As filed with the Securities and Exchange Commission on June 5, 2002
Filed Pursuant to Rule 424(b)
Registration No.333-82626
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SOLICIT AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
13,276,623 SHARES OF
FIBERCORE, INC.
COMMON STOCK
This prospectus relates to the public offering by FiberCore, Inc. and the
Selling Stockholders of up to a maximum of 13,276,623 shares of the common stock
of FiberCore, Inc., par value $.001 per share, representing approximately 21.5%
of the outstanding shares of FiberCore, Inc.'s common stock on May 28, 2002. The
9,076,623 shares of our common stock, representing approximately 14.7% of the
outstanding shares of FiberCore, Inc.'s common stock on May 28, 2002, being
offered for resale on behalf of Selling Stockholders consist of:
o 2,587,870 shares of our common stock issued and issuable to Crescent
International, Ltd;
o 790,811 shares of our common stock issuable upon exercise of warrants
issued to Gruntal & Co., LLC;
o 5,644,770 shares of our common stock issuable upon conversion of
convertible securities and exercise of warrants issued and issuable to
Riverview Group, LLC; Laterman & Co. and Forevergreen Partners; and
o 53,172 shares of our common stock issuable to other investors upon
exercise of warrants.
The remaining 4,200,000 shares of our common stock, representing
approximately 7% of the outstanding shares of our common stock on May 28,
2002, are being registered for underwritten sales through one or more
registered broker dealers at fixed prices by FiberCore from time to time. The
names of any underwriters or agents will be set forth in the accompanying
prospectus supplement.
The prices at which the Selling Stockholders and we may sell the shares of
our common stock that are part of this offering will be determined by the
prevailing market price for the shares at the time the shares are sold.
The NASDAQ SmallCap symbol for our common stock is FBCE. On May 28, 2002,
the last reported sale price for our common stock was $.58 per share.
This prospectus may not be used to consummate sales of securities unless
it is accompanied by a prospectus supplement.
INVESTING IN THESE SECURITIES INVOLVES SUBSTANTIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 5, 2002.
TABLE OF CONTENTS
THE OFFERING...................................................................3
ABOUT THIS PROSPECTUS..........................................................3
THE COMPANY....................................................................3
OUR BUSINESS...................................................................3
RISK FACTORS...................................................................6
DILUTION......................................................................15
FORWARD-LOOKING INFORMATION...................................................17
WHERE YOU CAN FIND MORE INFORMATION...........................................17
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................17
RECENT FINANCING AGREEMENTS...................................................18
USE OF PROCEEDS...............................................................23
SELLING STOCKHOLDERS..........................................................24
PLAN OF DISTRIBUTION..........................................................29
DESCRIPTION OF CAPITAL STOCK..................................................31
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION................33
LEGAL MATTERS.................................................................33
EXPERTS.......................................................................33
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THE OFFERING
In the registration statement of which this prospectus is a part, we are
registering for resale shares of our common stock issued and issuable to
Crescent International Ltd., issuable to Gruntal & Co., LLC, Riverview Group,
LLC, Laterman & Co., Forevergreen Partners, and issuable to Marc Drimer, Guido
Roennefahrt, and Felix Rebholz. See "Selling Stockholders" beginning on page 26.
We are also offering for sale up to 4,200,000 shares of our common stock
from time to time in underwritten offerings through one or more registered
broker dealers, at fixed prices to be determined at the time of the offerings.
Although we have not established a definitive plan to do so, we are considering
engaging in an underwritten offering in the future. We will file a
post-effective amendment to the registration statement of which this prospectus
is a part setting forth the details of the offering, including the name of the
underwriter which will be a registered broker dealer, and our plan of
distribution if and when we proceed with the underwritten offering.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf registration, we
and the Selling Stockholders may sell the securities covered by this prospectus
in one or more offerings. This prospectus provides you with a general
description of our common stock. Each time we sell securities pursuant to the
registration statement of which this prospectus is a part, we will provide
purchasers with a prospectus supplement that will contain specific information
about the terms of the offering. The prospectus supplement may also add, update
or change information contained in this prospectus. This prospectus, ____
together with applicable prospectus supplements, will include or incorporate by
reference all material information relating to this offering.
THE COMPANY
We were incorporated as FiberCore Incorporated in Nevada in November 1993,
and commenced commercial operations at that time. In July 1995, we merged with
and into Venturecap, Inc., an inactive Nevada corporation traded on the OTC
Bulletin Board. Following the merger, Venturecap changed its name to FiberCore,
Inc. On November 16, 2000, our common stock became quoted on the Nasdaq SmallCap
Market. Our executive offices are located at 253 Worcester Road, Charlton,
Massachusetts, 01507 and our telephone number is (508) 248-3900. Our World Wide
Web site address is www.FiberCoreUSA.com. The information in our Web site is not
a part of this prospectus and is not incorporated by reference into this
prospectus.
OUR BUSINESS
OVERVIEW
We are primarily engaged in the business of developing, manufacturing, and
marketing single-mode and multi-mode optical fiber and optical fiber preforms
for the telecommunications and data communications industry. Preforms are the
basic component from which optical fiber is drawn and subsequently cabled. We
have developed a patented preform production process which management believes
to be competitive with other existing production methods in use. Moreover, in
March 2001 we received a patent for a production process utilizing plasma that
we believe will substantially reduce our manufacturing cost of optical fiber and
preform. Our principal operating units are FiberCore Jena A.G., our wholly-owned
subsidiary in Germany, which primarily produces multi-mode fiber and Xtal
FiberCore Brasil, S.A., a 90% owned Brazilian company formerly known as Xtal
Fibras Opticas, S.A. which we acquired as of June 2000 and primarily produces
single mode fiber.
STRATEGY
Our strategy in the fiber optic manufacturing and marketing business is to
become the low-cost supplier of fiber optic preforms and optical fiber, serving
as the primary supplier to independent manufacturers of fiber optic cable and
our joint venture partners, and a secondary supplier to the major vertically
integrated fiber and photonic companies. In addition to Xtal FiberCore Brasil,
S.A., FiberCore, through FiberCore Jena A.G., operates a manufacturing facility
in Jena, Germany, established in 1986 by Jena Glaswerk (a division of Schott
Glass), which we acquired in July 1994. While our initial marketing efforts were
focused in Western Europe, we are now selling into North and South America,
Africa, the Middle East, and the Asia Pacific regions. By establishing strategic
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distribution alliances in developing countries where demand for fiber optic
cable is stronger than in North America, we believe we can accelerate market
penetration, establish long-term customer relationships, and reduce competitive
risk. We believe that customers who will produce fiber from preforms will enjoy
the benefit of our low-cost production methodology and avoid import duties on
the value added in the fiber optic cable manufacturing process.
In pursuit of our strategy, we have undertaken to form strategic alliances
on a worldwide basis. These strategic alliances include but are not limited to:
long-term supply agreements with our key customers, investment by our key
customers in FiberCore, joint-ventures such as the recently formed FiberCore
Africa joint venture in which we own 60%, and direct investments in related
businesses by us. The key customers with whom we have long-term supply
agreements include Optical Cable Corporation, Commscope, Inc., Cabelte
Industrias do Brasil S/A and Quintas & Quintas Conditores Eletricos do Brasil
Ltda., each a large customer, as well as a number of smaller customers. Of the
four agreements with large customers, two expire in 2003, one expires in 2004
and one in 2005. As of December 31, 2001 the agreements had a value of $42
million, $20 million, $39 million and $19 million respectively. These agreements
contain terms relative to specific products to be provided, volumes and
rescheduling methodologies, prices and periodic pricing adjustment mechanisms,
ongoing business support as well as general contractual terms. Each contains
"take or pay" provisions committing customers to their long term orders. During
the life of the contracts, the percentage of the annual amount of the contract
which the customer must take or pay decreases, but the volume which is the
subject of the contract increases.
PREVAILING MARKET CONDITIONS
Demand for single-mode fiber for use in the long haul market has
significantly weakened and prices have fallen, most notably in the United States
and South America, as telecom carriers reduce capital expenditures. The decline,
however, may be leveling off or easing as published market studies and industry
sources indicate that the demand for single-mode fiber should start to increase
by the end of 2002 or the beginning of 2003 and that the demand for fiber to
supply the metropolitan access and fiber-to-the-home markets, which has already
started to increase, will begin increasing as carriers start to connect the
long-haul fiber to the end-user. For the most part, multi-mode fiber, which
currently accounts for approximately 35% of our revenues and could increase up
to 50% by late 2002 or early 2003, has been less affected by these recent
events, experiencing approximately 15% price declines. Nevertheless, there is no
clear indication as to whether the expected demand will materialize and whether
prices will track the expected increases in demand.
To a certain extent, the global diversification of our revenues and the
lack of dependence on the U.S. telecom long-haul sector had shielded us from
some of the weakness experienced in other sectors to date. However, we have
experienced significant softening in the South American market and have taken
steps to offset this weakness by shifting sales efforts to other markets, by
managing production levels to better match current and expected near-term demand
levels, and by shifting, to the extent possible, production to multi-mode from
single mode fiber. We anticipate that as this trend continues, a higher
percentage of our revenue will be attributable to multi-mode fiber in 2002. One
area that has shown some resiliency has been China, and we have begun shipping
product into China from Brazil. However, prices in China have also been
weakening, as the large fiber manufacturers, including those from Japan and
Korea, reduce inventories amidst a falling Japanese Yen, and there have been
some recent indications that demand may be softening. In view of its sizeable
long-term fiber requirements, China has recently passed laws that will eliminate
the importation of fiber by 2005. Accordingly, as the only fiber manufacturer
that does not manufacture cable and therefore does not compete with our
customers, we have been approached by several Chinese cable manufacturers and
others to enter joint ventures to build facilities in China. At present,
discussions with several groups are in process.
Our multi-mode business, which presently accounts for approximately 35%
percent of our revenue, has been less affected than our single mode business
during the downturn. Offsetting some of the downturn in the long-haul-market is
the expectation of significant growth in the metro and access and
fiber-to-the-home markets. Based on these current market factors, we intend to
manage our business and production mix and levels to fit the present
marketplace, while laying the foundation to increase our competitive advantage
for the next increase in fiber demand. Our strategy also includes mergers with
and acquisitions of companies such as Xtal Fibras Opticas, S.A. We intend to
capitalize on the projected growth by constructing and/or acquiring facilities
to produce optical fiber preforms and optical fiber in areas that offer both
financial benefits and the opportunity to increase market share. We have already
upgraded our existing Jena facility and have completed the construction of a new
facility in Jena. The first phase of the new, fully financed Jena facility began
operations in early 2002, with all equipment scheduled to be operational by
mid-year. Our strategy also includes constructing joint-venture owned facilities
in selected areas. We plan to continually improve the manufacturing processes at
our facilities by implementing our patented technology, by developing new
4
techniques that lower production costs, and offering new and more competitive
products, thereby enhancing our already low cost producer strategy.
ACQUISITIONS AND PROJECTS
On June 1, 2001 we acquired DCI Data Communications Inc., a privately held
company located in Hyannis, MA by merger into Automated Light Technologies Inc.,
our wholly owned subsidiary. The acquired company designs, installs and
maintains low cost fiber optic networks primarily in the northeast United States
for local area network applications, such as those used in hospitals,
universities, government and commercial buildings. Automated Light Technologies,
Inc. manufactures equipment that monitors and identifies faults in fiber optic
cables, cable protection devices, which are used in outdoor fiber optic cable
installations to provide lightning protection, and electro-optical talk sets,
which are used during fiber optic cable installations and subsequent maintenance
work.
On December 31, 2001, our wholly owned subsidiary, FiberCore U.S.A., Inc.,
executed agreements for a $20,000,000 financing facility with the Retirement
System of Alabama to build a manufacturing plant, estimated at $30,000,000, in
Auburn, Alabama. Under the terms of the transaction, the Retirement System will
receive an 8% secured installment note, payable in equal semi-annual payments of
principal and interest over fifteen years. The installment note will be secured
by property, plant and equipment at the Alabama facility. In addition to tax and
other related benefits and incentives, the City of Auburn contributed property
valued at an estimated $1,100,000. Although financing has been secured for the
facility, which is planned to manufacture multi-mode fiber and serve our U.S.
customers, the facility is scheduled to be operational by early 2004. We
anticipate that the commencement of operations at the facility will coincide
with the expected improvement in market conditions. Accordingly, facility
construction is scheduled to begin toward the third quarter of 2002. While we
presently have financing available to cover our $10,000,000 commitment, we
intend to obtain additional financing.
On February 4, 2002, we closed on the formation of FiberCore Africa, an
optical fiber and preform manufacturing joint venture with the Industrial
Development Corporation of South Africa and other South African entities. Under
the terms of the 326,000,000 South African rand based project (approximately
$28,500,000), we received a 60% interest in exchange for our capital
contribution, of approximately $1,750,000, based on the January 31, 2002 rand to
dollar exchange rate, in cash and $8,500,000 in technology value (contributed by
way of a licensing agreement). In addition, we have options to acquire the
remaining 40% by December 31, 2006. The agreements call for the equity
participants to fund their capital contributions as required during 2002. The
joint venture also closed simultaneously on approximately $11,000,000 in project
and working capital financing to be provided after the capital contributions
from all equity participants have been made to the joint venture. We expect the
manufacture of single mode fiber at FiberCore Africa to begin early in 2004. We
have identified local senior management and key technical staff members who have
agreed to join FiberCore Africa. There has been minimal activity and funding to
date and we will account for the initial funding as an investment during the
first quarter of 2002. We will include FiberCore Africa as a consolidated
subsidiary in our consolidated statements in future filings with the Securities
and Exchange Commission.
