<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1996
REGISTRATION NO. 333-5472
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE AMERICAN MATERIALS & TECHNOLOGIES
CORPORATION
(Name of small business issuer in its charter)
---------------
<TABLE>
<S> <C> <C>
DELAWARE 2295 33-0659916
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5915 RODEO ROAD
LOS ANGELES, CALIFORNIA 90016
(310) 841-5200
(Address and telephone number of principal executive offices and principal
place of business)
PAUL W. PENDORF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
5915 RODEO ROAD
LOS ANGELES, CALIFORNIA 90016
(310) 841-5200
(Name, address and telephone number of agent for service)
---------------
Copies to:
DAVID A. BROADWIN, ESQ.
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: from time to
time after the effective date of this Registration Statement as determined by
market conditions.
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 (the "Securities Act"), check the following box./X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
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<PAGE> 2
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
--------------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
--------------------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover Page of
Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front and Outside Back Cover Page
3. Summary Information and Risk
Factors.............................. Prospectus Summary; Risk Factors
4. Use of Proceeds........................
5. Determination of Offering Price........ Outside Front Cover Page of Prospectus; Price
Range of Common Stock
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Principal Stockholders; Certain Transactions;
Selling Stockholder's Shares
8. Plan of Distribution................... Selling Stockholder's Shares
9. Legal Proceedings...................... Business
10. Directors, Executive Officers,
Promoters and Control Persons........ Management
11. Security Ownership of Certain
Beneficial Owners and Management..... Principal Stockholders
12. Description of Securities.............. Outside Front Cover Page; Prospectus
Summary; Dividend Policy;
Capitalization; Description of Securities
13. Interest of Named Experts and
Counsel.............................. Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Management; Undertakings
15. Organization Within Last Five Years.... Certain Transactions
16. Description of Business................ Prospectus Summary; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business
17. Management's Discussion and
Analysis or Plan of Organization..... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property................ Business
19. Certain Relationships and Related
Transactions......................... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters.......... Outside Front Cover Page; Risk Factors; Price
Range of Common Stock; Dividend Policy;
Description of Securities; Shares Eligible for
Future Sale
21. Executive Compensation................. Management
22. Financial Statements................... Consolidated Financial Statements and Notes
Thereto
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure ................ Not Applicable
</TABLE>
<PAGE> 3
PROSPECTUS
463,664 Shares
Common Stock
The American Materials & Technologies Corporation, a Delaware corporation
(the "Company"), was organized in March 1995. On November 11, 1996, the last
reported sale price of the Company's Common Stock on the Nasdaq SmallCap Market
was $5.38 per share.
The shares of Common Stock offered hereby are being sold by Palomar
Medical Technologies, Inc., a Delaware corporation ("Palomar" or the "Selling
Stockholder") as stated herein under "Selling Stockholder's Shares." The
Company will not receive any of the proceeds from the sale of the Common Stock
offered hereby.
---------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 6.
---------------
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.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. This prospectus, which constitutes part of a
Registration Statement filed by the Company with the Commission under the
Securities Act omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and to the Exhibits
relating thereto for further information with respect to the Company and the
Securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Commission
maintains a Web site (address: http://www.sec.com) that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission's web.
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering made hereby are also incorporated by reference herein and made a
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated by reference herein is modified or superseded for
all purposes to the extent that a statement contained in this Prospectus or in
any other subsequently filed document which is incorporated by reference
modifies or replaces such statement. The Company will provide without charge to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, upon the written or oral request of such person, a copy of all
documents incorporated herein by reference (not including the exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to: William A.
Timmerman, Chief Financial Officer, The American Materials & Technologies
Corporation, 5915 Rodeo Road, Los Angeles, California 90016; telephone (310)
841-5200.
ADDITIONAL INFORMATION
The Company asserts common law trademark rights in the following trademarks,
although it has not applied for formal registration of these marks: AMT(TM),
Culver City Composites(TM), and CCC(TM). This Prospectus also includes trade
names and marks of companies other than the Company.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to more
detailed information, including the "Risk Factors" and the Consolidated
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Unless the context indicates otherwise, the term "Company" refers to The
American Materials & Technologies Corporation and its wholly-owned subsidiary,
Culver City Composites Corporation. All information in this Prospectus has been
adjusted to reflect a 1.1591612 for 1 stock split effected in the form of a
Common Stock dividend on February 5, 1996. See "Description of Securities."
The Company
The American Materials & Technologies Corporation ("AMT") was formed in
March 1995 to acquire and manage businesses in the advanced materials and
technologies industries. In December 1995, the Company acquired Structural
Polymer Systems, Inc. (renamed Culver City Composites Corporation ("CCC")), from
a subsidiary of Montedison S.p.A., an Italian multinational conglomerate
("Montedison"). The Company manufactures and sells advanced composites, which
are a combination of high performance reinforcement fabrics or fibers (such as
fiberglass, carbon, or aramid) and a plastic resin (such as epoxy, phenolic, or
polyimide). The Company coats or impregnates the fabrics or fibers with resins
to produce a "prepreg." The combination of high performance reinforcement
fabrics or fibers with plastic resins forms an advanced composite with
exceptional structural properties. The Company believes it is a leader in sales
of advanced composites containing PMR-15 resin, which are used in
high-temperature jet engine applications, and a leading supplier of advanced
composites used in aircraft interiors. See "Business -- Products."
The Company sells its products to the following markets: aerospace,
including transportation (aircraft and mass transit) and communications
(communications satellites and their launchers); defense (military aircraft,
naval vessels, defense systems, and military support equipment); and recreation
(skis). Major customers include: The Boeing Company, General Electric Company,
Lockheed Martin Corporation, McDonnell Douglas Corporation, de Havilland Inc.,
the Aerojet division of GenCorp Inc., and Daimler-Benz AG. See "Risk Factors --
Dependence on Major Customers."
The Company's business strategy is to achieve profitability through
increased utilization of existing plant capacity and acquisitions of companies
with complementary businesses. There can, however, be no assurance that the
Company will be able to achieve profitability. The Company is currently
operating significantly below the capacity of its facilities, and management
believes that the Company could expand its business and rapidly increase
revenues without material additional capital expenditures. Although the Company
suffered losses in 1994 and 1995, it believes that it is well positioned to
capitalize on certain currently improving industry trends, including announced
increases in the build rate for commercial aircraft, the increased use of
advanced composites in sporting goods, and the recently approved use of advanced
composites in infrastructure applications such as reinforcement of freeway
bridge columns. Increased demand, if any, for advanced composites as a result of
these trends may not occur immediately; in particular, any increase in aircraft
procurement is not expected to have a material impact on the Company's sales to
the aerospace market before the fourth quarter of 1996. However, the Company
believes that in general these trends, coupled with the decrease in
industry-wide available capacity caused by other companies' plant shutdowns
during the past few years, will lead to increased demand for product from the
remaining advanced composite manufacturing companies. In addition, the Company
plans to acquire companies in the advanced materials and technologies industries
that the Company believes will enable it to expand its customer base, reduce
costs, and offer new products. The Company believes that many companies with
annual sales under $30 million which originally developed advanced materials and
technologies for the defense industry are now potentially available for purchase
and consolidation by the Company. The Company has no commitments or agreements
with respect to any acquisition. See "Risk Factors -- Limited Operating History;
Recent Operating Losses; Working Capital Deficiency" and "-- Risks Inherent in
Possible Future Unspecified Acquisitions."
The Company's principal executive offices are at 5915 Rodeo Road, Los
Angeles, CA 90016. The Company's telephone number is 310-841-5200.
3
<PAGE> 6
THE OFFERING
Securities Offered .................. 463,664 shares of common stock,
$0.01 par value per share ("Common
Stock"). See "Description of Securities."
Common Stock Outstanding Prior
to the Offering ................... 4,139,062(1)
Common Stock to be Outstanding
after the Offering ................ 4,139,062
Use of Proceeds ..................... The Company will not receive any
proceeds from the sale of the Selling
Stockholder's Shares.
Nasdaq SmallCap Market Symbol ....... AMTK
Pacific Stock Exchange Symbol ....... MTK
Risk Factors ........................ This Offering involves a HIGH DEGREE OF
RISK and should be considered only by
persons who can afford the loss of their
entire investment. See "Risk Factors."
- ------------------------
(1) Does not give effect to an aggregate of up to 466,902 shares of Common Stock
issuable upon exercise of warrants and options outstanding as of November 1,
1996 (including those shares referred to in note (1) above). See "Management --
Executive Compensation" and "-- 1996 Incentive and Nonqualified Stock Option
Plan" and "Certain Transactions."
Risk Factors
There can be no assurance that the Company will be able to achieve its
business goals or ever achieve profitability. See "Risk Factors -- Limited
Operating History; Recent Operating Losses; Working Capital Deficiency." The
loss of a significant amount of business from either of the Company's two
largest customers would have a material adverse effect on the sales and
operating results of the Company. See "Risk Factors -- Dependence on Major
Customers." The aerospace industry, including transportation and communications,
which accounted for approximately 78% of the Company's sales in 1995,
historically has been subject to cyclical downturns, and the Company expects
that a similar pattern of downturns may occur in the future. See "Risk Factors
- -- Cyclical Nature of the Aerospace Industry." The defense industry, which
accounted for approximately 22% of the Company's sales in 1995, has been
adversely affected by reduced spending by the U.S. Government, and there can be
no assurance of any future increase in demand for advanced composites from the
defense industry. See "Risk Factors -- Dependence on U.S. Government Spending."
In the past, particularly during downturns in the aerospace industry, certain of
the Company's customers have substantially reduced their purchases, and there
can be no assurance that the Company will not experience such substantial
reductions in the future. See "Risk Factors -- Possible Termination of Certain
Customer Contracts." The Company relies on a limited number of suppliers to
provide materials used to manufacture its products, and if it can not obtain
adequate quantities of necessary materials from its existing suppliers, there
can be no assurance that the Company would be able to access alternative sources
of supply within a reasonable period of time or at commercially reasonable
rates. See "Risk Factors -- Dependence on Suppliers." The Company faces
competition from a number of companies, many of which have greater financial
resources, research and development facilities and manufacturing and marketing
capabilities than the Company. See "Risk Factors -- Intense Competition in
Advanced Composites Industry." No assurance can be given that additional
financing which might be needed by the Company will be available, or, if
available, that it will be available on acceptable terms. See "Risk Factors --
Need for Additional Capital." Management of the Company intends to pursue
additional acquisitions, which involve numerous risks including potential
difficulties in the assimilation of acquired operations, diversion of
management's attention away from normal operating activities, negative financial
impact based on the amortization of any acquired intangible assets, potential
loss of key employees of the acquired operation and potential financial risk
resulting from pre- acquisition liabilities that may exceed any indemnities
which may be provided by the seller. See "Risk Factors -- Risks Inherent in
Possible Future Unspecified Acquisitions." If the Company's securities were
removed from the Nasdaq SmallCap Market, they would be subject to so-called
penny stock rules that impose additional sales practice and market-making
requirements on broker-dealers who sell and/or make a market in the Company's
securities. See "Risk Factors -- Possible Delisting of Securities from Nasdaq;
Shares of Common Stock May Be Subject to Penny Stock Rules."
Forward-Looking Statements; Factors That May Affect Future Results
This Prospectus contains statements of a forward-looking nature relating
to future events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this Prospectus, including the matters set forth under the caption
"Risk Factors," which could cause actual results to differ materially from those
indicated in such forward-looking statements.
4
<PAGE> 7
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary financial information of CCC, AMT
and the Company at the dates and for the periods indicated. Also set forth are
the combined results of AMT and CCC for the year ended December 31, 1995, as
well as certain pro forma information with respect to AMT which reflects the
acquisition of CCC on December 19, 1995, as if such acquisition had taken place
on January 1, 1995. All information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto of AMT
and CCC and the unaudited pro forma consolidated statement of operations of AMT
and notes thereto included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Pro Forma
Historical Consolidated
-------------------------------------------- ------------
Combined Combined The
CCC AMT AMT & CCC AMT & CCC AMT & CCC Company
--- --- --------- --------- --------- -------
Period
Period March 29,
January 1, 1995 Nine Months Ended (2)
Year Ended 1995 to (inception) to Year Ended Year Ended --------------------
December 31, December 19, December 31, December 31, December 31, September 30, September 30,
1994 1995 1995 1995 1995(1) 1995 1996
----------- ----------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $15,943 $15,300 $ 616 $15,916 $15,916 $12,033 $16,404
Earnings (loss) before
interest, taxes,
depreciation and
amortization............. (494) 719 (216) 503 502 841 1,469
Income (loss) from
operations............... (781) (495) (259) (754) (18) (112) 1,270
Interest expense........... 567 585 18 603 600 584 403
Depreciation expense....... 1,264 1,214 43 1,257 520 954 409
Net income (loss).......... (2,325) (1,080) (277) (1,357) (618) (697) 657
Net income (loss) per
common share............. (0.18) (0.41) 0.27
Weighted average number
of common shares......... 1,517 1,517 2,552
<CAPTION>
The Company
-----------
September 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA
Working capital ............................................................................................ $ 6,779
Total assets................................................................................................ 15,252
Long-term debt.............................................................................................. 364
Stockholders' equity (3).................................................................................... 10,799
</TABLE>
(1) Includes pro forma adjustments to give effect to changes in: (i)
depreciation and amortization (a decrease of $737,000), (ii) interest
expense as a result of changes in the Company's debt structure (a
decrease of $3,000), and (iii) certain compensation arrangements (an
increase of $1,000), all as a result of the acquisition by AMT of CCC.
See Unaudited pro Forma Consolidated Statement of Operations and Notes
thereto.
(2) The results of operations and cash flows for the period ended September 30,
1995 represent those of CCC prior to its acquisition by AMT combined with
the results of AMT during the same period. There were no intercompany
transactions.
(3) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
5
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. EACH PROSPECTIVE INVESTOR
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. NO INVESTOR
SHOULD PARTICIPATE IN THE OFFERING UNLESS SUCH INVESTOR CAN AFFORD A COMPLETE
LOSS OF HIS INVESTMENT.
LIMITED OPERATING HISTORY; RECENT OPERATING LOSSES; WORKING CAPITAL DEFICIENCY
AMT was incorporated in March 1995 and has a limited operating history. The
Company's operating subsidiary, Culver City Composites Corporation, was acquired
in December 1995. CCC sustained a net loss of $2,325,000 in the year ended
December 31, 1994 and AMT and CCC, on a combined historical basis, sustained a
net loss of $1,357,000 in the year ended December 31, 1995. In order to become
profitable, the Company must increase revenues and/or reduce costs. The Company
plans to increase revenues through more efficient utilization of existing plant
capacity and by acquiring companies with complementary businesses. There can be
no assurance that the Company will be able to achieve these goals or ever
achieve profitability. See "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business."
DEPENDENCE ON MAJOR CUSTOMERS
Approximately 30% of the Company's sales in 1995 were made to two
customers, The Boeing Company and General Electric Company. The Company has no
significant purchase commitments from these or other customers extending beyond
one year. There can be no assurance that these customers will continue to
purchase the Company's products at the same levels as in previous years or that
such relationships will continue in the future. The loss of a significant amount
of business from either of these customers would have a material adverse effect
on the sales and operating results of the Company. See "Business -- Customers."
CYCLICAL NATURE OF THE AEROSPACE INDUSTRY
The aerospace industry, including transportation and communications, which
accounted for approximately 78% of the Company's sales in 1995, historically has
been subject to cyclical downturns, and the Company expects that a similar
pattern of downturns may occur in the future. For example, after increasing each
year from 1985 to 1991, annual revenues in the aerospace industry dropped
significantly in 1992 and remained depressed through late 1995. There can be no
assurance that, even if revenues in the industry increase, the Company will be
able to increase its own sales. See "Business."
DEPENDENCE ON U.S. GOVERNMENT SPENDING
The defense industry, which accounted for approximately 22% of the
Company's sales in 1995, has been adversely affected by reduced spending by the
U.S. Government. Since 1987, the aircraft procurement budget of the U.S.
Department of Defense has declined by approximately 40%. The Company believes
that, although spending for military aircraft is unlikely to reach pre-1987
levels or to increase significantly in the next three years, the demand for
advanced composites from defense contractors may increase as the use of advanced
composites in military aircraft increases. However, there can be no assurance of
any increase in demand for advanced composites from the defense industry. See
"Business."
POSSIBLE TERMINATION OF CERTAIN CUSTOMER CONTRACTS
The Company's contracts to supply materials for military and some
commercial projects, including the Company's contracts with its major customers,
contain provisions for termination at the convenience of the customer. In the
past, particularly during downturns in the aerospace industry, certain customers
have substantially reduced their purchases. There can be no assurance that the
Company will not experience such substantial reductions in the future. See
"Business -- Products."
DEPENDENCE ON SUPPLIERS
The Company relies on a limited number of suppliers to provide materials
used to manufacture its products. Certain of these suppliers are the Company's
sole source for the materials which they supply. Typically, there are no
6
<PAGE> 9
contracts or agreements between these sole source suppliers and the Company. In
the event the Company can not obtain adequate quantities of necessary materials
from its existing suppliers, there can be no assurance that the Company would be
able to access alternative sources of supply within a reasonable period of time
or at commercially reasonable rates. Aerospace and defense customer
specifications tend to make the substitution of suppliers costly and time
consuming. The unavailability of adequate commercial quantities, the inability
to develop alternative sources, a reduction or interruption in supply, or a
significant increase in the price of raw materials could have a material adverse
effect on the Company's ability to manufacture products. See "Business -- Raw
Materials."
INTENSE COMPETITION IN ADVANCED COMPOSITES INDUSTRY
The advanced composites industry is highly competitive. The Company faces
competition from a number of companies, many of which have greater financial
resources, research and development facilities, and manufacturing and marketing
capabilities than the Company. There can be no assurance that developments by
the Company's competitors or potential competitors will not make the Company's
products obsolete. The Company's ability to compete effectively will depend upon
its products' functional features and upon the ability of the Company to attract
and retain qualified personnel, to maintain and expand the capabilities of its
technologies, to sell existing products to new customers, to develop new
products for existing customers, to service its products, and to further develop
its sales force or enter into satisfactory arrangements for the marketing of its
products. No assurance can be given that the Company will be able to compete
effectively. See "-- Dependence on Suppliers" and "Business -- Competition."
Most of the companies in the defense, aerospace, and communications markets
of the advanced composites industry require materials purchased from suppliers
to meet detailed specifications through a qualification process. The Company has
qualified its advanced composites to meet over 200 specifications for use in
these markets. The Company believes that, while the qualification process
protects it to a certain degree from competitors and assures it of some revenues
during the life of the program or product for which the Company's advanced
composites products have been qualified, the qualification process also tends to
hinder the Company's ability to increase its market share and compete in new
markets. In order to remain competitive in these markets, the Company must
maintain its current qualifications and develop or acquire new products or
technologies capable of meeting new qualification requirements. See "Business --
Products."
DEPENDENCE ON UNPATENTED PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company's ability to compete effectively depends in part on its ability
to protect its proprietary information. The Company relies primarily on trade
secret laws and confidentiality procedures to protect its proprietary resin
formulations. The Company has not filed any patent applications with respect to
its intellectual property. Although the Company intends to protect its
intellectual property, there can be no assurance that the steps taken by the
Company in this regard will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Furthermore, litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Information."
NEED FOR ADDITIONAL CAPITAL
The Company will not receive any of the proceeds from this Offering. To the
extent that the Company's existing resources are insufficient to fund the
Company's activities, additional funds may be required, through either public or
private financing. No assurance can be given that additional financing will be
available, or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result. If adequate funds are not available, the
Company may be required to curtail its activities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS INHERENT IN POSSIBLE FUTURE UNSPECIFIED ACQUISITIONS
Management of the Company intends to pursue additional acquisitions as an
important part of its corporate strategy. While as of the date of this
Prospectus, the Company has no commitments or agreements with respect to any
7
<PAGE> 10
acquisition, the Company plans regularly to evaluate acquisition opportunities
that fit within its business plan. Acquisitions involve numerous risks,
including potential difficulties in the assimilation of acquired operations,
diversion of management's attention away from normal operating activities,
negative financial impact based on the amortization of any acquired intangible
assets, potential loss of key employees of the acquired operation and potential
financial risk resulting from pre-acquisition liabilities that may exceed any
indemnities which may be provided by the seller.
Although the Company has allocated approximately $3,750,000 from the
proceeds of its initial public offering, completed on July 5, 1996, for
acquisitions, the Company may require additional capital for acquisitions.
Funds for these purposes may be obtained from a number of sources, including
bank financing and additional sales of equity securities through either public
or private financing. The Company currently has available borrowing capacity
under a revolving credit agreement with its secured lender, but if additional
financing is necessary, there can be no assurance that any such additional
financing can be obtained or, if obtained, that it would be on commercially
acceptable terms. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POSSIBLE ILLIQUIDITY OF TRADING MARKET
The Common Stock is quoted on the Nasdaq SmallCap Market and the Pacific
Stock Exchange (the "PSE"), which markets may be significantly less liquid than
the Nasdaq National Market System. Moreover, if the Company should continue to
experience losses from operations, it may be unable to maintain the standards
for continued quotation on the Nasdaq SmallCap Market and/or the PSE, and the
Common Stock could be subject to removal from either or both of those markets.
If the Common Stock were removed from both of these markets, trading, if any, in
the Common Stock would thereafter be conducted in the over-the-counter market on
an electronic bulletin board or in what are commonly referred to as the pink
sheets. As a result, an investor would find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, the Company's securities.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ; SHARES OF COMMON STOCK MAY BE
SUBJECT TO PENNY STOCK RULES
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The Securities and Exchange
Commission has adopted regulations that generally define a penny stock to be any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include any equity security listed on the
Nasdaq National Market System or the Nasdaq SmallCap Market and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for at least three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000 for the last three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, if the Company's securities are not quoted on the Nasdaq
National Market System or the Nasdaq SmallCap Market, or the Company does not
have at least $5,000,000 in net tangible assets or at least $6,000,000 in
average annual revenue for the last three years, trading in the Company's
securities would be covered by Rules 15g-1 through 15g-6 and 15g-9 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") for non-Nasdaq
and non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
institutional accredited investors must make a special written suitability
determination for the purchaser and have received the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from these rules
if the market price of the Common Stock is at least $5.00 per share.
