<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1996
REGISTRATION NO. 333-3836
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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:
<TABLE>
<S> <C>
DAVID A. BROADWIN, ESQ. JOHN A. PICCIONE, ESQ.
WILLIAM R. KOLB, ESQ. EPSTEIN BECKER & GREEN, P.C.
FOLEY, HOAG & ELIOT LLP 75 STATE STREET
ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02109 (617) 342-4000
(617) 832-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As promptly as
practicable after the Registration Statement becomes effective.
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. / /
---------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
=================================================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share ("Common Stock")(2)... 2,300,000 $6.00 $13,800,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Selling Stockholders' Shares.................................. 105,097 $6.00 $ 630,582 --
- ---------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant...................................... 1 $5.00 $ 5 --
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, issuable upon exercise of Representative's
Warrant..................................................... 200,000 $7.20 $ 1,440,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Totals........................................................ -- -- $15,870,587 $5,472.62(3)
=================================================================================================================================
<FN>
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities
Act of 1933.
(2) Includes 300,000 shares of Common Stock subject to a 45-day option granted to the Underwriters by the Registrant to cover
over-allotments, if a See "Underwriting".
(3) $5,255.17 of this amount has been previously paid.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 11, 1996
PROSPECTUS
2,000,000 SHARES
[AM&T LOGO]
COMMON STOCK
The American Materials & Technologies Corporation, a Delaware corporation
(the "Company"), hereby offers (the "Offering") 2,000,000 shares of Common
Stock, $0.01 par value per share (the "Common Stock"). Prior to this Offering,
there has been no public market for the Common Stock of the Company, and there
can be no assurance that an active market will develop. It is currently
estimated that the initial offering price per share will be between $5.00 and
$6.00. The initial offering price of the Common Stock has been determined by
negotiation between the Company and H.J. Meyers & Co., Inc. (the
"Representative") and is not necessarily related to the Company's asset value or
any other established criterion of value. For the method of determining the
initial offering price of the Common Stock, see "Risk Factors" and
"Underwriting." The Company has filed applications to have the Common Stock
listed on the Nasdaq SmallCap Market under the symbol "AMTK" and the Pacific
Stock Exchange under the symbol "AMT."
Concurrently with this Offering, the Company is registering for resale
105,097 shares of Common Stock (the "Selling Stockholders' Shares") held by five
existing stockholders (the "Selling Stockholders"). The Company will not receive
any of the proceeds from the sale of the Selling Stockholders' Shares. The
Selling Stockholders have agreed not to sell any Selling Stockholders' Shares
for a period of six months following the effective date of this Offering.
Commencing six months from the effective date of this Offering, each Selling
Stockholder may sell up to 5,000 Selling Stockholders' Shares per month for an
additional six-month period. Thereafter, the Selling Stockholders' Shares may be
sold without any lock-up restrictions. It is expected that such sales by Selling
Stockholders may be made from time to time in the over-the-counter market or
otherwise. Such sales are subject to the prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"). See "Shares Eligible
For Future Sale" and "Concurrent Registration of Selling Stockholders' Shares."
------------------------
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.
<TABLE>
<CAPTION>
======================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
======================================================================================================
<FN>
(1) Does not include additional compensation to be received by the Representative in the form of (i) a
non-accountable expense allowance equal to 3% of the gross proceeds of the Offering, or $
($ if the Underwriters' over-allotment option described in footnote (3) is exercised in
full), and (ii) a warrant to purchase up to 200,000 shares of Common Stock at an exercise price of
$ per share (120% of the initial offering price to the public), exercisable over a period
of four years, commencing one year from the date of this Prospectus. In addition, the Company has
agreed to indemnify the Underwriters specified herein (the "Underwriters") against certain civil
liabilities under the Securities Act. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated at $ ,
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters an option, exercisable within 45 days of the date of this
Prospectus, to purchase up to 300,000 additional shares of Common Stock on the same terms and
conditions as set forth above to cover over-allotments, if any. See "Underwriting." If all such
shares are purchased, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company (before deducting expenses of the Offering payable by the Company, estimated
at $ ), will be $ , $ , and $ , respectively.
</TABLE>
The shares of Common Stock are offered on a "firm commitment" basis by the
Underwriters when, as and if delivered to and accepted by the Underwriters, and
subject to prior sale, withdrawal, or cancellation of the offer without notice.
It is expected that delivery of the certificates representing the Common Stock
will be made at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, NY 15620 on or about , 1996.
[H.J. Meyers Logo]
------------------------
The date of this Prospectus is , 1996.
<PAGE> 3
================================================================================
[Photograph of The American Materials
control panel & Technologies
for Company's Corporation, through its
equipment being wholly owned subsidiary,
operated by Culver City Composites
employee] Corporation, produces (at the
facility shown on left of page)
and markets advanced composite
[Photograph of materials for use in
Company's equipment] the aerospace industry,
including transportation
(aircraft and mass
[Company's Logo] transit) and communications
(communication satellites
and their launchers), and the
defense and recreation
[Photograph of Company's equipment] industries. Products include
fabrics and tapes utilizing
fiberglass, carbon, aramid,
quartz, and other fibers which
are impregnated with proprietary
resin systems.
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of Common Stock in California must meet one of the following
suitability standards: (i) a liquid net worth (excluding home, furnishings and
automobiles) of $250,000 or more and gross annual income during 1995, and
estimated during 1996, of $65,000 or more from all sources; or (ii) a liquid
net worth (excluding home, furnishings and automobiles) of $500,000 or more.
Each California resident purchasing Common Stock offered hereby will be required
to execute a representation that it comes within one of the aforementioned
categories.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------------
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements examined by an independent
accounting firm and such interim reports as it deems appropriate or as may be
required by law.
[LOGO]
================================================================================
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to more
detailed information 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. Unless
otherwise indicated, all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option or the Representative's Warrant. 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" and "Underwriting."
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" 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> 5
THE OFFERING
Securities Offered by the
Company.......................... 2,000,000 shares of common stock, $0.01 par
value per share ("Common Stock"). See
"Description of Securities."
Common Stock Outstanding Prior to
the Offering................... 1,541,908 shares(1)
Common Stock to be Outstanding
after
the Offering................... 3,541,908 shares(1)
Use of Proceeds.................. Repayment of bridge financing, partial
repayment of senior indebtedness, business
opportunities (including acquisitions),
purchase of capital equipment, and working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq SmallCap
Market Symbol.................. AMTK
Proposed Pacific Stock Exchange
Symbol........................... AMT
- ---------------
(1) Does not give effect to an aggregate of up to 1,056,692 shares of Common
Stock issuable upon exercise of: (i) the Underwriters' over-allotment
option; (ii) the Representative's Warrant; (iii) a warrant to purchase
289,790 shares of Common Stock granted to a shareholder of the Company; and
(iv) options outstanding as of May 24, 1996 to purchase an aggregate of
266,902 shares of Common Stock. See "Executive Compensation," "Certain
Transactions," and "Underwriting."
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." 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." The Company will have broad
discretion in the application of a substantial portion of the net proceeds of
this Offering. See "Risk Factors -- Broad Management Discretion in the Use of
Proceeds."
4
<PAGE> 6
SUMMARY 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 ------------- THE
CCC AMT & CCC AMT & CCC CCC COMPANY
---------------------------- AMT ------------- ------------- ------------ ------------
-------------
PERIOD
PERIOD MARCH 29,
JANUARY 1, 1995
(INCEPTION) THREE MONTHS ENDED(2)
YEAR ENDED 1995 TO TO YEAR ENDED YEAR ENDED ---------------------------
DECEMBER 31, DECEMBER 19, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
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 $4,018 $5,251
Earnings (loss)
before interest,
taxes, depreciation
and amortization... (494) 719 (216) 503 502 396 683
Income (loss) from
operations......... (781) (495) (259) (754) (18) 76 547
Interest expense..... 567 585 18 603 600 212 187
Depreciation
expense............ 1,264 1,214 43 1,257 520 320 136
Net income (loss).... (2,325) (1,080) (277) (1,357) (618) (136) 246
Net income (loss) per
common share....... (0.18) (0.41) 0.13
Weighted average
number of common
shares............. 1,517 1,517 1,879
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
--------------------------
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).............................................................. $(1,714) $ 6,297
Total assets.............................................................................. 10,148 15,068
Long-term debt............................................................................ 2,463 1,463
Stockholders' equity(4)................................................................... 181 9,193
</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) Interim data for the three months ended March 31, 1995 are for CCC only;
data for the three months ended March 31, 1996 reflect the consolidated
operations of AMT and CCC.
