<PAGE>
As filed with the Securities and Exchange Commission on June 6, 1997
Registration No. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
Compass Plastics & Technologies, Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 2821 95-4611994
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer identification no.)
incorporation or organization) classification code number)
</TABLE>
15730 South Figueroa Street, Gardena, California 90248
telephone: (213) 770-8771; facsimile: (310) 523-9859
(Address and telephone number of principal executive offices and principal
place of business)
---------------------
MICHAEL A. GIBBS, President
Compass Plastics & Technologies, Inc.
15730 South Figueroa Street, Gardena, California 90248
telephone: (213) 770-8771; facsimile: (310) 523-9859
(Name, address and telephone number of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
STEPHEN A. WEISS, ESQ. SCOTT W. ALDERTON, ESQ.
SPENCER G. FELDMAN, ESQ. JOHN D. JENKINS, ESQ.
Greenberg, Traurig, Hoffman, Troop Meisinger Steuber & Pasich, LLP
Lipoff, Rosen & Quentel 10940 Wilshire Boulevard
153 East 53rd Street Los Angeles, California 90024
New York, New York 10022 telephone: (310) 824-7000 facsimile: (310) 443-8569
telephone: (212) 801-9200 facsimile: (212) 223-7161
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this 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, check the following box. / /
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. / /
<PAGE>
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Amount of
Securities to be Registered Registered(1) Per Share(2) Price(2) Registration Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 per value......... 1,495,000 $8.00 $11,960,000 $3,624.24
- -----------------------------------------------------------------------------------------------------------
Representative's Warrants to Purchase
Common Stock ........................ 130,000 $.001 $ 130 $0.04
- -----------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Representative's Warrants ...... 130,000(3) $9.60 $ 1,248,000 $378.18
- -----------------------------------------------------------------------------------------------------------
Total .............................. $13,208,130 $4,002.46
===========================================================================================================
</TABLE>
(1) Includes 195,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457.
(3) Consists of shares of Common Stock issuable upon exercise of
Representative's Warrants issued to the Representative of the several
Underwriters.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
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 6, 1997
PROSPECTUS
1,300,000 Shares
Compass Plastics & Technologies, Inc.
Common Stock
------------
All of the 1,300,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by Compass Plastics & Technologies, Inc. (the "Company").
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $7.00 and $8.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market ("Nasdaq") under the symbol "CPTI."
---------------------
The shares offered hereby involve a high degree of risk. See "Risk Factors"
beginning on page 7 hereof.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Discounts Proceeds
Public and Commissions (1) to Company (2)
- --------------------------------------------------------------------------------
Per Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ...... $ $ $
================================================================================
(1) Excludes the value of warrants to be issued to the representative of the
Underwriters (the "Representative") to purchase up to 130,000 shares of
Common Stock (the "Representative's Warrants"). The Company has agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $792,000, including the Representative's non-accountable expense
allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
195,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the several Underwriters, when,
as and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
share certificates will be made against payment therefor at the offices of
Cruttenden Roth Incorporated in Irvine, California or through the facilities of
the Depository Trust Company, on or about , 1997.
CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
[Artwork depicting the Company's manufacturing operations]
------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
The Company intends to furnish annual reports to stockholders containing
audited financial statements and make available quarterly reports and such
other periodic reports as it may determine to be appropriate or as may be
required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." The shares of
Common Stock offered hereby involve a high degree of risk and investors should
carefully consider information set forth in "Risk Factors." Unless otherwise
indicated, all information in this Prospectus (i) gives effect to a 5.4 -for-1
stock split to be consummated prior to the effectiveness of this offering, and
(ii) assumes that the Underwriters' over-allotment option as described in
"Underwriting" is not exercised. As used in this Prospectus, (i) unless the
context otherwise requires, the term "Company" refers to Compass Plastics &
Technologies, Inc. and its wholly-owned subsidiary, and (ii) the term "year" or
"fiscal year" refers to the Company's fiscal year ending on the last Sunday of
the 52 consecutive weeks ending in October.
The Company
Compass Plastics & Technologies, Inc., through its wholly-owned
subsidiary, AB Plastics Corporation ("AB Plastics"), is a leading contract
manufacturer and assembler of custom injection-molded plastic components. The
Company manufactures the plastic exteriors of computer monitors, televisions,
electronic music keyboards and other consumer electronics equipment. In
addition to injection-molded components, the Company offers a broad range of
"value-added" services, including painting, decorating and assembly. A
significant percentage of the Company's components are manufactured using
gas-assist molding technology which reduces material usage and permits the
molding of lighter and stronger parts. The Company believes its technical and
manufacturing capabilities to produce large injection-molded plastic components
on both a "just-in-time" basis and in production volumes with low reject rates
provide a significant competitive advantage.
The Company charges its customers a fixed price for each component or part
it manufactures, which components may consist of single or multiple parts.
Negotiated prices include the cost of thermoplastic resins, packaging, other
materials and parts, labor and overhead. Although thermoplastic resins have
historically accounted for at least 80% of its raw materials costs, the Company
does not believe that its results of operations are subject to the risk of
fluctuations in resin prices, since the Company's arrangements with most of its
customers provide that price changes in such resins are passed through to the
customer by changes in the component prices charged by the Company.
The Company's two major original equipment manufacturer ("OEM") customers
are Sony Corporation ("Sony"), through its computer monitor and television
manufacturing divisions, and Matsushita Electronic Corporation of America
("Matsushita"), through its Panasonic and Quasar brands. Sales to these
customers represented approximately 66.5% and 18.0%, respectively, of the
Company's total sales for the fiscal year ended October 27, 1996. Of sales to
Sony, computer monitor components accounted for approximately 39.1% and
television components accounted for approximately 27.4% of the Company's total
sales during the fiscal year ended October 27, 1996. The Company has been an
uninterrupted supplier of custom injection-molded components to Sony since
1972, to Matsushita since 1983 and to virtually all of its other customers for
at least seven years. To improve its ability to support major customers, in
addition to its current manufacturing facility in Gardena, California
(approximately 15 miles south of Los Angeles), the Company is currently
completing a new "build-to-suit" manufacturing facility in Tijuana, Mexico.
This new facility has been logistically located near many of its customers'
manufacturing plants in Mexico and is expected to add significant manufacturing
capacity by September 1997. Management believes that this facility will enable
the Company to capitalize on demand from new and existing customers which have
relocated their manufacturing operations from the Far East and the United
States to Mexico in recent years due to lower labor and transportation costs.
Closer proximity to its major customers will allow the Company to be more
efficient in delivering 15 to 20 daily truckloads of components to its
customers' production facilities and eliminate time-consuming border crossings.
3
<PAGE>
Injection-molded plastic components are used in a wide variety of
industries, including automotive, telecommunications, computer, consumer
electronics, medical and packaging. Based on information provided in Plastic
News, a leading industry publication, sales of the top 100 North American
plastic injection molders were approximately $11.3 billion in 1994, $12.5
billion in 1995 and $14.4 billion in 1996, reflecting a 12.9% industry-wide
average annual growth rate. The Company was ranked by sales in 1996 as the 96th
largest plastic injection molder in North America, the 9th largest plastic
injection molder in the western United States (comprised of the states of
California, Arizona, Oregon and Washington), and one of the three largest
plastic injection molders in Southern California. According to Stanford
Resources' Monitrak Quarterly Report, United States sales of computer monitors,
the Company's major market, rose to approximately 21.7 million units in 1996,
from sales of approximately 13.4 million units in 1994.
The Company's goal is to be a dominant supplier of injection-molded plastic
components to the increasing number of computer monitor and television OEM
plants located in Southern California and Tijuana, Mexico. Management believes
that the commencement of digital broadcasting in the television industry in the
United States, starting in 1998, will create a demand for new high-definition
television sets ("HDTV") and flat panel displays as consumers replace obsolete
television sets unable to receive digital broadcasting with HDTV quality.
According to Stanford Resources, at least 20 million television sets have been
sold each year since 1991 and 380 million television sets have been sold since
1974 in the United States. The key elements of the Company's growth strategy
include the following:
o Continue to expand computer monitor and television component business --
through the continuation of the overall growth of the Company's computer
monitor sales to Sony, which have grown from $2.9 million in fiscal 1994
to $15.4 million in fiscal 1996, expansions into new products such as
Sony's personal computer, known as "Vaio," and by targeting sales to other
computer monitor and television OEMs doing business in Tijuana, Mexico;
o Acquire complementary businesses -- which the Company believes will
diversify its customer base, technical capabilities and geographic areas
served;
o Capitalize on customer demand in Tijuana market -- by completing the
construction of its manufacturing facility in Tijuana, Mexico to increase
manufacturing capacity by 50% and to be located near existing and
potential customers;
o Pursue long-term relationships with new customers -- that require
responsive manufacturing services in the computer, television and consumer
electronics industries; and
o Continue commitment to quality and service -- by continuing to achieve
the highest levels of quality control through continuous improvement of
its engineering and manufacturing capabilities.
The Company was incorporated under the laws of the State of Delaware in
May 1996 under the name AB Plastics Holding Corporation. In June 1997, the
Company changed its name to Compass Plastics & Technologies, Inc. The Company's
principal executive offices are located at 15730 South Figueroa Street,
Gardena, California 90248, and its telephone number is (213) 770-8771. For a
description of the background of the Company, see "The Company."
4
<PAGE>
The Offering
Common Stock offered ... 1,300,000 shares of Common Stock
Common Stock outstanding after
the Offering(1)......... 6,106,000 shares of Common Stock
Use of Proceeds ......... The Company intends to use the net proceeds of
this offering to repay approximately $4.0 million in
principal and interest outstanding under its
subordinated loan agreement with Sirrom Investments,
Inc. ("Sirrom"). The remaining net proceeds of
approximately $4.0 million will be used to complete
the construction of the warehouse at the Company's
Gardena, California facility and equip its newly-
constructed Tijuana, Mexico manufacturing facility.
Pending such uses, the Company intends to
temporarily reduce approximately $4.0 million in
borrowings expected to be outstanding under the
Company's maximum $10.0 million revolving line of
credit facility with The Sumitomo Bank of
California ("Sumitomo"). See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.................. CPTI
- ------------
(1) Does not include (i) 130,000 shares of Common Stock issuable upon exercise
of the Representative's Warrants, (ii) 594,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options with an
exercise price of $0.74 per share under the Company's 1996 Stock Option
Plan and (iii) 300,000 shares of Common Stock reserved for issuance upon
exercise of outstanding options with an exercise price equal to the
initial public offering price per share, and 700,000 shares of Common
Stock reserved for issuance upon exercise of options reserved for future
grant, under the Company's 1997 Stock Option Plan. See "Management --
Employment Agreements," "-- Stock Option Plans," "Certain Transactions"
and "Underwriting."
5
<PAGE>
Summary Financial Data
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
52 Weeks Ended 26 Weeks Ended
--------------------------------------------- ------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales ................................. $ 34,027 $ 42,679 $ 39,345 $ 19,410 $ 20,244
Cost of sales ........................ 30,695 38,961 34,001 17,338 16,393
-------- -------- ---------- ---------- ----------
Gross profit ........................ 3,332 3,718 5,344 2,072 3,851
Selling, general and administrative . 1,715 1,683 1,732 1,021 1,456
-------- -------- ---------- ---------- ----------
Operating income ..................... 1,617 2,035 3,612 1,051 2,395
Net interest expense .................. 225 375 485 226 451
Other (income) expense ............... (218) (70) 1,146 0 --
-------- -------- ---------- ---------- ----------
Income before income taxes ............ 1,610 1,730 1,981 825 1,944
Income tax expense(1) ............... 48 26 107 12 764
-------- -------- ---------- ---------- ----------
Net income ........................... $ 1,562 $ 1,704 $ 1,874 $ 813 $ 1,180
======== ======== ========== ========== ==========
Net income per share(2) ............... -- -- $ 0.39 $ 0.17 $ 0.24
Weighted average number of shares
outstanding(2) ...................... -- -- 4,860,000 4,860,000 4,860,000
Supplemental Non-GAAP Data:
Depreciation and amortization ......... $ 746 $ 876 $ 909 $ 492 $ 636
EBITDA(3) ........................... 2,363 2,911 4,521 1,543 3,031
Pro forma net income(4) ............... 966 1,039 1,880 495 1,166
Pro forma net income per share(4) . 0.20 0.21 0.39 0.10 0.24
</TABLE>
April 27, 1997
---------------------------
Actual As Adjusted (5)
-------- ----------------
Balance Sheet Data:
Cash .............................. $ 803 $ 1,733
Working capital ..................... 2,272 3,202
Total assets ........................ 18,827 19,757
Total current liabilities ............ 5,774 5,774
Total long-term liabilities(6) ...... 9,509 2,359
Stockholders' equity ............... 3,543 11,623
- ------------
(1) For each of the 52 weeks ended October 30, 1994 and October 29, 1995 and
the 11 months ended September 27, 1996, AB Plastics elected to be taxed as
a subchapter S corporation, as a result of which all federal income taxes
were paid by the stockholders. Upon completion of the acquisition of AB
Plastics, the Company terminated such subchapter S corporation election.
(2) Assumes that warrants and stock options to purchase an aggregate of
2,106,000 shares of Common Stock, each at an exercise price of $0.74 per
share, had been exercised as of the end of such period.
(3) EBITDA is earnings (net income) before interest, taxes, depreciation,
amortization and other (income) expense. EBITDA is a financial measure
commonly used in financial analysis, but should not be construed as an
alternative to net income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance.
(4) Pro forma net income and pro forma net income per share reflect the
Company's net income and net income per share on a pro forma basis as
though the Company had been subject to full federal income taxes in each
of fiscal 1994, 1995 and 1996 and for the 26 weeks ended April 28, 1996,
calculated using a 40% effective tax rate. Pro forma net income and pro
forma net income per share for fiscal 1996 exclude a restructuring charge
of $1,151,288.
(5) Adjusted to reflect the sale by the Company of 1,300,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $7.50
per share, after deduction of underwriting discounts and commissions and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(6) Includes long-term debt, less current portion, of $7,775,004 and deferred
income tax liability of $1,734,437.
6
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the Securities Act of 1933. Actual results could differ materially
from those projected in the forward-looking statements as a result of certain
risks and uncertainties set forth below and elsewhere in this Prospectus. An
investment in the shares of Common Stock offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in this Prospectus, in
connection with an investment in the shares of Common Stock offered hereby.
Dependence on Computer and Consumer Electronics Industries
The Company's principal customers are OEMs of computer monitors,
televisions, electronic music keyboards and other consumer electronics
equipment. These industry segments, as well as the computer and consumer
electronics industries as a whole, are subject to economic cycles,
technological change, product obsolescence and changes in consumer demand.
Discontinuance or modification of products containing injection-
molded plastic components manufactured by the Company could adversely affect
the Company's business, financial condition and results of operations. The
Company believes, for example, that consumers are currently postponing
purchases of new televisions in anticipation of the introduction of HDTV and
flat panel displays, which may result in the postponement of OEM orders on
certain television consoles. The Company's growth has resulted, in part, from
its ability to focus on customers in these industries. There can be no
assurance that the Company will continue to be able to identify and attract
customers with steady growth rates or that these industry segments will
continue to grow at their historical rates or at all. Pricing pressures, a
general downturn in the economy or any other event leading to excess capacity
in the computer and consumer electronics industries may result in intensified
price competition, reduced profit margins and a decrease in unit volume of
custom injection-molded plastic components ordered by OEMs, all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Customers."
Customer Concentration
The Company's largest customer, Sony, through its computer monitor and
television manufacturing divisions, accounted for approximately 66.5% of the
Company's sales for the 52 weeks ended October 27, 1996, and 72.6% of the
Company's sales for the 26 weeks ended April 27, 1997. In addition, the
Company's two largest customers, Sony and Matsushita (through its Panasonic and
Quasar brands), together accounted for approximately 84.5% and 82.3%,
respectively, of the Company's sales for such periods. The loss of, or a
significant curtailment of purchases by, either of these major customers would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company anticipates that, by virtue of the
markets it serves, a significant portion of the Company's sales will continue
to be concentrated in a small number of customers. See "Business -- Customers."
Fluctuations in Operating Results
The Company's operating results are affected by a number of factors,
including timing of orders from major customers, process yields, timing of
capital expenditures in anticipation of future sales, economic conditions in
the computer and consumer electronics industries and the Company's mix of
products. As a result, the Company's results of operations have varied and may
continue to fluctuate significantly from period to period, including on a
quarterly basis. Historically, shipments of the Company's components have been
higher in the second and fourth fiscal quarters as a result of increased demand
for computer and consumer electronic products during the spring and year-end
holiday seasons. Operating results can also be significantly influenced by
development and introduction of new products or product models by the Company's
customers. In addition, a significant portion of the Company's operating
expenses are relatively fixed in nature and planned capital expenditures are
based in part on anticipated orders. Any inability to adjust spending quickly
enough to compensate for revenue shortfall may magnify the adverse impact of
such revenue shortfall on the Company's results of operations and cash flows.
Moreover, there can be no assurance that the industry-wide trends that have
benefitted the Company in recent periods will continue. Quarterly sales and
operating results depend in large part on the volume
7
<PAGE>
and timing of bookings received during the quarter, which are difficult to
forecast. The Company's customers generally require short production and
delivery cycles, and substantially all of the Company's backlog is typically
scheduled for delivery within 30 days. See "Business -- Industry Overview and
Trends" and " -- Customers."
Potential Significant Indebtedness and Leverage
At June 4, 1997, on an as adjusted basis after giving effect to this
offering and the application of the net proceeds therefrom, the Company
anticipates having outstanding long-term debt of approximately $1.4 million,
comprised of a $1.0 million loan from Transamerica Business Credit Corporation
("Transamerica") and approximately $350,000 in capitalized leases. In addition,
the Company will have up to an additional $10.0 million available for borrowing
under its revolving line of credit and $2.0 million available under its
equipment line of credit with Sumitomo. Subsequent to June 4, 1997, the Company
expects to spend approximately $5.0 million to purchase and expand its Gardena,
California facility and approximately $6.2 million for equipment and leasehold
improvements at its new Tijuana, Mexico facility. The Company expects to
finance the approximately $11.2 million in expansion by borrowing $3.5 million
under a conventional mortgage facility with Sumitomo, an additional $3.0
million from Transamerica and approximately $4.7 million from the revolving
line of credit and equipment line of credit with Sumitomo. Although the Company
expects to continue to have sufficient earnings from operations to satisfy its
anticipated increased debt service obligations, there can be no assurance that
the Company will be able to meet its debt obligations in the future or to pay
or refinance its indebtedness as it becomes due. Borrowings under its revolving
line of credit facility bear interest at floating rates (currently 9.0%) and
are secured by a pledge of all of the capital stock of AB Plastics. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Facilities" and
"Certain Transactions."
Competition
The injection-molded plastic industry is highly fragmented and
characterized by intense competition. The Company competes principally in the
custom injection-molded plastic market in the western United States, which is
also highly competitive but is much less fragmented than the industry as a
whole. Certain of the Company's competitors have substantially greater
manufacturing, financial, marketing and/or other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than the Company. In
addition, in recent years, several foreign plastic injection molders (primarily
from the Far East), including competitors of the Company, have established
manufacturing facilities in Tijuana, Mexico. There can be no assurance that the
Company will be able to compete successfully against present and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Competition."
Variability of Customer Requirements; Nature of Customer Commitments on Orders
The level and timing of orders placed by the Company's customers varies
due to a number of factors, including customer attempts to manage inventory,
changes in customers' manufacturing strategies and variations in demand for
their own products. Since the Company typically does not obtain firm long-term
purchase orders or commitments, it must anticipate the future volume of orders
based on discussions with its customers. The Company relies on its estimate of
anticipated future volumes when making commitments regarding the level of
business that it will seek and accept, the mix of products that it intends to
manufacture, the timing of production schedules and the levels and utilization
of equipment and personnel. A variety of conditions, both specific to the
individual customer and generally affecting the customer's industry, may cause
customers to cancel, reduce or delay orders that were previously made or
anticipated. Generally, customers may cancel, reduce or delay purchase orders
and commitments without penalty, except for payment for work and materials
expended through the cancellation date. Significant or numerous cancellations,
reductions or delays in orders by a customer or group of customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Customers."
8
<PAGE>
Integration of New Manufacturing Facility
For the first 35 years of its existence, substantially all of the Company's
sales were made to customers located in California. In the late 1980s, many of
these customers relocated to Tijuana, Mexico, primarily due to reduced labor
costs. The Company is currently overseeing the construction a new manufacturing
facility in Tijuana, Mexico, which it expects to lease from an unaffiliated
third-party commencing in September 1997. There can be no assurance that the
Company will be able to complete this facility in such time frame. Consequently,
if the Company is unsuccessful in Tijuana, the Company's relationships with its
most important customers could be damaged which would have a material adverse
effect on the business, financial condition and results of operations of the
Company. The Company's expanded manufacturing capacity has and will continue to
significantly increase its fixed costs, and the future profitability of the
Company will depend, in part, upon its ability to utilize efficiently its
manufacturing capacity. Gross profit margins, although partially offset by lower
labor costs in Mexico, may be adversely affected to the extent that the Company
does not fully utilize its increased manufacturing capacity. Delays in
completing construction and/or the Company's inability to generate the
additional sales necessary to utilize its additional capacity could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, operating in Mexico subjects the Company to
certain additional risks, including unexpected changes in regulatory
requirements, political and economic conditions, difficulties in staffing and
managing international operations and other factors which could have a material
adverse effect on the Company's business and results of operations. Because
sales from this facility will be all U.S. dollar-denominated and managed at the
Company's Gardena, California executive offices, the Company believes that it
will not be significantly affected by exchange rate fluctuations in the Mexican
peso relative to the U.S. dollar. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Business --
Manufacturing."
Technological Change; Intellectual Property
Injection-molded plastic manufacturing technology has continued to move
toward more highly engineered processes. Technological change is continuous
and, in the future, higher margin products will be the most demanding in terms
of technological and manufacturing expertise. There is no assurance that the
Company will be able to maintain its current technological position. In
addition, the introduction of new technologies could require the Company to
substantially increase its capital expenditures. The Company's success depends
in part on its proprietary techniques and manufacturing expertise in the area
of custom injection-molded plastic components. The Company has no patents for
these proprietary techniques and chooses to rely on trade secret protection.
There can be no assurance that the Company's precautions will provide
meaningful protection from competition or that the Company's competitors will
not develop superior technology. The Company believes that although such
techniques and expertise are subject to misappropriation or obsolescence, the
Company will continue to improved methods and processes and new techniques on
an ongoing basis as dictated by the technological needs of the industry. See
"Business -- Manufacturing."
Management of Growth
The Company's current construction of its new manufacturing facility in
Tijuana, Mexico has placed, and is expected to continue to place, significant
demands on the Company's managerial, technical, financial and other resources.
Utilization of the Company's expanded facilities will require the Company to
continue to invest in its financial, management information, engineering and
logistics systems, and to retain, motivate and effectively manage its
employees. There can be no assurance that the management skills and systems
currently in place will be adequate to implement the Company's strategy, and
the Company's failure to manage growth effectively or to implement its strategy
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Growth Strategy" and
"Management."
Dependence on Key Personnel
The Company's success depends to a significant degree upon the continued
contributions of members of its senior management team, particularly Michael A.
Gibbs, James S. Adams, G. Michael Frink, Stephen M. Adams,
9
<PAGE>
Jawed Ghias and Paul J. Iacono, as well as other key personnel, many of whom
would be difficult to replace. The future success of the Company also depends
on its ability to identify, attract and retain additional qualified technical
and managerial personnel. The loss of these officers or other key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's President, Michael A. Gibbs,
is engaged in other business activities, including acting as a consultant to
other businesses which do not compete with the Company. Although Mr. Gibbs
actively manages the Company and spends a minimum of two weeks per month at the
Company's Gardena, California offices, he resides in Connecticut. In addition,
pursuant to Mr. Gibbs' employment agreement, he is required to spend only 75%
of his business and professional time on the affairs of the Company. There can
be no assurance that the inability of Mr. Gibbs to devote his full time and
resources to the Company will not adversely affect the Company's business,
operating results or financial condition. See "Management."
Acquisitions
The Company may from time to time pursue the acquisition of other
companies, assets or product lines that would complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including the diversion of management's
attention, the assimilation of the operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential
loss of key employees of the acquired companies. See "Business -- Growth
Strategy."
Equipment and Tool Failure
The Company's business involves manufacturing equipment that is subject to
failure. In the past, equipment and tool failures have occurred which have
resulted in temporary delays in product shipments. Although the Company has
in-house tooling and maintenance departments and maintains spare parts to
reduce the impact of such failures, there can be no assurance that failures
will not occur in the future. In addition, the Company currently has only one
manufacturing facility which is located in Southern California. The loss of
revenue and earnings to the Company from an equipment or tool failure, as well
as any disruption of the Company's operations resulting from a natural disaster
such as an earthquake, fire or flood, could have a material adverse effect on
its business, financial condition and results of operations.
Environmental Matters
The Company's operations and properties are subject to a wide variety of
international, federal, state and local laws and regulations, including those
governing the use, storage and handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes,
the remediation of contaminated soil and groundwater, and the health and safety
of employees. As such, the nature of the Company's operations exposes it to the
risk of claims with respect to such matters and there can be no assurance that
material costs or liabilities will not be incurred in connection with such
claims. See "Business -- Environmental Matters."
Availability of Raw Materials
Raw materials used by the Company in producing injection-molded plastic
components are purchased by the Company and, in certain limited circumstances,
the Company bears the risk of price fluctuations. In addition, shortages of
certain types of materials have occurred in the past and may occur in the
future. Future shortages or price fluctuations in raw materials or components
could have a material adverse effect on the Company's business, financial
condition and results of operations. Significant increases in the cost of
materials purchased by the Company could also have a material adverse effect on
the Company's results of operations in the event the Company is unable to pass
such price increases through to its customers. See "Business -- Raw Materials
and Supplies."
10
<PAGE>
Benefits of the Offering to Existing Stockholders
The Company intends to use approximately $4.0 million of the net proceeds
of this offering to repay the principal amount and interest outstanding under
its subordinated loan agreement with Sirrom, which will become a stockholder of
the Company upon the consummation of this offering. In addition, Sirrom and
other stockholders of the Company, including Geoffrey J.F. Gorman and Michael
A. Gibbs, the Chairman of the Board and the President of the Company,
respectively, will purchase Common Stock prior to the date of this Prospectus,
upon exercise of outstanding warrants and stock options, at prices
significantly lower than the initial public offering price of the shares
offered hereby. See "Use of Proceeds," "Principal Stockholders" and "Certain
Transactions."
No Prior Public Market; Possible Volatility of Stock Price
Prior to this offering, there has been no public market for the Company's
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop or be sustained subsequent to this offering. The initial
public offering price of the Common Stock will be determined by negotiations
among the Company and the Underwriters and may not be indicative of the prices
that may prevail in the public market. Upon commencement of this offering, it
is expected that the Common Stock will be quoted on the Nasdaq National Market.
This stock market generally, and the plastics manufacturing sector in
particular, have experienced and are likely in the future to experience
significant price and volume fluctuations which could adversely affect the
market price of the Common Stock without regard to the Company's operating
performance. The trading price of the Common Stock could also be subject to
significant fluctuations in response to variations in quarterly operating
results, shortfalls in sales or earnings below analyst estimates, developments
in the computer and consumer electronics industries, stock market conditions
and other factors. There can be no assurance that the market price of the
Common Stock will not experience significant fluctuations or decline below the
initial public offering price. See "Underwriting."
Dilution
Purchasers of the Common Stock offered hereby will incur immediate
substantial dilution in pro forma net tangible book value per share from the
initial offering price in the amount of $5.89. To the extent outstanding
options to purchase the Company's Common Stock are exercised, there will be
further dilution to such new investors. See "Dilution."
Control by Certain Existing Stockholders
Following the sale of the shares offered hereby, the directors and
executive officers of the Company and their affiliates will own 45.7% of the
outstanding Common Stock (approximately 44.2% assuming full exercise of the
Underwriters' over-allotment option). Based on their stock ownership, such
persons will continue to have significant influence over the Company's policies
and affairs and most corporate actions requiring stockholder approval,
including the election of directors. See "-- Anti-Takeover Considerations,"
"Management" and "Principal Stockholders."
Shares Eligible for Future Sale; Potential for Adverse Effect on Stock Price
Sales of substantial amounts of Common Stock in the public market
following this offering could have an adverse effect on the market price of the
Common Stock. The 1,300,000 shares offered hereby will be freely tradeable
without restriction. All of the Company's officers, directors and principal
stockholders have agreed that they will not sell any Common Stock without the
prior consent of the representative of the Underwriters (the "Representative")
for a period of 365 days from the date of this Prospectus (the "Lock-up
Period"). The Lock-up Period may be waived by the Representative without notice
to the Company's stockholders or the Nasdaq National Market, the market on
which the Company's securities will be initially traded. Additionally, at June
4, 1997, options to purchase 894,000 shares of Common Stock were outstanding,
none of which options were exercisable. The Company intends to register all
shares reserved for issuance under its stock option plans. Shares covered by
such registration will be eligible for resale in the public market, subject to
Rule 144 limitations applicable to affiliates and to the lock-up agreements
described above. See "Management -- Stock Option Plans" and "Shares Eligible
for Future Sale."
11
<PAGE>
Anti-Takeover Considerations
Certain provisions of the Company's Restated Certificate of Incorporation,
By-Laws and Delaware General Corporation Law ("Delaware Law") could, together or
separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company, and limit the price that certain investors
might be willing to pay in the future for the Company's Common Stock. These
provisions include the issuance, without further stockholder approval, of
preferred stock with rights and preferences which could be senior to the Common
Stock. The Company is also subject to Section 203 of the Delaware Law, which may
also inhibit a change in control of the Company. See "Description of Securities
- -- Preferred Stock" and "-- Delaware Anti-Takeover Law."
12
<PAGE>
THE COMPANY
The Company's injection-molded plastic business began in 1952, and operated
until September 1996 as a family-owned business. In September 1996, a corporate
affiliate of Michael A. Gibbs, President of the Company, and Private Equity
Partners, L.L.C. ("PEP"), an affiliate of Geoffrey J.F. Gorman, Chairman of the
Board of the Company, formed the Company and sponsored the acquisition of all of
the outstanding capital stock of AB Plastics for a purchase price of $7.0
million. Of such purchase price, $2.0 million was paid by equity contributions
by PEP and certain investors originated by PEP, and $5.0 million was financed
from the proceeds of a $4.0 million subordinated loan from Sirrom and $1.0
million of borrowings under the Company's revolving line of credit with
Sumitomo. In addition, approximately $4.5 million in bank indebtedness then
outstanding of AB Plastics was refinanced by the Company with a portion of the
Sumitomo revolving line of credit, and approximately $700,000 in equipment
financing was assumed by the Company. The acquisition was accounted for as a
purchase transaction and was valued at approximately the fair value of the net
assets acquired. The Company has no assets other than the shares of Common Stock
of AB Plastics.
Prior to the acquisition of AB Plastics, in October 1995, a corporate
affiliate of Mr. Gibbs entered into a letter of intent to acquire AB Plastics
and a consulting agreement to evaluate the systems and manufacturing processes
of AB Plastics. Beginning in early 1996, and accelerated by a new management
team following the September 1996 acquisition, the Company initiated a profit
improvement program to focus on reducing overtime, staffing levels, tooling and
maintenance problems, rework and excessive warehousing costs, and on increasing
the use of robotics in its manufacturing process. Since October 1995, the
Company has reduced its work force by approximately 20% and achieved annualized
cost savings in excess of $3.0 million. From October 1995 to October 1996, the
Company increased income before income taxes by 14.4% and, from April 1996 to
April 1997, increased income before income taxes by 135.6%.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares of
Common Stock offered hereby are estimated to be approximately $8,080,000
($9,367,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $7.50 per share (which is the
mid-point of the filing range) and after deducting underwriting discounts and
commissions and estimated offering expenses.
