-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DARMC3K9FD+SrGMGYjX8/1JPeTtQi1DJofdvwtyxgC/u5YCxXY07V2RNog/63+u7 3V8U5GNeeOXCFIpSK8cC1g== 0000795445-96-000008.txt : 19960828 0000795445-96-000008.hdr.sgml : 19960828 ACCESSION NUMBER: 0000795445-96-000008 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960827 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARC CAPITAL CENTRAL INDEX KEY: 0000795445 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 330256103 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10847 FILM NUMBER: 96620973 BUSINESS ADDRESS: STREET 1: 2067 COMMERCE DR CITY: MEDFORD STATE: OR ZIP: 97504 BUSINESS PHONE: 5417767700 MAIL ADDRESS: STREET 1: 2067 COMMERCE DR CITY: MEDFORD STATE: OR ZIP: 97504 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED LASER SYSTEMS /CA DATE OF NAME CHANGE: 19930825 S-3 1 REGISTRATION STATEMENT ` As filed with the Securities and Exchange Commission on August 26, 1996 Registration No. 33-_______ ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ARC CAPITAL (Exact name of registrant as specified in its charter) California 2067 Commerce Drive 33-0256103 (State or other jurisdiction of Medford, Oregon 97504 (I.R.S. Employer incorporation or organization) (541) 776-7700 Identification No.) (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Alan R. Steel 2067 Commerce Drive Medford, Oregon 97504 Tel. (541) 776-7700 Fax. (541) 779-6838 (Name, address, including zip code, and telephone number, including area code of agent for service) ---------------------------- With a copy to: Yvonne E. Chester, Esq. Troy & Gould Professional Corporation 1801 Century Park East, Suite 1600 Los Angeles, California 90067 Tel. (310) 553-4441 Fax. (310) 201-4746 ---------------------- Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| -------------
CALCULATION OF REGISTRATION FEE - --------------------------------------- ----------------------- ---------------------- --------------------- ------------------ Proposed maximum Proposed maximum Amount of Title of each class of Amount to be offering price aggregate offering registration securities to be registered registered per unit (1) price (1) fee - --------------------------------------- ----------------------- ---------------------- --------------------- ------------------ - --------------------------------------- ----------------------- ---------------------- --------------------- ================== Class A Common Stock, no par value 6,128,538 $1.75 $10,724,942 $3,698.26 - --------------------------------------- ----------------------- ---------------------- --------------------- ================== (1) Estimated solely for the purchase of calculating the registration fee and based, pursuant to Rule 457(c) on the average of the high and low sale prices of Registrant's Class A Common Stock as reported on the NASDAQ Stock Market on August 21, 1996.
---------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- =========================================================================== =========================================================================== ARC CAPITAL Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K, showing the location in the Prospectus of the answers to the items in Part I of Form S-3. Form S-3 Item Number and Caption Prospectus Caption 1. Front of the Registration Statement Facing Page; Outside Front and OutsideFront Cover Page of Prospectus Cover Page 2. Inside Front and Outside Back Cover Pages Inside Front Cover Page and ofProspectus Back Cover Page 3. Summary Information, Risk Factors and Risk Factors Ratio ofEarnings to Fixed Charges 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Outside Front Cover Page; Price Range of Class A Common Stock, Class A Warrants and Class B Warrants 6. Dilution Dilution 7. Selling Security Holders Selling Securityholders 8. Plan of Distribution Outside Front Cover Page; Plan of Distribution 9. Description of Securities to be Registered Outside Front Cover Page; Description of Securities 10.Interest of Named Experts and Counsel Not Applicable 11.Material Changes Not Applicable 12.Incorporation of Certain Information Incorporation of Certain by Reference Documents by Reference 13.Disclosure of Commission Position on Not Applicable Indemnification for Securities Act Liabilities Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION, DATED AUGUST 26, 1996 PROSPECTUS ARC CAPITAL 6,128,538 Shares of Class A Common Stock This Prospectus relates to the offer by certain securityholders named herein (the "Selling Securityholders") for sale to the public from time to time of (i) 3,752,000 shares of Class A Common Stock (the "Common Stock") of ARC Capital ("ARC" or the "Company") issuable upon conversion of notes issued in private placements (the "Notes") and in connection with an acquisition, (ii) 2,015,000 shares of Common Stock issuable upon exercise of Common Stock Purchase Warrants ("Warrants") issued in connection with private placements of Common Stock and convertible debt and in connection with an acquisition, and (iii) 361,538 shares of Common Stock issuable upon the exercise of certain stock options granted to directors of, and consultants to, the Company. Unless otherwise indicated herein, references herein to the "Company" means ARC Capital and its subsidiaries. The following table summarizes the terms of the Warrants (also see "Description of Securities"):
Class Exercise Price Per Share Expiration Date F $ 1.875 April 12, 1998 G 2.00 February 28, 1999 H 2.125 April 17, 2001 I 2.25 July 23, 2001 Laidlaw 2.25 April 1, 1997
With respect to the Common Stock issuable upon conversion of Notes, 1,152,000, 1,600,000 and 1,000,000 shares are issuable at $1.875, $2.125 (subject to change if certain events occur) and $2.25 per share, respectively. The Note related to the 1,152,000 shares is due on April 13, 1997, and may be prepaid at any time prior to maturity. The Note related to the 1,600,000 shares is due on April 16, 2001 and may be prepaid: (1) without conversion privileges before April 1997 at 120% of par; (2) with conversion privileges at any time after April 1997, assuming that the market price of the Common Stock reaches $4.00 per share; or (3) with conversion privileges any time concurrent with or after an initial public offering of stock of the Company's SRC VISION, Inc. and/or Pulsarr Holding b.v. subsidiary/ies ("Subsidiary") provided, however, that if the market price of the Common Stock during the 30 days immediately prior to prepayment is less than $3.00, there will be a prepayment penalty of 10% of the principal amount of the Note to be prepaid. The Note related to 1,000,000 shares is due on July 23, 1999, and may be prepaid at any time prior to maturity. 361,538 shares of Common Stock are issuable upon the exercise of stock options at prices ranging from $1.00 to $2.375 per share. Such options expire between 2001 and 2005. The Common Stock is traded on the Nasdaq Stock Market under the symbol "ARCCA." As of August 21, 1996, the last sale price for the Common Stock as reported on the Nasdaq Stock Market was $1.6875. This offering is not being underwritten. The Selling Securityholders have advised the Company that they may sell, directly or through brokers, all or a portion of the shares of Common Stock owned by each of them in negotiated transactions or in transactions on the Nasdaq Stock Market or otherwise at prices and terms prevailing at the time of sale. It is anticipated that usual and customary brokerage fees will be paid by the Selling Securityholders. In connection with such sales, the Selling Securityholders and any participating broker or dealer may be deemed to be "underwriters" of the Shares within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). The Company has informed the Selling Securityholders that the anti-manipulation provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934 (the "Exchange Act") may apply to their sales of the Shares The Company also has advised the Selling Securityholders of the requirements for delivery of this Prospectus in connection with any sale of the Shares. See "Risk Factors" beginning on page 7 of this Prospectus for a discussion of certain material risks associated with an investment in the Shares offered hereby. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==================================== -------------------- ---------------------- Price to Proceeds to Selling Public (1) Securityholders (2) ==================================== ===================== ===================== Per Share of Common Stock....... $ 1.6875 $ 10,341,908 ==================================== ===================== ===================== (1) Based on the last reported sale price of the Common Stock on the Nasdaq Stock Market on August 21, 1996. (2) All proceeds from the sale of the Shares offered hereby will be received by the Selling Securityholders. The amount shown is without deduction for brokerage fees which may be paid by the Selling Securityholders and for offering expenses, estimated at $25,000, payable by the Company pursuant to its agreements and understandings with the Selling Securityholders. See "Use of Proceeds."