(3) Adjusted to reflect the net proceeds from the Offering. See "Use of
Proceeds."
(4) The Company has never paid cash dividends on its Common Stock. See "Dividend
Policy."
5
<PAGE> 7
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
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."
6
<PAGE> 8
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
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
To the extent that the funds generated by this Offering, together with
existing resources, are insufficient to fund the Company's activities,
additional funds may be required, through either public or private financing.
7
<PAGE> 9
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
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 this Offering 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
Upon completion of this Offering, the Common Stock will be eligible for
initial quotation 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
8
<PAGE> 10
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'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 will, as of the date of this
Prospectus, be outside the definitional scope of a penny stock, as it will be
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.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use approximately 47% of the net proceeds of this
Offering for business opportunities, working capital and general corporate
purposes. Accordingly, the Company will have broad discretion in the application
of such net proceeds. Purchasers of Common Stock in this Offering will not have
the opportunity to evaluate the economic, financial or other information which
the Company will use to determine application of such proceeds. See "-- Risks
Inherent in Future Unspecified Acquisitions" and "Use of Proceeds."
REPRESENTATIVE'S INFLUENCE IN THE MARKET
A significant amount of the securities offered hereby may be sold to
customers of the Representative (none of which are discretionary accounts).
Although it has no obligation to do so, the Representative intends to make a
market in the Company's securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the securities offered hereby. Such market making activity may be
discontinued at any time. The price and liquidity of the Common Stock may be
significantly affected by the degree, if any, of the Representative's
participation in the market.
REPRESENTATIVE'S INFLUENCE OVER POTENTIAL FUTURE CAPITAL FINANCING
The Company has agreed that for a period of one year from the date of this
Prospectus, 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 Representative's prior
written consent, which shall not be unreasonably withheld. The Company has also
agreed that, for a period of 24 months from the date of this Prospectus, 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 "Underwriting."
PAYMENTS TO AFFILIATES
Upon the closing of this Offering, Palomar Medical Technologies, Inc.
("Palomar") will receive approximately $3,307,000, or 36% of the proceeds of the
Offering, in repayment of outstanding loans. Palomar owns 173,874 shares of
Common Stock of the Company, and holds a warrant to purchase 289,790 shares of
9
<PAGE> 11
Common Stock at an exercise price of $1.29 per share. Steven Georgiev, a founder
and Chairman of the Board of Directors of the Company, is the Chairman and Chief
Executive Officer of Palomar. See "Use of Proceeds" and "Certain Transactions."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, current principal stockholders and
management of the Company will own approximately 44% 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."
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
10
<PAGE> 12
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 this Offering, the Company is registering for resale
105,097 Selling Stockholders' Shares. The Company will not receive any of the
proceeds from the sale of the Selling Stockholders' Shares. The Selling
Stockholders have agreed not to sell any Selling Stockholders' Shares for a
period of six months following the effective date of this Offering. Commencing
six months from the effective date of this Offering, each Selling Stockholder
may sell up to 5,000 Selling Stockholders' Shares per month for an additional
six-month period. Thereafter, the Selling Stockholders' Shares may be sold
without any lock-up restrictions. Sales in the public market of substantial
amounts of Common Stock, whether by Selling Stockholders 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," "Shares Eligible for Future Sale," "Concurrent Registration of
Selling Stockholders' Shares," and "Underwriting."
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 266,902 shares
of Common Stock, at prices ranging from $.86 to $4.00 per share. The Company has
also reserved 289,790 shares of Common Stock for issuance upon exercise of
warrants issued to Palomar in connection with bridge financing it provided to
the Company. The Company will issue to the Representative, in connection with
this Offering, the Representative's Warrant to purchase 200,000 shares of Common
Stock, and has reserved 200,000 shares of Common Stock for issuance upon the
exercise thereof. 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,"
"Certain Transactions," and "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior market for the Company's Common Stock and there can
be no assurance that a public market for the Common Stock will develop or be
sustained after the Offering. In the absence of such a market, purchasers of the
Common Stock may experience substantial difficulty in selling their securities.
The
11
<PAGE> 13
initial public offering price for the Common Stock has been determined by
negotiations between the Company and the Representative. 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 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.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will incur immediate and
substantial dilution of approximately $2.89 per share, or 53% of their
investment in the shares of Common Stock (assuming an initial public offering
price of $5.50 per share), in that the pro forma net tangible book value of the
Company's Common Stock after this Offering will be approximately $2.61 per
share. See "Dilution."
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 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. 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.
See "Management -- Limitation of Liability and Indemnification of Directors and
Officers."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered hereby (at an assumed initial public offering price
of $5.50 per share), after deducting underwriting discounts and commissions, the
Representative's non-accountable expense allowance, and offering expenses, are
estimated to be approximately $9,070,000 ($10,505,500 if the Underwriters'
over-allotment option is exercised in full). The Company expects to use the net
proceeds from this Offering approximately as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
<S> <C> <C>
Repayment of bridge financing(1)................................ $3,307,000 36%
Repayment of senior indebtedness(2)............................. 1,000,000 11
Business opportunities(3)....................................... 3,750,000 41
Purchase of capital equipment(4)................................ 500,000 6
Working capital and general corporate purposes(5)............... 513,000 6
------- ----
Total................................................. $9,070,000 100%
======= ====
</TABLE>
- ---------------
(1) The Company expects to use approximately $3,307,000 of the estimated net
proceeds to repay in full two 10% Promissory Notes, due December 31, 1996,
in the principal amounts of $3,000,000 and $150,000, respectively, with
interest accrued thereon from December 19, 1995, payable to Palomar, an
affiliate of the Company. The proceeds of this debt were used by the Company
to acquire CCC. See "Capitalization" and "Certain Transactions."
(2) The Company expects to use approximately $1,000,000 of the estimated net
proceeds to repay a portion of the principal amount outstanding under its
$4,440,000 revolving credit facility (the "Revolving Facility"), which is
part of a $5,000,000 Loan and Security Agreement secured by the Company's
assets (the "Revolving Credit Agreement"). The Revolving Credit Agreement,
which provides for interest to accrue daily on unpaid principal amounts at
the annual rate of one and one-half percent (1 1/2%) above the Prime Rate,
as defined therein, matures on December 19, 1998 and generally is renewable
on an annual basis thereafter. At March 31, 1996, $2,043,362 was outstanding
under the Revolving Facility. The Company retains the right to re-borrow
under the terms of the Revolving Facility. The Company has used amounts
borrowed under the Revolving Credit Agreement as part of the funds used to
acquire CCC and for working capital. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
(3) The Company intends to use a portion of the proceeds of this Offering to
acquire businesses, interests in joint ventures, and technology rights that
are complementary to its current business. The Company has no present
commitments or agreements with respect to any acquisitions. In the event the
Company does not use all of this portion of the proceeds for acquisitions,
it will use the unspent portion for working capital and general corporate
purposes. See "Business."
(4) The Company intends to use a portion of the proceeds of this Offering to
purchase certain capital equipment to upgrade and replace existing
equipment.
(5) Includes $72,000 payable to the Representative pursuant to a financial
consulting agreement between the Representative and the Company, all of
which will be paid at the closing of this Offering. See "Underwriting."
The projected expenditures described above are estimates and approximations
only and do not represent firm commitments by the Company. The Company may find
it necessary or advisable to change the allocation of net proceeds due to the
availability of other business opportunities or other factors, including future
developments in the Company's expansion program, arrangements with other
companies and competitive developments.
Pending the use of the net proceeds for the above purposes, the Company
intends to invest such funds in investment-grade obligations, including
short-term, interest-bearing money market funds. The Company believes that the
net proceeds from this Offering, together with existing cash resources,
borrowings under its Revolving Credit Agreement and revenue from operations,
will be adequate to satisfy working capital
13
<PAGE> 15
requirements for a period of 24 months from the date of this Offering. See "Risk
Factors -- Need for Additional Capital" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company will not receive any proceeds from the sale of the Selling
Stockholders' Shares. See "Concurrent Registration of Selling Stockholders'
Shares."