The Company intends to use the net proceeds of this offering to repay the
approximately $4.0 million in principal and accrued interest outstanding under
its subordinated loan agreement with Sirrom. The remaining net proceeds of
approximately $4.0 million will be used, in conjunction with additional lending
arrangements, to complete the construction of the warehouse at the Company's
Gardena, California facility and equip its newly-constructed Tijuana, Mexico
manufacturing facility. Pending such uses, the Company intends to temporarily
reduce approximately $4.0 million in borrowings expected to be outstanding under
the Company's revolving line of credit facility with Sumitomo upon the
consummation of this offering. Amounts repaid under the Company's revolving line
of credit may be reborrowed by the Company, from time to time, based on certain
percentages of eligible inventories and accounts receivable, up to a maximum
$10.0 million available under such facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Sirrom subordinated loan matures in September 2001, subject to certain
mandatory prepayments, and has a stated interest rate of 13.5% per annum. The
repayment of the Sirrom subordinated loan will eliminate the Company's current
annual interest obligations thereunder of $540,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. The Company
intends to retain future earnings, if any, to finance the development and
expansion of its business and, therefore, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. In addition, the
Company's revolving line of credit with Sumitomo prohibits the Company from
declaring, paying or making any dividend or distribution on its Common Stock.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of April 27, 1997, the short-term debt
and capitalization of the Company on an actual basis and as adjusted to give
effect to the sale and issuance of the 1,300,000 shares of Common Stock offered
by the Company hereby (after deducting the estimated underwriting discounts and
commissions and estimated offering expenses) at an assumed public offering
price of $7.50 and the application of the net proceeds therefrom as described
in "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
April 27, 1997
------------------------
Actual As Adjusted
--------- ------------
(in thousands)
<S> <C> <C>
Short-term debt ................................................ $ 283 $ 283
======== ========
Long-term debt:
Revolving line of credit ....................................... $ 3,150 $ 0
Subordinated term loan ....................................... 4,000 0
Capitalized leases, less current portion ..................... 625 625
-------- --------
Total long-term debt .......................................... 7,775
Stockholders' equity:
Preferred Stock, par value $.0001; 5,000,000 shares authorized;
no shares outstanding ....................................... -- --
Common Stock, par value $.0001; 20,000,000 shares authorized;
4,806,000 shares (actual) and 6,106,000 shares (as adjusted)
issued and outstanding(1) .................................... 0 1
Additional paid-in capital .................................... 2,200 10,279
Retained earnings ............................................. 1,343 1,343
-------- --------
Total stockholders' equity ................................. 3,543 11,623
-------- --------
Total capitalization ....................................... $11,601 $12,531
======== ========
</TABLE>
- ------------
(1) Does not include (i) 130,000 shares of Common Stock issuable upon exercise
of the Representative's Warrants, (ii) 594,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options with an
exercise price of $0.74 per share under the Company's 1996 Stock Option
Plan and (iii) 300,000 shares of Common Stock reserved for issuance upon
exercise of outstanding options with an exercise price equal to the
initial public offering price per share, and 700,000 shares of Common
Stock reserved for issuance upon exercise of options reserved for future
grant, under the Company's 1997 Stock Option Plan. See "Management--
Employment Agreements," "-- Stock Option Plans," "Certain Transactions"
and "Underwriting."
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of April 27, 1997
was $1,732,253 or $0.36 per share of Common Stock. Pro forma net tangible book
value per share represents the amount of net tangible assets, less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 1,300,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.50 per share,
and applying the net proceeds thereof to the repayment in full of the Company's
subordinated term loan from Sirrom having an outstanding principal balance of
$4.0 million at April 27, 1997, and to effect a temporary reduction of the
Company's revolving line of credit with Sumitomo expected to be approximately
$4.0 million upon the consummation of this offering, the pro forma net tangible
book value of the Company as of April 27, 1997 would have been $9,812,253, or
$1.61 per share. This represents an immediate increase in net tangible book
value of $1.25 per share to existing stockholders and an immediate dilution of
$5.89 per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................ $7.50
Pro forma net tangible book value per share at April 27, 1997 ......... $0.36
Increase in pro forma net tangible book value per share attributable to
new investors ......................................................... 1.25
Pro forma net tangible book value per share after this offering ...... ----- 1.61
------
Dilution per share to new investors .................................... $5.89
======
</TABLE>
The following table summarizes, as of April 27, 1997, the differences in
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing and new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
----------------------- ------------------------- Price Per
Number Percent Amount Percent Share
----------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 4,806,000 78.7% $ 2,757,020 22.0% $0.57
New investors ............... 1,300,000 21.3 9,750,000 78.0 7.50
---------- ------- ------------ -------
Total ..................... 6,106,000 100.0% $12,507,020 100.0%
========== ======= ============ =======
</TABLE>
The above table assumes no exercise of the Underwriters' over-allotment
option. If the Underwriters' over-allotment option is exercised in full, new
investors will have paid $11,212,500 for 1,495,000 shares of Common Stock,
representing approximately 80.3% of the total consideration for the total number
of shares of Common Stock outstanding. See "Underwriting."
16
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
The selected financial data set forth below with respect to the Company's
statement of operations for the fiscal year ended October 27, 1996, and with
respect to the balance sheet at October 27, 1996, are derived from the
financial statements audited by Marcum & Kliegman LLP, independent accountants,
which are included elsewhere in this Prospectus and are qualified by reference
to such financial statements. The selected financial data set forth below with
respect to the Company's statement of operations for each of the fiscal years
ended October 29, 1995 and October 30, 1994, and with respect to the balance
sheet at October 29, 1995, are derived from the financial statements audited
and (as to fiscal year ended 1994 reviewed) by Block, Plant, Eisner, Fiorito &
Belak-Berger, independent accountants, which are included elsewhere in this
Prospectus and are qualified by reference to such financial statements. The
balance sheet data at October 30, 1994 is derived from financial statements not
included in this Prospectus. The statement of operations data for the 26 weeks
ended April 27, 1997 and April 28, 1996, and the balance sheet data at April
27, 1997 are derived from unaudited financial statements included elsewhere in
this Prospectus. The unaudited financial statement data includes all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the 26 weeks
ended April 27, 1997 are not necessarily indicative of the results that may be
expected for the year ending October 26, 1997. The data set forth below should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and related notes included herein.
<TABLE>
<CAPTION>
52 Weeks Ended 26 Weeks Ended
--------------------------------------------- ------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales ................................. $ 34,027 $ 42,679 $ 39,345 $ 19,410 $ 20,244
Cost of sales ........................ 30,695 38,961 34,001 17,338 16,393
-------- -------- ---------- ---------- ----------
Gross profit ........................ 3,332 3,718 5,344 2,072 3,851
Selling, general and administrative.... 1,715 1,683 1,732 1,021 1,456
-------- -------- ---------- ---------- ----------
Operating income ..................... 1,617 2,035 3,612 1,051 2,395
Net interest expense .................. 225 375 485 226 451
Other (income) expense ............... (218) (70) 1,146 -- --
-------- -------- ---------- ---------- ----------
Income before income taxes ............ 1,610 1,730 1,981 825 1,944
Income tax expense(1) ............... 48 26 107 12 764
-------- -------- ---------- ---------- ----------
Net income ........................... $ 1,562 $ 1,704 $ 1,874 $ 813 $ 1,180
======== ======== ========== ========== ==========
Net income per share(2) ............... -- -- $ 0.39 $ 0.17 $ 0.24
Weighted average number of shares
outstanding(2) ...................... -- -- 4,860,000 4,860,000 4,860,000
Supplemental Non-GAAP Data:
Depreciation and amortization ......... $ 746 $ 876 $ 909 $ 492 $ 636
EBITDA(3) ........................... 2,363 2,911 4,521 1,543 3,031
Pro forma net income(4) ............... 966 1,039 1,880 495 1,166
Pro forma net income per share(4)...... 0.20 0.21 0.39 0.10 0.24
</TABLE>
<TABLE>
<CAPTION>
April 27, 1997
October 30, October 29, October 27, --------------------------
1994 1995 1996 Actual As Adjusted(5)
------------- ------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash .............................. $ 128 $ 468 $ 730 $ 803 $ 1,733
Working capital .................. 2,590 801 4,114 2,272 3,202
Total assets ..................... 14,349 20,613 19,594 18,827 19,757
Total current liabilities ......... 5,479 10,855 5,109 5,774 5,774
Total long-term liabilities ...... 3,288 2,886 12,121 9,509 2,359
Stockholders' equity ............ 5,582 6,872 2,364 3,543 11,623
</TABLE>
footnotes appear on next page
17
<PAGE>
- ------------
(1) For each of the 52 weeks ended October 30, 1994 and October 29, 1995 and
the 11 months ended September 27, 1996, AB Plastics elected to be taxed as
a subchapter S corporation, as a result of which all federal income taxes
were paid by the stockholders. Upon completion of the acquisition of AB
Plastics, the Company terminated such subchapter S corporation election.
(2) Assumes that warrants and stock options to purchase an aggregate of
2,106,000 shares of Common Stock, each at an exercise price of $0.74 per
share, had been exercised as of the end of such period.
(3) EBITDA is earnings (net income) before interest, taxes, depreciation,
amortization and other (income) expense. EBITDA is a financial measure
commonly used in financial analysis, but should not be construed as an
alternative to net income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance.
(4) Pro forma net income and pro forma net income per share reflect the
Company's net income and net income per share on a pro forma basis as
though the Company had been subject to full federal income taxes in each
of fiscal 1994, 1995 and 1996 and for the 26 weeks ended April 28, 1996,
calculated using a 40% effective tax rate. Pro forma net income and pro
forma net income per share for fiscal 1996 exclude a restructuring charge
of $1,151,288.
(5) Adjusted to reflect the sale by the Company of 1,300,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $7.50
per share, after deduction of underwriting discounts and commissions and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(6) Includes long-term debt, less current portion, of $7,775,004 and deferred
income tax liability of $1,734,437.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
the Company's future financial performance. These forward-looking statements
are subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.
Overview
The Company is a leading contract manufacturer and assembler of custom
injection-molded plastic components for computer and consumer electronics OEMs
located in Southern California and Mexico. The Company supplies plastic
exteriors for direct-tube televisions ranging from 13" to 35" and frames for
50" and 60" projection televisions. The Company also supplies plastic exterior
and base stands for 17" computer monitors manufactured by Sony for leading PC
manufacturers, such as Gateway 2000, Dell Computer, Silicon Graphics, Sun
Microsystems and Digital Equipment Corporation, and, starting in August, the
plastic exteriors for Sony's personal computer, known as "Vaio," in both 15"
and 17" models. The Company also manufactures enclosures for electronic music
keyboards.
The Company maintains approximately 150 active molds for its customers,
pursuant to which it may produce all the plastic components for a product or
only select parts. During the product life cycle, components are ordered by the
Company's customers to meet their just-in-time production requirements. Typical
lead times range from two to four weeks. Historically, shipments of the
Company's components have been higher in the second and fourth fiscal quarters
as a result of increased demand for computer and consumer electronics products
during the spring and year-end holiday seasons. As a result, sales may vary from
period to period solely dictated by the demand for the products of the Company's
customers. As product introduction and acceptance are not determined in advance,
OEM customers generally allocate molds for new components to their suppliers,
such as the Company, before they know actual volume purchase requirements.
Traditionally, once a tool is allocated to a particular molder and is in
production, it is rarely moved to a competitor. The Company is one of two
principal regional suppliers to its two largest customers, Sony and Matsushita.
For the first 35 years of its existence, substantially all of the
Company's sales were made to customers located in California. In the late
1980s, many of these firms relocated to Tijuana, Mexico, primarily due to
reduced labor costs. There are currently approximately 350 manufacturing plants
operating in Tijuana. Four of the Company's largest customers have a total of
seven plants located in Tijuana. Trends within the computer and consumer
electronics industries indicate that OEMs based in the Far East (such as Japan,
Taiwan and South Korea) will continue to relocate the manufacturing and
engineering of products for sale in the United States, formerly manufactured in
Far Eastern facilities, to North America, in particular Tijuana.
Sony commenced manufacturing computer monitors at its computer monitor
manufacturing division in Rancho Bernardo, California in 1994. As one of two
principal United States injection-molders for Sony computer monitors, the
Company's monitor sales rose from $2.9 million in 1994 to $15.4 million in
1996. The Company expects to manufacture additional models in 1997 and 1998 to
supply Sony's anticipated computer monitor growth, including anticipated public
response to the Sony Vaio. In fiscal 1997, Sony transferred all of its
television production and a significant portion of its computer monitor
production from its Rancho Bernardo, California facility to its Tijuana, Mexico
plant. When operational, the Company's new Tijuana, Mexico facility will
manufacture components for computer monitors and televisions for Sony's Tijuana
manufacturing and assembly plant. Because sales from this facility will be all
U.S. dollar-denominated and managed at the Company's Gardena, California
executive offices, the Company does not believe that it will be significantly
affected by exchange rate fluctuations in the Mexican peso relative to the U.S.
dollar. The Company's Gardena, California plant will continue to service Sony's
Rancho Bernardo plant.
All molds held by the Company are owned by the customer but the Company is
responsible for general maintenance and safe storage during the life of the
mold. Costs for maintenance of the mold are expensed as incurred. Major tool
modifications are charged to the customer.
19
<PAGE>
Prices are quoted based on component drawings provided by customers with
estimates of part weight, resin costs, machine requirements and parts produced
per hour (cycle time). Most component prices are negotiated after initial
production runs, and weight and cycle times are verified. The Company charges
its customers a fixed price for each component it manufactures, which
components may consist of single or multiple parts. Negotiated prices include
the cost of thermoplastic resins, packaging, other materials and parts, labor
and overhead. Although thermoplastic resins have historically accounted for at
least 80% of its raw material costs, the Company does not believe that its
results of operations are subject to the risk of fluctuations in resin prices,
since the Company's arrangements with most of its customers provide that price
changes in such resins are passed through to the customer by changes in the
component prices charged by the Company. In addition, each of Sony, Matsushita
and Hitachi negotiate separate supply agreements with thermoplastic resin
producers which deliver such resins to the Company for use in their products.
During periods of rising resin prices, sales revenues tend to increase for the
same number of units while gross profit margin remains unchanged, but gross
profit margin as a percentage of sales decreases. The reverse tends to be true
in periods of declining resin prices. In fiscal 1995, resin prices increased
rapidly to 20% greater than 1994, resulting in $4.0 million of sales inflation.
Resin prices declined over 18% in fiscal 1996 and have been relatively stable
the first half of fiscal 1997. As customers generally seek price reductions
during the product life cycle, the Company's ability to improve operating
performance is generally dependent on increasing manufacturing efficiency
through improved process control, increased automation, engineering changes to
molds and reduced operating and labor expenses.
Results of Operations
26 Weeks ended April 27, 1997 Compared to 26 Weeks ended April 28, 1996
The Company's net sales for the 26 weeks ended April 27, 1997 were $20.2
million, an increase of $800,000 or 4.1%, from $19.4 million for the 26 weeks
ended April 28, 1996. For the 26 weeks ended April 27, 1997, net sales were
comprised of $9.7 million in computer monitor component sales, $8.4 million in
television component sales and $1.8 million in electronic music keyboard
component sales, and other component sales of approximately $280,000.
Television component sales decreased $1.3 million, or 13.4%, from sales of
$9.7 million for the 26 weeks ended April 28, 1996. This decrease was due to a
decrease in orders from Matsushita of $3.0 million, which was partially offset
by an increase in orders from Sony of $1.6 million. Computer monitor component
sales increased $2.5 million, or $34.7% from sales of $7.2 million for the 26
weeks ended April 28, 1996. This increase was principally due to an increase in
orders from Sony of approximately $1.8 million, and an increase in orders from a
smaller customer of approximately $682,000. Electronic music keyboard component
sales increased approximately $112,000, or 6.6%, from sales of $1.7 million for
the 26 weeks ended April 28, 1996. This increase was the result of an increase
in orders from Casio. During this time resin prices decreased and were passed on
to the customers in the form of lower prices.
The Company's gross profit for the 26 weeks ended April 27, 1997 was $3.8
million, or 19.0% of net sales, compared to $2.1 million, or 10.7% of net
sales, for the 26 weeks ended April 28, 1996. This increase was principally due
to productivity improvements in labor and overhead.
The Company's selling, general and administrative ("SGA") expenses for the
26 weeks ended April 27, 1997 were $1.5 million, or 7.2% of net sales, compared
to $1.02 million, or 5.3% of net sales, for the 26 weeks ended April 28, 1996.
These expenses consisted of increased administrative expenses and incentive
compensation accruals.
The Company's net interest expense for the 26 weeks ended April 27, 1997
was $451,000, or 2.2% of net sales, compared to $226,000, or 1.3% of net sales,
for the 26 weeks ended April 28, 1996. The increase in interest expense is due
to the increase in long-term debt related to the acquisition of AB Plastics by
the Company in September 1996.
The Company's net income tax expense for the 26 weeks ended April 27, 1997
was $764,000, or 3.8% of net sales, compared to $12,000 for the 26 weeks ended
April 28, 1996. Prior to the acquisition of AB Plastics by the Company in
September 1996, the Company made an election to be taxed under the provisions
of subchapter S of the Internal Revenue Code. Under these provisions, the
Company did not pay federal corporate income taxes
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on its taxable income and only paid 1.5% state income taxes. Instead, the
stockholders were liable for individual federal and state income taxes on their
respective shares of the Company's taxable income. Subsequent to the date of
acquisition, the Company terminated its subchapter S corporation election and
elected to be governed by the provisions under subchapter C of the Internal
Revenue Code. Under these provisions, the Company is liable for federal and
state income taxes on its taxable income.
Fiscal Year ended October 27, 1996 Compared to Fiscal Year ended October
29, 1995
The Company's net sales for the fiscal year ended October 27, 1996 ("1996
fiscal year") were $39.4 million, a decrease of $3.3 million, or 7.7%, from
$42.7 million in the fiscal year ended October 29, 1995 (the "1995 fiscal
year"). For the 1996 fiscal year, net sales were comprised of $19.5 million in
television component sales, $15.6 million in computer monitor component sales,
and $3.3 million in electronic music keyboard component sales, and other
component sales of $1.0 million.
Television component sales decreased $4.6 million, or 19.1%, from 1995
fiscal year sales of $24.1 million. This decrease was due to a decrease in
orders from Sony of $3.93 million and a decrease from Hitachi of $1.7 million,
slightly offset by an increase in orders by Matsushita of approximately
$799,000. Computer monitor component sales in the 1996 fiscal year increased
$4.3 million, or 38.3%, from 1995 fiscal year sales of $11.2 million. This
increase was due to an increase in orders from Sony of $4.1 million and an
increase from a smaller customer of approximately $179,000. Electronic music
keyboard component sales decreased $2.9 million, or 46.7%, from 1995 fiscal
year sales of $6.2 million. This decrease was the result of a decrease in
orders from Casio. During this time resin prices decreased and were passed on
to the customers in the form of lower prices.
The Company's gross profit for the 1996 fiscal year was $5.3 million, or
13.6% of net sales, compared to $3.7 million, or 8.7% of net sales, for the
1995 fiscal year. This increase was principally due to productivity
improvements in labor and overhead.
The Company's SGA expenses for the 1996 fiscal year were $1.7 million, or
4.4% of net sales, compared to $1.7 million, or 3.9% of net sales, for the 1995
fiscal year. The increase in expense as a percentage of sales was due solely to
the decrease in revenue.
The Company's net interest expense for the 1996 fiscal year was $485,000,
or 1.2% of net sales, compared to $375,000, or 0.9% of net sales, for the 1995
fiscal year. The interest was due to greater borrowings by the Company during
the 1996 fiscal year.
The Company's other expense for the 1996 fiscal year was $1.1 million, or
2.8% of net sales, compared to income of $70,000, or 0.2% of net sales, for the
1995 fiscal year. This expense represents one-time restructuring costs recorded
as a result of the acquisition of AB Plastics by the Company in September 1996.
The Company's income tax expense for the 1996 fiscal year was
approximately $107,000, or 0.3% of net sales, compared to approximately
$26,000, or 0.06% of net sales, for the 1995 fiscal year, reflecting the
termination of subchapter S status on September 27, 1996.
Fiscal Year ended October 29, 1995 Compared to Fiscal Year ended October
30, 1994
The Company's net sales for the 1995 fiscal year were $42.7 million, an
increase of $8.7 million, or 25.5%, from $34.0 million in the fiscal year ended
October 30, 1994 (the "1994 fiscal year"). For the 1995 fiscal year, net sales
were comprised of $24.1 million in television component sales, $11.2 million in
computer monitor component sales, and $6.2 million in electronic keyboard
component sales, and other component sales of $1.2 million.
Television component sales in the 1995 fiscal year decreased $1.5 million,
or 5.9%, from 1994 fiscal year sales of $25.6 million. This decrease was due to
a reduction in orders from Sony of $2.9 million, offset by increases from both
Matsushita of approximately $756,000 and Hitachi of approximately $591,000.
Computer monitor component sales in the 1995 fiscal year increased $8.4
million, or 290%, from 1994 fiscal year sales of $2.9 million. This increase
was due to the growth of Sony's computer monitor business in Rancho Bernardo,
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California and resin price increases which were passed on to customers in terms
of higher prices. Electronic music keyboard component sales increased $2.6
million, or 70.2%, from 1994 fiscal year sales of $3.7 million. This increase
was the result of market demand for Casio's keyboard products.
The Company's gross profit for the 1995 fiscal year was $3.7 million, or
8.7% of net sales, compared to $3.3 million, or 9.8% of net sales, for the 1994
fiscal year. This increase was principally due to higher revenue. The decrease
in gross profit as a percentage of sales was due to higher resin prices.
The Company's SGA expenses for the 1995 fiscal year were $1.7 million, or
3.9% of net sales, compared to $1.7 million, or 5.0% of net sales, for the 1994
fiscal year. The decrease in expense as a percentage of sales was due solely to
the increase in revenue.
The Company's net interest expense for the 1995 fiscal year was $375,000,
or 0.9% of net sales, compared to $225,000, or 0.6% of net sales, for the 1994
fiscal year.
The Company's other income for the 1995 fiscal year was $70,000, or 0.2%
of net sales, compared to income of $218,000, or 0.6% of net sales, for the
1994 fiscal year. Other income consisted mainly of workers' compensation
rebates.
The Company's income tax expense for the 1995 fiscal year was
approximately $26,000, or 0.1% of net sales, compared to approximately $48,000,
or 0.1% of net sales, for the 1994 fiscal year.
Liquidity and Capital Resources
As of April 27, 1997, the Company had working capital of $2.3 million
compared to $4.1 million at the end of the 1996 fiscal year. The reduction was
attributable to improved collection of accounts receivable and increased trade
payables and accrued wages and benefits. The Company used such funds to pay
down its revolving line of credit, which is classified as a long-term
liability. The Company's available borrowings under its revolving line of credit
was $4.1 million at April 27, 1997.
Net cash provided by operating activities for the 26 weeks ended April 27,
1997 was approximately $3.4 million, compared to $1.7 million for the 26 weeks
ended April 28, 1996. The difference between the Company's net income of $1.2
million and operating cash flow of $3.4 million was attributable to $600,000 in
depreciation and amortization, reduction in accounts receivable of $2.3
million, an increase in accounts payable of $600,000, less an increase in
inventory of $1.1 million.
Net cash used in investing activities for the 26 weeks ended April 27,
1997 was $845,000, compared to $700,000 for the 26 weeks ended April 28, 1996.
Cash flow for the 26 weeks ended April 27, 1997 reflects the capital
expenditures incurred in connection with the Company's routine replacement of
manufacturing and support equipment, the addition of two molding machines, and
leasehold improvements related to expansion of its administrative offices.
Net cash used for financing activities for the 26 weeks ended April 27,
1997 was $2.6 million, compared to $2.0 million used for the 26 weeks ended
April 28, 1996. This reflects approximately $2.9 million in payments to reduce
the Company's outstanding line of credit borrowings, approximately $152,000 in
principal payments related to equipment lease obligations during the 26 weeks
ended April 27, 1997, and the addition of $396,000 in capitalized leases
related to the purchase of two molding machines.
AB Plastics is party to a loan agreement with Sumitomo, which includes (a)
a revolving line of credit facility (the "Revolver"), available through July
31, 2001, with a maximum borrowing limit equal to the lesser of $10.0 million
or the sum of (i) 85% of AB Plastics' eligible accounts receivable, plus (ii)
50% of AB Plastics' eligible inventory, plus (iii) a supplemental amount of
$5.3 million (reducing at the rate of $100,000 per month commencing May 31,
1997), and (b) an equipment line of credit (the "Equipment Line"), available
through October 31, 1997, in an aggregate principal amount of up to $2,000,000
to be utilized for the purchase of equipment. The loans under the Sumitomo loan
agreement are secured by a first priority lien and security interest on
substantially all of the assets of AB Plastics, and by a guaranty of the
Company which is secured by a pledge of all of the outstanding capital stock of
AB Plastics. The loans bear interest at prime rate plus 0.50% per annum (or, at
AB Plastics' option, at short-term LIBOR plus 2.75% per annum) with respect to
the Revolver, and at
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prime rate (through October 31, 1997) and prime rate plus 0.25% per annum (from
and after November 1, 1997) under the Equipment Line. Advances under the
Revolver are repayable in full on July 31, 2001, and advances under the
Equipment Line as of October 31, 1997 are repayable in 48 equal monthly
payments from December 1, 1997 through November 1, 2001. It is contemplated
that approximately $4.0 million in principal amount of loans will be
outstanding under the Revolver upon the consummation of this offering. Pending
the use of the net proceeds of this offering for its facilities, the Company
intends to use approximately $4.0 million of the net proceeds of this offering
for the reduction of the outstanding loans under the Revolver. See "Use of
Proceeds."
The Company and AB Plastics are co-borrowers under a subordinated loan
agreement with Sirrom, pursuant to which the Company and AB Plastics borrowed
from Sirrom a subordinated term loan in the original principal amount of $4.0
million, bearing interest at the rate of 13.5% per annum, and secured by a lien
and security interest on substantially all of the assets of AB Plastics and a
pledge of all of the outstanding capital stock of AB Plastics. The Sirrom loan
and the liens, security interests and pledge securing the Sirrom loan are
subordinated to the Sumitomo loans and the liens, security interests and pledge
securing the Sumitomo loans. The interest on the Sirrom loan is payable in
monthly installments of $45,000 through September 2001, when the then
outstanding principal amount matures, subject to certain mandatory prepayments
out of excess cash flow (if any) achieved in the calendar years 1998, 1999 and
2000. As of June 4, 1997, the outstanding principal balance of the Sirrom loan
was $4.0 million. The Company intends to use a portion of the net proceeds of
this offering to repay the Sirrom loan in full. See "Use of Proceeds."
In May 1997, AB Plastics borrowed the sum of $1.0 million from
Transamerica Business Credit Corporation ("Transamerica"). Of such $1.0
million, approximately $535,000 was utilized to pay in full the remaining
outstanding balances of certain capitalized leases, and the remaining $465,000
of proceeds was retained by AB Plastics with the intent of utilizing such funds
to acquire equipment for the new Tijuana, Mexico facility. The loan from
Transamerica bears interest at the rate of 10.03% per annum, is repayable in 60
equal monthly installments of combined principal and interest payable monthly
through May 2002, and is secured by a lien on the equipment acquired under the
refinanced capitalized leases and by a guaranty of the Company.
The contemplated repayment of approximately $8.0 million of the Company's
existing indebtedness with the net proceeds of this offering is expected to
significantly improve the Company's liquidity by reducing both the Company's
interest expense and the principal amount of indebtedness required to be repaid
by the Company in the future. The Company believes that, subsequent to this
offering and such repayments, funds generated from operations and expected
borrowing availability under the Company's revolving line of credit will be
sufficient to satisfy the Company's working capital requirements.
Capital Expenditures
At April 27, 1997, the Company's commitments for capital expenditures
totaled approximately $2.7 million related primarily to equipment for its new
Tijuana, Mexico manufacturing facility. The Company also expects to spend an
additional $3.5 million on equipment and improvements on such facility. The
Company intends to finance these expenditures through separate lending
arrangements, as well as a portion of the net proceeds of this offering. The
Company expects to spend approximately $5.0 million to purchase the land and
buildings at its Gardena, California manufacturing facility and construct an
additional 75,000 square foot warehouse and distribution facility to replace an
off-site leased facility of roughly equivalent size. The Company intends to pay
for the purchase of the Gardena, California property by borrowing approximately
$3.5 million under a conventional mortgage loan, with the balance to be funded
from the revolving line of credit.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires compensation expense
to be recorded (i) using the new fair value method or (ii) using existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to continue to account for its stock-based compensation plans
in accordance with the provisions of APB 25.
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BUSINESS
Overview
The Company is a leading contract manufacturer and assembler of custom
injection-molded plastic components. The Company manufactures the plastic
exteriors of computer monitors, televisions, electronic music keyboards and
other consumer electronics equipment. In addition to injection-molded
components, the Company offers a broad range of "value-added" services,
including painting, decorating and assembly. A significant percentage of the
Company's components are manufactured using gas-assist molding technology which
reduces material usage and permits the molding of lighter and stronger parts.
The Company believes its technical and manufacturing capabilities to produce
large injection-molded plastic components on both a "just-in-time" basis and in
production volumes with low reject rates provides a significant competitive
advantage.
The Company's two major OEM customers are Sony, through its computer
monitor and television manufacturing divisions, and Matsushita, through its
Panasonic and Quasar brands. Sales to these customers represented approximately
66.5% and 18.0%, respectively, of the Company's total sales for the fiscal year
ended October 27, 1996. Of sales to Sony, computer monitor components accounted
for approximately 39.1% and television components accounted for approximately
27.4% of the Company's total sales during the fiscal year ended October 27,
1996. The Company has been an uninterrupted supplier of custom injection-molded
components to Sony since 1972, to Matsushita since 1983 and to virtually all of
its other customers for at least seven years. To improve its ability to support
major customers, in addition to its current manufacturing facility in Gardena,
California, the Company is currently completing a new "build-to-suit"
manufacturing facility in Tijuana, Mexico. This new facility has been
logistically located near many of its customers' manufacturing plants in Mexico
and is expected to add significant manufacturing capacity by September 1997.
Management believes that this facility will enable the Company to capitalize on
demand from new and existing customers which have relocated their manufacturing
operations from the Far East and the United States to Mexico in recent years due
to lower labor and transportation costs. Closer proximity to its major customers
will allow the Company to be more efficient in delivering 15 to 20 daily
truckloads of components to its customers' production facilities and eliminate
time-consuming border crossings.
Industry Overview and Trends
Custom injection-molded plastic components are essential in virtually all
computer monitors, televisions, electronic music keyboards and other consumer
electronic products that require an enclosure or cabinet. The continuing
development and refinement of these products by OEMs has created a strong demand
for injection-molded plastic components for new and replacement sales of these
products. According to Stanford Resources' Monitrak Quarterly Report, United
States sales of computer monitors, the Company's major market, rose to
approximately 21.7 million units in 1996, representing an increase of 61.9% from
sales of approximately 13.4 million units in 1994. As computer monitors are
built to incorporate more features of a television, videocassette recorder,
videophone and gameplayer, and with the anticipated introduction of cable-ready
monitors, cable modems, ISDN and 3-D graphics applications, the Company believes
that these technological advancements will spur continued growth in the computer
monitor market. In addition, according to Stanford Resources, United States
direct-view color television sales were approximately 22.1 million units in 1996
and, since 1991, sales have exceeded 20 million units per year. The Company
believes that the anticipated availability of digital broadcasting, Internet
access, HDTV and flat panel displays has the potential to significantly increase
television sales over the next ten years.