Although the Company's Common Stock is, as of the date of this Prospectus,
outside the definitional scope of a penny stock, as it is listed on the Nasdaq
SmallCap Market, in the event the Common Stock was subsequently to become
characterized as a penny stock, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stocks could limit the ability of broker/dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
REPRESENTATIVE'S INFLUENCE OVER POTENTIAL FUTURE CAPITAL FINANCING
The Company has agreed that prior to June 27, 1997, it will not sell or
otherwise dispose of any securities (with the exception of the shares of Common
Stock issued upon exercise of currently outstanding options or warrants, and
options granted under the Company's 1996 Incentive and Nonqualified Stock Option
Plan) without the prior written
8
<PAGE> 11
consent of H.J. Meyers & Co., Inc., the representatives of the Underwriters in
the Company's initial public offering (the "Representative"), which shall not be
unreasonably withheld. The Company has also agreed that prior to June 27, 1998,
it will not sell or issue any securities pursuant to Regulation S under the
Securities Act without the Representative's prior written consent. These
agreements represent significant potential restrictions on the Company's ability
to raise capital or consummate any merger or acquisition through the sale or
issuance of the Company's securities, which would have a material adverse effect
on the Company. There can be no assurance that additional sales of securities
will not occur that may have dilutive effects. The Representative has further
advised the Company that in determining whether consent will be granted the
Representative will consider on a case-by-case basis, in addition to the
potential dilution to existing shareholders, a number of factors, including the
Company's current need for additional financing, the purposes for which the
financing is sought, the cost and availability of alternative sources of
non-equity financing and, in the case of a proposed acquisition, the type of
business to be acquired, its relation to the Company's current business and the
existence of alternative methods of financing the transaction. See "Description
of Securities."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Current principal stockholders and management of the Company currently own
approximately 29.8% of the outstanding Common Stock of the Company, assuming no
exercise of options or warrants. Although no voting arrangement exists among
them, the Company's principal stockholders and current management will, as a
practical matter, be able to direct the affairs of the Company. See "Principal
Stockholders."
UNCERTAINTY OF ACCEPTANCE OF PRODUCTS IN NEW MARKETS
The Company has recently commenced marketing in two new markets --
infrastructure and recreation. The introduction of advanced composites to the
infrastructure market is a result of recent technological developments, and
there can be no assurance that advanced composites will gain market acceptance
in this market. The Company has not commissioned any independent market surveys
or reports regarding these markets or other potential new markets, and limited
public information is available. In addition, there can be no assurance that the
Company will have the financial, managerial, and manufacturing resources
necessary to achieve a profitable level of sales in these markets. See
"Business."
NEED TO RESPOND TO TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapidly
changing technology and evolving industry standards. The Company's future
success will depend in part upon its ability to enhance its existing products
and to introduce new products to meet changing customer requirements and
emerging industry standards. There can be no assurance that the Company will
successfully complete any such developments or that the Company's current or
future products will achieve market acceptance. Any delay or failure of these
products to achieve market acceptance would adversely affect the Company's
business. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
non-competitive or obsolete.
MANUFACTURING ACTIVITIES SUBJECT TO EXTENSIVE GOVERNMENT AND ENVIRONMENTAL
REGULATION
The Company's manufacturing activities are subject to extensive and
rigorous government regulation designed to protect the environment. The U.S.
Environmental Protection Agency and comparable state and local regulatory
agencies actively enforce environmental regulations, and some of these agencies
conduct periodic inspections to determine compliance with government
regulations. Failure to comply with applicable regulatory requirements can
result in, among other things, fines, suspensions of approvals, seizures or
recalls of products, operating restrictions, and criminal prosecutions.
Furthermore, changes in existing regulations or adoption of new regulations
could impose costly new procedures for compliance with, or prevent the Company
from obtaining, or affect the timing of, regulatory approvals. Prior to the
acquisition of CCC, an acetone leak was discovered at CCC's facility by
Montedison, the prior owner. Although the Company is indemnified for potential
liability for remediation of the leak, there can be no assurance that the
indemnification will be sufficient to pay the costs that the Company may incur.
The restrictions imposed by environmental regulations may change from time
to time. There can be no assurance that subsequent legislation or administrative
changes might not materially adversely affect the Company's business and future
prospects. See "Business -- Environmental Matters."
9
<PAGE> 12
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that its operating results may be subject to
substantial quarterly fluctuations due to several factors, some of which are
outside the control of the Company, including fluctuating market demand for, and
declines in the average selling price of, the Company's products, the timing of
significant orders from customers, delays or cancellations of commercial and/or
government programs utilizing the Company's products, delays in the introduction
of new or improved products, delays in obtaining customer acceptance of new or
changed products, the cost and availability of raw materials, and general
economic conditions. A substantial portion of the Company's revenue in any
quarter is derived from orders booked in that quarter, and historically, backlog
has not been a meaningful indicator of revenues for a particular period.
Accordingly, the Company's sales expectations are based almost entirely on its
internal estimates of future demand and not from firm customer orders. See
"Business -- Backlog."
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the principal members of its management
staff, the loss of whose services could have a material adverse effect on the
Company's business. The Company believes that its future success will also
depend in part on its ability to attract, retain, and motivate qualified
personnel. The Company has entered into employment agreements with each of its
four executive officers. The loss of the services of any of the executive
officers could have a material adverse effect on the Company's business and
future prospects. See "Management."
FUTURE SALES OF SHARES OF COMMON STOCK MAY ADVERSELY AFFECT MARKET PRICE OF
COMMON STOCK
Concurrently with its initial public offering, the Company registered for
resale 105,097 shares of Common Stock owned by certain stockholders of the
Company (the "Investors"). The Company will not receive any of the proceeds from
the sale of such shares. The Investors have agreed not to sell any of such
shares prior to December 27, 1996. Commencing December 27, 1996, each Investor
may sell up to 5,000 shares per month for an additional six-month period.
Thereafter, the Investor Shares may be sold without any lock-up restrictions.
Sales in the public market of substantial amounts of Common Stock, whether by
Investors or others, or the perception that such sales could occur, could
materially adversely affect prevailing market prices for the Common Stock and
the Company's ability to raise additional capital through the sale of equity
securities. See "Description of Securities" and "Shares Eligible for Future
Sale."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
The Company has reserved 350,000 shares of Common Stock for issuance to
employees, officers, directors, and consultants pursuant to option exercises
under the Company's 1996 Incentive and Nonqualified Stock Option Plan. The
Company has also reserved 143,302 shares of Common Stock to be issued upon the
exercise of options granted to certain members of senior management in
connection with their employment contracts and to a consultant to the Company.
To date, the Company has granted options to purchase a total of 276,902 shares
of Common Stock, at prices ranging from $.86 to $5.50 per share. The Company has
reserved 200,000 shares of Common Stock for issuance upon exercise of a warrant
issued to H.J. Meyers & Co., Inc, the representative of the several underwriters
of the Company's initial public offering (the "Representative's Warrant"). The
existence of the Representative's Warrant and any other options or warrants may
prove to be a hindrance to the Company's future equity financing. Further, the
holders of such warrants and options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. Sales in the public market of substantial amounts
of Common Stock, or the perception that such sales could occur, could depress
prevailing market prices for the Common Stock. See "Executive Compensation --
1996 Incentive and Nonqualified Stock Option Plan" and "Certain Transactions."
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results, changes in analysts' estimates, announcements of technological
innovations by the Company or its competitors, general conditions in the defense
and aerospace industries and other factors. In addition, the capital markets are
subject to price and volume fluctuations that affect the market prices of
publicly traded
10
<PAGE> 13
securities in general, and the market prices of less heavily capitalized high
technology companies in particular. Such fluctuations may be unrelated to actual
operating performance.
NO ANTICIPATED DIVIDENDS
The Company has not previously paid any dividends on its Common Stock and, for
the foreseeable future, intends to continue its policy of retaining any earnings
to finance the development and expansion of its business. The Company's
revolving credit agreement with its secured lender prohibits the payment of cash
dividends from CCC to AMT without the written consent of the lender, which could
limit the Company's ability to obtain cash to pay dividends to its stockholders.
See "Dividend Policy."
ISSUANCE OF PREFERRED STOCK MAY DISCOURAGE CHANGE OF CONTROL
The Company's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of preferred stock, $0.01 par value per share ("Preferred
Stock"), with designations, rights, and preferences determined from time to time
by its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with
dividends, liquidation, conversion, voting, or other rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of issuance, the Preferred Stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. See "Description of Securities."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Delaware General Corporation Law, the Company has included in
its Certificate of Incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, the
By-laws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including circumstances in
which indemnification would otherwise be discretionary, and that the Company is
required to advance expenses to its officers and directors as incurred in
connection with any proceeding against them for which they may be indemnified.
The Company has entered into indemnity agreements with each of its current
directors which provide for indemnification of, and advancement of expenses to,
such persons to the greatest extent permitted by Delaware Law, including by
reason of action or inaction occurring in the past and circumstances in which
indemnification and the advancement of expenses are discretionary under Delaware
Law. See "Management -- Limitation of Liability and Indemnification of Directors
and Officers."
11
<PAGE> 14
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Selling
Stockholder's Shares. See "Selling Stockholder's Shares."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap Market and the
Pacific Stock Exchange. The high and low sale prices per share of the Company's
Common Stock as reported on the Nasdaq SmallCap Market for the periods indicated
were as set forth in the following table. The quotations shown reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
3rd Quarter (Commencing July 1, 1996).............. 8 4
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for the expansion and operation of its business, and does not anticipate paying
cash dividends in the foreseeable future. The Company's Revolving Credit
Agreement with its principal lender prohibits the payment of cash dividends from
CCC to AMT without the written consent of the lender, which could limit the
Company's ability to obtain cash to pay dividends to its stockholders.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996. The capitalization information set forth in the following
table is qualified by the more detailed Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus and should be read in
conjunction with such Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Short-term Debt:
Notes payable--affiliate............................................................. $ 0
Current portion of term loan--bank................................................... 112,000
Long-term debt......................................................................... 364,001
Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized, no
shares issued or outstanding....................................................... 0
Common Stock, par value $.01 per share; 15,000,000 shares
authorized, 3,849,272 shares issued and outstanding(1)............................. 38,493
Additional paid-in capital........................................................... 10,399,732
Retained Earnings(2)................................................................. 360,294
-----------
Total stockholderholder's equity..................................................... 10,798,519
-----------
Total capitalization.............................................................. $11,274,520
===========
</TABLE>
(1) Does not give effect to an aggregate of up to 756,692 shares of Common
Stock issuable upon exercise of: (i) the Representative's Warrant to
purchase up to 200,000 shares of Common Stock at a purchase price of $8.80
per share; and (ii) options outstanding as of September 30, 1996 to
purchase an aggregate of 276,902 shares of Common Stock at a weighted
average exercise price of $2.18 per share. See "Executive Compensation -
1996 Incentive and Nonqualified Stock Option Plan," "Certain Transactions,"
and "Selling Stockholder's Shares."
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<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected statement of operations data of CCC
for the year ended December 31, 1994 and the period from January 1, 1995 to
December 19, 1995, which are derived from the consolidated financial statements
of CCC that are included elsewhere in this Prospectus. Such financial statements
were audited by Feldman Radin & Co., P.C., independent certified public
accountants, whose report with respect thereto is included elsewhere in this
Prospectus. The following table also sets forth certain financial data for AMT
for the period from March 29, 1995 (inception) through December 31, 1995 and as
of September 30, 1996 and for the nine months ended September 30, 1996 and 1995,
which are derived from the consolidated financial statements of AMT (combined
with CCC for the 1995 period) that are included elsewhere in this Prospectus.
Such financial statements, other than the financial statements as of September
30, 1996 and for the nine months ended September 30, 1996 and 1995, were audited
by Feldman Radin & Co., P.C., independent certified public accountants, whose
report with respect thereto is included elsewhere in this Prospectus. Also set
forth in the table are the combined and pro forma consolidated results of AMT
and CCC for the year ended December 31, 1995 as if such acquisition had taken
place on January 1, 1995. This data is qualified by reference to, and should be
read in conjunction with, the unaudited pro forma consolidated statement of
operations included elsewhere in this Prospectus. The results of operations of
the Company for the six months ended June 30, 1996 may not be indicative of the
results for the entire fiscal year ending December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Pro Forma
Historical Consolidated
---------- ------------
Combined Combined The
CCC AMT AMT & CCC AMT & CCC AMT & CCC Company
--- --- --------- --------- --------- -------
Period
Period March 29,
January 1, 1995 Nine Months Ended (2)
Year Ended 1995 to (inception) to Year Ended Year Ended ------------------------------
December 31, December 19, December 31, December 31, December 31, September 30, September 30,
1994 1995 1995 1995 1995(1) 1995 1996
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $15,943 $15,300 $ 616 $15,916 $15,916 $12,033 $16,404
Gross Margin.............. 2,105 2,260 98 2,358 3,106 2,004 4,139
Operating Expenses:
Selling, general and
administrative........ 2,580 2,424 350 2,774 2,705 1,879 2,537
Research and development 306 331 7 338 329 237 331
Income (loss) from
operations.............. (781) (495 (259) (754) (18) (112) 1,270
Interest expense.......... 567 585 18 603 600 584 403
Other expenses (income)... 977 -- -- -- -- -- --
Net income (loss)......... (2,325) (1,080) (277) (1,357) (618) (697) 657
Net income (loss) per
common shares........... (0.18) (0.41) 0.27
Weighted average number of
common shares........... 1,517 1,517 2,552
OTHER DATA:
Depreciation expense...... 1,264 1,214 43 1,257 420 954 409
Earnings (loss) before
interest, depreciation
and amortization........ (494) 719 (216) 503 502 841 1,469
<CAPTION>
The Company
September 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................................................................... $ 6,779
Total assets.............................................................................................. 15,252
Long-term debt............................................................................................ 364
Stockholders' equity (3).................................................................................. 10,799
</TABLE>
(1) Includes pro forma adjustments to give effect to changes in: (i)
depreciation and amortization (a decrease of $737,000), (ii) interest
expense as a result of changes in the Company's debt structure (a decrease
of $3,000), and (iii) certain compensation arrangements (an increase of
$1,000), all as a result of the acquisition by AMT of CCC. See Unaudited
pro Forma Consolidated Statement of Operations and Notes thereto.
(2) The results of operations and cash flows for the periods ended September
30, 1995 and 1996 represent those of CCC prior to its acquisition by AMT
combined with the results of AMT during the same period. There were no
intercompany
14
<PAGE> 17
transactions.
(3) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Condensed Consolidated Financial Statements and Notes thereto.
OVERVIEW
AMT was incorporated in Delaware on March 29, 1995 and operates in the
advanced materials and technologies industries. AMT is a holding company with
one operating subsidiary, Culver City Composites Corporation ("CCC"). AMT's
activities for the period March 29, 1995 (inception) to December 19, 1995
produced no revenue, and were limited to the acquisition of CCC. On December 19,
1995 AMT acquired all the stock of CCC. The following discussion reviews the
financial results of the Company for the three and nine month periods ended
September 30, 1996, as compared to the financial results of CCC combined with
AMT for the three and nine month periods ended September 30, 1995.
RESULTS OF OPERATIONS
Years ended December 31, 1995 and 1994
The Company's net sales during 1995 were $15,916,000, a decrease of
approximately $27,000, or 0.2%, compared to net sales in 1994. In 1994 and 1995,
the Company's primary customers in the commercial aircraft sector of the
aerospace industry continued to experience lower aircraft build rates than in
the years prior to 1991. The Company, however, was able to increase sales in
this sector by approximately $500,000 due to increased business from existing
customers under a new aircraft engine program, which offset declines in
shipments to other customers and the nonrenewal of one contract with one
commercial aircraft customer. Boeing has announced increased build rates for the
latter part of 1996 and 1997, which the Company believes should result in higher
demand for the materials it produces for aircraft interiors and commercial jet
engines. In the defense sector, an increase in funding for the particular
programs the Company supplies led to an approximate $400,000 increase in sales
in 1995. The Company believes that sales to this sector may improve in the
latter half of 1996, as a result of the Company's recently completed
qualification of a high-temperature advanced composite containing PMR-15 resin
for use in engines manufactured by General Electric to be used on the U.S.
Navy's F-18 E/F fighter plane. Sales to the communication industry declined
$900,000 because of the timing of purchases by the Company's largest customer in
that industry. That customer has typically made large purchases every two years
as it builds inventory, and it made significant purchases in 1994 that were not
repeated in 1995. In 1996, the two-year cycle and a new qualification leads the
Company to expect that this customer will increase its purchases over 1994
levels, although the Company does not have a commitment from the customer to do
so.
The Company believes that in 1995 customers remained cautious in committing to
purchase composites from the Company pending the consummation of the purchase of
CCC in December, 1995.
Two customers, Boeing and General Electric, accounted for approximately 30% of
1995 sales, compared to approximately 31% of 1994 sales. The Company's twenty
largest customers accounted for approximately 73% of sales in 1995 and 74% of
sales in 1994.
In the fourth quarter of 1995, the Company's major suppliers informed the
Company that fiber material prices, which had remained stable in 1994 and most
of 1995, would likely increase in late 1995 and 1996. To date, the Company has
been able to pass on most of these price increases to its customers.
15
<PAGE> 18
For the year ended December 31, 1995, the Company realized a gross margin of
$2,358,000, or 14.8% of sales, an increase of $253,000 or 12% over 1994. The
improvement was a result of management's continued effort to increase product
yield by reducing scrap (an improvement of approximately $100,000) and to reduce
overhead. Staff costs declined slightly, due to reductions in staff and a
decrease in manufacturing management salary levels. The unionized staff received
cost of living adjustments in 1994 and 1995. Insurance costs declined
approximately $100,000, due to an improved safety record which allowed the
Company to negotiate lower rates with a new carrier. Cost of natural gas
declined approximately $100,000 due to more efficient usage and lower negotiated
rates. Other costs increased by approximately $47,000.
Selling, general and administrative expenses were $2,774,000 or 17.4% of sales,
in 1995, an increase of $194,000 or 7.5% over the 1994 total. Most of the
increase was due to expenses incurred by AMT in connection with the acquisition
of CCC. If the Company is successful in making additional acquisitions, the
Company intends to allocate to any additional operating entities a pro rata
share of the Company's general overhead. A reduction in management salaries in
early 1995 partially offset the increases in expenses resulting from use of
temporary help and overtime pending the closing of the sale of CCC to AMT. In
addition, new sales commission agreements added approximately $100,000 to 1995
expenses.
Research and development expenses were $338,000 in 1995, an increase of
approximately $32,000, or 10.5%, from the 1994 amount. These expenses were 2.1%
of sales in 1995 and 1.9% of sales in 1994.
Interest expense was $603,000, or 3.8% of sales, for 1995, an increase of
$36,000 or 6.3% over interest expense for 1994. Debt levels increased slightly
in the latter part of 1995, with an increase in inventory required by a major
customer and a higher amount of receivables financed. Interest rates were
constant.
Other expenses of $977,000, or 6.1% of sales, were incurred in 1994. During that
year, the Company reduced the space needed to manufacture its products and, as a
result, one leased facility became surplus. The costs associated with the lease
were expensed in 1994. In addition, the Company settled certain litigation at a
cost of $450,000.
As of December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of which, due to the change-in-ownership provisions
of Section 382 of the Internal Revenue Code, the amount available to offset
future taxable income of the Company is limited to approximately $320,000 per
year for the next fifteen years.
Nine Months Ended September 30, 1996 and September 30, 1995
Sales were $16,404,000 (compared to $12,033,000), an increase of
$4,371,000 or 36% over the corresponding period in 1995. The Company estimates
that volume increases accounted for over three quarters of the increase and
price increases accounted for the remainder. Boeing and GE remained as the
Company's largest customers.
For the nine months ended September 30, 1996, the Company realized a
gross profit margin of $4,139,000, or 25% of sales (compared to 17% of sales),
an increase of $2,135,000 over the corresponding period of 1995. The improvement
was a result of a decrease in fixed and variable costs of manufacturing which
more than offset an increase in materials.
Selling, general and administrative expenses increased $646,000 or 34%
to $2,526,000 as the Company added additional experienced staff in sales, sales
support, investor relations, and administration.
Research and development expenses were $331,000 in the first half of
1996, an increase of $94,000 or 40% over the comparable period of 1995. The
Company intends to continue to expand these activities to develop new products
(including the new Siloxirane resin system) and to qualify its products for
additional aerospace uses.
Interest expense was $403,000 for nine months, a decrease of $584,000.
Debt levels in the first half of 1996 were approximately 50% what they were in
1995, although the interest rate was substantially higher. The decrease was due
to the reduction of debt in July, 1996 when the Company used the proceeds from
the IPO to repay all interest bearing debt except the term loan of $476,000.
As of September 30, 1996, the Company had net operating loss carry
forwards for federal income tax purposes. Due to the change-in-ownership
provisions of Section 382 of the Internal Revenue Code, the amount available to
offset future taxable income of the Company is limited to approximately $320,000
per year for the next fifteen years.
The unusual loss of $28,586 after tax ($39,127 pre tax) consists of
costs connected with the early retirement of a loan made by an affiliate of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $5,657,546 to acquire CCC on December 19,1995. The
Company financed the purchase of CCC with loans aggregating $3,150,000 from an
affiliate and borrowings under its Revolving Credit Agreement. The Revolving
Credit Agreement consists of a $560,000 term loan and a $4,440,000 Revolving
Facility, with borrowing levels tied to a formula based on inventory and
accounts receivable. The borrowings under the Revolving Credit Agreement are
secured by all the assets of the Company. The Company paid approximately
$4,900,000 to purchase the shares of CCC and approximately $700,000 with respect
to closing and pre-closing expenses.
For the nine month period ended September 30, 1996, cash used in
operations was $656,000, as cash generated (including a $123,000 decrease in
inventory due to lower levels of
16
<PAGE> 19
work in process), was not sufficient to fund the increase in receivables
($1,386,000) resulting from the increase in sales and a decrease of $767,000 in
accounts payable (to bring suppliers to their credit terms). The $277,000
increase in prepaid expenses and other current assets consists to a large extent
of insurance prepaid at the end of the second quarter. These items were offset
by an increase of $356,000 in accrued expenses.
On July 5, 1996 the Company completed an initial public offering for
the sale of 2,000,000 shares of its common stock at $5.50 per share.
Subsequently, on July 26, 1996, the underwriter exercised an IPO related option
to purchase an additional 296,000 shares at $5.50 per share. The proceeds were
used to repay the outstanding loans under the Revolving Facility and repay loans
of $3,150,000 and interest of $172,000 to an affiliate. The Company may reborrow
as needed under the Revolving Facility. The remaining funds have been invested
in short term investment grade securities pending their use to fund potential
acquisition and capital expenditures. The Company's common stock is traded on
both the Nasdaq SmallCap Market (symbol "AMTK") and the Pacific Stock Exchange
(symbol "MTK").