The date of this Prospectus is August 26, 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy or information statements, and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N. W., Washington, D.C. 20549, as well as at the following regional offices: 7 World Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N. W., Washington, D.C. 20549, at prescribed rates. The Securities are traded on the Nasdaq Market (small-cap) and the Company's reports, proxy or information statements, and other information filed with Nasdaq may be inspected at Nasdaq's offices at 1735 K Street, N. W., Washington, D.C., 20006. Additional information regarding the Company and the Shares and Warrants offered hereby is contained in the Registration Statement on Form S-3 of which this Prospectus is a part (including all exhibits and amendments thereto, the "Registration Statement"), filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). For further information pertaining to the Company, the Common Stock and the Common Stock Purchase Warrants, reference is made to the Registration Statement and the exhibits thereto, which may be inspected and copied at the Commission's public reference facilities at Judiciary Plaza, 450 Fifth Street, N. W., Washington, D.C. 20549. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents which have been previously filed by the Company (Commission File No. 0-20097) with the Commission under the Exchange Act are incorporated in this Prospectus by reference: (a) the Company's Annual Report on Form 10-K for the year ended December 31, 1995; (b) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 1996; and (c) the Company's Current Reports on Form 8-K or Form 8-K-A filed on January 26, 1996 (Date of Report: January 18, 1996), February 16, 1996 (Date of Report: February 15, 1996), March 6, 1996 (Date of Report: March 1, 1996), May 13, 1996 (Date of Report: March 1, 1996), and July 30, 1996 (Date of Report: July 24, 1996). All documents filed by the Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference into this Prospectus and to be a part of this Prospectus from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein) modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. On request, the Company will provide, without charge, to each person to whom this Prospectus is delivered a copy of any or all of the documents incorporated by reference (other than exhibits to such documents that are not specifically incorporated by reference in such documents). Requests for such copies should be directed to ARC Capital, 2067 Commerce Drive, Medford, Oregon 97504, Attention Alan R. Steel, or by telephone at (541) 776-7700. - ----------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and notes thereto incorporated by reference herein. An investment in the Securities offered hereby involves certain materials risks. Prospective investors should carefully consider the factors discussed under "Risk Factors." Unless otherwise indicated, the information contained in the Prospectus assumes that outstanding warrants other than the Warrants, and options outstanding under the Company's stock option plans are not exercised. The Offering Class A Common Stock offered hereby.......... 6,128,538 shares Class A Common Stock outstanding before offering............................ 10,764,190 shares (3) Class A Common Stock outstanding after offerings and conversion and exercise of underlying securities (1)...... 16,892,728 shares(3) Class B Common Stock outstanding before and after offering(2)............... 118,501 shares Use of Proceeds.............................. All of the proceeds from the sale of the Securities offered hereby will be received by the Selling Securityholders. The Company will not receive any of the proceeds from this offering but will bear estimated expenses of approximately $25,000. Risk Factors................................. The securities offered hereby involve a high degree of risk. See "Risk Factors." NASDAQ Symbols............................... Class A Common Stock - ARCCA Class A Warrants - ARCCW Class B Warrants - ACCRZ UPO Units - ARCCU (1) Assumes that the Notes are converted and the Class F, Class G, Class H, Class I and Laidlaw warrants, and options to purchase 361,538 shares are exercised. See "Risk Factors - Need for Additional Financing." (2) The Class A Common Stock and the Class B Common Stock are substantially identical except that the Class B Common Stock has limited transferability. (3) Based on 10,764,190 shares of Class A Common Stock outstanding as of July 31, 1996. RISK FACTORS In addition to the other information in this Prospectus and incorporated herein by reference, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the Shares offered by this Prospectus. An investment in the Shares offered hereby is speculative in nature and involves a high degree of risk. History of Losses; Negative Cash Flow Prior to 1995, the Company had a history of losses and negative operating cash flow. The Company believes it may operate at a negative cash flow in the future due to (i) the need to fund certain development projects, such as the Advanced Vision Processor ("AVP"), (ii) cash required to enter new market areas, (iii) interest costs associated with recent financings, (iv) cash required for repayment of debt, and (v) possible cash needed to fully integrate Pulsarr's and Ventek's operations. Until the Company is able to consistently generate sustained positive cash flow from operations, the Company must rely on debt or equity financing. Although the Company achieved profitability in 1995, there can be no assurance as to the Company's profitability on a quarterly or annual basis in the future. Furthermore, the non-recurring expenses in early 1996 will result in a significant loss for the 1996 year. Need for Additional Financing The Company is seeking additional financing; however there can be no assurance the Company will be able to obtain any additional financing on terms satisfactory to the Company, if at all. The recent increases in (i) outstanding shares of the Company's Class A Common Stock due to private placements, (ii) the April 1995 and April 1996 private placements of convertible debt, (iii) a substantial loss in the first half of 1996, (iv) debt incurred for the acquisition of Ventek, and (v) the number of securities issuable upon exercise of warrants and convertible debt may limit the Company's ability to negotiate additional debt or equity financing. Uncertain Ability to Manage Growth and Integrate Acquired Businesses As part of its business strategy, the Company intends to pursue rapid growth. In March and July 1996, the Company acquired Pulsarr and Ventek, respectively, which had sales in 1995 of approximately $11.4 million and $4.4 million, respectively, and would have added approximately 80% to the Company's 1995 sales on a pro forma basis. This growth strategy will require the integration of new entities, such as Pulsarr and Ventek, the establishment of distribution relationships in foreign countries, expanded customer service and support, increased personnel throughout the Company and the continued implementation and improvement of the Company's operational, financial and management information systems. There is no assurance that the Company will be able to attract qualified personnel or to accomplish other measures necessary for its successful integration of Pulsarr, Ventek or other acquired entities for internal growth, or that the Company can successfully manage expanded operations. As the Company expands, it may from time to time experience constraints that will adversely affect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect the Company's financial condition and results of operations. Rapid Technological Changes; Product Development The markets for the Company's machine vision products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions and enhancements. For example, the Company believes that the 1995 introduction by Key Technology, Inc. of its new line of vision sorting equipment adversely affected bookings in late 1995 and 1996. Sales of products such as those offered by the Company depend in part on the continuing development and deployment of emerging technology and new services and applications based on such technology. The Company's success will depend to a significant extent upon its ability to enhance its existing products and develop new products that gain market acceptance. There can be no assurance that the Company will be successful in selecting, developing and manufacturing new products or enhancing its existing products on a timely or cost-effective basis or that products or technologies developed by others will not render the Company's products noncompetitive or obsolete. Moreover, the Company may encounter technical problems in connection with its product development that could result in the delayed introduction of new products or product enhancements. Failure to develop or introduce on a timely basis new products or product enhancements that achieve market acceptance would materially and adversely affect the Company's business, operating results and financial condition. Market Acceptance of New Products The Company's future operating results will depend upon its ability to successfully introduce and market, on a timely and cost-effective basis, new products and enhancements to existing products. There can be no assurance that new products or enhancements, if developed and manufactured, will achieve market acceptance. The Company is currently in the initial prototype stage of development on its AVP, a high speed software and digital signal processing technology designed to significantly improve system performance. There can be no assurance that a market for AVP systems will develop (i.e. that a need for AVP systems will exist, that AVP will be favored over other products on the market, etc.) or, if a market does develop, that the Company will be able, financially or operationally, to market and support AVP systems successfully. Dependence on Certain Markets and Expansion Into New Markets The future success and growth of the Company is dependent upon continuing sales in domestic and international food processing markets as well as successful penetration of other existing and potential markets. A substantial portion of the Company's historical sales has been in the potato and vegetable processing markets. Reductions in capital equipment expenditures by such processors due to commodity surpluses, product price fluctuations, changing consumer preferences or other factors could have an adverse effect on the Company's results of operations. The Company also intends to expand the marketing of its processing systems in additional food markets such as meat and granular food products, as well as nonfood markets such as plastics, wood products and tobacco, and to expand its sales activities in foreign markets. In the case of Ventek, the wood veneer market served is narrow, and saturation of the market and the potential inability to identify and develop new markets could adversely affect Ventek's growth rate. There can be no assurance that the Company can successfully penetrate additional food, nonfood, and wood veneer markets or expand further in foreign markets. Lengthy Sales Cycle The sales cycle in the marketing and sale of the Company's machine vision systems, especially in new markets or in a new application, is lengthy and can be as long as three years. Even in existing markets, due to the $100,000 to $450,000 price range for each system, the purchase of a machine vision system can constitute a substantial capital investment for a customer (which may need more than one machine for its particular proposed application) requiring lengthy consideration and evaluation. In particular, a potential customer must develop a high degree of assurance that the product will meet its needs, successfully interface with the customer's own manufacturing, production or processing system, and have minimal warranty, safety and service problems. Accordingly, the time lag from initiation of marketing efforts to final sales can be lengthy. Competition The markets for the Company's products are highly competitive. A major competitor of the Company has recently made a new product introduction which has increased the competition that the Company faces. Some of the Company's competitors may have substantially greater financial, technical, marketing and other resources than the Company. Important competitive factors in the Company's markets include price, performance, reliability, customer support and service. Although the Company believes that it currently competes effectively with respect to these factors, there can be no assurance that the Company will be able to continue to compete effectively in the future. Dependence upon Certain Suppliers Certain key components and subassemblies used in the Company's products are currently obtained from sole sources or a limited group of suppliers, and the Company has only one long-term supply agreement to ensure an uninterrupted supply of certain components. Although the Company seeks to reduce dependence on sole or limited source suppliers, the inability to obtain sufficient sole or limited source components as required, or to develop alternative sources if and as required, could result in delays or reductions in product shipments which could materially and adversely affect the Company's results of operations and damage customer relationships. The purchase of certain of the components used in the Company's products requires an 8 to 12 week lead time for delivery. An unanticipated shortage of such components could delay the Company's ability to timely manufacture units, damage customer relations, and have a material adverse effect on the Company. In addition, a significant increase in the price of one or more of these components or subassemblies could adversely affect the Company's results of operations. Dependence upon Significant Customers and Distribution Channel The Company sold equipment to two unaffiliated customers each totaling 20% of sales in 1995. Sales to a third unaffiliated customer totaled 15% of sales in 1994. Ventek's sales have been to a relatively small number of multi-location plywood manufacturers. The Company usually receives orders of one to several machine vision systems, but occasionally receives larger orders. While the Company strives to create long-term relationships with its customers and distributors, there can be no assurance that they will continue ordering additional systems from the Company. The Company may continue to be dependent on a small number of customers and distributors, the loss of which would adversely affect the Company's business. Risk of International Sales Due to its export sales (from the U.S. in the case of SRC and Ventek, or from the Netherlands in the case of Pulsarr), the Company is subject to the risks of conducting business internationally, including unexpected changes in regulatory requirements; fluctuations in the value of the U. S. dollar or Dutch guilder, which could increase the sales prices in local currencies of the Company's products in international markets; delays in obtaining export licenses, tariffs and other barriers and restrictions; and the burdens of complying with a variety of international laws. In addition, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as do the laws of the United States or the Netherlands. Fluctuations in Quarterly Operating Results; Seasonality The Company has experienced and may in the future experience significant fluctuations in revenues and operating results from quarter to quarter as a result of a number of factors, many of which are outside the control of the Company. These factors include the timing