Injection-molded plastic components are used in a wide variety of
industries, including automotive, telecommunications, computer, consumer
electronics, medical and packaging. Based on information provided in Plastic
News, a leading industry publication, sales of the top 100 North American
plastic injection-molders were approximately $11.3 billion in 1994, $12.5
billion in 1995 and $14.4 billion in 1996, reflecting a 12.9% industry-wide
average annual growth rate. The Company was ranked by sales in 1996 as the 96th
largest plastic injection molder in North America, the 9th largest plastic
injection molder in
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the western United States (comprised of the states of California, Arizona,
Oregon and Washington), and one of the three largest plastic injection molders
in Southern California. In addition, according to CIT's Sixth Annual Plastics
Industry Outlook 1997-1999, the electronics industry, which has itself been
experiencing significant growth in recent years, is expected to increase its
plastic consumption the most rapidly of all other industries through 1999.
Management believes that the Company is well positioned to take advantage
of the following trends in the injection-molded plastic industry:
Continued Demand for Plastic Components. In recent years, OEMs have
focused their efforts on developing and employing lower-cost and lighter
materials, such as plastic, in the design of components for televisions,
electronic and computer products. Plastic provides OEMs with a number of design
advantages over metal, including increased design flexibility and aesthetic
appeal and resistance to corrosion. Substituting plastic for metal can also
reduce manufacturing costs by eliminating machining costs, reducing painting
costs, facilitating assembly, minimizing tooling costs and reducing the number
of parts used in a particular product. The continued growth of high performance
engineered plastics and the ability of resin suppliers to deliver resins with
specific properties, such as high-impact strength and flame retardancy, will
allow a more diverse range of plastics applications. The Company believes that
while the majority of opportunities for converting metal into plastic have
already occurred in computer and television exterior applications, there are
significant growth opportunities in the use of plastic in computer base stands
and business equipment that require electromagnetic and radio frequency
interference shielding.
Further Outsourcing by OEMs. According to Plastic News, since the early
1990s, OEMs have purchased an increasingly larger share of their total
injection-molded plastic requirements from independent manufacturers. Management
believes that this trend toward greater outsourcing is driven by increasingly
sophisticated engineering and manufacturing requirements and the substantial
capital investment required to manufacture injection-molded plastic. In
addition, this trend in outsourcing of injection-molded plastic requirements is
part of another trend among OEMs toward outsourcing manufacturing services to
those suppliers which accept significant responsibility for product management
and meet strict standards for product quality, on-time delivery and
manufacturing costs.
Increased Demand for Just-in-Time Deliveries. Because production delays
resulting from undelivered or late production orders can have severe
consequences and stockpiling of inventory entails significant carrying costs,
OEMs are increasingly asking for the assistance of component manufacturers with
the management of their inventories by providing just-in-time delivery to avoid
temporary inventory shortages and unnecessary carrying costs.
Consolidation of Industry. According to Plastic News, the number of North
American injection-molded plastic manufacturers has decreased from the late
1970s due to significant mergers and acquisitions activity. The Company
believes that this consolidation is primarily due to the substantial capital
investment and the engineering and manufacturing expertise required to remain
technologically competitive and thereby meet customer specifications for
injection-molded plastic, as well as national and global relationships with
customers and price competition in the injection-molded plastic market.
Growth Strategy
The Company's goal is to be a dominant supplier of injection-molded plastic
components to the increasing number of computer monitor and television OEMs
plants located in Southern California and Tijuana, Mexico. Management believes
that the commencement of digital broadcasting in the television industry in the
United States, starting in 1998, will create a demand for new HDTV and flat
panel displays as consumers replace obsolete television sets unable to receive
digital broadcasting with HDTV quality. According to Stanford Resources, at
least 20 million television sets have been sold each year since 1991 and 380
million television sets have been sold since 1974 in the United States.
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The key elements of the Company's growth strategy include the following:
Continue to Expand Computer Monitor and Television Component Business. The
Company will seek to expand its computer monitor component business through the
continuation of the overall growth of the Company's computer monitor sales to
Sony, which have grown from $2.9 million in fiscal 1994 to $15.4 million in
fiscal 1996, a 431% increase. The Company will continue to support not only
Sony's private label programs on behalf of leading computer hardware companies
such as Gateway 2000, Dell Computer, Silicon Graphics, Sun Microsystems and
Digital Equipment Corporation, but also Sony's personal computer, known as Vaio,
beginning in July 1997. In addition, the Company's recent marketing strategy
includes targeting sales to other computer monitor and television OEMs doing
business in Tijuana, Mexico.
Acquire Complementary Businesses. The Company believes that the acquisition
of manufacturers of injection-molded plastics products will enable the Company
to diversify its customer base, technical capabilities and geographic areas
served, capitalize on consolidation opportunities in its fragmented market and
on OEMs' desire to outsource their supply requirements, reduce the number of
suppliers used and use only those suppliers who can provide a broad range of
products and services. Accordingly, the Company regularly reviews acquisition
prospects that would augment or complement the Company's existing operations or
otherwise offer significant growth opportunities. At the present time, while the
Company has held exploratory discussions with several potential acquisition
candidates, the Company does not have any arrangement or agreement with respect
to any acquisition transactions.
Capitalize on Customer Demand in Tijuana Market. The Company intends to
lease and purchase equipment for a newly-constructed "build-to-suit"
manufacturing facility in Tijuana, Mexico, adjacent to its largest customer's
manufacturing facilities. Management believes the new facility will increase
existing manufacturing space by 50% and house initially 12 molding machines
with the potential to house 33 to 35 molding machines. The Company believes
that the new facility will begin to add significant manufacturing capacity by
September 1997, thereby enabling the Company to capitalize on current demand
from existing customers and to attract new customers located in Tijuana,
Mexico. The Company's strategic focus will continue to be on niche markets,
such as computer monitors and televisions, as well as other business equipment
and telecommunications.
Pursue Long-Term Relationships with New Customers. The Company intends to
continue to develop long-term alliances with new and existing customers in the
computer and consumer electronics industries. The Company seeks to establish
and maintain long-term relationships by providing total manufacturing solutions
for new and proposed products, just-in-time delivery services and strong
engineering support, including design for manufacturability analyses that
assist customers in the tool design phase of the development process. The
Company believes that frequent interaction with its customers in the tool
design phase of their product development process allows the Company to
anticipate the customers' future technological requirements, prepare the
appropriate manufacturing infrastructure and develop long-term relationships
across a number of products and through multiple product models.
Continue Commitment to Quality and Service. The Company strives to ensure
the highest levels of quality control in all phases of its operations,
primarily through continuous improvement of its engineering capabilities,
manufacturing processes and quality assurance systems. The Company believes
that its strategy of investing in real-time computer process and quality
systems provides improved management controls which maximize scheduling
flexibility and increase product throughput and yields. The Company is
currently in the process of ISO 9002 certification.
Products and Services
The Company manufactures and assembles custom injection-molded plastic
components. These components consist primarily of the entire plastic exteriors
of computer monitors, televisions, electronic music keyboards and other
consumer electronics equipment. The Company also offers a broad range of
value-added services, including painting, decorating and assembly. The
Company's three primary lines of components are as follows:
Computer Monitor Components. The Company focuses on the production of
computer monitor components which require the molding and assembly of multiple
parts. Computer monitor components manufactured by the Company include the
front (or "bezel") assembly, the rear cover and the base stand. The bezel
assembly consists of the bezel frame, door latch, light pipe, logo badge and
pad printing. The Company manufactures these
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components pursuant to the strict color, cosmetic and dimensional
specifications of its customers and assembles the parts on automated production
lines. At the present time, the Company manufacturers computer monitor
components only for Sony. Sony manufactures computer monitors for private label
programs on behalf of leading computer hardware companies such as Gateway 2000,
Dell Computer, Silicon Graphics, Sun Microsystems and Digital Equipment
Corporation. Sony began manufacturing computer monitors at its computer
manufacturing division in Rancho Bernardo, California in 1994, and sales to
such division have grown from $2.9 million in the fiscal year ended October 30,
1994 to $15.4 million for the fiscal year ended October 27, 1996. The Company
has been selected to manufacture computer monitor components beginning in July
1997 for Sony's personal computer, known as Vaio. The Vaio computer was
introduced April 1996, in the United States. Computer monitor components
represented approximately 44.5% and 39.1% of the Company's product sales for
the 26 weeks ended April 27, 1997 and the fiscal year ended October 27, 1996,
respectively.
Television Components. Television components include the bezel and the
rear cover. For projection televisions, the Company also manufactures the
exterior frame housing the projection screen. All bezels are pad printed to
include the logo and the operating instructions. Historically, the Company's
largest customers for its television components have been Sony, Matsushita
(Panasonic and Quasar brands) and Hitachi. Television components represented
approximately 40.8% and 49.0% of the Company's product sales for the 26 weeks
ended April 27, 1997 and the fiscal year ended October 27, 1996, respectively.
Electronic Music Keyboards and Other Consumer Electronics Components. The
Company manufacturers a variety of consumer electronics components such as the
top and bottom covers for electronic music keyboards and storage containers for
various consumer products. As part of this process, electronic music keyboards
are manufactured for Casio using a specialized thermal transfer process, which
prints the whole surface display of logos and instructions in a single step on
automatic equipment. Electronic music keyboards and other consumer electronics
components represented approximately 14.8% and 11.9% of the Company's product
sales for the 26 weeks ended April 27, 1997 and the fiscal year ended October
27, 1996, respectively.
Value-Added Services. In addition to injection-molded plastic components,
the Company offers a broad range of value-added services including painting,
finishing and assembly services. These services include solvent and waterborne
painting, electromagnetic and radio frequency interference shielding, hot
stamping, pad printing, silkscreening, solvent bonding, impulse welding,
ultrasonic welding and insertion, and heat staking. See "-- Manufacturing."
The Company provides design and engineering assistance in the early stages
of product development, thus assuring that tooling, process and assembly
considerations achieve reproducible, high-quality and cost effective product.
The Company evaluates customer designs for manufacturability and, when
appropriate, recommends design changes to reduce manufacturing costs or lead
times or to increase manufacturing yields and the quality of finished
components. The Company believes that by offering this range of services it has
established a "partnership" relationship with its customers.
The Company assists its customers by reducing their inventories through
just-in-time deliveries in which finished components are inspected at the
Company's facilities to conform to a pre-approved quality plan and shipped
directly to the customer for use in its manufacturing without incoming
inspection at the customer's facility.
Customers
The Company's principal customers are Sony, Matsushita, Casio and Hitachi,
for which it supplies components for computer monitors, televisions and other
consumer electronics equipment. The Company has focused its marketing efforts
on maintaining long-term relationships with its existing OEM customers while
pursuing new customers in the computer and consumer electronics industries.
27
<PAGE>
Historical sales of the Company by principal customer are set forth in the
table below (dollars in thousands):
<TABLE>
<CAPTION>
52 Weeks Ended 26 Weeks Ended 26 Weeks Ended
October 27, 1996 April 28, 1996 April 27, 1997
--------------------- --------------------- ---------------------
Customer Amount % Amount % Amount %
- -------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sony -- Computer manufacturing division . $15,373 39.1% $ 7,174 37.0% $ 8,999 44.5%
Sony -- Television manufacturing division . 10,773 27.4 4,081 21.0 5,679 28.1
Matsushita -- Panasonic and Quasar ......... 7,093 18.0 4,918 25.3 1,954 9.7
Others .................................... 6,106 15.5 3,237 16.7 3,612 17.8
-------- ------- -------- ------- -------- -------
Total sales .............................. $39,345 100.0% $19,410 100.0% $20,244 100.0%
======== ======= ======== ======= ======== =======
</TABLE>
The Company's customers typically have relationships with a limited number
of injection molders, and allocate the molding of individual components or parts
to one of their molders. In the Company's experience, purchase orders will be
placed with the same molder for a particular component or part generally for
six-month periods, but typically the order will remain in place until the
component is redesigned or eliminated in a model change. Customers generally
provide the Company with periodic forecasts for their requirements, which are
updated regularly. Customers give the Company non-cancellable releases from
their purchase orders based on two to four week lead times and, therefore, the
Company does not have a significant amount of backlog orders. Except for Sony
and Matsushita, no other single customer has accounted for more than 10% of the
Company's sales during any of the past three fiscal years.
Prices are quoted based on component drawings provided by customers with
estimates of part weight, resin costs, machine requirements and parts produced
per hour (cycle time). Most component prices are negotiated after initial
production runs, and weight and cycle times are verified. The Company charges
its customers a fixed price for each component it manufactures, which
components may consist of single or multiple parts. Negotiated prices include
the cost of thermoplastic resins, packaging, other materials and parts, labor
and overhead. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview." As customers generally seek price
reductions during the product life cycle, the Company's ability to improve
operating performance is generally dependent on increasing manufacturing
efficiency through improved process control, increased automation, engineering
changes to molds and reduced operating and labor expenses. In all cases, the
Company's customer specifies the resin type and supplier desired. See "-- Raw
Materials and Supplies."
The Company has been selected as a supplier of a variety of
injection-molded plastic components. The following table presents an overview
of the major products for which the Company currently produces components for
its OEM customers:
Customer Product
---------- --------
Sony .............................. Computer monitors:
Private label programs--
Gateway 2000
Dell Computer
Silicon Graphics
Sun Microsystems
Digital Equipment Corporation
Vaio brand (beginning in July 1997)
Sony ........................ Television monitors
13" to 32" models
Matsushita (Panasonic) ...... Television monitors
13" to 61" models
Matsushita (Quasar) ......... Television monitors
20" to 32" models
Hitachi ..................... Television monitors
27" to 60" models
Casio ........................ Electronic music keyboards
28
<PAGE>
Sony has been a customer for 25 years, Matsushita has been a customer for
14 years, and Hitachi and Casio have been customers for more than seven years.
The Company believes that, as it adds new customers and completes acquisitions
of complementary businesses, it will diversify its customer base and reduce its
dependence on these major customers. The Company anticipates, however, that a
significant portion of its sales, by virtue of the markets it serves, will
continue to be concentrated in a small number of customers.
Sales
The Company's primary sales strategy is to develop and maintain close
working relationships with the engineering, procurement, quality, tooling and
manufacturing departments of its customers. Sales of the Company's products to
OEMs are made directly by the Company's sales and production teams. Through
these teams, the Company services its OEM customers and manages its continuing
programs of product design improvement and development. The Company's sales and
technical teams currently consist of 14 executives and senior technical
personnel.
In January 1996, the Company expanded its in-house sales department to
solicit new customer accounts. Three full-time senior sales executives were
hired, each with substantial experience in the injection-molded plastic
industry. With these executives, the Company has targeted 30 prospects for new
business. These prospects include computer monitor and television OEMs, as well
as other business equipment and telecommunications manufacturers that require a
plastic enclosure or cabinet as part of their products. The Company is actively
quoting terms for new business. There can be no assurance that any such new
business will be obtained.
The Company's products are typically sold on net 30-day terms under
separate purchase orders. The Company offers no formal warranty but generally
adheres to a replacement policy of products with defects in materials or
workmanship.
Customer Molds
The Company maintains an in-house tooling department. In the plastics
industry, the molds to make plastic parts are commonly referred to as "tools."
With each new project, the Company's tooling engineers may attend an initial
meeting with the OEM and contract mold maker to review drawings,
specifications, timing and other information. Following the design stage, the
Company may be asked to attend one or more mold trials to ensure the accuracy
and completeness of the mold and mold part, record process parameters and begin
assuring the capability of the process. The next milestone, the new project
meeting, brings the Company's decorating and assembly, engineering, production
control, quality assurance and tooling departments together to ensure that the
entire project is understood throughout the organization. Once the mold is
received by the Company, the mold is inspected, prepared for production and
tested by the Company. Generally, sample parts are produced initially and
submitted to the customer for final approval. The Company's tooling department
frequently makes engineering changes to the mold. For the life of the tool, the
Company is obligated to maintain it at its expense and to make major repairs at
the Customer's expense. The Company's tooling department is headed by a tooling
engineer and eight toolmakers.
As of June 4, 1997, the Company held approximately 150 molds of its
customers which are being actively used to produce injection-molded plastic
components. The Company estimates that the value of such customer molds is
approximately $15 million.
Manufacturing
The Company currently conducts its molding, assembly and finishing
operations at its facility in Gardena, California, which consists of
approximately 120,000 square feet of manufacturing space. The Company operates
29 injection molding machines ranging in size from 60 to 1,800 tons of clamping
pressure and processes more than 20 million pounds of resin per year. Since
1993, 16 of the Company's molding machines have been purchased and all other
machines have been updated with electronic controls. The Company stores bulk
resin in four silos with a combined capacity of approximately 400,000 pounds.
The Company has an automated materials handling system that transports resin
from each of the four silos to any of the 29 molding machines. The Company also
stores other resin in 1,000 pound corrugated containers. The Company's
finishing equipment is "state of the art" and includes 24 paint stations, a
1,265-foot overhead conveyor, infrared and gas fired drying ovens, hot stamp
machines, pad printing machines, silk screen machines, ten motorized assembly
lines and sonic welders.
29
<PAGE>
The Company is currently completing a new "built-to-suit" manufacturing
facility in Tijuana, Mexico, which will consist of approximately 90,000 square
feet of manufacturing and warehouse space and will house initially 12 injection
molding machines, eight paint lines and four automated assembly lines. Of the 12
machines, five are newly-purchased and seven will be transferred from the
Company's Gardena facility. The Company has a one year option and thereafter a
right of first refusal to expand its manufacturing space by 50,000 square feet,
with the capacity to house 33 to 35 molding machines. This new facility has been
located logistically near many of its customers' Tijuana manufacturing plants
and is expected to add significant manufacturing capacity by September 1997. It
is expected that the Company will relocate a significant amount of its assembly
operations to this facility, primarily due to the area's lower-cost labor pool
and customer requirements.
The Company employs six process engineers who utilize extensive CAD/CAM
(computer-aided design/computer-aided manufacturing) capabilities to transfer
design data, generate tooling processes and verify manufacturing efficiencies.
As a result of the Company's use of real-time statistical quality and process
controls and protective packaging, customers report that they have fewer than
500 defects in 1,000,000 units in their production lines. The Company has a
fully integrated management information system which enhances its inventory
control scheduling and machine efficiency. The Company implements a continuous
quality improvement program to ensure that competitive advantages through
cost-efficient operations are maintained. The Company is currently in the
process of ISO 9002 certification.
A significant percentage of the Company's components are manufactured
using gas-assist molding technology, which is a low-pressure process that works
in conjunction with injection molding. In this process, nitrogen gas is
injected into the plastic exterior part to hollow out that part, which saves on
material usage and creates a more cosmetically appealing part by eliminating
flow marks, surface splay and warp. Using this technology, the Company is able
to offer its customers the competitive advantages of (i) eliminating thicker
than necessary wall sections that control the cycle time and increase part
weight, (ii) allowing designers more freedom to incorporate thick and thin
sections in the same part and (iii) making parts stronger by creating high
strength, cored-out sections, rib patterns or box structures, all of which
improve deflection or impact strength. The Company licenses, on a non-exclusive
basis, the use of gas-assist molding technology from Melea Limited pursuant
to a long-term license under which the Company pays such licensor the annual
amount of $50,000 per site. The Company has a central nitrogen generator
connected to all 29 of its molding machines to efficiently utilize this
technology.
While the Company has developed proprietary techniques and manufacturing
expertise for the manufacture of injection-molded plastic components, the
Company has no patents for these proprietary techniques and chooses to rely on
trade secret protection. The Company believes that although its proprietary
techniques and expertise are subject to misappropriation or obsolescence,
development of improved methods and processes and new techniques by the Company
will continue on an ongoing basis as dictated by the technological needs of the
business.
Manufacturing occurs primarily on a three-shift, seven-day-per-week
schedule at the Company's current manufacturing facility. The Company provides
training to all of its molding, finishing and assembly personnel before they
are put on the production line and on a periodic basis thereafter. The Company
provides such training in accordance with ISO 9002 certification standards. The
Company believes that its manufacturing work force is well-trained and is
comprised of a dedicated staff of experienced personnel, approximately 40% of
whom have been employees of the Company for at least ten years.
Raw Materials and Supplies
The Company orders certain materials and supplies based on its purchase
orders and seeks to minimize its inventory of other materials that are not
identified for use in filling specific orders. Raw materials used in connection
with the Company's components consist mainly of thermoplastic resins such as
high impact, ignition resistant polystyrene and
acrylonitrile-butadiene-styrene, and paint and ink, as well as corrugated
cardboard packaging. Although the Company uses a select group of suppliers, the
materials used in manufacturing injection-molded plastic components are
generally readily available in the open market. The Company has not experienced
any significant raw material shortages in the past ten years and does not
anticipate raw material shortages in the foreseeable future.
30
<PAGE>
Although thermoplastic resins have historically accounted for at least 80%
of its raw material costs, the Company does not believe that its results of
operations are subject to the risk of fluctuations in resin prices, since the
Company's arrangements with most of its customers provide that increases or
decreases in the price of such resins are passed through to the customer by
changes in the component prices charged by the Company. In addition, each of
Sony, Matsushita and Hitachi negotiate separate supply agreements with
thermoplastic resin producers which deliver such resins to the Company for use
in their products.
Competition
According to Plastic News, sales of the top 100 plastic injection-molders
in North America were approximately $14.4 billion in 1996. The Company's
competitive market, however, is regional due to the significant relative impact
of freight costs. As a result, the Company believes that it has only six
principal competitors, two of which are also located in California and five of
which are already located in Tijuana, Mexico. The Company believes that none of
its competitors has a dominant position in the market. The Company believes
that the primary bases of competition in the market for injection-molded
plastic are product quality, responsiveness to customers, delivery time, volume
capabilities, advanced manufacturing technology and engineering skills and
price. The Company further believes that the Company's primary competitive
strengths include its ability to provide technologically advanced design and
manufacturing services, to hire and retain experienced product managers and a
skilled manufacturing work force, maintain superior product quality and deliver
finished products on a just-in-time or scheduled lead-time basis.
The injection-molded plastic industry is highly fragmented and
characterized by intense competition. The Company competes principally in the
custom injection-molded plastic market in the western United States, which is
also highly competitive but is much less fragmented than the industry as a
whole. Certain of the Company's competitors have substantially greater
manufacturing, financial, marketing and/or other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than the Company. See "Risk
Factors -- Competition."
Environmental Matters
The Company's operations and properties are subject to a wide variety of
international, federal, state and local laws and regulations, including those
governing the use, storage and handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes,
the remediation of contaminated soil and groundwater, and the health and safety
of employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to such
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims. The Company has taken steps to
reduce the environmental risks associated with its operations and believes that
it is currently in substantial compliance with applicable Environmental Laws.
The Company is also subject to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar
state laws which impose liability, without regard to fault or to the legality
of the original action, on certain classes of persons (referred to as
potentially responsible parties or "PRPs") associated with the release or
threat of release of certain hazardous substances to the environment.
Generally, liability of PRPs to the government under CERCLA is joint and
several. Financial responsibility for the remediation of contaminated property
or for natural resources damage can extend to properties owned by third
parties. The Company believes that it is in substantial compliance with all
Environmental Laws applicable to its business.
Employees
As of June 4, 1997, the Company had approximately 285 full-time employees,
of which 268 were engaged in manufacturing activities and 17 in sales, office
administration and management functions. None of the employees is represented
by a union and the Company believes there is an adequate pool of labor
available to satisfy its foreseeable hiring needs. The Company has not
experienced any labor-related work stoppage and considers its relations with
employees to be good.
31
<PAGE>
Facilities
The Company maintains its principal executive offices and conducts its
molding, assembly and finishing operations from two adjacent buildings in
Gardena, California (approximately 15 miles south of Los Angeles), which
consist of a 100,000 square foot manfacturing building and a 20,000 square foot
warehouse on eight acres of land. This facility is leased from an entity
affiliated with the former owners of AB Plastics under a lease expiring in 2006
and providing for rent of $35,200 per month. The Company also maintains an
off-site leased facility in Compton, California consisting of approximately
60,000 square feet, from which the Company's warehousing and distribution
activities are conducted. The Compton facility is leased from an unaffiliated
entity under a lease expiring in December 2000 and providing for rent of
$19,465 per month.
The Company has exercised its option to purchase the Gardena, California
facility from a partnership whose interests are held by members of the Adams
family, who include the former principal stockholders of AB Plastics, for
approximately $3.0 million. Following the purchase, the Company intends to
demolish the 20,000 square foot warehouse and construct a 75,000 square foot
warehouse and distribution facility attached to the existing manufacturing
facility. Construction costs for such warehouse and distribution facility are
anticipated to be approximately $2.0 million, for a total capital expenditure of
$5.0 million at such site. Subsequent to the completion of the warehouse
construction, the Company intends to sublease the Compton warehouse. The
purchase is expected to be completed prior to the consummation of this offering
and, with the construction, will be financed by a mortgage and construction loan
facility of $3.5 million provided by Sumitomo and the balance through the
Company's revolving line of credit. The Company expects the annual operating
savings from owning this expanded facility to be approximately $900,000 (before
mortgage payments) from the elimination of rent, certain personnel and other
operating expenses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Certain Transactions."
The Company is currently completing a new "build-to-suit" manufacturing
facility in Tijuana, Mexico, which will consist of approximately 90,000 square
feet of manufacturing and warehouse space and will house initially 12 injection
molding machines. The new facility will be leased from an unaffiliated entity
under a lease which will commence upon completion of construction (estimated to
be in September 1997) and expiring in 2007, and requiring the payment of
approximately $38,000 per month in rent. The Company also has a one-year option
and thereafter a right of first refusal to expand the facility by 50,000 square
feet. In addition, the Company has committed to expend approximately $6.2
million to equip the new Tijuana facility, of which approximately $2.7 million
of capital expenditures have been committed as of April 27, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures."
Legal Proceedings
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business, none of which is material.
32
<PAGE>
MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company and the executive
officers and key employees of AB Plastics, and their ages at June 4, 1997, are
as follows:
<TABLE>
<CAPTION>
Name Age Positions
- --------------------------------- ----- -----------------------------------------------------------
<S> <C> <C>
Geoffrey J.F. Gorman ......... 40 Chairman of the Board of the Company and AB Plastics
Michael A. Gibbs ............ 61 President and Director of the Company and Chief Executive
Officer of AB Plastics
James S. Adams ............... 68 President of AB Plastics
G. Michael Frink ............ 47 Senior Vice President - Sales and Marketing of AB Plastics
Stephen M. Adams ............ 36 Vice President -- Technology of AB Plastics
Jawed Ghias .................. 42 Vice President -- Manufacturing of AB Plastics
Paul J. Iacono ............... 36 Vice President -- Finance of the Company and AB Plastics
Christopher H.B. Mills ...... 44 Director
Jay M. Swanson ............... 44 Director
</TABLE>
Geoffrey J.F. Gorman became the Chairman of the Board of the Company and
AB Plastics in September 1996. Mr. Gorman also serves as managing partner of
Private Equity Partners, L.L.C., an investment fund, which he founded in March
1996. From 1985 to June 1996, Mr. Gorman was a managing partner and shareholder
of Ardshiel, Inc., an investment fund specializing in leveraged buyouts. Mr.
Gorman is currently the Co-Chairman of the Board of Santa Maria Foods
Corporation, a producer and distributor of Italian specialty foods, and a
director of Analab, Inc., an environmental testing company. He was previously a
director of Golden State Vintners, Koala Springs International, Inc., Protein
Genetics, Inc. and The Swanson Company. Mr. Gorman received a B.A. from Boston
University in 1979 and an M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College in 1985.
Michael A. Gibbs became the President of the Company, Chief Executive
Officer of AB Plastics and a director of the Company and AB Plastics in
September 1996. Mr. Gibbs is also the President of Page Mill Corporation, a
consulting firm which he began in 1971. Mr. Gibbs has been involved since 1991
as an advisor and principal in the identification, evaluation, acquisition and
operation of companies in the plastics industry including Styrex Industries,
Inc., an injection-molded plastics components manufacturer which was sold in
1993 to PureTech Industries, Inc. Mr. Gibbs began his business career in 1964
with the international business consulting firm of Booz Allen & Hamilton and
spent five years as Vice President of Corporate Planning for Reliance Holdings
Corporation (formerly, Leasco Corporation) before becoming an independent
entrepreneur and business advisor in 1973. For the past 25 years, Mr. Gibbs has
served as a financial and business advisor to third parties in the
identification, financing, acquisition and operation of approximately 42
businesses, and has participated as a principal stockholder, executive officer
and director in certain of such businesses. A food distribution business and a
glass distribution business in which Mr. Gibbs was the sole stockholder and
served as chief executive officer filed for Chapter 11 reorganization under the
federal Bankruptcy Code in 1980 and 1991, respectively. From July 1991 through
October 1993, Mr. Gibbs rendered services for various corporate affiliates of
The Selzer Group and Transnational Capital Ventures, Inc., privately-owned
companies engaged in situations involving financially and/or operationally
troubled companies. In connection with providing such services, Mr. Gibbs
served in various capacities as an executive officer or director of C-B/Murray
Corporation, Inc. and American Specialty Equipment Corp., companies which filed
for Chapter 11 reorganization within the past five years. Mr. Gibbs received a
B.S. degree in Engineering from the University of Alabama in 1957 and a Masters
degree in Industrial Management from New York Polytechnic Institute in 1965.
In June 1995, Mr. Gibbs individually filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code. Such filing was occasioned primarily
as a result of litigation commenced against Mr. Gibbs by a financial
institution seeking payment of a personal loan made by such institution to Mr.
Gibbs in 1989. Mr. Gibbs accepted such loan principally in reliance upon the
completion of the sale of a business in which Mr. Gibbs was a principal
stockholder and which such financial institution had committed to finance, but
which sale was not completed. Mr. Gibbs has counterclaimed against the
institution alleging breach of its financial commitment. In
33
<PAGE>
April 1997, Mr. Gibbs filed a plan of reorganization with the federal
bankruptcy court in Connecticut. Such plan, as well as the litigation between
Mr. Gibbs and the financial institution, is currently pending. Mr. Gibbs has
been advised by bankruptcy counsel that inasmuch as his investment in the
securities of the Company was made following the filing of his petition for
reorganization, the shares of Common Stock of the Company owned of record and
beneficially by Mr. Gibbs would not be part of the bankruptcy estate or be
required to be used to finance his plan of reorganization in a Chapter 11
proceeding.
James S. Adams is one of the co-founders of AB Plastics and for the past
40 years has served as a senior executive officer of AB Plastics. Since 1982,
Mr. Adams has served as President of AB Plastics. Mr. Adams received a B.S. in
Business Management from Pepperdine University in 1979. Mr. Adams is the uncle
of Stephen M. Adams.
G. Michael Frink became Senior Vice President -- Sales and Marketing of AB
Plastics in February 1997. He previously served as a Regional Manager of
Business Development of Southern Plastic Mold, Inc., a custom plastic injection
molder, from January 1992 to January 1997. Mr. Frink also held positions in
sales and program management at Avedon Engineering, a custom plastic injection
molder, from 1984 to December 1991. Mr. Frink received a B.A. in Business
Administration from the University of Oregon in 1972.
Stephen M. Adams, the son of one of the co-founders of AB Plastics, became
the Company's Vice President -- Technology in September 1996. Since 1982, Mr.
Adams has served in a number of engineering and technology-related positions
with AB Plastics, the most recent being Vice President -- Operations. Mr. Adams
received a B.S. in Industrial Technology from Chico State University in 1983
and is currently completing on a part-time basis an M.B.A. from the University
of Phoenix. Mr. Adams is the nephew of James S. Adams.
Jawed Ghias became Vice President -- Manufacturing of AB Plastics in
February 1996. From 1985 to February 1996, Mr. Ghias held a number of positions
with Industrial Molding Corporation ("IMC"), a custom plastic injection molder,
including Vice President of the Plastics Division, Plant Manager, Quality
Assurance Manager and Assembly Manager. Mr. Ghias received a B.S. in Mechanical
Engineering from N.E.D. University of Engineering and Technology in Pakistan in
1983.
