to purchase restricted stock may be
granted to any person who, at the time of the grant, owns (or is deemed to own)
stock representing more than 10% of the total combined voting power of the
Company or any affiliate of the Company, unless the option exercise price is at
least 110% of the fair market value of the stock subject to the option (100% of
the fair market value in the case of restricted stock) on the date of the grant,
and the term of the option does not exceed five years from the date of the
grant. The aggregate fair market value, determined at the time of the grant, of
the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
all such plans of the Company and its affiliates) may not exceed $100,000. No
optionee shall be eligible for option grants or stock appreciation rights under
the 1997 Plan covering more than 300,000 shares at such time as Section 162(m)
of the Internal Revenue Code of 1986 as amended (the "Code") becomes applicable
to the 1997 Plan.
Pursuant to the 1997 Plan, shares subject to stock awards that have expired
or otherwise terminated without having been exercised in full again become
available for the grant, but shares subject to exercised stock appreciation
rights will not again become available for the grant. The Board of Directors has
the authority to reprice outstanding options and stock appreciation rights and
to offer optionees and holders of stock appreciation rights the opportunity to
replace outstanding options and stock appreciation rights with new options or
stock appreciation rights for the same or a different number of shares.
Restricted stock purchase awards granted under the plan may be granted
pursuant to a repurchase option in favor of the Company in accordance with a
vesting schedule and at a price determined by the Board of Directors. Restricted
stock purchases must be at a price equal to at least 85% of the stock's fair
market value on the award date, but stock bonuses may be awarded in
consideration of past services without a purchase payment. Rights under a stock
bonus or restricted stock bonus agreement may not be transferred other than by
will, the laws of descent and distribution or a domestic relations order while
the stock awarded pursuant to such an agreement remains subject to the
agreement. Stock appreciation rights granted under the 1997 Plan may be tandem
rights, concurrent rights or independent rights.
Upon certain changes in control of the Company, all outstanding awards
under the 1997 Plan must either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, then with respect to persons then performing services as employees,
directors or consultants, the time during which such awards may be exercised
shall be accelerated and the awards terminated if not exercised prior to such
change in control. All other awards shall be terminated if not exercised prior
to such event.
As of March 31, 1997, no options were outstanding under the 1997 Plan. The
1997 Plan will become effective upon the effectiveness of the initial public
offering of the Company's Common Stock. The 1997 Plan will terminate in March
2007 unless sooner terminated by the Board of Directors.
42
<PAGE> 46
1981 Stock Option Plan
The Company's Second Amended and Restated 1981 Stock Option Plan (the "1981
Plan") was adopted by the Board of Directors in September 1980, and was
subsequently amended in April 1986 and October 1990. The Board has authorized
and reserved an aggregate of 666,666 shares of Common Stock for issuance under
the 1981 Plan. The 1981 Plan provided for the grant of incentive stock options
under the Code and nonstatutory stock options to employees of the Company.
As of March 31, 1997, the Company had outstanding options to purchase
404,324 shares of Common Stock at a weighted average exercise price of $3.00
under the 1981 Plan. The 1981 Plan has been terminated by the Board of
Directors, and no additional options will be granted thereunder, but outstanding
options remain exercisable and continue to vest until they terminate in
accordance with their terms.
1993 Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan") was adopted by the
Board of Directors in September, 1993. The Board has authorized and reserved an
aggregate of 666,666 shares of Common Stock for issuance under the 1993 Plan.
The 1993 Plan provided for the grant of incentive stock options to employees and
nonstatutory stock options to employees, directors and consultants of the
Company and its affiliates.
As of March 31, 1997, the Company had granted options to purchase 545,966
shares of Common Stock at a weighted average exercise price of $4.49 under the
1993 Plan. The 1993 Plan has been terminated by the Board of Directors, and no
additional options will be granted thereunder, but outstanding options remain
exercisable and continue to vest until they terminate in accordance with their
terms.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options and warrants held
by the Named Executive Officers at August 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
AUGUST 31, 1996 (#) AUGUST 31, 1996 ($)(1)
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn H. Sherman, Ph.D............... 66,666 10,000 300,000 30,000
Douglas H. Tanimoto, Ph.D............ 200,000 6,666 900,000 20,000
Richard P. Scherer................... 120,000 86,666 540,000 380,000
Dean T. Hodges, Ph.D................. 80,000 126,666 240,000 380,000
Paul P. Wickman...................... 26,666 46,664 110,000 160,000
</TABLE>
- ---------------
(1) Based on the difference between the assumed initial public offering price of
$7.50 per share and the exercise price.
EMPLOYEE STOCK PURCHASE PLAN
In March 1997, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 250,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the Purchase Plan. The offering period
for any offering may be no more than 27 months. The initial offering under the
Purchase Plan shall commence on the closing of the Company's initial public
offering date of the IPO date and terminate on February 28, 1998. Sequential
six-month offerings will occur thereafter.
Employees are eligible to participate if they are employed by the Company
or a subsidiary of the Company designated by the Board for at least 20 hours per
week and are customarily employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year.
43
<PAGE> 47
Employees who participate in an offering have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld is then used to
purchase shares of the Common Stock on specified dates determined by the Board.
The price of Common Stock purchased under the Purchase Plan will be equal to 85%
of the lower of the fair market value of the Common Stock at the commencement
date of each offering period or the last day of the offering. Employees may end
their participation in the offering at any time during the offering period
except as otherwise provided in the offering. Participation ends automatically
on termination of employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Purchase Plan will
terminate in March 2007. The Board has the authority to amend or terminate the
Purchase Plan, provided, however, that no such action may adversely affect any
outstanding rights to purchase Common Stock.
401(K) PLAN
In September 1988, the Board adopted a tax qualified employee savings and
retirement plan covering the Company's employees, as amended and restated
effective January 1, 1997 (the "401(k) Plan"). Pursuant to the 401(k) Plan,
eligible employees including officers of the Company may elect to reduce their
current compensation by up to the lesser of 16% of such compensation or the
statutorily prescribed annual limit ($9,500 in 1997) and have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan provides for Company
matching and profit sharing contributions of 50% of the employee's contributions
to a maximum of 6% of the employee's compensation. Employees become 20% vested
in the Company's matching contributions after two years of service, and increase
their vested percentages by an additional 20% for each year of service
thereafter. The 401(k) Plan is intended to qualify under Section 401 of the
Code, so that contributions to the 401(k) Plan, and income earned on the 401(k)
Plan contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company will be deductible by the Company
when made. The trustees under the 401(k) Plan are Glenn H. Sherman and Paul P.
Wickman. The trustees, working with the plan sponsor, Reliastar, at the
discretion of each participant, invest the 401(k) Plan employee salary deferrals
and Company contributions in selected investment options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, dated April 1, 1997,
with the following executive officers: (1) Glenn Sherman, Ph.D., Chairman of the
Board and Chief Executive Officer, (2) Dean Hodges, Ph.D., President, Laser
Power Microlasers Division, (3) Richard Scherer, President, Laser Power Optics
Division, (4) Douglas Tanimoto, Ph.D., President, Laser Power Research Division,
and (5) Paul Wickman, Jr., Senior Vice President, Treasurer and Chief Financial
Officer. Pursuant to such employment agreements, Messrs. Sherman, Hodges,
Scherer, Tanimoto and Wickman receive annual salaries of $185,000, $145,000,
$147,000, $150,000 and $120,000, respectively. In addition, the Company will
enter into an employment agreement with Arthur Minich, President, Laser Power
Display Division, upon the closing of this offering at an annual salary of
$150,000. Annual bonuses are determined by the Board of Directors. The term of
each employment agreement is three years and may be extended by mutual written
consent of the parties. Each employment agreement also provides that if
employment is terminated for cause or the employee voluntarily resigns, the
employee shall receive only the salary payments earned prior to the date of
termination. If employment is terminated without cause, the employee will
receive consulting fees equal to his base salary times the number of months
equal to the number of years he would have been employed at the next anniversary
date of his employment. As consideration for the consulting fees, the employee
will provide consulting services on an as needed basis. In addition, during the
term of employment, and for as long as the employee is receiving consulting
fees, the employee will not, subject to certain limitations, compete with the
Company.
44
<PAGE> 48
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law as in effect from
time to time. The Company is also empowered under its Bylaws to enter into
indemnification contracts with its directors and officers and to purchase
insurance on behalf of any person it is required or permitted to indemnify.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. Pursuant to this provision, the Company will enter
into indemnification agreements with each of its directors and certain of its
officers.
In addition, the Company's Restated Certificate of Incorporation (the
"Restated Certificate") provides that directors of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derives any improper personal benefit. The
Restated Certificate also provides that if the Delaware General Corporation Law
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of the Company's directors
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law. The Restated Certificate does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
45
<PAGE> 49
CERTAIN TRANSACTIONS
In November 1987, Union Miniere, s.a. purchased the Debentures in the
aggregate principal amount of $1,660,000 from the Company. The Debentures are
currently held by Union Miniere Inc. The Debentures bear interest at a rate
which is equal to Wells Fargo Bank's prime rate plus 1%; provided, however, that
the rate of interest shall in no event be less than 5 1/2% per annum nor higher
than the lesser of 11 1/2% per annum or the maximum rate then permitted by law.
The Company has paid interest on the Debentures semi-annually. The Debentures
were originally convertible into Common Stock at $3.00 per share and were due
and payable on October 30, 1992. The original due date has been extended from
time to time; the current due date is October 30, 1997. Union Miniere, Inc.
desired to postpone the conversion and/or repayment of the Debentures and in
March 1997, the Company entered into a letter agreement with Union Miniere Inc.
to extend the maturity date of the Debentures to November 2, 2000 and to
increase the conversion price from $3.00 per share to $5.25 per share. In the
event the per share price of this offering is less than $6.75, the conversion
price will be adjusted downward so that for every cent the offering price is
below $6.75 per share, the conversion price will be reduced by one-half of one
cent; provided however, that in no event will the conversion price be reduced
below $4.50 per share. As a result, the maximum number of shares of Common Stock
issuable upon conversion of the Debentures is 368,888. In addition, Union
Miniere Inc. was granted certain registration rights covering all shares of
Common Stock now owned by it or acquired by it upon conversion of the Debentures
and exercise of its warrants, including the right to request that the Company
register the resale of such shares no earlier than one year after the closing of
this offering. In December 1996, the Company issued warrants to purchase 20,000
shares of Common Stock at an exercise price of $4.50 per share to Union Miniere
Inc. in connection with the service of certain directors of the Company. See
"Management -- Director Compensation," "Description of Capital
Stock -- Convertible Subordinated Debentures" and "Shares Eligible for Future
Sale."
On September 1, 1991, the Company acquired substantially all of the assets
of Burleigh Northwest Optical, Inc. In consideration for the assets acquired,
the Company executed a secured promissory note in the amount of $150,000 payable
to Burleigh Instruments, Inc., an entity of which Robert G. Klimasewski is an
officer, director and 50% stockholder. The note bears interest at 8.25% per
annum and is payable in one hundred and twenty equal monthly installments. As of
March 31, 1997, the outstanding balance on such note was $81,487.
In May 1993, Proxima purchased 83,333 shares of Common Stock from the
Company for $250,000. In January 1994, the Company entered into a Stock Purchase
Agreement with Proxima, pursuant to which Proxima has purchased shares of Series
A Preferred Stock for an aggregate purchase price of $6.4 million. The Series A
Preferred Stock could be converted into Common Stock at an effective price of
$6.00 per share. However, under certain circumstances, the effective conversion
price could be reduced to $3.00 per share. In March 1997, to ensure the exchange
of the Series A Preferred Stock for Common Stock, the Company entered into a
letter agreement with Proxima, pursuant to which Proxima will exchange the
Series A Preferred Stock for 1,193,252 shares of Common Stock (a fixed
conversion price of $5.40 per share) immediately prior to the completion of the
offering. In addition, Proxima was granted certain registration rights covering
all shares of Common Stock now owned by it or acquired by it in exchange for the
Series A Preferred Stock, including the right to request that the Company
register the resale of such shares no earlier than one year after the closing of
this offering. In July 1996, Proxima stated that it had written down a majority
of its investment in the Company because the microlaser technology developed by
the Company will initially be suited for the higher cost specialty projector
markets that will not be served by Proxima's products. See "Shares Eligible for
Future Sale."
In January 1994, the Company entered into a Cooperative Development and
License Agreement with Proxima which provides Proxima with certain rights to
display technology developed by the Company so long as Proxima continues to
provide funding to the Company or aggressively markets products using such
technology. Proxima has a right of first refusal regarding certain other
technologies developed by the Company relating to the video display market.
In June 1994, Proxima Corporation extended to the Company a $500,000 line
of credit to finance the purchase of equipment to support microlaser
development. In May 1995, the outstanding balance under the
46
<PAGE> 50
line of credit was converted into a term note due and payable May 30, 1999. As
of February 28, 1997, $218,000 principal amount was outstanding on the note. The
note bears interest at Imperial Bank's prime rate plus 1 1/2%. Principal and
interest payments under the note are due monthly. The amount owing under the
note has been guaranteed by Glenn H. Sherman, the Company's Chairman of the
Board and Chief Executive Officer. The Company intends to repay the outstanding
principal balance and any outstanding accrued interest upon the closing of this
offering.
The Company purchases a number of products for resale from Laser
Mechanisms, Inc. ("LMI"). William G. Fredrick, Jr., a director of the Company,
is the founder, president and sole stockholder of LMI. In addition, LMI
purchases laser optics from the Company. LMI's sales to the Company in fiscal
1994, 1995, 1996, the first six months of fiscal 1997 and the first six months
of fiscal 1996 were $204,000, $631,000, $737,000, $342,000 and $376,000,
respectively. The Company's sales to LMI in fiscal 1994, 1995, 1996 and the
first six months of fiscal 1997 were $205,000, $233,000, $203,000, $96,000 and
$200,000, respectively. The Company believes that such transactions between the
Company and LMI are on terms as favorable to the Company as such terms would
have been if negotiated between the Company and unaffiliated persons.
In December 1996, the Company issued an option to purchase 200,000 shares
of the Company's Common Stock at an exercise price of $4.50 per share to Arthur
P. Minich. The option vests over five years and may be exercised at any time
until its expiration in December 2006.
In April 1996, the Company entered into employment agreements with each of
Glenn W. Sherman, Dean T. Dodges, Richard P. Scherer, Douglas H. Tanimoto and
Paul P. Wickman, Jr. See "Management -- Employment Agreements."
In addition, the Company will, prior to the closing of this offering, enter
into indemnification agreements with each of its directors and certain of its
officers. See "Management -- Limitation of Liability and Indemnification
Matters."
47
<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1997, and as adjusted
to reflect the sale of this offering, by (i) each person who is known by the
Company to own beneficially more that 5% of the Company's outstanding Common
Stock, (ii) each Named Executive Officer, (iii) each of the Company's directors,
(iv) all current directors and executive officers as a group, and (v) each
Selling Stockholder. Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
DIRECTORS, OFFERING(1) OFFERING(1)
EXECUTIVE OFFICERS ------------------- SHARES -------------------
AND 5% STOCKHOLDERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------------------------- ---------- ------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Proxima Corporation(2)................................. 1,276,585 30.4% -- 1,276,585 20.6%
9440 Carroll Park
San Diego, CA 92121-2298
Union Miniere Inc.(3).................................. 924,683 19.9 -- 924,683 13.9
13847 West Virginia Dr.
Lakewood, CO 80228
Glenn H. Sherman, Ph.D.(4)............................. 629,082 14.7 -- 629,082 10.0
Laser Power Corporation
12777 High Bluff Road
San Diego, CA 92130
William G. Fredrick, Jr.(5)............................ 372,122 8.8 -- 372,122 6.0
Laser Mechanisms, Inc.
P.O. Box 2064
Southfield, MI 48037
Douglas H. Tanimoto, Ph.D.(6).......................... 283,933 6.4 -- 283,933 4.4
Laser Power Corporation
12777 High Bluff Road
San Diego, CA 92130
Dean T. Hodges, Ph.D.(7)............................... 121,333 2.8 -- 121,333 1.9
Richard P. Scherer(8).................................. 161,333 3.7 -- 161,333 2.5
Arthur P. Minich....................................... -- -- -- -- --
Paul P. Wickman, Jr.(9)................................ 46,676 1.1 -- 46,676 *
Robert G. Klimasewski(10).............................. 69,491 1.6 -- 69,491 1.1
Richard C. Laird(11)................................... 4,465 * -- 4,465 *
Kenneth E. Olson(12)................................... 25,798 * -- 25,798 *
John C. Stiska(13)..................................... 126,564 3.0 -- 126,564 2.0
Alain Godefroid(14).................................... -- -- -- -- --
Siegfried Meder(15).................................... 93,469 2.2 -- 93,469 1.5
Marc Van Sande, Ph.D................................... -- -- -- -- --
All directors and executive officers as a group (14
persons)(16)......................................... 4,135,534 77.3 -- 4,135,534 56.3
SELLING STOCKHOLDERS
Milton M.T. & Rosalind Pao Chang....................... 197,594 4.7 63,880 133,714 2.2
Tony & Lily Hsu Family Trust dated 11/8/89............. 81,350 1.9 23,635 57,715 *
Other selling stockholders(17)......................... 411,530 9.8 312,485 99,045 1.6
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on
48
<PAGE> 52
4,202,354 shares of Common Stock outstanding as of March 31, 1997 assuming the
issuance of 1,193,252 shares of Common Stock in exchange for the outstanding
Series A Preferred Stock and 6,202,354 shares of Common Stock outstanding after
completion of this offering.