CAPACITY EXPANSION
Our Jena facility (which until our June 2000 acquisition of Xtal
FiberCore, S.A. was our only facility for the manufacture of optical fiber and
optical fiber preform) is currently operating at full capacity while we are
managing our production volumes at the Xtal facility to match current demand
requirements. At our current capacity, the Jena facility and the Xtal facility,
while meeting current demand, cannot produce sufficient quantities to meet
existing orders and anticipated demand over the next few years.
However, over the past year, worldwide prices for single mode fiber have
considerably weakened because of several factors, including a significant
reduction in demand resulting from an overbuild of long-haul fiber optic cable,
primarily in North America, and the weakening Japanese Yen. Given the current
market conditions, we are pacing our expansions to coordinate with anticipated
industry turnaround, projected by industry sources to occur toward the end of
2002 or the beginning of 2003. To meet this need, we have completed construction
of our new manufacturing facility in Jena, which has been fully financed, within
budget. The new plant began operations during the first quarter of 2002, as
planned, with all equipment scheduled to be operational by mid-year. However, we
are susceptible to equipment installation delays or problems and the risk of an
initial decrease in production yields. A second phase of the expansion of our
Jena facility, scheduled to begin production later in 2002 and in early 2003,
has an estimated cost of $25,000,000. The financing of the expansion for which
we have received a financing commitment, and which is expected to be finalized
by June 2002, will be essentially the same as the financing arrangement
5
completed in early 2001. Our equity contribution is estimated at $6,000,000, of
which approximately $3,500,000 will be required in 2002 and the balance in 2003.
Of the $3,500,000 requirement, $1,800,000 has already been contributed to
FiberCore Jena. In addition, we have already purchased a building adjacent to
our new Jena facility that will be used for production of glass tubes using our
recently patented POVD process, which is expected to increase productivity and
improve margins. In December 2001, we received a financing commitment, for the
first phase of the project, an estimated $7,000,000 for equipment. Approximately
$5,000,000 consists of bank loans and grants from agencies of the German
Government, using the same financing format as our previous German financings.
FiberCore has provided the remaining $2,000,000. We expect the financing to be
completed by the middle of 2002 and for implementation to begin toward the end
of 2002.
As a result of the downturn in demand in the South American market, as
well as in the single-mode fiber market in general, we have recently reduced our
staffing at our Xtal facility by 56% and expect to maintain this level of
staffing until the market begins to strengthen again. We have also suspended our
expansion program due to these events. However, we expect to continue to add
equipment that increases manufacturing efficiency.
As mentioned above, we expect FiberCore Africa and FiberCore, U.S.A.,
Inc., our other planned facilities, to be on-line and providing additional
capacity by early 2004 and mid 2004, respectively. Other areas of expansion
include Thailand, China, and Malaysia, where preliminary work is proceeding at a
slower pace until the fiber markets and capital markets improve and/or suitable
financing becomes available. Nevertheless, our goal remains to manage our
expansion so as to keep pace with market conditions.
RISK FACTORS
Our common stock is highly speculative and are subject to numerous and
substantial risks. Therefore, prospective investors should carefully consider
the following risk factors as well as the information contained elsewhere in
this prospectus.
1.) WE HAVE A HISTORY OF OPERATING LOSSES AND OUR ABILITY TO REMAIN
PROFITABLE AND GENERATE SUFFICIENT PROFITS TO SUSTAIN THE GROWTH OF
OUR BUSINESS IS UNCERTAIN.
We incurred operating losses from our inception in 1993 until the third
quarter of 2000, when we reported net income of $836,000. For the next three
quarters we remained profitable, generating total net income of $8,324,000.
However, in the third and fourth quarters of 2001 we reported a total net loss
of $5,548,000 and a loss of $4,078,000 in the first quarter of 2002.
Accordingly, operating results have been subject to yearly and quarterly
fluctuations and are expected to continue to fluctuate as a result of a number
of factors. These factors include fluctuations in product prices and resulting
gross margins, increased product and price competition, variations in product
costs and the mix of products sold, the size and timing of customer orders and
shipments, the ability to deliver products based on new and developing
technologies, and manufacturing capacity. Significant fluctuations in operating
results could contribute to volatility in the market price of our common shares.
Continued operating losses could decrease the market price of our common stock,
and limit our financing options.. To be profitable we must successfully overcome
the risks disclosed in this prospectus. We continue to be subject to foreign
currency risks and the risk of breach by significant customers. We may never
generate sufficient profits to sustain the growth of our business. As of March
31, 2002, we had an accumulated deficit of approximately $23,491,000.
2.) UNLESS THE CURRENT CONDITIONS OF OUR INDUSTRY CHANGE, THE DECLINE IN
PRICES AND THE OVERSUPPLY OF OPTICAL FIBER AND PREFORM WILL REDUCE
OUR ABILITY TO MAINTAIN PROFITABILITY AND TO OBTAIN FINANCING.
We are exposed to industry-wide risk of oversupply affecting the
telecommunications and data communications industry, which are beyond our
control and may affect our operations. To the extent that market supply exceeds
market demand for our products, prices for our products could be expected to
decline. As a result of current oversupply such conditions, prices for our
products have recently declined and may decline further. Decreased growth in
telecommunications in general and in the use of the internet, in particular, in
the United States and Western Europe could reduce demand for our products, which
are used in the transmission of data over the internet, and could result in a
further decline in prices for our products. Furthermore, developing countries,
including China and Malaysia and developing regions, including the Pacific Rim
and Middle East, are large consumers of fiber optics as they build
telecommunications infrastructures. A slowing of growth and modernization in
these countries and regions could decrease the demand for our products and
6
result in a decline in prices. We may also be burdened by the costs associated
with excess capacity. These factors could prevent us from maintaining
profitability or could result in substantially lower profitability than we have
anticipated.
Specifically, at the present time, optical fiber manufacturers are
experiencing a sudden and extensive softening in the demand for their products,
primarily single-mode fiber. While other markets have experienced weakness, this
downturn has been most notably in the U.S. long-haul market, as the major
telecom carriers have significantly reduced capital expenditures. As a result,
there is presently an oversupply of single-mode fiber, which we believe will
likely be absorbed within 6 to 12 months. In response to the overcapacity and
the trimming of inventories, prices for single-mode fiber have fallen
approximately 40% since mid 2001.
Continued softening of markets and reduction of global diversification of
our revenue stream could have a material adverse effect on our business, results
of operations, and/or financial condition.
3.) IF WE ARE NOT SUCCESSFUL IN OUR EFFORTS TO OBTAIN ADDITIONAL
FINANCING OF APPROXIMATELY $22,000,000 BY DECEMBER 31, 2002, WE MAY
BE UNABLE TO CONTINUE WITH THE EXPANSION AND PRODUCTIVITY PLANS
NECESSARY FOR MAINTAINING PROFITABILITY AND GROWTH.
Failure to obtain the financing contemplated by our business plan could
have a material adverse effect on our business, results of operations, or
financial condition. We estimate that we need to obtain additional financing of
approximately $5,000,000 during the second half of 2002, primarily to fund
planned process improvements at our Xtal facility. In addition, we estimate that
we need financing commitments of approximately $17,000,000 by December 2002 to
fund 2003 planned expenditures for our expansion plans in the United States and
Brazil. This financing is in addition to the current financing of $5,000,000
already received and at least an additional $500,000 to be received from the
group of investors consisting of Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners and the equity commitment from Crescent International of
$15,000,000 should we elect to draw upon it. These additional funds will also be
used for general corporate purposes, including cash reserves. The amount of
additional financing required assumes the use of cash generated from operations.
Accordingly, if the level of cash generated from operations in 2002 and 2003 is
less than expected, and/or we sell less than $15,000,000 of shares to Crescent,
we will need to obtain additional financing or slow down and/or reduce the
expansion program. Our history of prior losses could adversely affect our
ability to obtain financing.
For 2000, net cash provided by operations was $9,171,000; in 1999, net
cash used in operations was approximately $348,000, down from $1,281,000 for
1998, and $2,650,000 for 1997. For 2001, net cash used in operations was
$3,976,000 and for the first quarter of 2002, cash used for operations was
$1,785,000. Therefore, we may not be able to internally fund potential operating
losses and we cannot fund the planned amount of capital expenditures solely from
our current cash and cash equivalents.
4.) THE PROCEEDS FROM THE EXERCISE OF OPTIONS AND WARRANTS MAY NOT BE
REALIZED IF THE HOLDERS OF THESE SECURITIES DO NOT EXERCISE, OR IF
THE HOLDERS EXERCISE IN A CASHLESS MANNER, RESULTING IN LOWER THAN
ANTICIPATED PROCEEDS FOR WORKING CAPITAL AND GENERAL CORPORATE
PURPOSES.
If the holders of our options and warrants do not exercise them by paying
in cash, we will have lower proceeds for use as working capital and for general
corporate purposes. However, the Company has not assumed any proceeds from the
exercise of options and warrants in its cash planning. Although we would receive
all of the proceeds from the cash exercise of our outstanding warrants and
options, up to approximately $15,000,000, the holders may elect not to exercise
these securities, and/or these holders may, to the extent eligible, use a
"cashless" exercise. Of the $15,000,000, holders have the right to request a
"cashless" exercise on approximately $5,600,000 of securities. In a cashless
exercise, a holder may use all or a portion of the "equity value" of the option
or warrant being exercised, or may surrender shares of common stock issuable
upon exercise of the option or warrants, to exercise the option or warrant
without paying additional money. The equity value of an option or warrant for
this purpose is the difference between the market value of our common stock on
the date of the exercise and the exercise price of the option or warrant. We
intend to utilize the proceeds of the exercise of options and warrants, if any,
for working capital, capacity expansion and general corporate purposes and not
for discharge of debt prior to maturity. The warrants issued to Riverview Group,
LLC, Laterman & Co. and Forevergreen Partners do not provide for a cashless
exercise. However, in the event that the resale of the shares issuable upon
exercise of any warrant issued to Riverview Group, LLC, Laterman & Co. and
7
Forevergreen Partners is not registered by the first anniversary of the
warrant's issuance, holders of the warrants may exercise the warrants in a
cashless exercise.
5.) SHAREHOLDERS MAY SUFFER DILUTION FROM THIS OFFERING AND FROM THE
EXERCISE OF EXISTING OPTIONS, WARRANTS AND CONVERTIBLE NOTES; THE
TERMS UPON WHICH WE WILL BE ABLE TO OBTAIN ADDITIONAL EQUITY CAPITAL
COULD BE ADVERSELY AFFECTED.
Our common stock may become diluted if we sell additional shares of common
stock to Crescent International Ltd. pursuant to our agreements with Crescent,
if warrants and options to purchase our common stock are exercised, if any of
Riverview Group, LLC, Laterman & Co. and Forevergreen Partners convert our
$5,000,000 of outstanding convertible debt into shares of our common stock, and
if officers, directors and affiliates, Crescent, or Gruntal exercise warrants
and options to purchase shares of our common stock. The registration of the
resale of shares held by Tyco International Ltd. and its affiliates could also
place downward pressure on the price of our common stock. The section entitled
"Dilution" on page 17 contains additional detail about the dilution to which our
common stock may be subject.
Conversion or redemption of the convertible notes issued and issuable to
Riverview Group, LLC, Laterman & Co. and Forevergreen Partners could further
dilute our common stock. The conversion price of the outstanding convertible
debt is $2.967. We may elect to pay the $500,000 monthly mandatory redemption of
our convertible subordination in shares of our common stock. See Risk Factor 7
on page 11, specifically disclosing the potential dilution that could result
from our payment in shares.
We will issue to Riverview Group, LLC, Laterman & Co. and Forevergreen
Partners, at least an additional $500,000 of additional convertible debt and
related warrants and could issue up to another $3,000,000 of convertible debt
and related warrants to them by January 15, 2003. All of the foregoing debt is
convertible into shares of our common stock, and we may also pay required
monthly redemptions in shares of common stock. The conversion and redemption
prices are described on page 22 of the section entitled "Recently Issued
Securities" under the subheading Agreements with "Riverview Group, LLC, Laterman
& Co. and Forevergreen Partners."
Our common stock is subject to further dilution if we sell common stock to
Crescent pursuant to the market based formula set forth in our existing
agreements with Crescent, described on page 20 of the section entitled "Recent
Financing Agreements". We may, subject to the terms of our agreements with
Crescent, require Crescent to purchase shares of our common stock for up to
$15,000,000 at a discount to the market price for our common stock. Decreases in
the market price of our common stock could result in our sale of a greater
number of shares to Crescent. We may not sell common stock to Crescent if the
sale would result in Crescent owning in excess of 9.9% of our outstanding
shares, and we must comply with applicable law and the rules of the principle
exchange on which our common stock is traded to obtain shareholder approval
where applicable. Our agreements with Crescent obligate us to pre-register any
shares of our common stock that we require Crescent to purchase.
The issuance of shares issuable to officers, directors and affiliates upon
the exercise of options and warrants could further dilute the price of our
common stock. See the section entitled "Dilution" on page 17. Exercise of
warrants held by Gruntal & Co. LLC and Crescent International Ltd., and other
investors could also result in dilution of common stock. See the section
entitled "Dilution" on page 17. In the event that we are required to register
the resale of shares owned by Tyco International Ltd and its affiliates pursuant
to our agreements with Tyco, the volume of shares of our common stock available
for sale could dramatically increase and have a downward effect on the market
price of our common stock.
6.) THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE
PRICE OF OUR COMMON STOCK AND ENCOURAGE SHORT SALES
The introduction of additional shares into the market as a result of the
sale of our common stock by us or the Selling Stockholders may cause the price
of our common stock to decline. If the price of our common stock trades at
levels at which margin trading is permissible under applicable rules, our stock
may be subject to short sales, which could further decrease the price of our
common stock. In a short sale, a trader borrows securities, sells them, and
purchases securities on the market to replace the borrowed securities, at what
the trader hopes will be a lower price than the sale price. Short selling can
have a downward effect on the market price of our common stock.