Capital expenditures were $136,000 for the nine months ended September
30, 1996. The Company plans to expend over $500,000 to install three new liquid
bulk storage tanks, modify its resin mixing facilities, and purchase additional
testing equipment.
The backlog at September 30, 1996 was $6.6 million.
The Company believes that existing cash, short term investment
balances, available borrowings under the Company's Revolving Credit Agreement,
and cash flows from operations will be sufficient to meet currently projected
needs for working capital and capital expenditure for the next fiscal year.
These needs do not include the impact of any acquisition the Company may make.
FACTORS THAT MAY EFFECT FUTURE RESULTS
Except for the historical material contained herein, the matters
discussed in this report are forward-looking statements under the federal
securities laws. The Company advises readers not to place undue reliance on such
statements, in light of risks and uncertainties to which they are subject. The
reader's attention is particularly drawn to the Risk Factors identified in the
Company's June 27, 1996 Prospectus, incorporated hereto by reference, which
could affect the Company's performance, and could cause actual results to differ
materially from any forward-looking statements with respect to future periods.
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<PAGE> 20
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
AMT was incorporated in Delaware in March 1995. AMT had no material
operations until December 19, 1995, when it acquired Structural Polymer Systems,
Inc. (renamed Culver City Composites Corporation), from a subsidiary of
Montedison S.p.A., an Italian multinational conglomerate which in turn had
acquired it from Ferro Corporation in 1991. AMT financed the purchase of CCC
with loans aggregating $3,150,000 from Palomar (see "Certain Transactions"), and
borrowings under its Revolving Credit Agreement.
THE COMPANY
The Company manufactures and sells advanced composites, which are a
combination of high performance reinforcement fabrics or fibers (such as
fiberglass, carbon, or aramid) and a plastic resin (such as epoxy, phenolic, or
polyimide). The Company coats or impregnates the fabrics or fibers with resins
to produce a "prepreg." The combination of high performance reinforcement
fabrics or fibers with plastic resins forms an advanced composite with
exceptional structural properties. The Company believes it is a leader in sales
of advanced composites containing PMR-15 resin, which are used in
high-temperature jet engine applications, and a leading supplier of advanced
composites used in aircraft interiors.
The Company sells its products to the following markets: aerospace,
including transportation (aircraft and mass transit) and communications
(communications satellites and their launchers); defense (military aircraft,
naval vessels, defense systems, and military support equipment); and recreation
(skis). Major customers include: The Boeing Company, General Electric Company,
Lockheed Martin Corporation, McDonnell Douglas Corporation, de Havilland Inc.,
the Aerojet division of GenCorp Inc. and Daimler-Benz AG. See "Risk Factors --
Dependence on Major Customers."
The Company's business strategy is to achieve profitability through
increased utilization of existing plant capacity and acquisitions of companies
with complementary businesses. There can, however, be no assurance that the
Company will be able to achieve profitability. The Company is currently
operating significantly below the capacity of its facilities and management
believes that it could expand its business and rapidly increase revenues without
material additional capital expenditures. Although the Company suffered losses
in 1994 and 1995, it believes that it is well positioned to capitalize on
certain currently improving industry trends, including announced increases in
the build rate for commercial aircraft, the increased use of advanced composites
in sporting goods, and the recently approved use of advanced composites in
infrastructure applications such as reinforcement of freeway bridge columns.
Increased demand, if any, for advanced composites as a result of these trends
may not occur immediately; in particular, any increase in aircraft procurement
is not expected to have a material impact on the Company's sales to the
aerospace market before the fourth quarter of 1996. However, the Company
believes that in general these trends, coupled with the decrease in available
capacity caused by other companies' plant shutdowns during the past few years,
will lead to increased demand for product from the remaining advanced composite
manufacturing companies. In addition, the Company plans to acquire companies in
the advanced materials and technologies industries that the Company believes
will enable it to expand its customer base, reduce costs, and offer new
products. The Company believes that many companies with annual sales under $30
million which originally developed advanced materials and technologies for the
defense industry are now potentially available for purchase and consolidation by
the Company. The Company has no commitments or agreements with respect to any
acquisition. See "Risk Factors -- Limited Operating History; Recent Operating
Losses; Working Capital Deficiency" and "-- Risks Inherent in Possible Future
Unspecified Acquisitions."
The foregoing paragraph contains statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
INDUSTRY BACKGROUND
The advanced composites industry had its origins in the early stages of the
Cold War and the military's need for strong, lightweight materials to replace
metal parts on rockets, missiles, satellites, and aircraft. From that start,
uses of advanced composites expanded into the fields of commercial aircraft,
recreation, construction,
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<PAGE> 21
communications, printed circuit boards, boats, automobiles, and civil
infrastructure. CCC and its predecessors were involved in the commercial
aerospace, defense, communications, and, peripherally, the printed circuit board
markets. These markets grew at a rate the Company estimates to be approximately
20% per annum from the 1960s through 1991, as a result of increased defense
spending and greater demand for commercial aircraft. From that peak, over the
next four years sales declined a total of approximately 30%, due to simultaneous
downturns in defense spending and the commercial aircraft build rate. The
advanced composites industry as a whole grew slightly during this period, due to
increases in non-aerospace markets. As a result of this downturn, certain
manufacturers of advanced composites in the aerospace industry closed production
facilities and consolidated from 1991 through 1995.
The Company believes that annual sales in the commercial aircraft segment
of the aerospace industry reached a five-year low in 1995, and expects sales in
the segment to increase in the near term. Commercial aircraft manufacturers,
such as Boeing, have announced projected increases in their requirements.
According to Boeing's 1996 Current Market Outlook, airlines will require 12,000
new commercial airplanes over the next 20 years due to anticipated increases in
worldwide air travel, and an additional 3,900 new airplanes will be needed over
the next 20 years to replace aging airplanes presently in service. The Company
believes defense spending on new aircraft and missiles may increase slightly
after a decline of approximately 40% in the U.S. government aircraft procurement
budget since 1987. In addition, new uses have been developed for advanced
composites. For instance, in the infrastructure segment, the California
Department of Transportation has recently approved the use of advanced
composites to retrofit freeway bridge columns to make them better able to
withstand earthquakes.
In the defense and aerospace markets, manufacturers of advanced composites
are generally selected to supply an advanced composite from one month to several
years in advance of actual use in production by the customer. Typically, a
manufacturer developing a new product, such as a commercial aircraft, will set
forth specifications for a part or component. Advanced composites manufacturers
develop and supply an advanced composite meeting the called for specifications.
An advanced composite is deemed "qualified" for use in production when the
customer determines that the manufacturer's product and production process meet
its specifications. The qualification process for any given product is lengthy
and expensive, and there can be no assurance that, once it is begun, the
manufacturer will successfully qualify a given product or recoup the costs
invested in the product's development. Once the advanced composite is qualified,
the customer is not likely to qualify alternative suppliers. Nevertheless,
revenues from any particular part or component will depend upon market demand
for the customer's product.
STRATEGY
The Company's strategy is to expand its business by utilizing its existing
excess plant capacity to meet expected increases in demand for aircraft, to
increase its market share by offering new products to existing customers, and to
offer existing products to new markets such as recreation and infrastructure,
while continuing the cost reduction efforts begun in mid-1994. In addition, the
Company plans to grow through acquisitions of companies in the advanced
materials and technologies industries, where the Company believes there are
numerous opportunities to expand its customer base, reduce costs, and obtain new
products. There can be no assurance, however, that the Company will achieve
these goals. See "Risk Factors -- Limited Operating History; Recent Operating
Losses; Working Capital Deficiency" and "-- Risks Inherent in Possible Future
Unspecified Acquisitions."
The Company believes that it is well positioned to meet the anticipated
increases in market demand because it has approximately 70% excess capacity in
its Culver City plant, which it believes will enable it to expand its business
rapidly and increase revenues without material additional capital expenditures,
and because of its established relations with the major aircraft manufacturers
and their subcontractors. See "Risk Factors -- Dependence on Major Customers."
The Company has also recently intensified attempts to seek customer
qualification for products for both aerospace and non-aerospace applications for
existing and new customers. For example, in early 1996 the Company qualified as
a sole source supplier for two new defense and communications programs, from
which the Company expects to derive revenues commencing in 1997. However, no
assurance can be given that these qualifications will result in orders. See
"Risk Factors -- Dependence on U.S. Government Spending."
The Company believes it will also grow by introducing its existing products
to new markets and by
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<PAGE> 22
introducing new products to its existing markets. For instance, the Company
recently shipped a modified aerospace product to a ski and snowboard
manufacturer. Also, in the first quarter of 1996, the Company entered into a
joint venture agreement with Advanced Polymer Sciences, Inc. ("APS"), pursuant
to which the Company will produce, and the joint venture will market, advanced
composites products containing APS's patented Siloxirane high-temperature
resin system to the Company's customer base.
The Company intends to use approximately $3,750,000 of the proceeds from
its initial public offering to acquire companies that sell to the same customers
as the Company or make similar products. The Company believes that the recent
contraction in the aerospace and defense industries has increased competitive
pressure on many smaller companies. The Company believes that many companies
with annual sales under $30 million which originally developed advanced
materials and technologies are now potentially available for purchase and
consolidation by the Company. See "Risk Factors -- Risks Inherent in Possible
Future Unspecified Acquisitions."
The foregoing paragraphs contain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
PRODUCTS
General. Advanced composites are a combination of two different materials:
high-performance reinforcement fabrics or fibers (such as fiberglass, carbon, or
aramid) and a plastic resin. The Company impregnates these reinforcement fabrics
or fibers with resins to produce a "prepreg." The combination of
high-performance reinforcement fabrics or fibers with plastic resins forms a
composite material with exceptional structural properties not found in
fabrics/fibers or resins alone. Most of the advanced composites are sold by the
Company as fabrics, but a small percentage of the Company's products is made
from fibers aligned into unidirectional tapes.
The Company has qualified its advanced composites to meet over 200
specifications for use in the defense, aerospace, and communications markets.
Approximately 30% of the Company's annual sales are derived from contracts where
the Company is the sole source supplier on certain parts for commercial aircraft
and satellite launchers, as well as parts for defense applications. It has been
the Company's experience that customers rarely change suppliers for a qualified
composite. The Company believes that while the qualification process protects it
to a certain degree from competition, and assures it of some revenues during the
life of the program or product for which the Company's advanced composite has
been qualified, the qualification process also tends to hinder the Company's
ability to increase its market share and compete in new markets. The Company
believes the qualification process for industries other than defense and
aerospace may be less costly and more rapid. Despite the Company's established
relationships with its most significant customers, there can be no assurance
that the Company will qualify as a supplier for future projects. See "Risk
Factors -- Intense Competition in Advanced Composites Industry."
In 1995, approximately 70% of the Company's sales were products for which
it was one of two or more qualified sources of supply for the customer. In such
a situation, the customer may divide its orders among suppliers according to a
preset allocation or may ask for quotes from each qualified supplier prior to
issuing the purchase order. In the latter case, the rapidity with which the
Company can fulfill the order is frequently more important than being the lowest
bidder.
The Company's contracts to supply materials for military and some
commercial projects contain provisions for termination at the convenience of the
customer. See "Risk Factors -- Possible Termination of Certain Customer
Contracts."
S-2(R) and E-Type Fiberglass. Approximately 50% of the Company's sales are
derived from prepregs made from standard S-2(R) and E-type fiberglass. These
materials are low-cost, lightweight, exhibit high strength, and are used in
overhead bins, seats, lavatories, and other items in aircraft and train
interiors.
Carbon Fiber. Approximately 30% of the Company's sales are derived from
prepregs made from carbon fiber. Carbon fiber exhibits high strength and
stiffness relative to weight and is sold primarily for aerospace and
recreational uses.
Aramid, Quartz, and Ceramic Fibers. Approximately 20% of the Company's
sales are derived from prepregs made from aramid, quartz, and ceramic fibers.
Aramid fiber is exceptionally resistant to impact and is used in aircraft and
various armor protection applications. Quartz and ceramic fibers are resistant
to extremely high temperatures and are used in various aerospace and general
industrial applications.
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<PAGE> 23
Resins. The Company's resins include epoxy, phenolic, and polyimide. Epoxy
resins are used in a wide variety of applications including aircraft interiors,
radomes, helicopter blades, rocket nozzles, and other applications.
Among the phenolic resins, which are mainly used to make interiors for
commercial aircraft, the Company recently developed its "2400 series," which the
Company believes has the lowest smoke, fire, and toxicity rating of any resin
system used in commercial aerospace applications. The Company anticipates that
this resin system will replace older systems of its competitors, as products
using older resins systems are phased out and opportunities arise for the
Company to qualify its 2400 series for new commercial aerospace products.
Polyimides are high-temperature resins used in missiles, rockets, and
aircraft engines. The major polyimide system is PMR-15, which was developed by
NASA and which the Company produces under a no-fee license. The Company believes
it has a competitive advantage in that it has significant experience with the
difficult manufacturing process for PMR-15. The Company believes that it is the
largest producer of PMR-15 in the market.
SALES AND MARKETING
A staff of salaried salespeople markets the Company's products directly to
customers in the U.S. The Company uses independent distributors and/or
manufacturer's representatives for international markets.
In 1994 and 1995, the Company sold its advanced composites to the following
markets: aerospace, including transportation (aircraft and mass transit) and
communications (communication satellites and their launchers); and defense
(military aircraft, naval vessels, defense systems and military support
equipment). The following table sets forth the percentage of the Company's sales
made to each of these markets in the years indicated:
<TABLE>
<CAPTION>
SALES BY MARKET: 1994 1995
---- ----
<S> <C> <C>
Aerospace:
Transportation .............. 69% 73%
Communications .............. 11 5
Defense ........................ 20 22
--- ---
Total .............. 100% 100%
=== ===
Exports as a percentage of sales 15% 16%
</TABLE>
In 1996, the Company commenced sales of advanced composites for skis in
the recreational market.
CUSTOMERS
Sales to the Company's two largest customers, Boeing and General Electric,
accounted for approximately 31% of net sales in 1994 and approximately 30% in
1995. The Company's twenty largest customers accounted for approximately 74% of
sales in 1994 and approximately 73% of sales in 1995. The loss of any of these
customers could have a material adverse effect on the Company and its business.
See "Risk Factors -- Dependence on Major Customers."
MARKET
The Company estimates that industry sales to the advanced composites
markets in which it competes totaled approximately $800 million worldwide in
1995, with approximately $480 million of those sales in North America. The
Company believes that the market growth rate for advanced composites in the past
has been closely correlated to the overall build rate of commercial and military
aircraft, because these customers constitute by far the largest source of
demand. The Company believes this will continue to be the case for the next
several years. Beyond that time, the Company expects that growth will be
propelled by new uses, particularly in the infrastructure markets where over
time, the Company believes, the use of advanced composites will increase
significantly.
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<PAGE> 24
Commercial aircraft build rates, based on the estimated number of
aircraft delivered, declined approximately 30% from 1992 to 1995. The Company
believes that, as a result of this decline, many advanced composite businesses
suffered losses in those years. Major aircraft builders have announced slight
increases in their build rates for 1996 and larger build rates for 1997. Based
on information provided by a major customer, the Company believes the commercial
aircraft build rates will remain at the projected 1997 level through the end of
the century.
The Company believes that the advantages of lower weight and resulting
fuel economy will cause aircraft manufacturers to use increasing amounts of
advanced composite materials, particularly in newer models and development
programs. For example, recently developed military aircraft, such as the stealth
fighter and the B-2 bomber, contain a higher percentage by weight of advanced
composites than the older aircraft they replace. The use of advanced composites
has increased in commercial aircraft also, but in a much less dramatic fashion.
Advanced composites are now used in overhead bins, seats, lavatories, and other
items in aircraft. The Company believes that the use of advanced composites in
commercial aircraft will continue to increase.
The Company believes that activity within the military aerospace
industry fluctuates in relation to world tensions and the attitudes of the then
current administration and Congress toward defense spending. Since 1987, the
aircraft procurement budget of the U.S. Department of Defense has declined by
approximately 40%.
The foregoing paragraphs contain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
MANUFACTURING
To manufacture its products, the Company uses both vertical treaters
and horizontal treaters, as well as unidirectional tape and roving lines. The
Company believes that the equipment is well maintained and is operating at
approximately 30% of capacity.
The Company typically makes products to customer's predefined
specifications once it has received a firm purchase order. The specifications
can include materials to be used, testing results to be obtained, and the
procedure to use when making the product. The Company maintains an inventory of
the most commonly used fibers, fabrics, and resins. Other items are purchased
specifically for that customer's order.
On average, the prepregging process requires less than one day to fill
an order. Aerospace, defense, and communication customers typically require the
Company to conduct testing on the product both during the process and once the
material is manufactured. The duration of these tests ranges from a few minutes
up to 15 days. The Company ships products when the material has successfully
passed the required tests.
COMPETITION
The market for advanced composite materials is highly competitive. In
the production and sale of advanced composites, the Company has numerous U.S.
and foreign competitors on a world-wide basis, at least six of whom (Cytec Inc.,
Hexcel Corporation, Fiberite, Inc., Toray Industries, Inc., Mitsubishi Chemical
Corporation, and Mitsubishi Rayon Co., Ltd.) are considerably larger than the
Company in size and financial resources. To the Company's knowledge, in the
aerospace and defense markets it is the seventh-largest manufacturer of advanced
composites. In addition, the Company competes with many smaller U.S. and foreign
manufacturers. The Company has focused on specific niche markets and specialty
products within markets to gain market share. Depending upon the material and
markets, relevant competitive factors include price, delivery, service, quality,
and product performance. See "Risk Factors -- Intense Competition in Advanced
Composites Industry."
RAW MATERIALS
The Company purchases all raw materials used in production. One
supplier accounted for over 70% of total fabric supply in the years ended
December 31, 1994 and 1995 and for the nine months ended September 30, 1996.
The Company believes it has a satisfactory relationship with that supplier, and
that if that
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<PAGE> 25
supplier were unable to supply it the Company would be able to obtain fabric
from other suppliers. However, there is no assurance that such other suppliers
would offer fabric on the same favorable terms and conditions. In addition,
several key raw materials are available from relatively few sources. If raw
materials were no longer available, which the Company does not anticipate, such
an occurrence could have a material adverse effect on operations. See "Risk
Factors -- Dependence on Suppliers."
BACKLOG
The backlog of orders to be filled in the next twelve months totaled
approximately $6.6 million at September 30, 1996. Orders for advanced composites
generally lag behind the award of orders for new aircraft by a considerable
period. Thus, the anticipated increase in new aircraft procurement is not
expected to have a material impact on the Company's sales to the aerospace
market before the fourth quarter of 1996. Historically, backlog has not been a
meaningful indicator of revenues for a particular period.
RESEARCH AND DEVELOPMENT
In manufacturing its products, the Company relies primarily upon
technology derived from the field of polymer chemistry, as well as advanced
engineering and assembly of composite structures. With a few exceptions, all of
the resin formulations used by the Company in its manufacturing operations are
proprietary and have been developed in its research and development
laboratories.
PATENTS AND PROPRIETARY INFORMATION
The Company's ability to compete effectively depends in part on its
ability to protect its proprietary information. The Company relies primarily on
trade secret laws and confidentiality procedures to protect its proprietary
resin formulations. The Company has not filed any patent applications with
respect to its intellectual property. See "Risk Factors -- Dependence on
Unpatented Proprietary Technology; Risk of Infringement."
ENVIRONMENTAL MATTERS
Environmental control regulations have not had a significant adverse
effect on the overall operations of the Company. The Company believes that it is
in compliance in all material respects with all applicable environmental laws
and regulations.
An environmental site assessment authorized by Montecatini U.S.A.,
Inc., a subsidiary of Montedison S.p.A. and the former owner of CCC, determined
that there had been a leak of acetone into the ground at the Culver City
manufacturing facility. Although acetone is not on the federal hazardous
substances list, it is on California's hazardous substances list. The terms of
the Purchase Agreement by and between the Company and Montecatini U.S.A., Inc.
provide for certain limited indemnification of the Company for this liability.
In addition, Ferro Corporation agreed to indemnify the former owner of CCC
against environmental liabilities. Nevertheless, there can be no assurance that
the indemnification provided by Montecatini U.S.A., Inc. or Ferro Corporation
will be sufficient to pay the full extent of any potential liability for
remediation or any damages to third parties caused by the acetone leak, nor can
there be any assurance that the Company will be able to obtain indemnification
from Ferro Corporation. See "Risk Factors -- Manufacturing Activities Subject to
Extensive Government and Environmental Regulation."
PERSONNEL
The Company had 84 full-time employees on September 30, 1996. Of these
employees, 54 were in manufacturing and the remainder were administrative,
sales, engineering, marketing, and clerical employees. A total of 47 of the
employees are represented by the Stove, Furnace, and Allied Appliance Workers
Division, International Brotherhood of Boilermaker, Iron Ship Builders,
Blacksmiths, Forgers and Helpers, under a contract that expires April 30, 1997.
Management believes labor relations to be generally good.
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<PAGE> 26
FACILITIES
The Company leases a 40,000-square foot corporate headquarters and
research and development facility in Los Angeles, California. A second facility
of 37,000 square feet, located nearby in Culver City, California, houses the
main manufacturing plant. The leases are for terms of ten years, ending in 2005
and 2006, and may be extended for another ten years at the Company's option.
Because the Company's manufacturing facility is estimated to be currently
operating at 30% of its maximum capacity, the Company believes it can increase
production by approximately 200% without significant additional capital
expenditures.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation from
claims arising from its operations in the normal course of business. As of the
date of the Prospectus, the Company is not a party to any legal proceedings the
outcome of which, in the opinion of management, would have a material adverse
effect on the Company's results of operations or financial condition.
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<PAGE> 27
MANAGEMENT
The current executive officers and directors of the Company are as
follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven Georgiev..................... 61 Chairman of the Board of Directors
Paul W. Pendorf..................... 55 President, Chief Executive Officer and Director
William A. Timmerman................ 50 Chief Financial Officer
Robert V. Glaser.................... 44 Director
Buster C. Glosson................... 54 Director
Philip D. Cunningham................ 56 Director of Operations, Culver City Composites
Corporation
Leslie Jay Cohen, Ph.D.............. 55 Director of Business Development, Culver City
Composites Corporation
</TABLE>
The Company currently has four directors. All directors are elected to
hold office until the next annual meeting of shareholders of the Company and
until their successors have been duly elected and qualified. Officers are
elected to serve subject to the discretion of the Board of Directors and until
their successors are appointed. There are no family relationships among
executive officers and directors of the Company.