(2) Mr. Olson, a director of the Company, is Chairman of the Board and acting
President and Chief Executive officer of Proxima Corporation.
(3) Includes 368,888 shares subject to convertible debentures and 70,000 shares
subject to warrants exercisable within 60 days of March 31, 1997. Union
Miniere, s.a., a Belgium public company, owns approximately 75% of the
shares of Union Miniere Inc. Sogem, s.a., owns the remaining shares of
Union Miniere Inc. Union Miniere, s.a., owns virtually all the shares of
Sogem, s.a.
(4) Includes 82 shares held by Inamaria Sherman, wife of Mr. Sherman and 68,666
shares subject to options exercisable within 60 days of March 31, 1997.
(5) Includes 10,666 shares held of record by Laser Mechanisms, Inc., of which
Mr. Fredrick is the President, and 23,332 shares subject to warrants
exercisable within 60 days of March 31, 1997.
(6) Includes 201,333 shares subject to options exercisable within 60 days of
March 31, 1997.
(7) Includes 121,333 shares subject to options exercisable within 60 days of
March 31, 1997.
(8) Includes 1,333 shares subject to options exercisable within 60 days of
March 31, 1997 and 160,000 shares subject to a warrant exercisable within
60 days of March 31, 1997.
(9) Includes 41,332 shares subject to options exercisable within 60 days of
March 31, 1997.
(10) Includes 23,332 shares subject to warrants exercisable within 60 days of
March 31, 1997.
(11) Mr. Laird, a director of the Company, is Executive Vice President and a
director of Union Miniere Inc.
(12) Includes 23,332 shares subject to warrants exercisable within 60 days of
March 31, 1997. Excludes 1,276,585 shares held by Proxima Corporation, of
which Mr. Olson is Chairman of the Board and acting President and Chief
Executive Officer.
(13) Includes 23,332 shares subject to warrants exercisable within 60 days of
March 31, 1997.
(14) Excludes 924,683 shares held of record by Union Miniere Inc., of which Mr.
Godefroid is the Corporate Vice President, Legal and Environmental Affairs.
(15) Includes 23,332 shares subject to warrants exercisable within 60 days of
March 31, 1997.
(16) Includes 433,970 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997, and 276,660 shares issuable upon exercise
of warrants exercisable within 60 days of March 31, 1997. Includes
1,276,585 shares held by Proxima Corporation, of which Mr. Olson is
Chairman of the Board and acting President and Chief Executive Officer; Mr.
Olson disclaims beneficial ownership of such shares. Also includes 924,683
shares held by Union Miniere Inc., of which Mr. Godefroid is the Corporate
Vice President, Legal and Environmental Affairs; Mr. Godefroid disclaims
beneficial ownership of such shares. See footnote 3.
(17) Includes stockholders each of whom owned less than 1% of the Company's
Common Stock prior to the offering and will own less than 1% of the
Company's Common Stock following the offering. Such stockholders (and the
number of shares to be sold by such stockholders in the offering) include:
Sodero R. Arcia (704 shares); Scott Arrington (6,382 shares); Allan R.
Beach, Trustee UDT Floyd Earl Roe Family Trust (481 shares); Andreas Caine
(2,555 shares); Angela G. Caine (1,591 shares); John C. and Isolde M. Caine
(3,194 shares); Hilary K. H. and Marie Louise Chan (1,878 shares); The
Chicago Corporation (2,555 shares); Daniel Combs (638 shares); Verne R.
Costich (3,833 shares); H. Eugene Davis (32 shares); Jacques DeFrenne (399
shares); 1480 Associates (33,499 shares); Stephen Fry (9,582 shares);
Fulton Street Travel (13 shares); James R. Goode (7,666 shares); Sally A.
Goode (6,671 shares); Harris Bank Winnetka (15,647 shares); Glen C. and
John C. Harris, Successor Trustees, Residual Trust B. David J. Harris Trust
dated 4/4/76 (1,625 shares); Alan D. Hiura (10,144 shares); Hiura and Hiura
DDS Inc. (Pension Trust) (9,582 shares); Ronald Hiura (958 shares); Thomas
W. and Sharon E. James (4,632 shares); Claude D. Jones (2,583 shares);
Anthony L. and Rita J. Kendziorski (638 shares); Dennis Kendziorski (3,268
shares); Ervin Kendziorski (7,611 shares); Richard Keyzer (8,103 shares);
Clifford Kidney (81 shares); James A. King (207 shares); Allan Koljonen,
Trustee of the Allan Koljonen Trust (4,120 shares); Roland N. Kumagai DDS
Target Benefit Plan (5,511 shares); Micky Lee (399 shares); Ronald
MacFarlane (255 shares); Karen Matic Trustee, Gregory P. Matic Gift Trust
U/A 7/29/82 FBO Claire Matic (2,555 shares); Karen Matic Trustee, Gregory
P. Matic Gift Trust U/A 7/29/82 FBO Lauren Matic (1,916 shares); Karen
Matic Trustee, Gregory P. Matic Gift Trust U/A 7/29/82 FBO Steven Matic
(1,916 shares); John W. Matthews (3,194 shares); William G. May (6,822
shares); Maura Robbins, Trustee of the Maura Robbins Living Trust dated
12/31/82 (319 shares); Phillip E. Rollhaus (15,431 shares); L. E. and
Denise Rund (420 shares); Horst Sasse (4,791 shares); Michael A. Schneider
(638 shares); Nikom Shomglin (213 shares); Walter K. Silbert (2,678
shares); George R. and Janet Lee Snyder (1,782 shares); Robert Spiegler (32
shares); Bruce Sunderland (958 shares); Lee Sutter (1,916 shares); Gary
Takessian (2,555 shares); Nora Jean and George Thorwood (319 shares); W.
Peter Williams (511 shares); Clifford L. Willis (3,194 shares); Thomas S.
Wilson (38,521 shares); C. Paige Wilson Gift Trust U/A/D 3/18/87, Arlington
Guenther, Trustee (8,304 shares); Kathryn J. Wilson Gift Trust U/A/D
3/18/87, Arlington Guenther, Trustee (8,304 shares); William P. Wilson
(38,328 shares); Gary L. Wirt (9,837 shares).
49
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, $0.001 par value, and 3,000,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of March 31, 1997, there were 3,009,102 shares of Common Stock
outstanding held of record by approximately 182 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive, conversion, subscription
or other such rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be sold in this
offering will be fully paid and non-assessable.
PREFERRED STOCK
Immediately prior to the closing of this offering, all outstanding shares
of Series A Preferred Stock will be exchanged for 1,193,252 shares of Common
Stock. See Note 5 of Notes to Consolidated Financial Statements for a
description of the outstanding Series A Preferred Stock and "Certain
Transactions."
Under the Restated Certificate, the Board of Directors has the authority to
issue up to 3,000,000 shares of Preferred Stock in one or more series and to fix
the rights, preferences, privileges, and restrictions granted to or imposed upon
such Preferred Stock, including dividend rights, conversion rights, terms of
redemption, liquidation preference, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue additional Preferred Stock with voting and conversion rights
which could adversely affect the voting power of the holders of Common Stock.
The issuance of Preferred Stock could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.
DEBENTURES
Union Miniere Inc. is the holder of the Debentures in the aggregate
principal amount of $1,660,000 from the Company. The Debentures bear interest at
a rate which is equal to Wells Fargo Bank's prime rate plus 1%; provided,
however, that the rate of interest shall in no event be less than 5 1/2% per
annum nor higher than the lesser of 11 1/2% per annum or the maximum rate then
permitted by law. The Debentures are subordinate to all bank debt, limit the
aggregate amount of debt the Company can incur, require that the Company
maintain minimum tangible net worth levels (which vary with the number of
outstanding shares) and require that the Company maintain an average annual cash
flow coverage ratio of 1:1. The Debentures also provide that the Company may
declare dividends only if it meets a minimum average cash flow coverage ratio of
2-to-1. The Debentures were originally due and payable on October 30, 1992,
which maturity date was extended to October 30, 1997. In March 1997, the Company
entered into a letter agreement with Union Miniere Inc. to extend the maturity
date of the Debentures to November 2, 2000 and to adjust the conversion price to
$5.25 per share. In the event the per share price of this offering is less than
$6.75, the conversion price will be adjusted downward so that for every cent the
offering price is below $6.75 per share, the conversion price will be reduced by
one-half of one cent; provided however, that in no event will such conversion
price be reduced below $4.50 per share. As a result, the maximum number of
shares of Common Stock issuable upon conversion of the Debentures is 368,888.
See "Certain Transactions."
50
<PAGE> 54
WARRANTS
As of March 31, 1997, there were warrants outstanding to purchase an
aggregate of 386,660 shares of Common Stock at a weighted average exercise price
of $3.21 per share.
REPRESENTATIVES' WARRANTS
The Company has also agreed to sell to the Representatives warrants to
purchase up to 200,000 shares of Common Stock at a price of $.001 per warrant.
The Representatives' Warrants will be exercisable for a period of four years,
commencing one year after the date of this prospectus, at an initial per share
exercise price equal to 130% of the price to the public set forth on the cover
page of this prospectus. The Representatives' Warrants are not redeemable by the
Company under any circumstances. Neither the Representatives' Warrants nor the
shares of Common Stock issuable upon exercise thereof may be transferred,
assigned or hypothecated until one year from the date of this Prospectus, except
that they may be assigned, in whole or in part, to any successor, officer,
director, member or partner of the Representatives.
The holders of the Representatives' Warrants will have no voting, dividend
or other rights as stockholders of the Company unless and until the exercise of
the Representatives' Warrants. The number of securities deliverable upon any
exercise of the Representatives' Warrants or its underlying securities and the
exercise price of the Representatives' Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
The Company has agreed with the Representatives that if, during the
four-year period commencing one year following the date of this Prospectus, the
Company registers any of its Common Stock for sale pursuant to a registration
statement (with the exception of Form S-4, Form S-8 or other inappropriate
form), it will use its best efforts, upon request of any of the holders of the
Representatives' Warrants and/or the underlying shares, to include such
securities as a part of the registration statement. The Company will bear all
the costs, except underwriting discounts and the Representatives' legal fees,
for one "piggy-back" registration.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within the preceding three years, did own) 15% or more of
the corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of the Company.
The Restated Certificate and Bylaws also require that, effective upon the
closing of this offering, any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of the stockholders and may not be effected by a consent in writing in
lieu of meeting. In addition, special meetings of the stockholders of the
Company may be called only by the Board of Directors, the Chairman of the Board,
the Chief Executive Officer of the Company or by the holders of shares entitled
to cast not less than 10% of the votes at such meeting. The Restated Certificate
also specifies that the authorized number of directors may be changed only by
resolution of the Board of Directors. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of the
Company.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. has been appointed as the
transfer agent and registrar for the Company's Common Stock.
51
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
6,202,354 shares of Common Stock. Of these shares, the 2,400,000 shares sold in
the offering will generally be freely tradeable without restriction or further
registration under the Securities Act. The remaining approximately 3,800,000
shares of Common Stock may be sold in the public market as follows: (i)
approximately 230,000 shares will be eligible for immediate sale on the date of
this Prospectus; and (ii) upon expiration of lock-up agreements 180 days after
the Effective Date, approximately 525,000 additional shares will be eligible for
sale without restriction pursuant to Rule 144(k) and approximately 3,045,000
shares will be eligible for sale subject to the volume and other restrictions of
Rule 144. In addition, upon the expiration of a lock-up agreement 180 days after
the Effective Date, Union Miniere will be entitled to sell up to approximately
370,000 shares of Common Stock issuable to it upon conversion of the Debentures
subject to the volume and other restrictions of Rule 144. In addition, holders
of vested options to purchase approximately 64,000 shares of Common Stock as of
the date of this Prospectus will be entitled to sell all of such shares upon the
earlier of 90 days after the Effective Date or the filing of a Form S-8
registration statement with respect to such shares. Holders of additional vested
options and warrants to purchase an aggregate of approximately 992,000 shares of
Common Stock as of the date of this Prospectus will be entitled to sell all of
such shares upon expiration of lock-up agreements 180 days after the Effective
Date. Commencing one year after the completion of this offering, Proxima and
Union Miniere, which beneficially own an aggregate of approximately 2,200,000
shares of Common Stock, will be entitled to certain registration rights with
respect to such shares. The exercise of such rights by either Proxima or Union
Miniere could result in a large number of shares being sold in the public market
after one year from its closing of this offering. Future sales of shares by
existing stockholders could have an adverse effect on the market price of the
Common Stock or otherwise impair the Company's ability to raise additional
capital. See "Description of Capital Stock".
The Company's officers, directors and certain stockholders have agreed that
they will not, without the prior written consent of Cruttenden Roth
Incorporated, directly or indirectly offer, sell, contract to sell or otherwise
dispose of approximately 3,570,000 shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock during the
180-day period commencing on the Effective Date. The Company has agreed that it
will not, without the prior written consent of Cruttenden Roth Incorporated,
directly or indirectly offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock during such 180-day period except for the sale of
the shares of Common Stock in this offering, the issuance of options and shares
of Common Stock pursuant to employee benefit plans set forth in this Prospectus,
and the issuance of shares of Common Stock upon exercise of warrants or options
presently outstanding. Any shares subject to the lock-up agreements may be
released at any time without notice by Cruttenden Roth Incorporated.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, an Affiliate of the Company, or person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
one year will be entitled to sell in any three-month period a number of shares
that does not exceed greater of (i) one percent of the then outstanding shares
of the Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock in the Nasdaq National Market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject
to certain requirements relating to manner of sale, notice, and the availability
of current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90
52
<PAGE> 56
days immediately preceding the sale and who has beneficially owned Restricted
Shares for at least two years is entitled to sell such shares under Rule 144(k)
without regard to the limitations described above.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
Stock Plans and Purchase Plan. Based on the number of options outstanding and
options and shares reserved for issuance at March 31, 1997, such registration
statement would cover approximately 2,470,000 shares. Such registration
statement is expected to be filed and to become effective as soon as practicable
after the date hereof. Shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the lock up agreements described above. See
"Management."
53
<PAGE> 57
UNDERWRITING
Cruttenden Roth Incorporated and L.H. Friend, Weinress, Frankson & Presson,
Inc. are acting as the representatives (the "Representatives") of each of the
underwriters named below (the "Underwriters"). Subject to the terms and
conditions set forth in an underwriting agreement dated as of the date hereof
(the "Underwriting Agreement"), the Underwriters named below have severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to them, the aggregate number of shares of Common Stock set forth opposite
their respective names:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Cruttenden Roth Incorporated.........................................
L.H. Friend, Weinress, Frankson & Presson, Inc.......................
----------------
Total...................................................... 2,400,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel and
various other conditions. The nature of the Underwriters' obligations is such
that they are committed to purchase all of the above shares if any are
purchased. The Underwriters propose to offer the shares of Common Stock directly
to the public at the initial public offering price set forth on the cover page
of this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the offering, the offering price and other selling terms may be
changed by the Representatives.
Prior to consummation of the offering, there has been no public market for
the Common Stock of the Company. Accordingly, the initial public offering price
has been determined by negotiation between the Company and the Representatives.
Among the factors considered in determining the initial public offering price
were the Company's results of operations, the Company's current financing
condition, its future prospects, the market for its products and services, the
experience of its management, the economics of the industry in general, the
general condition of the equity securities market, the market capitalization and
stages of development of other companies which the Company and the
Representatives believed to be comparable to the Company and other relevant
factors. There can be no assurance that any active trading market will develop
for the Common Stock or as to the price at which the Common Stock may trade in
the public market from time to time subsequent to the offering made hereby.
The Company has granted to the Underwriters an option, expiring 45 days
from the date of this Prospectus, to purchase up to 360,000 additional shares of
Common Stock on the same terms as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of the
shares of Common Stock offered hereby. If the Underwriters exercise the option,
each Underwriter will have a firm commitment, subject to certain conditions, to
purchase such number of additional shares of Common Stock as is proportionate to
such Underwriter's initial commitment to purchase shares from the Company.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Securities Exchange Act of 1934 pursuant to which such persons may bid
for or purchase Common Stock for the purpose of stabilizing its market price.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to convert all or a portion of such shares of Common
54
<PAGE> 58
Stock or may exercise the Underwriter's over-allotment option referred to above.
In addition, the Representative, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering), for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph are required, and,
if they are undertaken, they may be discontinued at any time.
The Company has also agreed to sell to the Representatives warrants to
purchase up to 200,000 shares of Common Stock at a price of $.001 per warrant.
The Representatives' Warrants will be exercisable for a period of four years,
commencing one year after the date of this prospectus, at an initial per share
exercise price equal to 130% of the price to the public set forth on the cover
page of this prospectus. The Representatives' Warrants are not redeemable by the
Company under any circumstances. Neither the Representatives' Warrants nor the
shares of Common Stock issuable upon exercise thereof may be transferred,
assigned or hypothecated until one year from the date of this prospectus, except
that they may be assigned, in whole or in part, to any successor, officer,
director, member or partner of the Representatives.