Paul J. Iacono became Vice President -- Finance of the Company and AB
Plastics in October 1996. He previously served as Director of Finance of
Compounding Technology, Inc., a plastic compounding subsidiary of M.A. Hanna
Company, from March 1993 to September 1996. Mr. Iacono also served as Manager
of Business Operations of Ele Corporation, a custom plastic injection molder,
from October 1991 to February 1993, and in variety of positions in accounting
and operations including Controller and Materials Manager of IMC from 1980 to
1991. Mr. Iacono received a B.A. in Accounting from California State University
at Fullerton in 1984 and an M.B.A. from Pepperdine University in 1996.
Christopher H.B. Mills joined the Company's Board of Directors in
September 1996. Mr. Mills has been a managing director of North Atlantic
Smaller Companies Investment Trust plc, an investment trust, since 1984, and a
director and senior investment manager of JO Hambro & Partners Limited, an
investment advisor, since 1993, both of which are based in London. Mr. Mills
serves as a director of American Opportunity Trust plc, an investment trust,
Horace Small Apparel plc, a manufacturer of occupational uniforms, and Oryx
International Growth Food plc, an investment fund, which are publicly-traded
companies in the United Kingdom. Mr. Mills also serves as a director of D.S.
Bancor Inc., a bank holding company, and PS Group Holdings Inc., an aircraft
leasing company, which are publicly-traded companies in the United States. Mr.
Mills was educated at Eton College and received a degree in Business Studies
from the Guild Hall in London in 1974,
Jay M. Swanson joined the Company's Board of Directors in May 1997. Since
February 1994, Mr. Swanson has been the Managing Partner of Swanson Ventures
and Blacksmith Partners, private investment firms specializing in leveraged
buyouts. Mr. Swanson currently serves as the Co-Chairman of the Board of Santa
Maria Foods Corporation, a producer and distributor of Italian specialty foods,
is on the Board of Directors of Green Acre Foods, Inc. and Northern Management
Corp. and is a partner in The Contrarion Group, an investment fund. From 1976
to January 1994, Mr. Swanson served in various roles with John Hancock
Financial Services managing portfolios of investments. In 1994, Mr. Swanson was
appointed to the Advisory Board of the Competitiveness Center of the Hudson
Institute. Mr. Swanson received a B.S. in Finance from the University of
Illinois in 1974.
34
<PAGE>
All directors are elected annually and hold office until the next annual
meeting of stockholders of the Company and until their successors have been
duly elected and qualified. The Company's By-laws provide that the Board of
Directors will consist of between three and nine members, and the number of
directors is currently set at four. Officers are elected by and serve at the
discretion of the Board of Directors. Except for the relationship between James
S. Adams and Stephen M. Adams, there are no family relationships among the
directors and officers of the Company.
Committees of the Board of Directors
The Company will establish an Audit Committee and a Compensation Committee
prior to the consummation of this offering, each of which will be comprised of
at least two independent directors. The Audit Committee will, among other
things, make recommendations to the Board of Directors regarding the independent
auditors to be nominated for ratification by the stockholders, review the
independence of those auditors and review audit results. The Compensation
Committee will recommend to the Board compensation plans and arrangements with
respect to the Company's executive officers and key personnel. It is
contemplated that the Audit Committee will initially include Michael A. Gibbs,
Christopher H.B. Mills and Jay M. Swanson, and the Compensation Committee will
initially include Geoffrey J.F. Gorman and Messrs. Mills and Swanson. The Board
of Directors does not currently have and does not intend to establish a
Nominating Committee as such functions are to be performed by the entire Board
of Directors.
Compensation of Directors
Non-employee directors of the Company currently receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. See "Certain Transactions."
Limitation of Liability and Indemnification
Pursuant to the provisions of the Delaware Law, the Company has adopted
provisions in its Certificate of Incorporation which provide that directors of
the Company shall not be personally liable for monetary damages to the Company
or its stockholders for a breach of fiduciary duty as a director, except for
liability as a result of (i) a breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) an act
related to the unlawful stock repurchase or payment of a dividend under Section
174 of the Delaware Law, and (iv) transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, in accordance with the
Company's By-laws, agreements or otherwise, to the full extent permitted under
the Delaware Law. The Company intends to enter into indemnification agreements
with its directors and officers which may, in some cases, be broader than the
specific indemnification provisions contained in the Delaware Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
Executive Compensation
The following table sets forth the total compensation paid by the Company
to the Company's President and the President and Vice President-Manufacturing of
AB Plastics (collectively, the "Named Executive Officers"), the only executive
officers whose total compensation exceeded $100,000 for the fiscal year ended
October 27, 1996:
35
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation(1) No. of
---------------------------------------- Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus $ Options Compensation ($)
- ----------------------------------- -------- ----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Michael A. Gibbs ............... 1996 $ 0(2) $ 0 270,000 $0
President of the Company and Chief
Executive Officer of AB Plastics
James S. Adams .................. 1996 $232,365 $ 0 62,268 $0
President of AB Plastics
Jawed Ghias ..................... 1996 $ 99,523 $5,000 216,000 $0
Vice President-Manufacturing of AB
Plastics
</TABLE>
(1) The column for "Other Annual Compensation" has been omitted because there
is no compensation required to be reported in such column. The aggregate
amount of perquisites and other personal benefits provided to any Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual compensation paid to such officer.
(2) Mr. Gibbs and his corporate affiliate received in the aggregate
approximately $200,000 from the Company pursuant to a consulting agreement
commencing in February 1996, superseded by a management agreement
effective as of August 1, 1996. See "--Employment Agreements."
Options Granted During 1996
The following table sets forth certain information regarding grants of
options to purchase the Company's Common Stock made to each of the Named
Executive Officers during the fiscal year ended October 27, 1996:
<TABLE>
<CAPTION>
Individual Grants
Number Percent of --------------------------------------------
of Securities Total Options
Underlying Granted Exercise Fair Market
Options to Employees Price Value on Expiration
Name Granted in Fiscal Year Per Share Date of Grant Date
- -------------------------- --------------- ---------------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Michael A. Gibbs ...... 270,000 45.4% $0.74 $0.74 09/27/2002
President of the
Company and Chief
Executive Officer of AB
Plastics
James S. Adams ......... 62,268 10.5% $0.74 $0.74 09/27/2002
President of AB Plastics
Jawed Ghias ............ 216,000 36.4% $0.74 $0.74 09/27/2002
Vice President-
Manufacturing of AB
Plastics
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciated for
Option Term(1)
-------------------
Name 0%(2) 5% 10%
- -------------------------- ------- --------- -------
<S> <C> <C> <C>
Michael A. Gibbs ...... 0 125,653 318,430
President of the
Company and Chief
Executive Officer of AB
Plastics
James S. Adams ......... 0 28,978 73,437
President of AB Plastics
Jawed Ghias ............ 0 100,523 254,744
Vice President-
Manufacturing of AB
Plastics
</TABLE>
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(2) Represents the difference between the fair market value of the Common Stock
on the date of grant and the exercise price of such options.
36
<PAGE>
Aggregated Fiscal Year-End Option Values
The following table sets forth information regarding the number and value
of unexercised stock options held at October 27, 1996 by each of the Named
Executive Officers. No options were exercised by the Named Executive Officers
during fiscal 1996:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Dollar Value of Unexercised
Options at In-the-Money Options
Fiscal Year End at Fiscal Year End(1)
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ----------------------------------- ----------------------------- ----------------------------
<S> <C> <C>
Michael A. Gibbs ............... 270,000/0 1,825,200/0
President of the Company and Chief
Executive Officer of AB Plastics
James S. Adams .................. 62,268/0 420,932/0
President of AB Plastics
Jawed Ghias ..................... 0/216,000 0/1,460,160
Vice President-Manufacturing of AB
Plastics
</TABLE>
- ------------
(1) The value of the options is based upon the difference between the exercise
price and an assumed initial per share public offering price of $7.50.
Employment Agreements
In October 1996, the Company entered into a management agreement with PEP,
of which Geoffrey J.F. Gorman, the Chairman of the Board of the Company, is the
managing partner. Under this agreement, PEP and Mr. Gorman have agreed to serve
as consultants to the Company and AB Plastics with primary responsibilities,
subject to the direction of the Company's Board, to review the general policies
of the companies and to render assistance in connection with various forms of
financings on their behalf. In exchange for such services, the Company and AB
Plastics have agreed jointly to pay PEP an annual consulting fee of $100,000,
payable in monthly installments, and to provide benefits to Mr. Gorman
comparable to those provided to the Company's executive officers. The
management agreement extends through September 30, 2001, and includes non-
disclosure, non-competition and non-solicitation provisions through the later
of such date or so long as PEP or Mr. Gorman continue to own shares of Common
Stock of the Company or hold options or warrants to purchase such Common Stock.
In October 1996, the Company entered into a management agreement,
effective as of August 1, 1996, with a corporate affiliate of Michael A. Gibbs,
the President of the Company, and Mr. Gibbs, individually. Under this
agreement, Mr. Gibbs and his affiliate have agreed to serve as a consultant of
the Company with primary responsibilities, subject to the direction of the
Company's Board, to review the general policies of the companies and to work
with management of the Company in all aspects of manufacturing, sales,
distribution and customer relations, the establishment of operating systems,
cost savings methods and budgets. In exchange for such services, in September
1996, the Company paid Mr. Gibbs and his affiliate an aggregate of $183,333,
representing fees for services provided prior to the date of such agreement,
and has agreed to pay Mr. Gibbs and his affiliate an aggregate annual
consulting fee of $200,000, payable in monthly installments until the earlier
of December 31, 1998 or the employment by the Company of a full-time chief
executive officer. Following such period (or sooner if Mr. Gibbs' time
commitment is reduced as provided below), the annual consulting fee is to be
reduced to $100,000 per annum. In addition, the Company has agreed to provide
benefits to Mr. Gibbs comparable to those provided to the Company's executive
officers. The management agreement extends through September 30, 2001, and
includes non-disclosure, non-competition and non-solicitation provisions
through the later of such date or so long as Mr. Gibbs continues to own shares
of Common Stock of the Company or hold options or warrants to purchase such
Common Stock.
37
<PAGE>
Under the terms of the management agreement, Mr. Gibbs agreed to devote a
minimum of 66-2/3% of his business and professional time to the Company for a
period of six months and thereafter 25% of such business and professional time.
Since September 1996, Mr. Gibbs has served in the capacity of President of the
Company and Chief Executive Officer of AB Plastics, and has devoted a minimum
of 75% of his business and professional time to the affairs of these companies.
Upon consummation of this offering, the existing management agreement
between the Company and Mr. Gibbs and his affiliate will terminate. Effective
as of the date of this Prospectus, Mr. Gibbs will enter into an employment
agreement with the Company expiring October 31, 2000. Pursuant to such
agreement, Mr. Gibbs shall serve as the President of the Company and Chief
Executive Officer of AB Plastics, and devote not less than 75% of his business
and professional time to the affairs of the Company and AB Plastics. Under the
terms of such employment agreement, Mr. Gibbs will receive a base salary of
$275,000 per year, and be entitled to receive annual bonuses of between
$100,000 and $300,000 in each of the Company's fiscal years ending in 1998,
1999 and 2000, respectively, if the Company's EBITDA (as defined) shall equal
or exceed $12.0 million, $18.0 million and $24.0 million, or increments
thereof, in the fiscal years ending in 1998, 1999 and 2000, respectively. In
addition, the Company has agreed to provide benefits to Mr. Gibbs comparable to
those provided to the Company's executive officers. The employment agreement
includes non-disclosure, non-competition and non-solicitation provisions.
Pursuant to his employment agreement, the Company has granted Mr. Gibbs
options to purchase an aggregate of 300,000 shares of Common Stock of the
Company pursuant to the 1997 Stock Option Plan. Such options expire October 31,
2002 and are only exercisable at a time in which Mr. Gibbs shall be performing
services for the Company, unless such services are terminated by the Company
"without cause", as defined in his employment agreement. In addition, the
options vest and are exercisable prior to their expiration date, only to the
extent of (i) 100,000 shares if the average of the closing prices of the
Company's Common Stock, as reported on Nasdaq or any national securities
exchange for any 30 consecutive trading days (the "Average Closing Price")
shall exceed $ per share [200% of the initial public offering price of the
shares offered hereby], (ii) 200,000 shares if the Average Closing Price shall
exceed $ per share [300% of the initial public offering price of the shares
offered hereby], and (iii) 300,000 shares if the Average Closing Price shall
exceed $ per share [400% of the initial public offering price of the shares
offered hereby]. See "--Stock Option Plans."
In September 1996, in connection with the acquisition of AB Plastics, AB
Plastics entered into employment agreements with James S. Adams to serve as the
President of AB Plastics through June 1999 and with Stephen M. Adams to serve
as the Vice President-Technology of AB Plastics through September 1999.
Pursuant to the employment agreements, James S. Adams has agreed to continue to
perform services primarily in connection with customer relations and strategic
long-term planning and Stephen Adams has agreed to continue to supervise, on a
day-to-day basis, the technical aspects of the Company's business. The Company
currently pays each of James S. Adams and Stephen M. Adams an annual salary of
$100,000 and provides them with customary health and medical benefits. Both
individuals have also agreed not to compete with the Company for the period
through September 2001 and not to disclose confidential information relating to
the Company at any time.
AB Plastics has also entered into employment agreements with each of G.
Michael Frink, Jawed Ghias and Paul J. Iacono to serve as Senior Vice
President-Sales and Marketing, Vice President-Manufacturing and Vice
President-Finance of AB Plastics, respectively. Under such agreements, AB
Plastics currently pays annual base salaries of $100,000, $140,000 and $85,000
to Messrs. Frink, Ghias and Iacono, respectively. Mr. Iacono's annual base
salary will be increased to $100,000 in September 1997. Each of such
individuals is also entitled to receive an annual bonus, with Mr. Frink
entitled to receive up to $80,000 for achieving target performance levels based
on sales and diversification of AB Plastics' customer base, with a minimum of
$20,000. Mr. Ghias is entitled to participate in AB Plastics' bonus pool to
receive up to one-half of his annual base salary, and Mr. Iacono is entitled to
receive in September 1997 a bonus in the amount of $42,500. Subject to
achievement of AB Plastics' business plan (in whole or in part), Mr. Iacono is
entitled to a bonus of $50,000 in September 1998. Each of such individuals has
also agreed not to compete with the Company during the term of his agreement
and for one year thereafter and not to disclose confidential information
relating to AB Plastics at any time.
38
<PAGE>
Stock Option Plans
1996 Stock Option Plan. In September 1996, the stockholders of the Company
approved the Company's 1996 Stock Option Plan, as previously adopted by the
Company's Board of Directors (the "1996 Plan"), pursuant to which officers,
directors, key employees and consultants of the Company are eligible to receive
incentive stock options and non-qualified stock options to purchase up to an
aggregate of 1,080,000 shares of Common Stock. There are currently outstanding
under the 1996 Plan stock options for an aggregate of 594,000 shares of Common
Stock at an exercise price of $0.74 per share, expiring on December 31, 2002.
The exercise price under such outstanding stock options represents not less
than 100% of the fair market value of the underlying Common Stock as of the
date that such options were granted, as determined by the Board of Directors of
the Company on the date that such options were granted. Options to purchase
68,591 shares were granted to Mr. Gorman in 1996 at an exercise price of $0.74
per share, and options to purchase 270,000 shares were granted to Mr. Gibbs in
1996 at an exercise price of $0.74 per share, all of which options are being
exercised upon the consummation of this offering. See "Certain Transactions."
With respect to incentive stock options, the 1996 Plan provides that the
exercise price of each such option must be at least equal to 100% of the fair
market value of the Common Stock on the date that such option is granted (and
110% of fair market value in the case of stockholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Stock),
and requires that all such options have an expiration date not later than that
date which is one day before the tenth anniversary of the date of the grant of
such options (or the fifth anniversary of the date of grant in the case of 10%
or greater stockholders). However, with certain limited exceptions, in the
event that the option holder ceases to be associated with the Company, or
engages in or is involved with any business similar to that of the Company,
such option holder's incentive options immediately terminate. Pursuant to the
1996 Plan, the aggregate fair market value, determined as of the date(s) of
grant, for which incentive stock options are first exercisable by an option
holder during any one calendar year cannot exceed $100,000.
1997 Stock Option Plan. In June 1997, the stockholders of the Company
approved the Company's 1997 Stock Option Plan, as previously adopted by the
Company's Board of Directors (the "1997 Plan"), pursuant to which officers,
directors, key employees and consultants of the Company are eligible to receive
incentive stock options and non-qualified stock options to purchase up to an
aggregate of 1,000,000 shares of Common Stock. There are currently 300,000
outstanding stock options under the 1997 Plan. See "-- Employment Agreements."
The requirements of the 1997 Plan with respect to incentive stock options
are identical to the requirements of the 1996 Plan. With respect to
non-qualified stock options, the 1997 Plan requires that the exercise price of
all such options be at least equal to 100% of the fair market value of the
Common Stock on the date such option is granted, provided that non-qualified
options may be issued at a lower exercise price (but in no event less than 85%
of fair market value) if the net pre-tax income of the Company in the full
fiscal year immediately preceding the date of the grant of such option (the
"Prior Year") exceeded 125% of the mean annual average net pre-tax income of
the Company for the three fiscal years immediately preceding such Prior Year.
Non-qualified options must have an expiration date not later than that date
which is the day before the eighth anniversary of the date of the grant of the
subject option. However, with certain limited exceptions, in the event that the
option holder ceases to be associated with the Company, or engages in or becomes
involved with any business similar to that of the Company, such option holder's
non-qualified options immediately terminate.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 4, 1997, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by: (i) each of
the Named Executive Officers who beneficially owns any shares, (ii) each of the
Company's directors who beneficially owns any shares, (iii) all directors and
executive officers of the Company as a group, and (iv) each other person known
by the Company to own beneficially more than 5% of the Company's Common Stock.
Except as otherwise noted, the persons named in this table, based upon
information provided by such persons, have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of Outstanding
Number of Shares Common Stock
of Common Stock Beneficially Owned
Beneficially -----------------------------------
Name and Address of Beneficial Owner(1) Owned (2) Before Offering After Offering
- ------------------------------------------------ ------------------ ----------------- ---------------
<S> <C> <C> <C>
North Atlantic Smaller Companies
Investment Trust plc ........................ 1,063,125 22.4% 17.6%
Private Equity Partners, L.P. .................. 675,000(3) 14.0% 11.1%
Sirrom Investments, Inc ........................ 1,080,000(4) 22.5% 17.7%
Geoffrey J.F. Gorman ........................... 946,091(5) 19.7% 15.5%
Michael A. Gibbs .............................. 652,500(6) 13.6% 10.7%
James S. Adams ................................. 62,267(7) 1.3% 1.0%
Stephen M. Adams .............................. 31,136(8) * *
Christopher H.B. Mills ........................ 1,096,125(9) 22.4% 17.6%
All directors and executive officers as a group
(8 persons) ................................. 2,788,119 58.0% 45.7%
</TABLE>
- ------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) The address of North Atlantic Smaller Companies Investment Trust plc is c/o
JO Hambro & Partners Limited, 10 Park Place, London SW1A 1LP, United
Kingdom. The address of Private Equity Partners, L.P. and Geoffrey J.F.
Gorman is 808 Lexington Avenue, 2nd Floor, New York, New York 10021. The
address of Sirrom Investments, Inc. is 500 Church Street, Suite 200,
Nashville, Tennessee 37219. The address of each other beneficial owner is
c/o AB Plastics Corporation, 15730 South Figueroa Street, Gardena,
California 90248.
(2) Shares beneficially owned and percentage of ownership are based on
4,806,000 shares of Common Stock outstanding before this offering and
6,106,000 shares of Common Stock to be outstanding after the consummation
of this offering, and assuming no exercise of the Underwriters'
over-allotment option. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or dispositive power with respect to such shares.
(3) PEP is the general partner of Private Equity Partners, L.P., a Delaware
limited partnership.
(4) Represents shares of Common Stock issued on the date of this Prospectus for
$2,000 upon exercise of a warrant granted in connection with a $4.0
million subordinated term loan made by Sirrom in connection with the
original capitalization of the Company and acquisition of AB Plastics in
September 1996. See "Certain Transactions."
(5) Includes (i) 675,000 shares of Common Stock owned by Private Equity
Partners, L.P., of which Mr. Gorman is the managing partner of PEP, its
general partner, (ii) 202,500 shares of Common Stock issued on the date of
this Prospectus upon exercise of a warrant issued in September 1996 at
$0.74 per share, and (iii) 68,591 shares of Common Stock issued on the
date of this Prospectus upon exercise of a stock option issued in
September 1996 at $0.74 per share. See "Certain Transactions."
(6) Includes (i) 112,250 shares of Common Stock owned beneficially through
Private Equity Partners, L.P. which were purchased for $0.74 per share in
September 1996, (ii) 270,000 shares issued on the date of this Prospectus
upon exercise of a warrant issued in September 1996 at $0.74 per share,
and (ii) 270,000 shares of Common Stock issued on the date of this
Prospectus upon exercise of a stock option issued in Septem
40
<PAGE>
ber 1996 at $0.74 per share. Does not include 300,000 shares of Common Stock
which may be issued in the future upon the occurrence of certain events
under options granted to Mr. Gibbs pursuant to the Company's 1997 Plan. See
"Management -- Employment Agreements" and "Certain Transactions."
(7) Represents shares of Common Stock issued on the date of this Prospectus
upon exercise of a stock option issued in September 1996 at $0.74 per
share. See "Certain Transactions."
(8) Represents shares of Common Stock which are issuable at $0.74 per share
upon the exercise of outstanding stock options. See "Management -- Stock
Option Plans."
(9) Represents shares owned beneficially by North Atlantic Smaller Companies
Investment Trust plc, of which Mr. Mills is a managing director.
41
<PAGE>
CERTAIN TRANSACTIONS
In connection with the capitalization of the Company and the
acquisition of AB Plastics, in September 1996, the Company issued a $4.0 million
13.5% subordinated term note to Sirrom, due September 2001, and a five-year
warrant to purchase an aggregate of 1,080,000 shares of Common Stock of the
Company, at an exercise price of $.01 per share (a total of $2,000). Sirrom has
elected to exercise such warrant on the date of this Prospectus. The Company has
granted to Sirrom certain "piggyback" and demand registration rights with
respect to the shares issued to Sirrom upon exercise of such warrant, which
registration rights Sirrom has agreed not to exercise until at least 180 days
from the date of this Prospectus. See "Shares Eligible for Future Sale."
In September 1996, the Company sold an aggregate of 675,000
shares of Common Stock to Private Equity Partners, L.P. for $500,000, or $0.74
per share, of which Geoffrey J. F. Gorman, the Company's Chairman of the Board
is the managing partner of PEP, its general partner. Michael A. Gibbs, the
President of the Company, purchased an undivided one-sixth interest in the
equity holdings of Private Equity Partners, L.P. for $83,333 and beneficially
owns 112,250 of the shares owned by such limited partnership.
In September 1996, the Company issued five-year options and warrants
exercisable at $0.74 per share to a number of persons, including Geoffrey J.F.
Gorman, Chairman of the Board of the Company, Michael A. Gibbs, President of
the Company, and James S. Adams, President of AB Plastics. Effective on the
date of this Prospectus, each of Messrs. Gorman, Gibbs and Adams will exercise
all options and warrants issued to them, as a result of which Mr. Gorman will
purchase an aggregate of 271,091 shares of Common Stock for $200,607, Mr. Gibbs
will purchase an aggregate of 540,000 shares of Common Stock for $399,600, and
Mr. Adams will purchase an aggregate of 62,267 shares of Common Stock for
$49,778. The purchase price for such shares will be paid by Messrs. Gorman,
Gibbs and Adams by delivering to the Company his 8% full-recourse promissory
notes, payable semi-annually as to interest, and as to principal on the earlier
to occur of (a) the sale of the Company to any unaffiliated third party,
whether through merger, sale of assets or like consolidation or combination, or
(b) September 30, 2001. In addition, to the extent that any of Messrs. Gorman,
Gibbs or Adams shall effect any public or private sale or distribution of any
of their shares of Common Stock, they will be obligated to prepay their
respective notes to the extent of $0.74 of principal for each full share sold
or distributed by them, together with all interest accrued thereon to the date
of sale.
In September 1996, the Company entered into a management agreement with
PEP, of which Geoffrey J.F. Gorman, the Chairman of the Board of the Company,
is the managing partner. In October 1996, the Company entered into a management
agreement, effective as of August 1, 1996, with a corporate affiliate of
Michael A. Gibbs, the President of the Company, and Mr. Gibbs, individually.
See "Management -- Employment Agreements."
In September 1996, the Company entered into an agreement with JO Hambro &
Partners Limited ("JO Hambro"), of which Christopher H.B. Mills, a director of
the Company, is a director. Pursuant to such agreement, the Company pays JO
Hambro an annual fee of $50,000, payable quarterly, as a director's fee. The
Company is required to make these payments to JO Hambro as long as a
representative of JO Hambro serves on the Board of Directors of the Company or
AB Plastics and certain investors, previously introduced to the Company by JO
Hambro, hold in the aggregate in excess of 10% of the outstanding shares of the
Company's Common Stock on a fully-diluted basis.
The Company leases its principal executive offices in Gardena, California
from a partnership of which James M. Adams, President of AB Plastics, is a
partner. The Company has exercised its option to purchase this facility for
approximately $3.0 million, the appraised fair market value of such property.
Such purchase is expected to be completed prior to the consummation of this
offering. See "Business -- Facilities."
The Company's Certificate of Incorporation provides for indemnification of
the Company's officers and directors in certain circumstances. The Company
intends to enter into indemnification agreements with each of its directors and
executive officers. See "Management -- Limitation of Liability and
Indemnification."
42
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's authorized capital stock consists of (i) 20,000,000 shares
of Common Stock, par value $.0001 per share, and (ii) 5,000,000 shares of
Preferred Stock, par value $.0001 per share. As of the date of this Prospectus,
an aggregate of 4,806,000 shares of Common Stock were outstanding and held by
15 stockholders. No shares of Preferred Stock have been issued or are
outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders 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. In the event of the dissolution, liquidation or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of all liabilities of the Company. All
outstanding shares of Common Stock are fully paid and nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire
or subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
offering, persons acquiring Common Stock in this offering would have no right
to purchase additional shares, and as a result, their percentage equity
interest in the Company would be reduced.
Pursuant to the Company's By-Laws, except for any matters which, pursuant
to the Delaware Law, require a greater percentage vote for approval, the
holders of a majority of the outstanding Common Stock, if present in person or
by proxy, are sufficient to constitute a quorum for the transaction of business
at meetings of the Company's stockholders. Holders of shares of Common Stock
are entitled to one vote per share on all matters submitted to the vote of
Company stockholders. Except as to any matters which, pursuant to Delaware Law,
require a greater percentage vote for approval, the affirmative vote of the
holders of a majority of the Common Stock present in person or by proxy at any
meeting (provided a quorum as aforesaid is present thereat) is sufficient to
authorize, affirm or ratify any act or action, including the election of
directors.
The holders of Common Stock do not have cumulative rights. Accordingly,
the holders of more than half of the outstanding shares of Common Stock can
elect all of the directors to be elected in any election, if they choose to do
so. In such event, the holders of the remaining shares of Common Stock would
not be able to elect any directors. The Board is empowered to fill any
vacancies on the Board created by the resignation, death or removal of
directors.
In addition to voting at duly called meetings at which a quorum is present
in person or by proxy, Delaware Law and the Company's By-Laws provide the
stockholders may take action without the holding of a meeting by written
consent or consents signed by the holders of a majority of the outstanding
shares of the capital stock of the Company entitled to vote thereon. Prompt
notice of the taking of any action without a meeting by less than unanimous
consent of the stockholders will be given to those stockholders who do not
consent in writing to the action. The purposes of this provision are to
facilitate action by stockholders and to reduce the corporate expense
associated with annual and special meetings of stockholders. Pursuant to the
rules and regulations of the Commission, if stockholder action is taken by
written consent, the Company will be required to send to each stockholder
entitled to vote on the matter acted on, but whose consent was not solicited,
an information statement containing information substantially similar to that
which would have been contained in a proxy statement.
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series,
43
<PAGE>
without any further vote or action by the stockholders. The issuance of
Preferred Stock by the Board of Directors could affect the rights of the
holders of Common Stock. For example, such issuance could result in a class of
securities outstanding that would have preferences with respect to voting
rights and dividends, and in liquidation, over the Common Stock, and could
(upon conversion or otherwise) enjoy all of the rights appurtenant to Common
Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. There are no
agreements for the issuance of Preferred Stock and the Board of Directors has
no present intention to issue Preferred Stock.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the Delaware Law, which 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 of
the transaction in which the person became an interested stockholder, unless
(i) prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person, who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
Transfer Agent
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the
Common Stock and there can be no assurance that a significant public market for
the Common Stock will be developed or sustained after this offering. Sales of
substantial amounts of Common Stock in the public market after this offering,
or the possibility of such sales occurring, could adversely affect prevailing
market prices of the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities.
Upon the completion of this offering, the Company will have outstanding
6,106,000 shares of Common Stock. Of such shares, the 1,300,000 shares of
Common Stock sold in the offering (assuming no exercise of the Underwriter's
over-allotment option) will be freely tradeable in the public market without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company, as defined in Rule 144 under the Securities Act.
The remaining 4,806,000 shares of Common Stock outstanding are "restricted
securities," as defined in Rule 144 under the Securities Act (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules
144 or 701 under the Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, all of the Company's officers,
directors and principal stockholders have agreed, subject to certain limited
exceptions, not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any shares of Common Stock of the Company or any
securities exercisable for or convertible into the Company's Common Stock owned
by them for a period of 365 days from the date of this Prospectus. Such
agreements provide that the Representative may, in its sole discretion and at
any time without notice, release all or a portion of the shares subject to
these lock-up agreements.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
imposed under Rule 144. In general, under Rule 144, as amended, beginning 90
days after the date of this Prospectus, a person (or persons whose shares of the
Company are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner who is not 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 then outstanding shares of Common Stock (approximately 61,060 shares
following this offering), or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale 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 90 days preceding a
sale and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner who is not an
affiliate of the Company) is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated is acting as Representative, have severally agreed to purchase
from the Company and the Company has agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name below:
Underwriters Number of Shares
- ------------------------------------ -----------------
Cruttenden Roth Incorporated ......
Total ..................... ----------
1,300,000
==========
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company's
counsel and independent public accountants. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus
and to certain securities dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such selected dealers may
reallow, a discount not in excess of $ per share to certain brokers and
dealers. After the initial public offering of the shares, the public offering
price and other selling terms may be changed by the Representative. No change
in such terms shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 195,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of Common Stock in approximately
the same proportion as set forth in the above table.
The Company has agreed to issue to the Representative, for a total of
$130, warrants (the "Representative's Warrants") to purchase up to 130,000
shares of Common Stock at an exercise price per share equal to 120% of the
initial public offering price. The Representative's Warrants are exercisable
for a period of four years beginning one year from the date of this Prospectus.
The holders of the Representative's Warrants will have no voting, dividend or
other stockholder rights until the Representative's Warrants are exercised. In
addition, the Company has granted certain rights to the holders of the
Representative's Warrants to register the Representative's Warrants and the
Common Stock underlying the Representative's Warrants under the Securities Act.
The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the aggregate Price to Public (including with respect
to shares of Common Stock underlying the over-allotment option, if and to the
extent it is exercised) set forth on the front cover of this Prospectus for
expenses in connection with this offering, of which the sum of $50,000 has been
paid. The Representative's expenses in excess of such allowance will be borne
by the Representative. To the extent that the expenses of the Representative
are less than the non-accountable expense allowance, the excess may be deemed
to be compensation to the Representative.
The Representative has advised the Company that it does not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
46
<PAGE>
Prior to this offering, there has been no established trading market for
the Common Stock. Consequently, the initial public offering price for the
Common Stock offered hereby has been determined by negotiation between the
Company and the Representative. Among the factors considered in such
negotiations were the preliminary demand for the Common Stock, the prevailing
market and economic conditions, the Company's results of operations, estimates
of the business potential and prospects of the Company, the present state of
the Company's business operations, an assessment of the Company's management,
the consideration of these factors in relation to the market valuation of
comparable companies in related businesses, the current condition of the
markets in which the Company operates, and other factors deemed relevant. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this offering at or above the initial public offering price.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities under
the Securities Act or will contribute to payments the Underwriters and their
controlling persons may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, New York,
New York. Certain legal matters relating to the offering will be passed upon
for the Underwriters by Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California.