Steven Georgiev has been Chairman of the Board of Directors of the
Company since its inception in March 1995. Mr. Georgiev is also Chairman and
Chief Executive Officer of Palomar. Palomar owns 463,664 shares of Common Stock
of the Company. Mr. Georgiev was named Chairman of Palomar in 1991 and President
and CEO of Palomar in 1993. Palomar designs, manufactures, and markets lasers,
delivery systems and related disposable products for use in medical and cosmetic
procedures, and also manufacturers and distributes flexible circuit boards and
personal computers. Mr. Georgiev has served as a financial consultant to
emerging high growth companies, and has served as a director of Excel
Technologies, Inc. since 1992. Mr. Georgiev has agreed to serve as a director of
Dynagen, Inc., a public company, beginning in October 1996. He was a director at
Cybernetics Products, Inc., a publicly held company, from 1988 to 1992 and a
director at XXsys Technologies, Inc., a publicly-held company engaged in
developing advanced composites for use in infrastructure repair and design
("XXsys"), from 1993 to 1995. Mr. Georgiev was Chairman of the Board of
Directors of Dynatrend, Inc., a publicly traded consulting firm that he
co-founded in 1972, until 1989. Mr. Georgiev received a B.S. degree in
Engineering Physics from Cornell University and an M.S. degree in Management
from the Massachusetts Institute of Technology, where he was a Sloan Fellow.
Paul W. Pendorf has been President and Chief Executive Officer and a
director of the Company since its inception in March 1995. Prior to that, Mr.
Pendorf served from 1991 to 1995 as President and Chief Executive Officer and a
director of XXsys. He was a consultant to XXsys from 1990 until he was named
President. From 1989 to 1990 he was a Vice President of Quadrax Corporation, a
publicly traded advanced composites company. From 1985 to 1989 Mr. Pendorf held
a series of senior executive positions with ICI Fiberite, a subsidiary of
Imperial Chemical Industries ("ICI") engaged in the advanced composites
business. From 1982 to 1985, he was Director of International Ventures of
Beatrice Chemicals Group (acquired by ICI in 1985), where he worked extensively
in expanding Beatrice's composites business. Prior to his involvement in the
composites industry, Mr. Pendorf held executive positions with American Cyanamid
Company (now part of American Home Products Inc. and Cytec Inc.), Virginia
Chemicals Company (now part of Hoechst Celanese Corp.), and Pfizer, Inc. Mr.
Pendorf received a B.S. degree in Chemical Engineering from the University of
Maryland and an M.S. degree in Management from Rensselaer Polytechnic Institute.
Robert V. Glaser has been a director of the Company since July 1996.
Mr. Glaser is the founder and Chief Executive Officer of MapleWood Inc., a
private company formed in 1995 ("MapleWood") that undertakes corporate
investments for its own account and provides merger and acquisition advisory
services to others. Prior to the foundation of MapleWood, Mr. Glaser was a
member of the worldwide
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<PAGE> 28
Management Committee of the Investcorp group of companies (the "Investorp
Group"), from 1983, the first year of the Investcorp Group's operation, through
1995. From 1987 to 1995, he was a member of the board of directors of Investcorp
International Inc., the U.S. arm of the Investcorp Group. From 1983 to 1987, Mr.
Glaser was employed by other entities of the Investcorp Group. The Investcorp
Group invests, for its own account and on behalf of its clients, in corporate
and real estate investments in the United States and Europe. During his career
at Investcorp, Mr. Glaser was active in numerous areas of corporate acquisitions
for Investcorp, including: the screening, evaluating and selecting of
acquisition targets, overseeing the due diligence process, leading negotiations
with sellers, arranging senior and subordinated financing for companies
acquired, overseeing companies acquired, and selling investments. During this
period, Mr. Glaser worked on numerous acquisitions and sat on over a dozen
boards of directors of acquired companies on Investcorp's behalf. Prior to
joining the Investcorp Group in 1983, Mr. Glaser was employed by The Chase
Manhattan Bank, N.A. for 10 years, and was a vice president at the time of his
departure. Mr. Glaser is currently a director of Atlas Air, Inc. Mr. Glaser is a
member of the Board of Trustees of the National Foundation for the Advancement
of the Arts and the Greater Miami Chamber of Commerce. He is also a member of
the National Association of Corporate Directors.
Lt. Gen. Buster C. Glosson (USAF ret.) has been a director of the
Company since July 1996. Gen. Glosson has been a director of Palomar since
September 1996. From 1965 until June 1994, he was an officer in the United
States Air Force ("USAF"), most recently as a Lieutenant General and Deputy
Chief of Staff for plans and operations, Headquarters USAF, Washington, D.C.
Gen. Glosson is a veteran of combat missions in Vietnam and, during the Gulf
War, he commanded the 14th Air Force Division and was director of campaign
plans for the United States Central Command Air Forces, Riyadh, Saudi Arabia.
Gen. Glosson is Chairman and CEO of Alliance Partners Inc., an investment
holding company developing international oil and power projects. In 1994 he
founded and has since served as President of Eagle Ltd., a consulting firm
concentrating on international business opportunities in the high-technology
arena. He has served as a director of GreenMan Technologies, Inc., a publicly
traded company, since August 1994. Gen. Glosson received a B.S. degree in
Electrical Engineering from North Carolina State University.
William A. Timmerman has been Chief Financial Officer of the Company
since its inception in March 1995. Prior to that, Mr. Timmerman was Chief
Financial Officer and Secretary of XXsys from 1994 to 1995. From 1993 to 1994,
he was Chief Financial Officer of Trion Capitol Corporation, a real estate
development firm based in San Diego. Prior to that, he was President and served
on the boards of directors of several private entrepreneurial companies,
including serving as President and Chief Executive Officer from 1990 to 1993 of
The France-USA Link, Inc., a company he founded that manufactured and
distributed recreational products. Earlier, he was with Chase Manhattan Bank for
11 years, during which time he served in the New York headquarters, as well as
in Paris, France and the Ivory Coast. He was named a Vice President with Chase
Manhattan Bank in 1978. He received a B.A. degree in Philosophy from Washington
and Lee University, an MBA in Economics from New York University, and a
Certificate d'etudes from L'Institute des Etudes Politiques in Paris, France.
Philip D. Cunningham has been Director of Operations of CCC since
January 1996. From 1994 to 1995, Mr. Cunningham served as a Plant Manager for
Bio-Rad Laboratories, a company engaged in chemical reagent manufacturing and
packaging. For the ten years prior to that, he managed Hexcel Corporation's
Livermore, California advanced composites plant, one of the largest such plants
in the world. For the eleven years prior to that, he held various executive and
manufacturing positions with Stauffer Chemical Company and E.I. Dupont de
Nemours, Inc. Mr. Cunningham holds a B.S. degree in Chemical Engineering from
the Massachusetts Institute of Technology.
Leslie Jay Cohen, Ph.D. has been Director of Business Development of
CCC since April 1996. In 1995, Dr. Cohen elected early retirement from McDonnell
Douglas Corporation after a 29-year career. He was a private consultant to
industry prior to joining the Company. From 1993 to 1995, Dr. Cohen was Director
of Advanced Programs for McDonnell Douglas Aerospace - Huntington Beach and was
responsible for all new business development in Russia and the Commonwealth of
Independent States. From 1988 to 1993, Dr. Cohen served as the Program Manager
for the U.S. Army/McDonnell Douglas Aerospace Neutral Particle Beam Space
Experiment - NPBSE, and was responsible for the cost,
26
<PAGE> 29
scheduling and technical performance of the experiment. For ten years prior to
that, he held various management positions with McDonnell Douglas Aerospace. Dr.
Cohen holds B.S., M.S., and Ph.D. degrees in Civil Engineering from Carnegie
Institute of Technology, and was a Fulbright-Hayes Post-Doctoral Fellow at the
Technion-Israel Institute of Technology. Dr. Cohen received the Gold Medal for
Science and Technology from the U.S.S.R. Academy of Sciences and is an
Academician of the International Academy of Engineering.
27
<PAGE> 30
COMPENSATION OF DIRECTORS
The Company's directors do not currently receive any cash compensation
for service on the Board of Directors, but directors are reimbursed for
reasonable expenses incurred in connection with attendance at Board and
committee meetings. Under the terms of the 1996 Incentive and Nonqualified Stock
Option Plan (the "Stock Option Plan"), each year directors who are not employees
of the Company automatically receive options to purchase 5,000 shares of the
Company's Common Stock with a per share exercise price equal to the fair market
value of a share of Common Stock at the time of grant. Mr. Georgiev has waived
his right to receive such options for 1996. See "Executive Compensation -- 1996
Incentive and Nonqualified Stock Option Plan." In accordance with Company
policy, directors who are employees of the Company serve as directors without
compensation.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that no director of
the Company shall be personally liable to the Company or to any stockholder for
monetary damages arising out of such director's breach of fiduciary duty, except
for (i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) any acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any payment of a
dividend or approval of a stock purchase or redemption that is illegal under
Section 174 of the Delaware General Corporation Law ("Delaware Law") or (iv) any
transaction from which the director derived an improper personal benefit. A
principal effect of this provision of the Company's Certificate of Incorporation
is to limit or eliminate the potential liability of the Company's directors for
monetary damages arising from breaches of their duty of care, unless the breach
involves one of the four exceptions described in (i) through (iv) above. The
provision does not prevent stockholders from obtaining injunctive or other
equitable relief against directors, nor does it shield directors from liability
under federal or state securities laws.
The Company's Certificate of Incorporation and By-laws further provide for the
indemnification of the Company's directors and officers and persons who serve at
the request of the Company as directors, officers or other agents of other
entities to the maximum extent permitted by Delaware Law, including
circumstances in which indemnification is otherwise discretionary. The Company
has entered into indemnity agreements with each of its current directors which
provide for indemnification of, and advancement of expenses to, such persons to
the greatest extent permitted by Delaware Law, including by reason of action or
inaction occurring in the past and circumstances in which indemnification and
the advancement of expenses are discretionary under Delaware Law.
A principal effect of these provisions is to limit or eliminate the potential
liability of the Company's directors for monetary damages arising from breaches
of their duty of care, unless the breach involves one of the four exceptions
described in (i) through (iv) above. These provisions may also shield directors
from liability under federal and state securities laws.
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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
28
<PAGE> 31
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned in the fiscal year ended December 31, 1995 by the Company's
Chief Executive Officer and Chief Financial Officer (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) ----------------------
---------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(2)
- --------------------------- --------- ----------
<S> <C> <C>
Paul W. Pendorf
President and Chief Executive Officer...................... $116,250(3) 86,937
William A. Timmerman
Chief Financial Officer.................................... 75,000(4) 46,366
</TABLE>
- --------------------
(1) Other than salary described herein, the Company did not pay any Named
Executive Officer any compensation, including incidental personal
benefits, in excess of 10% of such Named Executive Officer's salary.
(2) See "Option Grants During 1995" below.
(3) Mr. Pendorf joined the Company in March 1995 at an annual salary of
$155,000.
(4) Mr. Timmerman joined the Company in March 1995 at an annual salary of
$100,000.
OPTION GRANTS DURING 1995
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the fiscal year
ended December 31, 1995. The Company did not grant any stock appreciation rights
during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS OPTIONS GRANTED TO PRICE EXPIRATION
NAME GRANTED(1) EMPLOYEES IN FISCAL ($/SH)(2) DATE
- ---- -------------------- ------------------- ---------- -----------
YEAR
----
<S> <C> <C> <C> <C>
Paul W. Pendorf.................. 86,937 65.22% $0.86 May 9, 2005
William A. Timmerman............. 46,366 34.78% $0.86 May 9, 2005
</TABLE>
- -----------------------
(1) Represents shares of Common Stock issuable upon exercise of options
granted pursuant to each named officer's employment agreement.
(2) All options were granted at exercise prices not less than the fair
market value of the Common Stock on the date of grant. The options vest
in equal installments on each of the first, second and third
anniversaries of the effective date of the Company's initial public
offering, June 27, 1996.
FISCAL YEAR-END VALUES OF UNEXERCISED OPTIONS
No options to purchase securities of the Company have been exercised.
The following table sets forth certain information concerning the value of
unexercised stock options held by the Named Executive Officers as of December
31, 1995.
29
<PAGE> 32
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS )
DECEMBER 31, 1995 AT FISCAL YEAR END(1
----------------- --------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Paul W. Pendorf................... 0 86,937 0 $403,388
William A. Timmerman.............. 0 46,366 0 $215,138
</TABLE>
- -----------------------
(1) Value is based on the initial public offering price of $5.50. Actual
gains, if any, on exercise will depend on the value of the Common Stock
on the date of the sale of the shares.
1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
On February 6, 1996, the Company's Board of Directors adopted, and
holders of stock representing a majority of the outstanding voting stock
approved, the Stock Option Plan. A total of 350,000 shares of Common Stock are
reserved for issuance under the Stock Option Plan. The Stock Option Plan
authorizes (i) the grant of options to purchase Common Stock intended to qualify
as incentive stock options ("Incentive Options"), as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the grant
of options that do not so qualify ("Nonqualified Options"). As of September 30,
1996, options to purchase 133,600 shares of Common Stock were outstanding under
the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors. The
Board selects the individuals to whom awards will be granted, and determines the
option exercise price and other terms of each award, subject to the provisions
of the Stock Option Plan.
Incentive Options may be granted under the Stock Option Plan to
employees and officers of the Company, including members of the Board of
Directors who are also employees. Nonqualified Options may be granted under the
Stock Option Plan to employees, officers, individuals providing services to the
Company and members of the Board of Directors, whether or not they are employees
of the Company.
No options may extend for more than ten years from the date of grant
(five years in the case of employees or officers holding 10% or more of the
total combined voting power of all classes of stock of the Company or any
subsidiary or parent ("greater-than-ten-percent-stockholders")). The exercise
price for Incentive Options may not be less than the fair market value of the
Common Stock on the date of grant or, in the case of a
greater-than-ten-percent-stockholder, not less than 110% of the fair market
value. The aggregate fair market value (determined at the time of grant) of
shares issuable pursuant to Incentive Options first becoming exercisable by any
employee or officer in any calendar year may not exceed $100,000.
Options are non-transferable except by will or by the laws of descent
or distribution. Options generally may not be exercised after (i) termination by
the Company for cause or voluntary termination by the optionee of the optionee's
employment with the Company, (ii) sixty days following termination by the
Company without cause of the optionee's employment with the Company, or (iii) in
the event of the optionee's permanent and total disability or death, the earlier
of the expiration date of such option or one year following the date of such
disability or death.
Payment of the exercise price for shares subject to options may be made
with cash, certified
30
<PAGE> 33
check, bank draft, postal or express money order payable to the order of the
Company for an amount equal to the exercise price for such shares, or, with the
consent of the Company, shares of Common Stock of the Company having a fair
market value equal to the option price of such shares, or, with the consent of
the Company, a combination of the foregoing. Full payment for shares exercised
must be made at the time of exercise.
The Stock Option Plan provides for automatic grants of Nonqualified
Options to the Company's non-employee directors. Each non-employee director is
annually granted a five-year option for 5,000 shares at the then current fair
market value. These options become exercisable one year after the date of grant,
subject to continuing service as a director. Directors may also be granted
additional options to acquire shares of the Company's Common Stock at the
discretion of the Board of Directors.
Shares underlying options which expire or terminate may be the subject
of future options. The Stock Option Plan terminates on February 6, 2006.
EMPLOYMENT AGREEMENTS
On March 25, 1995, the Company entered into employment agreements with
each of Paul W. Pendorf, the Company's President and Chief Executive Officer,
and William A. Timmerman, the Company's Chief Financial Officer. Pursuant to
their employment agreements which expire on March 24, 1998, Mr. Pendorf is
entitled to an annual base salary of $155,000 and is eligible for annual bonuses
up to 120% of his base salary and Mr. Timmerman is entitled to an annual base
salary of $100,000 and is eligible for annual bonuses up to 120% of his base
salary. In addition, Messrs. Pendorf and Timmerman are eligible for one-time
bonuses of $40,000 and $20,000, respectively, if the Company (on a consolidated
basis) attains earnings before income taxes, depreciation and amortization of
$800,000 or more, which bonuses shall not be payable before June 30, 1996. Mr.
Pendorf was granted options to purchase 86,937 shares of Common Stock at an
exercise price of $0.86 per share under the terms of his agreement with the
Company. Mr. Timmerman was granted options to purchase 46,366 shares of Common
Stock at an exercise price of $0.86 per share under the terms of his agreement
with the Company. The options vest in three equal annual installments beginning
on the first anniversary of the effective date of the Company's initial public
offering, June 27, 1996. Pursuant to these agreements, which are each for a term
of three years, if the Company terminates the officer's employment without cause
or upon the occurrence of certain events resulting from a sale of the Company or
change of control of the Company, (i) the Company shall pay the officer's
salary, plus a bonus equal to 60% of salary, until the later of the end of the
term of the agreement or twelve months from the date of termination, and (ii)
any unvested stock options shall immediately vest. Messrs. Pendorf and Timmerman
have agreed that jointly, they will not exercise 48,310 of their options if at
that time, the number of all outstanding options and warrants of the Company
exceeds 20% of the total issued and outstanding Common Stock of the Company. The
Company maintains a "key man" life insurance policy on Mr. Pendorf's life in the
amount of $1,000,000, the proceeds of which are payable to the Company's
principal lender to be applied to the Company's debt. Mr. Pendorf is also
entitled to be indemnified by the Company for certain amounts due under the
XXsys Agreement. See "Certain Transactions."
On February 13, 1996, the Company entered into a one-year employment
agreement with Philip D. Cunningham, CCC's Director of Operations. Pursuant to
his employment agreement, Mr. Cunningham is entitled to an annual base salary of
$120,000 and is eligible for annual bonuses up to 40% of his base salary. Mr.
Cunningham is also entitled to receive relocation assistance from the Company,
including a one-time housing assistance payment of $20,000 payable at the time
of Mr. Cunningham's move, a bridge loan of up to $200,000 secured by a junior
lien on his current residence to assist in the move, and payment of certain
costs for a new residence. The Company granted Mr. Cunningham options to
purchase 25,000 shares of Common Stock under the Company's 1996 Incentive and
Nonqualified Stock
31
<PAGE> 34
Option Plan in connection with this agreement, at an exercise price of $1.00 per
share. Pursuant to this agreement, if Mr. Cunningham's employment terminates for
any reason other than resignation or for cause, he will be eligible to receive
six months' severance pay, increasing at the rate of one-half month per month of
employment up to a maximum of twelve months' severance after two full years of
employment. Mr. Cunningham's right to receive severance pay under this agreement
would terminate upon his obtaining new employment.
On April 15, 1996, the Company entered into a one-year employment
agreement with Leslie Jay Cohen, Ph.D., CCC's Director of Business Development.
Pursuant to his employment agreement, Dr. Cohen is entitled to an annual base
salary of $80,000 and is eligible to receive annual bonuses of up to 20% of his
base salary. The Company granted Dr. Cohen options to purchase 12,000 shares of
Common Stock under the Stock Option Plan, at a per share exercise price of
$4.00.
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<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 1, 1996, by
(i) each person or entity known to the Company to own beneficially five percent
or more of the Company's Common Stock, (ii) each of the Company's directors,
(iii) the Company's Principal Executive Officer and each of the other Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. Except as otherwise noted, each beneficial owner has sole voting and
investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NAME AND ADDRESSES NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
OF BENEFICIAL OWNERS(1) BENEFICIALLY OWNED(2) ------------------------------------------
- ----------------------- --------------------- Before Offering(3) After Offering(3)
------------------ -----------------
<S> <C> <C> <C>
Steven Georgiev .................. 521,623(4) 12.6% 12.6%
Paul W. Pendorf .................. 521,623 12.6 12.6
Robert V. Glaser ................. 5,000(5) * *
Buster C. Closson ................ 16,364(6) * *
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915 ............. 463,664 11.2 0
William A. Timmerman ............. 173,874(7) 4.2 4.2
All directors and executive
officers as a group (5 persons) 1,234,484 29.8 29.8
</TABLE>
* less than one percent
- ------------------
(1) With the exception of Palomar Medical Technologies, Inc., each person's
address is in care of The American Materials & Technologies
Corporation, 5915 Rodeo Road, Los Angeles, California 90016.
(2) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes table.
(3) Percentage ownership is based on 4,139,062 shares of Common Stock
outstanding before and after the Offering.
(4) Does not include shares owned by Palomar. Mr. Georgiev is Chairman and
Chief Executive Officer of Palomar.
(5) Represents 5,000 shares of Common Stock issuable pursuant to an option
exercisable within 60 days of November 1, 1996.
(6) Includes 5,000 shares of Common Stock issuable pursuant to an option
exercisable within 60 days of November 1, 1996.
(7) Includes 23,183 shares owned by Pierrette Timmerman, Mr. Timmerman's
wife. Mr. Timmerman disclaims beneficial interest in these shares.
CERTAIN TRANSACTIONS
The Company's policy, as adopted by its Board of Directors on April 1, 1996,
regarding related party transactions is that any transaction between the Company
and any of its officers, directors, 5% stockholders, or their affiliates will be
entered into only if such transaction is approved by a majority of the directors
disinterested in such transaction, is on terms no less favorable to the Company
than could be obtained from unaffiliated parties, and is reasonably expected to
benefit the Company. The Company believes that all related party transactions
entered into by the Company prior to April 1, 1996 would have met the criteria
set forth in this policy if the policy had then been in effect.
On December 19, 1995, Palomar loaned to the Company a total of $3,150,000,
and the Company issued to Palomar two promissory notes, one in the principal
amount of $3,000,000 and one in the
33
<PAGE> 36
principal amount of $150,000 (the "Loans"). The proceeds of the Loans were used
to pay part of the purchase price of the shares of CCC. The Loans were secured
by a pledge of the shares of the Common Stock owned by Messrs. Georgiev,
Pendorf, and Timmerman and Mr. Timmerman's wife. The Loans were paid in full
with a portion of the proceeds of the Company's initial public offering.
In addition, Palomar owns 463,664 shares of the Company's Common Stock,
which are being registered for resale pursuant to the Registration Statement of
which this Prospectus forms a part. See "Selling Stockholder's Shares." The
Chairman of the Board of Directors and Chief Executive Officer of Palomar is Mr.
Steven Georgiev, Chairman of the Board of Directors of the Company. Mr. Georgiev
directly owns 521,623 shares of the Company's Common Stock.
On May 1, 1995, the Company entered into a five-month consulting contract at
$10,000 per month with Mr. Steven Georgiev, its Chairman. Pursuant to this
contract, the Company paid a total of $50,000 to Mr. Georgiev in 1996. The
Company entered into another consulting agreement with Mr. Georgiev on July 30,
1996. Pursuant to this contract, the Company will pay a total of $70,000 to Mr.
Georgiev in 1996 and 1997.