The holders of the Representatives' Warrants will have no voting, dividend
or other rights as stockholders of the Company unless and until the exercise of
the Representatives' Warrants. The number of securities deliverable upon any
exercise of the Representatives' Warrants or its underlying securities and the
exercise price of the Representatives' Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
The Company has agreed with the Representatives that if, during the
four-year period commencing one year following the date of this prospectus, the
Company registers any of its Common Stock for sale pursuant to a registration
statement (with the exception of Form S-4, Form S-8 or other inappropriate
form), it will use its best efforts, upon request of any of the holders of the
Representatives' Warrants and/or the underlying shares, to include such
securities as a part of the registration statement. The Company will bear all
the costs, except underwriting discounts and the Representatives' legal fees,
for one "piggy-back" registration.
The Company, its executive officers, directors and principal stockholders
and option holders have agreed that for a period of 180 days after the date of
this prospectus they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to sell, or otherwise dispose of shares of Common Stock
or other securities which are substantially similar to the Common Stock or
securities convertible into or exercisable or exchangeable for or any rights to
purchase or acquire Common Stock or securities which are substantially similar
to the Common Stock without the prior written consent of Cruttenden Roth
Incorporated.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has also agreed to pay to the Representatives a non-accountable
expense allowance equal to 2% of the aggregate offering price to the public for
due diligence and other out-of-pocket expenses.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its counsel, Cooley Godward LLP, San Diego, California.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Gray Cary Ware & Freidenrich, San Diego, California.
55
<PAGE> 59
EXPERTS
The Consolidated Financial Statements of Laser Power Corporation at August
31, 1995 and 1996, and for each of the three years in the period ended August
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors and are included herein in
reliance upon such report given the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form SB-2 under the Act, with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as part thereof. Statements contained in this Prospectus as
to the contents of any contract or document filed as an exhibit to the
Registration Statement is qualified by reference to such exhibit as filed. A
copy of the Registration Statement, and the exhibits and schedules thereto, may
be inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
SEC's World Wide Web site is http://www.sec.gov. Upon effectiveness of the
Registration Statement, the Company will be a reporting company.
56
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets at August 31, 1995 and 1996 and at February 28, 1997
(unaudited).......................................................................... F-3
Consolidated Statements of Operations for the years ended August 31, 1994, 1995 and
1996 and the six months ended February 29, 1996 (unaudited) and February 28, 1997
(unaudited).......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994,
1995 and 1996 and the six months February 28, 1997 (unaudited)....................... F-5
Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995 and
1996 and the six months ended February 29, 1996 (unaudited) and February 28, 1997
(unaudited).......................................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Laser Power Corporation
We have audited the accompanying consolidated balance sheets of Laser Power
Corporation at August 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended August 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Laser Power
Corporation at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
October 9, 1996,
except for Note 5 ("Changes in Capitalization"), as to which the date is
March 25, 1997
F-2
<PAGE> 62
LASER POWER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AUGUST 31, STOCKHOLDERS'
--------------------------- FEBRUARY 28, EQUITY AT
1995 1996 1997 FEBRUARY 28,
----------- ----------- ------------ 1997
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 257,309 $ 298,160 $ 128,375
Accounts receivable, net of
allowance for doubtful accounts
of $98,000 in 1995, $107,847 in
1996 and $151,452 in 1997........ 2,453,603 2,992,556 3,211,247
Inventories, net.................... 2,148,621 2,729,865 2,918,771
Other current assets................ 151,867 166,445 288,048
----------- ----------- -----------
Total current assets........ 5,011,400 6,187,026 6,546,441
Property and equipment, net........... 4,408,689 4,187,387 5,194,707
Intangibles and other assets (net of
accumulated amortization)........... 787,351 819,286 986,920
----------- ----------- -----------
Total assets................ $10,207,440 $11,193,699 $ 12,728,068
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................ $ -- $ -- $ 773,998
Accounts payable.................... 1,269,876 1,339,596 1,927,285
Accrued compensation and related
expenses......................... 424,359 739,385 756,915
Other current liabilities........... 566,942 781,936 692,395
Current portion of long-term debt... 438,687 488,083 403,969
----------- ----------- -----------
Total current liabilities... 2,699,864 3,349,000 4,554,562
Deferred rent......................... 375,699 305,247 270,021
Long-term debt........................ 801,520 558,975 686,822
Subordinated convertible debentures... 1,660,000 1,660,000 1,660,000
Stockholders' equity:
Convertible preferred stock, $.125
par value ($.001 par value pro
forma):
Authorized -- 3,000,000 shares
Issued and
outstanding -- 1,143,196 shares
in 1995, and 1,610,891 shares
in 1996 and 1997 (none pro
forma)......................... 142,899 201,361 201,361 $ --
----------- ----------- -----------
Common stock, par value $.001:
Authorized -- 15,000,000 shares
Issued and
outstanding -- 3,000,475 shares
in 1995, 3,000,106 shares in
1996 and 3,009,102 shares in
1997 (4,202,354 shares pro
forma)......................... 3,001 3,000 3,009 4,202
Additional paid-in capital.......... 8,411,237 10,223,305 10,263,869 10,464,037
----------- ----------- -----------
Foreign currency translation
adjustment....................... 112,690 123,222 5,891 5,891
Accumulated deficit................. (3,999,470) (5,230,411) (4,917,467) (4,917,467)
----------- ----------- ----------- -----------
Total stockholders'
equity.................... 4,670,357 5,320,477 5,556,663 $ 5,556,663
----------- ----------- ----------- ===========
Total liabilities and
stockholders' equity...... $10,207,440 $11,193,699 $ 12,728,068
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
YEARS ENDED AUGUST 31, FEBRUARY FEBRUARY
--------------------------------------- 29, 28,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales................. $10,157,944 $11,858,713 $15,194,472 $ 6,880,416 $ 7,995,334
Contract research and
development................ 1,727,069 2,714,208 3,712,967 1,682,110 3,128,526
----------- ----------- ----------- ----------- -----------
Total revenues........ 11,885,013 14,572,921 18,907,439 8,562,526 11,123,860
Costs and expenses:
Cost of product sales......... 6,550,060 7,994,255 9,887,809 4,600,566 5,474,848
Contract research and
development................ 1,307,872 2,058,873 2,941,947 1,262,414 2,502,224
Internal research and
development................ 1,567,851 2,857,452 2,689,182 1,460,823 389,409
Selling, general and
administrative............. 3,204,720 3,582,773 4,306,329 2,083,441 2,277,688
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 12,630,503 16,493,353 19,825,267 9,407,244 10,644,169
----------- ----------- ----------- ----------- -----------
Income (loss) from operations... (745,490) (1,920,432) (917,828) (844,718) 479,691
Interest expense, net........... 267,849 325,928 299,832 152,626 144,507
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (1,013,339) (2,246,360) (1,217,660) (997,344) 335,184
Income taxes.................... -- 22,523 13,281 6,993 22,240
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $(1,013,339) $(2,268,883) $(1,230,941) $(1,004,337) $ 312,944
=========== =========== =========== =========== ===========
Pro forma net income (loss) per
share......................... $ (0.29) $ 0.06
=========== ===========
Shares used in per share
computations.................. 4,311,000 4,887,000
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE FOREIGN
PREFERRED STOCK COMMON STOCK ADDITIONAL CURRENCY
-------------------- -------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- -------- --------- -------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31,
1993...................... -- $ -- 2,987,153 $ 2,988 $ 3,963,166 $ (14,469) $ (717,248) $ 3,234,437
Issuance of preferred
stock warrants.......... -- -- -- -- 5,000 -- -- 5,000
Issuance of preferred
stock, net of issuance
cost of $26,773......... 382,172 47,771 -- -- 1,454,148 -- -- 1,501,919
Foreign currency
translation
adjustment.............. -- -- -- -- -- 58,726 -- 58,726
Net loss.................. -- -- -- -- -- -- (1,013,339) (1,013,339)
--------- -------- --------- ------ ----------- --------- ----------- -----------
Balance at August 31,
1994...................... 382,172 47,771 2,987,153 2,988 5,422,314 44,257 (1,730,587) 3,786,743
Issuance of preferred
stock................... 761,024 95,128 -- -- 2,948,968 -- -- 3,044,096
Issuance of common
stock................... -- -- 13,322 13 39,955 -- -- 39,968
Foreign currency
translation
adjustment.............. -- -- -- -- -- 68,433 -- 68,433
Net loss.................. -- -- -- -- -- -- (2,268,883) (2,268,883)
--------- -------- --------- ------ ----------- --------- ----------- -----------
Balance at August 31,
1995...................... 1,143,196 142,899 3,000,475 3,001 8,411,237 112,690 (3,999,470) 4,670,357
Issuance of preferred
stock................... 467,695 58,462 -- -- 1,812,318 -- -- 1,870,780
Repurchase of common
stock................... -- -- (369) (1) (250) -- -- (251)
Foreign currency
translation
adjustment.............. -- -- -- -- -- 10,532 -- 10,532
Net loss.................. -- -- -- -- -- -- (1,230,941) (1,230,941)
--------- -------- --------- ------ ----------- --------- ----------- -----------
Balance at August 31,
1996...................... 1,610,891 201,361 3,000,106 3,000 10,223,305 123,222 (5,230,411) 5,320,477
Issuance of common
stock................... -- -- 8,996 9 40,564 -- -- 40,573
Foreign currency
translation
adjustment.............. -- -- -- -- -- (117,331) -- (117,331)
Net income................ -- -- -- -- -- -- 312,944 312,944
--------- -------- --------- ------ ----------- --------- ----------- -----------
Balance at February 28, 1997
(Unaudited)............... 1,610,891 $201,361 3,009,102 $ 3,009 $10,263,869 $ 5,891 $ (4,917,467) $ 5,556,663
========= ======== ========= ====== =========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED AUGUST 31, ---------------------------
--------------------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from operations......... $(1,013,339) $(2,268,883) $(1,230,941) $ (1,004,337) $ 312,944
Adjustments to reconcile net income (loss)
to net cash used for operating
activities:
Depreciation and amortization........... 845,762 997,168 1,037,941 493,539 528,862
Loss on disposal of property and
equipment............................. -- -- 84,936 -- --
Deferred rent........................... (70,452) (70,452) (70,452) (35,226) (35,226)
Provision for losses on accounts
receivable............................ 20,000 6,000 9,847 4,510 43,605
Changes in operating assets and
liabilities:
Accounts receivable................... (81,547) (358,550) (548,800) (316,715) (262,296)
Inventories........................... (620,776) (518,900) (581,244) 20,486 (188,906)
Other current assets.................. 32,557 (52,414) (14,578) (19,143) (121,603)
Accounts payable...................... 537,029 294,144 69,720 259,275 587,689
Accrued compensation and related
expenses............................ 105,338 17,526 315,026 (47,323) 17,530
Other current liabilities............. 228,652 135,445 214,994 186,558 (89,541)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities........... (16,776) (1,818,916) (713,551) (458,376) 793,058
INVESTING ACTIVITIES
Additions to property and equipment....... (1,306,478) (917,125) (813,089) (305,621) (1,616,161)
(Increase) decrease in intangibles and
other assets............................ (90,438) 11,648 (109,889) (71,476) (153,383)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (1,396,916) (905,477) (922,978) (377,097) (1,769,544)
FINANCING ACTIVITIES
Deferred public offering costs............ -- -- -- -- (51,603)
Proceeds from borrowings.................. 2,329,221 -- 251,046 447,933 1,019,950
Payments on borrowings.................... (2,136,975) (496,622) (444,195) (197,715) (202,219)
Net proceeds from issuance and repurchase
of stock................................ 1,506,919 3,084,064 1,870,529 580,000 40,573
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities..................... 1,699,165 2,587,442 1,677,380 830,218 806,701
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 285,473 (136,951) 40,851 (5,255) (169,785)
Cash and cash equivalents at beginning of
the period.............................. 108,787 394,260 257,309 257,309 298,160
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of the
period................................ $ 394,260 $ 257,309 $ 298,160 $ 252,054 $ 128,375
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for
interest................................ $ 255,000 $ 305,000 $ 313,000 $ 156,000 $ 150,000
=========== =========== =========== =========== ===========
Capital lease obligations................. $ 243,277 $ -- $ 78,880 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO AUGUST 31, 1996 AND PERTAINING TO FEBRUARY 28, 1997
AND THE
SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 IS UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
Laser Power Corporation ("Laser Power" or the "Company") operates in one
business segment and designs, manufactures and markets high performance laser
optics for industrial, medical and military lasers and laser systems. Laser
optics are precision reflectors and mirrors used to reflect, collect and focus
laser beams. The Company's products are sold to laser system OEMs and end users
as original and replacement components in high power CO(2) and other lasers. The
Company's core competencies lie in its surface finishings and thin film
coatings, which are key elements involved in all high-performance laser optic
components. Such lasers are used in a variety of industrial processing
applications, such as sheet metal cutting, automobile body welding,
surface-hardening for engine cylinder walls, scribing and drilling delicate
ceramic circuits. The Company also sells high performance laser optics to
medical equipment OEMs for lower power CO(2) lasers used in certain therapeutic
and cosmetic procedures, including heart surgery and skin wrinkle removal. In
addition, the Company has developed very low absorption thin film coatings for
optics for anti-missile laser systems. The Company also conducts contract
research in the development and applications of advanced solid state lasers.
Substantially all of the Company's product revenues to date are attributable to
the sale of laser optics products for the industrial processing and medical
industries.
The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Laser Power Corporation (the
"Company") and its subsidiaries Laser Power Optics de Mexico S.A. de C.V.
("Laser Power Mexico") and Radius Engineering N.V. ("Radius"). The Company
operates through three divisions: Laser Power Optics, which manufactures and
sells optics components for lasers; Laser Power Research, which performs funded
contract research for commercial applications and for various agencies and
laboratories of the U.S. federal government; and Laser Power Microlasers, which
performs funded contract research for commercial applications and will be the
entity responsible for manufacturing and marketing the Company's new microlaser
technology. Laser Power Mexico performs a portion of the manufacturing of Laser
Power Optics division and does not sell products to unaffiliated customers. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Interim Financial Information (Unaudited)
The financial statements at August 31, 1996 and for the six-month periods
ended February 29, 1996 and February 28, 1997 include all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at such dates and the
operating results and cash flows for those periods. Results for interim periods
are not necessarily indicative of results for the entire year or any future
periods.
Revenues
Product sales are recorded upon shipment. Revenues from contract research
and development involve both commercial and governmental contracts and are
recognized using the percentage-of-completion method based on the ratio of costs
incurred to date to total estimated costs. Total revenues from government
contracts were $1,454,000, $2,254,000, $3,397,000, $1,531,000 and $1,748,000 in
1994, 1995 and 1996 and the six months ended February 29, 1996 and February 28,
1997, respectively. Revenue in excess of billings of $326,000 and $523,000 have
been included in accounts receivable at August 31, 1996 and February 28 1997,
respectively. Net billings in excess of revenue of $149,000 have been included
as other current liabilities in the
F-7
<PAGE> 67
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying balance sheet at August 31, 1995. Provisions are made to recognize
any anticipated losses on contracts when losses become evident.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of three months or less when purchased.
Inventories
Inventories are stated at lower of cost (first-in, first-out) or market.
Market is based upon estimated net realizable value.
Depreciation and Amortization
Machinery, equipment and office furniture are depreciated over their
estimated useful lives (3 to 15 years) on the straight-line method and leasehold
improvements are amortized over the useful life of the asset or the lease term,
whichever is less.
Intangible assets consist primarily of goodwill, patents and licenses.
Goodwill is amortized over 20 years and patents and licenses (which are
primarily related to the microlaser technology) are amortized over the shorter
of the estimated useful life or the legal life. Amortization of patents is
initiated when the related technology is ready for commercial release.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of resources and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company primarily sells its products to commercial, military and
medical companies. The Company performs periodic credit evaluations of its
customers and has not experienced significant losses with respect to its
accounts receivable.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ("SFAS 121"), effective for fiscal years beginning
after December 15, 1995. SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. Effective September
1, 1996, the Company adopted SFAS 121. The adoption of SFAS 121 did not have a
material effect on the Company's financial position or results of operations.
F-8
<PAGE> 68
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation("SFAS 123"), effective for fiscal
years beginning after December 15, 1995. SFAS 123 established the fair
value-based method of accounting for stock-based compensation arrangements under
which compensation cost is determined using the fair value of the stock option
at the grant date and the number of options vested, and is recognized over the
periods in which the related services are rendered as allowed by SFAS 123. The
Company has elected to continue with the current intrinsic value-based method,
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations.
Net Income (Loss) Per Share
Historical net income (loss) per share is computed using the weighted
average number of common shares and common stock equivalents outstanding during
the periods presented. Common equivalent shares result from stock options and
warrants. For loss periods, common equivalent shares are excluded from the
computation as their effect would be antidilutive, except that the Securities
and Exchange Commission requires common and common share equivalents issued
during the twelve-month period prior to the initial filing of a proposed public
offering, to be included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and the assumed initial
public offering price).