EXPERTS
The financial statements as of October 27, 1996 and for the fiscal year
ended October 27, 1996 included in this Prospectus have been so included in
reliance on the report of Marcum & Kliegman LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements as of October 29, 1995 and for the fiscal year
ended October 29, 1995 and October 30, 1994 included in this Prospectus have
been so included in reliance on the report of Block, Plant, Eisner, Fiorito &
Belak-Berger ("BPEFB"), independent accountants, given on the authority of said
firm as experts in auditing and accounting.
As approved by the Company's Board of Directors, the Company dismissed
BPEFB in January 1997. The reports of BPEFB for each of the fiscal years ended
October 29, 1995 and October 30, 1994 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle except for the consistent application of
accounting principles. There were no disagreements on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of BPEFB
would have caused it to make reference to the subject matter of the
disagreements in conjunction with its reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including the exhibits thereto
and the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Commission, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New
47
<PAGE>
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information may also be inspected without
charge at a Web site maintained by the Commission. The address of such site is
http://www.sec.gov.
48
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS ................................................ F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet as of October 27 1996, Balance Sheet as of October 29,
1995 and Consolidated Balance Sheet as of April 27, 1997 (Unaudited) ......... F-5
Consolidated Statement of Operations for the Fifty-Two Weeks Ended October 27,
1996, Statement of Operations for the Fifty-Two Weeks Ended October 29, 1995
and October 30, 1994 (Unaudited) ............................................. F-7
Consolidated Statement of Operations for the Twenty-Six Weeks Ended April 27,
1997 (Unaudited) and Statement of Operations for the Twenty-Six Weeks Ended
April 28, 1996 (Unaudited) ................................................... F-7
Consolidated Statement of Stockholders' Equity for the Fifty-Two Weeks Ended
October 27, 1996, Statement of Stockholders' Equity for the Fifty-Two Weeks
Ended October 29, 1995 and October 30, 1994 (Unaudited) ........................ F-8
Consolidated Statement of Stockholders' Equity for the Twenty-Six Weeks Ended
April 27, 1997 (Unaudited) ................................................... F-8
Consolidated Statement of Cash Flows for the Fifty-Two Weeks Ended October 27,
1996, Statement of Cash Flows for the Fifty-Two Weeks ended October 29, 1995
and October 30, 1994 (Unaudited) ............................................. F-9
Consolidated Statement of Cash Flows for the Twenty-Six Weeks Ended April 27,
1997 (Unaudited) and Statement of Cash Flows for the Twenty-Six Weeks Ended
April 28, 1996 (Unaudited) ................................................... F-9
NOTES TO FINANCIAL STATEMENTS ................................................... F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
AB Plastics Holding Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of AB Plastics
Holding Corporation and Subsidiary as of October 27, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the fifty-two weeks then ended. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AB Plastics
Holding Corporation and Subsidiary as of October 27, 1996 and the results of
their operations and their cash flows for the fifty-two weeks then ended in
conformity with generally accepted accounting principles.
MARCUM & KLIEGMAN LLP
December 31, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
AB Plastics Corporation
Gardena, California
We have audited the accompanying balance sheet of AB Plastics Corporation
(an S Corporation) as of October 29, 1995 and the related statements of
operations, shareholders' equity and cash flows for the fifty-two weeks then
ended. 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 AB Plastics Corporation as
of October 29, 1995, and the results of its operations and its cash flows for
the fifty-two weeks then ended in conformity with generally accepted accounting
principles.
BLOCK PLANT, EISNER, FIORITO & BELAK-BERGER
Encino, California
December 14, 1995
F-3
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
AB Plastics Corporation
Gardena, California
We have reviewed the statements of operations, shareholders' equity and
cash flows for the fifty-two weeks ended October 30, 1994, of AB Plastics
Corporation, in accordance with standards established by the American Institute
of Certified Public Accountants. All information included in these financial
statements is the representation of the management of AB Plastics Corporation.
A review consists principally of inquires of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
BLOCK PLANT, EISNER, FIORITO & BELAK-BERGER
Encino, California
November 29, 1994
F-4
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 29, October 27, April 27,
1995 1996 1997
------------- ---------------- ---------------
(Consolidated) (Consolidated)
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ......... $ 468,344 $ 729,729 $ 802,634
Accounts receivable, net ......... 6,494,304 5,915,207 3,568,967
Accounts receivable, other ......... 12,735 63,827 94,772
Inventories ........................ 3,296,803 1,893,668 2,991,337
Prepaid expenses .................. 653,084 524,185 432,509
Prepaid income taxes ............... 34,393 18,515 78,220
Income tax refund receivable ...... -0- 78,220 -0-
Notes receivable, other ............ 696,791 -0- 77,631
------------ ------------ ------------
Total Current Assets ............ 11,656,454 9,223,351 8,046,070
------------ ------------ ------------
EQUIPMENT AND IMPROVEMENTS,
Net ................................. 8,799,087 8,622,927 8,888,725
------------ ------------ ------------
OTHER ASSETS
Goodwill, net ..................... -0- 1,376,523 1,341,966
Deposits ........................... -0- 167,953 389,599
Other assets, net .................. 157,298 203,447 160,558
------------ ------------ ------------
Total Other Assets ............... 157,298 1,747,923 1,892,123
------------ ------------ ------------
TOTAL ASSETS ..................... $20,612,839 $19,594,201 $18,826,918
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 29, October 27, April 27,
1995 1996 1997
------------- ---------------- ---------------
(Consolidated) (Consolidated)
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses ..................... $ 5,919,615 $ 4,181,770 $ 4,788,447
Accrued wages ............................................. 494,743 498,717 432,836
Current portion of capitalized lease obligations ............ 312,087 286,705 282,789
Payroll taxes payable ....................................... 61,886 65,648 165,856
Income taxes payable ....................................... 21,423 76,300 104,055
Notes payable, other ....................................... 140,000 -0- -0-
Current portion of long-term debt ........................... 3,677,498 -0- -0-
Distributions payable ....................................... 227,800 -0- -0-
------------ ------------ ------------
Total Current Liabilities ................................. 10,855,052 5,109,140 5,773,983
------------ ------------ ------------
OTHER LIABILITIES
Capitalized lease obligations, net of current portion ...... 673,740 387,034 625,004
Long-term debt ............................................. 2,129,171 10,000,000 7,150,000
Deferred income taxes payable .............................. 82,768 1,734,437 1,734,437
------------ ------------ ------------
Total Other Liabilities .................................... 2,885,679 12,121,471 9,509,441
------------ ------------ ------------
TOTAL LIABILITIES .......................................... 13,740,731 17,230,611 15,283,424
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ................................................ 110,840 270 270
Additional paid-in capital ................................. -0- 2,199,730 2,199,730
Retained earnings .......................................... 6,761,268 163,590 1,343,494
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................. 6,872,108 2,363,590 3,543,494
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY ................................................... $20,612,839 $19,594,201 $18,826,918
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Twenty-Six Weeks
For the Fifty-Two Weeks Ended Ended
-------------------------------------------------- --------------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
-------------- -------------- ---------------- -------------- ---------------
(Unaudited) (Consolidated) (Unaudited) (Consolidated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SALES ..................... $ 34,026,925 $ 42,678,959 $ 39,345,443 $ 19,409,976 $ 20,244,365
COST OF SALES ............... 30,695,123 38,960,968 34,001,503 17,337,835 16,393,249
------------ ------------ ------------ ------------ -----------
GROSS PROFIT ............... 3,331,802 3,717,991 5,343,940 2,072,141 3,851,116
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES
Selling ..................... 431,992 443,916 515,788 223,637 294,133
Administrative ............ 1,283,188 1,239,549 1,216,196 797,067 1,162,066
------------ ------------ ------------ ------------ -----------
TOTAL OPERATING
EXPENSE ............... 1,715,180 1,683,465 1,731,984 1,020,704 1,456,199
------------ ------------ ------------ ------------ -----------
OPERATING INCOME ......... 1,616,622 2,034,526 3,611,956 1,051,437 2,394,917
------------ ------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Other income ............... 284,183 130,676 48,296 -0- -0-
Interest expense ......... (290,837) (434,761) (527,958) (226,088) (451,243)
Other expenses ............ -0- -0- -0- -0- -0-
Restructuring costs ......... -0- -0- (1,151,288) -0- -0-
------------ ------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE ........ (6,654) (304,085) (1,630,950) (226,088) (451,243)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE
INCOME TAXES ............ 1,609,968 1,730,441 1,981,006 825,349 1,943,674
INCOME TAX EXPENSE ......... (48,127) (26,457) (107,310) (12,445) (763,770)
------------ ------------ ------------ ------------ ------------
NET INCOME .................. $ 1,561,841 $ 1,703,984 $ 1,873,696 $ 812,904 $ 1,179,904
============ ============ ============ ============ ============
Net income per share ......... $.32 $.35 $.39 $.17 $.24
==== ==== ==== ==== ====
Weighted average common stock
and common stock equivalents
outstanding ............... 4,860,000 4,860,000 4,860,000 4,860,000 4,860,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Number of Common Paid-In Retained Stockholders'
Shares Stock Capital Earnings Equity
-------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1993 ...... 9,965.40 $ 110,840 $ -0- $ 4,987,020 $ 5,097,860
Net Income .................. -0- -0- -0- 1,561,841 1,561,841
Distributions .................. -0- -0- -0- (1,077,977) (1,077,977)
------------- ---------- ----------- ------------ ------------
Balance, October 30, 1994
(unaudited) ..................... 9,965.40 110,840 -0- 5,470,884 5,581,724
Net Income .................. -0- -0- -0- 1,703,984 1,703,984
Distributions .................. -0- -0- -0- (413,600) (413,600)
------------- ---------- ----------- ------------ ------------
Balance, October 29, 1995 ...... 9,965.40 110,840 -0- 6,761,268 6,872,108
Net Income .................. -0- -0- -0- 1,873,696 1,873,696
Distributions .................. -0- -0- -0- (933,868) (933,868)
Issuance of warrants ............ -0- -0- 199,950 -0- 199,950
Stock retirement ............... (9,965.40) (110,840) -0- -0- (110,840)
Issuance of stock ............... 500,000.00 50 2,000,000 -0- 2,000,050
Recapitalization ............... -0- -0- -0- (7,537,506) (7,537,506)
Stock Split ..................... 2,200,000.00 220 (220) -0- -0-
------------- ---------- ----------- ------------ ------------
Consolidated Balance, October 27,
1996 ........................... 2,700,000.00 270 2,199,730 163,590 2,363,590
Net Income ..................... -0- -0- -0- 1,179,904 1,179,904
------------- ---------- ----------- ------------ ------------
Consolidated Balance, April 27,
1997 (Unaudited) ............... 2,700,000.00 $ 270 $ 2,199,730 $ 1,343,494 $ 3,543,494
============= ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twenty-Six Weeks
For the Fifty-Two Weeks Ended Ended
-------------------------------------------------- -------------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
-------------- -------------- ---------------- ------------- ---------------
(Unaudited) (Consolidated) (Unaudited) (Consolidated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income ........................ $ 1,561,841 $ 1,703,984 $ 1,873,696 $ 812,904 $ 1,179,904
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
(Gain) loss on sale of
equipment ..................... (59,961) 7,975 19,397 -0- -0-
Depreciation and amortization 746,137 875,651 908,623 491,704 635,963
Deferred income taxes ............ 27,390 5,775 36,555 1,343 -0-
Changes in assets - (increase)
decrease:
Accounts receivable, net ......... (81,220) (2,562,502) 579,097 3,237,602 2,346,239
Accounts receivable, other ......... (6,723) 184 (23,461) (244) (57,976)
Inventories ........................ (703,138) (708,385) 1,403,135 (34,146) (1,097,669)
Prepaid expenses .................. 65,911 17,566 128,899 128,355 97,252
Prepaid income taxes ............... 30,422 24,749 15,878 -0- -0-
Income tax refund receivable ...... -0- -0- (78,220) -0- -0-
Deposits ........................... (206,893) (75,008) (167,953) 159,862 (221,646)
Other assets ..................... (50,000) (160,208) 145,358 51,078 -0-
Changes in liabilities - increase
(decrease):
Accounts payable and accrued
expenses ........................ 1,731,337 1,865,574 (1,737,845) (2,977,858) 624,339
Accrued wages and payroll
taxes payable ..................... (97,316) 65,521 7,736 20,254 -0-
Income taxes payable ............... (9,203) (4,067) 54,877 11,102 27,755
------------ ------------ ------------ ------------ ------------
TOTAL ADJUSTMENTS .................. 1,386,743 (647,175) 1,292,076 1,089,052 2,354,257
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES . 2,948,584 1,056,809 3,165,772 1,901,956 3,534,161
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sale of equipment . 65,400 91,462 6,000 -0- -0-
Purchase of equipment and
improvements ..................... (1,625,162) (3,490,848) (780,217) (769,511) (561,257)
Collection on note receivable,
other .............................. 134,791 145,979 700,010 69,429 -0-
Proceeds from notes receivable,
other .............................. -0- (90,000) -0- -0- (50,000)
Investment in subsidiary ............ -0- -0- (7,637,555) -0- -0-
------------ ------------ ------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES ............ (1,424,971) (3,343,407) (7,711,762) (700,082) (611,257)
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twenty-Six Weeks
For the Fifty-Two Weeks Ended Ended
------------------------------------------------ -------------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
------------- ------------- ---------------- ------------- ---------------
(Unaudited) (Consolidated) (Unaudited) (Consolidated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term debt ......... $ 184,600 $ 3,615,439 $ -0- $ -0- $ -0-
Proceeds from line of credit ......... -0- -0- 12,050,000 -0- -0-
Repayment of long-term debt ......... (511,886) (490,000) (7,996,669) (1,545,000) -0-
Repayment of capitalized lease
obligations ........................ (255,961) (312,358) (312,088) (171,920) -0-
Repayment of line of credit ......... -0- -0- -0- -0- (2,850,000)
Proceeds from issuance of stock ...... -0- -0- 2,000,000 -0- -0-
Distributions to shareholders ......... (1,077,977) (185,800) (933,868) (461,801) -0-
------------ ----------- ------------ ------------ ------------
NET CASH (USED IN)
PROVIDED BY FINANCING
ACTIVITIES ........................... (1,661,224) 2,627,281 4,807,375 (2,178,721) (2,850,000
------------ ----------- ------------ ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS ........................ (137,611) 340,683 261,385 (976,847) 72,904
CASH AND CASH
EQUIVALENTS - Beginning ............ 265,272 127,661 468,344 468,344 729,730
------------ ----------- ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS (CASH
OVERDRAFT) - Ending .................. $ 127,661 $ 468,344 $ 729,729 $ (508,503) $ 802,634
============ =========== ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest .............................. $ 293,452 $ 396,569 $ 444,055 $ 231,558 $ 451,470
Income taxes ........................ $ 50,057 $ -0- $ -0- $ -0- $ 717,500
Noncash investing and financing
activities:
Sale of equipment for a note
receivable ........................... $ -0- $ -0- $ 27,631 $ -0- $ -0-
Issuance of warrants .................. $ -0- $ -0- $ 200,000 $ -0- $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS
For the Fifty-Two Weeks Ended October 27, 1996, October 29, 1995 and
October 30, 1994 (Unaudited) and for the Twenty-Six Weeks
Ended April 27, 1997 (Unaudited) and April 28, 1996 (Unaudited)
NOTE 1 -- Summary of Significant Accounting Policies
Description of Business
Compass Plastics & Technologies, Inc. (formerly AB Plastics Holding
Corporation) (the "Company") manufactures plastic parts to customer
specifications using custom-made injection molds. The Company has a
concentration of credit risk in accounts receivable from Japanese-owned
television and computer manufacturing companies. Most of the Company's revenues
are derived from several major Japanese television and computer manufacturers.
Business Combination
The Company was formed May 30, 1996 for the purpose of acquiring the stock
of AB Plastics Corporation ("AB Plastics"). This business combination was
accounted for as a purchase effective September 27, 1996.
The aggregate purchase price for the acquisition of AB Plastic's stock was
$7,637,555, which includes the costs of the acquisition, was financed through
equity capital infusion, refinancing of long-term debt and issuance of a
promissory note payable, has been allocated to the assets purchased and the
liabilities assumed of AB Plastics based upon the fair value on the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was $1,381,797 and has been recorded as goodwill on the books of
AB Plastics.
Principles of Consolidation
The consolidated financial statements for the fifty-two weeks ended October
27, 1996 and for the twenty-six weeks ended April 27, 1997 (unaudited) include
the accounts of the Company and its wholly-owned subsidiary, AB Plastics. All
significant intercompany transactions have been eliminated in consolidation.
Fiscal Year
The Company maintains its books on a 52/53 week year ending on the last
Sunday in October. Fiscal years in the three-year period ended October 27,
1996, October 29, 1995 and October 30, 1994, each contained 52 weeks.
Goodwill
Goodwill is being amortized on a straight-line basis over a twenty-year
period. Amortization of goodwill charged to operations for the fifty-two weeks
ended October 27, 1996, October 29, 1995 and October 30, 1994 (unaudited) and
for the twenty-six weeks ended April 27, 1997 (unaudited) and April 28, 1996
(unaudited) amounted to $5,274, $0, $0, $0 and $34,557 and $0, respectively.
Advertising
The Company expenses advertising costs as incurred.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
The Company has cash balances in excess of the maximum amount insured by
the FDIC as of October 27, 1996, October 29, 1995 and April 27, 1997
(unaudited).
F-11
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- Summary of Significant Accounting Policies -- (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation is being
provided on the straight-line and accelerated methods over the estimated useful
lives of the assets.
Deferred Income Taxes
Deferred income taxes result mainly from temporary differences resulting
from using straight-line depreciation for financial statement reporting and
accelerated depreciation for income tax purposes.
Stock Options
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires compensation expense
to be recorded (i) using the new fair value method or (ii) using existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to continue to account for its stock based compensation plans
in accordance with the provisions of APB 25.
Interim Financial Information
Financial information as of and for the twenty-six weeks ended April 27,
1997 and April 28, 1996 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the results for such period
have been included; all adjustments are of a normal and recurring nature.
Interim results are not necessarily indicative of results for a full year.
Restructuring Costs
As a result of the acquisition of AB Plastics' stock by the Company, AB
Plastics recognized restructuring costs of $1,151,288 relating to write-offs of
certain assets in the amount of approximately $754,000, in addition to certain
expenses incurred in connection with the restructuring of AB Plastics of
$397,288.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the fair
value of these instruments approximate their recorded value. The Company has
long-term debt which it believes is stated at estimated fair market value.
F-12
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- Summary of Significant Accounting Policies -- (Continued)
Proforma Operating Results (Unaudited)
The following are the proforma operating results for the fifty-two week
period ended October 27, 1996 as if the acquisition by the Company described
above had occurred on October 30, 1995. The proforma results give effect to
changes in amortization and deferred income taxes from valuing the acquired net
assets at estimated fair value and recording the excess of purchase price over
the net assets acquired.
52 Weeks Ended
October 27, 1996
(Unaudited)
-----------------
Revenue ............... $39,345,443
Operating income ...... $ 3,548,140
Other expense ......... $ 1,150,314
Net income ............ $ 1,630,950
The proforma results of operations are not necessarily indicative of the actual
operating results that would have occurred had the acquisition been consummated
at the beginning of the period.
Earnings per Share
The computation of earnings per share is based on the weighted average
number of outstanding common stock and common stock equivalents (stock options)
and warrants of 4,860,000 for all periods. The number of outstanding common
shares reflects a 5.4-for-1 stock split and the dilutive effects of 2,160,000
common stock equivalents (subsequent to the stock split) related to the
Company's stock option plan and stock purchase warrants using the modified
treasury stock method (see Notes 10 and 12). The number of common outstanding
is applied retroactively to all periods presented for earnings per share
purposes.
Accounts Receivable
Accounts receivable at October 27, 1996, October 29, 1995 and April 27,
1997 is shown net of allowance for doubtful accounts of $12,400.
NOTE 2 -- Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 29, October 27, April 27,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Raw materials ........................... $1,944,202 $ 912,708 1,291,472
Finished goods and work in-process ...... 1,352,601 980,960 1,699,865
----------- ----------- -----------
Total ................................. $3,296,803 $1,893,668 $2,991,337
=========== =========== ===========
</TABLE>
NOTE 3 -- Prepaid Expenses
Prepaid expenses consist of the current portion of deferred financing
costs and various other prepaid expenses. Deferred financing costs are being
amortized over the life of the respective loan and other prepaid expenses are
being amortized over their useful lives.
F-13
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- Equipment and Improvements
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
October 29, October 27, April 27,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment ........................... $15,520,169 $7,947,016 $ 7,954,306
Mobile equipment ..................... 131,669 29,979 30,177
Office furniture and equipment ...... 554,572 353,935 401,373
Leasehold improvements ............... 633,513 367,880 367,880
Construction in progress ............ -- -- 747,890
------------ ----------- -----------
16,839,923 8,698,810 9,501,626
Less: accumulated depreciation ...... 8,040,836 75,883 (612,901)
------------ ----------- -----------
Equipment and Improvements, Net . $ 8,799,087 $8,622,927 $ 8,888,725
============ =========== ===========
</TABLE>
Depreciation expense charged to operations for the fifty-two weeks ended
October 27, 1996, October 29, 1995 and October 30, 1994 and for the twenty-six
weeks ended April 27, 1997 (unaudited) and April 28, 1996 (unaudited) amounted
to $897,986, $808,984, $706,141, $537,017 and $456,704, respectively.
On September 27, 1996, equipment and improvements were revalued in
accordance with the purchase method of accounting.
NOTE 5 -- Other Assets
Other assets are stated at cost and consist of the following as of October
27, 1996:
<TABLE>
<CAPTION>
October 21, October 31, April 27,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Deferred financing costs - Net ...... $178,442 $160,558
Other assets ........................ $ 26,465 7,505 -0-
License fee - Net .................. 130,833 17,500 -0-
--------- --------- ---------
$157,298 $203,447 $160,558
========= ========= =========
</TABLE>
Amortization expense charged to operations for the fifty-two weeks ended
October 27, 1996, October 29, 1995 and October 30, 1994 and for the twenty-six
weeks ended April 27, 1997 (unaudited) and April 28, 1996 (unaudited) amounted
to $5,363, $66,667, $39,996, $64,389 and $35,000, respectively.
NOTE 6 -- Long-Term Debt
On October 29, 1995, AB Plastics had a note payable to Manufacturers Bank,
with an outstanding principal balance of $1,306,669, payable in monthly
principal installments of $40,833 plus interest at either the prime rate plus
.50% or the Libor rate plus 2.75%, with all unpaid principal and interest due
in May 1998. AB Plastics also had a revolving line of credit with Manufacturers
Bank of which $3,000,000 was outstanding under this line of credit on October
29, 1995, payable in monthly installments of interest only at either the prime
rate plus .25% or the bank's Libor rate plus 2.50%. Beginning in March 1996,
the line of credit was extended until March 15, 1997.
AB Plastics also had an additional line of credit from Manufacturers Bank
for the purchase of equipment which provided for monthly payments of interest
and principal of $37,161 beginning March 1996 through March 2000. At October
29, 1995, $1,500,000 was outstanding under the equipment line of credit. In
connection with the acquisition of the AB Plastics stock by the Company, all of
the outstanding debt payable to Manufacturers Bank was repaid on September 27,
1996.
F-14
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- Long-Term Debt -- (Continued)
On September 27, 1996, AB Plastics entered into a line of credit agreement
(the "Credit Agreement"), with a bank (the "Bank") to borrow up to the lesser
of $10,000,000 or the borrowing base, which consists of 85% of eligible
accounts receivable and 50% of eligible inventory (the "Borrowing Base") plus a
Borrowing Base supplemental amount under a revolving line of credit (the "Line
of Credit"). The Borrowing Base supplemental amount at October 27, 1996 is
$6,000,000 and commencing October 31, 1996 is to be reduced by $100,000
monthly. The Line of Credit matures on July 3, 2001, at which time the
outstanding principal balance will be due and payable. The interest rate under
the Line of Credit will be at 1/2% above the Bank's prime rate which was 8 1/4%
on October 27, 1996, unless AB Plastics elects an optional interest calculation
based on Eurodollars. At October 27, 1996, $6,000,000 was outstanding under the
Line of Credit.
In accordance with the Credit Agreement, AB Plastics also has an available
equipment Line of Credit for $2,000,000 for which there is no outstanding
balance at October 27, 1996. The interest rate on this line is 1/4% above the
Bank's prime rate which was 8 1/4% on October 27, 1996. Interest is payable
monthly and principal payments are to be repaid in 36 equal monthly
installments provided that the last payment shall be made no later than July
31, 2000. AB Plastics will also pay a commitment fee of .25% annually, payable
quarterly on the unused line.
The Credit Agreement is collateralized by substantially all of the assets
of AB Plastics. The Company has guaranteed the Credit Agreement and the
guaranty is secured by a pledge of all of the capital stock of AB Plastics. The
Bank requires that AB Plastics maintain a stated net worth amount, and other
financial rations requirements, which AB Plastics met at October 27, 1996.
On September 27, 1996, the Company and AB Plastics entered into a loan
agreement with a financial institution (the "Lender") in the amount of
$4,000,000, which is evidenced by a promissory note (the "Note") which bears
interest at 13.5% per annum with interest only payable monthly commencing on
November 1, 1996. Annual principal payments are required on April 1, 1999,
April 1, 2000 and April 1, 2001 equalling the lesser of excess cash flows as
defined in the Note or $1,000,000. The remaining unpaid principal balance will
be due and payable in September 27, 2001. The debt, which was recorded on the
Company's books, was utilized by the Company to purchase the stock of AB
Plastics. The Note, which has restrictions as to payment of dividends and
issuance of stock rights, is subordinated to the Credit Agreement and is
secured by substantially all the assets of the Company.
In consideration of making the loan, the Lender was granted the right to
purchase up to 200,000 shares (the "Warrant") of the Company's common stock at
an exercise price of $.01 per share (see Note 10). The Warrant is exercisable
at any time until October 31, 2001. The Warrant, which was valued at $200,000
on September 27, 1996, has been recorded as deferred loan fees and is being
amortized over the life of the loan.
At April 27, 1997, the outstanding balance under the Credit Agreement and
the Line of Credit was $3,150,000. There was no outstanding balance under the
equipment line. At April 27, 1997, the outstanding balance with the Lender was
$4,000,000.
The following is a schedule of the future minimum principal payment
requirements on the Company's long-term debt:
Fifty-Two Weeks
Ending October 27, Amount
- -------------------- ------------
1997 $ -0-
1998 -0-
1999 1,000,000
2000 1,000,000
2001 8,000,000
------------
Total $10,000,000
============
F-15
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- Capitalized Lease Obligations
The Company is the lessee of equipment under four capital leases expiring
through the year 2000. The assets and liabilities are recorded at fair-market
value. The assets are being depreciated over their estimated useful lives.
Depreciation of assets under capital leases charged to expense for the
fifty-two weeks ended October 27, 1996, October 29, 1995 and October 30, 1994
and for the twenty-six weeks ended April 27, 1997 and April 26, 1996 amounted
to $78,144, $62,072, $50,592, $39,072 and $39,072, respectively. The following
is a summary of property held under capital leases included in equipment:
<TABLE>
<CAPTION>
October 29, October 27, April 27,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment ........................... $ 1,980,334 $ 1,351,859 $ 1,735,644
Less accumulated depreciation ...... (419,472) (6,012) (45,084)
----------- ----------- -----------
$ 1,560,862 $ 1,345,847 $ 1,690,560
=========== =========== ===========
</TABLE>
Minimum future lease payments under capital leases as of October 27, 1996
for each of the next four years, and in the aggregate, are as follows:
Fifty-Two Weeks
Ending October 27,
-------------------
1997 $331,208
1998 225,419
1999 124,620
2000 83,080
---------
Total minimum lease payments ............... 764,327
Less: amount representing interest ......... (90,588)
---------
Present value of net minimum lease payments . $ 673,739
=========
Current portion ........................... $ 286,705
Long-term portion ........................... 387,034
---------
Total ....................................... $ 673,739
=========
Interest rates on capitalized leases vary from 6.9% to 10.25% and are
imputed based on the lessor's implicit rate of return.
NOTE 8 -- Income Tax Expense and Deferred Income Taxes
Prior to its acquisition by the Company, AB Plastics was taxed under the
provisions of subchapter S of the Internal Revenue Code. Under these
provisions, AB Plastics did not pay Federal corporate income taxes and only
paid 1.5% of state income taxes. When AB Plastics was acquired by the Company,
it became a C corporation. The differences in depreciation methods and estimated
lives used by AB Plastics for book and tax purposes resulted in a deferred tax
liability. These same differences for depreciation methods and estimated lives
create ongoing deferred tax adjustments. Income taxes are allocated between the
parent and subsidiary based on the taxable income and loss of each entity. A
summary of income tax expense is as follows:
F-16
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 8 -- Income Tax Expense and Deferred Income Taxes -- (Continued)
<TABLE>
<CAPTION>
For the Twenty-Six Weeks
For the Fifty-Two Weeks Ended Ended
------------------------------------------------ -------------------------------
October 30, October 29, October 27, April 28, April 27,
1994 1995 1996 1996 1997
------------- ------------- ---------------- ------------- ---------------
(Unaudited) (Consolidated) (Unaudited) (Consolidated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal ..................... $ 49,000 $633,944
State ..................... $25,490 $20,682 21,755 $12,445 129,826
Deferred income taxes ...... 22,637 5,775 36,555
-------- -------- --------- ------- ---------
TOTAL INCOME TAXES ......... $48,127 $26,457 $107,310 $12,445 $763,770
======== ======== ========= ======= =========
</TABLE>
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Computed at the expected statutory rate ........... 34.00% 34.00%
Surtax exemption ................................ (.41) (.70)
State income tax - net of federal tax benefit ...... 6.14 6.00
------- -------
Income tax expense - effective rate ................ 39.73% 39.30%
======= =======
</TABLE>
NOTE 9 -- Commitments and Contingencies
Lease Commitments
The Company is presently obligated under two noncancelable operating
leases for buildings, expiring between December 31, 2000 and August 20, 2004.
The main building at 15730 South Figueroa Street in Gardena, California is
being leased from the prior stockholders of AB Plastics at an annual rental of
$422,400. In addition to minimum rental payments, the building lease requires
payment of real property taxes. A second building located at 1700 South
Wilmington Street in Compton, California is being leased from an outside party
at an annual rental of $230,400. In addition to minimum rental payments, the
building lease requires payment of applicable operating expenses (including
property taxes and various maintenance costs).
The following is a schedule of future minimum rental payments subject to
cost of living increases:
Fifty-Two Weeks
Ending
October 27, Amount
- ---------------- -----------
1997 $ 652,800
1998 664,800
1999 676,800
2000 676,800
2001 464,800
Thereafter 2,041,440
-----------
Total $5,177,440
===========
The Company has an option to purchase the South Figueroa Street facility
from the prior stockholders at fair market value. The option is exercisable on
or before November 20, 2005.
In addition, the Company leases mobile equipment and forklifts for monthly
payments of $1,900. Rent expense for the fifty two weeks ended October 27,
1996, October 29, 1995 and October 30, 1994 (unaudited) and for the twenty-six
weeks ended April 27, 1997 (unaudited) and April 28, 1996 (unaudited) amounted
to $890,315, $900,623, $830,495, and $312,931 and $428,430 respectively.
F-17
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 9 -- Commitments and Contingencies -- (Continued)
Employment Agreements
The Company has employment agreements with certain key employees of the
Company, which expire at various dates through September 29, 2001. Some of the
agreements provide for incentive bonuses which are payable if specified
management goals are attained. The aggregate commitment for future salaries
under these agreements at October 27, 1996, excluding bonuses, was
approximately $1,300,000.