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.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, on an actual basis and as adjusted to reflect the sale by the
Company of 2,000,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $5.50 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company) and the application of the estimated net proceeds therefrom. 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>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term Debt:
Notes payable -- affiliate....................................... $3,091,277 $ 0
Current portion of term loan -- bank............................. 112,000 112,000
Long-term debt..................................................... 2,463,361 1,463,361
Stockholders' Equity:
Preferred Stock, par value $0.01 per share; 5,000,000 shares
authorized, no shares issued or outstanding, actual and as
adjusted...................................................... 0 0
Common Stock, par value $.01 per share; 15,000,000 shares
authorized and 1,516,908 shares issued and outstanding,
actual; 15,000,000 shares authorized and 3,516,908 shares
issued and outstanding, as adjusted(1)(2)..................... 15,169 35,169
Additional paid-in capital....................................... 197,167 9,247,167
Accumulated deficit(3)........................................... (30,964) (89,687)
-------- --------
Total stockholders' equity....................................... 181,372 9,192,649
-------- --------
Total capitalization..................................... $5,848,010 $10,768,010
======== ========
</TABLE>
- ---------------
(1) Does not include 25,000 shares of Common Stock issued by the Company after
March 31, 1996.
(2) Does not give effect to an aggregate of up to 1,056,692 shares of Common
Stock issuable upon exercise of: (i) the Underwriters' over-allotment
option; (ii) the Representative's Warrant; (iii) a warrant to purchase
289,790 shares granted to a shareholder of the Company with an exercise
price of $1.29 per share; and (iv) options outstanding as of May 24, 1996 to
purchase an aggregate of 266,902 shares of Common Stock at a weighted
average exercise price of $2.06 per share. See "Executive Compensation --
1996 Incentive and Nonqualified Stock Option Plan," "Certain Transactions,"
and "Underwriting."
(3) Accumulated deficit, as adjusted, reflects the write-off of unamortized debt
discount in the amount of $58,723 as of March 31, 1996 as a result of the
repayment of the Company's debt to Palomar.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company's Common Stock as of March 31,
1996 was $181,372, or approximately $0.12 per share. Net tangible book value per
share represents the amount of the Company's total tangible assets less total
liabilities, divided by the 1,516,908 shares of Common Stock outstanding as of
March 31, 1996.
Net tangible book value dilution per share represents the difference
between the amount per share paid by new investors who purchase shares of Common
Stock in this Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving effect
to the sale of 2,000,000 shares of Common Stock in this Offering at an assumed
initial public offering price of $5.50 per share, after deduction of
underwriting discounts and commissions, the Representative's non-accountable
expense allowance and estimated offering expenses, the pro forma net tangible
book value of the Company at March 31, 1996 would have been $9,192,649, or $2.61
per share.
This represents an immediate increase in net tangible book value of $2.49
per share to existing shareholders, and an immediate dilution in net tangible
book value of $2.89 per share to new investors in the Offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock(1).......................................................... $5.50
Net tangible book value per share at March 31, 1996............... $ 0.12
Increase per share attributable to new investors.................. 2.49
----
Pro forma net tangible book value per share after the Offering(2)... 2.61
----
Net tangible book value dilution per share to new investors(3)...... $2.89
====
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions, the
Representative's non-accountable expense allowance and estimated offering
expenses to be paid by the Company.
(2) Does not give effect to an aggregate of up to 1,056,692 shares of Common
Stock issuable upon exercise of: (i) the Underwriters' over-allotment
option; (ii) the Representative's Warrant; (iii) a warrant to purchase
289,790 shares granted to a shareholder of the Company with an exercise
price of $1.29 per share; and (iv) options outstanding as of May 24, 1996 to
purchase an aggregate of 266,902 shares of Common Stock at a weighted
average exercise price of $2.06 per share. See "Underwriting," "Certain
Transactions" and "Executive Compensation -- 1996 Incentive and Nonqualified
Stock Option Plan."
(3) Represents dilution of approximately 53% to purchasers of the shares of
Common Stock.
The following table summarizes, on a pro forma basis, the number of shares
of Common Stock purchased from the Company as of March 31, 1996, the total
consideration paid and the average price per share paid by (i) the existing
holders of Common Stock and (ii) the new investors in the Offering, assuming the
sale of 2,000,000 shares of Common Stock by the Company hereby at an initial
public offering price of $5.50 per share. The calculations are based upon total
consideration given by new and existing shareholders, before any deduction of
underwriting discounts and commissions, the Representative's non-accountable
expense allowance and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 1,516,908 43.1% $ 134,093 1.2% $0.09
New Investors.................. 2,000,000 56.9% $11,000,000 98.8% $5.50
------- ---- ------- ----
Total(1)............. 3,516,908 100.0% $11,134,093 100.0%
======= ==== ======= ====
</TABLE>
- ---------------
(1) The foregoing table does not give effect to the items described in footnote
(2) to the previous dilution table or to the issuance by the Company of
25,000 shares of Common Stock after March 31, 1996.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected statements of operations data of
CCC for the year ended December 31, 1994, the period from January 1, 1995 to
December 19, 1995, and the three months ended March 31, 1995, which are derived
from the consolidated financial statements of CCC that are included elsewhere in
this Prospectus. Such financial statements, excluding the financial statements
for the three months ended March 31, 1995, 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 March 31, 1996 and for the three
months then ended, which are derived from the consolidated financial statements
of AMT that are included elsewhere in this Prospectus. Such financial
statements, other than the financial statements as of March 31, 1996 and for the
three months then ended, 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
results of AMT and CCC for the year ended December 31, 1995, as well as pro
forma consolidated statement of operations data reflecting the acquisition of
CCC on December 19, 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
three months ended March 31, 1996 may not be indicative of the results for the
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL CONSOLIDATED
------------------------------------------------- COMBINED --------- THE
CCC AMT & CCC AMT & CCC CCC COMPANY
------------------------------ AMT --------- --------- ------------ ---------
----------------
PERIOD
PERIOD MARCH 29,
JANUARY 1, 1995
YEAR YEAR
ENDED ENDED THREE MONTHS ENDED(2)
YEAR ENDED 1995 TO (INCEPTION) TO DECEMBER DECEMBER ------------------------
DECEMBER 31, DECEMBER 19, DECEMBER 31, 31, 31, MARCH 31, MARCH 31,
1994 1995 1995 1995 1995(1) 1995 1996
------------ --------------- ---------------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................. $ 15,943 $15,300 $ 616 $15,916 $15,916 $4,018 $ 5,251
Gross margin............... 2,105 2,260 98 2,358 3,016 690 1,467
Operating Expenses:
Selling, general and
administrative......... 2,580 2,424 350 2,774 2,705 536 826
Research and
development............ 306 331 7 338 329 94 78
Income (loss) from
operations............... (781) (495) (259) (754) (18) 76 547
Interest expense........... 567 585 18 603 600 212 187
Other expenses (income).... 977 -- -- -- -- (24) --
Net income (loss).......... (2,325) (1,080) (277) (1,357) (618) (136) 246
Net income (loss) per
common share............. (0.18) (0.41) 0.13
Weighted average number of
common shares............ 1,517 1,517 1,879
OTHER DATA:
Depreciation expense....... 1,264 1,214 43 1,257 520 320 136
Earnings (loss) before
interest, taxes,
depreciation and
amortization............. (494) 719 (216) 503 502 396 683
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
--------------
MARCH 31, 1996
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................................................................ $ (1,714)
Total assets............................................................................................ 10,148
Long-term debt.......................................................................................... 2,463
Stockholders' equity(3)................................................................................. 181
</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) Interim data for the three months ended March 31, 1995 are for CCC only;
data for the three months ended March 31, 1996 reflect the consolidated
operations of AMT and CCC.
(3) The Company has never paid cash dividends on its Common Stock. See "Dividend
Policy."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto contained elsewhere in
this Prospectus.
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. 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 months ended March 31, 1996, as compared to
the financial results of CCC for the three months ended March 31, 1995. In
addition, the following discussion reviews the financial results of the combined
operations of CCC and AMT for the year ended December 31, 1995, as compared to
the financial results of CCC for the year ended December 31, 1994.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and March 31, 1995
The Company's net sales during the first quarter of 1996 were $5,251,000,
an increase of approximately $1,234,000, or 30.7%, compared to net sales of
$4,018,000 in the first quarter of 1995. The increase in sales covered all
sectors, with transportation increasing over $500,000, defense by almost
$400,000, and communications by over $300,000. The Company believes that the
sales increase was, in part, due to changes in CCC's management, resulting in
increased sales and marketing activities and a substantial improvement in
on-time delivery. In addition, the Company benefited from a general improvement
in the defense and aerospace business.
In the first quarter of 1996, The Boeing Company ("Boeing") 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 first quarter of both 1995 and 1996, sales were highly concentrated,
with the top two customers, General Electric Company ("General Electric") and
Boeing and their subsidiaries, accounting for approximately 26% of sales in the
1996 period, compared to approximately 34% in the corresponding period of 1995.