8
7.) THE ISSUANCE OF STOCK UPON REDEMPTION OF OUR CONVERTIBLE
SUBORDINATED DEBENTURES MAY SUBSTANTIALLY DILUTE THE INTERESTS OF
OTHER SECURITY HOLDERS
If there is a sharp decline in the price of our common stock, shareholders
could experience substantial dilution resulting from our redemption of
convertible subordinated debentures in common stock. We are registering
5,644,770 shares of common stock issuable under our 5% convertible subordinated
debentures and warrants issued to Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners. See the section entitled "Recent Financing Agreements"
beginning on page 19.
Each month, we are required to redeem at least $500,000 of our 5%
convertible subordinated debentures. On May 29, 2002, the aggregate principle
amount of our convertible subordinated debentures was $4,000,000. We may elect
to issue shares of our common stock in lieu of making a cash payment. If we so
elect, the redemption price will be the lesser of $2.967 and 90% of the average
of the 12 lowest daily volume weighted average prices, ignoring the highest and
the lowest volume weighted average prices, of our common stock during the 22
business days immediately preceding the redemption date. The redemption price
was approximately $0.45 on May 28, 2002. Accordingly, if we were to pay a
monthly mandatory redemption in common stock at that price, we would issue
1,111,111 shares to the holders of our convertible subordinated debentures.
Decreases in the price of our common stock could result in our issuance of a
greater number of shares if we pay mandatory redemptions in shares of our common
stock. If we fail to make the mandatory redemptions in cash and if our stock
price significantly declines, we could potentially be obligated to issue a
larger number of shares of our common stock in redemption of the debentures,
provided that during any rolling consecutive 60 day period, we are not required
to issue an amount of shares that would result in any holder of our convertible
subordinated debentures holding more than 9.9% of our outstanding common stock,
and that we must comply with applicable law and the rules of the principle
exchange on which our common stock is traded to obtain shareholder approval
where applicable. We are required to register for resale shares issued upon
conversion of the convertible debt to the extent they are not registered under
the registration statement of which this prospectus is a part or future
registration statements.
8.) WE HAVE LIMITED PRODUCTION CAPACITY IN OUR JENA AND XTAL FACILITIES
AND NEED TO EXPAND OUR PRODUCTION FACILITIES AND TO INCREASE
PRODUCTIVITY TO MEET OUR CONTRACTUAL OBLIGATIONS AND TO MAINTAIN
PROFITABILITY.
The failure to expand our capacity could prevent us from maintaining
profitability and from achieving expected market share. Our Jena facility (which
until our June 2000 acquisition of Xtal FiberCore, S.A. was our only facility
for the manufacture of optical fiber and optical fiber preform) is currently
operating at full capacity while we are managing our production volumes at the
Xtal facility to match current demand requirements. At our current capacity, the
Jena facility and the Xtal facility, while meeting current demand, cannot
produce sufficient quantities to meet existing orders and anticipated demand
over the next few years.
Our expansion plans, described on page 7 in the section entitled "Our
Business," may not be successful. As with any expansion or new facility, we are
exposed to risk associated with operating inefficiencies that can accompany the
start-up of a new or expanded manufacturing facility and are subject to the risk
that adequate equipment and personnel will not be available to operate the new
facility. Delays or problems in implementing our capacity expansion and/or
manufacturing efficiency plans could have a material adverse effect on our
business, results of operations or financial condition.
9.) OUR PLANS TO EXPAND THROUGH ACQUISITIONS COULD LEAD TO SIGNIFICANT
EXPENDITURES AND INTEGRATION COSTS, INCLUDING THE LOSS OF KEY
PERSONNEL, AND COULD STRAIN OUR MANAGEMENT, FINANCIAL, AND
OPERATIONAL RESOURCES.
We are currently undergoing a period of growth, both internally and
through acquisitions, and our expansion could entail significant expenditures
and integration costs that could strain our financial and human resources. If we
are unable to manage growth effectively, our business, financial condition, and
results of operations could be materially and adversely affected. In addition,
our results of operations would be adversely affected if sales do not achieve
growth sufficient to offset increased expenditures associated with expansion.
9
We may continue to pursue the acquisition of manufacturing facilities for
our core business and for new or complementary businesses, including individual
products or technologies, in an effort to expand capacity, enter new markets and
diversify our sources of revenue. We may not be able to successfully manage
growth through acquisitions. Acquisitions and expansions may require significant
additional expenditures, including integration and absorption costs, before we
are able to obtain any benefits of integration resulting from them. These
expenditures may strain management, financial and operational resources. We may
also lose key personnel from our operations or those of any acquired business.
Our ability to effectively manage our operations and growth requires us to
continue to improve our operational, financial and management controls,
reporting systems, and procedures and to attract and retain sufficient numbers
of talented employees.
Additionally, future acquisitions may also result in potentially dilutive
issuances of equity securities, the incurring of additional debt, the assumption
of known and unknown liabilities, the amortization of expenses related to
intangible assets and the impairment of goodwill, all of which could harm our
business, financial condition and operating results. Acquisitions in foreign
countries may pose additional problems, and we could experience inefficiencies
in conducting our business as we integrate new operations and manage
geographically dispersed operations. We may not succeed in hiring and retaining
qualified management, sales, customer support, and technical personnel to
integrate acquired operations, manage future growth effectively, and accomplish
our overall objectives. Competition for qualified personnel is intense.
10.) WE ARE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS,
INCLUDING POLITICAL AND ECONOMIC CHANGES IN THE COUNTRIES WE OPERATE
IN, WHICH COULD AFFECT OUR PROFITABILITY.
Economic, financial, and political changes could affect the conduct of our
business internationally, particularly at our German, Brazilian, and planned
South African facilities, thereby affecting the profitability of our business.
For example, we could be subject to unexpected changes in legislative or
regulatory requirements and fluctuations in the United States dollar, the
Brazilian real, the euro and other currencies in which we do business including
the South African rand. While we engage in foreign currency hedging
transactions, we do not attempt to eliminate all foreign currency risk from our
business. The business and operations of FiberCore Jena GmbH, Xtal FiberCore
Brasil, S.A., currently, and, in the future, FiberCore Africa are subject to the
changing economic and political conditions prevailing from time to time in
Germany, Brazil, and South Africa respectively. Further, our Malaysian joint
venture has been delayed, primarily because of delays in securing acceptable
local lender financing and from the corporate restructuring of one of the joint
venture partners. There is also the threat of regional conflict. For example,
Middle East Fiber Cable Company, 7% of which is owned by us, is headquartered in
Saudi Arabia and could be affected by local instability.
11.) WE ARE DEPENDENT ON A LIMITED NUMBER OF CUSTOMERS, THE LOSS OF WHOM
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS; WE MAY NOT BE
ABLE TO EXPAND OUR CUSTOMER BASE IN THE NEAR FUTURE.
While our customer concentration level has been steadily improving, we
continue to be dependent on relatively few customers for the majority of our
sales. Accordingly, we must continue to expand our customer base, but we may not
be successful in doing so. We are experiencing significant softening in the
South American market and have taken steps to offset this weakness by shifting
sales to other markets, by managing production levels to better match current
and expected near-term demand levels, and by shifting, to the extent possible,
production to multi-mode from single mode fiber, but we cannot assure the
success of our efforts.
Our dependence on Cabelte Cabos Electros SA, a significant Brazilian
customer, has subjected us to additional risk. During the third quarter of 2001,
Cabelte breached its purchase agreement by failing to make accounts receivable
payments of $3,200,000 and suspending shipments starting in July. Prior to July,
shipments to Cabelte were approximately $10,000,000, or about 19% of our total
sales in 2001. The cumulative effect of the breach, together with a lower demand
from other customers, had a negative impact on cash flow and resulted in an
increase in inventory levels, which caused us to reduce production levels at the
Brazilian facility. We have since reached a resolution with Cabelte. All
accounts receivables have been collected, and we expect shipments to resume in
the second quarter of 2002, but at a slower rate than as provided in the
settlement agreement due to continued weakness in the Brazilian single mode
fiber market. Because there can be no certainty as to the severity and the
duration of the current industry conditions, we are subject to the risk of
additional breaches by this and other customers, particularly in Brazil.
Accordingly, our revenues and operating results have been and are expected to be
materially and adversely affected by reductions in customer orders, which would
similarly affect cash flow.
10
Our backlog consists of purchase contracts and orders. Several of the
contracts, including the contract described above with Cabelte, contain "take or
pay" provisions and provide for periodic price reviews. While a "take or pay"
provision contractually obligates a customer to pay under the contract whether
or not the customer accepts shipment, we have elected to work with our
customers, on a case by case basis, given market conditions in the industry,
rather than take legal action. While we have increased our backlog volume over
the last several months by adding new orders, the increase has been more than
offset due to the effect of periodic price reviews amidst declining prices.
The following table lists the customers that accounted for more than 10%
of our sales for 1999, 2000, and 2001:
Percent of Sales
Customer 2001 2000 1999
-------- ---- ---- ----
Leone AG * * 24%
Pinacl Ltd.** * * 21%
Siemens AG*** * * 10%
Optical Cable Corp. * * 10%
Furukawa Industrial S/A * 11% *
Cabelte Cabos Electros SA 19% 11% *
* indicates less than 10% for the year
** acquired by Tyco International Ltd. in 2001
*** acquired by Corning in 2001
12.) OUR DEPENDENCE ON THIRD-PARTY SUPPLIERS COULD RESULT IN OUR
INABILITY TO OBTAIN IN A TIMELY MANNER THE NECESSARY MATERIALS FOR
OUR BUSINESS.
Our dependence on third party suppliers, particularly Heraeus Quarz Glas
GmbH & Co. K.G., subjects us to the risk that we may not be able to timely and
efficiently obtain material essential to our business. We rely on outside
parties for the manufacture of our raw materials, including our principal raw
material, glass tubing. Accordingly, we are dependent on the capabilities of
these outside parties for the successful manufacture of their products.
Currently, we purchase over 95% of our required glass tubing from Heraeus. Early
in 2001, we entered into a five year supply contract with Heraeus. The contract
helps to ensure that we have a sufficient supply of glass tubes to meet existing
customer commitments. Under the contract, the supply of glass increases by over
50% in 2002, in-line with our anticipated customer needs. Quantities for years
2003 to 2005 will be set at a later date. To further complement our glass needs,
our patent was approved for using plasma in the manufacture of high-purity
synthetic glass as additional cladding material. We are in the process of
financing the initial production plant using this new technology, and expect
continuing improvements in our gross margins as and when the process is
implemented and further developed.
Xtal FiberCore Brasil, S.A., also has similar dependency on raw materials.
Xtal is highly dependent on Shin Etsu, a Japanese preform manufacturer who would
be a significant competitor if and when we began selling preform to third
parties, for over 50% of its preform requirements. Xtal FiberCore Brasil, S.A.
is in the process of re-negotiating its present contract with this preform
manufacturer, given the weakness in current market environment. At the same
time, Xtal is involved in an arbitration proceeding in Japan with Shin Etsu,
whereby Shin Etsu is alleging that Xtal breached a multi year supply agreement
by failing to take product as provided in the agreement. The amount of the
alleged breach is $4,400,000 worth of preform that Shin Etsu claims we were
obligated to purchase during the last half of 2001. During the arbitration
process, Shin Etsu has continued to ship product and agreed to continue doing
so. In addition, this supplier may not be able to satisfy our future
requirements and/or we may not be able to successfully re-negotiate our contract
and/or reach an acceptable arbitration resolution. As a result, we are planning
to increase our own preform production at Xtal.
Although we believe that the possibility of securing alternative suppliers
as well as our ability for glass manufacturing capability at our facilities in
Germany and Brazil should limit the risk, we may have problems in obtaining
glass tubing or other raw materials in the future. Our failure to obtain
sufficient glass and other raw materials could have a material adverse effect on
our business, results of operations, and financial condition.
11
13.) WE HAVE SUBSTANTIAL COMPETITION, AND SEVERAL OF OUR COMPETITORS HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE HAVE, ENABLING THEM TO
PROVIDE MORE COMPETITIVELY PRICED PRODUCTS; THIS COMPETITION COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR PERFORMANCE.
We are subject to intense competition, which could have a negative effect
on our performance. The optical fiber business is highly competitive, and there
are several competitors that have substantially greater resources than we do.
These competitors are providing, or are capable of providing, competitively
priced products that are similar to the products we produce. They may also
introduce new products that could directly compete with our products in all
markets. If these competitors were to aggressively target our market segment, we
could be materially adversely affected.
The competition for our multi-mode fiber products is primarily composed of
Corning, Inc., Alcatel, and Lucent Technologies, Inc./SpecTran Corporation
(owned by Furukawa Electric of Japan) and Plasma Optical Fiber. While we believe
that there is limited competition in the sale of preforms to cable manufacturers
who draw their own fiber, we anticipate that competition will grow. The largest
preform competitor is Shin Etsu. Competition in the single-mode fiber optic
market is significantly more extensive than either the preform or the multi-mode
fiber markets. In that market, our primary competitors are Corning, Inc. and
Lucent Technologies, Inc. However, we are not active in the U.S. single-mode
market, which is currently experiencing a significant slow down.
Our fiber optic products also compete with other existing products,
including products associated with copper wire and wireless communications. Over
the past two decades, optical fiber has successfully competed with copper wire.
Wireless communications depend heavily on a fiber optic backbone. Any
improvements in these competing products or the introduction of new competing
technologies may have a material adverse effect on our marketability and
profitability.
14.) THE OPTICAL FIBER INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE,
AND OUR FAILURE TO INTRODUCE NEW OR ENHANCED PRODUCTS ON A TIMELY
BASIS COULD PREVENT OUR ABILITY TO ATTAIN OR SUSTAIN PROFITABILITY.