Steven Georgiev, Chairman of the Board of Directors of the Company,
previously served as a director of XXsys. Paul W. Pendorf, President and Chief
Executive Officer of the Company, was previously employed by XXsys as Chief
Executive Officer. William A. Timmerman, Chief Financial Officer of the Company,
was previously employed by XXsys as Chief Financial Officer. In connection with
their departure from XXsys in March 1995, Messrs. Pendorf, Timmerman, and
Georgiev entered into an agreement with XXsys (the "XXsys Agreement"), pursuant
to which, among other things, XXsys assigned to them the right to pursue certain
corporate opportunities, one of which was the acquisition of CCC, in
consideration for specified payments. Under the provisions of the XXsys
Agreement, Messrs. Pendorf, Timmerman, and Georgiev agreed to pay XXsys the sum
of $100,000 upon the consummation of the acquisition of CCC, which sum has not
been paid to date. In addition, XXsys agreed to pay to Mr. Pendorf approximately
$167,000 in compensation and outstanding expenses, of which approximately
$90,000 has been paid to date. In connection with the Company's incorporation,
Messrs. Pendorf, Georgiev and Timmerman assigned to the Company certain of their
rights and obligations under the XXsys Agreement, including Mr. Pendorf's right
to receive certain compensation and outstanding expenses owed to him pursuant to
the XXsys Agreement. In connection with Mr. Pendorf's employment agreement, the
Company agreed to indemnify Mr. Pendorf for any compensation and outstanding
expenses owed to him pursuant to the XXsys Agreement that were not paid as of
the date of the Company's acquisition of CCC, which totalled approximately
$77,000 on that date. The Company has taken the position that it is entitled to,
and the Company intends to, set off from the $100,000 owed to XXsys under the
XXsys Agreement, the approximately $77,000 previously owed by XXsys to Mr.
Pendorf. To the extent that the amount owed by the Company to XXsys is reduced
as a result of the offset of the amount owed by XXsys to Mr. Pendorf, the
Company will pay Mr. Pendorf an amount equal to the amount of such offset in
accordance with the indemnification provisions of Mr. Pendorf's employment
agreement.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
COMMON STOCK
As of the date of this Prospectus, there were 4,139,062 shares of Common
Stock outstanding and held
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<PAGE> 37
of record by approximately 2000 shareholders. All outstanding shares of Common
Stock after completion of this Offering will be validly issued, fully paid and
nonassessable.
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the shareholders. Subject to the preferences that may be
applicable to any Preferred Stock then outstanding, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any then outstanding shares of Preferred Stock. Holders
of Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption or sinking fund
provisions with respect to such shares. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be materially adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
In connection with the registration of shares of Common Stock for sale in
the state of Virginia, the Company has agreed that it will not issue or grant
any additional warrants or options to purchase Common Stock, if after such
issuance or grant, the total outstanding options and warrants would exceed 20%
of the total issued and outstanding Common Stock of the Company. This
undertaking will remain in effect so long as the Company's shares are registered
in the state of Virginia.
The Company's Common Stock is traded on the Nasdaq SmallCap Market and the
Pacific Stock Exchange. See "Price Range of Common Stock."
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
Delaware law, to provide for the issuance of up to 5,000,000 shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding) without further vote or action by the
stockholders. The Board of Directors is authorized to issue Preferred Stock with
voting, conversion and other rights and preferences that could adversely affect
the voting power or other rights of the holders of Common Stock. Although the
Company has no current plans to issue such shares, the issuance of Preferred
Stock or of rights to purchase Preferred Stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of the outstanding voting stock of the
Company. As of the date of this Prospectus, there were no shares of Preferred
Stock outstanding.
The Company has agreed with H.J. Meyers & Co., Inc., the representative of
the several underwriters of the Company's initial public offering (the
"Representative"), that it will not issue any shares of Preferred Stock for a
period ending 36 months after the date of this Prospectus, without the prior
written consent of the Representative.
REGISTRATION RIGHTS
The Company has granted registration rights to the holder of the
Representative's Warrant, which provide the holder with certain rights to
register the shares of Common Stock underlying the Representative's Warrant. In
connection with the issuance of the Investors' Shares to the Investors from
35
<PAGE> 38
July 24, 1995 to December 8, 1995, the Company agreed to register the shares in
the event of an initial public offering. The Investors have agreed not to sell
any Investors' Shares before December 27, 1996. Commencing December 27, 1996,
each Investor may sell up to 5,000 Investors' Shares per month for an additional
six-month period. Thereafter, the Investors' Shares may be sold without any
lock-up restrictions. See "Shares Eligible for Future Sale."
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
As a result of the foregoing provisions, the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors could be made more difficult. These provisions
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate with the Company first. The Company believes that the
benefits of increased protection of the Company's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is The American Stock
Transfer & Trust Company, located at 40 Wall Street, New York, NY 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could materially adversely affect the market price of the Common Stock. As
described below, only a limited number of shares will be presently available for
sale shortly after this Offering, due to certain contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of the
Company's Common Stock in the public market or the perception that such sales
could occur after such restrictions lapse could materially adversely affect the
market price of the Common Stock and the ability of the Company to raise equity
capital in the future.
The Company has outstanding 4,139,062 shares of Common Stock, assuming no
exercise of outstanding warrants and options. The 2,296,000 shares of Common
Stock sold by the Company in its initial public offering, the 463,664 Selling
Stockholder's Shares that are to be registered in this Offering and the 105,097
Investors' Shares (subject to the lock-up provisions described below), will be
freely tradable without restriction under the Securities Act, unless purchased
by affiliates of the Company as that term is defined in Rule 144 under the
Securities Act. The Company will not receive any of the proceeds from the sale
of the Selling Stockholder's Shares.
36
<PAGE> 39
The remaining 1,274,301 shares of Common Stock outstanding upon
completion of this Offering will be restricted securities as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration pursuant to Rule 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below. Sales of the
Restricted Shares in the public market, or the availability of such shares for
sale, could materially adversely affect the market price of the Common Stock.
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this Prospectus, a person (or persons whose shares are aggregated) who
has beneficially owned Restricted Shares for at least two years (including the
holding period of any owner other than an affiliate of the Company) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (which will equal approximately 41,390 shares immediately
after this Offering) or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the filing of notice of such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years (including the holding period of any owner other than
an affiliate of the Company), is entitled to sell such shares without regard to
any of the limitations described above.
Any employee, officer or director of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates of the Company to sell their Rule 701 shares under Rule 701 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice requirement of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares. The Company has granted options to purchase an aggregate of 123,600
shares of Common Stock to a total of 80 employees of the Company, pursuant to
its 1996 Incentive and Nonqualified Stock Option Plan (the "Stock Option Plan").
These options vest in equal installments on each of the first four anniversaries
of the date of grant. Shares of Common Stock issued upon exercise of such
options will be Restricted Shares.
Holders of all of the Restricted Shares have entered into contractual
lock-up agreements providing that they will not offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of the shares of stock owned
by them or that could be purchased by them through the exercise of options to
purchase Common Stock of the Company, before June 27, 1998, 24 months after the
date of this Prospectus, without prior written consent of the Representative.
Holders of options to purchase an aggregate of 266,902 shares of Common Stock
have entered into similar contractual lock-up agreements. Taking into account
the lock-up agreements, the restrictions of Rule 144, 144(k) and 701 described
above, Restricted Shares will be eligible for sale beginning June 27, 1998,
unless the Representative permits earlier sales.
The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock before June
27, 1997 without the prior written consent of the Representative, subject to
certain exceptions.
SELLING STOCKHOLDER'S SHARES
The following table sets forth certain information with respect to the
Selling Stockholder.
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholder. Beneficial ownership of Common Stock by the Selling
Stockholder will depend on the number of Selling
37
<PAGE> 40
Stockholder's Shares sold by the Selling Stockholder.
<TABLE>
Shares Owned Shares Offered Shares Owned Percent owned
Name Before Offering Hereby After Offering After Offering
- ---- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Palomar Medical Techologies, Inc. 463,664 463,664 0 0%
</TABLE>
The Selling Stockholder's Shares may be sold from time to time by the
Selling Stockholder, or by pledges, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Selling Stockholder's Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Selling Stockholder's Shares 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; (c) an exchange distribution
in accordance with the rules of such exchange; and (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
effecting sales, brokers or dealers engaged by the Selling Stockholder may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Stockholder in amounts to be
negotiated immediately prior to the sale. The Selling Stockholder, such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any commission received by them and profit on any resale of the
Shares as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to the Prospectus.
Upon the Company being notified by the Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of the
Selling Stockholder's Shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplemented Prospectus will be filed, if required, pursuant to Rule 424(c)
under the Securities Act, disclosing (i) the name of the Selling Stockholder
and of the participating broker-dealer(s), (ii) the number of shares involved,
(iii) the price at which such shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable,
(v) that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this Prospectus and (vi)
other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Stockholder's Shares may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period of at least two (and possibly nine) business days
prior to the commencement of such distribution. Accordingly, in the event that
any person is engaged in a distribution of the Selling Stockholder's Shares, it
will not be able to make a market in the Company's securities during the
applicable restrictive period. In addition, the Selling Stockholder will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by the Selling Stockholder.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The financial statements of the Company at December 31, 1995 and for the
period March 29, 1995 (inception) to December 31, 1995, and the financial
statements of CCC as of December 19, 1995 and December 31, 1994 and for the
period January 1, 1995 through December 19, 1995 and the year ended
38
<PAGE> 41
December 31, 1994, included in this Prospectus and Registration Statement, have
been audited by Feldman Radin & Co., P.C., independent certified public
accountants, as set forth in their reports appearing elsewhere herein, and are
included in reliance upon such reports given on the authority of such firm as
experts in auditing and accounting.
39
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY:
Independent Auditors' Report..................................................... F-2
Consolidated Balance Sheet at December 31, 1995.................................. F-3
Consolidated Statement of Operations for the period March 29, 1995 (inception) to
December 31, 1995............................................................. F-4
Consolidated Statement of Stockholders' Deficit for the period March 29, 1995
(inception) to December 31, 1995.............................................. F-5
Consolidated Statement of Cash Flows for the period March 29, 1995 (inception) to
December 31, 1995............................................................. F-6
Notes to Consolidated Financial Statements....................................... F-7
UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1996 AND 1995:
Condensed Consolidated Balance Sheet at June 30, 1996........................... F-16
Condensed Consolidated Statement of Operations for the three months ended June
30, 1996
and 1995...................................................................... F-17
Condensed Consolidated Statement of Cash Flows for the three months ended
June 30, 1996 and 1995........................................................ F-18
Condensed Consolidated Pro Forma Balance Sheet at June 30, 1996.................. F-19
Notes to Condensed Consolidated Financial Statements............................. F-20
CULVER CITY COMPOSITES CORPORATION:
Independent Auditors' Report..................................................... F-21
Consolidated Balance Sheet at December 19, 1995 and December 31, 1994............ F-22
Consolidated Statement of Operations for the period January 1, 1995 to December
19, 1995 and the year ended December 31, 1994................................. F-23
Consolidated Statement of Stockholders' Equity (Deficit) for the period January
1, 1995 to December 19, 1995 and the year ended December 31, 1994............. F-24
Consolidated Statement of Cash Flows for the period January 1, 1995 to December
19, 1995 and the year ended December 31, 1994................................. F-25
Notes to Consolidated Financial Statements....................................... F-26
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND NOTES THERETO..................... F-33
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The American Materials & Technologies Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of The American
Materials & Technologies Corporation and Subsidiary as of December 31, 1995, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the period March 29, 1995 (inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The American Materials &
Technologies Corporation and Subsidiary as of December 31, 1995, and the results
of its operations and its cash flows for the period March 29, 1995 (inception)
to December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ FELDMAN RADIN & CO., P.C.
--------------------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
February 19, 1996
F-2
<PAGE> 44
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets
Cash.......................................................................... $ 173,517
Accounts receivable, net of allowance for doubtful accounts of $104,000....... 2,427,605
Inventories, net.............................................................. 1,969,310
Prepaid expenses and other current assets..................................... 311,265
----------
Total current assets.................................................. 4,881,697
Property and equipment, net of accumulated depreciation and amortization of
$42,904....................................................................... 4,403,440
Other assets.................................................................... 144,251
----------
$9,429,388
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.............................................................. $2,591,357
Notes payable -- affiliate.................................................... 3,071,757
Accrued liabilities........................................................... 1,555,517
Current portion of term loan -- bank.......................................... 112,000
----------
Total current liabilities............................................. 7,330,631
Term loan -- bank............................................................... 448,000
Revolving credit facility -- bank............................................... 1,715,696
----------
Total liabilities..................................................... 9,494,327
----------
Commitments and contingencies
Stockholders' deficit
Preferred stock, par value $.01, authorized 5,000,000 shares; none issued and
outstanding................................................................ --
Common stock, par value $.01 per share, authorized 15,000,000 shares; issued
and outstanding 1,516,908 shares........................................... 15,169
Additional paid-in capital.................................................... 197,167
Accumulated deficit........................................................... (277,275)
----------
Total stockholders' deficit........................................... (64,939)
----------
$9,429,388
==========
</TABLE>
See notes to the financial statements.
F-3
<PAGE> 45
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 29, 1995 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Net sales........................................................................ $ 616,372
----------
Costs and expenses
Materials...................................................................... 307,799
Fixed and variable manufacturing............................................... 210,396
Selling, general and administrative............................................ 350,418
Research and development....................................................... 6,760
----------
875,373
----------
Loss from operations............................................................. (259,001)
Interest expense................................................................. 18,274
----------
Loss before income taxes......................................................... (277,275)
Provision for income taxes....................................................... --
----------
Net loss......................................................................... $ (277,275)
==========
Net loss per common share........................................................ $ (.18)
==========
Weighted average number of common shares......................................... 1,516,908
==========
</TABLE>
See notes to the financial statements.
F-4
<PAGE> 46
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD MARCH 29, 1995 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON
SHARES TOTAL
OUTSTANDING ADDITIONAL ACCUMULATED STOCKHOLDERS'
PAR VALUE $.01 AMOUNT PAID-IN CAPITAL DEFICIT DEFICIT
-------------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -- MARCH 29, 1995............ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock........... 1,516,908 15,169 118,924 134,093
Issuance of warrant................ 78,243 78,243
Net loss........................... (277,275) (277,275)
--------- ------- -------- --------- ---------
BALANCE -- DECEMBER 31, 1995......... 1,516,908 $15,169 $197,167 $(277,275) $ (64,939)
========= ======= ======== ========= =========
</TABLE>
See notes to the financial statements.
F-5
<PAGE> 47
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 29, 1995 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash provided by operations:
Net loss........................................................................ $ (277,275)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................. 42,904
(Increase) decrease in current assets:
Accounts receivable, net................................................... (51,305)
Inventory.................................................................. (42,558)
Prepaid expenses and other current assets.................................. 4,958
Increase in current liabilities:
Accounts payable........................................................... 763,395
Accrued liabilities........................................................ 9,029
Decrease in other assets...................................................... 802
-------
Net cash provided by operating activities....................................... 449,950
-------
Cash used for investing activities:
Capital expenditures.......................................................... (4,376)
Acquisition of SPS Holdings, Inc. and Subsidiary net of cash acquired of
$29,608.................................................................... (5,657,546)
-------
Net cash used for investing activities.......................................... (5,661,922)
-------
Cash provided by (used for) financing activities:
Proceeds from notes payable -- affiliate and warrant.......................... 3,150,000
Proceeds from bank line of credit............................................. 2,275,696
Loan origination costs........................................................ (174,300)
Proceeds from issuance of common stock........................................ 134,093
-------
Net cash provided by financing activities....................................... 5,385,489
-------
Net increase in cash............................................................ 173,517
Cash at beginning of period..................................................... 0
-------
Cash at end of period........................................................... $ 173,517
=======
Supplementary Information:
Cash paid for interest........................................................ $ --
Cash paid for taxes........................................................... --
</TABLE>
See notes to the financial statements.
F-6
<PAGE> 48
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS
The American Materials & Technologies Corporation (the "Company"), a
holding company, was incorporated in the State of Delaware on March 29, 1995 to
acquire and manage businesses in the advanced materials and technologies
industries. As more fully described in Note 3, the Company completed its first
acquisition on December 19, 1995, when it acquired all of the common stock of
Culver City Composites Corporation ("CCC"), (formerly known as SPS Holdings,
Inc. and Subsidiary). These financial statements contain the results of
operations of the Company's subsidiary for the twelve day period from December
20, 1995 through December 31, 1995.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company maintains its cash in demand deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company does not have any cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market. Cost is
determined by the weighted average method.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method of depreciation over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are
amortized on a straight line basis over the shorter of the useful life of the
improvement or the term of the lease (including tenant options). Expenditures
for maintenance and repairs are expensed when incurred; expenditures for
betterments are capitalized.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and CCC, its wholly owned subsidiary, from the date of acquisition. All
significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenues are recognized at the time of shipment when the earnings process
is considered complete. Reserves are maintained to reflect the estimated
exposure to product returns.
Foreign Currency Transactions
The Company conducts business in a number of different countries, which is,
in all material respects, denominated in U.S. dollars.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109) -- Accounting for Income
Taxes. SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future income tax consequences of events that have been
recognized in the company's financial statements. Under this method, deferred
tax liabilities and assets are
F-7
<PAGE> 49
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
determined based on the temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the temporary differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. See Note 11 for additional information.
Loss Per Common Share
Loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. The effect of
stock options and warrants outstanding has not been included as the effect would
be anti-dilutive.
New Accounting Pronouncement
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" which
requires impairment costs to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the asset's carrying
amount. The Company will adopt Statement No. 121 in the first quarter of 1996
and, based on current circumstances, it does not believe the effect of adoption
will be material.
Stock-Based Compensation
The Company accounts for stock options in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." In accordance with Statement No.
123 of the Financial Accounting Standards Board, "Accounting for Stock Based
Compensation," the Company intends to continue to apply APB Opinion No. 25 for
purposes of determining net income and to adopt the pro forma disclosure
requirements of Statement No. 123 in its annual financial statements for 1996.
Research and Development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from estimates.
Environmental Remediation Costs
The Company's policy is to accrue remediation liabilities when it is
probable that a liability exists and the costs can be reasonably estimated. The
Company's estimates of these costs are based on existing technology, current
enacted laws and regulations, its current legal obligations regarding
remediation and site-specific costs. These liabilities are adjusted when the
effect of new facts or changes in law or technology are determinable. The
Company's liability for environmental remediation totaled $30,000 at December
31, 1995.
F-8
<PAGE> 50
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- BUSINESS ACQUISITION
On December 19, 1995, the Company's wholly owned subsidiary, AMT Sub, Inc.,
acquired all of the outstanding common stock of SPS Holdings, Inc., a company
whose wholly owned subsidiary, Structural Polymer Systems, Inc., manufactures
and markets advanced composite materials for the aerospace and defense
industries utilizing both proprietary and non-proprietary resin systems. The
purchase price of $5,587,154, which includes direct acquisition costs of
$669,180, included a $4,917,974 cash payment to Montecatini U.S.A., Inc. (the
"Seller"), SPS Holdings, Inc.'s owner and parent. The purchase was financed in
part from proceeds received by the Company from the sale of its common stock and
loans obtained from an affiliated party and a bank line of credit and term loan
(see Notes 7 and 9). The purchase agreement provides for certain
indemnifications by the Seller. Following the acquisition, SPS Holdings, Inc.
and its subsidiary merged with AMT Sub, Inc., and AMT Sub, Inc. changed its name
to Culver City Composites Corporation. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the operating results of
Culver City Composites Corporation have been included in the Company's
consolidated financial statements since the date of acquisition.
The following unaudited pro forma summary combines the consolidated results
of the Company and Culver City Composites Corporation as if the acquisition had
occurred at the beginning of 1994 after giving effect to certain pro forma
adjustments, including increased interest expense assuming the acquisition and
related capital contribution and the issuance of acquisition debt at the
beginning of the period, new compensation agreements effected after the close of
the transaction and revisions to the useful lives and depreciable bases of the
assets.
Prior to the acquisition on December 19, 1995, the operations of the
Company consisted solely of identifying and negotiating target acquisitions. No
changes were made to the Company's historical results during the stand alone
period.
The pro forma results are for illustrative purposes only, and do not
purport to be indicative of the actual results which would have occurred had the
transaction been consummated as of those earlier dates, nor are they indicative
of results of operations which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales........................................ $15,916,000 $15,943,000
Net loss......................................... 618,000 1,740,000
Loss per common share............................ $ (.41) $ (1.15)
</TABLE>
The purchase included, at fair value, current assets of $4,575,142,
property, plant and equipment of $4,346,344, other assets of $45,736, and the
assumption of liabilities of $2,869,453.
NOTE 4 -- STOCK DIVIDEND
On February 5, 1996, the Company issued a stock dividend of 1.1591612 new
shares for each old share. All references to amounts per share and number of
shares have been adjusted to give retroactive effect to this transaction.
F-9
<PAGE> 51
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INVENTORIES
Inventories consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Raw Materials.................................................... $1,166,801
Work-in-process.................................................. 802,509
----------
$1,969,310
==========
</TABLE>
Because manufactured product is shipped to the customer upon completion of
the manufacturing process, no substantial inventory of finished goods is
maintained.
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Machinery and equipment.......................................... $2,856,669
Leasehold improvements........................................... 1,453,288
Computers........................................................ 31,483
Construction in progress......................................... 104,904
----------
4,446,344
Less accumulated depreciation and amortization................... 42,904
----------
$4,403,440
==========
</TABLE>
NOTE 7 -- NOTES PAYABLE -- AFFILIATE
The Company is obligated under a $3,000,000 promissory note to a company in
which the Company's Chairman is an officer and director (the "Lender"). The
note, maturing on December 31, 1996, bears interest at the rate of 10% per
annum. The entire outstanding principal together with interest accrued thereon
matures on the earlier of (a) December 31, 1996 or (b) successful completion of
an initial public offering of the Company's common stock. The note can be
prepaid without premium or penalty, in whole or in part at any time.
The Company is obligated under a $150,000 promissory note to a company in
which the Company's Chairman is an officer and director. The note, maturing on
December 31, 1996 bears interest at the rate of 10% per annum. The entire
outstanding principal together with interest accrued thereon shall be paid on
the maturity date. The note is collaterized by specific accounts receivable and
the note is to be prepaid from time to time, until paid in full, and when the
net cash proceeds of these specific accounts receivable are received by the
Company. The note contains default provisions providing for Notice of Default
and its curing within a sixty day period.