of significant orders and shipments, product mix, delays in shipment, capital spending patterns of customers, competition and pricing, new product introductions by the Company or its competitors, the timing of research and development expenditures, expansion of marketing and support operations, changes in material costs, production or quality problems, currency fluctuations, disruptions in sources of supply, regulatory changes and general economic conditions. These factors are difficult to forecast, and these or other factors could have a material adverse effect on the Company's business and operating results. Moreover, due to the relatively fixed nature of many of the Company's costs, including personnel and facilities costs, the Company would not be able to reduce costs in any quarter to compensate for any unexpected shortfall in net sales, and such a shortfall would have a proportionately greater impact on the Company's results of operations for that quarter. For example, a significant portion of the Company's quarterly net sales depends upon sales of a relatively small number of high-priced systems. Thus, changes in the number of such high-priced systems shipped in any given quarter can produce substantial fluctuations in net sales, gross profits, and net income from quarter to quarter. In addition, in the event the Company's machine vision systems' average selling price increases, of which there can be no assurance, the addition or cancellation of sales may exacerbate quarterly fluctuations in revenues and operating results. The Company's operating results may also be affected by certain seasonal trends. The Company typically experiences lower sales and order levels in the first quarter when compared with the preceding fourth quarter due primarily to the seasonality of certain harvested food items. The Company expects these seasonal patterns to continue, though their impact on revenues will decline as the Company continues to expand its presence in nonagricultural and other markets which are less seasonal. Risks Associated with Possible Acquisitions The Company may pursue strategic acquisitions or joint ventures in addition to the acquisitions of Pulsarr and Ventek as part of its growth strategy. While the Company has no commitments or binding agreements with respect to any further acquisition, the Company anticipates that one or more potential opportunities may become available in the future. Acquisitions and joint ventures would require investment of operational and financial resources and could require integration of dissimilar operations, assimilation of new employees, diversion of management resources, increases in administrative costs and additional costs associated with debt or equity financing. There can be no assurance that any acquisition or joint venture by the Company will not have an adverse effect on the Company's results of operations or will not result in dilution to existing shareholders. If additional attractive opportunities become available, the Company may decide to pursue them actively. There can be no assurance that the Company will complete any future acquisitions or joint ventures or that such a future transaction will not materially and adversely affect the Company. Dependence upon Key Personnel The Company's success depends to a significant extent upon the continuing contributions of its key management, technical, sales and marketing and other key personnel. Except for William J. Young, the Company's President and Chief Executive Officer, Alan R. Steel, the Company's Chief Financial Officer, Dr. James Ewan, SRC's President and Chief Executive Officer, Jan C. Scholt, Pulsarr's Managing Director, and the four former stockholders of Ventek, the Company does not have long-term employment agreements or other arrangements with such individuals which would encourage them to remain with the Company. The Company's future success also depends upon its ability to attract and retain additional skilled personnel. Competition for such employees is intense. The loss of any current key employees or the inability to attract and retain additional key personnel could have a material adverse effect on the Company's business and operating results. There can be no assurance that the Company will be able to retain its existing personnel or attract such additional skilled employees in the future. Intellectual Property The Company's competitive position may be affected by its ability to protect its proprietary technology. Although the Company has a number of United States and foreign patents, there can be no assurance that any such patents will provide meaningful protection for its product innovations. The Company may experience additional intellectual property risks in international markets where it may lack patent protection. Product Liability and Other Legal Claims From time to time, the Company may be involved in litigation arising out of the normal course of its business, including product liability and other legal claims. While the Company has a general liability insurance policy which includes product liability coverage up to an aggregate amount of $10 million, there can be no assurance that the Company will be able to maintain product liability insurance on acceptable terms or that its insurance will provide adequate coverage against potential claims in the future. There can be no assurance that third parties will not assert infringement claims against the Company, that any such assertion of infringement will not result in litigation or that the Company would prevail in such litigation. Furthermore, litigation, regardless of its outcome, could result in substantial cost to and diversion of effort by the Company. Any infringement claims or litigation against the Company could materially and adversely affect the Company's business, operating results and financial condition. If a substantial product liability or other legal claim against the Company were sustained that was not covered by insurance, there could be an adverse effect on the Company's financial condition and marketability of the affected products. Warranty Exposure and Performance Specifications The Company generally provides a one-year limited warranty on its products. In addition, for certain custom-designed systems, the Company contracts to meet certain performance specifications for a specific application. In the past, the Company has incurred higher warranty expenses related to new products than it typically incurs with established products. There can be no assurance that the Company will not incur substantial warranty expenses in the future with respect to new products, as well as established products, or with respect to its obligations to meet performance specifications, which may have an adverse effect on its results of operations and customer relationships. USE OF PROCEEDS Other than the exercise price of such of the Warrants and Options as may be exercised, the Company will not receive any of the proceeds from the sale of the Common Stock offered hereby. The Company will pay the costs of this offering, which are estimated to be $25,000. Holders of the Warrants and Options are not obligated to exercise their Warrants and Options, and there can be no assurance that such holders will choose to exercise all or any of such Warrants and Options. Additionally, the holders of the Notes are not obligated to convert their Notes, and there can be no assurance that such holders will choose to exercise all or any of such Notes. The gross proceeds to the Company in the event that all of the Warrants and Options are exercised would be as follows:
Number of Warrants or Exercise Price Proceeds to or Options per Share Company Warrants: Class F 300,000 $ 1.875 $ 562,500 Class G 240,000 2.00 480,000 Class H 340,000 2.125 722,500 Class I 1,000,000 2.25 2,250,000 Laidlaw 135,000 2.25 303,750 Options: 200,000 1.00 200,000 100,000 2.375 237,500 61,538 1.625 99,999 --------------- Total $ 4,856,249 ===============
The effect of the conversion of the Notes would be to reduce debt and increase equity by approximately $7,810,000. While there will be no direct proceeds to the Company from an assumed conversion of the Notes, the Company's future cash flows would be enhanced by the cessation of Note-related interest and principal payments. The Company intends to apply the net proceeds it receives from exercise of the Warrants and Options, to the extent any are exercised, to augment its working capital and for general corporate purposes. PRICE RANGE OF CLASS A COMMON STOCK, CLASS A WARRANTS AND CLASS B WARRANTS The Company's Class A Common Stock, Class A Warrants, and Class B Warrants are quoted on the Nasdaq system under the symbols ARCCA, ARCCW and ARCCZ, respectively. The high and low sales prices for the Class A Common Stock, Class A Warrants and Class B Warrants as reported by The Nasdaq Stock Market for the last two fiscal years and for 1996 are indicated below. Such prices are inter-dealer prices without retail markups, markdowns, or commissions, and may not necessarily represent actual transactions. There is no established public trading market for the Company's Class B Common Stock.
Class A Common Stock Class A Class B Warrants Warrants Year Ended December 31, 1994 Low High Low High Low High - ---------------------------- ------------- ------------- ------------- First Quarter (January-March) 3.88 6.25 2.50 4.56 0.88 2.00 Second Quarter (April-June) 1.94 4.38 0.94 3.38 0.75 1.81 Third Quarter (July-September) 1.25 2.63 0.75 1.31 0.25 0.69 Fourth Quarter (October-December) 0.69 1.56 0.25 0.50 0.13 0.25 Year Ended December 31, 1995 First Quarter (January-March) 0.69 1.13 0.25 0.41 0.09 0.13 Second Quarter (April-June) 0.88 1.38 0.31 0.56 0.09 0.31 Third Quarter (July-September) 1.06 3.63 0.31 1.88 0.16 0.63 Fourth Quarter (October-December) 1.88 3.25 0.91 1.75 0.22 0.59 Year Ended December 31, 1996 First Quarter (January-March) 2.50 1.50 1.09 0.66 0.41 0.31 Second Quarter (April-June) 2.56 1.31 1.56 0.63 0.47 0.25 Closing price on August 21, 1996 1.69 0.69 0.28
On December 31, 1995, there were 102 and 30 record owners of the Company's Class A and Class B Common Stock, respectively. The majority of outstanding shares of Class A Common Stock are held of record by a nominee holder on behalf of an unknown number of ultimate beneficial owners. The total numbers of beneficial owners of the Company's common shares indicated in the responses to the Company's November 1994 proxy solicitation by the nominees or their designated agents was approximately 2,300. The Company has not declared or paid any cash dividends upon its Common Stock since its inception. The Company does not anticipate paying any cash dividends in the foreseeable future. It is anticipated that earnings, if any, which may be generated from operations will be used to finance the operations of the Company. DILUTION As of June 30, 1996, the Company's Class A Common Stock had a net tangible book value of $59,000, which represents the amount of the Company's total tangible assets less liabilities, or $.01 per share, based on 10,882,691 outstanding shares, and assuming conversion of 118,500 shares of Class B Common Stock. Giving effect to the conversion of $2,160,000 of 10.25% Notes, $3,400,000 of 6.75% Notes, and the $2,250,000 Notes, the pro forma net tangible book value of the shares of Class A Common Stock would have been $.18, $.28 and $.19 per share, respectively, representing an immediate dilution per share of $1.70, $1.86, and $2.07, respectively, to individuals converting the 10.25% Notes, 6.75% Notes, and $2.250,000 Notes, respectively. Giving effect to the exercise of the 300,000, 240,000, 340,000, 1,000,000 and 135,000 outstanding Class F, G, H, I and Laidlaw Warrants, respectively, the pro forma net tangible book value of the shares of Class A Common Stock would have been $.06, $.05, $.07, $.19 and $.03 per share, respectively, representing an immediate dilution per share of $1.83, $1.96, $2.07, $2.07 and $2.23 to individuals exercising Class F, G, H, I and Laidlaw Warrants, respectively. Giving effect to the exercise of 361,538 Options to purchase shares of Class A Common Stock, the pro forma net tangible book value of the shares of Class A Common Stock would have been $.05 per share, representing an immediate dilution per share of $1.44. Dilution per share represents the difference between the exercise price and the pro forma net tangible book value after the conversion of the Notes or exercise of the Warrants or Options, as applicable. The following table illustrates per share dilution to be incurred by individuals converting the Notes and exercising the Warrants and Options listed herein, assuming all such Notes, Warrants and Options are converted or exercised.
10.25% 6.75% $2,250,000 Class F Class G Class H Class I Laidlaw Notes Notes Notes Warrants Warrants Warrants Warrants Warrants Options Conversion or exercise price per share of Class A Common Stock $ 1.875 $ 2.125 $ 2.25 $ 1.875 $ 2.00 $ 2.125 $ 2.25 $ 2.25 $ 1.487 Net tangible book value per share before conversion of Notes or exercise of 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Warrants or Options Proforma net tangible book value after conversion or 0.18 0.28 0.19 0.06 0.05 0.07 0.19 0.03 0.05 exercise (1) Increase per share attributable to conversion or exercise 0.17 0.27 0.18 0.05 0.04 0.06 0.18 0.02 0.04 Dilution per share (2) 1.70 1.86 2.07 1.83 1.96 2.07 2.07 2.23 1.44 (1) Assumes the entire conversion or exercise price is allocated to the Class A Common Stock obtained upon conversion or exercise and that none of the other types of Notes, Warrants or Options, as applicable, are converted or exercised. (2) Dilution per share represents the difference between the conversion or exercise price and the pro forma net tangible book value after the conversion or exercise of the Notes, Warrants, or Options as applicable.
SELLING SECURITYHOLDERS All of the Securities offered hereby are being sold by the Selling Securityholders.
Ownership Ownership Prior to Registration After Offering (1) Type and Number Type and Number of Securities Type and Number Beneficial Owner of Securities Percent(6) Being Offered of Securities Percent(6) Ilverton International, Inc. 2,240,000 Shares of Common Stock (1) 17.1% Same 0 0% Rush & Co. 1,152,000 shares of Common Stock (1) 9.6% Same 0 0% Gerinda Management 240,000 shares of Limited Common Stock (1) 2.2% Same 0 0% The Dimitri Villard 13,500 Shares of Revocable Living Trust (4) Common Stock(1) * Same 0 0% Laidlaw Equities, Inc. (4) 121,500 Shares of Common Stock(1) 1.2% Same 0 0% Veneer Technology, Inc.(7) 2,000,000 shares of Common Stock 13.8% Same 0 0% Asif S. Ahmad (2)(3) 392,394 shares of 100,000 shares 292,394 shares Common Stock (2) 3.5% of Common Stock of Common Stock 2.6% Nagaraj P. Murthy (2)(3) 425,727 shares of 100,000 shares 325,727 shares Common Stock (2) 3.8% of Common Stock of Common Stock 2.9% James K. Rifenbergh (2)(3) 110,000 shares of 100,000 shares 10,000 shares of Common Stock (2) * of Common Stock Common Stock * Wall Street Consultants, 61,538 shares of Inc.(5) Common Stock (2) * Same 0 0% * Less than 1%. (1) Common Stock issuable upon conversion of Notes or exercise of Warrants. (2) Includes Options to purchase 100,000 shares of Common Stock. (3) Messrs. Ahmad, Murthy and Rifenbergh are directors of the Company. (4) Laidlaw Equities ("Laidlaw") served as a financial advisor to the Company in 1994. Dimitri Villard was associated with Laidlaw at that time. (5) Wall Street Consultants, Inc., through its Wall Street Group, Inc. affiliate, serves as public relations counsel to the Company. (6) Percents are based on outstanding Common Stock as of July 31, 1996. (7) Veneer Technology, Inc. is the former owner of the assets and business of Ventek.