The failure to introduce new or enhanced products on a timely and cost
competitive basis could have a material adverse effect on our business, results
of operations and financial condition. Rapid technological advances and evolving
industry standards characterize optical fiber products. Any failure by us to
anticipate or respond adequately to technological developments or end user
requirements could damage our competitive position in the marketplace and reduce
our revenues and/or profits. Our ability to attain and maintain profitably
depends, in large part, upon our timely access to, or development of,
technological advances and the ability to use those advances to improve existing
products, develop new products and manufacture those products efficiently. We
may not be successful in these endeavors. Failure to adjust to technological
developments could have a material adverse effect on our business, results of
operations, and financial condition.
15.) WE ARE DEPENDENT ON KEY PERSONNEL, THE LOSS OF WHOM COULD AFFECT THE
SUCCESS OF OUR BUSINESS.
The loss of any of our key executives could have a material adverse effect
on our business. We do not have employment agreements with any of our executive
officers or key person life insurance on any officers or directors.
Our success depends, to a significant extent, upon the performance of our
key executive officers and key technical employees. Our future success will also
depend in large part upon our ability to attract and retain additional highly
skilled managerial, technical and marketing personnel. Because of recent and
rapid growth in the fiber optic industry, the demand for skilled personnel has
increased and the supply of qualified and experienced personnel may not
sufficiently rise to meet demand. In addition, we are a relatively small company
and our recruitment efforts must compete with those of larger and more
well-known competitors in our industry. We may not be successful in attracting
and retaining the necessary highly skilled personnel.
16.) WE ARE CONTROLLED BY A FEW INDIVIDUALS WHO COULD CONTROL OR STRONGLY
AFFECT THE VOTES OF SHAREHOLDERS FOR OUR DIRECTORS.
Several persons each own, on a fully diluted basis, over 5% of our common
stock and could influence the company's decisions. Dr. Mohd Aslami, our
President and Chief Executive Officer, beneficially owns 13.18%, Charles De
Luca, our Secretary, beneficially owns 8.64%, and Tyco International Ltd.,
through its wholly owned subsidiaries Tyco Electronics Corporation and Tyco
12
Sigma Ltd. owns 16.03%. These persons and Tyco International Ltd., acting alone
or together, could control or strongly affect the votes of shareholders for
directors of FiberCore. Although Tyco Electronics Corporation has entered into
an agreement restricting itself from exercising control over the election of
directors, and us generally, until May 2002, after the expiration of that
agreement, or upon amendment of that agreement, Tyco's ability to singly or
jointly become more involved in our corporate governance would be unrestricted.
In addition, Tyco International Group S.A. or TIGSA, an affiliate of Tyco
International Ltd., could gain control of our board of directors. TIGSA
guaranteed our obligations to Fleet National Bank under a $10,000,000 credit
facility between Fleet and us, dated as of December 20, 2000. Pursuant to the
Guarantor Indemnification Agreement between TIGSA, Dr. Mohd Aslami, Charles De
Luca, Steven Phillips (each a member of our board of directors), and us, dated
as of December 26, 2000, we issued one share of Series A Preferred Stock to
TIGSA. The certificate of designations governing the Series A Preferred Stock
enables TIGSA to effectively take control of our board of directors if there is
an event of default under the Guarantor Indemnification Agreement. Events of
default include our failure to timely pay TIGSA guarantee fees; our failure to
timely repay TIGSA if TIGSA is required to perform under its guaranty of our
obligations to Fleet; our failure to comply with specific covenants; the sale by
any of Dr. Mohd Aslami, Charles De Luca or Steven Phillips during any 12 month
period after December 26, 2001 (until termination of the Guarantor
Indemnification Agreement) of more than 10% of the total number of shares each
owned or had the option to obtain during the 12 month period; our admission that
we or any of our subsidiaries cannot pay our debts as they become due; our
making an assignment for the benefit of any of our creditors; the commencement
of bankruptcy proceedings against us or our subsidiaries or the appointment of a
receiver or trustee over a substantial part of our or any of our subsidiaries'
assets, which have not been discharged within 60 days; or the acceleration of
our indebtedness or the indebtedness of any of our subsidiaries for borrowed
money in an outstanding principal amount of $2,500,000.
17.) OUR PATENTS AND PROPRIETARY RIGHTS COULD BE CHALLENGED, AND OUR
FAILURE TO PROTECT THEM COULD AFFECT OUR ABILITY TO COMPETE
EFFECTIVELY WITH OUR COMPETITORS.
If we fail to adequately protect our intellectual property, we could
experience a material adverse effect on our business, results of operations, and
financial condition. The steps taken by us to protect our intellectual property
may not be adequate to prevent misappropriation of our intellectual property and
others may develop competitive technologies or products. Furthermore, other
companies may independently develop products that are similar or superior to our
products or technologies, duplicate any of our technologies, or design around
the patents issued us. In addition, the validity and enforceability of a patent
can be challenged after its issuance. While we do not believe that our patents
infringe upon the patents or other proprietary rights of any other party and we
are unaware of any claim of patent infringement, other parties may claim that
our patents and manufacturing processes infringe upon their patents or other
proprietary rights. We may not be successful in defending against any claims of
infringement. Moreover, the expense of defending against those claims could be
substantial.
18.) WE HAVE NOT PAID DIVIDENDS AND DO NOT PLAN TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE.
We have never paid cash dividends on our common stock and we do not
anticipate paying any cash dividends in the foreseeable future. We intend to use
any future earnings to finance the growth and development of our business.
19.) WE HAVE GUARANTEED THE DEBTS OF OTHER COMPANIES AND WE COULD BE
LIABLE FOR DEBTS OVER WHICH WE HAVE NO CONTROL.
We could be liable for debts owed by third parties over whom we have no
control. Automated Light Technologies, Inc. is the primary guarantor of
approximately $200,000 in loan obligations of Allied Controls, Inc., a former
subsidiary of Automated Light Technologies, Inc., to the Department of Economic
Development for the State of Connecticut. The loan, which is due in 2006,
provides for monthly principal payments of $3,500 and interest at 1% per annum.
As of the date of this prospectus, Allied Controls, Inc. is current in its
payments to the Department of Economic Development.
In addition, we are a co-guarantor with other joint venture partners for
credit facilities provided by banks to Middle East Fiber Cables Co., a Saudi
Arabian joint venture. The assets of the joint ventures collateralize the credit
13
facilities. As of April 1, 2002, we were contingently liable with respect to
these loans in the amount of approximately $140,000.
20.) OUR COMMON STOCK IS TRADED ON A LIMITED MARKET AND IT HAS BEEN
SUBJECT TO FREQUENT SIGNIFICANT PRICE FLUCTUATIONS. IF WE FAIL TO
MAINTAIN MINIMUM BID REQUIREMENTS, WE COULD BE DELISTED, TRIGGERING
A DEFAULT UNDER OUR DEBT AGREEMENTS.
Our common stock is quoted on the Nasdaq SmallCap Market, and has been
subject to frequent significant price fluctuations. Furthermore, we must
continue to meet certain maintenance requirements including minimum bid
requirements, in order for such securities to continue to be listed on the
Nasdaq SmallCap Market. If our securities are delisted from the Nasdaq SmallCap
market, investors' interest in our securities could be reduced. On May 28, 2002,
the last reported sale price of our common stock was $.58 per share. If we fail
to increase our bid price to at least $1.00 and consistently maintain the price
for the periods required by Nasdaq, our common stock could be delisted pursuant
to applicable rules. Delisting could materially and adversely affect the trading
market and prices for our securities. A delisting could also trigger an event of
default under the terms of the convertible debt issued to Riverview Group, LLC,
Laterman & Co. and Forevergreen Partners, which, if unremedied, could trigger a
cross default on our credit agreement with Fleet National Bank. Events of
default could result in acceleration of the maturity of our debt to Riverview
Group, LLC, Laterman & Co. and Forevergreen Partners or Fleet, as the case may
be.
In addition, if our securities were to be delisted from the Nasdaq
SmallCap Market, and if the Company's net tangible assets do not exceed
$2,000,000, and if the Company's Common Stock is trading for less than $5.00 per
share, then the Company's Common Stock would be considered a "penny stock" under
federal securities law. Additional regulatory requirements apply to trading by
broker-dealers of penny stocks that could result in the loss of an effective
trading market for our securities.
Additionally, the trading prices of stocks traded on the Nasdaq SmallCap
Market have a tendency to be more volatile than the prices of stocks traded on
national exchanges. Our common stock has been subject to frequent significant
price fluctuations, due in part to speculative activity.
21.) OUR COMMON STOCK PRICE IS VOLATILE AND IT IS POSSIBLE THAT THE PRICE
OF OUR COMMON STOCK WILL DECLINE IN THE FUTURE.
The market for our common stock has been subject to wide fluctuations and
it is possible that the price of our common stock will decline in the future. We
believe these fluctuations are in response to variations in our anticipated or
actual results of operations, speculation and market conditions which may be
unrelated to our operating performance.
As of May 28, 2002, our officers and directors held 16,199,586 shares and
Tyco International Ltd. held 11,628,224 shares of the 61,589,533 shares of
common stock outstanding. If all of the common stock included in this offering
is sold, 13,276,623 additional shares of common stock will be registered under
the Securities Act, subject to the requirement of maintaining a current
prospectus for these additional securities. It is possible that the price of our
common stock will decline after the offering described in this prospectus is
priced into the market.
The following table reflects the high and low prices for our common stock
for the last three years:
PERIOD HIGH LOW
2002
----
2nd quarter $1.50 $0.42
(through
May 28, 2002)
1st quarter $2.98 $1.41
2001
----
4th quarter $3.14 $2.06
3rd quarter $6.35 $2.25
2nd quarter $7.09 $3.75
1st quarter $8.63 $3.56
14
2000
----
4th quarter $7.16 $2.19
3rd quarter $9.31 $4.41
2nd quarter $7.00 $2.81
1st quarter $11.00 $1.72
1999
----
4th quarter $2.13 $0.39
3rd quarter $0.69 $0.22
2nd quarter $0.36 $0.16
1st quarter $0.50 $0.13
While the significant fluctuation in the price for our common stock during
2000-2001 roughly tracks market trends in our industry and similar market
fluctuation in the future could negatively affect the stability of our stock
price, other companies within the industry have experienced price declines of as
much as 90%.
22.) WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS WORLDWIDE AND FAILURE TO
COMPLY WITH THESE REGULATIONS MAY RESULT IN FINES AND THE SUSPENSION
OF OUR OPERATIONS.
Our company is subject to environmental protection laws in both Jena,
Germany and Campinas, Brazil concerning the use, storage, and disposal of any
toxic and hazardous materials. Any failure to comply with these regulations may
result in the issuance of fines and the suspension of operations. Neither
FiberCore Jena GmbH nor Xtal FiberCore Brasil, S.A. has been cited in the past
for any environmental violations. Algar, S. A. has agreed to remedy any existing
violations associated with Xtal Fibras Opticas, S.A. at the time of our
acquisition of Xtal FiberCore Brasil, S.A. and to indemnify us for any losses
caused by any existing violation until it is remedied. This indemnification is
subject to the risk that Algar may fail to perform due to illiquidity or other
reasons. Algar's indemnification is secured by their 10% shareholder interest in
Xtal Fibras Opticas, S.A. If we fail to meet environmental standards and comply
with applicable law, we could experience a material adverse effect on our
business, results of operations, or financial condition.
23.) WE ARE RESTRICTED FROM RELOCATING, SELLING OR LEASING TO OTHER
ENTITIES OUR JENA MANUFACTURING OPERATIONS AND WE MUST MAINTAIN A
MINIMUM LEVEL OF EMPLOYMENT OR WE MIGHT BE SUBJECT TO REPAYING
GRANTS RECEIVED FROM THE GERMAN GOVERNMENT.
We are subject to certain operating restrictions and requirements at our
facilities in Jena, Germany as a result of the financial grants provided to us
by German governmental entities. If we relocate, sell or lease the Jena facility
or equipment to others, or fail to maintain a minimum level of jobs of 157
employees after the current expansion is completed, we could be required to
repay 7,000,000 euros, the full amount of the grants received. We presently have
189 employees in Jena, and anticipate that we will hire approximately 110
additional employees when the new facility at Jena is fully operational. A
required prepayment of the grants could have a material adverse effect on our
business, results of operations, or financial condition.
DILUTION
The interests of current holders of our common stock will be diluted as a
result of the offering and the issuance of shares issuable to officers,
directors and affiliates upon the exercise of options, warrants and the
conversion of debt by such persons. At December 31, 2001, prior to the offering,
the net tangible book value per share was $0.38. After the offering, including
shares that may be issued to officers, directors and affiliates upon the
exercise of options, warrants and the conversion of convertible debt, the net
tangible book value per share will be $0.59, resulting in an increase in the net
tangible book value per share of $0.21. The average weighted exercise price for
officers, directors and affiliates upon the exercise of options, warrants and
the conversion of convertible debt would be $0.94 per share compared to a public
offering price of $2.50 per share. The foregoing calculation does not take into
account the up to 4,200,000 shares of our common stock that we may offer because
we anticipate that the offering of those shares, if and when it occurs, will be
at the market and not have a dilutive effect. The amount of the immediate
dilution to the new investors from the public offering price of $2.50 per share
is $1.32.
15
As of May 28, 2002, the weighted average exercise price of all of the
Company's outstanding options, warrants and convertible debt (including shares
issuable to the Selling Stockholders upon exercise of warrants and convertible
securities which have been issued and which are issuable upon the effectiveness
of the registration statement of which this prospectus is a part) was $1.922.
Immediately after this offering, we will have a number of options, and
warrants and convertible debt outstanding, pursuant to which we are obligated to
issue up to approximately 11,000,000 shares of our common stock, including
shares issuable upon exercise of warrants held by the Selling Stockholders. In
addition, the sale of common stock offered by this prospectus, or merely the
possibility that these sales could occur, could have an adverse effect on the
market price of our common stock.