The Company's twenty largest customers accounted for approximately 86% of sales
in the first quarter of 1996 and 83% in the first quarter of 1995.
In May, 1996, the Company's major suppliers informed the Company that
fiberglass prices, which had already been increased by approximately 8% in early
1996, would be increased by an additional 4%. To date, the Company has been able
to pass on most of these price increases to its customers, but it has no
assurances that it will be able to continue to do so.
For the quarter ended March 31, 1996, the Company realized a gross margin
of $1,467,000 or 27.9% of sales, an increase of $777,000 or 113% over the
corresponding period of 1995. The improvement was a result of an increase in
sales without a proportional increase in costs of manufacturing, and
management's continued efforts to improve on-time delivery and to increase
product yield by reducing scrap. Fixed and variable manufacturing costs declined
due to a reduction in workers compensation insurance and fuel costs. The
Company's unionized employees received a pay increase of 3% in May, 1996.
Selling, general and administrative expenses were $826,000, or 15.7% of
sales, in the first quarter of 1996, an increase of $290,000 or 54% over the
first quarter of 1995. Most of the increase was due to the cost of additional
employees hired by CCC, and the extra corporate expenses of AMT.
Research and development expenses were $94,000 in the first quarter of
1996, an increase of approximately $16,000, or 20%, over the comparable period
of 1995. These expenses were 1.8% of sales in 1996 and
18
<PAGE> 20
2% of sales in 1995. The Company intends to expand research and development and
to that effect it has already hired additional staff and upgraded equipment.
Interest expense was $187,000, or 3.6% of sales, for the first quarter of
1996, a decrease of $25,000 or 12% compared to interest expense of $212,000 in
the first quarter of 1995. Debt levels in the first quarter of 1996 were
approximately 50% what they were in 1995, although the interest rate was
substantially higher.
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.
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.
19
<PAGE> 21
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.
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
Palomar (see "Certain Transactions"), 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, the ability to borrow from which is 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 preclosing expenses.
For the three month period ended March 31, 1996, cash used in operations
was $431,000, as cash generated was not sufficient to fund the increase in
receivables ($951,000) resulting from the increase in sales. Other working
capital items resulted in little net change in cash. The net cash deficit from
operations was financed by an increase in the borrowings under the Revolving
Facility and a draw down of cash balances from the year end level. The Company's
policy is to use cash received to reduce outstanding loans under the Revolving
Facility and to re-borrow as needed. As a result, the Company showed $1,800 of
cash on hand at March 31, 1996. As of May 1, 1996, over $1,500,000 was available
for additional borrowing under the Revolving Facility.
Capital expenditures were $40,000 for the three months ended March 31,
1996. However, the Company plans to expend approximately $500,000 from the
proceeds of this Offering to install three new liquid bulk storage tanks, modify
its resin mixing facilities, and purchase additional testing equipment. The
Company anticipates that the new tanks, which will replace those that were
removed in 1995, and the modifications to the mixing facilities will improve
operating efficiency.
Cash used in operations of CCC of $632,000 and $1,084,000 in 1995 and 1994,
respectively, as well as capital expenditures of $163,000 and $108,000 in 1995
and 1994, respectively, were funded by advances and capital contributions by its
parent company. Sales increased in the fourth quarter of 1995 as compared to the
fourth quarter of 1994; as a result, year-end accounts receivable increased over
1994 year-end levels, notwithstanding a decrease in sales for the 1995 period as
compared to the year ended December 31, 1994. In addition, inventories at
December 19, 1995 increased substantially over the prior year-end amount in
anticipation of continued sales growth in 1996. In 1995, CCC wrote off
previously reserved accounts receivable, thereby reducing its allowance for
doubtful accounts from $500,000 in 1994 to $104,000 in 1995.
The Company has no known environmental violations or assessments that the
Company believes would have a material adverse effect on the Company's business
or its financial results. Nevertheless, there can be no assurance that
activities at the Company's facilities will not result in environmental claims
being asserted against the Company, or remedial actions being required, in the
future.
20
<PAGE> 22
As all sales are made in U.S. dollars, fluctuations in exchange rates have
no direct impact on earnings or liquidity. However, to the extent the dollar
appreciates against foreign currencies, the Company's products will become less
attractive to foreign customers when compared to products manufactured in other
countries.
Although the Company manufactures against firm orders, it does maintain an
inventory of raw materials which may become obsolete through cancellation of the
program for which they were purchased, expiration of shelf lives, or
substitution of improved materials for existing ones. The Company sells obsolete
inventory in the normal course of business.
The Company believes that the net proceeds from this Offering, along with
the existing capital resources of the Company, the Revolving Credit Agreement
and revenue from operations of the Company, will be adequate to satisfy its
working capital and capital expenditure requirements for the next 24 months.
Management of the Company intends to pursue acquisitions of businesses,
interests in joint ventures and technology rights that are complementary to its
current business. Although the Company has allocated approximately $3,750,000
from the proceeds of this Offering for acquisitions, the Company may require
additional capital for acquisitions. If the Company is unable to find suitable
acquisition opportunities, it will use the unspent proceeds allocated to
acquisitions for working capital and general corporate purposes. See
"Business -- Strategy."
The Company has, as of May 1, 1996, over $1,500,000 available for borrowing
under the Revolving Facility. The Company intends to repay part of the
borrowings under the Revolving Credit Agreement from the proceeds of this
Offering. The amount so paid on the Revolving Facility will be available for
re-borrowing. See "Use of Proceeds."
OTHER INFORMATION
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 Statements 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.
Therefore, Statement No. 123 will have no impact on the Company's reported
results of operations.
21
<PAGE> 23
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" and "-- Risks Inherent in Possible Future Unspecified Acquisitions."
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, communications, printed circuit boards, boats,
automobiles, and civil infrastructure. CCC and its predecessors were involved in
the commercial aerospace, defense, communications, and, peripherally, the
22
<PAGE> 24
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" 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."
23
<PAGE> 25
The Company believes it will also grow by introducing its existing products
to new markets and by 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(R)
high-temperature resin system to the Company's customer base.
The Company intends to use approximately $3,750,000 of the proceeds of this
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."
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.
24
<PAGE> 26
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.
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
25
<PAGE> 27
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.
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%.
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."
26
<PAGE> 28
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 three months ended March 31, 1996. The Company
believes it has a satisfactory relationship with that supplier, and that if that
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 $6,000,000 at April 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 83 full-time employees on April 30, 1996. Of these
employees, 61 were in manufacturing and the remainder were administrative,
sales, engineering, marketing, and clerical employees.
27
<PAGE> 29
A total of 44 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.
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.
28
<PAGE> 30
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.................... 56 President, Chief Executive Officer and Director
William A. Timmerman............... 50 Chief Financial Officer
Philip D. Cunningham............... 56 Director of Operations, Culver City Composites
Leslie Jay Cohen, Ph.D. ........... 55 Director of Business Development, Culver City
Composites
</TABLE>
The Company currently has two 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 173,874 shares of Common Stock of the
Company and holds a warrant to purchase 289,790 shares of Common Stock at an
exercise price of $1.29 per share. 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. 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.
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
29
<PAGE> 31
Manhattan Bank in 1978. He received a B.A. degree in Philosophy from Washington
and Lee University, an M.B.A. in Economics from New York University, and a
Certificate d'etudes from L'Institut 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. Du Pont de
Nemours & Co. 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, 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.
NEW DIRECTORS
Prior to the closing of this Offering, the Company intends to appoint two
additional directors to its Board of Directors, each of whom has indicated to
the Company that he will accept his appointment. The Company anticipates that
the new directors will also serve on the Audit Committee and the Compensation
Committee. Biographical information for each of these persons is as follows:
Robert V. Glaser, 44, 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 Management Committee of the Investcorp group of
companies (the "Investcorp 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 the Investcorp Group, Mr. Glaser was
active in numerous areas of corporate acquisitions, 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.), 54, was an officer in the United
States Air Force ("USAF"), from 1965 until June 1994. Most recently, he served
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
30
<PAGE> 32
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, and has agreed to serve as a director of
Palomar. Gen. Glosson received a B.S. degree in Electrical Engineering from
North Carolina State University.
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. Mr. Glaser and Gen. Glosson will each receive
options to purchase 5,000 shares of the Company's Common Stock upon joining the
Company's Board of Directors, as contemplated by the Stock Option Plan. 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. The Company
also intends to enter into similar indemnity agreements with Mr. Glaser and Gen.