Management Agreements
The Company also entered into management agreements with two companies
individually owned by the Company's Chairman and President, respectively, to
provide consulting services over a five year period. The aggregate commitment
for future services under these agreements at October 27, 1996 was
approximately $1,000,000.
Stock Option Plan
On September 29, 1996, the Company adopted a stock option plan providing
for both incentive and nonqualified stock options, which reserves 120,000
shares of common stock of the Company ("Common Stock") for grant under the
Plan. The Plan required that all options be granted at an exercise price not
less than fair market value unless otherwise determined by the option
committee. On September 29, 1996, the Company granted incentive options to
various employees and officers of the Company to purchase 200,000 shares of
common stock at an exercise price of $4.00 per share to be exercised over a six
year period.
Stock Warrants
The Company issued warrants to the Chairman and President of the Company
to purchase an aggregate of 100,000 shares of common stock at $4.00 per share,
exercisable on the date of grant. The Company also issued a warrant to a
financial institution to purchase 200,000 shares of common stock at $.01 per
share, exercisable on the date of grant (see Note 6).
Contingent Purchase Price
In connection with the acquisition of AB Plastics, on September 27, 1996,
the Company has a contingent liability up to $500,000. The Company cannot
determine the outcome of this matter.
NOTE 10 -- Stock Option Plan and Stock Purchase Warrants
Summary information with respect to the stock option plan is as follows:
<TABLE>
<CAPTION>
Range of Outstanding Outstanding
Exercise Options Options
Incentives Granted Exercisable
------------ ------------- ------------
<S> <C> <C> <C>
September 29, 1996 (Inception)
Granted ........................ $4.00 200,000 23,063
Exercised ..................... -0- -0- -0-
Canceled ..................... -0- -0- -0-
------ -------- -------
Balance, October 27, 1996 ...... $4.00 200,000 23,063
====== ======== =======
</TABLE>
F-18
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Formerly AB Plastics Holding Corporation)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 11 -- Economic Dependency
Major Customers
The Company sells a substantial portion of its product to several major
customers. Sales to major customers which exceeded 10% of sales in the
aggregate and accounts receivable from such customers are as follows:
<TABLE>
<CAPTION>
For the Fifty-Two Weeks Ended For the Twenty-Six Weeks Ended
---------------------------------------------- ------------------------------
October 27, October 29, October 30, April 27, April 28,
1996 1995 1994 1997 1996
---------------- ------------- ------------- ---------------- ------------
(Consolidated) (Unaudited) (Consolidated) (Unaudited)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales to major customers ... $33,001,245 $38,614,539 $29,881,703 $14,708,211 $16,207,292
============ ============ ============ ============ ============
Accounts receivable from major
customers .................. $ 5,048,887 $ 5,083,781 $ 3,207,431 $ 2,021,428 $ 2,830,510
============ ============ ============ ============ ============
</TABLE>
Major Suppliers
The Company purchased a substantial portion of its raw material from its
largest customer under their supply agreements with major resin producers.
NOTE 12 -- Initial Public Offering and Subsequent Events (Unaudited)
The Company intends to file a registration statement on Form S-1 offering
1.3 million shares of common stock at an estimated offering price between $7.00
and $8.00 per share, less applicable discounts and commissions, as an Initial
Public Offering ("IPO"). In accordance with the letter of intent between the
Company and the underwriter (the "letter of intent"), the underwriter has
received an option (the "Over-Allotment Option") to purchase an additional
number of shares from the Company or selling shareholders equal to 15 percent
(15%) of the number of shares sold to the public for the purpose of covering
over-allotments in the sale of firm commitment shares. The letter of intent
also provides that the managing underwriter or its designees shall be entitled
to receive, at the closing of the IPO, purchase warrants (the "Underwriter's
Warrants") for the purchase of a number of shares equal to ten percent (10%) of
the number of shares sold to the public. The underwriter's warrants will be
exercisable at a price per share equal to one hundred twenty percent (120%) of
the public offering price.
On May 29, 1997, the Board of Directors of the Company, in connection with
the IPO, approved a 5.4 -for- 1 stock split of the Company's common stock. The
Board of Directors additionally authorized amending the Company's certificate
of incorporation in order to change the name of the Company from AB Plastics
Holding Corporation to Compass Plastics & Technologies, Inc. and increase the
number of authorized shares of the Company from 5 million shares to 20 million
shares of common stock and from 1 million shares to 5 million shares of
preferred stock. In connection with the amendment to the certificate of
incorporation the par value of common stock and preferred stock remains at
$.0001 per share.
On June 4, 1997, AB Plastics amended its Loan Agreement with the Bank to,
among other things, extend the availability period under the Equipment Line to
October 31, 1997 and to extend the repayment terms to 48 months.
F-19
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained in
this Prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation.
--------------------------------------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary .............................. 3
Risk Factors .................................... 7
The Company .................................... 13
Use of Proceeds ................................. 14
Dividend Policy ................................. 14
Capitalization ................................. 15
Dilution ....................................... 16
Selected Financial Data ........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 19
Business ....................................... 24
Management ....................................... 33
Principal Stockholders ........................... 40
Certain Transactions ........................... 42
Description of Securities ........................ 43
Shares Eligible for Future Sale .................. 45
Underwriting .................................... 46
Legal Matters .................................... 47
Experts .......................................... 47
Additional Information ........................... 47
Index to Financial Statements ................... F-1
--------------------------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
1,300,000 Shares
Compass Plastics &
Technologies, Inc.
Common Stock
----------
PROSPECTUS
----------
CRUTTENDEN ROTH
INCORPORATED
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts
shown are estimates except the Securities and Exchange Commission registration
fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ...... $ 4,002.46
NASD filing fee .......................................... 1,820.81
Nasdaq National Market fee .............................. 20,800.00
Accounting fees and expenses .............................. 100,000.00
Legal fees and expenses ................................. 200,000.00
Printing and engraving expenses ........................... 75,000.00
Transfer agent and registrar fees ........................ 6,000.00
Blue Sky fees and expenses .............................. 10,000.00
Representative's non-accountable expense allowance ...... 292,000.00
Directors' and Officers' Insurance ........................ 50,000.00
Miscellaneous expenses .................................... 32,376.73
------------
Total ................................................ $792,000.00
============
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits
indemnification of officers, directors and other corporate agents under certain
circumstances and subject to certain limitations. The Registrant's Restated
Certificate of Incorporation and By-laws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including the circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant intends to enter into separate indemnity agreements
with its directors and executive officers that require the Registrant, among
other things, to indemnify then against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from willful
misconduct of a culpable nature) and to maintain directors' and officers'
liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnity agreements to be
entered into between the Registrant and its directors and executive officers
may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities (including reimbursement of
expenses incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
Item 15. Recent Sales of Unregistered Securities.
The Registrant has issued or sold the following unregistered securities:
(a), (c) On September 27, 1996, in connection with the acquisition of AB
Plastics, the Company sold an aggregate of 500,000 shares of its Common Stock,
in each case for $4.00 per share, as follows:
<TABLE>
<CAPTION>
Name of Purchaser Number of Shares
-----------------
<S> <C>
North Atlantic Smaller Companies Investment Trust plc 196,875
Foreign and Colonial Enterprise Trust 37,500
The Equitable Life Assurance Society of the United Kingdom 37,500
Bank of Bermuda 37,500
Chase Nominees Ltd. 37,500
Bank of Scotland (Isle of Man) Limited 28,125
Private Equity Partners, L.P. 125,000
</TABLE>
II-1
<PAGE>
The Company also sold on such date, for nominal consideration, warrants to
purchase Common Stock, as follows:
Name of Purchaser Number of Shares
-----------------
Sirrom Investments, Inc. 200,000
Michael A. Gibbs 50,000
Geoffrey J.F. Gorman and group 50,000
In addition, the Company granted stock options to purchase Common Stock,
each at an exercise price of $4.00 per share, to Michael A. Gibbs (50,000
options), Geoffrey J.F. Gorman and group (16,937 options), James S. Adams
(11,531 options), Stephen M. Adams (5,766 options), Robin Adams Tompkins (5,766
options) and other officers in the aggregate (110,000 options). Further stock
options were granted to Mr. Gibbs under the Company's 1997 Stock Option Plan in
June 1997, at an exercise price equal to the initial public offering price per
share in this offering. No consideration was paid to the Company by any
recipient of any of the foregoing options for the grant of any such options.
In June 1997, the Company's stockholders authorized a 5.4-for-1 stock
split to be consummated prior to the effectiveness of this offering. Pursuant
to such stock split, each stockholder, for no additional consideration, is
entitled to receive 5.4 shares of common stock for each share of common stock
previously held or to which it has the right to receive.
(b) There were no underwriters employed in connection with any of the
transactions set forth in Item 15(a).
(d) The issuances described in Item 15(a) were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, certain of the issuances described in the third paragraph of Item
15(a) were deemed exempt from registration under the Securities Act in reliance
on Rule 701 promulgated thereunder as transactions pursuant to compensatory
benefit plans and contracts relating to compensation. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1* Specimen Common Stock Certificate.
4.2 Form of Representative's Warrant Agreement between the Company and the Representative,
including form of Representative's Warrant therein.
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel.
10.1 Form of Indemnification Agreement.
10.2 1996 Stock Option Plan.
10.3 1997 Stock Option Plan.
10.4 Management Agreement, dated as of October 1, 1996 but effective as of August 1, 1996, between
AB Plastics, the Company and Private Equity Partners, L.L.C.
10.5* Employment Agreement, dated June ___, 1997, between the Company and Michael A. Gibbs.
10.6 Employment Agreement, dated September 27, 1996, between AB Plastics and James S. Adams.
10.7 Employment Agreement, dated January 31, 1997, between AB Plastics and G. Michael Frink.
10.8 Employment Agreement, dated September 27, 1996, between AB Plastics and Stephen M. Adams.
10.9 Employment Agreement, dated as of September 27, 1996, between AB Plastics and Jawed Ghias.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------------------------------
<S> <C>
10.10 Employment Agreement, dated as of September 27, 1996, between AB Plastics and Paul J.
Iacono.
10.11 Commercial Loan Agreement, dated as of September 27, 1996, between The Sumitomo Bank of
California and AB Plastics.
10.12 Facility License Agreement, dated May 1, 1994, between Melea Limited and AB Plastics.
21.1 Subsidiaries of the Company.
23.1 Consent of Marcum & Kliegman LLP.
23.2 Consent of Block, Plant, Eisner, Fiorito & Belak-Berger.
23.3 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion filed
as Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement, or otherwise, the Registrant 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 4th day of June 1997.
COMPASS PLASTICS & TECHNOLOGIES, INC.
By: /s/ Michael A. Gibbs
---------------------------
Michael A. Gibbs
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Geoffrey J.F. Gorman and Michael A.
Gibbs, or either of them, as his attorney-in-fact, each with full power of
substitution for him in any and all capacities, to sign any and all amendments
to this Registration Statement, including post-effective amendments and any and
all new registration statements filed pursuant to Rule 462 under the Securities
Act of 1933 in connection with or related to the offering contemplated by this
Registration Statement, as amended, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney-in-fact
or his substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- --------------------------------------------- -------------
<S> <C> <C>
/s/ Geoffrey J.F. Gorman Chairman of the Board and Director June 4, 1997
- -----------------------
Geoffrey J.F. Gorman
/s/Michael A. Gibbs President and Director (Principal Executive June 4, 1997
- ----------------------- Officer)
Michael A. Gibbs
/s/Paul J. Iacono Vice President-Finance (Principal Financial June 4, 1997
- ----------------------- or Accounting Officer)
Paul J. Iacono
/s/Christopher H.B. Mills Director June 5, 1997
- -----------------------
Christopher H.B. Mills
/s/Jay M. Swanson Director June 6, 1997
- -----------------------
Jay M. Swanson
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit No. Description
- ------------ -----------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 * Specimen Common Stock Certificate.
4.2 Form of Representative's Warrant Agreement between the Company and the Representative,
including form of Representative's Warrant therein.
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel.
10.1 Form of Indemnification Agreement.
10.2 1996 Stock Option Plan.
10.3 1997 Stock Option Plan.
10.4 Management Agreement, dated as of October 1, 1996 but effective as of August 1, 1996,
between AB Plastics, the Company and Private Equity Partners, L.L.C.
10.5 * Employment Agreement, dated June ___, 1997, between the Company and Michael A.
Gibbs.
10.6 Employment Agreement, dated September 27, 1996, between AB Plastics and James S.
Adams.
10.7 Employment Agreement, dated January 31, 1997, between AB Plastics and G. Michael
Frink.
10.8 Employment Agreement, dated September 27, 1996, between AB Plastics and Stephen M.
Adams.
10.9 Employment Agreement, dated as of September 27, 1996, between AB Plastics and Jawed
Ghias.
10.10 Employment Agreement, dated as of September 27, 1996, between AB Plastics and Paul J.
Iacono.
10.11 Commercial Loan Agreement, dated as of September 27, 1996, between The Sumitomo
Bank of California and AB Plastics.
10.12 Facility License Agreement, dated May 1, 1994, between Melea Limited and AB Plastics.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Marcum & Kliegman, LLP.
23.2 Consent of Block, Plant, Eisner & Fioretto.
23.3 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
<PAGE>
1,300,000 Shares(1)
COMPASS PLASTICS AND TECHNOLOGIES, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
____________, 1997
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
COMPASS PLASTICS AND TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), addresses you as the Representative of each of the persons, firms
and corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. Description of Shares. The Company proposes to issue and sell
1,300,000 shares of its authorized and unissued Common Stock, $.001 par value
per share (the "Firm Shares"), to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 195,000
additional shares of the Company's Common Stock, $.001 par value per share (the
"Option Shares"), as provided in Section 7 hereof. In addition, the Company
proposes to sell to you, individually and not in your capacity as
Representative, five-year warrants (the "Representative's Warrants") to purchase
up to 130,000 shares of Common Stock, $.001 par value per share, of the Company
(the "Representative's Warrant Stock"), which sale will be consummated in
accordance with the terms and conditions of the Representative's Warrant
Agreement (the "Representative's Warrant Agreement"), the form of which is filed
as an exhibit to the Registration Statement described below. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. The
- -----------
(1) The Plus an option to purchase up to 195,000 additional shares from the
Company to cover over-allotments, if any.
<PAGE>
Representative's Warrants shall be exercisable at a price per Share equal to one
hundred twenty percent (120%) of the initial public offering price. All shares
of Common Stock, $.001 par value per share, of the Company to be outstanding
after giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as "Common Stock." Unless the context
otherwise requires, references herein to the "Company" include Compass Plastics
and Technologies, Inc. together with its subsidiaries described in the
Prospectus (defined in Section 2(a) below.).
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-____)
with respect to the Shares, the Representative's Warrants and the
Representative's Warrant Stock, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information previously omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule
2
<PAGE>
430A(b) of the Rules and Regulations) and, in the event of any amendment thereto
after the effective date of such registration statement, shall also mean (from
and after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) neither the Registration Statement nor the Prospectus, or
any amendments or supplements thereto, will include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
3
<PAGE>
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
taken as a whole; no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification; the Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities that are material to the conduct of its business, all of which are
valid and in full force and effect; the Company is not in material violation of
its charter or bylaws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any material
bond, debenture, note or other evidence of indebtedness, or in any material
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which it or its properties or assets may be bound; and the Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
or assets. The Prospectus accurately describes any corporation, association or
other entity owned or controlled, directly or indirectly, by the Company.
(d) The Company has full legal right, power and authority to
enter into this Agreement and the Representative's Warrant Agreement and to
perform the transactions contemplated hereby and thereby. Each of this Agreement
and the Representative's Warrant Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representative's Warrant Agreement
may be limited by applicable law and except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representative's
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any bond, debenture,
note or other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which its properties or assets
may be bound, (ii) the charter or bylaws of the Company, or (iii) any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or
4
<PAGE>
over its properties or assets. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
or assets is required for the execution and delivery of this Agreement or the
Representative's Warrant Agreement and the consummation by the Company of the
transactions herein and therein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened, action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights,
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) is reasonably likely to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
its properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby, or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations or by the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules and regulations of the Commission thereunder that
have not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Firm Shares
and the Option Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of stockholders exists with
respect to any of the Firm Shares or Option Shares or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically
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expire upon the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act, the Rules and
Regulations or under state or other securities or Blue Sky laws. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company, and the related notes thereto, included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights under the Act and the Rules and Regulations.
(g) Marcum & Kliegman LLP, which has examined the financial
statements of the Company, together with the related schedules and notes, as of
October 27, 1996 and October 29, 1995 and for each of the years ended October
27, 1996, October 29, 1995 and October 30, 1994, respectively, filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited financial statements of the Company, together
with the related schedules and notes, and the unaudited financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and all
audited financial statements of the Company, together with the related schedules
and notes, and the unaudited financial information, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (ii) any
transaction that is material to the Company, (iii) any obligation, direct or
contingent, that is material to the Company, incurred by the Company, except
obligations incurred in the ordinary course of business, (iv) any change in the
capital stock or outstanding indebtedness of the Company that is material to the
Company, (v) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company,
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or (vi) any loss or damage (whether or not insured) to the property of the
Company which has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is a
party described in the Registration Statement are valid agreements, enforceable
by the Company in accordance with their terms, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company has valid
and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted and as described in the Registration
Statement and the Prospectus.
(j) The Company has timely filed all federal, state, local
and foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, is reasonably likely to be asserted against the
Company, which might have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company, and all tax liabilities are adequately provided for on the books of the
Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business including, but not limited to, insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; the Company
has not been refused any insurance coverage sought or applied for; and the
Company does have any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
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<PAGE>
(l) No labor disturbance by the employees of the Company
exists or, to the best of the Company's knowledge, is imminent. The Company is
not aware of any existing or imminent labor disturbance by the employees of any
principal suppliers or customers that might be expected to result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights described or referred to in the Prospectus as
owned by or used by it or that are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names or copyrights described or referred to in the Prospectus as owned by
or used by it; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights described or referred to in
the Prospectus as owned by or used by it or which, singly or in the aggregate,
in the event of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is approved for quotation on the Nasdaq National Market,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not and will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
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(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization in violation of law or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer, director and director-nominee of the
Company and each beneficial owner of five (5) percent or more of the Company's
Common Stock has agreed in writing that such person will not, for a period of
365 days from the date that the Registration Statement is declared effective by
the Commission (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, and (ii) with the prior written consent
of Cruttenden Roth Incorporated. The foregoing restriction is expressly agreed
to preclude the holder of the Securities from engaging in any hedging or other
transaction that is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will also agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all
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<PAGE>
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors, director-nominees and stockholders have agreed to such
restrictions (the "Lock-up Agreements"). The Company hereby represents and
warrants that it will not release any of its officers, directors or
director-nominees or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Cruttenden
Roth Incorporated.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in material compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
that are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its best knowledge, the Company is not
likely to be required to make future material capital expenditures to comply
with Environmental Laws (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law, and (v) the Company is not in violation of
any federal or state law or regulation relating to occupational safety or
health.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, including without limitation cash receipts,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers,
directors or director-nominees of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
(w) The Company has not incurred any liability, direct or
indirect, for finders' or similar fees on behalf of or payable by the Company or
the Underwriters in connection with this or any other transaction involving the
Company and the Underwriters.
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(x) The Representative's Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with the
Representative's Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(y) The Representative's Warrant Stock has been duly
authorized and reserved for issuance upon the exercise of the Representative's
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $______ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn until the day following the date of its delivery to the
Company) at the offices of the Representative or such other place as may be
agreed upon among the Representative and the Company, at ____ A.M., Los Angeles
time, on the third (3rd) full business day following the first day that Shares
are traded (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date." The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representative so elects,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
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After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $______ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), in the first
paragraph on page 2, concerning stabilization and over-allotment by the
Underwriters, in the third paragraph under the caption "Underwriting,"
concerning the manner of offering the Firm Shares and the Option Shares, and in
the seventh paragraph under the caption "Underwriting," concerning the
discretionary accounts controlled by the Underwriters, in each case, in any
Preliminary Prospectus and in the final form of Prospectus filed pursuant to
Rule 424(b) constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company that the statements made therein do not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of
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<PAGE>
the Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of Troop, Meisinger, Steuber & Pasich, LLP, counsel for the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the rules and regulations of the
Commission thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
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(d) The Company will furnish to you, as soon as available, copies
of the Registration Statement (three of which will be signed and which will
include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act (three of which will
include all exhibits) all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof and
for so long as the Company is subject to Section 13 or 15 of the Exchange Act,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder, upon
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company for each of the first three (3) quarters
in the form furnished to the Company's stockholders, (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was generally released to stockholders or prepared by the Company,
and (vi) any additional information of a public nature concerning the Company or
its business which you may reasonably request. During such five (5) year period,
if the Company shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary that is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
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(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will pay the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
if reasonably requested by you, forthwith prepare, and, if permitted by law,
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder, and (ii) the Company's issuance of
options or Common Stock under the Company's presently authorized stock option
plans or restricted stock plans (collectively, the "Option Plans").
(m) During the period commencing on the date of this Agreement
and ending on the date which is nine (9) months after the effective date of the
Registration Statement, or such earlier date as of which the Company or the
Underwriters are no longer required to deliver a Prospectus in connection with
the sale of the Shares, the Company will not issue, release or disseminate any
press release or other material news item or article in respect of the Company
or its affairs without the prior written consent of Cruttenden Roth
Incorporated, which consent shall not be unreasonably withheld.
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5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel and accountants for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of counsel for the Underwriters related to such qualification up
to $15,000); the Company's road show costs and expenses, the cost of preparing
bound volumes of the documents relating to the public offering of Common Stock
contemplated hereby; and all other expenses directly incurred by the Company in
connection with the performance of its obligations hereunder.
(ii) In addition to its other obligations under Section
5(a)(i) hereof, the Company will pay to you a nonaccountable expense allowance
equal to 3.0% of the gross sales price of the Shares to the public. This
nonaccountable expense allowance with respect to the Firm Shares shall be paid
to you on the Closing Date and the nonaccountable expenses with respect to the
Option Shares shall be paid to you on the closing of the sale to you of such
Option Shares. The Company has previously paid to you a fee of $50,000 which
shall be credited towards the nonaccountable expense allowance at Closing.
(iii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time
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in The Wall Street Journal which represents the base rate on corporate loans
posted by a substantial majority of the nation's five (5) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(iii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD
in Orange County, California (or as close geographically to Orange County,
California as is reasonably practical). Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company
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to the performance by the Company of its obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., Los Angeles time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such documents and information
as they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, the following
opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel for the
Company, dated the Closing Date or such later date on which Option Shares are
purchased, addressed to the Underwriters (and stating that it may be relied upon
by Troop, Meisinger, Steuber & Pasich, LLP, Underwriters' Counsel, in rendering
its opinion pursuant to Section 6(e) of this Agreement) and with reproduced
copies or signed counterparts thereof for each of the Underwriters, to the
effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
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(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations,
business or business prospects of the Company taken as a whole.
The Prospectus accurately describes any corporation, association
or other entity owned or controlled, directly or indirectly, by
the Company;
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the
issued and outstanding shares of capital stock of the Company
have been duly and validly authorized and issued and are fully
paid and nonassessable, and, have not been issued in violation of
or subject to any preemptive right under the Delaware General
Corporation Law ("DGCL"), or to such counsel's knowledge, any
co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares of capital
stock of AB Plastics Corporation have been duly authorized and
validly issued and are fully paid and nonassessable, and have not
been issued in violation of or subject to any preemptive right
under the [DGCL], or to such counsel's knowledge, any co-sale
right, registration right, right of first refusal or other
similar right and, to such counsel's knowledge, except as
otherwise disclosed in the Prospectus, are owned by the Company
free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest (other than restrictions
on transfer imposed under state and federal securities laws).
(vi) The Firm Shares and the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of
this Agreement each have been duly authorized and, upon issuance
and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and
nonassessable, and, will not have been issued in violation of or
subject to any preemptive right under the DGCL, or to such
counsel's knowledge, any co-sale right, registration right, right
of first refusal or other similar right of stockholders;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by
it hereunder;
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(viii) The Company has the corporate power and
authority to enter into the Representative's Warrant Agreement
and to issue, sell and deliver to the Representative the
Representative's Warrants to be issued and sold by it thereunder;
(ix) Each of this Agreement and the
Representative's Warrant Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be
limited by applicable law and to which counsel need not express
any opinion and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors rights generally or by
general equitable principles;
(x) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(xi) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the
financial statements (including supporting schedules) and
financial and statistical data included in the Registration
Statement as to which such counsel need express no opinion), as
of the effective date of the Registration Statement, complied as
to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xii) The information in the Prospectus under the
caption (a) "Description of Capital Stock" and "Shares Eligible
For Future Sale," to the extent that it constitutes matters of
law or legal conclusions, has been reviewed by such counsel and
complies with all applicable disclosure requirements of
Regulation S-K and is true and correct in all material respects;
(xiii) The forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement
comply with Delaware law;
(xiv) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and
of statutes are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and
Regulations;
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(xv) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or
referred to therein or filed as required;
(xvi) The performance of this Agreement and the
Representative's Warrant Agreement and the consummation of the
transactions herein and therein contemplated will not (a) result
in any violation of the Company's charter or bylaws or (b) result
in a material breach or violation of any of the terms and
provisions of, or constitute a material default under, any
material bond, debenture, note or other evidence of indebtedness,
or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party
or by which its properties are bound, or any applicable statute,
rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company
or over any of its properties or operations;
(xvii) No consent, approval, authorization or order
of or qualification with any court, government or governmental
agency or body having jurisdiction over the Company or over any
of its properties or operations is necessary in connection with
the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or
such as may be required under state or other securities or Blue
Sky laws in connection with the purchase and the distribution of
the Shares by the Underwriters;
(xviii) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
the Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules
and Regulations or by the Exchange Act or the applicable rules
and regulations of the Commission thereunder, other than those
described therein;
(xvix) The Company is in possession of all material
permits from all governmental agencies or other authorities
having jurisdiction over the Company or AB Plastics Corporation,
or over any of their properties or operations, and to such
counsel's knowledge, neither the Company nor AB Plastics
Corporation is presently (a) in material violation of its
respective charter or bylaws, (b) in material breach of any
applicable permit, statute, rule or regulation known by us to be
applicable to the Company and AB Plastics Corporation, or (c) to
such counsel's knowledge, any
21
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order, writ or decree of any California or federal court or
governmental agency or body having jurisdiction over the Company
or AB Plastics Corporation, or over any of their properties or
operations.
(xx) The Representative's Warrants have been duly
and validly authorized by the Company and upon delivery to you in
accordance with the Representative's Warrant Agreement will be
duly issued and legal, valid and binding obligations of the
Company;
(xxi) The Representative's Warrant Stock to be
issued by the Company pursuant to the terms of the
Representative's Warrant has been duly authorized and, upon
issuance and delivery against payment therefor in accordance with
the terms of the Representative's Warrant Agreement, will be duly
and validly issued and fully paid and nonassessable, and to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right under the DGCL, or to such
counsel's knowledge, any co-sale right, registration right, right
of first refusal or other similar right of stockholders;
(xxii) To such counsel's knowledge, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company; and
(xxiii) The offer and sale of all securities of the
Company made within the last three years as set forth in Item 15
of the Registration Statement were exempt from the registration
requirements of the Securities Act, pursuant to the provisions
set forth in such Item, and from the registration or
qualification requirements of all relevant state securities laws.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which the contents of the Registration Statement
and Prospectus and related matters were discussed, and although (except as
specifically set forth in paragraphs (xi) and (xiii) above) they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel that leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are to be purchased,
the Registration Statement and any amendment or supplement, when such documents
became effective or were filed with the Commission (other than the financial
statements including supporting schedules and other financial and statistical
data included in the
22
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Registration Statement as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Delaware upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case its opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Troop, Meisinger, Steuber & Pasich, LLP in form and substance satisfactory to
you, with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Marcum & Kliegman, LLP, addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
23
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earnings, operations or business of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Marcum & Kliegman LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth its opinion with respect to its examination of the
balance sheet of the Company as of April 27, 1997 and related statements of
operations, stockholders' equity, and cash flows for the years ended October 27,
1996, October 29, 1995 and October 30, 1994, respectively, and (iii) address
other matters agreed upon by Marcum & Kliegman, LLP and you. In addition, you
shall have received from Marcum & Kliegman, LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
its review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of its examination of the
Company's financial statements as of _________________, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the President
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be, and the Company has
complied, in all material aspects, with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied, at or prior to the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or, are pending or threatened
under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery
of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained
all information required to be included therein by the Act and
the Rules
24
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and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and
in all respects conformed to the requirements of the Act and the
Rules and Regulations or the Exchange Act and the applicable
rules and regulations of the Commission thereunder, as the case
may be, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company that is material
to the Company, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company (other
than dividends paid in respect of the Company's preferred stock
outstanding on the date of the Prospectus in amounts not in
excess of those described in the Prospectus), or (f) any loss or
damage (whether or not insured) to the property of the Company
which has a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company.
(h) The Company shall have obtained and delivered to you an
agreement from each officer, director and director-nominee of the Company, and
each beneficial owner of five percent or more of the Common Stock immediately
after the offering contemplated hereby, in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, or (ii) with the prior
written consent of Cruttenden Roth Incorporated. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably
25
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expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(i) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company, as to the performance by the
Company of its obligations hereunder and as to the other conditions concurrent
and precedent to the obligations of the Underwriters hereunder.
(j) The Representative's Warrant Agreement shall have been
entered into by the Company and you, and the Representative's Warrants shall
have been issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
195,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representative on
behalf of the several Underwriters on one (1) or more occasions in whole or in
part during the period of forty-five (45) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several
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Underwriters (set forth in Schedule A hereto), adjusted by the Representative in
such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn
until the day following the date of its delivery to the Company). Such delivery
and payment shall take place at the offices of the Representative, or at such
other place as may be agreed upon by the Representative and the Company (i) on
the Closing Date, if written notice of the exercise of such option is received
by the Company at least three (3) full business days prior to the Closing Date,
or (ii) on a date which shall not be later than the fifth (5th) full business
day following the date the Company receives written notice of the exercise of
such option, if such notice is received by the Company less than three (3) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location as you may reasonably
request for inspection at least two (2) full business days prior to the date of
payment and delivery and will be in such names and denominations as you may
request, such request to be made at least three (3) full business days prior to
such date of payment and delivery. If the Representative so elects, delivery of
the Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be reasonably satisfactory in
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form and substance to you and to Underwriters' Counsel, and you shall have been
furnished with all such documents, certificates and opinions as you may
reasonably request in order to evidence the accuracy and completeness of any of
the representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the compliance with any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
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The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) related to negligence on the part of the Company, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any
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indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party which pose a
conflict of interest for such counsel, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of the indemnifying party's election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii)the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such indemnification.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in
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such proportion so that the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. The contribution agreement
in this Section 8(d) shall extend upon the same terms and conditions to, and
shall inure to the benefit of, each person, if any, who controls the
Underwriters or the Company within the meaning of the Act or the Exchange Act
and each officer of the Company who signed the Registration Statement and each
director of the Company.
(e) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 8 and further agree not to attempt to assert any such
defense.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
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If any Underwriter or Underwriters so default and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective number
of Firm Shares to be purchased by the remaining Underwriters and substituted
underwriter or underwriters shall be taken as the basis of their underwriting
obligation. If the remaining Underwriters shall not take up and pay for all such
Firm Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 4(j), 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
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The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., Los Angeles time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representative of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, or (ii) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall
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have been an outbreak or escalation of hostilities or of any other insurrection
or armed conflict or the declaration by the United States of a national
emergency which, in the reasonable opinion of the Representatives, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party to
any other party except as provided in Sections 4(j), 5 and 8 hereof. In the
event of termination pursuant to subparagraph (i) above, the Company shall also
remain obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8
hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: James M. Stearns, if sent to the Company, such notice shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to 15730 S. Figueroa Street, Gardena, California 90248,
(310) 324-8287, Attention: Michael A. Gibbs.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and their controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No purchaser
of any of the Shares from any Underwriter shall be construed a successor or
assign by reason merely of such purchase. The Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
hereof.