Conversion or redemption of the convertible notes issued and issuable to
Riverview Group, LLC, Laterman & Co. and Forevergreen Partners could further
dilute our common stock. The conversion price of the outstanding convertible
debt is $2.967. The redemption price is calculated though a market based
formula, and was approximately $0.45 on May 28, 2002. We are required to
register for resale shares issued upon conversion of the convertible debt to the
extent they are not registered under the registration statement of which this
prospectus is a part or future registration statements. See Risk Factor 7 on
page 11 for a description of risks associated with our obligation to pay monthly
redemptions of our convertible subordinated debentures.
In addition to the dilution resulting from a conversion of our convertible
debt, we could be subject to further dilution upon exercise of warrants to
purchase up to 463,426 held by Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners. See page 22 of the section entitled "Recent Financing
Agreements" for a more complete description of our agreements with Riverview
Group, LLC; Laterman & Co. and Forevergreen Partners.
Exercise of the warrants to purchase: 16,558 shares of our common stock
issued to Marc Drimer; 20,057 shares issued to Guido Roennefahrt; and 16,557
shares issued to Felix Rebholz could lead to additional dilution.
Irrespective of whether Crescent exercises warrants, our common stock is
subject to further dilution if we sell common stock to Crescent pursuant to the
market based formula set forth in our existing agreements with Crescent,
described on page 20 of the section entitled "Recent Financing Agreements". We
may, subject to the terms of our agreements with Crescent, require Crescent to
purchase shares of our common stock for up to $15,000,000 at a discount to the
market price for our common stock. Decreases in the market price of our common
stock could result in our sale of a greater number of shares to Crescent. We may
not sell common stock to Crescent if the sale would result in Crescent owning in
excess of 9.9% of our outstanding shares, and we must comply with applicable law
and the rules of the principle exchange on which our common stock is traded to
obtain shareholder approval where applicable. Our agreements with Crescent
obligate us to pre-register any shares of our common stock that we require
Crescent to purchase.
While we have included the possible sale of up to $15,000,000 of shares to
Crescent in our capital plans, we will continuously evaluate capital needs and
sources, and based on prevailing conditions in both the capital markets and the
industry, we will decide whether we will require Crescent to purchase shares of
our common stock. See page 20 of the section entitled "Recent Financing
Agreements" for a more complete description of our agreements with Crescent.
The exercise of warrants held by Gruntal and certain Gruntal employees to
purchase 790,811 shares of our common stock would also subject shareholders of
our common stock to dilution.
The market value of shares of our common stock may also decline if we
register shares of our common stock owned by Tyco Electronics Corporation and
Tyco Sigma Limited, which entities are wholly owned by Tyco International Ltd.,
a company traded on the New York Stock Exchange. In the event our common stock
becomes listed on the Nasdaq National Market, we are required to register for
resale by Tyco Electronics Corporation, under the Securities Act of 1933,
2,765,487 shares of our common stock, issued upon exercise of a warrant held by
Tyco, upon Tyco's demand, but only to the extent that registration will not
impair the rights of Crescent International Ltd. In addition, in the event we
file a registration statement registering shares of our common stock, Tyco may
require us to engage in a "piggyback registration" to include all or part of an
additional 2,765,487 shares of our common stock held by Tyco, in the
registration statement. We have notified Tyco of the current registration
statement of which this prospectus is a part and Tyco has informed us that it
will not require us to include its shares of our common stock in the current
registration statement.
16
FORWARD-LOOKING INFORMATION
This prospectus contains or incorporates forward-looking statements within
the meaning of the securities laws about recent events, business prospects and
product development which involve substantial risks and uncertainties. You can
identify these forward-looking statements by our use of the words "believes,"
"anticipates," "plans," "expects," "may," "will," "would," "could," "intends,"
"estimates" and similar expressions. We cannot assure that we will actually
achieve these plans, intentions or expectations. Actual results or events could
differ materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important factors in the
cautionary statements in this prospectus, particularly under the heading "Risk
Factors," that we believe could cause our actual results to differ materially
from the forward-looking statements that we make. The forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers or
dispositions. We do not assume any obligation to update or revise any
forward-looking statement we make as a result of new information, future events
or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports, proxy statements and other
documents with the Securities and Exchange Commission. You may read and copy any
document we file at the SEC's public reference room at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You should call
1-800-SEC-0330 for more information on the public reference room. Our SEC
filings are also available to you on the SEC's Internet site at
http://www.sec.gov.
This prospectus is part of a registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of ours,
you should refer to the exhibits that are a part of the registration statement
or the prospectus supplement for a copy of the referenced contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information that we file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents that
contain that information. The information incorporated by reference is an
important part of this prospectus, and information that we file with the SEC in
the future and incorporate by reference will automatically update and may
supersede the information contained in this prospectus. We incorporate by
reference the following documents:
o The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on December 5, 1996,
including any amendments or reports filed for the purpose of
updating our common stock description.
o The Financial Statements of Xtal Fibras Opticas, S.A., now known as
Xtal FiberCore Brasil, S.A., contained in our final prospectus filed
on October 2, 2000.
o Our Annual Report on Form 10-K filed on April 1, 2002, except for
the financial statements filed under Item 8.
o Our Quarterly Report on Form 10-Q filed on May 15, 2002.
o Our Current Report on Form 8-K filed on May 29, 2002.
All documents that FiberCore will file with the SEC under the provisions
of Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and prior to the termination of any offering
of securities under this prospectus shall be deemed to be incorporated by
reference, and to be a part of this prospectus from the date such documents are
filed.
Each of these documents is available from the SEC's web site and at the
public reference rooms described above. You may also orally or in writing
request a copy of these documents, including exhibits, at no cost, by
contacting: Mr. Robert P. Lobban, Chief Financial Officer, FiberCore, Inc., 253
Worcester Road, P.O. Box 180, Charlton, Massachusetts 01501, telephone number
(508) 248-3900.
17
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information.
We are not making an offer of the securities covered by this prospectus in
any state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
RECENT FINANCING AGREEMENTS
AGREEMENTS WITH CRESCENT INTERNATIONAL LTD.
ORIGINAL CRESCENT FINANCING
On June 9, 2000, we entered into an agreement that allowed us to issue and
sell, and require Crescent International Ltd. to purchase upon our request,
equity and debt securities for consideration of up to $30,000,000 (minus
applicable fees and expenses). Pursuant to the agreement, we issued to Crescent
$7.5 million in convertible debt which was later converted into 2,847,311 shares
of our common stock, and 1,200,274 shares of our common stock for proceeds of
$3.5 million. The agreement enabled us to require Crescent to purchase
additional shares of our common stock for up to $19 million. In connection with
the transaction, we also issued to Crescent warrants, expiring June 8, 2005, to
purchase up to 500,000 shares of our common stock at an exercise price of $4.374
per share. The agreement required us to register the resale of the foregoing
shares, and we so registered the resale in our registration statement which
became effective on September 29, 2000.
On August 20, 2001, we terminated our ability to require Crescent to
purchase shares under our June, 2000 agreement with Crescent and entered into a
new stock purchase agreement with Crescent. Specifically, the new stock purchase
agreement enables us to require Crescent to purchase shares of our common stock
for up to $19,000,000 (including the shares discussed below).
Pursuant to the stock purchase agreement, we issued to Crescent
o 661,625 shares of our common stock, issued to Crescent on August 22,
2001, for consideration of $3,000,000; and
o an additional 446,667 shares of our common stock, issued to Crescent
on October 26, 2001, for consideration of $1,000,000.
The net proceeds received by us from the foregoing issuance of our common
stock after adjustment for fees and amounts held were $3,880,000.
Under the stock purchase agreement with Crescent International Ltd., we
can obtain, subject to applicable fees and expenses and the terms and conditions
of the agreement, an additional $15,000,000 by selling shares of our common
stock to Crescent at various points in time, until December 31, 2002, unless our
Stock Purchase Agreement with Crescent is earlier terminated according to the
agreement's terms. Our agreement with Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners prohibits us from selling common stock to Crescent until
three months following the date on which the registration statement of which
this prospectus is part becomes effective. In addition, we may not require
Crescent to purchase shares of our common stock unless the resale of those
shares is registered pursuant to an effective registration statement.
Crescent has the right to assign its obligation to purchase shares of our
common stock to affiliates of Crescent with our consent, which we may not
unreasonably withhold. However, Crescent has informed us that it has no current
or future plans to assign its obligations.
TERMS OF ADDITIONAL SALES TO CRESCENT
Specifically, with regard to sale of shares of our common stock to
Crescent International Ltd., we can from time to time at our option and subject
to the limitations described in this prospectus and in the stock purchase
agreement, issue and sell shares of our common stock once every 20 trading days.
The aggregate maximum consideration that we may receive at, and the
purchase price applicable to, each sale to Crescent is determined as follows:
18
With respect to all sales of common stock to Crescent pursuant to the
stock purchase agreement made until Crescent has paid us additional
aggregate consideration of $6,000,000 for shares of our common stock:
o the maximum consideration would be equal to the lesser of: (i)
$2,500,000, and (ii) 7.5% of the total trading volume of our common
stock during the 20 trading day period immediately preceding the
date of our notice requiring Crescent to purchase, multiplied by the
applicable purchase price;
o the per share purchase price for our common stock would be equal to
the lesser of: (i) 90% of the volume weighted average price of our
common stock on the trading day immediately preceding the date of
our notice requiring Crescent to purchase, and (ii) 90% of the
average of the daily volume weighted averages for each of the 20
trading days immediately preceding the date of the notice.
With respect to the remaining $9,000,000 of common stock we may sell
Crescent pursuant to the stock purchase agreement:
o the maximum consideration would be equal to the lesser of: (i) twice
the average of the daily volume weighted average price multiplied by
the day's trading volume of our common stock during the 22 days
preceding the date of our notice requiring Crescent to purchase, and
(ii) $3,500,000;
o the per share purchase price would be equal to 93% of the average of
the three lowest consecutive daily volume weighted average priced
during the 22 trading day period preceding the date of our notice
requiring Crescent to purchase.
The closing market price for shares of our common stock on August 20,
2001, the day we entered into the agreement with Crescent, was $4.50 per share.
TERMINATION OF CRESCENT INTERNATIONAL LTD.'S OBLIGATIONS
Crescent International Ltd.'s commitment to provide the aforementioned
funds expires on December 31, 2002. We have the right to terminate the agreement
under which Crescent must purchase additional equity at any time upon 30 days'
written notice. Crescent has the right to terminate the agreement in the event
that we fail to perform specified obligations under that agreement.
LIQUIDATED DAMAGES
Crescent has waived liquidated damages of approximately $160,000 up to
April 20, 2002 which would otherwise have been payable pursuant to the stock
purchase agreement for failure to obtain timely registration.
Absent a further waiver from Crescent, we would be required to pay
Crescent liquidated damages if we fail to obtain the effectiveness of any
registration statement when required. The amount of liquidated damages is equal
to 2% of the aggregate purchase price paid by Crescent for securities that
should have been registered, for each calendar month and for each portion of a
calendar month, pro rata, after the date on which registration should have taken
place, until the registration statement of which this prospectus is a part
becomes effective. The aggregate purchase price of the securities we are
required to register on behalf of Crescent as of May 28, 2002, was $4,000,000.
In the event we would fail to maintain any required registration statement
effective for a period of time ending 180 days after the termination of
Crescent's obligation to purchase shares of our common stock, plus one day for
each day that we have failed to obtain or maintain effectiveness of the
registration statement, we would be required to pay Crescent liquidated damages
equal to 2% of the aggregate purchase price paid by Crescent for each calendar
month and for each portion of a calendar month, pro rata.
If we provide material non-public information to Crescent, Crescent is
contractually and legally prohibited from disposing of our common stock. If
within 120 days of Crescent's receipt of the information, the information has
not been disclosed to the public, we are required to pay Crescent liquidated
damages equal to 3% of the aggregate purchase price paid by Crescent for
securities that we are required to register for each calendar month and for each
portion of a calendar month, pro rata until the information becomes public.
19
RIGHT OF FIRST REFUSAL
Crescent International Ltd. has the right of first refusal on any proposed
sale by us of our securities in a private placement transaction exempt from
registration under the Securities Act of 1933, subject to certain terms and
conditions. We timely notified Crescent of our proposed sale of convertible
subordinated debentures and related warrants to Riverview Group, LLC, Laterman &
Co. and Forevergreen Partners, and Crescent notified us that it would not
exercise its right of first refusal with respect to such sale.
10% LIMITATION WITH RESPECT TO CRESCENT INTERNATIONAL LTD.
Under the terms of the transaction with Crescent International Ltd., the
number of shares to be purchased by Crescent or to be obtained upon exercise of
warrants held by Crescent cannot exceed the number of shares that, when combined
with all other shares of common stock and securities then owned by Crescent,
would result in Crescent owning more than 9.9% of our outstanding common stock
at any given point of time.
TERMINATION OF AGREEMENTS WITH GRUNTAL
On April 14, 2000, we entered into an agreement with Gruntal & Co., LLC
requiring Gruntal to work with us and our management to obtain financing,
prepare documents describing our business for use with prospective investors,
and provide us with assistance in entering into transactions.
Gruntal received fee compensation and warrants to purchase shares of our
common stock in connection with assistance provided in entering into agreements
with Crescent. Upon our requiring Crescent to purchase additional shares of our
common stock, we were obligated to issue additional warrants to Gruntal to
purchase a number of shares of our common stock equal to 6% of the aggregate
number of shares issued to Crescent. On December 29, 2000, we terminated the
April 14, 2000 agreement and entered into a new, one year agreement with
Gruntal, pursuant to which, among other things, we agreed to pay Gruntal
$500,000 and to issue a five year warrant for 100,000 shares, at an exercise
price of $5.00. Of the $500,000, $250,000 was paid on January 5, 2001 and
installments of $125,000 each were paid on March 31, 2001 and June 30, 2001. On
July 25, 2001, we agreed to extend certain provisions of the December 29, 2000
agreement, in return for services to be performed by Gruntal.