PLAN OF DISTRIBUTION The shares of Common Stock offered hereby may be offered and sold from time to time by the Selling Securityholders listed above, or by pledgees, donees, transferees or other successors in interest. The Selling Securityholders will act independently of the Company in making decisions with respect to the timing, market, or otherwise at prices related to the then current market price or in negotiated transactions. The shares of Common Stock covered by this Prospectus may be sold by the Selling Securityholders in one or more transactions on the Nasdaq Stock Market, or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The shares of Common Stock may be sold by one or more of the following ways: (a) a block trade in which the broker or dealer so engaged will attempt to sell the shares of Common Stock as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; and (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers. Thus, the period of distribution of such shares of Common Stock may occur over an extended period of time. The Company will bear all costs and expenses of the registration of the Shares under the Securities Act and certain state securities laws, other than fees of counsel for the Selling Securityholders and any discounts or commissions payable with respect to sales of such Shares. In offering the securities, the Selling Securityholders and any broker-dealers and any other participating broker-dealers who execute sales for the selling Securityholders may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales, and any profits realized by the Selling Securityholders and the compensation of such broker-dealer may be deemed to be underwriting discounts and commissions. In addition, any shares covered by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus. The Company has advised the Selling Securityholders that during such time as they may be engaged in a distribution of Securities included herein they are required to comply with Rules 10b-6 and 10b-7 under the Exchange Act (as those Rules are described in more detail below) and, in connection therewith that they may not engage in any stabilization activity, except as permitted under the Exchange Act, are required to furnish each broker-dealer through which Common Stock included herein may be offered copies of this Prospectus, and may not bid for or purchase any securities of the Company or attempt to induce any person to purchase any securities except as permitted under the Exchange Act. Rule 10b-6 under the Exchange Act prohibits, with certain exceptions, participants in a distribution from bidding for or purchasing, for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Rule 10b-7 governs bids and purchases made in order to stabilize the price of a security in connection with a distribution of the security. DESCRIPTION OF SECURITIES The authorized capital of ARC consists of 60,000,000 shares of Class A Common Stock, no par value, 3,000,000 shares of Class B Common Stock, no par value, and 5,000,000 shares of preferred stock, no par value (the "Preferred Stock"). At July 31, 1996, there were 10,764,190 shares and 118,501 shares of the Class A and Class B, respectively, and no shares of Preferred Stock outstanding. Common Stock General Provisions of Class A and Class B Common Stock The Class A and Class B Common Stock (the "Common Stock") are substantially identical on a share-for-share basis. The holders of Common Stock vote as a single class on all matters to come before stockholders for a vote and may cumulate their votes in the election of directors upon giving notice as required by law. Each share of Class B Common Stock is automatically converted into one share of Class A Common Stock upon its sale or transfer, or the death of the holder. All of the Common Stock is entitled to share equally in dividends from sources available therefor when, as and if declared by the Board of Directors, and upon liquidation or dissolution of ARC, whether voluntary or involuntary, and to share equally in the assets of ARC available for distribution to stockholders. Stockholders have no preemptive rights. All outstanding shares are fully paid, nonassessable and legally issued. The Board of Directors is authorized to issue additional shares of Common Stock within the limits authorized by ARC's charter and without stockholder action. Reference is made to ARC's Restated Articles of Incorporation, and Amended and Restated By-Laws, as well as to the applicable statutes of the State of California, for more detailed description of the rights and liabilities of stockholders. Preferred Stock Shares of Preferred Stock may be issued from time to time in one or more series; and the ARC Board of Directors, without further stockholder approval, is authorized to fix the dividend rights and terms, conversion rights, voting rights (whole, limited or none), redemption rights and terms, liquidation preferences, sinking funds and any other rights, preferences, privileges and restrictions applicable to each such series of Preferred Stock. The purpose of authorizing the ARC Board of Directors to determine such rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of the Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of the Company; such issuance also could adversely affect the distributions on and liquidation preferences of the Class A Common Stock by creating more series of Preferred Stock with distribution or liquidation preferences senior to the Class A Common Stock. In the event that shares of Preferred Stock are issued as securities convertible into shares of Class A Common Stock, the holders of Class A Common Stock may experience dilution. Series A Preferred Stock. Effective September 30, 1991, ARC issued 1,500,000 shares of Series A Preferred Stock in settlement of advances from shareholders. As of December 31, 1993, such shareholders contributed all 1,500,000 shares of Series A Preferred Stock to the capital of ARC in connection with ARC's 1994 restructure, and none of the Series A Preferred Stock remains outstanding. Class F, G, H and I Warrants In connection with private placements of Class A Common Stock and convertible notes in 1995 and 1996, and the acquisition of a company in 1996, ARC issued the following warrants to purchase shares of Class A Common Stock:
Number of Exercise Price Expiration Class Warrants Per Share Date F 300,000 1.875 April 12, 1998 G 240,000 2.00 February 28, 1999 H 340,000 2.125 April 17, 2001 I 1,000,000 2.25 July 23, 2001
The warrant exercise prices are subject to adjustment to protect holders of the warrants against dilution in the event of a stock dividend, stock split, combination or reclassification of Class A Common Stock. Laidlaw Warrants In connection with the rendering of financial consulting services in 1994, ARC issued to Laidlaw Warrants to purchase 135,000 shares of Class A Common Stock at an exercise price of $2.25. The Laidlaw Warrants expire on April 1, 1997. The warrant exercise price is subject to adjustment to protect holders of the warrants against dilution in the event of a stock dividend, stock split, combination or reclassification of Class A Common Stock. General Information as to Warrants The Class F Warrants, Class G Warrants, Class H Warrants, Class I Warrants and Laidlaw Warrants have been issued pursuant to warrant agreements. Shares issued upon exercise of warrants and payment in accordance with the terms of the warrants and warrant agreements will be fully paid and non-assessable. The warrants do not confer upon the warrant holder any voting or other rights of a stockholder of ARC. Upon notice to the warrantholders, ARC has the right to unilaterally reduce the exercise price or extend the expiration date of the warrants. Although this right is intended to benefit warrantholders, to the extent that ARC exercises this right when the Warrants would otherwise be exercisable at a price higher than the prevailing market price of the Class A Common Stock, the likelihood of exercise, and the resultant increase in the number of shares outstanding, may impede or make more costly a change of control of ARC. Schedule of Outstanding Stock, Warrants, Units and Potential Dilution In addition to the Common Stock offered hereby, the Company has issued securities which, upon conversion or exercise, will significantly increase the number of shares of Class A Common Stock outstanding. The following table summarizes, as of July 31, 1996, outstanding common stock, potential dilution to the outstanding common stock upon exercise of warrants (including the Common Stock being registered herein), UPO Units and convertible debt, and proforma proceeds and debt reduction from the exercise of warrants and UPO Units or conversion of debt.
Proforma Number or Principal Class A Common Proceeds Amount Outstanding Conversion Stock After Conversion or Debt Security at July 31, 1996 Factor Conversion Price Reduction ----------------------------------------------------------------------------------------------------------- Common Stock: Class A 10,764,190 10,764,190 Class B 118,501 118,501 ---------- Total currently outstanding 10,882,691 Warrants: A 2,941,963 1.4 4,118,748 $ 2.84 $ 11,697,000 B 4,354,863 (A) 1.4 6,096,808 4.17 25,424,000 C 846,250 1.4 1,184,750 2.21 2,618,000 D 275,000 1 275,000 2.75 756,000 F 300,000 1 300,000 1.88 564,000 G 240,000 1 240,000 2.00 480,000 H 340,000 1 340,000 2.13 724,000 I 1,000,000 1 1,000,000 2.25 2,250,000 Gerinda 300,000 1 300,000 5.00 1,500,000 Laidlaw 135,000 1 135,000 2.25 304,000 ---------- 13,990,306 Unit Purchase Options: 188,400 6.30 1,187,000 Class A Common 376,800 1 376,800 A Warrants 376,800 1.4 527,520 2.84 1,498,000 B Warrants 565,400 1.4 791,280 4.17 3,300,000 ---------- 1,695,600 Convertible Debt: 10.25% Notes $ 2,160,000 1,152,000 1.88 2,160,000 6.75% Notes 3,400,000 1,600,000 2.13 3,400,000 6.75% Acquisition Note 2,250,000 1,000,000 2.25 2,250,000 6% Note 980,000 441,486 2.22 980,000 Acquisition Note 1,125,000 1,800,000 1,125,000 ----------- ------------ 5,993,486 Potentially outstanding shares and proforma proceeds and reduction of debt 32,562,083 $ 62,217,000 ========== ============ (A) Includes 1,412,900 outstanding plus 2,941,963 assuming exercise of the Class A Warrants.