Historical net income (loss) per share information is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED AUGUST 31, -----------------------------
---------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) per share............. $(0.31) $(0.68) $(0.37) $(0.30) $ 0.08
====== ====== ====== ====== ======
Shares used in historical per share
computations (in thousands)........... 3,318 3,325 3,331 3,331 3,817
====== ====== ====== ====== ======
</TABLE>
Supplemental net income (loss) per share has been computed as described
above and also gives effect to the repayment of a portion of the Company's
outstanding debt, and resulting reduction of interest expense, as if the
proceeds, in an amount equal to the outstanding balance under the credit
facility, anticipated by this initial public offering had been received at the
original date of issuance of the credit facility and the number of shares of
common stock whose proceeds are to be used to retire the debt were outstanding
from that same date (see Note 3).
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
AUGUST 31, FEBRUARY 28,
1996 1997
---------- ------------
<S> <C> <C>
Supplemental net income (loss) per share........................... $(0.35) $ 0.09
====== ======
Shares used in computing supplemental net income (loss) per share
(in thousands)................................................... 3,405 3,974
====== ======
</TABLE>
Pro Forma Net Income (Loss) Per Share and Unaudited Pro Forma Stockholders'
Equity
Pro forma net income (loss) per share has been computed as described above
and also gives effect to the conversion of the convertible preferred stock,
which will convert to common stock upon completion of the Company's initial
public offering, using the as if-converted method from the original dates of
issuance.
If the offering contemplated by this Prospectus is consummated, all of
convertible preferred stock outstanding as of the closing date will be converted
into 1,193,252 shares of common stock. Unaudited pro
F-9
<PAGE> 69
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
forma stockholders' equity at February 28, 1997, as adjusted for the conversion
of the convertible preferred stock, is presented in the accompanying balance
sheet.
2. SELECTED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY
--------------------------- 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Inventories:
Raw materials..................................... $ 547,405 $ 909,563 $ 1,095,197
Work in progress.................................. 945,413 1,148,439 1,300,343
Finished goods.................................... 655,803 671,863 523,231
---------- ----------- -----------
$ 2,148,621 $ 2,729,865 $ 2,918,771
========== =========== ===========
Property and equipment, at cost:
Machinery and equipment........................... $ 8,298,670 $ 8,375,250 $ 9,741,675
Leasehold improvements............................ 964,188 1,012,629 1,021,712
Office furniture and equipment.................... 685,975 861,952 880,603
---------- ----------- -----------
9,948,833 10,249,831 11,643,990
Less accumulated depreciation and amortization...... (5,540,144) (6,062,444) (6,449,283)
---------- ----------- -----------
$ 4,408,689 $ 4,187,387 $ 5,194,707
========== =========== ===========
Intangible and other assets:
Goodwill in foreign subsidiary.................... $ 549,100 $ 549,100 $ 549,100
Patents and licenses.............................. 190,915 302,513 457,221
Other............................................. 275,757 274,048 324,326
---------- ----------- -----------
1,015,772 1,125,661 1,330,647
Less accumulated amortization....................... (228,421) (306,375) (343,727)
---------- ----------- -----------
$ 787,351 $ 819,286 $ 986,920
========== =========== ===========
Accrued compensation and related expenses:
Accrued bonuses................................... $ -- $ 240,000 $ 175,938
Other............................................. 424,359 499,385 580,977
---------- ----------- -----------
$ 424,359 $ 739,385 $ 756,915
========== =========== ===========
Other current liabilities:
Customer advances................................. $ 58,597 $ 326,562 $ 222,187
Other............................................. 508,345 455,374 470,208
---------- ----------- -----------
$ 566,942 $ 781,936 $ 692,395
========== =========== ===========
</TABLE>
F-10
<PAGE> 70
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS
In January 1997, the Company renewed a line of credit with a bank, subject
to maximum advances of $2,000,000 and at 1% above the bank's prime rate (9.25%
at February 28, 1997). The line of credit expires on March 1, 1998 and there was
$773,998 outstanding under the line of credit at February 28, 1997.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY
------------------------- 28,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Promissory note........................................ $ 104,205 $ 90,203 $ 84,020
Term note payable to bank.............................. 500,000 277,779 185,187
Equipment line of credit from bank..................... -- 172,166 418,118
Equipment financing from Proxima....................... 386,161 273,936 217,824
Other equipment financing.............................. 215,541 225,534 179,628
Other.................................................. 34,300 7,440 6,014
---------- ---------- ----------
1,240,207 1,047,058 1,090,791
Less current portion................................... 438,687 488,083 403,969
---------- ---------- ----------
$ 801,520 $ 558,975 $ 686,822
========== ========== ==========
</TABLE>
The promissory note is payable in monthly installments of principal and
interest of $1,840 through September 2001. Borrowings under the promissory note
are secured by equipment and bear interest at 8.25%.
The term note payable to the bank is due in monthly principal payments of
$18,519 plus interest, with the final installment consisting of all remaining
unpaid principal due and payable in full no later than December 31, 1997. The
term note bears interest at 2% above the bank's prime rate (10.25% at February
28, 1997).
In January 1997, the Company renewed an equipment line of credit with a
bank, subject to maximum advances of $1,500,000 at 1.25% above the bank's prime
rate (9.50% at February 28, 1997). Any advances, which will be used to purchase
new machinery, will be converted on August 1, 1997 to a five-year term loan so
long as the Company is in compliance with all the terms of the note. In the
event of noncompliance, the amount outstanding will be payable in full. There
were $418,118 in borrowings under the equipment line of credit at February 28,
1997.
All bank borrowings are secured by accounts receivable, inventory,
intangibles, and property and equipment, and contain restrictive covenants.
Restrictive covenants include the maintenance of minimum tangible net worth,
debt to equity and cash flow ratios, as well as restrictions on capital and
lease expenditures, investment levels in the Company's European subsidiary,
additional borrowings and payment of dividends.
Other equipment financing agreements are payable in monthly installments of
principal and interest through March 2001. Borrowings under this financing
agreements are secured by specific equipment and bear interest at rates ranging
from 9.0% to 10.7% at February 28, 1997.
The Company entered into an equipment line of credit agreement with Proxima
Corporation on June 30, 1994, which provided for maximum borrowings of $500,000.
In May 1995, the outstanding borrowings were converted to a four-year term loan
bearing interest at 1.5% above the bank's prime rate (9.75% at February 28,
1997). The amount owed under the note has been guaranteed by the Company's Chief
Executive Officer.
In November 1987, the Company obtained debt and equity financing from Union
Miniere ("Union"). The Company issued 483,333 shares of common stock for
$1,053,000 cash (net of stock issuance costs of $107,000) and subordinated
convertible debentures amounting to $1,340,000. In December 1988, the
F-11
<PAGE> 71
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company issued an additional $320,000 of subordinated convertible debentures to
Union Miniere. In March 1997, the maturity date of the debentures was extended
to November 2, 2000 and the conversion rate for which the debentures are
convertible into common stock was set at $5.25 per share but in no event will be
less than $4.50 per share. The debentures are subordinated to all bank
borrowings and interest is payable semi-annually at 1% above a bank's prime rate
(9.25% at February 28, 1997) subject to a minimum rate of 5 1/2% and a maximum
rate of the lesser of 11.5% or the maximum rate permitted by law. The debentures
provide for restrictive covenants similar to those of the bank borrowings.
Principal maturities on the subordinated convertible debentures and
long-term debt for each of the years ending subsequent to period ended February
28, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 404,000
1999............................................................. 296,000
2000............................................................. 137,000
2001............................................................. 1,783,000
2002............................................................. 96,000
2003............................................................. 35,000
----------
$2,751,000
==========
</TABLE>
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax liability-depreciation............................... $ (574,000) $ (535,000)
Deferred tax assets:
Tax basis operating loss and credit carryforwards............... 2,091,000 2,504,000
Other........................................................... 148,000 273,000
----------- -----------
Total deferred tax assets......................................... 2,239,000 2,777,000
----------- -----------
Net deferred tax assets........................................... 1,665,000 2,242,000
Valuation allowance............................................... (1,665,000) (2,242,000)
----------- -----------
Net deferred tax accounts......................................... $ -- $ --
=========== ===========
</TABLE>
At August 31, 1996, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $5,810,000 and
$2,844,000, respectively, which may be applied against future taxable income.
These carryforwards will begin to expire in 2001 and 1998, respectively, unless
previously utilized.
The Company also has investment tax credit, research and development
credit, and targeted jobs tax credit carryforwards at August 31, 1996
aggregating approximately $300,000. These tax credit carryforwards will expire
in 1997 through 2004 unless previously utilized.
Other than alternative minimum taxes, no income taxes have been provided
for the six-month period ended February 28, 1997 because of the utilization of
tax loss carryforwards.
If the offering contemplated by this Prospectus is consummated, a change in
ownership of more than 50% within a three-year period will have occurred;
however, management believes that the Company's ability to use the net operating
loss and tax credit carryforwards will not be materially impaired.
F-12
<PAGE> 72
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCKHOLDERS' EQUITY
Preferred Stock and Proxima Corporation
In January 1994, the Company executed a Stock Purchase Agreement with
Proxima Corporation ("Proxima"). Under the terms of the agreement, Proxima could
invest in the Company through purchases of Series A Preferred Stock. The Company
and Proxima also entered into an agreement providing for technology licenses and
cooperative development of new technologies (see Note 8). During 1994, 1995 and
1996, Proxima purchased 382,172, 761,024 and 467,695 shares of Series A
Preferred Stock, respectively.
The preferred shares have voting rights and are convertible into the
Company's common shares on a 1 for 1.35 basis, subject to antidilution
adjustments under certain circumstances. The preferred shares may be converted
with the approval of the preferred shareholders. Proceeds on liquidation of the
Company are distributed to holders of the Series A Preferred Stock and common
stock pro rata, on an as-converted basis, except in certain liquidations
involving bankruptcy cases, where the Series A Preferred stockholders will have
preferences. Series A Preferred stockholders are entitled to receive annual
dividends of $0.32 per share, when and if declared by the Company's Board of
Directors, prior to and in preference to any dividends being declared or paid on
the Common Stock. Such dividends are non-cumulative.
Common Stock Warrants
Periodically the Company will issue warrants to purchase common stock to
outside directors and affiliates in lieu of stock options. During the three year
period ended August 31, 1996, and the six months ended February 28, 1997, 83,330
and 53,330 warrants were issued to outside directors, respectively. The warrants
vest over periods of up to five years. Warrants to purchase 333,330 and 386,660
shares of common stock at $3.00 to $4.50 per share are outstanding at December
31, 1996 and February 28, 1997, respectively. The warrants begin to expire from
September 2002 to December 2006.
Stock Option Plans
The Company's 1981 Stock Option Plan was approved by the Board of Directors
and stockholders in 1981, as amended (the "1981 Plan"). The Company's 1993 Stock
Option Plan (the "1993 Plan") was approved by the Board of Directors and
stockholders in September 1993. The exercise price of options granted will be at
fair market value of the stock on the date of grant and the options granted vest
over a five-year period commencing on the date of grant in increments of twenty
percent and are exercisable for a period of ten years after the date of grant.
Options to purchase 249,679 and 120,700 shares of common stock remain eligible
for future grant at August 31, 1996 and February 28, 1997, respectively. (See
"Changes in Capitalization" below).
The Company has 266,665 and 474,663 non-qualified options outstanding as of
August 31, 1996 and February 28, 1997, respectively. These options were issued
to certain employees and an officer and at those dates, 66,665 and 274,663
options were issued outside the Company's option plans. The Company issued stock
options to purchase shares of the Company's common stock at $3.00 to $4.50 per
share. These options will begin to expire on December 2001 to February 2007.
F-13
<PAGE> 73
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option and warrant activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER PRICE PER
SHARES SHARE SHARE
--------- -------------- ---------
<S> <C> <C> <C>
Outstanding at August 31, 1993......................... 966,000 $3.00 -- $4.50 $3.16
Granted.............................................. 241,667 4.50 -- 6.00 4.76
Exercised............................................ -- -- --
Canceled............................................. (8,333) 3.00 -- 4.50 3.00
--------- ----------- -----
Outstanding at August 31, 1994......................... 1,199,334 3.00 -- 6.00 3.48
Granted.............................................. 127,333 4.50 4.50
Exercised............................................ -- -- --
Canceled............................................. (148,358) 3.00 -- 6.00 4.85
--------- ----------- -----
Outstanding at August 31, 1995......................... 1,178,309 3.00 -- 4.50 3.40
Granted.............................................. 131,325 4.50 4.50
Exercised............................................ (6) 4.50 4.50
Canceled............................................. (81,656) 3.00 -- 4.50 3.46
--------- ----------- -----
Outstanding at August 31, 1996......................... 1,227,972 3.00 -- 4.50 3.51
Granted.............................................. 390,307 3.00 -- 4.50 4.49
Exercised............................................ -- -- --
Canceled............................................. (6,666) 3.00 3.00
--------- ----------- -----
Outstanding at February 28, 1997....................... 1,611,613 $3.00 -- $4.50 $3.75
========= =========== =====
</TABLE>
At February 28, 1997, the weighted-average exercise price of outstanding
stock options and warrants is $3.92 and $3.21, respectively, and 912,647
combined options and warrants are exercisable.
Adjusted pro forma information regarding net income (loss) is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the "minimal
value" method for option pricing with the following weighted-average
assumptions: risk-free interest rate range from 5.5% to 6.3%; dividend yield of
0%; and a weighted average expected life of the options of 6 years. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
AUGUST 31, 1996 FEBRUARY 28, 1997
--------------- -----------------
<S> <C> <C>
Adjusted pro forma net income (loss).......................... $(1,255,177) $ 268,069
Adjusted pro forma net income (loss) per share................ $ (0.29) $ 0.05
</TABLE>
The weighted average fair value of stock options granted during 1996 and
1997 was $1.39 and $1.40, respectively. The weighted average remaining life of
the options at February 28, 1997 is approximately six years.
In March 1997, the Company recorded $100,000 of deferred compensation for
66,666 options granted in March. This amount represents the difference between
the option exercise price and the deemed fair market value for financial
statement presentation purposes. The deferred compensation will be amortized
over the vesting period.
F-14
<PAGE> 74
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1996 1997
---------- ------------
<S> <C> <C>
Subordinated convertible debentures.......................... 553,333 368,888
Stock options:
Granted and outstanding.................................... 894,642 1,224,953
Reserved for future grants................................. 249,679 120,700
Warrants..................................................... 333,330 386,660
--------- ---------
2,030,984 2,101,201
========= =========
</TABLE>
Changes in Capitalization
On March 25, 1997, the Company's Board of Directors authorized a 1 for 1.5
reverse stock split of all outstanding common stock. In addition, the Board also
approved a change in the par value of the common stock from $0.125 to $0.001.
All share and per share amounts and stock option and warrants data have been
restated to retroactively reflect these changes in capitalization.
On March 25, 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"). The 1997 Plan provides for incentive stock options and stock
appreciation rights appurtenant thereto for employees (including officers and
employee directors), and nonstatutory stock options, stock appreciation rights
appurtenant thereto, stock bonuses and rights to purchase restricted stock for
employees (including officers and employee directors) and non-employee directors
and consultants. The 1997 Plan is administered by the Board of Directors, or a
Committee appointed by the Board, which determines the option awards to be
granted, including exercise prices, number of shares subject to the awards and
the exercisability thereof, provided that such terms comply with the provisions
of the plan under which the option award is granted. Non-employee directors are
eligible only for nonstatutory grants. The term of the stock options granted
under the 1997 Plan may not exceed 10 years. The exercise price of options
granted under the 1997 Plan is determined by the Board of Directors, but in the
case of an incentive stock option, cannot be less than 100% of the fair market
value of the common stock on the date of grant and in the case of a
non-statutory stock option, cannot be less than 85% of the fair market value of
the common stock on the date of grant. Options granted under the plans vest at
the rate specified in the option agreement. The Board has authorized and secured
an aggregate of 1,000,000 shares of common stock for issuance under the Plan.
The Board also terminated the 1981 and 1993 Plans and no additional options will
be granted thereunder, but outstanding options remain exercisable and continue
to vest until they terminate in accordance with their terms.
On March 25, 1997 the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 250,000 shares of common stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the Purchase Plan. The initial offering
under the Purchase Plan shall commence on the closing of the Company's initial
public offering contemplated by this Prospectus and terminate on February 28,
1998. Sequential six-month offerings will occur thereafter.
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its operating, office and other facilities as well as
certain vehicles and equipment under noncancellable operating leases. The
operating and office facilities lease contains escalation clauses and an option
for renewal and extends through December 2001. The operating and office
facilities lease also
F-15
<PAGE> 75
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides for deferred payment terms; however, for financial reporting purposes,
rent expense is recorded evenly over the term of the lease.