On February 7, 2002, in consideration of a $200,000 payment we made to
Gruntal, Gruntal released us from all our obligations under prior agreements
with Gruntal.
AGREEMENT WITH MERRILL LYNCH & CO.
In January of 2001, we engaged Merrill Lynch & Co. to act as our financial
adviser in connection with any proposed combination transaction or other
corporate transaction. In July 2001, we entered into an investment banking fee
arrangement, pursuant to which, we have paid Merrill $390,000 in fees as
placement agent for the $5,000,000 of 5% convertible subordinated debentures
sold on January 15, 2002 and the additional amount of at least $500,000 to be
sold to Riverview Group, LLC, Laterman & Co. and Forevergreen Partners.
AGREEMENTS WITH RIVERVIEW GROUP, LLC, LATERMAN & CO. AND FOREVERGREEN PARTNERS
On January 15, 2002, we entered into a purchase agreement with a group of
investors consisting of Riverview Group, LLC, Laterman & Co. and Forevergreen
Partners, pursuant to which we sold $5,000,000 of 5% convertible subordinated
debentures to the investors. In addition, we will issue at least an additional
$500,000 of 5% convertible subordinated debentures. We also issued warrants to
the investors and are required to issue additional warrants in connection with a
sale of additional convertible subordinated debentures to the investors. Our
agreements with the investors require us to register the shares of our common
stock issuable upon conversion of the convertible subordinated debentures or
exercise of the warrants sold to the investors.
The purchase agreement also allows the investors to purchase at their
option, up to an additional $3,000,000 of convertible subordinated debentures
(to the extent that we have not required the investors to purchase convertible
subordinated debentures pursuant to the provision described in the next
sentence) at any time before January 15, 2003, if the average of the volume
weighted average trading prices for the 5 trading days prior to the investors'
notice to us requiring us to sell them additional debentures is greater than
$2.6973. In addition, at any time before January 15, 2003, we may require the
investors to purchase up to $3,000,000 of convertible subordinated debentures
20
(to the extent the investors have not purchased convertible debentures at their
option pursuant to the provision described in the preceding sentence) if the
average of the volume weighted average trading prices for the 5 trading days
prior to our providing the investors with notice requiring them to purchase
additional debentures is greater than $4.4505. The terms of these additional,
convertible subordinated debentures would be substantially the same as the terms
of the other subordinated debentures sold pursuant to our purchase agreement
with the investors (described below), except that the conversion price would be
determined by a market formula applied at the time of sale.
The convertible subordinated debentures bear interest at a fixed rate of
5% per annum, payable in semi-annual installments. The convertible subordinated
debentures issued on January 15, 2002 will mature on January 15, 2004. All other
convertible subordinated debentures issued pursuant to the purchase agreement
will mature two years from their date of issue.
The convertible subordinated debentures issued on January 15, 2002 may be
converted in whole or in part at any time but not more frequently than four
times per calendar month at the option of the holders into shares of our common
stock at a conversion price of $2.967. The closing price of our common stock on
January 15, 2002 was $2.59. All other convertible subordinated debentures
issuable pursuant to the purchase agreement, including the debentures issuable
upon the effectiveness of the registration statement of which this prospectus is
a part, would have a conversion price equal to 110% of the average of the of the
volume weighted average trading prices for the 5 trading days immediately
preceding the issuance of the convertible subordinated debentures to be
converted.
Our agreements with Riverview Group, LLC, Laterman & Co. and Forevergreen
Partners require us to perform mandatory redemptions of $500,000 per month of
the principal amount of the convertible subordinated debentures outstanding,
commencing on April 1, 2002. Once the registration of which this prospectus is a
part becomes effective, we may upon timely notice elect to pay all or part of
the monthly redemption in shares of our common stock. The number of shares
payable if we so elect would be equal to the portion of the redemption we elect
to pay in stock divided by 90% of a price calculated by selecting the 12 lowest
volume weighted average for our common stock during the 22 trading days prior to
redemption, disregarding the highest and the lowest volume weighted average
prices, and averaging the remaining 10. In the event we elect to pay all or part
of the $500,000 monthly principle redemption in shares of our common stock, the
holders of the convertible subordinated debentures may, at their election,
increase the principal amount of the convertible subordinated debentures we pay
in stock by up to 100% or reduce the amount by up to 50%. In the event the
holders so reduce the amount of principal we repay, the reduced portion will
become payable at the maturity of the debentures, unless redeemed earlier. The
Company was prepared to make the required mandatory prepayment on April 1, 2002,
but after discussions with the holders of the convertible subordinated
debentures, the Company and the holders agreed that the Company would make the
payment on or prior to the end of business on April 17, 2002. Such payment would
be without penalty or default if timely made on April 17, 2002, provided that
the registration statement of which this prospectus is a part becomes effective
on or before June 1, 2002. We timely made the payment on April 17, 2002 and the
subsequent monthly payment on May 1, 2002.
Provided that a registration statement registering the resale of the
shares issuable upon conversion of our outstanding convertible subordinated
debentures is effective, we may, at our option redeem all or part of the
outstanding balance on the convertible subordinated debentures in cash at face
value at any time before maturity, if we consummate a public offering of shares
of our common stock at an offering price that exceeds $4.405, or if the volume
weighted average price of our common stock exceeds $4.405 for a period of 20
consecutive trading days, and continues to exceed $4.405 during the period
(which must be at least 10 trading days) between the time we notify the holders
of our intent to so redeem and the time we actually redeem.
Events of Default under the debentures include our uncured failure to pay
principal or interest, our failure to timely issues shares of our common stock
to the investors where required, the assumption by a court or government agency
of custody or control of all or substantially all of our assets, the failure of
the registration statement of which this prospectus is a part to become
effective by June 1, 2002, the commencement of a bankruptcy case against us or
any of our subsidiaries, our default on the payment of indebtedness exceeding
$250,000 in the aggregate, or if our common stock is delisted from the Nasdaq
SmallCap Market and is not relisted on a comparable principal market. If an
Event of Default occurs, the investors may require us to redeem the outstanding
debentures at the greater of a 115% of the aggregate principal amount of
debentures outstanding and the market value of the shares that would be issuable
upon conversion.
21
WARRANTS ISSUED AND ISSUABLE TO RIVERVIEW GROUP, LLC, LATERMAN & CO. AND
FOREVERGREEN PARTNERS
On January 15, 2002, pursuant to our purchase agreement with the
investors, we issued warrants to purchase up to a total of 463,426 shares of our
common stock to Riverview Group, LLC, Laterman & Co. and Forevergreen Partners,
the investors who purchased our convertible subordinated debentures. The
warrants expire on January 15, 2006.
When issuing at least an additional $500,000 of convertible subordinated
debentures, we are required to issue to the investors warrants to purchase a
number of shares of our common stock equal to 25% of the principal amount of the
convertible subordinated debentures being sold, divided by the average of the
volume weighted average price as reported by Bloomberg L.P. for our common stock
on each of the five trading days prior to our sale of the $500,000 of
convertible subordinated debentures, and the exercise price of the warrant would
be equal to 120% of such average. The warrants will expire on the fourth
anniversary of their issuance.
If and when we issue up to $3,000,000 of convertible subordinated
debentures to the investors before January 15, 2003 pursuant to the purchase
agreement as described above, upon each issuance we will be required to issue to
the investors warrants to purchase a number of shares of our common stock equal
to 25% of the principal amount of the convertible subordinated debentures being
sold, divided by the average of the volume weighted average price as reported by
Bloomberg L.P. for our common stock on each of the five trading days prior to
our sale of the convertible subordinated debentures, and the exercise price of
the warrant would be equal to 120% of such average. The warrants would expire on
the fourth anniversary of their issuance.
The warrants issued to the investors provide for a cashless exercise only
in the event that the registration statement registering the resale of the
shares issuable upon exercise of the warrant have not been registered within one
year following the date the applicable warrant is issued.
ANTI DILUTION PROVISIONS IN SECURITIES ISSUED AND ISSUABLE TO RIVERVIEW
GROUP, LLC, LATERMAN & CO. AND FOREVERGREEN PARTNERS
All the warrants issued and issuable pursuant to the purchase agreement
contain volume weighted anti-dilution provisions. Accordingly, if we were to
sell shares of our common stock at a price lower than the exercise price of a
warrant or the conversion price of a convertible subordinated debenture issued
to the investors, we would be required to decrease the exercise price of the
warrant, or conversion price of the convertible subordinated debenture, as the
case may be, pursuant to a formula that takes into account the number of shares
we issue at a price below the original exercise price or conversion price.
REGISTRATION RIGHTS
We are required to register a number of shares of our common stock equal
to 200% of the shares of common stock that would be issuable if we were to
redeem the debentures issued on January 15, 2002 and issuable upon the
effectiveness of the registration statement of which this prospectus is a part,
at the mandatory redemption price (the price that governs our monthly
redemptions paid in shares of our common stock described above), as well as the
shares issuable upon exercise of warrants issued and issuable to Riverview
Group, LLC, Laterman & Co. and Forevergreen Partners.
LIQUIDATED DAMAGES
Our original agreements with the investors could have required us to pay
liquidated damages if we fail to timely file or obtain the effectiveness of the
registration statement of which this prospectus is a part, if we fail to deliver
shares certificates in a timely manner, and in other circumstances described in
our agreements with the investors and in the convertible subordinated
debentures. Riverview Group, LLC, Laterman & Co. and Forevergreen Partners has
waived any liquidated damages that the Company would have accrued for failure to
timely obtain effectiveness of the registration statement of which this
prospectus is a part. This waiver by Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners is now effective and the Company has not accrued any
liquidated damages.
22
The foregoing summary is subject to various other terms and conditions set
forth in our agreements with the investors and in the convertible subordinated
debentures.
SHAREHOLDERS AGREEMENT
In connection with our entering into the purchase agreement, three members
of our Board of Directors, Mohd Aslami, Charles De Luca, and Steven Phillips,
executed a voting agreement prohibiting each of them from selling more than
100,000 shares of our common stock personally owned by them at a price below
$2.967 until the registration statement of which this prospectus is a part
becomes effective.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock being offered by the Selling Stockholders under this prospectus. We may
receive proceeds of up to $2,187,000 upon a full exercise of the incentive
warrant, issued to Crescent on June 9, 2000, to purchase up to 500,000 shares of
our common stock, although Crescent may perform a cashless exercise which would
not result in our receiving any proceeds from the exercise of the warrant.
Similarly, we may receive proceeds of up to $2,836,499(1) upon Gruntal's full
exercise of warrants to purchase up to 790,811 shares of our common stock,
although Gruntal may perform a cashless exercise which would not result in our
receiving any proceeds. In addition, we may receive proceeds of up to $201,849
upon the full exercise of warrants issued to Messrs. Drimer, Rebholz and
Roennefahrt. Upon full exercise of warrants held by Riverview Group, LLC,
Laterman & Co. and Forevergreen Partners to purchase in the aggregate up to
463,426 shares of our common stock, we would receive $1,500,017.(2) Upon full
exercise of warrants issuable to Riverview Group, LLC, Laterman & Co. and
Forevergreen Partners to purchase in the aggregate up to 125,000 shares of our
common stock, we would receive $300,000.(3) If we fail to obtain the
effectiveness of the registration statement of which this prospectus is a part
before January 15, 2003, Riverview Group, LLC, Laterman & Co. and Forevergreen
Partners may, under certain conditions, perform a cashless exercise which would
not result in our receiving any proceeds from the exercise of the warrants. We
intend to utilize the proceeds of the exercise of the foregoing warrants, if
any, for working capital and general corporate purposes.
Holders of our securities have the right to request a "cashless" exercise
on approximately $5,600,000 of securities. In a cashless exercise, a holder may
use all or a portion of the "equity value" of the option or warrant being
exercised, or may surrender shares of common stock issuable upon exercise of the
option or warrants, to exercise the option or warrant without paying additional
money. The equity value of an option or warrant for this purpose is the
difference between the market value of our common stock on the date of the
exercise and the exercise price of the option or warrant.
Of the estimated $10,000,000(4) of proceeds, net of expenses, that we
would receive in the event we sold from sale of the up to 4,200,000 shares
registered for primary sale by us, we plan to use approximately $8,000,000 for
production and process improvement equipment, and $2,000,000 for working capital
and other corporate purposes.
We estimate that we need to obtain additional financing of approximately
$5,000,000 during the second half of 2002, primarily to fund planned process
improvements at our Xtal facility. In addition, we estimate that we need
- ----------
(1) Specifically, we could receive up to
o $1,171,800 upon the purchase of 300,000 shares of our common stock
at an exercise price of $3.906 per share;
o $ 131,220 upon the purchase of 30,000 shares of our common stock at
an exercise price of $4.374 per share;
o $354,000 upon the purchase of 121,399 shares of our common stock at
an exercise price of $2.916 per share;
o $319,701 upon the purchase of 125,654 shares of our common stock at
an exercise price of $2.5443 per share
o $119,946 upon the purchase of 47,260 shares of our common stock at
an exercise price of $2.538 per share
o $500,000 upon the purchase of 100,000 shares of our common stock at
an exercise price of $5.00 per share
o $179,832 upon the purchase of 39,698 shares of our common stock at
an exercise price of $4.53 per share; and
o $60,000 upon the purchase of 26,800 shares of our common stock at an
exercise price of $2.2388 per share.
(2) The warrants enable Riverview Group, LLC, Laterman & Co. and Forevergreen
Partners to purchase up to 463,426 shares of our common stock for a per share
purchase price of $3.2368.
(3) Assuming an exercise price of $2.40, based on a good faith estimate of the
applicable volume weighted average price used to calculate the exercise price
being $2.00. The exercise price is equal to 120% of the applicable volume
weighted average price.