In addition, at July 31, 1996, ARC had outstanding options to purchase, at prices ranging from $1.00 to $4.94 per share, 3,216,000 shares of Class A Common Stock, 2,854,000 of which are under its stock option plans. Transfer and Warrant Agent The Transfer and Warrant Agent for ARC's Class A Common Stock, Class B Common Stock, Class A Warrants, Class B Warrants, Class C Warrants and Class D Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. Reports to Stockholders ARC intends to furnish to stockholders, after the close of each fiscal year, an annual report relating to the operations of ARC and containing financial statements audited and reported upon by its independent public accountants. In addition, ARC may furnish to stockholders such other reports as may be authorized, from time to time, by the Board of Directors. LEGAL MATTERS Troy & Gould Professional Corporation, Los Angeles, California, has rendered an opinion to the effect that the securities offered hereby by the Selling Securityholders, when sold or paid for, will be duly and validly issued, fully paid and nonassessable. EXPERTS The consolidated balance sheets of the Company as of December 31, 1995 and 1994 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1995 and December 31, 1994, the three months ended December 31, 1993, and the year ended September 30, 1993, have been incorporated by reference in the Prospectus in reliance upon the reports of Price Waterhouse LLP and Coopers & Lybrand LLP, independent accountants, given on the authority of those firms as experts in accounting and auditing. ================================================================================ No dealer, salesman or other person has been authorized to give any information or make any representations, other than those contained in this Prospectus, in connection with the offering hereby, and, if given or made, such information and representations must not be relied upon as having been authorized by the Company or the Selling Securityholders. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities to any person in any State or other jurisdiction in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or the facts herein set forth since the date hereof. -------------------- TABLE OF CONTENTS Page Available Information..................... 5 Incorporation of Certain Documents by Reference............... 5 Risk Factors.............................. 7 Use of Proceeds........................... 10 Price Range of Common Stock and Dividend Policy.................. 11 Selected Consolidated Financial Data...... Selling Securityholders................... 13 Plan of Distribution...................... 13 Description of Securities................. 14 Legal Matters............................. 17 Experts................................... 17 ============================================================================== ============================================================================== 6,128,538 Shares of Class A Common Stock ARC CAPITAL ----------------- PROSPECTUS ---------------- August 26, 1996 ============================================================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The following table sets forth an itemized statement of all the amounts of all expenses to be incurred in connection with the issuance and distribution of the securities that are the subject of this Registration Statement. All amounts shown, other than the Securities and Exchange Commission registration fee, are estimates. Securities and Exchange Commission registration fee.......................... $ 3,698.26 Printing expenses............................................................ 2,000.00 Transfer Agent fees.......................................................... -- Legal fees and expenses...................................................... 10,000.00 Accounting fees and expenses................................................. 5,000.00 "Blue sky" fees and expenses................................................. 3,000.00 Miscellaneous expenses....................................................... 1,301.74 ---------------- Total................................................................. $ 25,000.00 ================
Item 15. Indemnification of Directors and Officers Under California law, a California corporation may eliminate or limit the personal liability of a director to the corporation for monetary damages for breach of the director's duty of care as a director, provided that the breach does not involve certain enumerated actions, including, among other things, intentional misconduct or knowing and culpable violation of the law, acts or omissions which the director believes to be contrary to the best interests of the corporation or its shareholders or which reflect an absence of good faith on the director's part, the unlawful purchase or redemption of stock, payment of unlawful dividends and receipt of improper personal benefits. The Company's Board of Directors believes that such provisions have become commonplace among major corporations and are beneficial in attracting and retaining qualified directors, and the Company's Articles of Incorporation include such provisions. The Company's Articles of Incorporation and Bylaws also impose a mandatory obligation upon Company to indemnify any director or officer to the fullest extent authorized or permitted by law (as now or hereinafter in effect), including under circumstances in which indemnification would otherwise be at the discretion of the Company. In addition, the Company has entered into indemnity agreements with each of its directors and officers providing for the maximum indemnification permitted or authorized by law. The foregoing indemnification provisions are broad enough to encompass certain liabilities of directors and officers under the Securities Act of 1933. Item 16. Exhibits The following exhibits, which are furnished with this Registration Statement or incorporated by reference, are filed as part of this Registration Statement: Exhibit No. Description of Exhibit - ------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of the Company as amended to date (1) 3.2 Restated and Amended By-Laws of the Company (1) 4.1 Form of Class F Warrant Agreement 4.2 Form of Class G Warrant Agreement. (1) 4.3 Form of Class H Warrant Agreement. (2) 4.4 Form of Class I Warrant Agreement (4) 4.5 Form of Laidlaw Warrant Agreement. 4.6 Form of stock option agreement. (3) 5.1 Opinion of Troy & Gould Professional Corporation regarding the legality of the securities registered hereunder. (5) 23.1 Consents of Price Waterhouse LLP and Coopers & Lybrand LLP (contained in Part II). (5) 23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5). (5) 24.1 Power of Attorney (contained in Part II). ------------------------ (1) Filed with the SEC on April 14, 1996, as an exhibit to the Company's Form 10-K for the year ended December 31, 1995. (2) Filed with the SEC on May 14, 1996, as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 1996. (3) Filed with the SEC as an exhibit to Form S-1 (File No. 33-45126). (4) Filed with the SEC on July 30, 1996, as an exhibit to the Company's Form 8-K dated July 24, 1996. (5) To be filed by amendment. Item 17. Undertakings (a) The undersigned Company hereby undertakes: (1) To file, during any period in which offers or sales are being made of the securities registered hereby, a post-effective amendment to this registration statement. (i)To include any prospectus required by section 10(a) (3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that (i) and (ii) do not apply if the registration statement is on Form S-3, and the information required to be included in a post-effective amendment is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Company hereby undertakes: That for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Medford, Oregon on August 23, 1996. ARC CAPITAL By: /s/ William J. Young William J. Young Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William J. Young and Alan R. Steel, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ William J. Young Chairman of the Board of Directors, William J. Young Chief Executive Officer and President August 23, 1996 /s/ Alan R. Steel Chief Financial Officer Alan R. Steel Principal Financial and Accounting August 22, 1996 Officer /s/ Asif S. Ahmad Director August 21, 1996 - -------------------------------------- Asif S. Ahmad s/ Nagaraj P. Murthy Director August 26, 1996 - -------------------------------------- Nagaraj P. Murthy /s/ Jack Nelson Director August 22, 1996 - -------------------------------------- Jack Nelson /s/ James K. Rifenbergh Director August 15, 1996 - -------------------------------------- James K. Rifenbergh /s/ Rodger A. Van Voorhis Director August 16, 1996 - -------------------------------------- Rodger A. Van Voorhis
EXHIBIT INDEX Exhibit Number Description 4.1 Form of Class F Warrant Agreement 4.4 Form of Laidlaw Warrant Agreement 5.1 Opinion of Troy & Gould Professional Corporation* 23.1 Consents of Price Waterhouse LLP and Coopers & Lybrand LLP (contained in Part II)* 23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1)* 24.1 Power of Attorney (contained in Part II) * To be filed by amendment. EX-4.1 2 FORM OF CLASS F WARRANT AGREEMENT 1 THESE WARRANTS AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE WARRANTS ARE NOT TRANSFERABLE, AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THEIR EXERCISE MAY NOT BE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH PROPOSED TRANSFER IS NOT IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. CLASS F WARRANT TO PURCHASE CLASS A COMMON STOCK Warrant No. 1 This Warrant issued by Applied Laser Systems, a California corporation (the "Company"), as of April 13, 1995, entitles Ilverton International, Ltd. (the registered "Holder") to purchase 300,000 shares of the Company's Class A Common Stock at an initial purchase price of $1.875 per share (the "Purchase Price"). This Warrant is one in a series of Class F Warrants, which in the aggregate entitles the Holders thereof to purchase up to 300,000 shares of Class A Common Stock. The Class F Warrants were issued in connection with the issuance of a convertible subordinated secured note (the "Note") dated April 13, 1995, between the Company and Ilverton International, Ltd. SECTION 1. Definitions. As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: (a) "Common Stock" shall mean the Class A Common Stock of the Company, whether now or hereafter authorized. (b) "Corporate Office" shall mean the office of the Company at which at any particular time its principal business shall be administered, which office is located at the date hereof at 2067 Commerce Drive, Medford, Oregon 97504, Attention: President. (c) "Exercise Date" shall mean the date on which the Company shall have received both (a) the Warrant, with an exercise form acceptable to the Company and duly executed by the Registered Holder thereof or his attorney duly authorized in writing, and (b) payment in cash, or by official bank or certified check made payable to the Company, of an amount in lawful money of the United States of America equal to the applicable Purchase Price. (d) "Initial Warrant Exercise Date" shall mean April 13, 1995. (e) "Purchase Price" shall mean the purchase price to be paid per share of Common Stock upon exercise of each Warrant in accordance with the terms hereof, which price shall be either (i) $1.875 or, (ii) if the Company enters into a definitive agreement to acquire one or more major business entities before October 13, 1995, the Purchase Price shall become $2.25 on the date of such definitive agreement, subject to adjustment from time to time pursuant to the provisions of Section 7 hereof, and subject to the Company's right to reduce the Purchase Price upon notice to all Registered Holders. (f) "Registered Holders" shall mean the persons in whose names the Warrants shall be registered on the books maintained by the Company. (g) "Warrant Expiration Date" shall mean 5:00 P.M. (Oregon time) on April 12, 1998; provided that if such date shall in the State of Oregon be a holiday or a day on which banks are authorized to close, then 5:00 P.M. (Oregon time) on the next following day which in the State of Oregon is not a holiday or a day on which banks are authorized to close. Upon notice to all Registered Holders the Company shall have the right to extend the Warrant Expiration Date. SECTION 2. Warrants and Issuance of Warrant Agreements. (a) This Warrant initially entitles the Registered Holder to purchase an aggregate of 300,000 shares of Common Stock upon the exercise thereof, in accordance with the terms hereof, subject to modification and adjustment as provided in Section 7. (b) From time to time, up to the Warrant Expiration Date, the Company shall execute and deliver Warrants in required whole number denominations to the persons entitled thereto in connection with any exchange permitted under this Warrant; provided that no Warrant shall be issued except (i) those initially issued hereunder; (ii) those issued on or after the Initial Warrant Exercise Date, upon the partial exercise of this Warrant, to evidence any unexercised Warrants held by the exercising Registered Holder; (iii) those issued upon any exchange pursuant to Section 5; (iv) those issued in replacement of lost, stolen, destroyed or mutilated Warrants pursuant to Section 6; and (v) at the option of the Company, in such form as may be approved by its Board of Directors, to reflect (a) any adjustment or change in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants made pursuant to Section 7 hereof, and (b) other modifications approved by Registered Holders. SECTION 3. Form and Execution of Warrants; Exercise of Warrants. (a) Warrants shall be executed on behalf of the Company by its Chairman of the Board, President, any Vice President or Chief Financial Officer by manual signatures. In case any officer of the Company who shall have signed any of the Warrants shall cease to be such officer of the Company before the date of issuance of the Warrants and issue and delivery thereof, such Warrants may nevertheless be issued and delivered with the same force and effect as though the person who signed such Warrants had not ceased to be such officer of the Company. After execution by the Company, each Warrant shall then be delivered to the Registered Holder. (b) Each Warrant may be exercised by the Registered Holder thereof at any time on or after the Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date and the person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder upon exercise thereof as of the close of business on the Exercise Date. As soon as practicable on or after the Exercise Date the Company shall deposit the proceeds received from the exercise of a Warrant, and promptly after clearance of checks received in payment of the Purchase Price pursuant to such Warrants, cause to be issued and delivered by the Company's transfer agent, to the person or persons entitled to receive the same, a certificate or certificates for the securities deliverable upon such exercise (plus a Warrant for any remaining unexercised Warrants of the Registered Holder). SECTION 4. Reservation of Shares; Payment of Taxes; etc. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of the Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants and payment of the Purchase Price shall, at the time of delivery, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof (other than those which the Company shall promptly pay or discharge). (b) The Company will use reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws with respect to the exercise of the Warrants; provided, however, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. With respect to any such securities laws, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of the Warrants, or the issuance, or delivery of any shares upon exercise of the Warrants; provided, however, that if the shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Company the amount of transfer taxes or charges incident thereto, if any. SECTION 5. Exchange of Warrant. (a) This Warrant may be exchanged for other Warrants representing an equal aggregate number of Warrants of the same type. Warrants to be exchanged shall be surrendered to the Company at its Corporate Office, and upon satisfaction of the terms and provisions hereof, the Company shall execute, issue and deliver in exchange therefor the Warrant or Warrants which the Registered Holder making the exchange shall be entitled to receive. (b) The Company shall keep at its office books in which it shall register the Warrants in accordance with its regular practice. (c) The Company may require payment by such holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (d) All Warrants surrendered for exercise or for exchange in case of mutilated Warrants shall be promptly canceled by the Company and thereafter retained by the Company until the Warrant Expiration Date, or such other time as the Company shall determine solely within its discretion. SECTION 6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to them of the ownership of and loss, theft, destruction or mutilation of any Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to them, and (in case of loss, theft or destruction) upon surrender and cancellation thereof, the Company shall execute and deliver to the Registered Holder in lieu thereof a new Warrant of like tenor representing an equal aggregate number of Warrants. Applicants for a substitute Warrant shall comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe or require. SECTION 7. Adjustment of Exercise Price and Number of Shares of Common Stock or Warrants. (a) Subject to Section (f) and the exceptions referred to in Section 7(e) below, in the event the Company shall, at any time or from time to time after the date hereof, subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such subdivision or combination being herein called a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Purchase Price in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent) determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such subdivision or combination, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after such subdivision or combination. Such adjustment shall be made successively whenever such subdivision or combination is made. Upon each adjustment of the Purchase Price pursuant to this Section 7, the total number of shares of Common Stock purchasable upon the exercise of each Warrant shall (subject to the provisions contained in Section 7(b) hereof) be such number of shares of Common Stock purchasable at the Purchase Price immediately prior to such adjustment multiplied by a fraction, the numerator of which shall be the Purchase Price in effect immediately prior to such adjustment and the denominator of which shall be the Purchase Price in effect immediately after such adjustment. (b) The Company may elect, upon any adjustment of the Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu of the adjustment in the number of shares of Common Stock purchasable upon the exercise of each Warrant as hereinabove provided, so that each Warrant outstanding after such adjustment shall represent the right to purchase one share of Common Stock. Each Warrant held of record prior to such adjustment of the number of Warrants shall become that number of Warrants determined by multiplying the number one by a fraction, the numerator of which shall be the Purchase Price in effect immediately prior to such adjustment and the denominator of which shall be the Purchase Price in effect immediately after such adjustment. Upon each adjustment of the number of Warrants pursuant to this Section 7, the Company shall, as promptly as practicable, cause to be distributed to the Registered Holder of a Warrant on the date of such adjustment a Warrant evidencing, subject to Section 8 hereof, the number of additional Warrants to which such Holder shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such Holder in substitution and replacement for the Warrant held by him prior to the date of adjustment (and upon surrender thereof, if required by the Company) a new Warrant evidencing the number of Warrants to which such Holder shall be entitled after such adjustment. (c) Irrespective of any adjustments or changes in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, the Warrant or Warrants theretofore and thereafter issued shall, unless the Company shall exercise its option to issue a new Warrant pursuant to Section 7(b) hereof, continue to express the Purchase Price per share and the number of shares purchasable thereunder as they were expressed in the Warrant when it was originally issued. (d) After each adjustment of the Purchase Price pursuant to this Section 7, the Company will promptly prepare a certificate signed by the President, and by the Chief Financial Officer, Controller, Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Warrant after such adjustment, and, if the Company shall have elected to adjust the number of Warrants, the number of Warrants to which the Registered Holder of each Warrant shall then be entitled, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly cause a brief summary thereof to be sent by ordinary first class mail to each Registered Holder of Warrants at his last address as it shall appear in the registry books of the Company. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the Holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (e) For purposes of Section 7(a) and 7(b) hereof, the following provisions shall also be applicable: (A) The number of shares of Common Stock outstanding at any given time shall include shares of Common Stock owned or held by or for the account of the Company and the sale or issuance of such treasury shares or the distribution of any such treasury shares shall not be considered a Change of Shares for purposes of said sections. (B) No adjustment of the Purchase Price shall be made unless such adjustment would require an increase or decrease of at least $.25 in such price; provided that any adjustments which by reason of this clause (B) are not required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment(s) so carried forward, shall require an increase or decrease of at least $.25 in the Purchase Price then in effect hereunder. (f) Any determination as to whether an adjustment in the Purchase Price in effect hereunder is required pursuant to Section 7, or as to the amount of any such adjustment, if required, shall be binding upon the holders of the Warrants and the Company if made in good faith by the Board of Directors of the Company. (g) If and whenever the Company shall declare any dividends or distributions or grant to the holders of Common Stock, as such, rights or warrants to subscribe for or to purchase, or any options for the purchase of, Common Stock or securities convertible into or exchangeable for or carrying a right, warrant or option to purchase Common Stock, the Company shall notify each of the then Registered Holders of the Warrants of such event prior to its occurrence to enable such Registered Holders to exercise their Warrants and participate as holders of Common Stock in such event. SECTION 8. Fractional Warrants and Fractional Shares. (a) If the number of shares of Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant to Section 7 hereof, the Company shall nevertheless not be required to issue fractions of shares, upon exercise of the Warrants or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (A) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the National Market System of NASDAQ ("NMS"), the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day or no closing sale price is quoted, the average of the closing bid and asked prices for such day on such exchange or system; or (B) If the Common Stock is listed in the over-the-counter market (other than on NMS) or admitted to unlisted trading privileges, the current value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (C) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. SECTION 9. Warrantholder Not Deemed Stockholder. No holder of Warrants shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of Warrants, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such Holder shall have exercised such Warrants and been issued shares of Common Stock in accordance with the provisions hereof. SECTION 10. Rights of Action. All rights of action with respect to this Warrant are vested in the Registered Holder of the Warrants, and the Registered Holder of a Warrant, without consent of the holder of any other Warrant, may, on his own behalf and for his own benefit, enforce against the Company his right to exercise his Warrants for the purchase of shares of Common Stock in the manner provided in this Warrant. SECTION 11. Agreement of Warrantholder. Every holder of a Warrant, by his acceptance thereof, consents and agrees with the Company that the Company may deem and treat the person in whose name the Warrant is registered as the holder and as the absolute, true and lawful owner of the Warrants represented thereby for all purposes, and the Company shall not be affected by any notice or knowledge to the contrary, except as otherwise expressly provided in Section 6 hereof. SECTION 12. Gender; Singular and Plural. When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter and vice versa. SECTION 13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. SECTION 14. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first class registered or certified mail, postage prepaid, as follows: if to the Registered Holder of a Warrant, at the address of such holder as shown on the registry books maintained by the Company; if to the Company, at 2067 Commerce Drive, Medford, Oregon 97504, Attention: President. SECTION 15. Binding Effect. This Warrant shall be binding upon and inure to the benefit of the Company (and its respective successors and assigns) and the holders from time to time of Warrants. Nothing in this Warrant is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. SECTION 16. Termination. This Warrant shall terminate at the close of business on the Warrant Expiration Date. APPLIED LASER SYSTEMS By: Alan R. Steel EX-4.4 3 FORM OF LAIDLAW WARRANT AGREEMENT 1 THESE WARRANTS AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE WARRANTS ARE ONLY ASSIGNABLE TO PRESENT OR PAST EMPLOYEES OF LAIDLAW EQUITIES, INC., AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THEIR EXERCISE MAY NOT BE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH PROPOSED TRANSFER IS NOT IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. LAIDLAW EQUITIES, INC. WARRANT TO PURCHASE CLASS A COMMON STOCK Warrant No. ___ This Warrant issued by Applied Laser Systems, a California corporation (the "Company"), as of May 5, 1995, entitles ___________________________________(the registered "Holder") to purchase _________________ shares of the Company's Class A Common Stock at an initial purchase price of $2.25 per share (the "Purchase Price"). This Warrant is one in a series of Laidlaw Equities, Inc. Warrants, which in the aggregate entitles the Holders thereof to purchase up to ____________ shares of Class A Common Stock. The Laidlaw Equities, Inc. Warrants were issued pursuant to a Financial Advisory Agreement dated June 22, 1994, between the Company and Laidlaw Equities, Inc. SECTION 1. Definitions. As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: (a) "Common Stock" shall mean the Class A Common Stock of the Company, whether now or hereafter authorized. (b) "Corporate Office" shall mean the office of the Company at which at any particular time its principal business shall be administered, which office is located at the date hereof at 2067 Commerce Drive, Medford, Oregon 97504, Attention: President. (c) "Exercise Date" shall mean the date on which the Company shall have received both (a) the Warrant, with an exercise form acceptable to the Company and duly executed by the Registered Holder thereof or his attorney duly authorized in writing, and (b) payment in cash, or by official bank or certified check made payable to the Company, of an amount in lawful money of the United States of America equal to the applicable Purchase Price. (d) "Initial Warrant Exercise Date" shall mean May 5, 1995. (e) "Purchase Price" shall mean the purchase price to be paid per share of Common Stock upon exercise of each Warrant in accordance with the terms hereof, which price shall be $2.25, subject to adjustment from time to time pursuant to the provisions of Section 7 hereof, and subject to the Company's right to reduce the Purchase Price upon notice to all Registered Holders. (f) "Registered Holders" shall mean the persons in whose names the Warrants shall be registered on the books maintained by the Company. (g) "Warrant Expiration Date" shall mean 5:00 P.M. (Oregon time) on April 1, 1997; provided that if such date shall in the State of Oregon be a holiday or a day on which banks are authorized to close, then 5:00 P.M. (Oregon time) on the next following day which in the State of Oregon is not a holiday or a day on which banks are authorized to close. Upon notice to all Registered Holders the Company shall have the right to extend the Warrant Expiration Date. SECTION 2. Warrants and Issuance of Warrant Agreements. (a) This Warrant initially entitles the Registered Holder to purchase an aggregate of 135,000 shares of Common Stock upon the exercise thereof, in accordance with the terms hereof, subject to modification and adjustment as provided in Section 7. (b) From time to time, up to the Warrant Expiration Date, the Company shall execute and deliver Warrants in required whole number denominations to the persons entitled thereto in connection with any exchange permitted under this Warrant; provided that no Warrant shall be issued except (i) those initially issued hereunder; (ii) those issued on or after the Initial Warrant Exercise Date, upon the partial exercise of this Warrant, to evidence any unexercised Warrants held by the exercising Registered Holder; (iii) those issued upon any exchange pursuant to Section 5; (iv) those issued in replacement of lost, stolen, destroyed or mutilated Warrants pursuant to Section 6; and (v) at the option of the Company, in such form as may be approved by its Board of Directors, to reflect (a) any adjustment or change in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants made pursuant to Section 7 hereof, and (b) other modifications approved by Registered Holders. SECTION 3. Form and Execution of Warrants; Exercise of Warrants. (a) Warrants shall be executed on behalf of the Company by its Chairman of the Board, President, any Vice President or Chief Financial Officer by manual signatures. In case any officer of the Company who shall have signed any of the Warrants shall cease to be such officer of the Company before the date of issuance of the Warrants and issue and delivery thereof, such Warrants may nevertheless be issued and delivered with the same force and effect as though the person who signed such Warrants had not ceased to be such officer of the Company. After execution by the Company, each Warrant shall then be delivered to the Registered Holder. (b) Each Warrant may be exercised by the Registered Holder thereof at any time on or after the Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date and the person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder upon exercise thereof as of the close of business on the Exercise Date. As soon as practicable on or after the Exercise Date the Company shall deposit the proceeds received from the exercise of a Warrant, and promptly after clearance of checks received in payment of the Purchase Price pursuant to such Warrants, cause to be issued and delivered by the Company's transfer agent, to the person or persons entitled to receive the same, a certificate or certificates for the securities deliverable upon such exercise (plus a Warrant for any remaining unexercised Warrants of the Registered Holder). SECTION 4. Reservation of Shares; Payment of Taxes; etc. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of the Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants and payment of the Purchase Price shall, at the time of delivery, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof (other than those which the Company shall promptly pay or discharge). (b) The Company will use reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws with respect to the exercise of the Warrants; provided, however, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. With respect to any such securities laws, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of the Warrants, or the issuance, or delivery of any shares upon exercise of the Warrants; provided, however, that if the shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Company the amount of transfer taxes or charges incident thereto, if any. SECTION 5. Exchange of Warrant. (a) This Warrant may be exchanged for other Warrants representing an equal aggregate number of Warrants of the same type. Warrants to be exchanged shall be surrendered to the Company at its Corporate Office, and upon satisfaction of the terms and provisions hereof, the Company shall execute, issue and deliver in exchange therefor the Warrant or Warrants which the Registered Holder making the exchange shall be entitled to receive. (b) The Company shall keep at its office books in which it shall register the Warrants in accordance with its regular practice. (c) All Warrants presented for registration of transfer, or for exchange or exercise shall be accompanied by a written instrument or instruments of transfer and subscription, in form satisfactory to the Company, duly executed by the Registered Holder or his attorney in fact duly authorized in writing. (d) The Company may require payment by such holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (e) All Warrants surrendered for exercise or for exchange in case of mutilated Warrants shall be promptly canceled by the Company and thereafter retained by the Company until the Warrant Expiration Date, or such other time as the Company shall determine solely within its discretion. (f) Prior to due presentment for registration of transfer thereof, the Company may deem and treat the Registered Holder of any Warrant as the absolute owner thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company) for all purposes and shall not be affected by any notice to the contrary. SECTION 6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to them of the ownership of and loss, theft, destruction or mutilation of any Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to them, and (in case of loss, theft or destruction) upon surrender and cancellation thereof, the Company shall execute and deliver to the Registered Holder in lieu thereof a new Warrant of like tenor representing an equal aggregate number of Warrants. Applicants for a substitute Warrant shall comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe or require. SECTION 7. Adjustment of Exercise Price and Number of Shares of Common Stock or Warrants. (a) Subject to the exceptions referred to in Section 7(e) below, in the event the Company shall, at any time or from time to time after the date hereof, subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or sell any Common Stock at a price thirty percent (30%) below fair market value (as determined pursuant to Section 8(a) below) (any such subdivision or combination, stock dividend or sale being herein called a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Purchase Price in effect immediately prior to such Change of Shares shall be changed (i) if pursuant to such a subdivision or combination or stock dividend to a price (including any applicable fraction of a cent) determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such subdivision or combination or stock dividend, the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after such subdivision or combination or stock dividend, and (ii) if pursuant to such a sale, to a price (including any applicable fraction of a cent) determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such sale and the number of shares of Common Stock which the consideration received in such sale would purchase at a price thirty percent (30%) below fair market value (as determined pursuant to Section 8(a) below), and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after such sale. Such adjustment shall be made successively whenever such a subdivision or combination, stock dividend or sale is made. Upon each adjustment of the Purchase Price pursuant to this Section 7, the total number of shares of Common Stock purchasable upon the exercise of each Warrant shall (subject to the provisions contained in Section 7(b) hereof) be such number of shares of Common Stock purchasable at the Purchase Price immediately prior to such adjustment multiplied by a fraction, the numerator of which shall be the Purchase Price in effect immediately prior to such adjustment and the denominator of which shall be the Purchase Price in effect immediately after such adjustment. (b) The Company may elect, upon any adjustment of the Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu of the adjustment in the number of shares of Common Stock purchasable upon the exercise of each Warrant as hereinabove provided, so that each Warrant outstanding after such adjustment shall represent the right to purchase one share of Common Stock. Each Warrant held of record prior to such adjustment of the number of Warrants shall become that number of Warrants determined by multiplying the number one by a fraction, the numerator of which shall be the Purchase Price in effect immediately prior to such adjustment and the denominator of which shall be the Purchase Price in effect immediately after such adjustment. Upon each adjustment of the number of Warrants pursuant to this Section 7, the Company shall, as promptly as practicable, cause to be distributed to the Registered Holder of a Warrant on the date of such adjustment a Warrant evidencing, subject to Section 8 hereof, the number of additional Warrants to which such Holder shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such Holder in substitution and replacement for the Warrant held by him prior to the date of adjustment (and upon surrender thereof, if required by the Company) a new Warrant evidencing the number of Warrants to which such Holder shall be entitled after such adjustment. (c) Irrespective of any adjustments or changes in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, the Warrant or Warrants theretofore and thereafter issued shall, unless the Company shall exercise its option to issue a new Warrant pursuant to Section 7(b) hereof, continue to express the Purchase Price per share and the number of shares purchasable thereunder as they were expressed in the Warrant when it was originally issued. (d) After each adjustment of the Purchase Price pursuant to this Section 7, the Company will promptly prepare a certificate signed by the President, and by the Chief Financial Officer, Controller, Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Warrant after such adjustment, and, if the Company shall have elected to adjust the number of Warrants, the number of Warrants to which the Registered Holder of each Warrant shall then be entitled, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly cause a brief summary thereof to be sent by ordinary first class mail to each Registered Holder of Warrants at his last address as it shall appear in the registry books of the Company. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the Holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (e) For purposes of Section 7(a) and 7(b) hereof, the following provisions shall also be applicable: (A) The number of shares of Common Stock outstanding at any given time shall include shares of Common Stock owned or held by or for the account of the Company and the sale or issuance of such treasury shares or the distribution of any such treasury shares shall not be considered a Change of Shares for purposes of said sections. (B) No adjustment of the Purchase Price shall be made unless such adjustment would require an increase or decrease of at least $.25 in such price; provided that any adjustments which by reason of this clause (B) are not required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment(s) so carried forward, shall require an increase or decrease of at least $.25 in the Purchase Price then in effect hereunder. (C) In case of (1) the sale by the Company for cash of any rights, warrants or options to subscribe for or purchase Common Stock or any securities convertible into or exchangeable for Common Stock without the payment of any further consideration other than cash, if any (such convertible or exchangeable securities being herein called "Convertible Securities"), or (2) the issuance by the Company, without the receipt by the Company of any consideration therefore, of any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities, in each case, if (and only if) the consideration payable to the Company upon the exercise of such rights, warrants or options shall consist of cash and the price per share for which Common Stock is issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities (determined by dividing (x) the minimum aggregate consideration payable to the Company upon the exercise of such rights, warrants or options, plus the consideration received by the Company for the issuance or sale of such rights, warrants or options, plus, in the case of such Convertible Securities, the minimum aggregate amount of additional consideration, if any, other than such Convertible Securities, payable upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities issuable upon the exercise of such rights, warrants or options) is less than the price that is thirty percent (30%) below the fair market value of the Common Stock (as determined pursuant to Section 8(a) below) on the date of the issuance or sale of such rights, warrants or options, then the total maximum number of shares of Common Stock issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities (as of the date of the issuance or sale of such rights, warrants or options) shall be deemed to be outstanding shares of Common Stock for purposes of Section 7(a) and 7(b) hereof and shall be deemed to have been sold for cash in an amount equal to such price per share. (D) If the exercise or purchase price provided for in any right, warrant or option referred to in Section 7(e)(C) above, or the rate at which any Convertible Securities referred to in Section 7(e)(C) above are convertible into or exchangeable for Common Stock, shall change at any time (other than under or by reason of provisions designed to protect against dilution), the Purchase Price then in effect hereunder shall forthwith be readjusted to such Purchase Price as would have obtained (1) had the adjustments made upon the issuance or sale of such rights, warrants, options or Convertible Securities been made upon the basis of the issuance of only the number of shares of Common Stock theretofore actually delivered (and the total consideration received therefor) upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities, (2)had adjustments been made on the basis of the Purchase Price as adjusted under clause (1) for all transactions (which would have affected such adjusted Purchase Price) made after the issuance or sale of such rights, warrants, options or Convertible Securities, and (3) had any such rights, warrants, options or Convertible Securities then still outstanding been originally issued or sold at the time of such change. On the expiration of any such right, warrant or option or the termination of any such right to convert or exchange any such Convertible Securities, the Purchase Price then in effect hereunder shall forthwith be readjusted to such Purchase Price as would have obtained (i) had the adjustments made upon the issuance or sale of such rights, warrants, options or Convertible Securities been made upon the basis of the issuance of only the number of shares of Common Stock theretofore actually delivered (and the total consideration received therefor) upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities and (ii) had adjustments been made on the basis of the Purchase Price as adjusted under clause (i) above for all transactions (which would have affected such adjusted Purchase Price) made after the issuance or sale of such rights, warrants, options or Convertible Securities. (E) In case of the sale for cash of any shares of Common Stock, any Convertible Securities, any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities, the consideration received by the Company therefore shall be deemed to be the gross sales price therefor without deducting therefrom any expense paid or incurred by the Company or any underwriting discounts or commissions or concessions paid or allowed by the Company in connection therewith. (f) Notwithstanding anything else to the contrary, no adjustment to the Purchase price of the Warrants or to the number of shares of Common Stock purchasable upon the exercise of each Warrant will be made: (A) upon the exercise of any of the options presently outstanding under the