In all dealings with the Company under this Agreement, you shall act on
behalf of
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each of the several Underwriters, and the Company shall be entitled to act and
rely upon any statement, request, notice or agreement made or given by you on
behalf of each of the several Underwriters.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original. If the foregoing correctly sets forth
the understanding among the Company and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company and the several
Underwriters.
Very truly yours,
COMPASS PLASTICS AND TECHNOLOGIES, INC.
By:
Name:
Title:
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
Name:
Title:
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<PAGE>
SCHEDULE A
Number of Firm Shares
Underwriters To be Purchased
- ------------ ---------------------
Cruttenden Roth Incorporated
--------
Total
========
36
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
AB PLASTICS HOLDING CORPORATION
AB Plastics Holding Corporation, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is AB Plastics Holding Corporation. The
date of filing of its original Certificate of Incorporation with the Secretary
of State of the State of Delaware was May 30, 1996.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of the Corporation by
changing the name of the Corporation and increasing the number of authorized
shares of common stock and preferred stock of the Corporation.
3. The text of the Certificate of Incorporation, as heretofore amended
or supplemented, is further amended hereby to read as herein set forth in full:
FIRST: The name of the corporation is Compass Plastics
& Technologies, Inc. (the "Corporation").
SECOND: The address, including street, number, city and
county, of the registered office of the Corporation in the State of Delaware is
9 East Loockerman Street in the City of Dover, in the County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is National Corporate Research, Ltd.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, including but not limited to
designing, engineering, manufacturing and dealing in any and every manner in and
with injection-molded and other types of plastic products.
FOURTH: The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is 25,000,000
shares of capital stock consisting of:
(a) 20,000,000 shares of Common Stock, $.0001 par value
per share (the "Common Stock"); and
(b) 5,000,000 shares of Preferred Stock, $.0001 par
value per share (the "Preferred Stock").
<PAGE>
PART A
COMMON STOCK
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment.
(b) Except for and subject to those rights expressly granted
to the holders of the Preferred Stock, or except as may be provided by the
Delaware General Corporation Law, the holders of Common Stock shall have
exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when, as and if declared by the
Board of Directors out of assets lawfully available therefor, and (ii) in the
event of any distribution of assets upon liquidation, dissolution or winding up
of the Corporation or otherwise, the right to receive ratably and equally all
the assets and funds of the Corporation remaining after payment to the holders
of the Preferred Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding up of the
Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock
shall receive any payment of any dividend on, liquidation of, or other amounts
payable with respect to, any shares of Common Stock, which he is not then
entitled to receive, he will forthwith deliver the same in the form received to
the holders of shares of the Preferred Stock as their respective interests may
appear, or the Corporation if no shares of Preferred Stock are then outstanding,
and until so delivered will hold the same in trust for such holders or the
Corporation.
(d) Each holder of shares of Common Stock shall be entitled to
one vote for each share of such Common Stock held by him, and voting power with
respect to all classes of securities of the Corporation shall be vested solely
in the Common Stock, other than as specifically provided in the Corporation's
Certificate of Incorporation, as it may be amended, with respect to the
Preferred Stock.
(e) No stockholder shall be entitled to any preemptive right
to purchase or subscribe for any unissued stock of any class or any additional
shares of any class to be issued by reason of any increase in the authorized
capital stock of the Corporation.
PART B
PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the
Corporation to provide for the issuance of Preferred Stock and in
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connection therewith to fix by resolution providing for the issue of such
series, the number of shares to be included and such of the preferences and
relative participating, optional or other special rights and limitations of such
series, including, without limitation, rights of redemption or conversion into
Common Stock, to the fullest extent now or hereafter permitted by the Delaware
General Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Corporation expressly elects to be subject
to the provisions of Section 203 of the Delaware General
Corporation Law.
SEVENTH: The board of directors is expressly authorized
to adopt, amend or repeal the by-laws of the Corporation.
EIGHTH: Elections of directors need not be by written
ballot unless the by-laws of the Corporation shall otherwise
provide.
NINTH: Special meetings of the stockholders of the Corporation
may only be called by the board of directors of the Corporation upon the request
of any two directors, by the holders of one-third or more of the outstanding
Common Stock, or by the duly elected officers of the Corporation.
TENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders of the Corporation, as the case may be,
and also on the Corporation.
3
<PAGE>
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute or by this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
TWELFTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
THIRTEENTH: Except as may otherwise be specifically provided
in this Certificate of Incorporation, no provision of this Certificate of
Incorporation is intended by the Corporation to be construed as limiting,
prohibiting, denying or abrogating any of the general or specific powers or
rights conferred under the General Corporation Law upon the Corporation, upon
its stockholders, bondholders and security holders, and upon its directors,
officers and other corporate personnel, including, in particular, the power of
the Corporation to furnish indemnification to directors and officers in the
capacities defined and prescribed by the General Corporation Law and the defined
and prescribed rights of said persons to indemnification as the same are
conferred under the General Corporation Law. The Corporation shall, to the
fullest extent permitted by the laws of the State of Delaware, including, but
not limited to Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
directors and officers of the Corporation and may, in the discretion of the
board of directors, indemnify any and all other persons whom it shall have power
to indemnify under said Section or otherwise under Delaware law, from and
against any and all of the expenses, liabilities or other matters referred to or
covered by said Section. The indemnification provisions contained in the
Delaware General Corporation Law shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
resolution of stockholders or disinterested directors, or otherwise, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of such person.
4
<PAGE>
FOURTEENTH: The number of directors constituting the Board of
Directors shall be determined by the Board of Directors, subject to the by-laws
of the Corporation. Any vacancy in the Board of Directors, whether arising from
death, resignation, removal (with or without cause), an increase in the number
of directors or any other cause, may be filled by the vote of either a majority
of the directors then in office, though less than a quorum, or by the
stockholders at the next annual meeting thereof or at a special meeting called
for such purpose. Stockholders may not apply to request that the Delaware Court
of Chancery summarily order an election to be held to fill any vacancies in the
Board of Directors whether or not, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole Board of Directors as constituted immediately prior
to any such vacancy or increase. Each director so elected shall hold office
until the next meeting of the stockholders in which the election of directors is
in the regular order of business and until his successor shall have been elected
and qualified.
4. This Restated Certificate of Incorporation was duly proposed by the
Corporation's Board of Directors and duly adopted by unanimous written consent
of the stockholders of the Corporation in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, AB Plastics Holding Corporation has caused this
Restated Certificate of Incorporation to be signed by Michael A. Gibbs, its
President, as of this 4th day of June, 1997.
/s/Michael A. Gibbs
--------------------------------
Michael A. Gibbs, President
5
<PAGE>
BY-LAWS OF
AB PLASTICS HOLDING CORPORATION
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Principal Office. The principal office of the Corporation
shall be located in New Canaan, Connecticut.
SECTION 2. Registered Office and Agent. The registered office of the
Corporation in the State of Delaware is 9 East Loockerman Street, Dover,
Delaware 19901. The registered agent shall be National Corporate Research, Ltd.
SECTION 3. Other Offices. The Corporation may also have an office or
offices other than said principal office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. Place of Meetings. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at such place as
may be fixed from time to time by the Board of Directors, or at such other
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors.
SECTION 2. Annual Meeting. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly come before the meeting, shall be designated from
time to time by the Board of Directors.
SECTION 3. Special Meetings. Special meetings of the stockholders,
unless otherwise prescribed by statute, may only be called by the Board of
Directors of the Corporation upon the request of any two directors, by the
holders of one-third or more of the outstanding common stock, or by the duly
elected officers the Corporation.
SECTION 4. Notice of Meetings. Notice of the place, date and hour of
holding of each annual and special meeting of the stockholders and, unless it is
the annual meeting, the purpose or purposes thereof, shall be given personally
or by mail in a postage prepaid envelope, not less than ten nor more than sixty
days before the date of such meeting, to each stockholder entitled to vote at
<PAGE>
such meeting, and, if mailed, it shall be directed to such stockholder at his
address as it appears on the record of stockholders, unless he shall have filed
with the Secretary of the Corporation a written request that notices to him be
mailed at some other address, in which case it shall be directed to him at such
other address. Any such notice for any meeting other than the annual meeting
shall indicate that it is being issued at the direction of the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board, the
President or the Secretary, whichever shall have called the meeting. Notice of
any meeting of stockholders shall not be required to be given to any shareholder
who shall attend such meeting in person or by proxy and shall not, prior to the
conclusion of such meeting, protest the lack of notice thereof, or who shall,
either before or after the meeting, submit a signed waiver of notice, in person
or by proxy. Unless the Board of Directors shall fix a new record date for an
adjourned meeting, notice of such adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken.
SECTION 5. Quorum. At all meetings of the stockholders, the holders of
a majority of the shares of the Corporation issued and outstanding and entitled
to vote thereat shall be present in person or by proxy to constitute a quorum
for the transaction of business, except as otherwise provided by statute. In the
absence of a quorum, the holders of a majority of the shares present in person
or by proxy and entitled to vote may adjourn the meeting from time to time. At
any such adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 6. Organization. At each meeting of the stockholders, the
Chairman of the Board, if one shall have been elected, shall act as chairman of
the meeting. In the absence of the Chairman of the Board or if one shall not
have been elected, the Vice-Chairman of the Board, or in his absence or if one
shall not have been elected, the President shall act as chairman of the meeting.
The Secretary, or in his absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Certificate of Incorporation, each holder of record of shares of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for each share standing in his name on the record of stockholders of the
Corporation:
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(a) on the date fixed pursuant to the provisions of Section 6
of Article V of these By-Laws as the record date for the determination
of the stockholders who shall be entitled to notice of and to vote at
such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which notice
thereof shall be given.
Each shareholder entitled to vote at any meeting of the stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. Any such proxy shall be delivered to the
secretary of such meeting at or prior to the time designated in the order of
business for so delivering such proxies. Except as otherwise provided by statute
or the Certificate of Incorporation or these By-Laws, any corporate action to be
taken by vote of the stockholders shall be authorized by a majority of the votes
cast at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder acting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. List of Stockholders. A list of stockholders as of the
record date, certified by the Secretary of the Corporation or by the transfer
agent for the Corporation, shall be produced at any meeting of the stockholders
upon the request of any shareholder made at or prior to such meeting.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act or on the request of any stockholder entitled to vote at such
meeting, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspector shall make a report in
writing of
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any challenge, request or matter determined by them and shall execute a
certificate of any fact found by him. No director or candidate for the office of
director shall act as an inspector of an election of directors. Inspectors need
not be stockholders.
SECTION 11. Action by Consent. Whenever stockholders are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, setting forth the action so taken, signed by the holders of
a majority of the outstanding shares of the Corporation entitled to vote
thereon.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The
number of directors constituting the Board of Directors shall be determined from
time to time by the Board of Directors, provided that no decrease in the number
of directors shall have the effect of shortening the term of any incumbent
director. Any decrease in the number of directors shall be effective at the time
of the next succeeding annual meeting of the stockholders unless there shall be
vacancies in the Board of Directors, in which case such decrease may become
effective at any time prior to the next succeeding annual meeting to the extent
of the number of such vacancies. All the directors shall be at least eighteen
years of age. Directors need not be stockholders. Except as otherwise provided
by statute or these By-Laws, the directors shall be elected at the annual
meeting of the stockholders. At each meeting of the stockholders for the
election of directors at which a quorum is present the persons receiving a
plurality of the votes cast at such election shall be elected. Each director
shall hold office until the next annual meeting of the stockholders and until
his successor shall have been elected and qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall
be held at the principal office of the Corporation in the State of Delaware or
at such other place, within or without such State, as the Board of Directors may
from time to time determine or as shall be specified in the notice of any such
meeting.
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SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of
Directors may fix. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting which
would otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board of Directors
need not be given except as otherwise required by statute or these By-Laws.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President or by a majority of
the directors.
SECTION 6. Notice of Meeting. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first-class mail, at least five days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone, or other similar means, at least
forty-eight hours before the time at which such meeting is to be held. Notice of
any such meeting need not be given to any director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting without protesting, prior to or at its commencement, the lack of notice
to him.
SECTION 7. Quorum and Manner of Acting. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. Each director shall have one vote on
each matter for which directors are entitled to vote. In the absence of a quorum
at any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn such meeting to another time and place. Notice of the time
and place of any such adjourned meeting shall be given to the directors unless
such time and place were announced at the meeting at which the adjournment was
taken. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual directors
shall have no power as such.
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SECTION 8. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been
elected, shall act as the Chairman of the meeting, or if one shall not have been
elected, the Vice-Chairman of the Board, or in his absence, or if one shall not
have been elected, the President, if he or she is a director (or, in his
absence, another director chosen by a majority of the directors present) shall
act as chairman of the meeting and preside thereat. The Secretary (or, in his
absence, any person -- who shall be an Assistant Secretary, if any of them shall
be present at such meeting -- appointed by the chairman) shall act as secretary
of the meeting and keep the minutes thereof.
SECTION 9. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the Chairman of the Board or the Vice-Chairman of the Board or the President
or the Secretary. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. Vacancies. Subject to any express provision of the
Certificate of Incorporation, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
stockholders at the next annual meeting thereof or at a special meeting thereof.
Stockholders of the Company may not apply to request that the Delaware Court of
Chancery summarily order an election to be held to fill vacancies in the Board
of Directors. Each director so elected shall hold office until the next meeting
of the stockholders in which the election of directors is in the regular order
of business and until his successor shall have been elected and qualified.
SECTION 11. Removal of Directors. Except as otherwise provided by
statute, any director may be removed, either with or without cause, at any time,
by the stockholders at a special meeting thereof. Except as otherwise provided
by statute, any director may be removed for cause by the Board of Directors at a
special meeting thereof.
SECTION 12. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.
SECTION 13. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of two
or more of the directors of the
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Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Except to the extent restricted by statute or the
Certificate of Incorporation, each such committee, to the extent provided in the
resolution creating it, shall have and may exercise all the authority of the
Board of Directors. Each such committee shall serve at the pleasure of the Board
of Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.
SECTION 14. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee consent in writing to the adoption
of a resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board of Directors or such committee shall be
filed with the minutes of the proceedings of the Board of Directors or such
committee.
SECTION 15. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation or by statute, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the Chairman of the
Board, President, one or more Vice-Presidents, the Secretary, and, if deemed
appropriate by the Board of Directors, the Treasurer. If the Board of Directors
wishes, it may also elect as officers of the Corporation a Vice-Chairman of the
Board and may elect other officers (including one or more Assistant Treasurers
and one or more Assistant Secretaries), as may be necessary or desirable for the
business of the Corporation. Any two or more offices may be held by the same
person. Each officer shall hold office until the first meeting of the Board of
Directors following the next annual meeting of the stockholders, and until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed, as hereinafter provided in
these By-Laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to
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the Board of Directors or the Chairman of the Board or the Vice-Chairman of the
Board, if one shall be elected, or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be the chief executive officer of the Corporation
(unless another chief executive officer is appointed by the Board) and shall be
a member of the Board and, if present, shall preside at each meeting of the
Board of Directors or the stockholders. He shall perform all duties incident to
the office of Chairman and, if applicable, chief executive officer, and shall
perform such other duties as may from time to time be assigned to him by the
Board of Directors.
SECTION 5. Vice-Chairman of the Board. The Vice-Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors if no Chairman of the Board has been elected or if the Chairman of the
Board is absent, or is unable or refuses to act. He shall advise and counsel the
Chairman of the Board and the President, and, in the President's absence, other
executives of the Corporation, and shall perform such other duties as may from
time to time be assigned to him by the Board of Directors.
SECTION 6. The President. The President shall be the chief operating
officer of the Corporation, unless another chief operating officer is appointed
by the Board. He shall, in the absence of the Chairman of the Board and the
Vice-Chairman of the Board or if either shall not have been elected, preside at
each meeting of the Board of Directors (if he/she is a director) or the
stockholders. He shall perform all duties incident to the office of President
and chief operating officer and such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 7. Vice-President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his absence or in the event
of his inability or refusal to act, the Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors (or if there be no such determination, then the Vice-Presidents in the
order of their election), shall perform the duties of the President, and, when
so called, shall have the power of and be subject to the restrictions placed
upon the President in respect of the performance of such duties.
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SECTION 8. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of
the Corporation in such depositaries as may be designated by the Board
of Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of
the Treasurer and such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 9. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates for
shares of the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and affix
and attest the seal to all other documents to be executed on behalf of
the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of
the Secretary and such other duties as from time to time may be
assigned to him by the Board of Directors.
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SECTION 10. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 12. Officers' Bonds or Other Security. If required by the Board
of Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
or sureties as the Board of Directors may require.
SECTION 13. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.
ARTICLE V
Shares, etc.
SECTION 1. Share Certificates. Each record owner of shares of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board of Directors, certifying the number of shares of the
Corporation owned by him. The certificates representing shares shall be signed
in the name of the Corporation by the Chairman of the Board or the Vice-Chairman
of the Board or the President or a Vice-President and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer, and sealed with
the seal of the Corporation (which seal may be a facsimile, engraved or
printed); provided, however, that where any such certificate is countersigned by
a transfer agent, or is registered by a registrar (other than the Corporation or
one of its employees), the signatures of the Chairman of the Board,
Vice-Chairman of the Board, President, Vice-President, Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer upon such certificates may be
facsimiles, engraved or printed. In case any officer who shall have signed any
such certificate shall have ceased to be such officer before such certificate
shall be issued, such certificate may nevertheless be issued by the Corporation
with
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the same effect as if such officer were still in office at the date of issue.
When the Corporation is authorized to issue shares of more than one class, there
shall be set forth upon the face or back of the certificate (or the certificate
shall have a statement that the Corporation will furnish to any shareholder upon
request and without charge) a full statement of the designation, relative
rights, preferences and limitations of the shares of each separate class, or of
the different shares within each class, authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares in series, the
designation, relative rights, preferences and limitations of each such series so
far as the same have been fixed and the authority of the Board of Directors to
designate and fix the relative rights, preferences and limitations of other
series.
SECTION 2. Books of Account and Record of Stockholders. There shall be
kept correct and complete books and records of account of all the business and
transactions of the Corporation. There shall also be kept, at the office of the
Corporation, or at the office of its transfer agent, a record containing the
names and addresses of all stockholders of the Corporation, the number of shares
held by each, and the dates when they became the holders of record thereof.
SECTION 3. Transfer of Shares. Transfers of shares of the Corporation
shall be made on the records of the Corporation only upon authorization by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent,
and on surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a duly executed stock transfer power and the payment
of all taxes thereon. The person in whose name shares shall stand on the record
of stockholders of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security and not absolutely and written notice thereof shall
be given to the Secretary or to a transfer agent, such fact shall be noted on
the records of the Corporation.
SECTION 4. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars and may require all certificates for shares of
stock to bear the signature of any of them.
SECTION 5. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
SECTION 6. Fixing of Record Date. The Board of Directors may fix, in
advance, a date not more than fifty nor less than ten days before the date when
fixed for the holding of any meeting of the
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stockholders or before the last day on which the consent or dissent of the
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which the stockholders entitled to notice of and to vote at such
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined, and all persons who were
stockholders of record of voting shares at such time, and no others, shall be
entitled to notice of and to vote at such meeting or to express their consent or
dissent, as the case may be. The Board of Directors may fix, in advance, a date
not more than fifty nor less than ten days preceding the date fixed for the
payment of any dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for the delivery of
evidences of rights or evidences of interests arising out of any change,
conversion or exchange of shares or other securities, as the record date for the
determination of the stockholders entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case only the
stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
SECTION 7. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of such certificate, and the
Corporation may issue a new certificate in the place of any certificate
theretofore issued by it which the owner thereof shall allege to have been lost
or destroyed or which shall have been mutilated. The Board of Directors may, in
its discretion, require such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in such form and with
such surety or sureties as the Board of Directors in its absolute discretion
shall determine, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or the issuance of such new certificate.
ARTICLE VI
Indemnification
Except as may otherwise be specifically provided in the Certificate of
Incorporation, no provision of the Certificate of Incorporation is intended by
the Corporation to be construed as limiting, prohibiting, denying or abrogating
any of the general or specific powers or rights conferred under the General
Corporation Law upon the Corporation, upon its stockholders, bondholders and
security holders, and upon its directors, officers and other corporate
personnel, including, in particular, the power of the Corporation to furnish
indemnification to directors and officers in the capacities defined and
prescribed by the General Corporation Law and the defined and prescribed rights
of said persons to indemnification as the same are conferred under the General
Corporation Law. The Corporation shall, to the fullest extent permitted by the
laws of the State of Delaware, including, but not
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limited to Section 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all directors and
officers of the Corporation and may, in the discretion of the Board of
Directors, indemnify any and all persons whom it shall have power to indemnify
under said Section or otherwise under Delaware law from and against any and all
of the expenses, liabilities or other matters referred to or covered by said
Section. The indemnification provisions contained in the Delaware General
Corporation Law shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, resolution of
stockholders or disinterested directors, or otherwise, and shall continue as to
a person who has ceased to be a director, officer, employee or agent, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
General Provisions
SECTION 1. Dividends. Subject to statute and the Certificate of
Incorporation, dividends upon the shares of the Corporation may be declared by
the Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the Corporation, unless otherwise provided
by statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the
Directors.
SECTION 4. Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the year and
jurisdiction of incorporation of the Corporation.
SECTION 5. Checks, Notes, Drafts Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
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SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. Voting of Stocks in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board, the
Vice-Chairman of the Board, the President or any Vice-President, from time to
time, may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporations, or to consent in writing to any action by any such
other corporation. In the event one or more attorneys or agents are appointed,
the Chairman of the Board, the Vice-Chairman of the Board, the President or any
Vice-President may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent. The Chairman of the Board, the
Vice-Chairman of the Board, the President or any Vice-President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the premises.
SECTION 8. Related Party Transactions. The Corporation shall not engage
in any transaction with any of its directors, officers or stockholders owning,
directly or indirectly, 5% of the shares of Common Stock of the Corporation,
unless such transaction has been approved by both a majority of the entire Board
of Directors, as well as by a majority of the independent outside directors or
by a majority of the Corporation's Disinterested Stockholders. As used herein,
the term "Disinterested Stockholder" shall mean any record holder of Common
Stock of the Corporation who is not: (i) an officer, director or employee, or
former officer, director or employee, of the Corporation or any subsidiary or
affiliate (as that term is defined in the Securities Act of 1933, as amended,
and the regulations promulgated thereunder) of the Corporation; (ii) an
affiliate of any such present or former officer, director or employee of the
Corporation; or (iii) a holder, directly or indirectly of five (5%) percent or
more of any class or series of voting securities of the Corporation or any
affiliate thereof.
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ARTICLE VIII
Force and Effect of By-Laws
These By-Laws are subject to the provisions of the Delaware General
Corporation Law and the Corporation's Certificate of Incorporation, as it may be
amended from time to time. If any provision in these By-Laws is inconsistent
with a provision in that law or the Certificate of Incorporation, the provision
of that law or the Certificate of Incorporation shall govern. Wherever in these
By-Laws reference is made to more than one incorporator, director, or
stockholder, same shall, if this is a sole incorporator, director, stockholder
corporation, be construed to mean the solitary person; and all provisions
dealing with the quantum of majorities or quorums shall be deemed to mean the
action by the one person constituting the corporation.
ARTICLE IX
Amendments
These By-Laws may be amended or repealed or new By-Laws may be adopted
at an annual or special meeting of stockholders at which a quorum is present or
represented, by the vote of the holders of shares entitled to vote thereon
provided that notice of the proposed amendment or repeal or adoption of new
By-Laws is contained in the notice of such meeting. These By-Laws may also be
amended or repealed or new By-Laws may be adopted by the Board at any regular or
special meeting of the Board of Directors; provided that Article VII, Section 8
of these By-Laws may only be amended or repealed, or new By-Laws adopted which
have the effect of amending or repealing Article VII, Section 8 of these
By-Laws, by the vote or written consent of the holders of a majority of the
outstanding shares of capital stock entitled to vote thereon which is held by
Disinterested Stockholders. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of the stockholders for the
election of directors the By-Law so adopted, amended or repealed, together with
a concise statement of the changes made. By-Laws adopted by the Board of
Directors may be amended or repealed by the stockholders.
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WARRANT AGREEMENT
This WARRANT AGREEMENT ("Agreement") dated as of _______________, 1997
is by and between Compass Plastics & Technologies, Inc., a Delaware corporation
(the "Company"), and Cruttenden Roth Incorporated ("Cruttenden" or the
"Representative").
WHEREAS, the Representative has agreed pursuant to the Underwriting
Agreement dated ________, 1997 (the "Underwriting Agreement") to act as the
representative of the several underwriters in connection with the proposed
public offering by the Company of up to 1,495,000 shares in the aggregate of
Common Stock, including 195,000 of such shares covered by an over-allotment
option (the "Public Offering"); and
WHEREAS, pursuant to Section 1 of the Underwriting Agreement, the
Company has agreed to issue warrants to the Representative (the "Warrants") to
purchase, at a price of $0.001 per warrant, up to an aggregate of 130,000 shares
(hereinafter, and as the number thereof may be adjusted hereto, the "Warrant
Shares"), of the Company's Common Stock, $0.001 par value per share (the "Common
Stock"), each Warrant initially entitling the holder thereof to purchase one
share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Underwriting Agreement set forth and for other good
and valuable consideration, the parties hereto agree as follows:
1. Issuance of Warrants: Form of Warrant. The Company will issue and
deliver to the Representative, Warrants to purchase 130,000 Warrant Shares on
the Closing Date referred to in the Underwriting Agreement in consideration for,
and as part of the Representative's compensation in connection with, the
Representative acting as the representative of the several underwriters for the
Public Offering pursuant to the Underwriting Agreement. The text of the Warrants
and of the form of election to purchase shares shall be substantially as set
forth in Exhibit A attached hereto. The Warrants shall be executed on behalf of
the Company by the manual or facsimile signature of the present or any future
Chairman of the Board, President or Vice President of the Company, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement. Warrants shall be dated as of the date of
execution thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
2. Registration. The Warrants shall be numbered and shall be registered
on the books of the Company (the "Warrant Register") as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register (the "Holder") as
<PAGE>
the owner in fact therefor for all purposes and shall not be bound to recognize
any equitable or other claim to or interest in such Warrant on the part of any
other person, and shall not be liable for any registration or transfer of
Warrants which are registered or are to be registered in the name of a fiduciary
or the nominee of a fiduciary unless made with the actual knowledge that a
fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. Warrants to purchase 130,000 shares
shall be registered initially in the name of "Cruttenden Roth Incorporated," or
in such other denominations as Cruttenden may request in writing to the Company.
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Warrant certificate may be exchanged
for another certificate or certificates entitling the Holder thereof to purchase
a like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates to be so exchanged. Thereupon, the Company shall
execute and deliver to the person entitled thereto a new Warrant certificate or
certificates, as the case may be, as so requested.
4. Transfer of Warrants. Until ___________, 1998, the Warrants will not
be sold, transferred, assigned or hypothecated except to bona fide officers and
partners of the Representative who agree in writing to be bound by the terms
hereof. The Warrants shall be transferrable only on the Warrant Register upon
delivery thereof duly endorsed by the Holder or by the Holder's duly authorized
attorney or representative,or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
the original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto.
5. Term of Warrants; Exercise of Warrants.
5.1 Each Warrant entitles the registered owner thereof to purchase one
share of Common Stock at any time from 10:00 a.m., Pacific time, on __________,
1998 (the "Initiation Date") until 6:00 p.m., Pacific time, on __________, 2002
(the "Expiration Date") at a purchase price of [$________], subject to
adjustment (the "Warrant Price"). Notwithstanding the foregoing, if at 6:00
p.m., Pacific time on the Expiration Date, any Holder or Holders of the Warrants
have not exercised their Warrants and the Closing Price (as defined below) for
the Common Stock on the Expiration Date is greater than the Warrant Price, then
each such unexercised Warrant shall be automatically converted into a number of
shares of Common Stock of the Company equal to : (A) the number of shares of
Common Stock then issuable upon exercise of a Warrant multiplied by (B) a
fraction (1) the numerator of which is the difference between the Closing Price
for the Common Stock on the Expiration Date and the Warrant Price and (2) the
denominator of which is the Closing Price for the Warrant Stock on the
Expiration Date.
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5.2 The Warrant Price and the number of Warrant Shares issuable upon
exercise of Warrants are subject to adjustment upon the occurrence of certain
events, pursuant to the provisions of Section 11 of this Agreement. Subject to
the provisions of this Agreement, each Holder of Warrants shall have the right,
which may be exercised as expressed in such Warrants, to purchase from the
Company (and the Company shall issue and sell to such Holder of Warrants) the
number of fully paid and nonassessable Warrant Shares specified in such
Warrants, upon surrender to the Company, or its duly authorized agent, of such
Warrants, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the Warrant Price, as
adjusted in accordance with the provisions of Section 11 of this Agreement, for
the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of such Warrant Price shall be made in cash or by certified
or official bank check, or a combination thereof. No adjustment shall be made
for any dividends on any Warrant Shares of stock issuable upon exercise of a
Warrant.
5.3 Upon such surrender of Warrants, and payment of the Warrant Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants, together with cash, as provided in Section 12 of this
Agreement, in respect of any fraction of a share otherwise issuable upon such
surrender and, if the number of Warrants represented by a Warrant Certificate
shall not be exercised in full, a new Warrant Certificate, executed by the
Company for the balance of the number of whole Warrant Shares represented by the
Warrant Certificate.
5.4 If permitted by applicable law, such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such shares as of
the date of the surrender of such Warrants and payment of the Warrant Price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered Holders thereof, either as an
entirety or from time to time for only part of the shares specified therein.
6. Compliance with Government Regulations. The Company covenants that
if any shares of Common Stock required to be reserved for purposes of exercise
or conversion of Warrants require, under any Federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any such national
securities exchange before such shares may be issued upon exercise, the Company
will in good faith and as expeditiously as possible endeavor to cause such
shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be; provided, however, that (except to the
extent legally permissible with respect to Warrant of which the Representative
is the Holder) in no event shall such shares of Common Stock be issued, and the
Company is hereby authorized to suspend the exercise of all Warrants, for the
period during which such registration, approval or listing is required but not
in effect.
7. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable
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<PAGE>
in respect of any transfer involved in the issue or delivery of any warrants or
certificate for Warrant Shares in a name other than that of the registered
Holder of such warrants.
8. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest; but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of such Warrant and, if requested, indemnity or bond also
reasonably satisfactory to the Company. An applicant for such substitute
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
9. Reservation of Warrant Shares. There have been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the rights of prices represented by the Warrants and
the transfer agent for the Common Stock ("Transfer Agent") and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent Transfer Agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will supply such Transfer Agent with duly executed stock
certificates for such purposes and will itself provide or otherwise make
available any cash which may be issuable as provided in Section 12 of this
Agreement. The Company will furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto, transmitted to each Holder
pursuant to Section 11.2 of this Agreement. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled.
10. Obtaining Stock Exchange Listings. The Company will from time to
time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
11. Adjustment of Warrant Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this Section
11, "Common Stock" means shares now or hereafter authorized of any class of
common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
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<PAGE>
11.1 Mechanical Adjustments. The number of Warrant Shares purchasable
upon the exercise of each warrant and the Warrant Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock or (iv) issue by reclassification
of its shares of Common Stock other securities of the Company (including any
such reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each Warrant immediately prior thereto shall be adjusted so
that the Holder of each Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or would have been entitled to receive after the happening of any of the events
described above, had such Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distribution referred to in paragraph (a) above or in the paragraph
immediately following this paragraph) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, the numerator of which shall be the then
current market price per share of Common Stock (as defined in paragraph (c)
below) on the date of such distribution, and the denominator of which shall be
the then current market price per share of Common Stock, less the then fair
value (as reasonably determined by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of a distribution by the Company to all holders of its
shares of Common Stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant, the Holder of each
Warrant, upon the exercise thereof at any time after such distribution, shall be
entitled to receive from the Company, such subsidiary or both, as the Company
shall determine, the stock or other securities to which such Holder would have
been entitled if such Holder had exercised such Warrant immediately prior
thereto, all subject to further adjustment as provided in this Section 11.1;
provided, however, that no adjustment in respect of dividends
5
<PAGE>
or interest on such stock or other securities shall be made during the term of a
Warrant or upon the exercise of a Warrant.