(4) Assuming an offering price of $2.50 and expenses of $500,000.
23
financing commitments of approximately $17,000,000 by December 2002 to fund 2003
expenditures for our expansion plans in the United States and Brazil. This
financing is in addition to the current financing of $5,000,000 already received
and at least an additional $500,000 to be received from the group of investors
consisting of Riverview Group, LLC, Laterman & Co. and Forevergreen Partners,
and the equity commitment from Crescent International of $15,000,000 should we
elect to draw on it. These additional funds will also be used for general
corporate purposes, including cash reserves. The amount of additional financing
required assumes the use of cash generated from operations. Accordingly, if the
level of cash generated from operations in 2002 and 2003 is less than expected,
and/or we sell less than $15,000,000 of shares to Crescent, we will need to
obtain additional financing or slow down and/or reduce the expansion program.
We may, however, change the allocation of these proceeds in response to
developments or changes that affect our business or industry. The lack of
improvement in industry dynamics, including primarily customer demand and price,
development of better technology, and/or a reduction in the ability to finance
the capacity and productivity expansion plans would probably prompt us to modify
our allocation of the proceeds of this offering. Depending upon the specific
event, funding for the projects would be scaled down, eliminated, or combined.
In addition, if borrowing opportunities on terms anticipated by us decrease for
whatever reason, we would have to raise funds by selling additional equity.
While we are committed to increasing productivity and expanding capacity, these
undertakings will be implemented in a manner that keeps pace with both
prevailing capital market and industry conditions.
Pending use of the net proceeds for the above purposes, we plan to invest
these funds in short-term, investment grade, interest-bearing securities.
SELLING STOCKHOLDERS
Note: * indicates shares previously registered for resale in our
registration statement dated September 29, 2000, which is amended by the
registration statement of which this prospectus is a part.
CRESCENT INTERNATIONAL LTD.
Crescent International Ltd., a Selling Stockholder, acquired 2,087,870
shares of our common stock and may acquire an additional 500,000 shares of our
common stock being offered by Crescent in the following ways:
o through our issuance of 979,578 shares of our common stock to
Crescent pursuant to our agreements with Crescent dated June 9,
2000, (which agreement was replaced by our agreements with Crescent
dated August 20, 2001),(5)*
o upon exercise of a warrant issued on June 9, 2000, expiring June 8,
2005, to purchase 500,000 shares of our common stock at an exercise
price of $4.374 per share;*
o through our issuance of 661,625 shares of our common stock on August
22, 2001; and
o through our issuance of 446,667 shares of our common stock on
October 26, 2001.
Crescent has informed us that Mel Craw and Maxi Brezzi, respectively
Managing Director and Director of Crescent's investment advisor, GreenLight
(Switzerland) SA, have voting and investment control over our securities held by
Crescent. On February 12, 2002, Crescent and its investment advisor filed a Form
13G disclosing voting and investment control over such securities.
GRUNTAL & CO., LLC
We have issued warrants to Gruntal & Co., LLC to purchase up to 796,298
shares of our common stock, of which 790,811 shares remain unexercised.
Specifically, we issued warrants to Gruntal:
- ----------
(5) The 979,578 shares constitute all of the shares remaining from: our issuance
of 1,200,274 shares of our common stock to Crescent on June 9, 2000 and 685,871
shares of our common stock on June 26, 2000, and shares Crescent received when
Crescent converted all of the convertible debt we issued to Crescent.
24
o on April 14, 2000, expiring April 13, 2005, to purchase 300,000
shares of our common stock at an exercise price of $3.906 per share;
*
o on June 9, 2000, expiring June 8, 2005, to purchase 30,000 shares of
our common stock at an exercise price of $4.374 per share; *
o on June 9, 2000, expiring June 8, 2005, to purchase 72,016 shares of
our common stock at an exercise price of $2.916 per share; *
o on June 26, 2000, expiring June 25, 2005, to purchase 54,870 shares
of our common stock at an exercise price of $2.916 per share, of
which 49,383 shares remain unexercised; *
o on December 29, 2000, expiring December 28, 2005, to purchase 47,260
shares of our common stock at an exercise price of $2.538 per share;
o on December 29, 2000, expiring December 28, 2005, to purchase
100,000 shares of our common stock at an exercise price of $5.00 per
share;
o on January 11, 2001, expiring January 10, 2006, to purchase 125,654
shares of our common stock at an exercise price of $2.5443 per
share;
o on August 22, 2001, expiring August 21, 2006, to purchase 39,698
shares of our common stock at an exercise price of $4.53 per share;
and
o on October 25, 2001, expiring October 24, 2006, to purchase 26,800
shares of our common stock at an exercise price of $2.2388 per
share.
Gruntal & Co., LLC, a Selling Stockholder, may acquire the shares of our
common stock being registered for resale by Gruntal by the registration
statement of which this prospectus is a part, upon the exercise of warrants to
purchase up to 790,811 shares of our common stock.
Gruntal & Co., LLC is a broker dealer and therefore is considered an
underwriter with respect to the offering of the foregoing shares.
Gruntal & Co., LLC has informed us that Joseph Battipaglia, Executive Vice
President of Gruntal, has sole dispositive power over the securities issued to
Gruntal.
RIVERVIEW GROUP, LLC
Riverview Group, LLC may acquire up to 2,158,894 shares of our common
stock through our mandatory redemption(6) or 1,404,336 on conversion of the
$4,166,666 aggregate principal amount of convertible subordinated debentures
held by Riverview Group, LLC, and up to 386,188 shares of our common stock upon
exercise of warrants issued to Riverview Group, LLC. The warrants expire on
January 15, 2006, have an exercise price of $3.2368.
Riverview Group, LLC has informed us that Robert Williams, the Chief
Financial Officer of Riverview, has sole dispositive power over our securities
sold to Riverview.
Riverview Group, LLC has informed the Company that Riverview purchased our
securities in the ordinary course of Riverview's business and at the time of the
purchase of our securities, had no agreements or understandings, directly or
indirectly, with any person to distribute the securities.
- ----------
(6) The calculation assumes a mandatory redemption price of $1.93 (estimated in
good faith), which was the mandatory conversion price on February 11, 2002. The
conversion price of $2.967 is fixed.
25
LATERMAN & CO.
Laterman & Co. may acquire up to 215,889 shares of our common stock
through our mandatory redemption7 or 140,444 shares upon the conversion of the
$416,667 aggregate principal amount of convertible subordinated debentures held
by Laterman & Co., and up to 38,619 shares of our common stock upon exercise of
warrants issued to Laterman & Co. The warrants expire on January 15, 2006, have
an exercise price of $3.2368.
Laterman & Co. has informed us that Bernard Laterman, the Managing Partner
of Laterman & Co., has sole dispositive power over our securities sold to
Laterman & Co.
Laterman & Co. has informed the Company that Laterman purchased our
securities in the ordinary course of Laterman's business and at the time of the
purchase of our securities, had no agreements or understandings, directly or
indirectly, with any person to distribute the securities.
FOREVERGREEN PARTNERS
Forevergreen Partners may acquire up to 190,108 shares of our common stock
through our mandatory redemption8 or 140,444 shares upon the conversion of the
$416,667 aggregate principal amount of convertible subordinated debentures held
by Forevergreen Partners, and up to 38,619 shares of our common stock upon
exercise of warrants issued to Forevergreen Partners. The warrants expire on
January 15, 2006, have an exercise price of $3.2368.
Forevergreen Partners has informed us that Bernard Laterman, the Managing
Partner of Forevergreen Partners, has sole dispositive power over our securities
sold to Forevergreen Partners
Forevergreen Partners has informed the Company that Forevergreen purchased
our securities in the ordinary course of Forevergreen's business and at the time
of the purchase of our securities, had no agreements or understandings, directly
or indirectly, with any person to distribute the securities.
We are registering the resale of 4,703,976 shares of our common stock by
Riverview, 470,397 shares by Laterman & Co. and 470,397 shares by Forevergreen
Partners because our agreements require us to register the resale of 200% of the
number of shares issuable upon our mandatory redemption of the convertible
subordinated debentures (the price that governs our monthly redemptions paid in
shares of our common stock described in the section entitled "Recent Financing
Agreements") (using the lower of the mandatory redemption price on January 15,
2002 and the date the registration of which this prospectus is a part is filed),
and 100% of the shares issuable upon exercise of warrants, issued and issuable
upon the effectiveness of the registration statement of which this prospectus is
a part. The mandatory redemption price for all the debentures, and the number of
warrants issuable in conjunction with the debentures to be issued upon the
effectiveness of the registration statement of which this prospectus is a part,
depend on a market based formula and cannot be presently determined. For
purposes of this prospectus, we have made a good faith estimate using the
assumptions in the preceding paragraphs, but have included a number of shares we
believe sufficient to enable redemption of the debentures into, and exercise of
warrants to purchase, registered shares of our common stock.
MARC DRIMER
In consideration of assistance provided in a private sale of our common
stock, we issued the following warrants to Marc Drimer to purchase a total of
16,558 shares of our common stock. Specifically:
o on May 16, 2000, expiring May 15, 2005, to purchase 15,000 shares of
our common stock at an exercise price of $3.20 per share;
o on September 14, 2000, expiring September 13, 2005, to purchase
1,000 shares of our common stock at an exercise price of $7.179 per
share;
- ----------
(7) The calculation assumes a mandatory redemption price of $1.93 (estimated in
good faith), which was the mandatory conversion price on February 11, 2002. The
conversion price of $2.967 is fixed.
(8) The calculation assumes a mandatory redemption price of $1.93 (estimated in
good faith), which was the mandatory conversion price on February 11, 2002. The
conversion price of $2.967 is fixed.
26
o on September 18, 2000, expiring September 17, 2005, to purchase 558
shares of our common stock at an exercise price of $7.179 per share.
GUIDO ROENNEFAHRT
In consideration of assistance provided in a private sale of our common
stock, we have issued the following warrants to Guido Roennefahrt to purchase a
total of 20,057 shares of our common stock. Specifically:
o on May 16, 2000, expiring May 15, 2005, to purchase 18,500 shares of
our common stock at an exercise price of $3.20 per share;
o on September 14, 2000, expiring September 13, 2005, to purchase
1,000 shares of our common stock at an exercise price of $7.179 per
share;
o on September 18, 2000, expiring September 17, 2005, to purchase 557
shares of our common stock at an exercise price of $7.179 per share.
FELIX REBHOLZ
In consideration of assistance provided in a private sale of our common
stock, we have issued the following warrants to Felix Rebholz to purchase a
total of 16,557 shares of our common stock. Specifically:
o on May 16, 2000, expiring May 15, 2005, to purchase 15,000 shares of
our common stock at an exercise price of $3.20 per share;
o on September 14, 2000, expiring September 13, 2005, to purchase
1,000 shares of our common stock at an exercise price of $7.179 per
share;
o on September 18, 2000, expiring September 17, 2005 to purchase 557
shares of our common stock at an exercise price of $7.179 per share.
We have agreed to file a registration statement, of which this prospectus
is a part, to register the shares of the Selling Stockholders described above in
order to permit the Selling Stockholders to sell these shares from time to time
in the public market or in privately-negotiated transactions. We cannot
determine the actual number of shares of our common stock that we will issue
because of the variables discussed herein.
In general, it is possible that we may be required to register additional
shares of our common stock. See the "Risk Factors" subsection entitled
"Stockholders May Suffer Dilution From the Exercise of Options, Warrants and
Convertible Notes."
27
The following table sets forth the number of shares of our common stock
issued or issuable to the Selling Stockholders:
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK HELD COMMON STOCK HELD COMMON STOCK OFFERED
PRIOR TO COMPLETION AFTER COMPLETION OF ON BEHALF OF SELLING
SELLING STOCKHOLDERS OF OFFERING(9) OFFERING(10) STOCKHOLDERS
- -------------------- ------------------- ------------------- --------------------
Crescent International Ltd. 2,587,870 0 2,587,870
Gruntal & Co., LLC, 790,811 0 790,811
William McCluskey,
Richard Serrano,
Derek Woodworth,
Mitchell Kosches,
Jack Schwartz(11) and
Maurice Sabogol
Riverview Group, LLC 4,703,976 0 4,703,976
Laterman & Co. 470,397 0 470,397
Forevergreen Partners 470,397 0 470,397
Marc Drimer 16,558 0 16,558
Guido Roennefahrt 20,057 0 20,057
Felix Rebholz 16,557 0 16,557
TOTAL: 9,076,623 0 9,076,623
The Selling Stockholders and we are not making any representation that any
shares covered by the prospectus will or will not be offered for sale or resale.
The Selling Stockholders reserve the right to accept or reject, in whole or in
part, any proposed offer for their shares. The shares offered by this prospectus
may be offered from time to time by the Selling Stockholders named above and by
us. In addition to the number of shares held by the Selling Stockholders,
Crescent may be required to purchase additional shares of our common stock for
up to $15,000,000.
MAXIMUM NUMBER OF SHARES ISSUABLE TO CRESCENT, GRUNTAL AND RIVERVIEW
GROUP, LLC, LATERMAN & CO. AND FOREVERGREEN PARTNERS
Under the terms of our agreement with Crescent, the number of shares to be
acquired by Crescent cannot exceed the number of shares that, when combined with
all other shares of common stock and securities then owned by Crescent, would
result in Crescent owning more than 9.9% of our outstanding common stock at any
given point of time.
The maximum number of shares of our common stock we may issue to Gruntal
upon exercise of warrants currently held by Gruntal is 790,811.
Under the terms of our agreement with Riverview Group, LLC, Laterman & Co.
and Forevergreen Partners, the number of shares to be received upon conversion
of the convertible debt held by any of the foregoing investor cannot exceed the
number of shares that, when combined with all other shares of common stock and
securities then owned by the converting investor, would result in that investor
- ----------
(9) Includes shares issuable upon conversion of convertible securities and
exercise of warrants, where applicable.