Company's 1991 Stock Option Plan and the 1994 Stock Option Plan (collectively, the "Plans") for officers, directors and certain other key personnel of the Company; or (B) upon the grant or exercise of any other options which may hereafter be granted or exercised under the Plans or under any other employee benefit plan of the Company; or (C) upon the sale or exercise of the Warrants; or (D) upon the issuance or sale of Common Stock or Convertible Securities upon the exercise of any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities, whether or not such rights, warrants or options were outstanding on the date of the original sale of the Warrants or were thereafter issued or sold; or (E) upon the issuance or sale of Common Stock upon conversion or exchange of any Convertible Securities, whether or not any adjustment in the Purchase Price was made or required to be made upon the issuance or sale of such Convertible Securities and whether or not such Convertible Securities were outstanding on the date of the original sale of the Warrants or were thereafter issued or sold; or (F) upon any amendment to or change in the terms of any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities or in the terms of any Convertible Securities, including, but not limited to, any extension of any expiration date of such right, warrant or option, any change in any exercise or purchase price provided for in any such right, warrant or option, any extension of any date through which any Convertible Securities are convertible into or exchangeable for Common Stock or any change in the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than rights, warrants, options or Convertible Securities issued or sold after the close of business on the date of the original issuance of the Warrants). (g) Any determination as to whether an adjustment in the Purchase Price in effect hereunder is required pursuant to Section 7, or as to the amount of any such adjustment, if required, shall be binding upon the holders of the Warrants and the Company if made in good faith by the Board of Directors of the Company. (h) If and whenever the Company shall declare any dividends or distributions or grant to the holders of Common Stock, as such, rights or warrants to subscribe for or to purchase, or any options for the purchase of, Common Stock or securities convertible into or exchangeable for or carrying a right, warrant or option to purchase Common Stock, the Company shall notify each of the then Registered Holders of the Warrants of such event prior to its occurrence to enable such Registered Holders to exercise their Warrants and participate as holders of Common Stock in such event. SECTION 8. Fractional Warrants and Fractional Shares. (a) If the number of shares of Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant to Section 7 hereof, the Company shall nevertheless not be required to issue fractions of shares, upon exercise of the Warrants or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (A) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the National Market System of NASDAQ ("NMS"), the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day or no closing sale price is quoted, the average of the closing bid and asked prices for such day on such exchange or system; or (B) If the Common Stock is listed in the over-the-counter market (other than on NMS) or admitted to unlisted trading privileges, the current value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (C) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. SECTION 9. Registration of Stock. (a) "Piggy Back" Registration Rights. From the date of this Warrant, for the next two times that the Company either shall become obligated to, or shall otherwise elect to proceed with the preparation and filing with the Securities and Exchange Commission (the "Commission") of a registration statement under the Act in connection with the proposed offer and sale for cash of any of its Common Stock by the Company or by any of its then existing security holders, other than a registration statement on a form that does not permit the inclusion of shares by its security holders, the Company shall give written notice of such election or obligation to all holders of record of the Warrants (or holders of record of the Common Stock issued upon exercise of the Warrants). Upon the written request of a record holder of any Warrants or such shares issued upon exercise of the Warrants given within 20 days after the receipt of any such notice from the Company, the Company will, except as otherwise hereinafter provided, cause all of the shares of Common Stock for which the record holders have requested registration pursuant to this Section 9(a), to be included in such registration statement, all to the extent necessary to permit the sale or other disposition by such prospective seller or sellers of the Common Stock to be so registered; provided, however, that nothing herein shall prevent the Company from, at any time, abandoning or delaying any registration. If any registration pursuant to this Section 9(a) shall be underwritten in whole or in part, the Company may require that the shares of Common Stock requested for inclusion pursuant to this Section 9(a) be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If in the good faith judgment of the managing underwriter of such public offering (as evidenced by a letter in writing from such managing underwriter to the record holders of the Warrants, or Common Stock, who have elected to sell shares pursuant hereto) the inclusion of all or any portion of the Common Stock originally covered by a request for registration would reduce the number of shares that can be sold by the Company in such underwritten offering, the total number of shares to offered for the account of the holders of Warrants and for the account of all other persons (other than the Company) participating in the registration shall be reduced pro rata in proportion to the respective number of shares requested to be included therein to the extent necessary to reduce the total number of shares proposed to be registered to the number of shares recommended by such managing underwriter. (b) Registration Procedures. Whenever the Company elects to, or becomes obligated to effect a registration of shares of Common Stock under the Act, the Company will: (A) furnish to the security holders participating in such registration, to brokers or dealers effecting transactions in the shares of Common Stock on behalf of such holders and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such holders, brokers or dealers and underwriters may reasonable request in order to facilitate the public offering of such securities; (B) use its reasonable best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as such participating holders may reasonably request, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (C) promptly notify the security holders participating in such registration of the time when such registration statement has become effective or when a supplement to any prospectus included in such registration statement has been filed; (D) notify such holders promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; (E) at the request of any such holder, furnish (i) at the closing provided for in the underwriting agreement, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters and to the holder or holders making such request, covering such matters relating to the Company or its securities, as such underwriters and holders may reasonably request, and (ii) on the effective date of the registration statement and at the closing provided for in the underwriting agreement, a letter dated each such date, from the independent certified public accountants of the Company, addressed to the underwriters and to the holder or holders making such request, covering such matters as such underwriters and holder or holders may reasonably request in which letter such accountants shall state (without limiting the generality of the foregoing) that they are independent certified public accountants within the meaning of the Act and that in the opinion of such accountants the financial statements and other financial data of the Company included in the registration statement or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the Act. (c) Expenses. (A) With respect to each inclusion of shares of the Common Stock in a registration statement pursuant to this Section 9, any and all fees, costs and expenses of or incidental to, or incurred in connection with such registration, inclusion and public offering (as specified in paragraph (B) below) shall be borne by the Company; provided, however, than any security holders participating in such registration shall bear their pro rata share of any underwriting discounts and commissions and transfer taxes. (B) The fees, costs and expenses of or incidental to each such registration to be borne by the Company as provided in paragraph (A) above shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the Company and/or selling security holders are required to bear such fees and disbursements), and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified. (C) Nothing in this Agreement shall obligate the Company to undergo an audit other than as required under rules of the Commission applicable to the Company or to keep any registration statement filed pursuant to this Agreement current and effective. (D) With respect to the expenses to be borne by the Company in the foregoing parts of Section 9(c), the Company's obligation shall be limited to keeping the registration statement effective for a period of 90 days. (d) Indemnification. (A) The Company shall indemnify, hold harmless and defend each holder of shares of Common Stock which are included in a registration statement pursuant to the provisions of this Section 9 and any underwriter (as defined in the Act) for such holder and each person, if any, who controls such holder or such underwriter within the meaning of the Act, from and against, and will reimburse such holder and each such underwriter and controlling person with respect to, any and all loss, damage liability, cost and expense (as and when incurred), including without limitation, the costs of investigation and defense of any legal action, proceeding or investigation, to which such holder or any such underwriter or controlling person may become subject under the Act, the Securities Exchange Act of 1934, as amended, or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by or arise out of any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such holder, such underwriter or such controlling person in writing specifically for use in the preparation thereof. (B) Each holder of shares of the Common Stock which are included in a registration pursuant to the provision of this Section 9 will indemnify and hold harmless the Company, any controlling person and any underwriter from and against, and will reimburse the Company, any controlling person and any underwriter with respect to, any and all loss, damage, liability, cost or expense to which the Company or any controller person and/or any underwriter may become subject under the Act, the Securities Exchange Act of 1934, as amended, or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by such holder specifically for use in the preparation thereof, provided that, with respect to each inclusion of shares of Common Stock in a registration pursuant to the provisions of this Section 9, the total liability hereunder of any holder of such Common Stock to the Company and any controlling persons shall in no event exceed the net proceeds to such holder from its or his sale of Common Stock pursuant to such registration. (C) Promptly after receipt by an indemnified party of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of paragraph (A) or (B) of this Section 9(d), promptly notify the indemnifying party of the commencement thereof, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnified party similarly notified, to assume the defense thereof; with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnifying party and the indemnified party and if there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, or any of the indemnified parties have available to them defenses or counterclaims not available to the indemnifying party even though this does not result in a conflict of interest, the indemnified party or parties shall have the right to select one separate counsel to participate in the defense of such action on behalf of all such indemnified party or parties at the expense of the indemnifying party. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of paragraph (A) or (B) of this Section 9(d) for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the proviso of the preceding sentence, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. SECTION 10. Warrantholder Not Deemed Stockholder. No holder of Warrants shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of Warrants, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such Holder shall have exercised such Warrants and been issued shares of Common Stock in accordance with the provisions hereof. SECTION 11. Rights of Action. All rights of action with respect to this Warrant are vested in the Registered Holder of the Warrants, and the Registered Holder of a Warrant, without consent of the holder of any other Warrant, may, on his own behalf and for his own benefit, enforce against the Company his right to exercise his Warrants for the purchase of shares of Common Stock in the manner provided in this Warrant. SECTION 12. Agreement of Warrantholder. Every holder of a Warrant, by his acceptance thereof, consents and agrees with the Company that the Company may deem and treat the person in whose name the Warrant is registered as the holder and as the absolute, true and lawful owner of the Warrants represented thereby for all purposes, and the Company shall not be affected by any notice or knowledge to the contrary, except as otherwise expressly provided in Section 6 hereof. SECTION 13. Gender; Singular and Plural. When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter and vice versa. SECTION 14. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. SECTION 15. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first class registered or certified mail, postage prepaid, as follows: if to the Registered Holder of a Warrant, at the address of such holder as shown on the registry books maintained by the Company; if to the Company, at 2067 Commerce Drive, Medford, Oregon 97504, Attention: President. SECTION 16. Binding Effect. This Warrant shall be binding upon and inure to the benefit of the Company (and its respective successors and assigns) and the holders from time to time of Warrants. Nothing in this Warrant is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. SECTION 17. Termination. This Warrant shall terminate at the close of business on the Warrant Expiration Date or such earlier date upon which all Laidlaw Equities, Inc. Warrants have been exercised. APPLIED LASER SYSTEMS By: William J. Young -----END PRIVACY-ENHANCED MESSAGE-----