Glosson when they join the Board of Directors.
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
31
<PAGE> 33
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.
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 in Last Fiscal Year," 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
$100,000.
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the fiscal year
ended December 31, 1995. The Company did not grant any stock appreciation rights
during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED(1) FISCAL YEAR ($/SH)(2) EXPIRATION DATE
- ------------------------------------------- --------- ------------- --------- ------------
<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 this Offering.
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.
32
<PAGE> 34
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 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 an assumed 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 May 24, 1996, options to purchase
123,600 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 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.
33
<PAGE> 35
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 this Offering. 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. 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 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.
34
<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, 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>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------------
NAME AND ADDRESSES OF BENEFICIAL OWNERS(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING
- -------------------------------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Steven Georgiev............................. 985,287(3) 53.8% 25.7%
Paul W. Pendorf............................. 521,623 33.8 14.7
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915......................... 463,664(4) 25.3 12.1
William A. Timmerman........................ 173,874(5) 11.3 4.9
All directors and executive officers
as a group (5 persons).................... 1,680,784(3)(5) 91.8 43.9
</TABLE>
- ---------------
(1) With the exception of Palomar, 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) Includes 463,664 shares owned by Palomar or which Palomar has the right to
acquire within 60 days of the date of this Prospectus. Mr. Georgiev is
Chairman and Chief Executive Officer of Palomar. Mr. Georgiev disclaims
beneficial ownership of these shares.
(4) Includes 289,790 shares issuable upon exercise of a warrant exercisable
within 60 days of the date of this Prospectus that expires on December 31,
2005.
(5) Includes 23,183 shares owned by Pierrette Timmerman, Mr. Timmerman's wife.
Mr. Timmerman disclaims beneficial ownership of 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 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 are 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 mature on December 31, 1996 and bear interest at the rate of 10%
per annum, payable at maturity. The $3,000,000 note is required to be prepaid
from the proceeds of any sale of equity by the Company, and the $150,000 note is
required to be prepaid upon receipt of payment for certain specified accounts
receivable of the Company. In addition, the Company issued Palomar a ten-year
warrant to purchase 289,970 shares of Common Stock at $1.29 per share. If the
$3,000,000 note is not paid in full by October 1, 1996, the Company will become
obligated to issue to Palomar another warrant to purchase an additional 289,790
shares of the Company's Common Stock at $1.29 per share; if it is
35
<PAGE> 37
not paid in full by January 31, 1997, the Company will become obligated to issue
to Palomar another warrant to purchase an additional 173,874 shares of Common
Stock at $1.29 per share. Under certain circumstances, the $3,000,000 note may
be converted into Preferred Stock if not paid prior to December 31, 1996. The
Company intends to repay these Loans in full with the proceeds of the Offering.
See "Use of Proceeds."
In addition, Palomar owns 173,874 shares of the Company's Common Stock. 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 has paid a total of $50,000 to Mr. Georgiev in 1996.
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 the
approximate amount of $161,000, and Mr. Timmerman the approximate amount of
$18,000, in compensation and outstanding expenses. In connection with the
Company's incorporation, Messrs. Pendorf, Timmerman, and Georgiev each assigned
to the Company certain of their rights and obligations under the XXsys
Agreement, including Mr. Pendorf's right to collect payments owed him by XXsys
under the provisions of the XXsys Agreement. 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 approximate amount of $77,000
currently owed and previously due Mr. Pendorf. The Company has also agreed to
indemnify Mr. Pendorf for amounts owed to him by XXsys under the XXsys Agreement
up to a maximum of the amount the Company can offset against any amounts it owes
XXsys.
DESCRIPTION OF SECURITIES
Following the closing of the sale of the shares of Common Stock offered
hereby, the authorized capital stock of the Company will consist 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 1,541,908 shares of Common
Stock outstanding and held of record by 13 shareholders. There will be 3,541,908
shares of Common Stock outstanding after giving effect to the sale of shares of
Common Stock offered hereby. 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
36
<PAGE> 38
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.
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 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. See
"Underwriting."
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 Selling Stockholders' Shares to the Selling
Stockholders in the period from July 24, 1995 to December 8, 1995, the Company
agreed to register the shares in the event of an initial public offering. The
Selling Stockholders have agreed not to sell any Selling Stockholders' Shares
for a period of six months following the effective date of this Offering.
Commencing six months from the effective date of this Offering, each Selling
Stockholder may sell up to 5,000 Selling Stockholders' Shares per month for an
additional six-month period. Thereafter, the Selling Stockholders' Shares may be
sold without any lock-up restrictions. See "Shares Eligible for Future Sale,"
"Underwriting," and "Concurrent Registration of Selling Stockholders' Shares."
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.
37
<PAGE> 39
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
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could materially adversely affect the market price of the Common
Stock. As described below, only a limited number of shares will be 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.
Upon completion of this Offering, the Company will have outstanding
3,541,908 shares of Common Stock, assuming no exercise of outstanding warrants
to purchase Common Stock, no exercise of the Underwriters' over-allotment option
and no exercise of outstanding options. The 2,000,000 shares of Common Stock
that are to be sold by the Company to the public in this Offering, as well as
the 105,097 Selling Stockholders' 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 remaining 1,436,811 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 35,419 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.
38
<PAGE> 40
Concurrently with this Offering, the Company is registering for resale the
Selling Stockholders' Shares. The Company will not receive any of the proceeds
from the sale of the Selling Stockholders' Shares. The Selling Stockholders have
agreed not to sell any Selling Stockholders' Shares for a period of six months
following the effective date of this Offering. Commencing six months from the
effective date of this Offering, each Selling Stockholder may sell up to 5,000
Selling Stockholders' Shares per month for an additional six-month period.
Thereafter, the Selling Stockholders' Shares may be sold without any lock-up
restrictions. See "Shares Eligible for Future Sale" and "Concurrent Registration
of Selling Stockholders' 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, for 24 months after the date of this
Prospectus without prior written consent of the Representative. Holders of
options to purchase an aggregate of 123,600 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 24 months after the date
of this Prospectus, 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 for a period
of 12 months from the date of this Prospectus without the prior written consent
of the Representative, subject to certain exceptions.
CONCURRENT REGISTRATION OF SELLING STOCKHOLDERS' SHARES
The following table sets forth certain information with respect to persons
for whom the Company is registering shares of Common Stock for resale to the
public. The Company will not receive any proceeds from the sale of Selling
Stockholders' Shares by the Selling Stockholders. Beneficial ownership of Common
Stock by such Selling Stockholders will depend on the number of Selling
Stockholders' Shares sold by each Selling Stockholder. The Selling Stockholders'
Shares are not being underwritten by the Underwriters.
<TABLE>
<CAPTION>
SHARES
OWNED BEFORE SHARES OFFERED SHARES OWNED PERCENT OWNED
NAME OFFERING(1) HEREBY AFTER OFFERING AFTER OFFERING
- --------------------------------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Edoardo B. Fornaro..................... 30,911 30,911 0 0%
Edward M. Giles........................ 16,228 16,226 0 0
C.F. Stone III......................... 11,592 11,592 0 0
Celide S. Hogan........................ 7,728 7,728 0 0
Mercury, L.P. ......................... 38,638 38,638 0 0
-------
Total........................ 105,097
</TABLE>
- ---------------
(1) Represents shares issued in connection with private placements from July 24,
1995 to December 8, 1995.
There are no material relationships between any of the Selling Stockholders
and the Company, nor have any such material relationships existed within the
past three years, except that Mr. Fornaro was paid $50,000 by the Company for
advisory services rendered in connection with the Company's acquisition of CCC.
The Company has been informed by the Underwriters that there are no agreements
between any of the Underwriters and any Selling Stockholder regarding the
distribution of Selling Stockholders' Shares.
Each Selling Stockholder has agreed to lock-up provisions pursuant to which
the Selling Stockholders have agreed not to sell any Selling Stockholders'
Shares for a period of six months following the effective date of this Offering.
Commencing six months from the effective date of this Offering, each Selling
Stockholder may sell up to 5,000 Selling Stockholder's Shares per month for an
additional six-month period. Thereafter, the Selling Stockholders' Shares may be
sold without any lock-up restrictions.
39
<PAGE> 41
Subject to the lock-up provisions described above, the Selling
Stockholders' Shares may be sold from time to time by the Selling Stockholders,
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
Stockholders' 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 Stockholders' 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 Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated immediately prior to the sale.