Deferred rent, as reflected in the accompanying consolidated balance sheet,
represents the difference between rent expense accrued and amounts paid under
the terms of the lease agreement. Future minimum rental payments (excluding
common area maintenance charges) required under the operating leases for each of
the remaining fiscal years ending subsequent to February 28, 1997 are as
follows:
<TABLE>
<S> <C>
1997............................................................. $ 403,000
1998............................................................. 788,000
1999............................................................. 714,000
2000............................................................. 688,000
2001............................................................. 684,000
Thereafter....................................................... 228,000
----------
$3,505,000
==========
</TABLE>
Rent expense was $849,000, $844,000, $914,000, $508,000, and $540,000 for
the years ended August 31, 1994, 1995, 1996 and the six months ended February
29, 1996 and February 28, 1997, respectively.
Contingency
The Company has a license to certain technology used in its blue
microlaser. During 1996, the Company received a letter from a third party
claiming that the Company's license was granted improperly by the licensor.
While the Company believes that such license was properly granted, there can be
no assurance that the Company's license would not be voided if subjected to a
legal challenge. In such an event, there can be no assurance that the Company
would be able to obtain a replacement license on favorable terms, if at all.
Failure to obtain such a license would result in a material adverse effect to
the Company's business, financial condition and results of operations.
7. GEOGRAPHIC INFORMATION
The Company operates in one business segment and designs, manufactures and
markets high performance laser optics for industrial, medical and military laser
and laser systems. No one customer accounted for more than 10% of revenues in
1994, 1995, 1996 or 1997. Export sales from U.S. operations to unaffiliated
customers located principally in Europe and the Asia Pacific region amounted to
32%, 32%, 32%, 30%, and 38% of total revenue in 1994, 1995, 1996 and for the
six-month periods ended February 29, 1996 and February 28, 1997, respectively.
Information with respect to the Company's operations by significant
geographic area is set forth below. Transfers between geographic areas have been
shown at the agreed upon transfer price. All transactions denominated in foreign
currency have been translated at the average exchange rates during the period.
The identifiable assets located in the United States include assets located
in Mexico, which are not considered significant.
F-16
<PAGE> 76
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1994
----------------------------------------------------------
UNITED CONSOLIDATED
STATES EUROPE ELIMINATIONS TOTAL
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers........ $10,098,661 $1,786,352 $ -- $11,885,013
Transfers between geographic areas..... $ 827,382 -- $ (827,382) --
----------- ---------- ----------- -----------
Total revenue.......................... $10,926,043 $1,786,352 $ (827,382) $11,885,013
========== ========= ========== ==========
Income (loss) before income taxes...... $ (722,852) $ (227,020) $ (63,467) $(1,013,339)
========== ========= ========== ==========
Identifiable assets.................... $ 9,360,098 $1,657,792 $(1,574,105) $ 9,443,785
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1995
----------------------------------------------------------
UNITED CONSOLIDATED
STATES EUROPE ELIMINATIONS TOTAL
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers........ $11,831,280 $2,741,641 $ -- $14,572,921
Transfers between geographic areas..... $ 813,461 -- $ (813,461) --
----------- ---------- ----------- -----------
Total revenue.......................... $12,644,741 $2,741,641 $ (813,461) $14,572,921
========== ========= ========== ==========
Income (loss) before income taxes...... $(2,062,437) $ (195,466) $ 11,543 $(2,246,360)
========== ========= ========== ==========
Identifiable assets.................... $10,346,281 $1,822,831 $(1,961,672) $10,207,440
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1996
-----------------------------------------------------------
UNITED CONSOLIDATED
STATES EUROPE ELIMINATIONS TOTAL
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers....... $15,462,416 $3,445,023 $ -- $ 18,907,439
Transfers between geographic areas.... $ 1,195,380 -- $(1,195,380) --
----------- ---------- ----------- ------------
Total revenue......................... $16,657,796 $3,445,023 $(1,195,380) $(18,907,439)
========== ========= ========== ===========
Income (loss) before income taxes..... $(1,282,844) $ 105,931 $ (40,747) $ (1,217,660)
========== ========= ========== ===========
Identifiable assets................... $11,286,833 $1,994,440 $(2,087,574) $ 11,193,699
========== ========= ========== ===========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") covering
substantially all employees that have been employed for at least one year and
meet certain age requirements. Employees may contribute up to 16% of their
compensation per year (subject to a maximum limit by federal tax law). The
Company is obligated to make matching contributions equal to 50% of the
employee's contribution up to a maximum of 6% of the employee's compensation. At
the discretion of the Board of Directors, the Company may make additional
contributions. The Company's contributions charged to operations were $42,000,
$57,000, $79,000, $36,000 and $56,000 for the years ended August 31, 1994, 1995,
1996 and the six months ended February 29, 1996 and February 28, 1997,
respectively.
9. AGREEMENT WITH PROXIMA CORPORATION
The Company and Proxima Corporation, a major shareholder, have entered into
a Cooperative Development and License Agreement (the "Agreement") which provides
for licensing of existing technology and technologies being developed under the
terms of the agreement.
Included in internal research and development expenses in the accompanying
statements of operations are $779,000, $2,107,000, $1,630,000 and $981,000 spent
in accordance with the Agreement in 1994, 1995, 1996 and the six months ended
February 29, 1996, respectively. No amounts were spent during the six month
period ended February 28, 1997 and at February 28, 1997, the Company has
committed to spend an additional $131,000.
F-17
<PAGE> 77
[Depiction of a military aircraft emitting a laser beam]
DEFENSE
Laser Power's very low absorption thin film coatings have made major
contributions to on-going United States programs to develop ground, air and
space laser weapons for missile defense.
AUTOMOTIVE
Because of its ability to change operating characteristics instantly under
computer control, laser based material processing is an ideal match for the
automotive industry's need to compress the design to production cycle, reduce
production changeover time and configure machines to meet changing market
demands. High power lasers for cutting, welding, drilling, heat treating and
surface cladding are used in increasing numbers throughout the automotive
industry, including the processing of sheet metal door and body panels,
electronic components, fuel management systems, drive train and engine
components, safety systems and prototype models.
[large photograph of an automobile with smaller photographs showing detailed
component parts and a laser's role in their manufacture: (clockwise) detail
photo 1: body panels; 2: engine components; 3: drive train assembly; 4: door
side beams; 5: exhaust systems]
MEDICINE
Medical CO(2) lasers are used for numerous cosmetic, therapeutic and surgical
procedures in hospital, clinical and outpatient settings because of reduced
blood loss and less post-operative discomfort. Recent developments in laser skin
resurfacing and permanent wrinkle removal have stimulated strong growth in this
market segment.
[Photograph of an operating room with physician performing laser surgery]
<PAGE> 78
======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Information......................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Glossary of Terms..................... 36
Management............................ 37
Certain Transactions.................. 46
Principal and Selling Stockholders.... 48
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 56
Additional Information................ 56
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,400,000 SHARES
LOGO
COMMON STOCK
--------------------
PROSPECTUS
--------------------
CRUTTENDEN ROTH
INCORPORATED
L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.
, 1997
======================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Amended and Restated Certificate of Incorporation and
Bylaws include provisions to (i) eliminate the personal liability of its
directors for monetary damages resulting from breaches of their fiduciary duty
to the extent permitted by Section 102(b)(7) of the General Corporation Law of
Delaware (the "Delaware Law") and (ii) require the Registrant to indemnify its
Directors and officers to the fullest extent permitted by Section 145 of the
Delaware Law, including circumstances in which indemnification is otherwise
discretionary. Pursuant to Section 145 of the Delaware Law, a corporation
generally has the power to indemnify its present and former directors, officers,
employees and agents against expenses incurred by them in connection with any
suit to which they are or are threatened to be made, a party by reason of their
serving in such positions so long as they acted in good faith and in a manner
they reasonably believed to be in or not opposed to, the best interests of the
corporation and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as Directors
and officers. These provisions do not eliminate the Directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware Law. In
addition, each Director will continue to be subject to liability for breach of
the Director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder. The Registrant has entered into similar indemnity
agreements with certain of its key employees.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
II-1
<PAGE> 80
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Common Stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee................................................. $ 7,257
NASD filing fee.................................................. 3,091
Nasdaq Stock Market Listing Application fee...................... 32,750
Printing and engraving expenses.................................. 125,000
Underwriters non-accountable expense allowance(1)................ 365,573
Legal fees and expenses.......................................... 250,000
Accounting fees and expenses..................................... 115,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous.................................................... 1,902
----------
Total(2)............................................... $ 912,500
==========
</TABLE>
- ---------------
(1) The expense allowance will be $422,625 if the over-allotment option is
exercised.
(2) The total expenses will be $969,552 if the over-allotment option is
exercised.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since April 1, 1994, the Registrant has sold and issued the following
unregistered securities:
(a) From April 1, 1994 to April 1, 1997, the Company issued an
aggregate of 404,324 options to purchase shares of Common Stock under its
1993 Stock Option Plan, and 6 shares of Common Stock through the exercise
of an option granted under such plan. The Registrant relied on the
exemption provided by Rule 701 under the Security Act. See
"Management -- Stock Option Plans."
(b) In January 1995, the Registrant issued and sold an aggregate of
8,879 shares of Common Stock, for an aggregate purchase price of $39,957 to
certain members of the board of directors in lieu of payment of board fees.
The Registrant relied on the exemption provided by Section 4(2) under the
Securities Act.
(c) On January 31, 1995, the Company issued a warrant to purchase
16,666 shares of Common Stock to Kenneth E. Olson, a director. The
Registrant relied on the exemption provided by Section 4(2) under the
Securities Act.
(d) On December 7, 1996, the Company issued warrants to purchase an
aggregate of 53,330 shares of Common Stock to the outside directors of the
Company. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act.
(e) On December 7, 1996, the Registrant issued an option to purchase
200,000 Shares of Common Stock at an exercise price of $4.50 per share to
Arthur P. Minich, an executive officer of the Company. The Registrant
relied on the exemption provided by Rule 4(2) under the Securities Act.
(f) From January 1994 to December 1996, the Registrant issued and
sold, from time to time, 1,073,927 shares of Series A Preferred Stock at an
aggregate purchase price of $6.4 million to Proxima Corporation. The
Registrant relied on the exemption provided by Section 4(2) under the
Securities Act.
(g) In January 1997, the Registrant issued and sold an aggregate of
6,012 shares of its Common Stock, for an aggregate purchase price of
$27,057, to certain the members of the board of directors in lieu of
payment of board fees. The Registrant relied on the exemption provided by
Section 4(2) under the Securities Act.
(h) In December 1996, the Company issued an option to purchase 66,666
shares of the Company's Common Stock at an exercise price of $4.50 per
share to Pedram Leilabady. The option vests over five years and may be
exercised at any time until its expiration in December 2006. The Registrant
relied on the exemption provided by Rule 701 under the Security Act.
II-2
<PAGE> 81
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement and Representatives' Warrant attached as an
Exhibit thereto.
3.1* -- Registrant's Amended and Restated Certificate of Incorporation.
3.2* -- Registrant's Amended and Restated Bylaws.
3.3* -- Registrant's Amended and Restated Certificate of Incorporation, to be effective
upon the closing of this offering.
3.4* -- Registrant's Amended and Restated Bylaws, to be effective upon the closing of
this offering.
4.1* -- Series A Convertible Subordinated Debenture issued by Registrant in favor of
Union Mines, Inc. (currently held by Union Miniere Inc.) dated December 29, 1988.
4.2* -- Series A Convertible Subordinated Debenture issued by Registrant in favor of
Union Mines, Inc. (currently held by Union Miniere Inc.) dated June 18, 1990.
5.1** -- Opinion of Cooley Godward LLP.
10.1* -- Form of Indemnity Agreement entered into between Registrant and its directors and
executive officers.
10.2* -- Registrant's Second Amended and Restated 1981 Stock Option Plan (the "1981
Plan").
10.3* -- Incentive Stock Option Agreement Under Registrant's 1981 Plan.
10.4* -- Registrant's 1993 Stock Option Plan (the "1993 Plan").
10.5* -- Form of Incentive Stock Option Agreement under the 1993 Plan.
10.6* -- Form of Nonstatutory Stock Option Agreement under the 1993 Plan.
10.7* -- Registrant's 1997 Equity Incentive Plan (the "1997 Plan").
10.8* -- Form of Incentive Stock Option Agreement under the 1997 Plan.
10.9* -- Form of Nonstatutory Stock Option Agreement under the 1997 Plan.
10.10* -- Registrant's Employee Stock Purchase Plan.
10.11 -- Form of Warrant issued by Registrant in favor of Cruttenden Roth Incorporated and
L. H. Friend, Weinress, Frankson & Pressor, Inc. Reference is made to Exhibit
1.1.
10.12* -- Form of Warrant issued by Registrant in favor of certain directors of Registrant
and attached schedule.
10.13+* -- Cooperative Development and License Agreement between Proxima Corporation and
Registrant dated January 11, 1994.
10.14** -- Registration Rights Agreement between Registrant, Union Miniere Inc. and Proxima
Corporation dated April , 1997.
10.15+* -- Assignment Agreement between Registrant and ATx Telecom Systems, Inc. dated
September 30, 1996.
10.16* -- Credit Agreement between Registrant and Wells Fargo dated January 29, 1997.
10.17* -- Form of Employment Agreement and attached schedule.
10.18* -- Consulting Agreement dated December 1, 1996 between Registrant and Arthur P.
Minich.
10.19* -- Lease dated August 30, 1984 between the Registrant and Highlands Park Partnership
and amendments thereto.
10.20+* -- Development and Manufacturing Agreement for RGB -- Lasers between Registrant and
LDT GmbH & Co. dated July 1, 1996.
11.1* -- Statement re: computation of per share earnings.
21.1* -- Subsidiaries of the Registrant.
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <C> <S>
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2** -- Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1* -- Power of Attorney. Reference is made to page II-5.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
+ Confidential Treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.
(b) Schedules
All schedules are omitted because they are not required, are not applicable
or the information is included in the consolidated financial statements or notes
thereto.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 15 or otherwise, the registrant 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 registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) 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.
(2) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(4) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE> 83
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 SB-2 and has duly caused this Amendment
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
in the City of San Diego, County of San Diego, State of California, on the 6th
day of May, 1997.
By: /s/ GLENN H. SHERMAN
------------------------------------
Glenn H. Sherman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ------------
<S> <C> <C>
/s/ GLENN H. SHERMAN, PH.D. Chairman of the Board and Chief May 6, 1997
- ------------------------------------- Executive Officer (Principal
Glenn H. Sherman, Ph.D. Executive Officer)
* /s/ PAUL P. WICKMAN, JR. Senior Vice President, Chief May 6, 1997
- ------------------------------------- Financial Officer and Secretary
Paul P. Wickman, Jr. (Principal Financial and Accounting
Officer)
* /s/ DOUGLAS H. TANIMOTO, PH.D. Director May 6, 1997
- -------------------------------------
Douglas H. Tanimoto, Ph.D.
* /s/ WILLIAM G. FREDRICK Director May 6, 1997
- -------------------------------------
William G. Fredrick
* /s/ ALAIN GODEFROID Director May 6, 1997
- -------------------------------------
Alain Godefroid
* /s/ ROBERT G. KLIMASEWSKI Director May 6, 1997
- -------------------------------------
Robert G. Klimasewski
* /s/ RICHARD C. LAIRD Director May 6, 1997
- -------------------------------------
Richard C. Laird
* /s/ SIEGFRIED MEDER Director May 6, 1997
- -------------------------------------
Siegfried Meder
</TABLE>
II-5
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ------------
<S> <C> <C>
* /s/ KENNETH E. OLSON Director May 6, 1997
- -------------------------------------
Kenneth E. Olson
* /s/ JOHN C. STISKA Director May 6, 1997
- -------------------------------------
John C. Stiska
* /s/ MARC VAN SANDE Director May 6, 1997
- -------------------------------------
Marc Van Sande
*By: /s/ GLENN H. SHERMAN
--------------------------------
Glenn H. Sherman
Attorney-in-fact
</TABLE>
II-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGES
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement and Representatives' Warrant attached as
an Exhibit thereto......................................................
3.1* -- Registrant's Amended and Restated Certificate of Incorporation..........
3.2* -- Registrant's Amended and Restated Bylaws................................
3.3* -- Registrant's Amended and Restated Certificate of Incorporation, to be
effective upon the closing of this offering.............................
3.4* -- Registrant's Amended and Restated Bylaws, to be effective upon the
closing of this offering................................................
4.1* -- Series A Convertible Subordinated Debenture issued by Registrant in
favor of Union Mines, Inc. (currently held by Union Miniere Inc.) dated
December 29, 1988.......................................................
4.2* -- Series A Convertible Subordinated Debenture issued by Registrant in
favor of Union Mines, Inc. (currently held by Union Miniere Inc.) dated
June 18, 1990...........................................................
5.1** -- Opinion of Cooley Godward LLP...........................................
10.1* -- Form of Indemnity Agreement entered into between Registrant and its
directors and executive officers........................................
10.2* -- Registrant's Second Amended and Restated 1981 Stock Option Plan (the
"1981 Plan")............................................................
10.3* -- Incentive Stock Option Agreement Under Registrant's 1981 Plan...........
10.4* -- Registrant's 1993 Stock Option Plan (the "1993 Plan")...................
10.5* -- Form of Incentive Stock Option Agreement under the 1993 Plan............
10.6* -- Form of Nonstatutory Stock Option Agreement under the 1993 Plan.........
10.7* -- Registrant's 1997 Equity Incentive Plan (the "1997 Plan")...............