If the $3,000,000 promissory note is not paid on or before October 11, 1996
the Company is required to issue a warrant to purchase 289,790 shares of its
common stock at $1.29 per share, (or such greater number of shares at such other
exercise prices as shall result from appropriate adjustment for dilutive events)
to the holder of the promissory note. If the note is not paid on or before
January 31, 1997, the Company shall deliver a warrant to purchase 173,874 shares
of its common stock at $1.29 per share (or such greater number of shares at such
other exercise prices as shall result from appropriate adjustment for dilutive
events) to the holder of the promissory note.
F-10
<PAGE> 52
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- NOTES PAYABLE -- AFFILIATE -- (CONTINUED)
In the event that the note is not prepaid or paid on the maturity date,
then the entire outstanding principal amount of the note and all interest
accrued thereon is required to be converted into a 15% cumulative preferred
stock. Among other things, the preferred stock will provide that 1) if it is not
redeemed after one year of issuance, each month thereafter the Company shall
issue to the preferred stockholder a number of shares equal to 10% of its then
issued and outstanding shares of common stock until the preferred stock is
redeemed and 2) the holders of preferred stock may elect at least one member of
the board of directors of the Company.
This note and the rights and remedies of the holder of the note, and the
terms of the Preferred Stock, are subject to the terms and conditions of a
subordination agreement dated December 19, 1995 between the Company and the bank
providing the credit facility (see Note 9).
Certain stockholders of the Company have entered into a Pledge Agreement
with the holder of the promissory note pledging their stock and all proceeds
thereon, as collateral.
For the period December 20, 1995 through December 31, 1995, the amount of
interest charged to operations under these notes was $9,625.
In conjunction with the $3,000,000 note, on December 19, 1995, the Company
issued a warrant to purchase 289,790 shares of the Company's stock at $1.29 per
share to a company in which the Company's Chairman is an officer and director.
The warrant may be exercised in whole or in part and expires December 31, 2005.
The warrant purchase price may be adjusted based on the dilutive effects of
further stock sales. A value of $78,243 was assigned to the warrant.
NOTE 8 -- ACCRUED LIABILITIES
Amounts in accrued liabilities at December 31, 1995 were as follows:
<TABLE>
<S> <C>
Amounts due to employees......................................... $ 481,451
Liability for idle facilities.................................... 267,471
Amounts due others............................................... 646,595
Due to affiliates................................................ 160,000
----------
$1,555,517
==========
</TABLE>
NOTE 9 -- CREDIT FACILITIES
On December 19, 1995, Culver City Composites Corporation entered into a
Loan and Security Agreement providing for a revolving credit facility of
$4,440,000 and a term loan in the amount of $560,000. The credit facility's
original term runs through the third anniversary of the closing date and is
automatically renewable from year to year thereafter. Interest is charged on the
revolving note at the annual rate of 1 1/2% above the prime rate. The revolving
credit facility also provides for Letters of Credit aggregating up to $750,000.
A fee of 1% per annum is to be paid on the aggregate undrawn face amount of all
outstanding Letters of Credit. A fee of 1/2 of 1% per annum is charged on the
unused portion of the revolving credit facility. The Loan and Security Agreement
requires, among other things, the company to maintain certain financial
covenants including tangible net worth, interest coverage and debt service
coverage ratios, and restrictions on capital expenditures. The credit facility
is secured by substantially all of the assets of the Company. Closing costs
charged by the bank in connection with the credit facility of $67,000 are
included in loan origination costs on the Company's balance sheet and are being
amortized over a period of three years. For the period December 20, 1995 to
December 31, 1995, the amount of interest charged to operations under the
facility was $8,599. The effective annual interest rates on the term and
revolving notes for the period from December 20, 1995 to December 31, 1995 were
10.0% and 10.5%, respectively. As mentioned above, the credit facility
F-11
<PAGE> 53
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- CREDIT FACILITIES -- (CONTINUED)
provides for a term loan of $560,000 and is evidenced by a term note. The term
note bears interest at the annual rate of 1 1/2% above the prime rate and is
payable in successive monthly installments on the first day of each month based
on an amortization schedule of sixty equal and level payments. The entire unpaid
principal balance of the term loan is due upon the expiration of the original
term of the Loan and Security Agreement or of the expiration of the renewal
period. Should expiration occur at the 36th or 48th month, the Company is to pay
eleven monthly installments equal to the amounts paid during the original term
followed by a final installment payable equal to the then unpaid principal
balance upon the renewal date. The Company guarantees to the bank the amounts
borrowed under the credit facility, and under the terms of a Stock Pledge
Agreement with the bank, has pledged the stock and all additional shares of
stock or other securities at any time issued by CCC.
Annual maturities of the term note are as follows:
<TABLE>
<S> <C>
1996...................................................... $112,000
1997...................................................... 112,000
1998...................................................... 336,000
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its principal manufacturing and office facilities under
non-cancellable operating leases with lease terms of up to ten years expiring
through the year 2006. The leases generally provide for the lessee to pay taxes,
maintenance, insurance, and certain other operating costs of the leased
property. The leases on most of the properties contain renewal provisions and
certain base rents are subject to annual increases determined by indexing.
Minimum future lease payments on operating lease commitments are
approximately:
<TABLE>
<S> <C>
1996..................................................... $ 756,619
1997..................................................... 625,551
1998..................................................... 578,768
1999..................................................... 573,072
2000..................................................... 573,072
Thereafter............................................... 3,014,384
</TABLE>
Rent expense for the period March 29, 1995 through December 31, 1995
amounted to approximately $18,467. Included in commitments are lease payments of
$170,856 and $42,714 for 1996 and 1997, respectively, which were accrued as part
of the loss on idle facility at December 31, 1994.
Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers expiring on March 24, 1998. The agreements provide for
aggregate annual base compensation of $255,000 per year as well as for incentive
bonuses which are payable upon the attainment of specified management goals.
In addition, the agreements entered into on March 25, 1995 provide for the
issuance of stock options for the purchase of an aggregate of 133,303 shares of
the Company's common stock, which grants will vest in one-third equal
installments on the first, second and third anniversaries of the effective date
of the initial public offering. The options are exercisable for a period
expiring ten years after issuance. The purchase price shall be $0.86 per share,
subject to adjustment in the event of stock dividends, stock splits, or other
adjustment events.
In February, 1996, the Company entered into additional employment contracts
with key employees which expire at various dates. The agreements provide for
annual base compensation of an aggregate of $198,000 per
F-12
<PAGE> 54
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
annum as well as incentive bonuses. One agreement provides for the issuance of
25,000 stock options with an exercise price of $1.00 per share, vesting in equal
increments over a four year period.
Other Matters
Culver City Composites Corporation is involved in certain litigation and
other legal matters which are being defended and handled in the ordinary course
of business. While the ultimate results of the matters described above cannot be
determined, management does not expect that they will have a material adverse
effect on the Company's results of operations or financial position.
NOTE 11 -- INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes". SFAS 109 permits the recognition of a deferred
tax asset if it is more likely than not that the future tax benefit will be
realized. The Company does not recognize a deferred tax asset except to the
extent that future years' deductible items will offset future years' taxable
items or will, as loss carrybacks, generate a refund in the current and two
previous years. Previously, under SFAS 96, the Company treated future years' net
tax deductible items as if they were net operating losses for the years in which
they were expected to occur. The Company reported a tax benefit for these losses
to the extent the losses would generate a tax refund in the current and two
previous years.
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Depreciation.................................................... $ 184,291
----------
Gross deferred tax liabilities.................................. 184,291
----------
Net operating loss carryforwards................................ 1,632,000
Inventory valuation............................................. 166,000
Expense accruals................................................ 92,458
Allowance for bad debts......................................... 64,000
Allowance for loss on idle facility............................. 69,905
Uniform capitalization costs.................................... 12,400
Pensions........................................................ 4,793
----------
Gross deferred tax assets....................................... 2,041,556
----------
Deferred tax asset valuation allowance.......................... 1,857,265
----------
Net deferred tax asset.......................................... $ --
==========
</TABLE>
The Company's effective tax rate is 0% compared to the federal statutory
rate of 34% due to the Company's history of operating losses and the resultant
lack of income from which to guarantee benefits.
At December 31, 1995, the Company had generated net operating loss
carryforwards of approximately $200,000 for federal tax purposes. To the extent
not utilized, the federal net operating loss carryforwards will expire in 2010.
In addition, as the result of the acquisition of Culver City Composites
Corporation on December 19, 1995, the Company had at December 31, 1995,
approximately $32,665,000 of net operating loss carryforwards for federal income
tax purposes which will expire beginning in fiscal year 2011. The utilization of
these net operating losses, which expire from 2002 to 2010 is limited to
approximately $320,000 each year as a result of an "ownership change" (as
defined by Section 382 of the Internal Revenue Code of 1986, as amended) which
occurred on December 19, 1995.
F-13
<PAGE> 55
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
The Company maintains a defined benefit pension plan covering all
bargaining unit employees which provides for monthly benefit payments upon
retirement. The benefits are based on a fixed monthly payment for each year of
credited service. Plan contributions are made in accordance with ERISA
regulations. The plan maintains investments in various pooled funds at a bank.
Net periodic pension costs and net pension liability for the years ended
December 31, 1995 and 1994 are reflected in the December 19, 1995 and December
31, 1994 financial statements of CCC, respectively, and amounted to $31,568 and
$11,982, respectively, and $32,097 and $83,897, respectively. The funded status
of the plan and amounts recognized in the CCC consolidated balance sheets at
December 19, 1995 and December 31, 1994, were based on a valuation date of
August 1.
Because the acquisition of CCC occurred on December 19, 1995, no expense
for the plan was recorded by the Company in its financial statements. The
Company currently carries a minor liability under SFAS 87 on its balance sheet.
The information presented above is intended to assist the reader in identifying
the size, scope and range of costs for the plan.
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO YEAR ENDED
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Service cost for benefits earned.......... $ 23,343 $ 18,852
Interest cost on projected benefit
obligation.............................. 62,195 56,704
Expected return on plan assets............ (56,924) (54,373)
Prior service cost amortization........... 8,639 3,224
Net actuarial (gain) loss assumption...... (5,685) 7,690
-------- --------
Net pension costs......................... $ 31,568 $ 32,097
======== ========
</TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated balance sheet at December 19, 1995 and December
31, 1994, based on a valuation date of August 1:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation........................ $788,440 $ 718,572
Non-vested benefit obligation.................... 416 --
-------- ---------
Projected benefit obligation..................... 788,856 718,572
Plan assets at fair value.......................... 776,874 634,675
-------- ---------
Plan assets less than projected benefit
obligation....................................... (11,982) (83,897)
Unrecognized net (gain) loss....................... (8,305) 94,723
Unrecognized prior service cost.................... 79,838 38,876
Adjustment to recognize minimum liability.......... (71,513) (133,599)
-------- ---------
Net pension liability recognized in the
consolidated balance sheets...................... $(11,962) $ (83,897)
======== ==========
Assumptions used (August 1 measurement date):
Discount rate.................................... 8% 8%
Long term rate of return on plan assets.......... 9% 9%
</TABLE>
F-14
<PAGE> 56
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Defined Contribution Plan
Substantially all non-bargaining unit employees of the Company participate
in a defined contribution plan. The plan contains a matched savings provision
that permits both pretax and after tax employee contributions. Participants can
contribute up to 12% of their annual salary and receive a matching contribution
from the employer according to the provisions of the plan document. The defined
contribution plan expense was $2,200 for the period December 20, 1995 through
December 31, 1995.
NOTE 13 -- CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments subject to credit risk are primarily
trade accounts receivable and cash. Cash is held in a United States bank.
Generally, the Company does not require collateral or other security to support
customer receivables. The majority of the Company's business is conducted with
major aerospace and defense companies and their subcontractors.
NOTE 14 -- SUBSEQUENT EVENTS
On February 6, 1996, the Company approved and adopted The American
Materials & Technologies Corporation's 1996 Incentive and Nonqualified Stock
Option Plan. The total number of shares that may be issued pursuant to options
granted under the Plan shall not exceed 350,000 shares of common stock. Whenever
any outstanding option under the Plan expires, is cancelled or is otherwise
terminated (other than by exercise), the shares of common stock allocated to the
unexercised portion of such option may again be the subject of options under the
Plan.
Incentive stock options under the Plan may be granted only to officers and
other employees of the Company or its subsidiaries, and to consultants or other
persons who provide services to the Company or its subsidiaries. No Incentive
Stock Option shall be granted to an individual who owns more than 10% of the
combined power of all classes of stock of the Company or its subsidiaries unless
the Incentive Stock Option provides that (i) the purchase price per share shall
not be less than 110% of the fair market value of the common stock at the time
such option is granted and (ii) that such option shall not be exercisable to any
extent after the expiration of five years from the date it was granted. The
purchase price per share under each option, other than for a greater than 10%
stockholder, shall be determined by the Board or Committee at the time the
option is granted. Each option agreement is subject to its own terms.
F-15
<PAGE> 57
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and short term investments $ 4,622,535
Accounts receivable, net of allowance of $123,965 3,812,692
Inventories 1,846,024
Prepaid expenses and other current assets 587,971
-----------
Total current assets 10,869,222
-----------
Property and equipment, less accumulated depreciation and amortization of $470,772 4,111,655
Other assets 271,562
-----------
$15,252,439
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,823,876
Notes payable-affiliate
Accrued liabilities 1,911,942
Current portion of term loan-bank 112,000
Taxes payable 242,101
-----------
Total current liabilities 4,089,919
-----------
Term loan-bank 364,001
Revolving credit facility-bank
-----------
Total liabilities 4,453,920
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share, authorized 5,000,000 shares; none issued
and outstanding
Common stock, par value $0.01 per share, authorized 15,000,000; issued
and outstanding 3,849,272 38,493
Additional paid-in capital 10,399,732
Retained earnings 360,294
-----------
Total stockholders' equity 10,798,519
-----------
$15,252,439
===========
</TABLE>
F-16
<PAGE> 58
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------------------------------------------
September 30, 1996 September 30,1995 September 30, 1996 September 30,1995
Combined (Note 1) Combined (Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $5,735,353 $4,062,524 $16,404,301 $12,033,099
--------------------------------------------------------------------------------
Costs and expenses
Materials 2,936,202 2,051,877 8,136,896 5,692,316
Fixed and variable 1,380,484 1,491,852 4,128,565 4,336,801
manufacturing
Selling, general and 937,971 651,399 2,537,095 1,879,405
administrative
Research and development 130,379 76,901 331,479 236,965
--------------------------------------------------------------------------------
5,385,036 4,272,029 15,134,035 12,145,487
--------------------------------------------------------------------------------
Income from operations 350,317 (209,505) 1,270,266 (112,388)
Interest income (70,362) (70,362)
Interest expense 33,644 160,104 402,797 584,499
--------------------------------------------------------------------------------
Income (loss) before income taxes 387,035 (369,609) 937,831 (696,887)
Provision for income taxes 87,402 252,641
--------------------------------------------------------------------------------
Income (loss) before $ 299,633 $ (369,609) $ 685,190 $ (696,887)
extraordinary item
--------------------------------------------------------------------------------
Extraordinary loss on early 28,586 $ 28,586
extinguishment of debt
Net income $ 271,047 $ (369,609) $ 656,604
===================================================================================================================
Per share:
Income before extraordinary loss $ 0.08 $ 0.27
Extraordinary loss $ 0.01 $ 0.01
Net income $ 0.07 $ 0.26
Weighted average number of common 3,873,515 2,552,091
shares
</TABLE>
F-17
<PAGE> 59
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, 1996 September 30, 1995
Combined (Note 1)
--------------------------------------
<S> <C> <C>
Cash used in operations:
Net income (loss) $ 656,604 $(696,887)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 408,849 953,731
Non-cash interest expense 78,247 --
(Increase) decrease in current assets:
Accounts receivable (1,385,087) (634,972)
Inventory 123,286 (58,948)
Prepaid expenses and other current assets (276,706) 382,837
Other assets (127,311)
Increase (decrease) in current liabilities:
Accounts payable (767,481) 183,131
Accrued liabilities 356,425 (434,594)
Taxes payable 242,101 --
Decrease in other assets (30,740)
----------- ----------
Net cash used in operating activities: (691,073) (336,442)
----------- ----------
Cash used for investing activities:
Capital expenditures (136,083) (139,723)
----------- ----------
Net cash used for investing activities (136,083) (139,723)
----------- ----------
Cash provided by financing activities:
Repayment of Note-payable affiliate (3,150,000)
Borrowings under revolving credit 3,013,280 696,386
Repayments under revolving credit (4,728,996) (290,297)
Payment of term loan-bank (83,999) --
Proceeds from issuance of common stock 10,225,889 50,000
----------- ----------
Net cash provided by financing activities 5,276,174 456,089
----------- ----------
Net decrease in cash 4,449,018 (20,076)
Cash at beginning of period 173,517 109,586
----------- ----------
Cash at end of period $ 4,622,535 $ 89,510
=========== ==========
Supplementary Information
Cash paid for interest $ 363,677 $ 132
Cash paid for taxes $ 3,200 $ 800
</TABLE>
F-18
<PAGE> 60
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The information contained in these unaudited consolidated financial
statements is condensed from that which would appear in the Company's annual
consolidated financial statements. Accordingly, the condensed consolidated
financial statements included herein should be reviewed in conjunction with the
consolidated financial statements of December 31, 1995. The unaudited condensed
consolidated financial statements as of September 30, 1996 and 1995 and for the
quarterly and nine month periods then ended include all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation.
The results of operations for interim periods are not necessarily indicative of
the results which may be expected for the entire year. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
The results of operations and cash flows for the periods ended
September 30, 1995 represent those of Culver City Composites Corporation prior
to its acquisition by the Company combined with the results of the Company
during the same period. There were no intercompany transactions.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of outstanding common stock and dilutive common stock equivalents from
the assumed exercise of stock options and warrants.
3. SALE OF COMMON STOCK
On July 5, 1996 the Company completed an initial public offering
("IPO") for the sale of 2,000,000 shares of its common stock at $5.50 per share.
Subsequently, on July 26, 1996, the underwriter exercised an IPO related option
to purchase an additional 296,000 shares at $5.50 per share. The proceeds were
used to repay the outstanding loans under the Revolving Facility and repay loans
of $3,150,000 and interest of $172,000 to an affiliate. The Company may reborrow
as needed under the Revolving Facility. The remaining funds have been invested
in short term investment grade securities pending their use to fund potential
acquisitions and capital expenditures. The Company's common stock is traded on
both the Nasdaq SmallCap Market (symbol "AMTK") and the Pacific Stock Exchange
(symbol "MTK"). On July 30, 1996 the Company sold to a director of the Company
11,364 shares for a total consideration of $50,001.60.
F-19
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Culver City Composites Corporation (formerly known as SPS Holdings, Inc.) and
Subsidiary
We have audited the accompanying consolidated balance sheet of Culver City
Composites Corporation (formerly known as SPS Holdings, Inc.) and Subsidiary as
of December 19, 1995 and December 31, 1994, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
period January 1, 1995 to December 19, 1995 and the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Culver City Composites
Corporation and Subsidiary as of December 19, 1995 and December 31, 1994, and
the results of its operations and its cash flows for the period January 1, 1995
to December 19, 1995 and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
By: /s/ FELDMAN RADIN & CO., P.C.
-----------------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
February 9, 1996
F-21
<PAGE> 62
CULVER CITY COMPOSITES CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash.......................................................... $ 29,608 $ 109,586
Accounts receivable, net of allowance for doubtful accounts of
$104,000 and $500,000, respectively........................ 2,376,300 2,193,678
Inventories................................................... 1,926,752 1,294,772
Prepaid expenses and other current assets..................... 242,482 693,690
------------ ------------
Total current assets.................................. 4,575,142 4,291,726
Property and equipment, net of accumulated depreciation and
amortization of $5,415,983 and $4,201,934, respectively....... 4,328,005 5,379,231
Other assets.................................................... 45,736 515,610
------------ ------------
$ 8,948,883 $ 10,186,567
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Accounts payable.............................................. $ 2,258,438 $ 2,092,479
Line of credit -- parent company.............................. -- 12,098,172
Accrued liabilities........................................... 840,423 1,405,257
------------ ------------
Total current liabilities............................. 3,098,861 15,595,908
------------ ------------
Commitments and contigencies
Stockholder's equity (deficit)
Common stock, par value $.01 per share,
authorized 1,000 shares; issued and outstanding 116
shares................................................... 1 1
Additional paid-in capital.................................... 61,622,590 49,283,511
Deficit....................................................... (55,772,569) (54,692,853)
------------ ------------
Total stockholder's equity (deficit).................. 5,850,022 (5,409,341)
------------ ------------
$ 8,948,883 $ 10,186,567
============ ============
</TABLE>
See notes to the financial statements.
F-22
<PAGE> 63
CULVER CITY COMPOSITES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO YEAR ENDED
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Net sales...................................................... $15,299,977 $15,943,341
----------- -----------
Costs and expenses
Materials.................................................... 7,351,665 7,552,104
Fixed and variable manufacturing............................. 5,688,480 6,286,058
Selling, general and administrative.......................... 2,424,354 2,580,137
Research and development..................................... 330,694 305,692
----------- -----------
15,795,193 16,723,991
----------- -----------
Loss from operations........................................... (495,216) (780,650)
Other expense
Interest expense............................................. 584,500 567,403
Loss on idle facilities...................................... -- 500,600
Other........................................................ -- 476,347
----------- -----------
Loss before income taxes....................................... (1,079,716) (2,325,000)
Provision for income taxes..................................... -- --
----------- -----------
Net loss....................................................... $(1,079,716) $(2,325,000)
=========== ===========
</TABLE>
See notes to the financial statements.
F-23
<PAGE> 64
CULVER CITY COMPOSITES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON TOTAL
SHARES STOCKHOLDER'S
OUTSTANDING ADDITIONAL EQUITY
PAR VALUE $.01 AMOUNT PAID-IN CAPITAL DEFICIT (DEFICIT)
--------------- ------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1993...... 116 $1 $49,283,511 $(52,367,853) $(3,084,341)
Net loss........................ (2,325,000) (2,325,000)
--- -- ----------- ------------ -----------
BALANCE -- DECEMBER 31, 1994...... 116 1 49,283,511 (54,692,853) (5,409,341)
Net loss........................ (1,079,716) (1,079,716)
Capital contribution............ 12,339,079 -- 12,339,079
--- -- ----------- ------------ -----------
BALANCE -- DECEMBER 19, 1995...... 116 $1 $61,622,590 $(55,772,569) $ 5,850,022
=== = =========== ============ ===========
</TABLE>
See notes to the financial statements.