The Selling Stockholders, 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 a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of the
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 each 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 Stockholders' 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 of the Underwriters is engaged in a distribution of the Selling
Stockholders' Shares, it will not be able to make a market in the Company's
securities during the applicable restrictive period. However, none of the
Underwriters has agreed to or are any of them obligated to act as broker-dealer
in the sale of the Selling Stockholders' Shares, and the Selling Stockholders
may be required, and in the event that any of the Underwriters is a market
maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Stockholder desiring to sell Selling
Stockholders' Shares 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 such Selling
Stockholders.
40
<PAGE> 42
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company and H.J. Meyers &
Co., Inc., as Representative, to purchase from the Company the number of shares
of Common Stock set forth opposite their names. The underwriting discount set
forth on the cover page of this Prospectus will be allowed to the Underwriters
at the time of delivery to the Underwriters of the shares of Common Stock so
purchased.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
H.J. Meyers & Co., Inc. ..........................................................
---------
Total................................................................... 2,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at an offering price $ per share and
that the Underwriters may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. a concession not in excess of
$ per share, of which the Underwriters may allow and such dealers may
reallow concessions not in excess of $ per share to certain other dealers.
After commencement of the Offering, the public price and the concession may be
changed.
The Company has granted to the Underwriters an over-allotment option
exercisable during the 45-day period following the date of this Prospectus to
purchase up to a maximum of 300,000 additional shares of Common Stock at the
public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option only to
satisfy over-allotments in the sale of the shares of Common Stock.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 3% of the total proceeds of this Offering, or
$ ($ if the Underwriters exercise the over-allotment option in
full), of which $15,000 has already been paid. In addition to the Underwriters'
commissions and the Representative's expense allowance, the Company is required
to pay the costs of qualifying the shares of Common Stock under federal and
state securities laws, together with legal and accounting fees, printing and
other costs in connection with this Offering, estimated to total approximately
$500,000.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration and for investment, a warrant (the
"Representative's Warrant") to purchase up to 200,000 shares of Common Stock.
The shares of Common Stock subject to the Representative's Warrant are identical
to the shares of Common Stock to be sold to the public, except for the purchase
price and certain registration rights as described below. The Representative's
Warrant will, subject to certain exceptions, be exercisable for a four-year
period commencing one year from the effective date of this Prospectus, at an
exercise price of $ per share (120% of the public offering price per share).
The Representative's Warrant will not be transferable prior to its initial
exercise date except to successors in interest to the Representative and
officers of the Representative and members of the selling group and officers and
partners thereof.
The Representative's Warrant will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrant does not entitle the Representative to any rights as a
stockholder of the Company until such Warrant is exercised and the shares of
Common Stock are purchased thereunder.
41
<PAGE> 43
The Representative's Warrant and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that, if
it shall cause a post-effective amendment to the Registration Statement of which
this Prospectus is a part, or a new registration statement or offering statement
under Regulation A of the Securities Act, to be filed with the Commission, the
Representative, or the holder(s) of the Representative's Warrant, shall have the
right during the life of the Representative's Warrant to include therein for
registration the Representative's Warrant and/or the shares of Common Stock
issuable upon exercise of such Warrant at no expense to the Representative or
the holder(s) thereof. Additionally, the Company has agreed that, upon demand by
the holder(s) of at least 50% of (i) the total unexercised Representative's
Warrant (based upon the remaining number of shares of Common Stock purchasable
thereunder) and (ii) the shares of Common Stock issued upon the exercise of the
Representative's Warrant, made on no more than two separate occasions during the
exercise period of the Representative's Warrant, the Company shall register the
Representative's Warrant and/or any of the shares of Common Stock issuable upon
the exercise thereof, the initial such registration to be at the Company's
expense and the second at the expense of the holder(s). These registration
rights expire five years from the date of issuance of the Representative's
Warrant.
For the period during which the Representative's Warrant is exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representative's
Warrant can be expected to exercise it at a time which the Company would, in all
likelihood, be able to obtain any needed capital from an offering of unissued
Common Stock on terms more favorable to the Company than those provided for in
the Representative's Warrant. Such facts may adversely affect the terms on which
the Company can obtain additional financing. To the extent that the
Representative realizes any gain from the resale of the Representative's Warrant
or the shares of Common Stock issuable thereunder, such gain may be deemed
additional underwriting compensation under the Securities Act.
The Company has agreed to enter into a one-year consulting agreement with
the Representative, pursuant to which the Representative will act as a financial
consultant to the Company, commencing on the closing date of this Offering.
Under the terms of this agreement, the Representative, to the extent reasonably
required in the conduct of the business of the Company and at the prior written
request of the principal executive officer of the Company, has agreed to
evaluate the Company's managerial and financial requirements, assist when
requested by the Company in recruiting, screening, evaluating and recommending
key personnel, directors, accountants, commercial and investment bankers, assist
in the preparation of budgets and business plans, advise with regard to sales
planning and sales activities, advise with respect to stockholder relations and
public relations matters, evaluate financial requirements, and assist in
financial arrangements. The Representative will make available qualified
personnel for this purpose. The consulting fee of $72,000 will be payable, in
full, on the closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company has also agreed to
maintain a relationship with such public relations firm for a minimum period of
24 months and on such other terms as are acceptable to the Representative.
The Company has also agreed that, for a period of two years from the
closing of this Offering, if it participates in any merger, consolidation or
other transaction which the Representative has brought to the Company (including
an acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), and the transaction
is consummated within 36 months of the closing of this Offering, then it will
pay for the Representative's services an amount equal to 5% of the first
$3,000,000 of value paid or value received in the transaction, 2 1/2% of any
consideration above $3,000,000 and less than $5,000,000, and 2% of any
consideration in excess of $5,000,000. The Company has also agreed that if,
during this two-year period, someone other than the Representative brings such a
merger, consolidation or other transaction to the Company, and if the Company in
writing retains the Representative for consultation or other services in
connection therewith, then upon consummation of the transaction, the Company
will pay to the Representative as a fee the appropriate amount as set forth
above or as otherwise agreed between the Company and the Representative.
42
<PAGE> 44
The Company has agreed that for a period of 12 months from the date of this
Prospectus it will not sell or otherwise dispose of any securities without the
prior written consent of the Representative, which consent shall not be
unreasonably withheld, with the exception of shares issued pursuant to the
exercise of options, warrants and other convertible securities outstanding on
the date of this Prospectus. The Company has also agreed that for a period of 36
months from the closing date of this Offering, it will not sell or issue any
shares of Preferred Stock without the prior written consent of the
Representative. The Company has also agreed that for a period of 24 months from
the closing date of this Offering, the Company will not sell or issue any
securities pursuant to Regulation S under the Securities Act without the prior
written consent of the Representative.
The Selling Stockholders have agreed not to sell any Selling Stockholders'
Shares for a period of six months following the effective date of this Offering.
Commencing six months from the effective date of this Offering, each Selling
Stockholder may sell up to 5,000 Selling Stockholders' Shares per month for an
additional six-month period. Thereafter, the Selling Stockholders' Shares may be
sold without any lock-up restrictions.
The holders of 1,436,811 of the shares of Common Stock outstanding
immediately prior to this Offering and the holders of options and warrants to
purchase 556,692 shares of Common Stock have agreed that for a period of 24
months from the date of this Prospectus they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock acquired prior to this
Offering or obtainable under any option, warrant or convertible security held by
them prior to this Offering, without the prior written consent of the
Representative. The Company has been advised by the Representative that the
Representative has neither any agreements or understandings, nor any present
intention, to release any shares of Common Stock subject to this restriction
prior to the expiration of the two-year lock-up period.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
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.
The Company has agreed with the Representative that for a period of 36
months from the closing date of this Offering, the Representative may designate
an observer to the Board of Directors who will be entitled to attend and receive
notice of all meetings of the Board. The observer will be reimbursed all
out-of-pocket expenses incurred in attending such meetings.
The Underwriters have advised the Company that they do not intend to sell
shares to any discretionary accounts.
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the shares of Common Stock being offered hereby was
determined by negotiation between the Company and the Underwriters. Factors
considered in determining such price include the history and the prospects for
the industry in which the Company competes, the past and present operations of
the Company, the future prospects of the Company, the abilities of the Company's
management, the earnings, net worth and financial condition of the Company, the
general condition of the securities markets at the time of this Offering, and
the prices of similar securities of comparable companies.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Certain legal matters
in connection with this Offering will be passed upon for the Underwriters by
Epstein Becker & Green, P.C., Boston, Massachusetts.
43
<PAGE> 45
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 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.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is made to the Registration Statement and the exhibits
and schedules filed as a part of the Registration Statement. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Thirteenth Floor,
New York, New York 10048. Copies also may be obtained from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates.