10.8* -- Form of Incentive Stock Option Agreement under the 1997 Plan............
10.9* -- Form of Nonstatutory Stock Option Agreement under the 1997 Plan.........
10.10* -- Registrant's Employee Stock Purchase Plan...............................
10.11 -- Form of Warrant issued by Registrant in favor of Cruttenden Roth
Incorporated and L. H. Friend, Weinress, Frankson & Pressor, Inc.
Reference is made to Exhibit 1.1........................................
10.12* -- Form of Warrant issued by Registrant in favor of certain directors of
Registrant and attached schedule........................................
10.13+* -- Cooperative Development and License Agreement between Proxima
Corporation and Registrant dated January 11, 1994.......................
10.14** -- Registration Rights Agreement between Registrant, Union Miniere Inc. and
Proxima Corporation dated April , 1997................................
10.15+* -- Assignment Agreement between Registrant and ATx Telecom Systems, Inc.
dated September 30, 1996................................................
10.16* -- Credit Agreement between Registrant and Wells Fargo dated January 29,
1997....................................................................
10.17* -- Form of Employment Agreement and attached schedule......................
10.18* -- Consulting Agreement dated December 1, 1996 between Registrant and
Arthur P. Minich........................................................
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGES
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.19* -- Lease dated August 30, 1984 between the Registrant and Highlands Park
Partnership and amendments thereto......................................
10.20+* -- Development and Manufacturing Agreement for RGB -- Lasers between
Registrant and LDT GmbH & Co. dated July 1, 1996........................
11.1* -- Statement re: computation of per share earnings.........................
21.1* -- Subsidiaries of the Registrant..........................................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2** -- Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.........
24.1* -- Power of Attorney. Reference is made to page II-5.......................
27.1* -- Financial Data Schedule.................................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
+ Confidential Treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
2,400,000 SHARES(1)
LASER POWER CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
, 1997
CRUTTENDEN ROTH INCORPORATED
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
As Representatives of the Several Underwriters
c/o Cruttenden Roth Incorporated
18301 Van Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
Laser Power Corporation, a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter called
the "Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
2,000,000 shares of its authorized and unissued Common Stock, $0.001 par value
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 400,000 shares of the
Company's authorized and outstanding Common Stock, $0.001 par value per share,
to the several Underwriters with the number of shares to be sold by each Selling
Stockholder to be as set forth on Schedule B hereto. The 2,000,000 shares of
Common Stock, $0.001 par value per share, of the Company to be sold by the
Company are hereinafter called the "Company Shares" and the 400,000 shares of
Common Stock, $0.001 par value per share, to be sold by the Selling Stockholders
are hereinafter called the "Selling Stockholder Shares." The Company Shares and
the Selling Stockholder Shares are hereinafter called the "Firm Shares". The
Company also proposes to grant to the Underwriters an option to purchase up to
360,000 additional shares of the Company's Common Stock, $0.001 par value per
- --------
(1) Plus an option to purchase up to 360,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
share (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Company Shares, the Selling
Stockholder Shares and the Option Shares. All shares of Common Stock, $0.001 par
value per share, of the Company to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-24421)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be reasonably required.
Copies of such registration statement and amendments, of each related prospectus
subject to completion (the "Preliminary Prospectuses") and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations have
been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Cruttenden Roth Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Cruttenden
Roth Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The
2
<PAGE> 3
term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits
(including exhibits incorporated by reference), in the form in which it became
or becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, and
shall also mean (from and after the effectiveness of such amendment or the
filing of such abbreviated registration statement) such registration statement
as so amended, together with any such abbreviated registration statement. The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
however, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Cruttenden Roth Incorporated, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Cruttenden Roth Incorporated, on behalf of the several Underwriters, the Company
shall have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given for
purposes or Section 2(10)(a) of the Act, the Prospectus and the term sheet,
together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
3
<PAGE> 4
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as a corporation in good standing under
the laws of the jurisdiction of their incorporation with full power and
authority (corporate and other) to own, lease and operate their properties and
conduct their business as described in the Prospectus; the Company and each of
its subsidiaries are duly qualified to do business as a foreign corporation and
are in good standing in each jurisdiction in which the ownership or leasing of
their properties or the conduct of their business requires such qualification,
except where the failure to be so qualified or be in good standing would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company; no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification; the Company and each of its subsidiaries are in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities that are material to the conduct of its business, all of which are
valid and in full force and effect; the Company and each of its subsidiaries are
not in violation of their charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries, respectively is a party or by which its
properties may be bound; and
4
<PAGE> 5
the Company and each of its subsidiaries are not in material violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or a subsidiary or over their properties of which
it has knowledge. The Company does not own or control, directly or indirectly,
any corporation, association or other entity except that the Company (i) owns
all of the outstanding shares of Radius Engineering, N.V. except one share which
is owned by Dr. Glenn Sherman, and (ii) owns all of the outstanding shares of
Laser Power de Mexico, S.A. de C.V. except that Glenn Sherman, James Blasutta,
Douglas Tanimoto, William Fredrick and Luis Arredando Vega each owns 5% of the
outstanding shares.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles or remedies; the performance of this Agreement and
the consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a material default under, (i) any material bond, debenture, note or
other evidence of indebtedness, or under any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties may be bound, (ii) the charter or bylaws of the Company or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its properties and which the Company has
reasonable knowledge of. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or its properties is
required for the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act, or under state or other securities or Blue Sky
laws.
(e) There is not any pending or, to the Company's knowledge,
threatened action, suit, claim or proceeding against the Company or any of its
subsidiaries, or any of their respective officers or any of their respective
properties, assets or rights before any court, arbitration tribunal, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or its subsidiaries or their respective officers or properties or
otherwise which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect the Company's
properties, assets or rights,
5
<PAGE> 6
(ii) might prevent consummation of the transactions contemplated hereby or (iii)
is required to be disclosed in the Registration Statement or Prospectus and is
not so disclosed; and there are no agreements, contracts, leases or documents of
the Company of a character required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement by the Act or the Rules and Regulations which have not been accurately
described in all material respects in the Registration Statement or Prospectus
or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities and, with respect to all outstanding shares (except 100 shares issued
pursuant to an option plan) issued in the last three years, have been issued in
compliance with all federal and state securities laws. The authorized and
outstanding capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the instruments
defining the capitalization of the Company). The Company Shares and the Option
Shares have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than any pledge, lien, security interest, encumbrance, claim or
equitable interest created or imposed by, or in favor of, the Underwriters; and
no preemptive right, co-sale right, registration right, right of first refusal
or other similar right of stockholders exists with respect to any of the Company
Shares or Option Shares or the issuance and sale thereof other than those that
have been satisfied or expressly waived prior to the date hereof and those that
will automatically expire upon and will not apply to the consummation of the
transactions contemplated on or before the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act or under state or other securities or Blue Sky
laws. Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto included in the Prospectus, the Company
has no outstanding options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately presents the information required to be
shown with respect to such plans, arrangements, options and rights.
6
<PAGE> 7
(g) Ernst & Young LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of August 31, 1996 and 1995 and for each of the years in the three (3)
years ended August 31, 1996 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited financial statements of the Company, together with the related schedules
and notes, and the unaudited financial statement information, forming part of
the Registration Statement and Prospectus, fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and all audited financial statements of
the Company, together with the related schedules and notes, and the unaudited
financial statement information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (vi) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company in accordance with their terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors'
7
<PAGE> 8
rights generally or by general equitable principles and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) the Company
has valid and enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the Company's knowledge, might be asserted against the Company (or
any of its subsidiaries) that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; and all tax liabilities are adequately provided for on
the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction and acts of vandalism, all of which insurance
is in full force and effect; the Company has not been refused any insurance
coverage sought or applied for; and the Company does not have any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(l) No labor disturbance by the employees of the Company exists
or is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, value added
resellers, subcontractors, authorized dealers or international distributors that
might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company. No collective bargaining agreement exists with any of the
Company's employees and, to the Company's knowledge, no such agreement is
imminent.
(m) Except as set forth in the Registration Statement and the
Prospectus:
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(i) The Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus;
(ii) The expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company;
(iii) The Company has not received any notice of any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights and has no knowledge of any
such infringement or conflict with respect to any material patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and
(iv) The Company has not received any notice of, nor has
it any knowledge of, any infringement of or conflict with asserted rights of
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(n) The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
listed on The Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from The
Nasdaq National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, Inc. ("NASD") is
contemplating terminating such registration or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not and will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares
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<PAGE> 10
other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) The Company has not (nor has its subsidiaries) at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof or the jurisdictions in which such
subsidiaries conduct business.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and certain other stockholders have signed a Lock-up Agreement with
Cruttenden Roth Incorporated (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters all of the Lock-up Agreements presently
in effect. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company as of the date of this
Agreement and the number and type of securities held by each securityholder.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance, in all material respects, with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, (ii) the Company has not received
notice from any governmental authority or third party of an asserted claim under
Environmental Laws that is required to be disclosed in the Registration
Statement and the Prospectus and is not so disclosed, (iii) the Company is not
required to make any material capital expenditures for environmental control
facilities or to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
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<PAGE> 11
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers,
directors or shareholders of the Company or any of the members of the families
of any of them, except as disclosed in the Registration Statement and the
Prospectus.
(w) No relationship, direct or indirect, exists between or among
the Company or any of its subsidiaries, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries, on the other hand, which is required to be described in the
Registration Statement or the Prospectus which is not so described.
(x) Except as disclosed in the Registration Statement or the
Prospectus, the Company has not incurred any liability or potential liability
for any fee, commission, or other compensation on account of the employment of
any broker or finder in connection with the transactions contemplated by this
Agreement.
(y) The Company has complied with all provisions of Section
517.075, Florida statutes relating to doing business with the government of Cuba
or with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date will
have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement other than any
pledge, lien, security interest, encumbrance, claim or equitable interest
created or imposed by, or in favor of, the Underwriters; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder other than
any pledge, lien, security interest, encumbrance, claim or equitable interest
created or imposed by, or in favor of, the Underwriters.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney")
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<PAGE> 12
appointing each of Glenn H. Sherman and Paul P. Wickman, Jr. as an
attorney-in-fact (collectively, the "Attorneys" and individually, an "Attorney")
and a Custody Agreement (the "Custody Agreement") with American Stock Transfer &
Trust Company as custodian (the "Custodian"); each of the Power of Attorney and
the Custody Agreement constitutes a valid and binding agreement on the part of
such Selling Stockholder enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Stockholder's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 6(i) hereof on
behalf of such Selling Stockholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Stockholder as provided in Section 3
hereof; to authorize the delivery of the Selling Stockholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Stockholder of this Agreement and the sale and delivery of the
Selling Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder has entered into and has not and
will not breach the terms of such Selling Stockholder's Lock-up Agreement.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been delivered
to the Attorneys or have been placed in custody with the Custodian for the
purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by such Selling
Stockholder (if such Selling Stockholder is not a natural person) and has been
duly
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<PAGE> 13
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a material
default under, any material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares hereunder, may be bound or, to such Selling
Stockholders' knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Stockholder or over the properties of such Selling Stockholder, or, if
such Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date, and on any later date on which Option Shares are to be purchased,
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any
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<PAGE> 14
later date on which Option Shares are to be purchased, as the case may be, and
will advise one of its Attorneys and Cruttenden Roth Incorporated prior to the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(i) would be inaccurate
if made as of the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $ per Share, the respective
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement or have been delivered to the Attorneys who will place such
shares in custody immediately after execution of this Agreement. Each Selling
Stockholder agrees that the certificates for the Selling Stockholder Shares of
such Selling Stockholder so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling Stockholder
for such custody, including the Power of Attorney is to that extent irrevocable
and that the obligations of such Selling Stockholder hereunder shall not be
terminated by any act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder or the occurrence
of any other event, except as specifically provided herein or in the Custody
Agreement. If any Selling Stockholder should die or be incapacitated, or if any
other such event should occur before the delivery of the certificates for the
Selling Stockholder Shares hereunder, the Selling Stockholder Shares to be sold
by such Selling Stockholder shall, except as specifically provided herein or in
the Custody Agreement, be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if
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<PAGE> 15
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor (reduced as set forth below) by the
several Underwriters by wire transfer of funds to the Company with the delivery
of such certificates to be at the offices of Cooley Godward 4365 Executive
Drive, Suite 1100, San Diego, California (or at such other place as may be
agreed upon among the Representatives, the Company and the Attorneys), at 7:00
A.M., San Diego time (a) on the third (3rd) full business day following the
first day that Shares are traded, (b) if this Agreement is executed and
delivered after 1:30 P.M., San Diego time, the fourth (4th) full business day
following the day that this Agreement is executed and delivered or (c) at such
other time and date not later than seven (7) full business days following the
first day that Shares are traded as the Representatives, the Company and the
Attorneys may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date"; provided, however,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose funds shall not have been received by you prior to the Closing Date for
the Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
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<PAGE> 16
Section 11 hereof) of the Firm Shares at a public offering price of $ per
Share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth on the outside and inside front cover page
(insofar as such information relates to the Underwriters) concerning
stabilization, over-allotment and passive market making by the Underwriters, and
under the captions "Description of Capital Stock - Representatives Warrants" and
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes
the only information furnished by the Underwriters to the Company for inclusion
in any Preliminary Prospectus, the Prospectus or the Registration Statement, and
you, on behalf of the respective Underwriters, represent and warrant to the
Company and the Selling Stockholders that the statements made therein do not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence reasonably satisfactory to you
that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence reasonably satisfactory to you that the Prospectus and term sheet
meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence reasonably satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
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<PAGE> 17
prescribed; it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the reasonable opinion of counsel for the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriters, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be reasonably necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing therefor to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of proceeding for that purpose; and it will promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts (including by
providing full cooperation with your counsel, whose services in this matter are
required and which you and the Company will seek to expedite) to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may reasonably designate and to continue such qualifications in effect for
so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service of
process. In each jurisdiction in which the Shares shall have been qualified as
above provided, the Company will make and file such statements and reports in
each year as are or may be required by the laws of such jurisdiction for such
purpose.
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<PAGE> 18
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first full business day
following the first day that Shares are traded, copies of the Registration
Statement (two of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date reasonably specified by you in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of three (3) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and, upon
request by a stockholder, unaudited quarterly reports of operations for each of
the first three quarters of the fiscal year, and will furnish to you and the
other several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's stockholders, (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD (other than any portion of such report or financial statement that is
the subject of a request for confidential treatment by the Commission), (v)
every material press release and every material news item or article in respect
of the Company or its affairs which was generally released to stockholders or
prepared by the Company, and (vi) any additional publicly available information
concerning the Company, or its business which you may reasonably request. During
such three (3) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and such subsidiaries are consolidated, and
shall be
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accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(a) or 11(b), then the provisions of Section 11 of that
certain letter agreement dated April 2, 1997 between you and the Company (the
"Letter Agreement") shall govern payment and reimbursement obligations of the
parties notwithstanding that the Letter Agreement shall have ceased to be of
full force or effect for any other purpose.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the period of 180 days after the effective
date of the Registration Statement, the Company will not, without the prior
written consent of Cruttenden Roth Incorporated, offer to sell, contract to
sell, or otherwise sell, dispose of loan, pledge or grant any rights with
respect to or effect the purchase of, directly or indirectly, any Securities
other than the sale of the Company Shares and the Option Shares hereunder and
the Company's issuance of options or Common Stock currently reserved for
issuance under the Company's presently authorized stock option plan, stock
purchase plans and Warrants described in the Registration Statement and the
Prospectus; provided, however, that the Company may issue up to 368,888 shares
to Union Miniere, Inc. (to the extent not issued to date) pursuant to those
certain Series A Convertible Subordinated Debentures dated as of December 29,
1988 and June 18, 1990 between the Company and Union Mines, Inc. and the Company
may purchase
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shares pursuant to rights of first refusal and stock repurchase rights currently
in effect under the Company's stock option plans and stock repurchase plans
described in the Registration Statement and the Prospectus.
(l) The Company shall issue and sell to the
Representatives upon the Closing Date, at a price of $0.001 per share, warrants
to purchase in the aggregate that number of shares of the Company's Common Stock
equal to ten percent (10%) of the Company Shares at an exercise price equal to
One Hundred and Thirty Percent (130%) of the public offering purchase price per
share set forth in Section 3 hereof (the "Representatives' Warrants"). The
Representatives' Warrants shall have a term of five (5) years from the date of
issuance and shall be in substantially the form attached hereto as Exhibit A.
(m) The Company will cause the Shares to be listed on
The Nasdaq National Market, and the Company will comply with all registration,
filing, reporting and other requirements of the Exchange Act and any such
exchange or The Nasdaq National Market which may from time to time be applicable
to the Company, and the Company shall not agree to the delisting from The Nasdaq
National Market at any time prior to three (3) years from the Closing Date
without the prior written consent of the Representatives unless required to do
so by Nasdaq.
(n) The Company will use its best efforts to maintain a
board of directors that will at all times include at least two (2) non-employee
directors.
(o) The Company shall at all times maintain director and
officer liability insurance from a responsible insurer with $5 million of
coverage per occurrence.