F-24
<PAGE> 65
CULVER CITY COMPOSITES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO YEAR ENDED
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Cash used in operations:
Net loss..................................................... $(1,079,716) $(2,325,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,214,049 1,263,617
Decrease (increase) in current assets:
Accounts receivable, net................................ (182,622) 54,353
Inventories............................................. (631,980) (384,028)
Prepaid expenses and other current assets............... 451,208 (476,662)
Note receivable......................................... -- (475,000)
Other assets............................................ (5,126) 106,401
Increase (decrease) in current liabilities:
Accounts payable........................................ 165,959 351,107
Accrued liabilities..................................... (564,242) 320,571
Assets held for sale.................................... -- 2,110,190
Accrued loss on disposal................................ -- (1,629,548)
----------- -----------
Net cash used in operating activities.......................... (632,470) (1,083,999)
----------- -----------
Cash provided by (used in) investment activities:
Capital expenditures......................................... (162,823) (108,113)
Proceeds from sale of property and equipment................. -- 381,995
Loss on sale of assets....................................... -- 34,730
----------- -----------
(162,823) 308,612
----------- -----------
Cash provided by financing activities:
Borrowings under line of credit -- parent company............ 695,794 877,250
Repayments of borrowings under line of credit -- parent
company................................................... (290,297) --
Capital contribution......................................... 309,818 --
----------- -----------
715,315 877,250
----------- -----------
Net increase (decrease) in cash................................ (79,978) 101,863
Cash at beginning of period.................................... 109,586 7,723
----------- -----------
Cash at end of period.......................................... $ 29,608 $ 109,586
=========== ===========
</TABLE>
See notes to the financial statements.
F-25
<PAGE> 66
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS
Culver City Composites Corporation (the "Company"), a wholly owned
subsidiary of Montecatini USA, Inc., until December 19, 1995, was incorporated
in the State of Delaware in June, 1991 to acquire the assets of the Composites
Division of Ferro Corporation. The Company develops, manufactures and markets
advanced composite materials for the aerospace, defense and transportation
industries utilizing both proprietary and non-proprietary resin systems. The
Company's products are sold both in the United States and in various foreign
countries. On December 19, 1995, all of the Company's outstanding stock was
acquired for cash by The American Materials & Technologies Corporation.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company maintains its cash in demand deposit accounts at a bank which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company does not have any cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market. Cost is
determined by the weighted average method.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method of depreciation over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are
amortized on a straight line basis over the shorter of the useful life of the
improvement or the term of the lease (including tenant options). Expenditures
for maintenance and repairs are expensed when incurred; expenditures for
betterments are capitalized.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and Structural Polymer Systems, Inc., its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenues are recognized at the time of shipment when the earnings process
is considered complete. Reserves are maintained to reflect the estimated
exposure to product returns.
Foreign Currency Transactions
The Company conducts business in a number of different countries which is,
in all material respects, denominated in U.S. dollars.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109) -- Accounting for Income
Taxes. SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future income tax consequences of events that have been
recognized in the company's financial statements.
F-26
<PAGE> 67
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Under this method, deferred tax liabilities and assets are determined based
on the temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the temporary differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. See Note 7 for additional information.
For calendar year 1994 and the period January 1, 1995 to December 19, 1995,
the Company was a participant in the filing of the Montecatini USA, Inc.
consolidated federal tax return.
New Accounting Pronouncement
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" which requires impairment costs to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. The Company will adopt Statement No. 121 in the
first quarter of 1996 and, based on current circumstances, it does not believe
the effect of adoption will be material.
Research and Development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from estimates.
Environmental Remediation Costs
The Company's policy is to accrue environmental remediation liabilities
when it is probable that a liability exists and the costs can be reasonably
estimated. The Company's estimates of these costs are based on existing
technology, current enacted laws and regulations, its current legal obligations
regarding remediation and site-specific costs. These liabilities are adjusted
when the effect of new facts or changes in law or technology are determinable.
The Company's liability for environmental remediation totaled $30,000 at
December 19, 1995.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Raw Materials..................................... $1,092,659 $ 642,121
Work-in-process................................... 834,093 652,651
---------- ----------
$1,926,752 $1,294,772
========== ==========
</TABLE>
Because manufactured product is shipped to the customer upon completion of
the manufacturing process, no substantial inventory of finished goods is
maintained.
F-27
<PAGE> 68
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Machinery and equipment........................... $7,110,777 $7,071,645
Leasehold improvements............................ 2,351,894 2,351,894
Computers......................................... 176,414 157,626
Construction in Progress.......................... 104,903 --
---------- ----------
9,743,988 9,581,165
Less accumulated depreciation and amortization.... 5,415,983 4,201,934
---------- ----------
$4,328,005 $5,379,231
========== ==========
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
Amounts in accrued liabilities at December 19, 1995 and December 31, 1994
were as follows:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Amounts due to employees.......................... $384,795 $ 202,256
Liability for idle facility....................... 267,471 450,600
Amounts due others................................ 188,157 524,401
Due to affiliates................................. -- 228,000
-------- ----------
$840,423 $1,405,257
======== ==========
</TABLE>
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases its principal manufacturing and office facilities under
non-cancellable operating leases with lease terms of up to ten years expiring
through the year 2005. The leases generally provide for the lessee to pay taxes,
maintenance, insurance and certain other operating costs of the leased property.
The leases on most of the properties contain renewal provisions and certain base
rents are subject to annual increases determined by indexing.
Minimum future lease payments on operating lease commitments are
approximately:
<TABLE>
<S> <C>
1996............................................. $ 756,619
1997............................................. 625,551
1998............................................. 578,768
1999............................................. 573,072
2000............................................. 573,072
Thereafter....................................... 3,014,384
</TABLE>
Rent expense for the period January 1, 1995 through December 19, 1995 and
the year ended December 31, 1994 amounted to approximately $653,043 and
$841,893, respectively. Included in commitments are lease payments of $170,856
and $42,714 for 1996 and 1997, respectively, which were accrued as part of the
loss on idle facility at December 31, 1994.
F-28
<PAGE> 69
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Other Matters
The Company was involved in certain litigation and other legal matters in
1995 and 1994 which are being defended and handled in the ordinary course of
business. While the ultimate results of the matters described above cannot be
determined, management does not expect that they will have a material adverse
effect on the Company's results of operations or financial position.
Litigation Settlement
In 1994, the Company settled a lawsuit involving a former employee of the
Company for $450,000. This amount was expensed in 1994 when the settlement was
made and is included in other expense.
NOTE 7 -- INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes" effective
December 31, 1993. SFAS 109 permits the recognition of a deferred tax asset if
it is more likely than not that the future tax benefit will be realized. the
Company does not recognize a deferred tax asset except to the extent that future
years' deductible items will offset future years' taxable items or will, as loss
carrybacks, generate a refund in the current and two previous years. Previously,
under SFAS 96, the Company treated future years' net tax deductible items as if
they were net operating losses for the years in which they were expected to
occur. The Company reported a tax benefit for these losses to the extent the
losses would generate a tax refund in the current and two previous years.
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Depreciation.................................... $ 181,891 $ 370,800
---------- ----------
Gross deferred tax liabilities.................. 181,891 370,800
---------- ----------
Net operating loss carryforwards................ 1,632,000 1,265,000
Inventory valuation............................. 166,000 104,000
Expense accruals................................ 92,458 80,902
Allowance for bad debts......................... 64,000 224,000
Allowance for loss on idle facility............. 69,905 140,240
Uniform capitalization costs.................... 12,400 12,400
Pensions........................................ 4,793 33,559
---------- ----------
Gross deferred tax assets....................... 2,041,556 1,860,101
---------- ----------
Deferred tax asset valuation allowance.......... 1,859,665 1,489,301
---------- ----------
Net deferred tax asset.......................... $ -- $ --
========== ==========
</TABLE>
The change in the valuation allowance from December 31, 1993 to December
31, 1994 was $756,000 and from December 31, 1994 to December 19, 1995 was
$370,364.
At December 19, 1995 and December 31, 1994, for federal income tax
purposes, the Company had net operating loss carryforwards of approximately
$32,450,000 and $31,470,000, respectively which will expire beginning in fiscal
year 2000. Certain changes in stock ownership can result in a limitation on the
amount of net operating loss carryforwards that can be utilized in each year.
The Company determined it has undergone
F-29
<PAGE> 70
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
such an ownership change. Consequently, utilization of net operating loss
carryforwards will be limited to approximately $320,000 per year.
NOTE 8 -- DISCONTINUED OPERATIONS
In August, 1993, the Company's owner, Montecatini USA, Inc. (the "Parent")
decided to divest SPS Holdings, Inc. and its wholly owned subsidiary, Structural
Polymer Systems, Inc. In connection with this plan, Structural Polymer Systems,
Inc. received a letter of intent from Reinhold Industries, Inc. to acquire the
assets of its Compositair Division in December, 1993. This sale was consummated
on May 14, 1994.
The terms of sale included placing a portion of the purchase price in an
escrow account for a period of one year from the close. This amount, subject to
determination by a formula within the asset purchase agreement, was $376,082 and
was paid to Structural Polymer Systems, Inc. in May, 1995. This amount is
included in prepaid expenses and other current assets at December 31, 1994.
The terms of sale also included a $475,000, 6% interest bearing promissory
note due on May 14, 1996. Both principal and interest are due at maturity. This
note was assigned to Montecatini U.S.A., Inc., on September 25, 1995 in partial
satisfaction of balances due to them. This note is included in other assets at
December 31, 1994. Structural Polymer Systems, Inc. completed its disposal plan
during 1994.
NOTE 9 -- RELATED PARTY TRANSACTIONS
Line of Credit -- Parent Company
The Company maintained a revolving credit facility with its Parent,
Montecatini USA, Inc. in the amount of $12,000,000 through September 25, 1995.
At December 31, 1994, outstanding borrowings under this line of credit were
$12,098,172. The credit facility carried interest at negotiated rates,
principally ranging from 6.63% to 6.94% for the period January 1, 1995 to
September 25, 1995 and 3.84% to 6.875% for the year ended December 31, 1994.
There are no commitment fees for unused credit facility. The weighted average
interest rate on the credit facility for the period from January 1, 1995 to
September 25, 1995 was 6.8%. On September 25, 1995 the Parent contributed all
outstanding amounts due under this credit facility to equity and cancelled the
facility.
Other Related Party Transactions
During 1994, the Company sold, at the direction of Montecatini S.p.A.,
certain machinery and equipment with a net book value of approximately $416,000
to Structural Polymer Systems Ltd., (a foreign subsidiary of Montecatini S.p.A),
realizing a loss of approximately $35,000.
The Company paid management charges of $200,000 to Tencara S.p.A. (a
foreign subsidiary of Montecatini S.p.A.) for the year ended December 31, 1994.
During 1994, Montecatini S.p.A. billed Structural Polymer Systems, Inc.
$65,000 for the use of the Montecatini Advanced Materials name.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
The Company maintains a defined benefit pension plan covering all
bargaining unit employees which provides for monthly benefit payments upon
retirement. The benefits are based on a fixed monthly payment for each year of
credited service. Plan contributions are made in accordance with ERISA
regulations. The plan maintains investments in various pooled funds at a bank.
F-30
<PAGE> 71
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO YEAR ENDED
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Service cost for benefits earned............... $ 23,343 $ 18,852
Interest cost on projected benefit
obligation................................... 62,195 56,704
Expected return on plan assets................. (56,924) (54,373)
Prior service cost amortization................ 8,639 3,224
Net actuarial (gain) loss assumption........... (5,685) 7,690
-------- --------
Net pension costs.............................. $ 31,568 $ 32,097
======== ========
</TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated balance sheet at December 19, 1995 and December
31, 1994, based on a valuation date of August 1:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................ $788,440 $ 718,572
Non-vested benefit obligation.................... 416 --
-------- ---------
Projected benefit obligation..................... 788,856 718,572
Plan assets at fair value.......................... 776,874 634,675
-------- ---------
Plan assets less than projected benefit
obligation....................................... (11,982) (83,897)
Unrecognized net (gain) loss....................... (8,305) 94,723
Unrecognized prior service cost.................... 79,838 38,876
Adjustment to recognize minimum liability.......... (71,513) (133,599)
-------- ---------
Net pension liability recognized in the
consolidated balance sheets...................... $(11,962) $ (83,897)
======== =========
Assumptions used (August 1 measurement date):
Discount rate.................................... 8% 8%
Long term rate of return on plan assets.......... 9% 9%
</TABLE>
The net pension liability was recognized in accrued liabilities in the
consolidated balance sheet.
Defined Contribution Plan
Substantially all non-bargaining unit employees of the Company participate
in a defined contribution plan. The plan contains a matched savings provision
that permits both pretax and after tax employee contributions. Participants can
contribute up to 12% of their annual salary and receive a matching contribution
from the employer according to the provisions of the plan document.
The defined contribution plan expense was $52,000 for the period from
January 1, 1995 to December 19, 1995 and $59,000 for the year ended December 31,
1994.
F-31
<PAGE> 72
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments subject to credit risk are primarily
trade accounts receivable and cash. Cash is held in a United States bank.
Generally, the Company does not require collateral or other security to support
customer receivables.
The majority of the Company's business is conducted with major aerospace
and defense companies, and their subcontractors which constitute a single
segment of business. In 1995, two customers accounted for approximately 30% of
the Company's sales. In 1994, two customers accounted for 31% of the Company's
sales. No other customer accounted for 10% or more of the Company's sales in
either year.
The Company's sales by geographic locations are summarized in the table
below:
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
United States..................................... $13,110,789 $14,010,721
Germany........................................... 797,299 1,066,081
Other foreign countries........................... 1,391,889 866,539
</TABLE>
NOTE 12 -- CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD JANUARY 1,
1995 TO YEAR ENDED
DECEMBER 19, DECEMBER 31,
1995 1994
----------------- ------------
<S> <C> <C>
Supplemental disclosures of non-cash financing
activities:
Contribution of borrowings under line of
credit -- parent company to capital........ $12,029,728 $ --
Assignment of Note Receivable to parent
company.................................... 475,000
Supplemental disclosures of cash flow:
Cash paid for interest........................ $ 132 $ --
Cash paid for taxes........................... 800 800
</TABLE>
F-32
<PAGE> 73
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying unaudited consolidated pro forma statement of operations
of The American Materials & Technologies Corporation and Subsidiary (the
"Company") as of December 31, 1995 is derived from the Company's historical
financial statements at that date, and gives pro forma effect to the acquisition
of Culver City Composites Corporation ("CCC") as if the acquisition occurred on
January 1, 1995.
The unaudited pro forma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the
companies been together at the beginning of the year ended December 31, 1995,
nor may they be indicative of future operations. This unaudited pro forma
consolidated statement of operations should be read in conjunction with the
companies' respective historical financial statements and notes thereto.
F-33
<PAGE> 74
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THE AMERICAN
MATERIALS &
TECHNOLOGIES
CORPORATION CULVER CITY PRO FORMA ADJUSTMENTS
AND COMPOSITES -------------------------
SUBSIDIARY CORPORATION COMBINED DR CR PRO FORMA
------------ ------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $ 616,372 $15,299,977 $15,916,349 $ $ $15,916,349
Cost of sales......................... 518,195 13,040,145 13,558,340 129,780(2) 84,527(1) 12,900,068
472,666(5) 1,176,191(5)
--------- ----------- ----------- ---------- ---------- -----------
Gross profit.......................... 98,177 2,259,832 2,358,009 602,446 1,260,718 3,016,281
Operating expenses
Selling, general and administrative
expenses.......................... 350,418 2,424,354 2,774,772 86,557(2) 130,212(1) 2,705,475
47,026(5) 72,668(5)
Research and development............ 6,760 330,694 337,454 8,094(5) 329,360
--------- ----------- ----------- ---------- ---------- -----------
Total operating expenses...... 357,178 2,755,048 3,112,226 133,583 210,974 3,034,835
--------- ----------- ----------- ---------- ---------- -----------
Loss from operations.................. (259,001) (495,216 ) (754,217) 736,029 1,471,692 (18,554)
Interest expense...................... (18,274) (584,500 ) (602,774) 630,788(4) 634,049(3) (599,513)
--------- ----------- ----------- ---------- ---------- -----------
Loss before income taxes.............. (277,275) (1,079,716 ) (1,356,991) 1,366,817 2,105,741 (618,067)
Provision for income taxes............ -- -- -- -- -- --
--------- ----------- ----------- ---------- ---------- -----------
Net loss.............................. $(277,275) $(1,079,716 ) $(1,356,991) $1,366,817 $2,105,741 $ (618,067)
========= =========== =========== ========== ========== ===========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma consolidated statement of operations has been
prepared to reflect the acquisition of Culver City Composites Corporation
("CCC") as if it occurred on January 1, 1995. The acquisition has been accounted
for under the purchase method of accounting.
The following is a summary of adjustments reflected in the accompanying
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1995:
(1) Represents the elimination of the salary of certain employees whose
services were terminated after the acquisition.
(2) Represents the adjustment to give effect to a full year of officers'
compensation.
(3) Represents the elimination of interest expense on loan from parent
company.
(4) Represents interest expense on acquisition debt and bank financing in
connection with the acquisition of CCC.
(5) Represents an adjustment to revise the depreciation of the acquired
plant and equipment to reflect the post acquisition basis of accounting
and revised estimates of the useful lives of the assets.
F-34
<PAGE> 75
Until December 7, 1996 (25 days after the effective date of the
Registration Statement) all dealers effecting transactions in the registered
securities, whether or not participating in distributions, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No dealer, salesman or any other person has been authorized in connection
with this offering to give any information or to make any representations other
than those contained in this Prospectus. This Prospectus does not constitute an
offer or a solicitation of any offer to buy any of the securities offered hereby
to any person or by anyone in any jurisdiction in which it is unlawful to make
such an offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the circumstances of the Company or the facts herein
set forth since the date hereof.
<PAGE> 76
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.......................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 1
SUMMARY........................................ 3
RISK FACTORS................................... 6
USE OF PROCEEDS................................ 12
PRICE RANGE OF COMMON STOCK.................... 12
DIVIDEND POLICY................................ 12
CAPITALIZATION................................. 13
SELECTED CONSOLIDATED FINANCIAL DATA........... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
BUSINESS....................................... 18
MANAGEMENT..................................... 25
PRINCIPAL STOCKHOLDERS......................... 33
CERTAIN TRANSACTIONS........................... 33
DESCRIPTION OF SECURITIES...................... 34
SHARES ELIGIBLE FOR FUTURE SALE................ 36
LEGAL MATTERS.................................. 38
EXPERTS........................................ 38
FINANCIAL STATEMENTS........................... F-1
463,664 Shares
Common Stock
---------------
PROSPECTUS
---------------
November 13, 1996
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to the Delaware General Corporation Law ("Delaware Law")
whereby officers and directors of the Company are to be indemnified against
certain liabilities. The Certificate of Incorporation also limits to the fullest
extent permitted by Delaware Law a director's liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption, and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware Law does not permit a corporation to eliminate a director's duty of
care and this provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The Company has entered into indemnity agreements with each of its current
directors which provide for indemnification of, and advancement of expenses to,
such persons to the greatest extent permitted by Delaware Law, including by
reason of action or inaction occurring in the past and circumstances in which
indemnification and the advancement of expenses are discretionary under Delaware
Law. The Company believes that the limitation of liability provision in the
Certificate of Incorporation and the indemnification agreements will facilitate
the Company's ability to continue to attract and retain qualified individuals to
serve as directors of the Company. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An itemized statement of expenses in connection with the registration of the
securities to be registered appears below. All amounts are estimates, except for
the SEC registration fee. All expenses incurred in connection with this
registration statement will be borne by the Selling Stockholder.
SEC Registration Fee $ 687.50
Accounting Fees and Expenses 5,000
Legal Fees and Expenses 15,000
Miscellaneous Expenses 1,312.50
----------
TOTAL $22,000
II-1
<PAGE> 78
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has sold and issued the following unregistered securities:
ISSUANCES OF COMMON STOCK
<TABLE>
<CAPTION>
NUMBER PURCHASE
NAME OF SHARES PRICE DATE SOLD
- ---- --------- -------- ---------
<C> <C> <C> <C>
1. Steven Georgiev................................. 521,623 $ 4,500 4/10/95
2. Paul W. Pendorf................................. 521,623 4,500 4/10/95
3. Palomar Medical Technologies, Inc............... 173,874 1,500 4/10/95
4. William A. Timmerman............................ 173,874 1,500 4/10/95
5. Joyce A. Huber.................................. 10,818 93 12/08/95
6. Edward M. Giles................................. 16,228 10,500 12/08/95
7. Celide S. Hogan................................. 7,728 5,000 12/08/95
8. C.F. Stone III.................................. 11,592 7,500 12/08/95
9. Edoardo B. Fornaro.............................. 30,911 20,000 12/08/95
10. Mercury, L.P.................................... 38,638 25,000 12/08/95
11. Haviland and Associates(1) ..................... 9,999 34,504 12/10/95
12. Advanced Polymer Sciences, Inc.................. 25,000 100,000 4/02/96
13. Robert V. Glaser................................ 11,364 50,002 7/30/96
14. Palomar Medical Technologies, Inc............... 289,790 375,000 10/16/96
Total................................. 1,843,062
=========
</TABLE>
- ----------
(1) Also received an option to purchase 9,999 shares of Common Stock at an
exercise price of $1.50 per share on December 22, 1995.
The sales and issuance of securities in the above-described
transactions were deemed to be exempt from registration under the Securities Act
of 1933 by virtue of Section 4(2) thereof. Appropriate legends restricting
transferability are affixed to the stock certificates issued in each of the
above-described transactions. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
II-2
<PAGE> 79
ITEM 27: EXHIBITS.
Exhibit
No. Description
- ------- -----------
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen certificate for the Common Stock of the Company
4.2* Form of Representative's Warrant
1.5* Form of Lock-Up Agreement
5.1** Opinion of Foley, Hoag & Eliot LLP
10.1* Agreement among XXsys Technologies, Inc., Composit
Retrofit Corporation, Gloria Ma, Steven Georgiev,
Paul W. Pendorf and William A. Timmerman, dated
March 25, 1995
10.2* Consulting Agreement with Steven Georgiev, dated
April 15, 1995
10.3* Employment Agreement with Paul W. Pendorf, as amended
10.3.1* Option Agreement for Paul W. Pendorf
10.4* Employment Agreement with William A. Timmerman, as amended
10.4.1* Option Agreement for William A. Timmerman
10.5* Employment Agreement with Philip D. Cunningham
10.6* Employment Agreement with Lesley Jay Cohen, Ph.D.