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.
44
<PAGE> 46
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 MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1996 AND 1995:
Condensed Consolidated Balance Sheet at March 31, 1996........................... F-16
Condensed Consolidated Statement of Operations for the three months ended March
31, 1996
and 1995...................................................................... F-17
Condensed Consolidated Statement of Cash Flows for the three months ended
March 31, 1996 and 1995....................................................... F-18
Notes to Condensed Consolidated Financial Statements............................. F-19
CULVER CITY COMPOSITES CORPORATION:
Independent Auditors' Report..................................................... F-20
Consolidated Balance Sheet at December 19, 1995 and December 31, 1994............ F-21
Consolidated Statement of Operations for the period January 1, 1995 to December
19, 1995 and the year ended December 31, 1994................................. F-22
Consolidated Statement of Stockholders' Equity (Deficit) for the period January
1, 1995 to December 19, 1995 and the year ended December 31, 1994............. F-23
Consolidated Statement of Cash Flows for the period January 1, 1995 to December
19, 1995 and the year ended December 31, 1994................................. F-24
Notes to Consolidated Financial Statements....................................... F-25
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND NOTES THERETO..................... F-32
</TABLE>
F-1
<PAGE> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash.......................................................................... $ 1,800
Accounts receivable, net of allowance of $69,447.............................. 3,379,150
Inventories................................................................... 2,037,520
Prepaid expenses and other current assets..................................... 369,889
----------
Total current assets.................................................. 5,788,359
Property and equipment, less accumulated depreciation and amortization of
$178,978...................................................................... 4,307,344
Other assets.................................................................... 51,876
----------
$10,147,579
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.............................................................. $ 2,382,504
Notes payable-affiliate....................................................... 3,091,277
Accrued liabilities........................................................... 1,803,138
Current portion of term loan-bank............................................. 112,000
Taxes payable................................................................. 113,927
----------
Total current liabilities............................................. 7,502,846
Term loan-bank.................................................................. 419,999
Revolving credit facility-bank.................................................. 2,043,362
----------
Total liabilities..................................................... 9,966,207
----------
Commitments and contingencies
Stockholders' equity:
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; issued
and outstanding 1,516,908 shares........................................... 15,169
Additional paid-in capital.................................................... 197,167
Accumulated deficit........................................................... (30,964)
----------
Total stockholders' equity............................................ 181,372
----------
$10,147,579
==========
</TABLE>
See notes to the financial statements.
F-16
<PAGE> 62
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
(NOTE 1)
<S> <C> <C>
Net sales....................................................... $5,251,321 $4,017,596
---------- ----------
Costs and expenses
Materials..................................................... 2,431,382 1,916,657
Fixed and variable manufacturing.............................. 1,352,853 1,411,295
Selling, general and administrative........................... 825,650 535,589
Research and development...................................... 94,310 78,389
---------- ----------
4,704,195 3,941,930
---------- ----------
Income from operations.......................................... 547,126 75,666
Interest expense................................................ 186,888 211,600
---------- ----------
Income (loss) before income taxes............................... 360,238 (135,934)
Provision for income taxes...................................... 113,927 --
---------- ----------
Net income (loss)............................................... $ 246,311 $ (135,934)
========== ==========
Net income (loss) per common share.............................. $0.13
Weighted average number of common shares........................ 1,878,879
==========
</TABLE>
See notes to the financial statements.
F-17
<PAGE> 63
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 1996
-------------- MARCH 31, 1995
--------------
(NOTE 1)
<S> <C> <C>
Cash used in operations:
Net income (loss)............................................... $ 246,311 $ (135,934)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization................................. 136,074 320,436
Non-cash interest expense..................................... 19,520 --
(Increase) decrease in current assets:
Accounts receivable........................................ (951,545) (135,460)
Inventory.................................................. (68,210) 160,527
Prepaid expenses and other current assets.................. (58,624) 86,599
Increase (decrease) in current liabilities:
Accounts payable........................................... (208,853) (501,287)
Accrued liabilities........................................ 247,621 (53,606)
Taxes payable.............................................. 113,927 --
Decrease in other assets...................................... 92,375 --
----------- ---------
Net cash used in operating activities........................... (431,404) (258,725)
----------- ---------
Cash used for investing activities:
Capital expenditures.......................................... (39,978) (22,276)
----------- ---------
Net cash used for investing activities.......................... (39,978) (22,276)
----------- ---------
Cash provided by financing activities:
Increase in intercompany debt................................. -- 211,467
Borrowings under revolving credit............................. 2,722,488 --
Repayments under revolving credit............................. (2,394,822) --
Payment of term loan-bank..................................... (28,001) --
----------- ---------
Net cash provided by financing activities....................... 299,665 211,467
----------- ---------
Net decrease in cash............................................ (171,717) (69,534)
Cash at beginning of period..................................... 173,517 109,586
----------- ---------
Cash at end of period........................................... $ 1,800 $ 40,052
=========== =========
Supplementary Information:
Cash paid for interest........................................ $ 73,718 $ 132
=========== =========
Cash paid for taxes........................................... $ 3,200 $ 800
=========== =========
</TABLE>
See notes to the financial statements.
F-18
<PAGE> 64
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 and related notes included elsewhere in this
Prospectus. The unaudited condensed consolidated financial statements as of
March 31, 1996 and 1995 and for the quarterly 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 period ended March 31,
1995 represent those of Culver City Composites Corporation prior to its
acquisition by the Company.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) 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.
F-19
<PAGE> 65
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-20
<PAGE> 66
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-21
<PAGE> 67
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-22
<PAGE> 68
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-23
<PAGE> 69
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-24
<PAGE> 70
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-25
<PAGE> 71
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-26
<PAGE> 72
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-27
<PAGE> 73
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-28
<PAGE> 74
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-29
<PAGE> 75
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-30
<PAGE> 76
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-31
<PAGE> 77
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-32
<PAGE> 78
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-33
<PAGE> 79
===============================================================================
[Photograph of quality control Culver City Composites
technicians in laboratory] Corporation researches, develops
Quality control technicians and produces advanced composite
work in the laboratory. fabrics and tapes.
[Photograph of autoclave]
The autoclave is used to cure lam-
inates.
Dry graphite, aramid or glass fibers are combined with
proprietary wet resin formulations to make advanced
composite materials.
[Photograph of rolls of fiber [Photograph of rolls of finished product]
and beaker of resin mixture] Wound rolls of Culver City
Composites Corporation's prod-
ucts are made ready for shipment to
customers in the finished goods ware-
house.
[Photograph of aircraft interior]
Culver City Composites
Corporation manufactures
advanced composite materials for
commercial aviation/transportation
interiors (overhead bins, side walls,
cielings and floor panels). These
materials have been engineered to
emit low amounts of smoke, flame
and toxic gasses in fires, helping to
save lives in emergency situations.
[Photograph of jet engine]
Advanced composites are used in
defense and aerospace applica-
tions because of their ability to with-
stand high teperatures and stress.
The black area of the jet engine to
the left is made from an advanced
composite material manufactured by
Culver City Composites
Corporations.
===============================================================================
[Logo]
<PAGE> 80
===============================================================================
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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............... 18
Business.............................. 22
Management............................ 29
Executive Compensation................ 32
Principal Stockholders................ 35
Certain Transactions.................. 35
Description of Securities............. 36
Shares Eligible for Future Sale....... 38
Concurrent Registration of Selling
Stockholders' Shares................ 39
Underwriting.......................... 41
Legal Matters......................... 43
Experts............................... 44
Additional Information................ 44
Financial Statements.................. F-1
</TABLE>
UNTIL , 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.
===============================================================================
===============================================================================
2,000,000 SHARES
AM&T LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
H.J. MEYERS LOGO
, 1996
===============================================================================
<PAGE> 81
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 also intends to enter into similar indemnity agreements with
Mr. Glaser and Gen. Glosson when they join the Board of Directors. 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 issuance and
distribution of the securities to be registered, other than underwriting
discounts and commissions, appears below. All amounts are estimates, except for
the SEC registration fee, NASD filing fee, Nasdaq SmallCap Market Listing Fee
and Pacific Stock Exchange Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 5,473
NASD Filing Fee........................................................... 2,087
Nasdaq SmallCap Market Listing Fee........................................ 9,825
Pacific Stock Exchange Listing Fee........................................ 20,000
Blue Sky Qualification Fees and Expenses.................................. 35,000
Accounting Fees and Expenses.............................................. 130,000
Legal Fees and Expenses................................................... 200,000
Transfer Agent Fees....................................................... 5,000
Printing and Engraving Expenses........................................... 50,000
Miscellaneous Expenses.................................................... 42,615
--------
TOTAL........................................................... $500,000
========
</TABLE>
II-1
<PAGE> 82
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES.