(p) The Company will use its best efforts to ensure that
all executive officers and key employees listed in the Registration Statement
remain employed by the Company for a minimum of twenty four (24) months after
the Closing Date.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs
and expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto the Preliminary Blue Sky Memorandum and any Supplemental Blue Sky
Memorandum; the printing of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars'
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<PAGE> 21
fees; the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus, and
any amendments or supplements to any of the foregoing; NASD filing fees and the
cost of qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of Underwriters'
Counsel in connection with such NASD filings and Blue Sky qualifications);
provided, however that fees of Underwriters counsel with respect to Blue Sky
matters shall not exceed $10,000; and all other expenses directly incurred by
the Company and the Selling Stockholders in connection with the performance of
their obligations hereunder. In addition, upon the Closing Date the Company will
pay Cruttenden Roth Incorporated a non-accountable expense allowance equal to
two percent (2%) of the total proceeds from the offering of the Shares, less
$15,000 which has been previously paid. The provisions of this Section 3(a)(i)
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Selling Stockholders and the Company hereby agree to pay, but
shall not affect any agreement which the Selling Stockholders and the Company
may make, or may have made, for the sharing of any of such expenses and costs.
Such agreements shall not impair the obligations of the Company and the Selling
Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations
under Section 8 hereof, the Company agrees that as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under Section
8(c) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred
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<PAGE> 22
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a), 8(b) and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(e)
hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Diego time, on the date following the
date of this Agreement, or such later date and time as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, any Selling Stockholder or any Underwriter,
threatened by the
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<PAGE> 23
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section .
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus.
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
the following opinion of Cooley Godward LLP, counsel for the Company, dated the
Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
Delaware;
(ii) The Company has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business (as known to such counsel) requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the financial condition, earnings, operations or
business of the Company. To the knowledge of such counsel, the Company does not
own or control, directly or indirectly, any corporation, association or other
entity except that the Company owns shares of Radius Engineering, N.V. and Laser
Power de Mexico, S.A. de C.V.
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<PAGE> 24
(iv) The authorized, issued and outstanding
capital stock of the Company was as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the Selling
Stockholder Shares) have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) The Company Shares or the Option Shares,
as the case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof; will be duly and validly
issued and fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right contained in the Company's
charter or bylaws or, to such counsel's knowledge, in any other agreement or
contract to which the Company is a party;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized
by all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification and
contribution provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
or by general equitable principles or remedies;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the financial
statements (including supporting schedules), financial data derived therefrom
and other financial and statistical information included therein as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
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<PAGE> 25
(x) The information in the Prospectus under
the caption "Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel and
fairly summarizes such matters and conclusions to the extent required by the Act
and applicable Rules and Regulations; and the form of certificate evidencing the
Common Stock and filed as an exhibit to the Registration Statement comply with
Delaware law;
(xi) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are
no agreements, contracts, leases or documents to which the Company or either of
its subsidiaries is a party of a character required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described therein or so filed;
(xiii) The performance of this Agreement and
the consummation of the transactions herein contemplated (other than performance
of the Company's indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in any
violation of the charter or bylaws of the Company or (b) result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness, or
any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument filed as an exhibit to the Registration
Statement or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the Company
or any of its properties or operations; provided, however, that such counsel
need not express any opinion or belief with respect to state securities or Blue
Sky laws;
(xiv) No consent, approval, authorization or
order of or qualification with any court, government or governmental agency or
body having jurisdiction over the Company or its properties or operations is
necessary in connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act or such as
may be required under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Shares by the Underwriters;
(xv) To such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened against the Company
or any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein; and
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<PAGE> 26
(xvi) To such counsel's knowledge, except as
set forth in the Registration Statement and Prospectus, no holders of Common
Stock or other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having rights
known to such counsel to registration of such shares of Common Stock or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
In addition, such counsel shall state that such
counsel has acted as legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads such counsel to believe that, at the
time the Registration Statement became effective, the Registration Statement and
any amendment or supplement thereto (other than the financial statements
including supporting schedules, other financial information derived therefrom
and other financial and statistical information included therein, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or as of the date of
the Prospectus or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States, the State of
California or the corporate laws of the State of Delaware upon opinions of local
counsel, and as to questions of fact upon representations or certificates of
officers of the Company, and of government officials, in which case their
opinion is to state that they are so relying and that they have no knowledge of
any material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
(e) You shall have received on the Closing Date and
on any later date on which Option Shares are to be purchased, as the case may
be, the
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<PAGE> 27
following opinions of counsel for each of the Company's subsidiaries dated the
Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation;
(ii) The subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as presently conducted and as described in the Prospectus;
(iii) The subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business (as known to such counsel) requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the subsidiary. The subsidiary does not own or
control, directly or indirectly, any corporation, association or other entity.
(iv) All of the outstanding shares of the
subsidiary (i) are owned by the Company except as set forth on an attachment to
the Opinion, (ii) have been duly and validly issued and are fully paid and
nonassessable, and, (iii) to such counsel's knowledge, have not been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right. There are no outstanding
options or warrants or other rights to acquire shares of the subsidiary's stock.
(v) The performance of this Agreement and
the consummation of the transactions herein contemplated will not to such
counsel's knowledge, result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, any bond, debenture,
note or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the subsidiary is a party or by which
its properties are bound, or any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction over the
subsidiary or any of its properties or operations;
(vi) No consent, approval, authorization or
order of or qualification with any court, government or governmental agency or
body having jurisdiction over the subsidiary or its properties or operations is
necessary in connection with the consummation by the Company of the transactions
herein contemplated;
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<PAGE> 28
(vii) To such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened against the
subsidiary of a character required to be disclosed in the Registration Statement
or the Prospectus by the Act or the Rules and Regulations, other than those
described therein; and
In addition, such counsel shall state that such
counsel has acted as legal counsel to the subsidiary and has reviewed the
contents of the Registration Statement and Prospectus and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads such counsel to believe that, at the time the
Registration Statement became effective, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules, other financial information derived therefrom and other
financial and statistical information included therein, as to which such counsel
need express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or as of the date of the Prospectus
or at the Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of fact upon representations or certificates of officers of the
Company, and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(f) You shall have received on the Closing Date the
following opinion of counsel for each of the Selling Stockholders dated the
Closing Date addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Power of Attorney and Custody
Agreement of the Selling Stockholder has been duly executed and delivered by or
on behalf of the Selling Stockholder and each constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and remedies;
(ii) This Agreement has been duly executed
and delivered by or on behalf of the Selling Stockholder and is a valid and
binding
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agreement of the Stockholder enforceable in accordance with its terms, except
insofar as indemnification and contribution provisions may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles or remedies;
(iii) Upon the delivery of and payment for
the Shares as contemplated in this Agreement, valid marketable title to the
Shares will be transferred to the Underwriters from the Selling Stockholder,
free and clear of any adverse claim. In rendering such opinion, such counsel may
assume that the Underwriters are without notice of any adverse claim to the
Shares being purchased from the Selling Stockholder; and
(iv) [To be provided by each Selling
Stockholder that is not a natural person.] The Selling Stockholder has full
right, power and authority to enter into and to perform its obligations under
the Power of Attorney and Custody Agreement to be executed and delivered by it
in connection with the transactions contemplated herein; the Power of Attorney
and Custody Agreement of the Selling Stockholder have each been duly authorized
by the Selling Stockholder.
(v) [to be provided by each Selling
Stockholder that is not a natural person] The Selling Stockholder has full
right, power and authority to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the Shares to be sold
by the Selling Stockholder hereunder; This Agreement has been duly authorized by
the Selling Stockholder.
Counsel rendering the foregoing opinion
may rely as to questions of fact upon representations or certificates of the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(g) You shall have received on the Closing Date and
on any later date on which Option Shares are to be purchased, as the case may
be, an opinion of Gray Cary Ware & Freidenrich, a Professional Corporation, in
form and substance satisfactory to you, with respect to the sufficiency of all
such corporate proceedings and other legal matters relating to this Agreement
and the transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and
on any later date on which Option Shares are to be purchased, as the case may
be, the
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following opinion of _________________, patent counsel to the Company, dated the
Closing Date or such other date on which Option Shares are to be purchased and
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters: an opinion that the information in the
Registration Statement and the Prospectus under the captions "Risk Factors --
Patents and Proprietary Rights" and "Business -- Patents and Proprietary
Rights," (the "Relevant Sections") to the extent that they constitute matters of
law or legal conclusions, have been reviewed by such counsel and are a fair and
accurate summary or such matters.
In addition, such counsel shall state that such
counsel has represented the Company in intellectual property-related matters and
has participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Relevant Sections and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Relevant Sections , nothing has come to the attention of such
counsel which leads such counsel to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are to be purchased,
the Relevant Sections contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or at the Closing Date or any later
date on which the Option Shares are to be purchased, as the case may be, the
Relevant Sections contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(i) You shall have received on the Closing Date and
on any later date on which Option Shares are to be purchased, as the case may
be, a letter from Ernst & Young LLP, Independent Auditors ("E&Y"), addressed to
the Underwriters, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be (in each case, the "Bring Down
Letter"), confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in a
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
two (2) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) reaffirming to the
extent true, the statements set forth in the Original Letter as of the Closing
Date or such later date on which Option Shares are to be purchased, as the case
may be, and (ii) setting forth any revisions and additions to the statements set
forth in the Original Letter that are necessary to reflect any changes in the
facts described in the Original Letter since its date, or to reflect the
availability of more recent financial statements, data or information. The Bring
Down Letter shall not disclose any change in the condition (financial or
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<PAGE> 31
otherwise) or earnings of the Company from that set forth in the Registration
Statement or Prospectus. The Original Letter from E&Y shall be addressed to or
for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent auditors with respect to the Company within the meaning of the Act
and the applicable published rules and regulations thereunder, (ii) set forth
their opinion that with respect to their consolidated financial statements
audited by them and appearing in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the Act and
the related rules and regulations thereunder, (iii) state that E&Y has performed
the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for
a review of interim financial information on the unaudited financial statements
at and for the six-month period ended February 29/28, 1997 and 1996 (the
"Interim Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Interim Financial Statements in
order for them to be in conformity with generally accepted accounting
principles, (v) state that nothing came to their attention that caused them to
believe that the financial statements included in the Registration Statement and
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, and (vi) address other matters agreed upon by E&Y and you. In
addition, you shall have received from E&Y a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the Company's
financial statements as of August 31, 1996, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(j) You shall have received on the Closing Date and
on any later date on which Option Shares are to be purchased, as the case may
be, a certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be reasonably satisfied that:
(i) The representations and warranties of
the Company in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
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(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations, and in all material
respects conformed to the requirements of the Act and the Rules and Regulations,
the Registration Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company, (b) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business, (d)
any change in the capital stock or outstanding indebtedness of the Company that
is material to the Company or is out of the ordinary course of business of the
Company, (e) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, or (f) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company.
(k) You shall be reasonably satisfied that, and you
shall have received a certificate dated the Closing Date from or on behalf of
each Selling Stockholder to the effect that, as of the Closing Date:
(i) The representations and warranties made
by such Selling Stockholder herein are true or correct in all material respects
on the Closing Date; and
(ii) Such Selling Stockholder has complied
with all obligations and satisfied all conditions which is required to be
performed or satisfied on the part of such Selling Stockholder at or prior to
the Closing Date.
(l) The Company shall have entered stop transfer
instructions with the Company's transfer agent against the transfer of any
shares of Common Stock, including shares issued during the Lock-up Period
pursuant to
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options, Warrants or other securities convertible into or exchangeable for
shares of Common Stock, held by any person party to a Lock-up Agreement except
in compliance with the terms of the Lock-up Agreement.
(m) The Company and the Selling Stockholders shall
have furnished to you such other certificates and documents as you shall
reasonably request (including certificates of officers of the Company, the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person)) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(n) You shall have received the Representatives'
Warrants, duly and validly executed by the President of the Company.
(o) The Shares shall have been duly approved for
listing on the Nasdaq National Market.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company and the Selling
Stockholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
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7. OPTION SHARES.
(a) On the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and sale
of the Company Shares only, a nontransferable option to purchase up to an
aggregate of 360,000 Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on no more than three (3)
occasions in whole or in part during the period of forty-five (45) days after
the effective date of the Registration Statement by giving written notice (the
"Option Notice") to the Company. The number of Option Shares to be purchased by
each Underwriter upon the exercise of such option shall be the same proportion
of the total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor (reduced as set forth below) by the several Underwriters
by wire transfer of funds to the Company with the delivery of such certificates
to be at the offices of Cooley Godward LLP 4365 Executive Drive, Suite 1100,
San Diego, California or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company after the date two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit
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through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as
the Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness of
any of the representations, warranties or statements, the performance of any of
the covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject as a result of the
transactions contemplated by this Agreement (including, without limitation, in
its capacity as an Underwriter or as a qualified independent underwriter as
defined in Rule 2720 of the Conduct Rules of the NASD) under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged untrue
statement or any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
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<PAGE> 36
circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities (or actions in respect thereof), joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" as defined in Rule 2720 of the Conduct Rules of the NASD) under the
Act, the Exchange Act or otherwise) arising out of or based upon (i) any breach
of any representation, warranty, agreement or covenant of such Selling
Stockholder herein or in such Selling Stockholder's power of attorney contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to the extent such statement or omission is based upon written
information relating to such Selling Shareholder furnished by such Selling
Shareholder specifically for use in the preparation thereof; and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action: provided, however, that the indemnity agreement
provided in this
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Section 8(b) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations; provided further, that each
Selling Stockholder's aggregate liability for all claims for indemnity under
this Section 8(b) is subject to the limitation on liability set forth in Section
8(f) below.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company and each Selling Stockholder
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such Selling Stockholder may become subject under the Act or
otherwise as a result of the transactions contemplated by this Agreement,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each officer of the Company who signed the Registration Statement and each
director of the Company, each Selling Stockholder and each person, if any, who
controls the
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Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8 except to the extent
that it has been prejudiced by such omission. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
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release of such indemnified party from all liability on all claims that are the
subject matter of such proceeding.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last sight of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that, the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount bears
to the public offering price, and the Company and the Selling Stockholders are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
been required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
(f) The liability of each Selling Stockholder under
the representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters. The
Company and such Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge
that they are sophisticated businesspersons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act.
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9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement, until the date
three years after the date of this Agreement at which time they shall terminate;
provided, however, that thereafter the indemnifying party will remain liable,
with respect to any claim for indemnification made pursuant to Section 8 of this
Agreement (and reimbursement pursuant to Section 5 with respect thereto)
provided that a notice of such claim has been delivered to the indemnifying
party in accordance with Section 8(d) on or before such termination date.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
nonbusiness hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the
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defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
ln the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, then other than as set forth in the
Letter Agreement, neither the Company nor any Selling Stockholder shall be
liable to any Underwriter (except as provided in Sections 5 and 8 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
number of Firm Shares agreed by such Underwriter to be purchased hereunder,
which Underwriter shall remain liable to the Company, the Selling Stockholders
and the other Underwriters for damages, if any, resulting from such default) be
liable to the Company or any Selling Stockholder (except to the extent provided
in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the
earlier of (i) 6:30 A.M., San Diego time, on the first full business day
following the effective date of the Registration Statement and (ii) the time of
the public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the public offering shall
mean the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i) and 8 hereof.
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(b) You, as Representatives of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Stockholder shall have failed, refused
or been unable to perform any agreement on its part to be performed, or because
any other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your sole judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the sole judgment of the
Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company and the Selling
Stockholders shall remain obligated to pay costs and expenses pursuant to
Sections 4(i) and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention:
42
<PAGE> 43
General Counsel; if sent to the Company, such notice shall be mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
12777 High Bluff Drive, San Diego, California 92130, telecopier number (619)
259-0956, Attention: Glenn H. Sherman, Chief Executive Officer, if sent to one
or more of the Selling Stockholders, such notice shall be sent mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to Glenn H. Sherman, as Attorney-in-Fact for the Selling Stockholders,
at 12777 High Bluff Drive, San Diego, California 92130, telecopier number (619)
259-0956.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Stockholders
and their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Cruttenden Roth Incorporated on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving effect to
conflict of law principles.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[SIGNATURE PAGE FOLLOWS]
43
<PAGE> 44
If the foregoing correctly sets forth the understanding among
the Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
LASER POWER CORPORATION
By
-------------------------------------
SELLING STOCKHOLDERS
By
-------------------------------------
Attorney-in-Fact for the Selling
Stockholders named in Schedule B
hereto
Accepted as of the date first above written:
CRUTTENDEN ROTH
INCORPORATED
L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.
On their behalf and on behalf of each
of the several Underwriters named in
Schedule A hereto.
By: CRUTTENDEN ROTH
INCORPORATED
By:
-------------------------------------
Authorized Signatory
44
<PAGE> 45
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------
<S> <C>
Cruttenden Roth Incorporated.......................................................
L.H. Friend, Weinress, Frankson & Presson, Inc.....................................
---------
Total..................................................................... 2,400,000
=========
</TABLE>
1
<PAGE> 46
SCHEDULE B
<TABLE>
<CAPTION>
Name of Selling Stockholder Number of Shares
- --------------------------- ----------------
<S> <C>
----------------
TOTAL 400,000
</TABLE>
1
<PAGE> 47
EXHIBIT A
Form of
Representatives Warrant
2
<PAGE> 48
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, (ii) THE SALE IS MADE IN ACCORDANCE WITH RULE 144
UNDER THE ACT, OR (iii) THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.