10.7* Purchase Agreement between the Company and Montecatini
U.S.A., Inc., dated November 16, 1995
10.8* Assignment and Assumption Agreement between the Company and
AMT Sub, Inc. dated December 19, 1995
10.9* Lease Agreement dated March 1, 1996 with respect to real
property located at 5915 Rodeo Road, Los Angeles,
California, between Rodeo Properties, Inc. as lessor and the
Company as lessee
10.10* Lease Agreement dated December 20, 1995 with respect to
real property located at 5610 Helms Avenue, Culver City,
California, between Sybel Heller Revocable Trust as lessor
and the Company as lessee
10.11* Lease Agreement dated December 8, 1988 with respect to real
property
II-3
<PAGE> 80
located at 8592 National Boulevard, Culver City,
California, between Lawrence Greener, trustee of the
Lawrence and Rosemary Greener Trust, as lessor and
the Company as lessee, together with Amendments #1-4
thereto
10.12* Lease Agreement dated October 31, 1994 with respect to real
property located at 3517 Schaeffer Street, Culver City,
California, between Bostwick & Newman as lessor and the
Company as lessee, together with Amendment #1 thereto
10.13* Loan and Security Agreement between Culver City Composites
Corporation and LaSalle Business Credit, Inc., dated
December 19, 1995
10.14* $560,000 Term Note of the Company dated December 19,
1995 in favor of LaSalle Business Credit, Inc.
10.15* $4,400,000 Revolving Note of the Company dated
December 19, 1995 in favor of LaSalle Business
Credit, Inc.
10.16* Guaranty of the Company in favor of LaSalle Business Credit,
Inc., dated December 19, 1995
10.17* Stock Pledge Agreement between the Company and LaSalle
Business Credit, Inc., dated December 19, 1995
10.18* Warrant for the purchase of 250,000 shares of common
stock, $0.01 par value per share, of the Company, at an
price of $1.50 per share, issued to Palomar Medical
Technologies, Inc., dated December 19, 1995
10.19* Joint Venture Agreement dated March 20, 1996 between the
Company and Advanced Polymer Systems, Inc.
10.20* 1996 Incentive and Nonqualified Stock Option Plan
10.21.1* Form of Option Agreement -- Incentive Stock Option
10.21.2* Form of Option Agreement -- Nonqualified Stock Option
10.22* Agreement dated as of July 10, 1995 between Structural
Polymer Systems, Inc. and the Stove, Furnace, and Allied
Appliance Workers Division, International Brotherhood of
Boilermaker, Iron Ship Builders, Blacksmiths, Forgers and
Helpers, AFL-CIO, CFL, Local Lodge No. S230
II-4
<PAGE> 81
10.23* Retirement Plan for Hourly-Rate Employees of Structural Polymer
Systems, Inc., effective as of August 1, 1994
10.24* Amended and Restated Assignment Agreement with Steven Georgiev,
dated June 25, 1996
10.25* Amended and Restated Assignment Agreement with William A.
Timmerman, dated June 25, 1996
10.26* Amended and Restated Assignment Agreement with Paul W. Pendorf,
dated June 25, 1996
10.27* Form of Underwriting Agreement between the Company and H.J. Meyers
& Co., Inc.
10.28* Form of Financial Consulting Agreement between the Company and
H.J. Meyers & Co., Inc.
10.29* Form of Merger and Acquisition Agreement between the Company and
H.J. Meyers & Co., Inc.
10.30** Consulting Agreement with Steven Georgiev, dated July 30, 1996
10.31 Form of Indemnity Agreement for Directors of Company
11.1* Computation of Net Income (Loss) per Share
21.1** Subsidiaries of the Company
23.1 Consent of Feldman Radin & Co., PC
23.2** Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1** Power of Attorney (attached to signature page)
- -------------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-3836, as originally filed with the Securities and Exchange
Commission on April 19, 1996 and thereafter amended.
** Previously filed.
II-5
<PAGE> 82
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(a) The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells, a post-effective
amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) of
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE> 83
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BOSTON, MASSACHUSETTS, ON NOVEMBER 12, 1996.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
By: /s/ Paul W. Perdorf
--------------------
Paul W. Pendorf
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Paul W. Pendorf, William A. Timmerman and
David A. Broadwin, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, any subsequent Registration Statement
for the same offering which may be filed under Rule 462(b) ("a "Rule 462(b)
Registration Statement") and any and all pre- or post-effective amendments
thereto, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing which they, or any of them, may deem
necessary or advisable to be done in connection with this Registration Statement
or any Rule 462(b) Registration Statement, as fully to all intents and purposes
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 any substitute or substitutes
for any or all of them, may lawfully do or cause to be done by virtue hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven Georgiev Chairman of the Board of Directors November 12, 1996
- -------------------------
Steven Georgiev
/s/ Paul W. Pendorf President, Chief Executive Officer, and Director November 12, 1996
- ------------------------- (Principal Executive Officer)
Paul W. Pendorf
/s/ William A. Timmerman Chief Financial Officer November 12, 1996
- ------------------------- (Principal Financial and Accounting Officer)
William A. Timmerman
/s/ Buster C. Glosson Director November 12, 1996
- -------------------------
Buster C. Glosson
/s/ Robert V. Glaser Director November 12, 1996
- -------------------------
Robert V. Glaser
</TABLE>
II-7
<PAGE> 84
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- ----
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen certificate for the Common Stock of the Company
4.2* Form of Representative's Warrant
1.5* Form of Lock-Up Agreement
5.1** Opinion of Foley, Hoag & Eliot LLP
10.1* Agreement among XXsys Technologies, Inc., Composit
Retrofit Corporation, Gloria Ma, Steven Georgiev,
Paul W. Pendorf and William A. Timmerman, dated
March 25, 1995
10.2* Consulting Agreement with Steven Georgiev, dated
April 15, 1995
10.3* Employment Agreement with Paul W. Pendorf, as amended
10.3.1* Option Agreement for Paul W. Pendorf
10.4* Employment Agreement with William A. Timmerman, as amended
10.4.1* Option Agreement for William A. Timmerman
10.5* Employment Agreement with Philip D. Cunningham
10.6* Employment Agreement with Lesley Jay Cohen, Ph.D.
10.7* Purchase Agreement between the Company and Montecatini
U.S.A., Inc., dated November 16, 1995
10.8* Assignment and Assumption Agreement between the Company and
AMT Sub, Inc. dated December 19, 1995
10.9* Lease Agreement dated March 1, 1996 with respect to real
property located at 5915 Rodeo Road, Los Angeles,
California, between Rodeo Properties, Inc. as lessor and the
Company as lessee
10.10* Lease Agreement dated December 20, 1995 with respect to
real property located at 5610 Helms Avenue, Culver City,
California, between Sybel Heller Revocable Trust as lessor
and the Company as lessee
10.11* Lease Agreement dated December 8, 1988 with respect to real
property
<PAGE> 85
EXHIBIT INDEX-(Continued)
Exhibit
No. Description Page
- ------- ----------- ----
located at 8592 National Boulevard, Culver City,
California, between Lawrence Greener, trustee of the
Lawrence and Rosemary Greener Trust, as lessor and
the Company as lessee, together with Amendments #1-4
thereto
10.12* Lease Agreement dated October 31, 1994 with respect to real
property located at 3517 Schaeffer Street, Culver City,
California, between Bostwick & Newman as lessor and the
Company as lessee, together with Amendment #1 thereto
10.13* Loan and Security Agreement between Culver City Composites
Corporation and LaSalle Business Credit, Inc., dated
December 19, 1995
10.14* $560,000 Term Note of the Company dated December 19,
1995 in favor of LaSalle Business Credit, Inc.
10.15* $4,400,000 Revolving Note of the Company dated
December 19, 1995 in favor of LaSalle Business
Credit, Inc.
10.16* Guaranty of the Company in favor of LaSalle Business Credit,
Inc., dated December 19, 1995
10.17* Stock Pledge Agreement between the Company and LaSalle
Business Credit, Inc., dated December 19, 1995
10.18* Warrant for the purchase of 250,000 shares of common
stock, $0.01 par value per share, of the Company, at an
price of $1.50 per share, issued to Palomar Medical
Technologies, Inc., dated December 19, 1995
10.19* Joint Venture Agreement dated March 20, 1996 between the
Company and Advanced Polymer Systems, Inc.
10.20* 1996 Incentive and Nonqualified Stock Option Plan
10.21.1* Form of Option Agreement -- Incentive Stock Option
10.21.2* Form of Option Agreement -- Nonqualified Stock Option
10.22* Agreement dated as of July 10, 1995 between Structural
Polymer Systems, Inc. and the Stove, Furnace, and Allied
Appliance Workers Division, International Brotherhood of
Boilermaker, Iron Ship Builders, Blacksmiths, Forgers and
Helpers, AFL-CIO, CFL, Local Lodge No. S230
<PAGE> 86
EXHIBIT INDEX-(Continued)
Exhibit
No. Description Page
- ------- ----------- ----
10.23* Retirement Plan for Hourly-Rate Employees of Structural Polymer
Systems, Inc., effective as of August 1, 1994
10.24* Amended and Restated Assignment Agreement with Steven Georgiev,
dated June 25, 1996
10.25* Amended and Restated Assignment Agreement with William A.
Timmerman, dated June 25, 1996
10.26* Amended and Restated Assignment Agreement with Paul W. Pendorf,
dated June 25, 1996
10.27* Form of Underwriting Agreement between the Company and H.J. Meyers
& Co., Inc.
10.28* Form of Financial Consulting Agreement between the Company and
H.J. Meyers & Co., Inc.
10.29* Form of Merger and Acquisition Agreement between the Company and
H.J. Meyers & Co., Inc.
10.30** Consulting Agreement with Steven Georgiev, dated July 30, 1996
10.31 Form of Indemnity Agreement for Directors of the Company
11.1** Computation of Net Income (Loss) per Share
21.1* Subsidiaries of the Company
23.1 Consent of Feldman Radin & Co., PC
23.2** Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1** Power of Attorney (attached to signature page)
- -------------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-3836, as originally filed with the Securities and Exchange
Commission on April 19, 1996 and thereafter amended.
** Previously filed.
<PAGE> 1
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "AGREEMENT") entered into, effective as of
____________, 1996, between THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION, a
Delaware corporation (the "COMPANY"), and ______________________________
("INDEMNITEE"),
W I T N E S S E T H T H A T :
WHEREAS, it is essential to the Company to retain and attract as directors
the most capable persons available; and
WHEREAS, both the Company and Indemnitee recognize the risk of litigation
and other claims currently being asserted against such persons; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability and in order to enhance Indemnitee's continued and
effective service to the Company, the Company desires to provide for the
indemnification of, and the advancing of expenses to, Indemnitee to the fullest
extent permitted by law and as set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the capitalized terms
listed below shall have the meanings ascribed to them as follows:
1.1 BOARD. The Board of Directors of the Company.
1.2 EXPENSES. Any expense, liability, or loss, including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be
paid in settlement, any interest, assessments, or other charges imposed thereon,
and any federal, state, local, or foreign taxes imposed as a result of the
actual or deemed receipt of any payments under this Agreement, paid or incurred
in connection with investigating, defending, being a
<PAGE> 2
witness in, or participating in (including on appeal), or preparing for any of
the foregoing in, any Proceeding relating to any Indemnifiable Event.
1.3 INDEMNIFIABLE EVENT. Any event or occurrence that takes place
either prior to or after the execution of this Agreement (a) related to the fact
that Indemnitee:
(1) is, or has agreed to serve as, a director of the Company; or
(2) while a director of the Company serves at the request of the
Company as a director, officer, employee, trustee, agent, or fiduciary of
another foreign or domestic corporation, partnership, joint venture, employee
benefit plan, trust, or other enterprise, and
(b) related to anything done or not done by Indemnitee in any such
capacity, whether or not the basis of the Proceeding is alleged action in an
official capacity while serving as described in CLAUSES (1) OR (2) above.
1.4 PROCEEDING. Any threatened, pending, or completed action, suit, or
proceeding, or any inquiry, hearing, or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit, or proceeding, whether civil,
criminal, administrative, investigative or other.
2. AGREEMENT TO INDEMNIFY. In the event Indemnitee is, or becomes a party
to, or witness or other participant in, or is threatened to be made a party to,
or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from
and against any and all Expenses to the fullest extent permitted by law, as the
same exists or may hereafter be amended or interpreted (but in the case of any
such amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto). The rights to receive indemnification and
the advancement of Expenses under this Agreement are not exclusive of any other
rights which Indemnitee may be entitled or subsequently entitled under any
statute, the Company's Certificate of Incorporation or Bylaws, by vote of the
shareholders or the
-2-
<PAGE> 3
Board, or otherwise. To the extent that a change in applicable law (whether by
statute or judicial decision) or the Bylaws permits greater indemnification than
is currently provided for an Indemnifiable Event, Indemnitee shall be entitled
to such greater indemnification under this Agreement.
2.1 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for a portion of Expenses,
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
2.2 PROHIBITED INDEMNIFICATION. Subject only to SECTION 2.3 below, no
indemnification nor Expense Advance (as defined in SECTION 3.1 below) pursuant
to this Agreement shall be paid by the Company:
(a) In connection with any Proceeding initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company
has joined in, or the Board has consented to, the initiation of such
Proceeding, or the Proceeding is one to enforce indemnification rights
under SECTION 5 below;
(b) To the extent Indemnitee settles or otherwise disposes of a
Proceeding or causes the settlement or disposal of a Proceeding without the
Company's express prior written consent (which shall not be unreasonably
withheld) unless Indemnitee receives court approval for such settlement or
other disposition where the Company had the opportunity to oppose
Indemnitee's request for such court approval;
(c) With regard to any judicial award if the Company was not given a
reasonable and timely opportunity, at its expense, to participate in the
defense of such action unless the Company's participation in such
Proceeding was barred by this Agreement or the court in such Proceeding; or
(d) For any acts, omissions, transactions or circumstances for which
indemnification is prohibited by applicable state or federal law or until
any preconditions imposed upon, or agreed to by, the Company by or with any
court or governmental agency are satisfied.
-3-
<PAGE> 4
3. Expense Advances
----------------
3.1 ADVANCE OF EXPENSES TO INDEMNITEE. Expenses incurred by Indemnitee
in any Proceeding for which indemnification may be sought under this Agreement
shall be advanced by the Company to Indemnitee within 20 days after receipt by
the Company of a statement or statements from Indemnitee requesting such advance
and reasonably evidencing the Expenses incurred by Indemnitee (an "EXPENSE
ADVANCE"). If it is ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled to be
indemnified by the Company, Indemnitee hereby agrees to repay any amounts
advanced by the Company under this SECTION 3. Indemnitee agrees to execute any
further agreements regarding the repayment of Expenses as the Company may
reasonably request prior to receiving any such advance.
4. Notification And Defense Of Proceeding
--------------------------------------
4.1 NOTICE OF CLAIM. Indemnitee shall give written notice to the
Company promptly after Indemnitee has actual knowledge of any Proceeding as to
which indemnification may be sought under this Agreement. The failure of
Indemnitee to give notice, as provided in this SECTION 4.1 shall not relieve the
Company of its obligations to provide indemnification under this Agreement;
however, the amounts to which Indemnitee may be indemnified shall be reduced to
the extent that the Company has been prejudiced by such failure.
4.2 DEFENSE. With respect to any Proceeding, the Company will be
entitled to participate in the Proceeding at its own expense and, except as
otherwise provided below, to the extent the Company so desires, the Company may
assume the defense thereof with counsel reasonably satisfactory to Indemnitee.
However, the Company shall not be entitled to assume the defense of any
Proceeding, (a) brought by the Company, or (b) as to which Indemnitee has
reasonably determined that there may be a conflict of interest between
Indemnitee and the Company in the defense of the Proceeding and Indemnitee does
in fact assume and conduct the defense.
4.2.1 If the Company assumes the defense, Indemnitee shall
furnish such information regarding Indemnitee or the Proceeding in question, as
the Company may reasonably request and as may be required in connection with the
defense or settlement
-4-
<PAGE> 5
of such Proceeding and shall fully cooperate with the Company in every other
respect Except as provided in SECTION 4.3 below, if the Company assumes the
defense of the Proceeding, the Company shall take all necessary steps in good
faith to defend, settle or otherwise dispose of the Proceeding.
4.2.2 After notice from the Company to Indemnitee of its election
to assume the defense of any Proceeding, the Company will not be liable to
Indemnitee under this Agreement or otherwise for any Expenses in excess of
$10,000 subsequently incurred by Indemnitee in connection with the defense of
such Proceeding other than reasonable costs of investigation or as otherwise
provided in CLAUSES (A) THROUGH (C) below. Indemnitee shall have the right to
employ Indemnitee's own counsel in such Proceeding, but all Expenses related
thereto incurred after notice from the Company of its assumption of the defense
shall be at Indemnitee's expense, unless: (a) the employment of counsel by
Indemnitee has been authorized by the Company; (b) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, but Indemnitee does not, in fact,
assume and conduct the defense; or (c) the Company does not, in fact, assume and
conduct the defense of such Proceeding.
4.2.3 Any Expenses incurred by the Company in defense of the
Proceeding under this SECTION 4.2 (except in a situation described in CLAUSE
(A), (B) OR (C) of SECTION 4.2.2) shall be considered Expenses advanced by the
Company to Indemnitee under SECTION 3 above.
4.3 LIMITATION ON THE COMPANY'S DISPOSITION OF ANY PROCEEDING. The
Company may consent to a settlement or other disposition of all or any part of
any Proceeding which the Company is defending under SECTION 4.2 above without
first obtaining the written consent of Indemnitee; provided that such settlement
or other disposition would not cause Indemnitee to materially lose any right to
indemnification under this Agreement.
5. ENFORCEMENT. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as a director of the Company, and
acknowledges that Indemnitee is relying upon this Agreement in serving in such
capacity. Indemnitee shall have the right to enforce his indemnification
-5-
<PAGE> 6
rights under this Agreement by commencing litigation in any court having subject
matter jurisdiction thereof and in which venue is proper. Likewise, the Company
may seek judicial determination of its obligations under this Agreement. Company
and Indemnitee each hereby consent to service of process and to appear in any
such proceeding.
5.1 DEFENSES; BURDEN OF PROOF. It shall be a defense to any action
brought by Indemnitee or the Company concerning enforceability of this Agreement
that it is not permissible under applicable law for the Company to indemnity
Indemnitee for the amount claimed. In connection with any such action or any
determination as to whether Indemnitee is entitled to be indemnified hereunder,
the burden of proof shall be on the Company.
5.2 PRESUMPTIONS. Neither the failure of the Company (including its
Board or shareholders) to have made a determination prior to the commencement of
such action that indemnification is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Company (including its Board or shareholders) that
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that Indemnitee has not met the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order. settlement (whether with
or without court approval), conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
5.3 EQUITABLE RELIEF. The Company agrees that the Company's failure to
make indemnification payments or Expense Advances to Indemnitee shall cause
irreparable damage to Indemnitee, the exact amount of which is impossible to
ascertain, and for this reason agrees that Indemnitee shall be entitled to such
injunctive or other equitable relief as shall be necessary to adequately provide
for payment or reasonably anticipated payments.
5.4 INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. The
Company shall indemnify Indemnitee against any and all Expenses and, if
requested by Indemnitee, shall (within 20 after such request), advance such
Expenses to Indemnitee, that are
-6-
<PAGE> 7
incurred by Indemnitee in connection with any claim or action asserted against
or brought by Indemnitee for indemnification of Expenses or payment of Expense
Advances by the Company under this Agreement or any other agreement or under
applicable law or the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to indemnification for Indemnifiable Events. Any
Expenses so paid shall be considered Expense Advances under SECTION 3 above.
6. INSURANCE; SUBROGATION. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything, that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
7. General Provisions
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7.1 AMENDMENT OF THIS AGREEMENT. No supplement, modification. or
amendment of this Agreement shall be binding unless executed in writing by both
parties hereto. No waiver of any of the provisions of this Agreement shall
operate as a waiver of arty other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver. Except as specifically
provided herein, no failure to exercise or any delay in exercising any right or
remedy hereunder shall constitute a waiver thereof.
7.2 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, spouses, heirs, and personal and legal representatives. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity
pertaining to an Indemnifiable Event even though Indemnitee may have ceased to
serve in such capacity at the time of any Proceeding.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the
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subject matter hereof.
7.4 REMEDIES CUMULATIVE. The rights and remedies provided in this
Agreement and by law shall be cumulative and the exercise of any particular
right or remedy shall not preclude the exercise of any other right or remedy in
addition to, or as an alternative to, such right or remedy.
7.5 NOTICES. Any notice required or permitted by this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
or, if mailed, upon deposit with the United States Post Office by certified
mail, return receipt requested, postage prepaid, to the address for the
recipient set forth on the signature page hereto or to such other address as the
recipient shall hereafter have noticed the sending party in the manner set forth
above.
7.6 HEADINGS. Descriptive headings contained herein are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
7.7 REFERENCES. Any reference in this Agreement to the indemnity
provisions of the Company's Certificate of Incorporation or Bylaws, or to any
applicable law shall refer to such provisions as they shall be amended from time
to time or to any successor provision, except that any change in the Company's
Certificate of Incorporation or Bylaws shall only apply to the extent that such
amendment permits the Company to provide broader indemnification rights to
Indemnitee than currently provided.
7.8 SEVERABILITY. Any provision of this Agreement, which is
unenforceable in any jurisdiction, shall be ineffective in such jurisdiction to
the extent of such unenforceability without invalidating the remaining
provisions of this Agreement, and any unenforceability in any in jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
7.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 APPLICABLE LAW. The rights and obligations under this Agreement
shall be governed by, and construed in accordance
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with, the laws of the State of Delaware applicable to contracts between Delaware
residents made and to be performed entirely within such State.
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IN WITNESS WHEREOF, this Agreement has been entered into effective as
of the date first written above.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
By:
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Name:
--------------------------------
Title:
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5915 Rodeo Road
Los Angeles, CA 90016
INDEMNITEE:
Signature
Name:
--------------------------------
Address:
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Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of
our reports dated February 19, 1996 relating to the financial statements of The
American Materials & Technologies Corporation and Subsidiary as of December 31,
1995 and for the period March 29, 1995 (inception) to December 31, 1995 and
February 9, 1996 relating to the financial statements of Culver City Composites
Corporation (formerly known as SPS Holdings, Inc. and Subsidiary) as of December
19, 1995 and December 31, 1994, and for the periods January 1, 1995 to December
19, 1995 and the year ended December 31, 1994 and the reference to our firm
under the captions "SELECTED FINANCIAL DATA" and "EXPERTS" in the Prospectus.
By: /s/ Feldman Radin & Co., P.C.
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FELDMAN RADIN & CO., P.C.
Certified Public Accountants
September 6, 1996
New York, New York