<TABLE>
Registrant has sold and issued the following unregistered securities:
<CAPTION>
ISSUANCES OF COMMON STOCK
NUMBER PURCHASE
NAME OF SHARES PRICE DATE SOLD
- ---- --------- -------- ---------
<S> <C> <C> <C>
Steven Georgiev........................................... 521,623 $ 4,500 3/29/95
Paul W. Pendorf........................................... 521,623 4,500 3/29/95
Palomar Medical Technologies, Inc.(1)..................... 173,874 1,500 3/29/95
William A. Timmerman...................................... 173,874 1,500 3/29/95
Joyce A. Huber............................................ 10,818 93 3/29/95
Edoardo B. Fornaro........................................ 30,911 20,000 7/24/95
Edward M. Giles........................................... 16,228 10,500 9/14/95
C.F. Stone III............................................ 11,592 7,500 9/14/95
Celide S. Hogan........................................... 7,728 5,000 9/18/95
Mercury, L.P. ............................................ 38,638 25,000 12/08/95
Haviland and Associates(2)................................ 9,999 34,504 12/22/95
Advanced Polymer Sciences, Inc. .......................... 25,000 100,000 4/02/96
---------
Total........................................... 1,541,908
=========
- ---------------
<FN>
(1) Also received a warrant to purchase 289,790 shares of Common Stock at an exercise price of
$1.29 per share on December 19, 1995.
(2) 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.
</TABLE>
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.
ITEM 27: EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
1.2* Form of Financial Consulting Agreement
1.3* Form of Merger and Acquisition Agreement
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
4.3* Form of Lock-Up Agreement
5.1 Opinion of Foley, Hoag & Eliot LLP
10.1* Agreement among XXsys Technologies, Inc., Composite Retrofit Corporation, Gloria
Ma, Steven Georgiev, Paul W. Pendorf and William A. Timmerman, dated March 25,
1995
10.2* Consulting Agreement with Steven Georgiev
10.3* Employment Agreement with Paul W. Pendorf, as amended
10.3.1* Option Agreement for Paul W. Pendorf
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
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 Leslie 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 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 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 amendments 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* $4,440,000 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* 10% Promissory Note of the Company in the principal amount of $3,000,000, dated
December 19, 1995 in favor of Palomar Medical Technologies, Inc.
10.19* Warrant for the purchase of 250,000 shares of Common Stock at an exercise price of
$1.50 per share issued to Palomar Medical Technologies, Inc., dated December 19,
1995
10.20* Pledge Agreement among Palomar Medical Technologies, Inc., Steven Georgiev, Paul
W. Pendorf, William A. Timmerman and Pierrette Timmerman, dated December 19, 1995
10.21* 10% Promissory Note of Culver City Composites Corporation in the principal amount
of $150,000, dated December 19, 1995, in favor of Palomar Medical Technologies,
Inc.
10.22* Joint Venture Agreement dated March 20, 1996, among AMT, CCC, Advanced Polymer
Systems, Inc., and Donald J. Keehan
10.23* 1996 Incentive and Nonqualified Stock Option Plan
10.23.1* Form of Option Agreement -- Incentive Stock Option
10.23.2* Form of Option Agreement -- Nonqualified Stock Option
10.24* Agreement dated as of May 1, 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
10.25* Retirement Plan for Hourly-Rate Employees of Structural Polymer Systems, Inc.,
effective as of August 1, 1994
11.1* Computation of Net Income (Loss) per Share
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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.* Power of Attorney
99.1* Consent of Robert V. Glaser
99.2* Consent of Lt. Gen. Buster C. Glosson (USAF Ret.)
<FN>
- ---------------
* Previously filed.
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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-4
<PAGE> 85
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 Los Angeles, State of California, on June 10, 1996.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
By: /s/ PAUL W. PENDORF
------------------------------------
Paul W. Pendorf
President and Chief
Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<S> <C> <C>
* Chairman of the Board of Directors June 10, 1996
- ------------------------------------------
Steven Georgiev
/s/ PAUL W. PENDORF President, Chief Executive Officer, June 10, 1996
- ------------------------------------------ and Director (Principal Executive
Paul W. Pendorf Officer)
/s/ WILLIAM A. TIMMERMAN Chief Financial Officer (Principal June 10, 1996
- ------------------------------------------ Financial and Accounting Officer)
William A. Timmerman
* By: /s/ DAVID A. BROADWIN
- ------------------------------------------
David A. Broadwin,
as Attorney-in-Fact
</TABLE>
II-5
<PAGE> 86
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1* Form of Underwriting Agreement
1.2* Form of Financial Consulting Agreement
1.3* Form of Merger and Acquisition Agreement
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
4.3* 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
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 Leslie 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 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 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 amendments 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* $4,440,000 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
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.17* Stock Pledge Agreement between the Company and LaSalle Business Credit, Inc.,
dated December 19, 1995
10.18* 10% Promissory Note of the Company in the principal amount of $3,000,000,
dated December 19, 1995 in favor of Palomar Medical Technologies, Inc.
10.19* Warrant for the purchase of 250,000 shares of Common Stock at an exercise
price of $1.50 per share issued to Palomar Medical Technologies, Inc., dated
December 19, 1995
10.20* Pledge Agreement among Palomar Medical Technologies, Inc., Steven Georgiev,
Paul W. Pendorf, William A. Timmerman and Pierrette Timmerman, dated December
19, 1995
10.21* 10% Promissory Note of Culver City Composites Corporation in the principal
amount of $150,000, dated December 19, 1995, in favor of Palomar Medical
Technologies, Inc.
10.22* Joint Venture Agreement dated March 20, 1996, among AMT, CCC, Advanced
Polymer Systems, Inc., and Donald J. Keehan
10.23* 1996 Incentive and Nonqualified Stock Option Plan
10.23.1* Form of Option Agreement -- Incentive Stock Option
10.23.2* Form of Option Agreement -- Nonqualified Stock Option
10.24* Agreement dated as of May 1, 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
10.25* Retirement Plan for Hourly-Rate Employees of Structural Polymer Systems,
Inc., effective as of August 1, 1994
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.* Power of Attorney
99.1* Consent of Robert V. Glaser
99.2* Consent of Lt. Gen. Buster C. Glosson (USAF Ret.)
<FN>
- ---------------
* Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
June 10, 1996
The American Materials & Technologies Corporation
5915 Rodeo Road
Los Angeles, California 90016
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form SB-2, Registration
No. 333-3836, as amended by Amendments No. 1 and No. 2 thereto (as amended, the
"Registration Statement"), filed by The American Materials & Technologies
Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to the proposed public offering by the Company of
2,500,000 shares (the "Company Shares") of its Common Stock, $0.01 par value per
share ("Common Stock"), to be issued by the Company, as well as to the
concurrent registration by the Company of 105,097 shares of Common Stock held by
certain stockholders of the Company (the "Selling Stockholders' Shares"). (The
foregoing number of Company Shares assumes exercise in full of the Underwriters'
over-allotment option and the Representative's Warrant, as each is described in
the Registration Statement.)
We are familiar with the Company's Certificate of Incorporation and all
amendments thereto, its By-Laws and all amendments thereto, records of meetings
and consents of its Board of Directors and of its stockholders provided to us by
the Company, and its stock records. In addition, we have examined and relied on
the originals or copies certified or otherwise identified to our satisfaction of
all such corporate records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, we are of the opinion that:
1. The Company has corporate power adequate for the issuance of the Company
Shares in accordance with the Registration Statement. The Company has taken all
necessary corporate action required to authorize the issuance and sale of the
Company Shares. When certificates for the Company Shares have been duly executed
and countersigned, and
<PAGE> 2
The American Materials & Technologies Corporation
June 10, 1996
Page 2
delivered against due receipt of consideration therefor as described in the
Registration Statement, the Company Shares will be legally issued, fully paid
and non-assessable.
2. The Selling Stockholders' Shares to be registered by the Company in the
Registration Statement were legally issued and are fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
prospectus forming part of the Registration Statement.
Very truly yours,
/s/ Foley, Hoag & Eliot LLP
------------------------------
FOLEY, HOAG & ELIOT LLP
<PAGE> 1
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.
[SIG]
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
June 10, 1996
New York, New York