_______________, 1997
LASER POWER CORPORATION
COMMON STOCK PURCHASE WARRANT
[200,000] Shares
Void after ____________, 2002
1. NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT. In connection with
the of public offering of Common Stock (the "Offering") of Laser Power
Corporation (the "Company") and subject to the terms and conditions of this
Warrant, Cruttenden Roth Incorporated, or its permitted transferees (each a
"Holder") is entitled to purchase from the Company, at any time after
____________, 1998, and on or before ____________, 2002, up to [200,000] shares
(which number of shares is subject to adjustment as described below) of fully
paid and non-assessable Common Stock of the Company (the "Shares"). Subject to
adjustments for any stock splits, reverse stock splits, stock dividends,
recapitalization or reclassification, the purchase price of one share of Common
Stock shall be equal to [$9.75] per share. The purchase price of one share of
Common Stock payable from time to time upon the exercise of this Warrant
(whether such price be the price specified above or an adjusted price determined
as hereinafter provided) is referred to herein as the "Warrant Price."
2. ADJUSTMENTS. The number of Shares issuable upon the exercise of this
Warrant and the exercise price thereof shall be subject to adjustment from time
to time, and the Company agrees to provide notice upon the happening of certain
events, as follows:
a) Merger, Sale of Assets, etc. If any capital
reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in such
a way that holders of Shares shall be entitled to receive stock, securities or
assets with respect to or in exchange for Shares, then, as a condition of such
reorganization, reclassification,
<PAGE> 49
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the Shares immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Shares equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby. In any such case, appropriate provision shall
be made with respect to the rights and interests of Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Warrant Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as may
be possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other that the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
b) Reclassification, etc. If the Company at any time
shall, by subdivision, combination or reclassification of securities or
otherwise, change any of the securities to which purchase rights under this
Warrant exist into the same or a different number of securities of any class or
classes, this Warrant shall thereafter be deemed to give the Holder the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change. If shares of the class of the
Company's stock for which this Warrant is being exercised are subdivided or
combined into a greater or smaller number of shares of stock, the Warrant Price
shall be proportionately reduced in the case of subdivision of shares or
proportionately increased in the case of combination of shares, in both cases by
the ratio which the total number of shares of such class of stock to be
outstanding immediately after such event bears to the total number of shares of
such class of stock outstanding immediately prior to such event.
c) Adjustment for Dividends in Stock. In case at any
time or from time to time on or after the date hereof the holders of the shares
of the Company's Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received, or, on
or after the record date fixed for the determination of eligible shareholders,
shall have become entitled to receive, without payment therefor, other or
additional stock or securities (or any rights or options to subscribe for or
purchase any of the foregoing) of the Company by way of dividend, then and in
each case, the holder of this Warrant shall, upon the exercise hereof, be
entitled to receive, in addition to the number of Shares receivable thereupon,
and without payment of any additional consideration therefor, the amount of such
other or additional stock of the Company which such holder would hold on the
date of such exercise had it been the holder of record of such Shares on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such
<PAGE> 50
shares and/or all other additional stock receivable by it as aforesaid during
such period, giving effect to all adjustments called for during such period by
paragraph (c) of this Section 2.
3. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle Holder to any
of the rights of a shareholder of the Company, except that Holder shall be
entitled to receive copies of such annual and periodic reports and other
communications as the Company sends to all of its shareholders.
4. RESERVATION OF STOCK. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for Shares upon the exercise of this Warrant.
5. EXERCISE AND CONVERSION OF WARRANT.
a) This Warrant may be exercised by Holder or its
permitted assigns, in whole or in part, by delivery of the Notice of Exercise in
the form attached hereto as ATTACHMENT 1 and surrender of this Warrant at the
principal office of the Company, accompanied by payment in full of the Warrant
Price as described above. Notwithstanding any provision of this Warrant, this
Warrant may not be exercised prior to one (1) year following ____________, 1997.
Upon partial exercise hereof, a new warrant or warrants containing the same date
and provisions as this Warrant shall be issued by the Company to the registered
holder for the number of shares of Common Stock with respect to which this
Warrant shall not have been exercised.
b) Notwithstanding anything to the contrary contained
in this Section 5, Holder may elect to receive Shares on a "net exercise" basis
in an amount equal to the value of this Warrant by delivery of the Notice of
Conversion in the form attached hereto as ATTACHMENT 2 and surrender of this
Warrant at the principal office of the Company, in which event the Company shall
issue to Holder a number of Shares computed using the following formula:
(P)(Y)(A-B)
-----------
X = A
Where: X = the number of Shares to be issued to
Holder.
P = the portion of the Warrant being exercised.
Y = the number of Shares issuable upon exercise of
this Warrant.
A = the Fair Market Value of one Share.
<PAGE> 51
B = Warrant Price.
c) As used herein, the Fair Market Value of the
Shares shall mean with respect to each Share the closing price or last sale
price of the Company's Common Stock sold on any securities exchange or quoted on
the Nasdaq National Market on which the Common Stock may at the time be listed
or quoted, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on such exchange at the end
of such day or quote on the Nasdaq National Market, or, if on any day the Common
Stock is not so listed or quoted, the average of the representative bid and
asked prices quoted on the Nasdaq SmallCap Market as of 4:00 p.m., New York City
time, or, if on any day the Common Stock is not quoted on the Nasdaq SmallCap
Market, the average of the highest bid and lowest asked price on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five days consisting of the day as of which the current fair
market value of the Shares is being determined and the four consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted on the Nasdaq National Market, the Nasdaq SmallCap
Market or the over-the-counter market, the current fair market value of a Share
shall be the highest price per share which the Company could obtain from a
willing buyer (other than a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless the Company shall
become subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the current Fair Market
Value of a Share shall be deemed to be the value received by the holders of the
Company's Common Stock for each share of Common Stock in such merger,
acquisition or other consolidation.
d) This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
Shares issuable upon such exercise shall be treated for all purposes as the
holder of such shares of record as of the close of business on such date. As
promptly as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of full Shares issuable upon such exercise, together
with cash in lieu of any fraction of a Share.
6. TRANSFER OF WARRANT. This Warrant and all rights hereunder may be
transferred, in whole or in part, provided that any such transfer is in
compliance with the legend appearing on the first page hereof and the transferee
delivers a duly executed copy of Attachment 4; provided, however, for a period
of one year from the effective date of the Offering, the Warrant may not be
sold, transferred, assigned or hypothecated except to officers or partners of
Holder and members of the selling group of the Offering and their officers and
partners; and, provided further that any transferee other than an officer or
partner of Holder must acquire the right to acquire the lesser of at least (i)
[20,000] Shares or (ii) all of the Shares issuable upon exercise of this
Warrant.
<PAGE> 52
7. COMPLIANCE WITH SECURITIES LAWS.
a) Holder represents and agrees that this Warrant is
being purchased only for investment, for Holder's own account, and without any
present intention to sell or distribute the Warrant or the Shares, other than a
distribution to certain employees of Holder who agree in writing to be bound by
the terms of this Warrant to the same extent as Holder. Holder further
acknowledges that the Shares will not be issued pursuant to the exercise of this
Warrant unless the exercise of this Warrant and the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Act and other federal and state securities laws and regulations
and the requirements of any stock exchange or other system upon which the Shares
may then be listed.
b) Holder acknowledges and agrees that this Warrant
and the Shares (collectively, the "Securities") have not been registered under
the Act and accordingly will not be transferable except as permitted under the
various exemptions contained in the Act, or upon satisfaction of the
registration and prospectus delivery requirements of the Act. Therefore, the
Securities must be held indefinitely unless they are subsequently registered
under the Act, or an exemption from such registration is available. Holder
understands that unless the Shares are registered under the Act the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer of the Shares unless they are registered or unless the Company receives
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required. Holder is aware of the adoption of Rule 144 by the
Securities and Exchange Commission and that at the time Holder wishes to sell
the Securities, the Company may not be satisfying the current public information
requirements of Rule 144 and, in such case, Holder would be precluded from
selling the Securities under Rule 144. Holder understands that a stop transfer
instruction will be in effect with respect to transfer of Securities
inconsistent with the requirements of all applicable securities laws.
8. REGISTRATION RIGHTS. Holder shall be entitled to the registration
rights set forth on ATTACHMENT 3 to this Warrant.
9. MISCELLANEOUS. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the registered Holder hereof. All notices and other
communications from the Company to Holder shall be mailed by first-class
registered or certified mail, postage prepaid, to the address furnished to the
Company in writing by the last Holder of this Warrant who shall have furnished
an address to the Company in writing.
ISSUED effective this ____ day of ____________, 1997.
LASER POWER CORPORATION
a Delaware corporation
<PAGE> 53
By:
---------------------------------------
Title:
---------------------------
<PAGE> 54
ATTACHMENT 1
NOTICE OF EXERCISE
TO: LASER POWER CORPORATION
1. The undersigned holder (the "Holder") hereby elects to purchase
_____________ shares of the Common Stock of Laser Power Corporation (the
"Shares") pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price in full, together with all applicable transfer
taxes, if any.
2. Holder represents and agrees that the Shares are being purchased
only for investment, for Holder's own account, and without any present intention
to sell or distribute the Shares, except in compliance with all relevant
provisions of law, including, without limitation, the Act and other federal and
state securities laws and regulations and the requirements of any stock exchange
or other system upon which the Shares are listed. Holder acknowledges and agrees
that the Shares have not been registered under the Act and accordingly will not
be transferable except as permitted under the various exemptions contained in
the Act, or upon satisfaction of the registration and prospectus delivery
requirements of the Act. Therefore, the Securities must be held indefinitely
unless they are subsequently registered under the Act, or an exemption from such
registration is available. Holder understands that unless the Shares are
registered under the Act the certificate evidencing the Shares will be imprinted
with a legend which prohibits the transfer of the Shares unless they are
registered or unless the Company receives an opinion of counsel reasonably
satisfactory to the Company that such registration is not required. Holder is
aware of the adoption of Rule 144 by the Securities and Exchange Commission and
that at the time Holder wishes to sell the Shares, the Company may not be
satisfying the current public information requirements of Rule 144 and, in such
case, Holder would be precluded from selling the Shares under Rule 144. Holder
understands that a stop transfer instruction will be in effect with respect to
transfer of Securities inconsistent with the requirements of all applicable
securities laws.
<PAGE> 55
3. Please issue a certificate or certificates representing the Shares
in the name of the undersigned or in such other name as is specified below:
(Name)
(Address)
(Tax I.D. Number)
Name of Warrant Holder
Date:
-------------------------
By:
- ------------------------------
Title:
- ------------------------------
<PAGE> 56
ATTACHMENT 2
NOTICE OF CONVERSION
TO: LASER POWER CORPORATION
1. The undersigned hereby elects to acquire _______________ shares of the Common
Stock of Laser Power Corporation, pursuant to the terms of the attached Warrant,
by conversion of ________ percent (___%) of the Warrant.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
(Name)
(Address)
(Tax I.D. Number)
Name of Warrant Holder
Date:
---------------------------------------
By:
- ----------------------------
Title:
- ----------------------------
<PAGE> 57
ATTACHMENT 3
STATEMENT OF REGISTRATION RIGHTS
15. DEFINITIONS. For purpose of the Warrant to which this Statement of
Registration Rights is attached as ATTACHMENT 3:
a) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
b) The term "Registrable Securities" means the shares
of Common Stock issued or issuable upon exercise of the Warrant;
c) The term "Holder" means the original holder of the
Warrant and any permitted transferee of the Warrant to the extent such persons
are the holders of Registrable Securities;
d) The term "Form S-3" means such form under the Act
as in effect on the date hereof, or any registration form under the Act
subsequently adopted by the Securities and Exchange Commission (the "SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC; and
e) The term "Warrant" means the original Warrants
issued in connection with the Offering, as such term is defined in the Warrant,
and all Warrants issued as a result of the transfer of such original Warrants.
2. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes at any time after _____________, 1998 and before
______________, 2002 to register (including for this purpose a registration
effected by the Company for shareholders other than Holder) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give Holder
written notice of such registration. Upon the written request of Holder given
within 15 days after mailing of such notice by the Company, the Company shall,
subject to the provisions of Section 8 hereof and Section 5 of the Warrant,
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered.
3. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in
the event that the Company is to effect the registration of any Registrable
Securities pursuant to Section 2 hereof, the Company shall promptly:
<PAGE> 58
a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the holders
of a majority of the securities registered thereunder, keep such registration
statement effective for up to 120 days, or such shorter period as is required to
dispose of all securities covered by such registration statement.
b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
c) Furnish to Holder such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as Holder may reasonably request in order to
facilitate the disposition of Registrable Securities owned by Holder.
d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Holder, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions or to agree to any restrictions as
to the conduct of its business in the ordinary course thereof.
e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Holder shall
also enter into and perform its obligations under such underwriting agreement,
including furnishing an opinion of counsel for such Holder if requested by the
managing underwriter.
f) Notify Holder at any time when a prospectus relating to
Registrable Securities of Holder covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
g) Furnish, at the request of Holder, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to the Warrant, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to Holder and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and
<PAGE> 59
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to Holder.
4. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant
or this Statement of Registration Rights to the contrary, the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to Section 2, if application of Rule 144 would allow Holder requesting
registration under Section 2 to dispose of the Registrable Securities for which
a registration is demanded within a single 90-day period.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to the Warrant that the
selling Holder shall furnish to the Company such information regarding itself,
the Registrable Securities held by Holder, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
6. EXPENSES. The Company shall bear and pay all expenses other than
underwriting discounts and commissions incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 2 hereof for Holder, including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or apportionable thereto, and the cost of any
reasonable fees or disbursements of a single counsel for Holder and all other
selling stockholders.
7. UNDERWRITING REQUIREMENTS. In connection with any registrations in
which Registrable Securities have a right to be included pursuant to Section 2
hereof and which involves an underwriting of securities being issued by the
Company, the Company shall not be required, under Section 2 hereof, to include
any of Holder's securities in such underwriting unless Holder accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters believe will not jeopardize the
success of the offering, the securities so included to be apportioned pro rata
among the selling Holder and other shareholders holding contractual registration
rights according to the total amount of securities entitled to be included
therein owned by each selling shareholder or in such other proportions as shall
mutually be agreed to by Holder and each other selling shareholder.
8. DELAY OF REGISTRATION. Holder shall have no right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of the Warrant.
9. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement filed by the Company:
<PAGE> 60
a) To the extent permitted by law, the Company will
indemnify and hold harmless Holder, its officers and directors, any underwriter
(as defined in the Act) for Holder and each person, if any, who controls Holder
or underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) asserted by a third party to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation of the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will reimburse Holder, any of its
officers or directors, underwriter or controlling person for any legal or other
expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability, or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
underwriter or controlling person.
b) To the extent permitted by law, Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter and any
other shareholder selling securities in such registration statement or any of
its directors or officers or any person who controls such shareholder, against
any losses, claims, damages, or liabilities (joint or several) asserted by a
third party to which the Company or any such director, officer, controlling
person, or underwriter or controlling person, or other such shareholder or
director, officer or controlling person may become subject, under the Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by Holder expressly for use in connection with such registration; and
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or
controlling person, other shareholder, officer, director, or controlling person,
as incurred, in connection with investigating or defending any such loss, claim,
damage, liability, or action; PROVIDED, HOWEVER, that the obligations of Holder
hereunder shall be limited to an amount equal to the net proceeds (equal to the
offering price less the exercise price, expenses and underwriting commissions
and discounts) to such Holder of Shares sold as contemplated herein.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9(b) shall not
<PAGE> 61
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of Holder, which
consent shall not be unreasonably withheld.
c) Promptly after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying part under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel representing the indemnified parties
who are parties to such action). The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
10. REPORTS UNDER THE 1934 ACT. With a view to making available to
Holder the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company will endeavor to:
a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144;
b) take such action as is reasonable to enable Holder to
utilize Form S-3 for the sale of its Registrable Securities;
c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
d) furnish to Holder, so long as Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Act and the
1934 Act, or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
<PAGE> 62
11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to the Warrant may be assigned by
Holder to a permitted transferee or assignee of the Warrant or of at least
20,000 Shares, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
<PAGE> 63
ATTACHMENT 4
STATEMENT OF HOLDER
The undersigned, represents and warrants to Laser Power
Corporation, a Delaware corporation, that the representations and warranties
contained in Section 7 of the Common Stock Purchase Warrant to which this
Statement is attached are true and correct. The undersigned also agrees to be
bound by the terms of Section 9(b) of Attachment 3 to such Warrant.
CRUTTENDEN ROTH INCORPORATED
By:
_______________________________
Name:
_______________________________
Title:
_______________________________
Dated:
_______________________________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Information" and to the use of our report dated
October 9, 1996, except for Note 5 ("Changes in Capitalization"), as to which
the date is March 25, 1997, in Amendment No. 2 to the Registration Statement
(Form SB-2) and the related Prospectus of Laser Power Corporation for the
registration of shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
May 5, 1997