(10) Assumes Crescent and Gruntal will offer and sell all of the shares
registered by the registration statement of which this prospectus is a part.
(11) Each of the named individuals is an officer, member or employee of Gruntal
& Co. LLC to whom Gruntal may transfer the warrants issued to Gruntal.
28
owning more than 9.9% of our outstanding common stock at any given point of
time.
The maximum number of shares issuable to Riverview Group, LLC, Laterman &
Co. and Forevergreen Partners in the aggregate upon conversion of warrants is
463,426.
PRIOR RELATIONSHIPS BETWEEN SELLING STOCKHOLDERS AND THE COMPANY
We are not aware of any material relationship between us and Crescent
within the past three years other than as a result of our agreements with
Crescent described above and the ownership of the stockholders' shares.
We entered into agreements with Gruntal described above in the section
entitled "Recent Agreements." We are not aware of any material relationship
between us and Gruntal within the past three years other than as a result of our
agreements with Gruntal described above.
We entered into a purchase agreement with Riverview Group, LLC, Laterman &
Co. and Forevergreen Partners. We are not aware of any material relationship
between us and Riverview Group, LLC, Laterman & Co. and Forevergreen Partners
within the past three years other than as a result of our agreements with
Riverview Group, LLC, Laterman & Co. and Forevergreen Partners described above.
PLAN OF DISTRIBUTION
Of the 13,276,623 shares of our common stock offered by this prospectus,
we may sell 4,200,000 shares of our common stock in underwritten sales through
one or more registered broker dealers to be identified in a post-effective
amendment, at fixed prices from time to time, or in privately negotiated
transactions.
We are registering the remaining 9,076,623 shares of common stock offered
by this prospectus on behalf of the Selling Stockholders and their pledgees,
donees, transferees or other successors-in-interest, who may sell the shares
from time to time. We will not receive any proceeds from the sale of shares by
the Selling Stockholders.
The Selling Stockholders or their successors may sell all of the shares of
our common stock offered by this prospectus from time to time in transactions in
the over-the-counter market through Nasdaq SmallCap Market, on one or more other
securities markets and exchanges, or in privately negotiated transactions. They
may sell the shares offered by this prospectus at fixed prices, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may use any one or more of the following methods when selling the
shares offered by this prospectus:
o block trades in which a broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account;
o distribution on an exchange or automatic quotation system in
accordance with the rules of such market;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o privately negotiated transactions;
o short sales (except as contractually prohibited);
o transactions in which broker-dealers may agree with the Selling
Stockholders to sell a specified number of the shares at a
stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders have advised us that they have not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares. They have also advised us
that no underwriter or coordinating broker is now acting in connection with the
proposed sale of shares. The Selling Stockholders may enter into hedging
transactions with broker-dealers in connection with distributions of shares or
otherwise, subject to the terms of our agreements with the Selling Stockholders.
In such transactions, broker-dealers may engage in short sales of shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders also may sell shares short, subject to the terms of our
agreements with the Selling Stockholders, and redeliver shares to close out such
short positions. The Selling Stockholders may enter into option or other
transactions with broker-dealers that require the delivery of shares to the
broker-dealer. The broker-dealer may then resell or otherwise transfer such
shares pursuant to this prospectus.
29
The Selling Stockholder may from time to time pledge or grant a security
interest in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
Selling Stockholders to include the pledgee, transferee or other successors in
interest as Selling Stockholders under this prospectus. Broker-dealers or agents
may receive compensation in the form of commissions, discounts or concessions
from the Selling Stockholders. Broker-dealers or agents may also receive
compensation from the purchasers of shares for whom they act as agents or to
whom they sell as principals, or both. Compensation to a particular
broker-dealer might be in excess of customary commissions and will be in amounts
to be negotiated in connection with transactions involving shares.
Broker-dealers or agents and any other participating broker-dealers or the
Selling Stockholders may be deemed to be an "underwriter" within the meaning of
Section 2(11) of the Securities Act of 1933 in connection with sales of shares.
Accordingly, any such commission, discount or concession received by them and
any profit on the resale of shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act of 1933. Because
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, the Selling Stockholders will be
subject to the prospectus delivery requirements of the Securities Act of 1933
and the rules and regulations under their act.
The shares may be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act of 1934, any
person engaged in the distribution of shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days before the commencement of such distribution. In addition, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act of 1934 and the associated rules and regulations under the Exchange Act of
1934, including Regulation M, which provisions may limit the timing of purchases
and sales of shares of our common stock by the Selling Stockholders. We will
make copies of this prospectus available to the Selling Stockholders and have
informed them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares.
To the extent required, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate in the resales.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424 under the Securities Act of 1933 upon being notified by the Selling
Stockholders that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:
o the name of each Selling Stockholder and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and
o other facts material to the transaction.
We will bear all costs, expenses and fees in connection with the
registration and sale of the shares other than selling commissions and fees and
stock transfer taxes. The Selling Stockholders will bear all commissions and
discounts, if any, attributable to the sales of the shares. We have also agreed
to indemnify the Selling Stockholders against liabilities based on any untrue or
alleged untrue statements of material fact in this prospectus or the related
registration statement or on any omission or alleged omission of a material fact
required to be included in this prospectus or the registration statement or
necessary to make the statements herein and therein not misleading. We will not
be required to provide indemnification to the extent any untrue or alleged
untrue statement was included, or an omission or alleged omission was made, as a
result of information furnished by the Selling Stockholders. The Selling
Stockholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
30
Any underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves sales in
excess of the offering size, which create a short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Any underwriter may make
short sales of shares of our stock and may purchase shares of our stock on the
open market to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' "overallotment" option to purchase additional
shares in the offering. Any underwriter may close out any covered short position
by either exercising their overallotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, any underwriter will consider, among other things, the price of shares
available for purchase in the open market as compared to the price at which they
may purchase shares through the overallotment option. "Naked" short sales are
sales in excess of the overallotment option. The underwriter must close out any
naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase the shares.
Similar to other purchase transactions, the underwriters' purchases to cover
short sales may have the effect of raising or maintaining the market price of
our stock or preventing or retarding a decline in the market price of our stock.
As a result, the price of our stock may be higher than the price that might
otherwise exist in the open market. If commenced, the underwriters may
discontinue any of these activities at any time.
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock and preferred stock
summarizes the material terms and provisions of these types of securities. For
the complete terms of our common stock and preferred stock, please refer to our
Certificate of Incorporation and bylaws, which are incorporated by reference
into the registration statement, of which this prospectus is a part.
Under our Certificate of Incorporation, our authorized capital stock
consists of 100,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value per share.
COMMON STOCK
As of May 28, 2002, 61,589,333 shares of our common stock were issued and
outstanding. All outstanding shares of our common stock are duly authorized,
validly issued, fully paid and non-assessable. Please refer to the description
of our common stock contained in our registration statement on Form 8-A filed
with the SEC on December 5, 1996, including any amendments or reports filed for
the purpose of updating that section which is incorporated by reference into
this prospectus.
TRANSFER AGENT AND REGISTRAR
Interstate Transfer Company, 6804 S. 900 E. Suite 101, Salt Lake City,
Utah 84121 is the transfer agent and registrar of our common stock.
PREFERRED STOCK
Our Certificate of Incorporation authorizes our board of directors to
issue preferred stock in one or more series and to determine the voting rights
and dividend rights, dividend rates, liquidation preferences, conversion rights,
redemption rights, including sinking fund provisions and redemption prices, and
other terms and rights of each of these series
As of May 9, 2002, one share of our Series A Preferred Stock was
outstanding. The share was issued to Tyco International Group S.A. or TIGSA, an
affiliate of Tyco International Ltd. and could shift control of our board of
directors. TIGSA guaranteed our obligations to Fleet National Bank under a
$10,000,000 credit facility between Fleet and us, dated as of December 20, 2000.
Pursuant to the Guarantor Indemnification Agreement between TIGSA, Dr. Mohd
Aslami, Charles De Luca, Steven Phillips (each a member of our board of
directors), and us, dated as of December 26, 2000, we issued one share of Series
A Preferred Stock to TIGSA. The certificate of designations governing the Series
A Preferred Stock enables TIGSA to effectively take control of our board of
directors if there is an event of default under the Guarantor Indemnification
Agreement. Events of default include our failure to timely pay TIGSA guarantee
fees; our failure to timely repay TIGSA if TIGSA is required to perform under
31
its guaranty of our obligations to Fleet; our failure to comply with specific
covenants; the sale by any of Dr. Mohd Aslami, Charles De Luca or Steven
Phillips during any 12 month period after December 26, 2001 (until termination
of the Guarantor Indemnification Agreement) of more than 10% of the total number
of shares each owned or had to the option to obtain during the 12 month period;
our admission that we or any of our subsidiaries cannot pay our debts as they
become due; our making an assignment for the benefit of any of our creditors;
the commencement of bankruptcy proceedings against us or our subsidiaries or the
appointment of a receiver or trustee over a substantial part of our or any of
our subsidiaries' assets, which have not been discharged within 60 days; or the
acceleration our indebtedness or the indebtedness of any of our subsidiaries for
borrowed money in an outstanding principal amount of $2,500,000.
NEVADA ANTI-TAKEOVER LAWS
We are incorporated under the laws of the State of Nevada and are
therefore subject to various provisions of the Nevada corporation laws that may
have the effect of delaying or deterring a change in control or management of
us.
Nevada's "Combination with Interested Stockholders Statute," Nevada
Revised Statutes 78.411-78.444, which applies to Nevada corporations like us
having at least 200 stockholders, prohibits an "interested stockholder" from
entering into a "combination" with the corporation, unless specific conditions
are met. A "combination" includes:
o any merger with an "interested stockholder," or any other
corporation which is or after the merger would be, an affiliate or
associate of the interested stockholder,
o any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of
transactions, to an "interested stockholder," having (i) an
aggregate market value equal to 5% or more of the aggregate market
value of the corporation's assets, (ii) an aggregate market value
equal to 5% or more of the aggregate market value of all outstanding
shares of the corporation, or (iii) representing 10% or more of the
earning power or net income of the corporation,
o any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an aggregate
market value equal to 5% or more of the aggregate market value of
all the outstanding shares of the corporation,
o the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by the "interested
stockholder,"
o certain transactions which would have the effect of increasing the
proportionate share of outstanding shares of the corporation owned
by the "interested stockholder," or
o the receipt of benefits, except proportionately as a stockholder, of
any loans, advances or other financial benefits by an "interested
stockholder." An "interested stockholder" is a person who (i)
directly or indirectly owns 10% or more of the voting power of the
outstanding voting shares of the corporation or (ii) an affiliate or
associate of the corporation which at any time within three years
before the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then
outstanding shares of the corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
the shares that caused the interested stockholder to become an interested
stockholder was approved by the board of directors before the interested
stockholder acquired those shares. If this approval was not obtained, then after
the three-year period expires, the combination may be consummated if all the
requirements in the Company's Certificate of Incorporation are met and either
o (i) the board of directors of the corporation approves, prior to the
person becoming an "interested stockholder," the combination or the
purchase of shares by the "interested stockholder" or (ii) the
combination is approved by the affirmative vote of holders of a
majority of voting power not beneficially owned by the "interested
stockholder" at a meeting called no earlier than three years after
the date the "interested stockholder" became one or
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o the aggregate amount of cash and the market value of consideration
other than cash to be received by holders of common shares and
holders of any other class or series of shares meets the minimum
requirements set forth in Sections 78.411 through 78.443, inclusive,
and prior to the consummation of the combination, except in limited
circumstances, the "interested stockholder" will not have become the
beneficial owner of additional voting shares of the corporation.
The above provisions do not apply to corporations that so elect in a
charter amendment approved by a majority of the disinterested shares. Such a
charter amendment, however, would not become effective for 18 months after its
passage and would apply only to stock acquisitions occurring after its effective
date. Our Certificate of Incorporation does not exclude us from the restrictions
imposed by the above provisions.
Nevada's "Control Share Acquisition Statute," Sections 78.378 through
78.3793 of the Nevada Revised Statutes, prohibits an acquirer, in particular
circumstances, from exercising voting rights of shares of a target corporation's
stock after crossing specific threshold ownership percentages, except those
voting rights that are granted by the target corporation's stockholders.
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Our by-laws provide for a broad right for indemnification for any person
who is or was involved in any manner in any threatened, pending, or completed
investigation, claim, action, suit, or proceeding by reason of the fact that the
person had agreed to become a director, officer, employee, or agent of our
company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission this type of indemnification is against public policy as expressed in
the Act and is, therefore unenforceable. In the event that a claim for
indemnification against liabilities arising under the Securities Act of 1933
(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 any 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 the
submitted issue.
LEGAL MATTERS
The validity of the securities we are offering will be passed upon for us
by Lionel, Sawyer & Collins, Nevada.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 2001
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of Deloitte & Touche LLP, given upon
their authority as experts in accounting and auditing.
The financial statements of Xtal Fibras Opticas S.A. as of December 31,
1999 and 1998, and for each of the years then ended, incorporated by reference
in this prospectus have been audited by Deloitte Touche Tohmatsu, Auditores
Independentes, as stated in their report, which is incorporated herein by
reference, and have been so incorporated by reference in reliance upon the
report of Deloitte Touche Tohmatsu given upon their authority as experts in
accounting and auditing.
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We have not authorized any person to
make a statement that differs from
what is in this prospectus. If any
person does make a statement that
differs from what is in this
prospectus, you should not rely on
it. This prospectus is not an offer
to sell, nor is it seeking an offer
to buy these securities in any state
in which the offer or sale is not
permitted. The information in this
prospectus is complete and accurate
as of its date, but the information
may change after that date.
FIBERCORE, INC.
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PROSPECTUS
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June 5, 2002
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