(c) For the purpose of any computation under paragraph (b) of
this Section, the current market price per share of Common Stock at any date
shall be the average of the daily Closing Prices for 20 consecutive trading days
commencing 30 trading days before the date of such computation. The selling
price for each day (the "Closing Price") shall be the last such reported sales
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case on the principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the Common Stock in
the over-the counter market as reported by the Nasdaq National Market System or
Nasdaq SmallCap System or if not approved for quotation on the Nasdaq National
Market System or Nasdaq SmallCap System, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose.
(d) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Warrant Shares purchasable upon the exercise of
each Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares purchasable immediately thereafter.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each warrant need be made under paragraph (b) if the
Company issues or distributes to each Holder of Warrants the rights, options,
warrants or convertible or exchangeable securities, or evidences of indebtedness
or assets referred to in those paragraphs which each Holder of Warrants would
have been entitled to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect thereto. No adjustment
need be made for a change in the par value of the Warrant Shares.
(g) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Holders shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Warrant and the Warrant Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 11, and the other
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provisions of this Agreement, with respect to the Warrant and Warrant Shares,
shall apply as nearly equivalent as practicable on like terms to such other
securities.
(h) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges for which an adjustment was made hereunder, if
any thereof shall not have been exercised, the Warrant Price and the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price or decreasing
the number of shares of Common Stock purchasable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
11.2 Notice of Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Warrant Price of such
Warrant Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first Class, postage prepaid, to each Holder
notice of such adjustment or adjustments and a certificate of a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) setting forth the
number of Warrant Shares purchasable upon the exercise of each Warrant and the
Warrant Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
11.3 No Adjustment for Dividends. Except as provided in Section 11.1,
no adjustments in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.
11.4 Preservation of Purchase Rights Upon Merger, Consolidation etc. In
case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, shall execute
with each Holder an agreement that each Holder shall have the right thereafter
upon payment of the Warrant Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and property which he would have owned or would have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer or lease had such warrant been exercised immediately prior to such
action; provided, however, that no adjustment in respect of dividends, interest
or other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for
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adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 11. The provisions of this Section 11.4
shall similarly apply to successive consolidations, mergers, sales transfer or
leases.
11.5 Statements on Warrants. Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the warrants
initially issuable pursuant to this Agreement.
11.6 Optional Conversion.
(a) In addition to and without limiting the rights of the
holders of the Warrants under the terms of this Agreement and the Warrants, the
holder of the Warrants shall have the right (the "Conversion Right") to convert
the Warrants or any portion thereof into shares of Common Stock as provided in
this Section 11.6 at any time or from time to time after the first anniversary
of the date hereof and prior to its expiration, subject to the restrictions set
forth in paragraph (c) below. Upon exercise of the Conversion Right with respect
to a particular number of shares subject to the Warrants (the "Converted Warrant
Shares"), the Company shall deliver to the holder of the Warrants, without
payment by the holder of any exercise price or any cash or other consideration,
the number of shares of Common Stock equal to the quotient obtained by dividing
the Net Value (as hereinafter defined) of the Converted Warrant Shares by the
fair market value (as defined in paragraph (d) below) of a single share of
Common Stock, determined in each case as of the close of business on the
Conversion Date (as hereinafter defined). The "Net Value" of the Converted
Warrant Shares shall be determined by subtraction of the aggregate warrant
purchase price of the Converted Warrant Shares from the aggregate fair market
value of the Converted Warrant Shares. No fractional shares shall be issuable
upon exercise of the Conversion Right, and if the number of shares to be issued
in accordance with the foregoing formula is other than a whole number, the
Company shall pay to the holder of the Warrants an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the
Warrants by the surrender of such Warrants at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to the Warrants which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of the Warrants
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), not later than the expiration date of
the Warrants. Certificates for the shares of Common Stock issuable upon exercise
of the Conversion Right together with a check in payment of any fractional share
and, in the case of a partial exercise, new warrants evidencing the shares
remaining subject to the Warrants, shall be issued as of the Conversion Date and
shall be delivered to the holder of the Warrants within 7 days following the
Conversion Date.
(c) In the event the Conversion Right would, at any time the
Warrants remain outstanding, be deemed by the Company's independent certified
public accounts to give rise to a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right
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shall automatically terminate upon the Company's written notice to the Holder of
the Warrants of such adverse accounting treatment.
(d) For purposes of this paragraph 11.6, the "fair market
value" of a share of Common Stock as of a particular date shall be its "current
market price," calculated as described in paragraph 11.1(c) hereof.
12. Fractional Interests. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the sale time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereon
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12 be issuable on
the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the closing price for one share of the Common
Stock, as defined in paragraph (c.) of Section 11.1, on the trading day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such faction.
13. Registration Under the Securities Act of 1933. The Representative
represents and warrants to the Company that it will not dispose of the Warrants
or the Warrant Shares except pursuant to (i) an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), including a
post-effective amendment to the Registration Statement, (ii) Rule 144 under the
Act (or any similar rule under the Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
of the Company, that an exemption from such registration is available.
14. Certificate to Bear Legends. The Warrant shall be subject to a
stop-transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
The Warrant Shares or other securities issued upon exercise of the
Warrant shall be subject to a stop-transfer order and the certificate or
certificates evidencing any such Warrant Shares or securities shall bear the
following legend:
THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
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15. Registration Rights.
15.1 Demand Registration Rights. The Company covenants and agrees with
the Representative and any subsequent Holders of the Warrants and/or Warrants
Shares that, on one occasion, within 60 days after receipt of a written request
from the Representative or from Holders of more than 25% in interest of the
aggregate of Warrants and/or Warrant Shares issued pursuant to this Agreement
that the Representative or such Holders of the Warrants and/or Warrant Shares
desires and intends to transfer more than 25% in interest of the aggregate
number of the Warrants and/or Warrant Shares under such circumstances that a
public offering, within the meaning of the Act, will be involved, the Company
shall, on that one occasion, file a registration statement (and use its best
efforts to cause such registration statement to become effective under the Act
at the Company's expense) with respect to the offering and sale or other
disposition of the Warrant Shares (the "Offered Warrant Shares"); provided,
however, that the Company shall have no obligation to comply with the foregoing
provisions of this Section 15.1 if in the opinion of counsel to the Company
reasonably acceptable to the Holder or Holders, from whom such written requests
have been received, registration under the Act is not required for the transfer
of the Offered Warrant Shares in the manner proposed by such person or persons
or that a post-effective amendment to an existing registration statement would
be legally sufficient for such transfer (in which latter event the Company shall
promptly file such post-effective amendment (and use its best efforts to cause
such amendment to become effective under the Act)). Notwithstanding the
foregoing, the Company shall not be obligated to file a registration statement
with respect to the Offered Warrant Shares on more than one occasion.
The Company may defer the preparation and filing of a registration
statement for up to 90 days after the request for registration is made if the
Board of Directors determines in good faith that such registration or
post-effective amendment would materially adversely affect or otherwise
materially interfere with a proposed or pending transaction by the Company,
including without limitation a material financing or a corporate reorganization,
or during any period of time in which the Company is in possession of material
inside information concerning the Company or its securities, which information
the Company determines in good faith is not ripe for disclosure.
The Company shall not honor any request to register Warrant Shares
pursuant to this Section 15.1 received later than five (5) years from the
effective date of the Company's Registration Statement on Forth S-1 (File No.
333-_________) (the "Effective Date"). The Company shall not be required (i) to
maintain the effectiveness of the registration statement beyond the earlier to
occur of 90 days after the effective date of the registration statement or the
date on which all of the Offered Warrant Shares have been sold (the "Termination
Date"); provided, however, that if at the Termination Date the Offered Warrant
Shares are covered by a registration statement which also covers other
securities and which is required to remain in effect beyond the Termination
Date, the Company shall maintain in effect such registration statement as it
relates to Offered Warrant Shares for so long as such registration statement (or
any substitute registration statement) remains or is required to remain in
effect for any such other securities, or (ii) to cause any registration
statement with respect to the Warrant Shares to become effective prior to the
Initiation Date. All expenses of registration pursuant to this
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Section 15.1 shall be borne by the Company (excluding underwriting discounts and
commissions on Warrant Shares not sold by the Company).
The Company shall be obligated pursuant to this Section 15.1 to include
in the registration statement Warrant Shares that have not yet been purchased by
a Holder of Warrants so long as such Holder of Warrants submits an undertaking
to the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such registration statement prior to
the consummation of the public offering with respect to such Warrant Shares. In
addition, such Holder of Warrants is permitted to pay the Company the Warrant
Price for such Warrant Shares upon the consummation of the public offering with
respect to such Warrant Shares.
15.2 Piggy-back Registration Rights. The Company covenants and agrees
with the Holders and any subsequent Holders of the Warrants and/or Warrant
Shares that in the event the Company proposes to file a registration statement
under the Act with respect to any class of security (other than in connection
with an exchange offer, a non-cash offer or a registration statement on Form S-8
or other unsuitable registration statement form) which becomes or which the
Company believes will become effective at any time after the Initiation Date
then the Company shall in each case give written notice of such proposed filing
to the Holders of Warrants and Warrant Shares at least 30 days before the
proposed filing date and such notice shall offer to such Holders the opportunity
to include in such registration statement such number of Warrant Shares as they
may request, unless, in the opinion of counsel to the Company reasonably
acceptable to any such Holder of Warrants or Warrant Shares who wishes to have
Warrant Shares included in such registration statement, registration under the
Act is not required for the transfer of such Warrants and/or Warrant Shares in
the manner proposed by such Holders. The Company shall not honor any such
request to register any such Warrant Shares if the request is received later
than six (6) years from the Effective Date, and the Company shall not be
required to honor any request (a) to register any such Warrant Shares if the
Company is not notified in writing of any such request pursuant to this Section
15.2 within at least 20 days after the Company has given notice to the Holders
of the filing, or (b) to register Warrant Shares that represent in the aggregate
fewer than 25% of the aggregate number of Warrant Shares. The Company shall
permit, or shall cause the managing underwriter of a proposed offering to
permit, the Holders of Warrant Shares requested to be included in the
registration (the "Piggy-back Shares") to include such Piggy-back Shares in the
proposed offering on the same terms and conditions as applicable to securities
of the Company included therein or as applicable to securities of any person
other than the Company and the Holders of Piggy-back Shares if the securities of
any such person are included therein. Notwithstanding the foregoing, if any such
managing underwriter shall advise the Company in writing that it believes that
the distribution of all or a portion of the Piggy-back Shares requested to be
included in the registration statement concurrently with the securities being
registered by the Company would materially adversely affect the distribution of
such securities by the Company for its own account, then the Holders of such
Piggy-back Shares shall delay their offering and sale of Piggyback Shares (or
the portion thereof so designated by such managing underwriter) for such period,
not to exceed 120 days, as the managing underwriter shall request provided that
no such delay shall be required as to Piggy-back Shares if any securities of the
Company are included in such registration statement for the account of any
person other than the Company and the
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Holders of Piggy-back Shares. In the event of such delay, the Company shall file
such supplements, post-effective amendments or separate registration statement,
and take any such other steps as may be necessary to permit such Holders to make
their proposed offering and sale for a period of 90 days immediately following
the end of such period of delay ("Piggy-back Termination Date"); provided,
however, that if at the Piggy-back Termination Date the Piggyback Shares are
covered by a registration statement which is, or required to remain, in effect
beyond the Piggy-back Termination Date, the Company shall maintain in effect the
registration statement as it relates to the Piggy-back Shares for so long as
such registration statement remains or is required to remain in effect for any
of such other securities. All expenses of registration pursuant to this Section
15.2 shall be borne by the Company, except that underwriting commissions and
expenses attributable to the Piggy-back Shares and fees and disbursements of
counsel (if any) to the Holders requesting that such Piggy-back Shares be
offered will be borne by such Holders.
The Company shall be obligated pursuant to this Section 15.2 to include
in the Piggy-back Offering, Warrant Shares that have not yet been purchased by a
holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such Piggy-back Offering prior to the
consummation of such Piggy-back Offering. In addition, such Holder of Warrants
is permitted to pay the Company the Warrant Price for such Warrant Shares upon
the consummation of the Piggy-back Offering.
If the Company decides not to proceed with a Piggy-back Offering, the
Company has no obligation to proceed with the offering of the Piggy-back Shares,
unless the Holders of the Warrants and/or Warrant Shares otherwise comply with
the provisions of Section 15.1 hereof (without regard to the 60 days' written
request required thereby). Notwithstanding any of the foregoing contained in
this Section 15.2, the Company's obligation to offer registration rights to the
Piggy-back Shares pursuant to this Section 15.2 shall terminate two (2) years
after the Expiration Date.
15.3 In connection with the registration of Warrants Shares in
accordance with Section 15.1 and 15.2 above, the Company agrees to:
(a) Use its best efforts to register or qualify the Warrant
Shares for offer or sale under the state securities or Blue Sky laws of
such states which the Holders of such Warrant Shares shall designate,
until the dates specified in Section 15.1 and 15.2 above in connection
with registration under the Act; provided, however, that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to general service of process in any
jurisdiction where it is not now so subject or to register or get a
license as a broker or dealer in securities in any jurisdiction where
it is not so registered or licensed or to register or qualify the
Warrant Shares for offer or sale under the state securities or Blue Sky
laws of any state other than the states in which some or all of the
shares offered or sold in the Public Offering were registered or
qualified for offer and sale.
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(b) (i) In the event of any post-effective amendment or other
registration with respect to any Warrant Shares pursuant to Section
15.1 or 15.2 above, the Company will indemnify and hold harmless any
Holder whose Warrant Shares are being so registered, and each person,
if any, who controls such Holder within the meaning of the Act, against
any losses, claims, damages or liabilities, joint or several, to which
such Holder or such controlling person may be subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any such registration statement, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each such Holder and each such
controlling person for any legal or other expenses reasonably incurred
by such Holder or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any such registration
statement, any preliminary prospectus or final prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity
with written information furnished by such Holder expressly for use in
the preparation thereof. The Company will not be liable to a claimant
to the extent of any misstatement corrected or remedied in any amended
prospectus if the Company timely delivers a copy of such amended
prospectus to such indemnified person and such indemnified person does
not timely furnish such amended prospectus to such claimant. The
Company shall not be required to indemnify any Holder or controlling
person for any payment made to any claimant in settlement of any suit
or claim unless such payment is approved by the Company.
(ii) Each Holder of Warrants and/or Warrant Shares
who participates in a registration pursuant to Section 15.1 or 15.2
will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed any such registration statement,
and each person, if any, who controls the Company within the meaning of
the Act, against any losses, claims, damages or liabilities to which
the Company, or any such director, officer or controlling person may
become subject under the Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement or any
material fact contained in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished by such Holder expressly for use in the
preparation thereof; and will reimburse any legal or other
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<PAGE>
expenses reasonably incurred by the Company, or any such director,
officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subparagraph
(ii) shall not apply to amounts paid to any claimant in settlement of
any suit or claim unless such payment is first approved by such Holder.
(iii) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this clause (b)(iii) of Section 15.3 but is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not
be enforced in such case notwithstanding the fact that this clause
(b)(iii) of Section 15.3 provides for indemnification in such case, all
the parties hereto shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that each Holder whose Warrant
Shares are being registered is responsible pro rata for the portion
represented by the public offering price received by such Holder from
the sale of such Holder's Warrant Shares, and the Company is
responsible for the remaining portion; provided, however, that (i) no
Holder shall be required to contribute any amount in excess of the
public offering price received by such Holder from the sale of such
Holder's Warrant Shares and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. This subsection (b)(iii) shall not
be operative as to any Holder of Warrant Shares to the extent that the
Company has received indemnity under this clause (b)(iii) of Section
15.3.
16. No Rights as Stockholder; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferee(s) the right to vote or to receive dividends or
to consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter or
any rights whatsoever as stockholders of the Company. If, however, at any time
prior to the expiration of the Warrants and prior to their exercise, any of the
following events occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed,
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<PAGE>
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 17 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
17. Notices. Any notice pursuant to this Agreement to be given or made
by the registered Holder of any Warrant to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
Compass Plastics & Technologies
15730 South Figueroa Street
Gardena, California 90248
Attn: President
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail, postage prepaid, addressed to such Holder at the address of such Holder as
shown on the Warrant Register.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
principles of conflicts of laws.
19. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Representative may deem necessary or desirable and which
shall not be inconsistent with the provisions of the Warrants and which shall
not adversely affect the interests of the Holders. This Agreement may also be
supplemented or amended from time to time by a writing executed by or on behalf
of the Company and all of the Holders.
20. Successor. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by the
Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
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21. Merger or Consolidation of the Company. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company, any
Holders of the Warrants and Warrant Shares.
23. Captions. The captions of the sections and subsections of this
Agreement have been reserved for convenience only and shall have no substantive
effect.
24. Counterparts. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
CRUTTENDEN ROTH INCORPORATED
Attest:
____________________________ By:________________________________
Name:
Title:
COMPASS PLASTICS & TECHNOLOGIES, INC.
Attest:
____________________________ By:________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
EXERCISABLE ON OR BEFORE _______________, 2002
No. 130,000 Warrants
Warrant Certificate
COMPASS PLASTICS & TECHNOLOGIES, INC.
This Warrant Certificate certifies that Cruttenden Roth Incorporated,
or registered assigns, is the registered holder of Warrants expiring
____________, 2002 (the "Warrants") to purchase Common Stock, $0.001 par value
per share (the "Common Stock"), of Compass Plastics & Technologies, Inc., a
Delaware corporation (the "Company"). Each Warrant entitles the holder upon
exercise to receive from the Company from 10:00 a.m., Pacific time, on
_____________, 1998 through and until 6:00 p.m., Pacific time, on ____________,
2002, one fully paid and nonassessable share of Common Stock (a "Warrant Share")
at the initial exercise price (the "Warrant Price") of [$_____] payable in
lawful money of the United States of America upon surrender of this Warrant
Certificate and payment of the Warrant Price at the conditions set forth herein
and in the Warrant Agreement referred to on the reverse hereof. The Warrant
Price and number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Pacific time, on
___________, 2002 (the "Expiration Date"). Notwithstanding the foregoing, if at
6:00 p.m., Pacific time on the Expiration Date, any Holder or Holders of the
Warrants have not exercised their Warrants and the Closing Price (as defined in
the Warrant Agreement) for the Common Stock on the Expiration Date is greater
than the Warrant Price, then each such unexercised Warrant shall be
automatically converted into a number of shares of Common Stock of the Company
equal to: (A) the number of shares of Common Stock then issuable upon exercise
of a Warrant multiplied by (B) a fraction (1) the numerator of which is the
difference between the Closing Price for the Common Stock on the Expiration Date
and the Warrant Price and (2) the denominator of which is the Closing Price for
the Warrant Stock on the Expiration Date.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this price.
This Warrant Certificate shall not be valid unless countersigned by the
Company.
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IN WITNESS WHEREOF, Compass Plastics & Technologies, Inc. has caused
this Warrant Certificate to be signed by its President and by its Secretary and
has caused its corporate seal to be affixed hereunto or imprinted hereon.
Dated: ________________ 1997
COMPASS PLASTICS & TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
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[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring _____________, 2002 entitling the holder
on exercise to receive shares of Common Stock, $0.001 par value per share, of
the Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of ___________, 1997 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised at any time on or before ____________,
2002. The holder of Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form of election to
purchase set forth hereon properly completed and executed, together with payment
of the Warrant Price in cash at the office of the Company designated for such
purpose. In the event that upon any exercise of Warrants evidenced hereby the
number of Warrants exercised shall be less than the total number of Warrants
evidenced hereby, there shall be issued to the holder hereof or his assignee a
new Warrant Certificate evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. If the number of shares of Common Stock issuable upon
such exercise is adjusted, the Warrant Agreement provides that the Warrant Price
set forth on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrants but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement. The Warrant Agreement also provides that, while the
Warrants are exercisable, the holders of the Warrants shall have an optional
conversion right to convert, without payment of any exercise price or any cash
or other consideration by such holders, the Warrants or any portion thereof into
a number of shares of Common Stock as specified in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement,
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<PAGE>
but without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant certificate or Warrant
certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
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(Form of Election to Purchase)
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares to the order of
Compass Plastics & Technologies, Inc., in the amount of $___________ in
accordance with the terms hereof. The undersigned requests that a certificate
for such shares be registered in the name of _____________________________,
whose address is ______________________________________ and that such shares be
delivered to _______________________ whose address is
_______________________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of ________________________, whose address
is _______________________, and that such Warrant Certificate be delivered to
_______________, whose address is _______________________________.
Signature:
Date:
Signature Guaranteed:
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<PAGE>
June 6, 1997
Compass Plastics & Technologies, Inc.
15730 South Figueroa Street
Gardena, California 90248
Dear Sirs:
We are acting as counsel to Compass Plastics & Technologies,
Inc. (the "Company") in connection with (a) the Registration Statement on Form
S-1, filed on June 6, 1997 (the "Registration Statement"), under the Securities
Act of 1933, as amended (the "Act"), covering 1,495,000 shares (the "Shares") of
the Company's common stock, par value $.0001 per share (the "Common Stock"),
including an over-allotment option of up to 195,000 Shares and (b) the
Underwriting Agreement between the Company and Cruttenden Roth Incorporated, as
the Underwriter (the "Underwriter"), relating to the Shares (the "Underwriting
Agreement").
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have relied
upon, and assumed the accuracy of, certificates and oral or written statements
and other information of or from public officials, officers or representatives
of the Company, and others.
Based upon the foregoing, we are of the opinion that the
Shares, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable.
<PAGE>
Compass Plastics & Technologies, Inc.
June 6, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
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INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of _____ __, 1997, between COMPASS
PLASTICS & TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and ____
__ _______, a resident of the State of ____________ (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Indemnitee
as a Director of the Company;
WHEREAS, as a condition to the Indemnitee's agreement to serve the
Company as such, the Indemnitee requires that he be indemnified from liability
to the fullest extent permitted by law; and
WHEREAS, the Company is willing to indemnify the Indemnitee to the
fullest extent permitted by law in order to retain the services of the
Indemnitee;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
1. Mandatory Indemnification in Proceedings Other than Those by or in
the Right of the Company. Subject to Section 4 hereof, the Company shall
indemnify and hold harmless the Indemnitee from and against any and all claims,
damages, expenses (including attorneys' fees), judgments, penalties, fines
(including excise taxes assessed with respect to an employee benefit plan),
settlements, and all other liabilities incurred or paid by him in connection
with the investigation, defense, prosecution, settlement or appeal of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) and to which the Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that the Indemnitee is or
was an officer, director, shareholder, employee or agent of the Company, or is
or was serving at the request of the Company as an officer, director, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, or by reason of anything done
or not done by the Indemnitee in any such capacity or capacities, provided that
the Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
2. Mandatory Indemnification in Proceedings by or in the Right of the
Company. Subject to Section 4 hereof, the Company shall indemnify and hold
harmless the Indemnitee from and against any and all expenses (including
attorneys' fees) and amounts actually and reasonably incurred or paid by him in
connection with the investigation, defense,
<PAGE>
prosecution, settlement or appeal of any threatened, pending or completed
action, suit or proceeding by or in the right of the Company to procure a
judgment in its favor, whether civil, criminal, administrative or investigative,
and to which the Indemnitee was or is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an officer, director,
shareholder, employee or agent of the Company, or is or was serving at the
request of the Company as an officer, director, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, provided that (a) the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and (b) no indemnification
shall be made under this Section 2 in respect of any claim, issue or matter as
to which the Indemnitee shall have been adjudged to be liable to the Company for
misconduct in the performance of his duty to the Company unless, and only to the
extent that, the court in which such proceeding was brought (or any other court
of competent jurisdiction) shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
3. Reimbursement of Expenses Following Adjudication of Negligence. The
Company shall reimburse the Indemnitee for any expenses (including attorneys'
fees) and amounts actually and reasonably incurred or paid by him in connection
with the investigation, defense, settlement or appeal of any action or suit
described in Section 2 hereof that results in an adjudication that the
Indemnitee was liable for negligence, gross negligence or recklessness (but not
willful misconduct) in the performance of his duty to the Company; provided,
however, that the Indemnitee acted in good faith and in a manner he believed to
be in the best interests of the Company.
4. Authorization of Indemnification. Any indemnification under Sections
1 and 2 hereof (unless ordered by a court) and any reimbursement made under
Section 3 hereof shall be made by the Company only as authorized in the specific
case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Sections 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
(a) first, by the Company's Board of Directors (the "Board")
by majority vote or consent of a quorum consisting of directors ("Disinterested
Directors") who are not, at the time of the Determination, named parties to such
action, suit or proceeding;
(b) next, if such a quorum of Disinterested Directors cannot
be obtained, by majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors;
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(c) next, if such a committee cannot be designated, by any
independent legal counsel (who may be any outside counsel regularly employed by
the Company) in a written opinion; or
(d) next, if such legal counsel determination cannot be
obtained, by vote or consent of the holders of a majority of the Company's
Common Stock.
4.1 No Presumptions. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
4.2 Benefit Plan Conduct. The Indemnitee's conduct with
respect to an employee benefit plan for a purpose he reasonably believed to be
in the interests of the participants in and beneficiaries of the plan shall be
deemed to be conduct that the Indemnitee reasonably believed to be not opposed
to the best interests of the Company.
4.3 Reliance as Safe Harbor. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (a) the records or books of account of the Company or another enterprise,
including financial statements, (b) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (c) the
advice of legal counsel for the Company or another enterprise, or (d)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof,
as the case may be.
4.4 Success on Merits or Otherwise. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Sections 1 or 2 hereof, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (a) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of
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liability or guilt against him, (b) the expiration of 120 days after the making
of any claim or threat of an action, suit or proceeding without the institution
of the same and without any promise or payment made to induce a settlement, or
(c) the settlement of any action, suit or proceeding under Sections 1, 2 or 3
hereof pursuant to which the Indemnitee pays less than $10,000.
4.5 Partial Indemnification or Reimbursement. If the
Indemnitee is entitled under any provision of this Agreement to indemnification
and/or reimbursement by the Company for some or a portion of the claims,
damages, expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Sections 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
5. Procedures for Determination of Whether Standards have been
Satisfied.
5.1 Costs. All costs of making the Determination required by
Section 4 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible for paying (a) all
reasonable expenses incurred by the Indemnitee to enforce this Agreement,
including, but not limited to, the costs incurred by the Indemnitee to obtain
court-ordered indemnification pursuant to Section 8 hereof, regardless of the
outcome of any such application or proceeding, and (b) all costs of defending
any suits or proceedings challenging payments to the Indemnitee under this
Agreement.
5.2 Timing of the Determination. The Company shall use its
best efforts to make the Determination contemplated by Section 4 hereof
promptly. In addition, the Company agrees:
(a) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later than 15 days
after a written request for a Determination (a "Request") is delivered to the
Company by the Indemnitee;
(b) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than 30 days after a
Request is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the
shareholders of the Company, such Determination shall be made not later than 90
days after a Request is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding
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anything herein to the contrary, a Determination may be made in advance of (a)
the Indemnitee's payment (or incurring) of expenses with respect to which
indemnification or reimbursement is sought, and/or (b) final disposition of the
action, suit or proceeding with respect to which indemnification or
reimbursement is sought.
5.3 Reasonableness of Expenses. The evaluation and finding as
to the reasonableness of expenses incurred by the Indemnitee for purposes of
this Agreement shall be made (in the following order of preference) within 15
days after the Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(a) first, by the Board by a majority vote of a
quorum consisting of Disinterested Directors;
(b) next, if a quorum cannot be obtained under
paragraph (a), by majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not Disinterested
Directors, may participate), consisting solely of two or more Disinterested
Directors; or
(c) next, if a finding cannot be obtained under
either subparagraph (a) or (b), by vote or consent of the holders of a majority
of the Company's Common Stock that are represented in person or by proxy at a
meeting called for such purpose.
All expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 5.3 is not made within the prescribed
time. The finding required by this Section 5.3 may be made in advance of the
payment (or incurring) of the expenses for which indemnification or
reimbursement is sought.
5.4 Payment of Indemnified Amount. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to be
indemnified and/or reimbursed, as the case may be, without further authorization
or action by the Board; provided, however, that the expenses for which
indemnification or reimbursement is sought have actually been incurred by the
Indemnitee.
5.5 Shareholder Vote on Determination. The Indemnitee and any
other shareholder who is a party to the proceeding for which indemnification or
reimbursement is sought shall be entitled to vote on any Determination to be
made by the Company's shareholders, including a Determination made pursuant to
Section 5.7 hereof. In addition, in connection with each meeting at which a
shareholder Determination will be made, the Company shall solicit proxies that
expressly include a proposal to indemnify or reimburse the Indemnitee. The
Company proxy statement
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relating to the proposal to indemnify or reimburse the Indemnitee shall not
include a recommendation against indemnification or reimbursement.
5.6 Selection of Independent Legal Counsel. If the
Determination required under Section 4 is to be made by independent legal
counsel, such counsel shall be selected by the Indemnitee with the approval of
the Board, which approval shall not be unreasonably withheld. The fees and
expenses incurred by counsel in making any Determination (including
Determinations pursuant to Section 5.8 hereof) shall be borne solely by the
Company regardless of the results of any Determination and, if requested by
counsel, the Company shall give such counsel an appropriate written agreement
with respect to the payment of their fees and expenses and such other matters as
may be reasonably requested by counsel.
5.7 Right of Indemnitee to Appeal an Adverse Determination by
Board. If a Determination is made by the Board or a committee thereof that the
Indemnitee did not meet the applicable standard of conduct set forth in Sections
1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a new
Determination to be made by the Company's shareholders at the next regular or
special meeting of shareholders. Subject to Section 8 hereof, such Determination
by the Company's shareholders shall be binding and conclusive for all purposes
of this Agreement.
5.8 Right of Indemnitee to Select Forum for Determination. If,
at any time subsequent to the date of this Agreement, "Continuing Directors" do
not constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of subparagraph (c) of Section 4 hereof. If none of the legal
counsel selected by the Indemnitee are willing and/or able to make the
Determination, then the Company shall cause the Determination to be made by a
majority vote or consent of a Board committee consisting solely of Continuing
Directors. For purposes of this Agreement, a "Continuing Director" means either
a member of the Board at the date of this Agreement or a person nominated to
serve as a member of the Board by a majority of the then Continuing Directors.
5.9 Access by Indemnitee to Determination. The Company shall
afford to the Indemnitee and his representatives ample opportunity to present
evidence of the facts upon which the Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination. The Company shall also afford the Indemnitee the reasonable
opportunity to include such evidence and information in any Company proxy
statement relating to a shareholder Determination.
5.10 Judicial Determinations in Derivative Suits. In each
action or suit described in Section 2 hereof, the Company shall cause its
counsel to use its best efforts to obtain from the
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Court in which such action or suit was brought (a) an express adjudication
whether the Indemnitee is liable for negligence or misconduct in the performance
of his duty to the Company, and, if the Indemnitee is so liable, (b) a
determination whether and to what extent, despite the adjudication of liability
but in view of all the circumstances of the case (including this Agreement), the
Indemnitee is fairly and reasonably entitled to indemnification.
6. Scope of Indemnity. The actions, suits and proceedings described in
Sections 1 and 2 hereof shall include, for purposes of this Agreement, any
actions that involve, directly or indirectly, activities of the Indemnitee both
in his official capacities as a Company director or officer and actions taken in
another capacity while serving as director or officer, including, but not
limited to, actions or proceedings involving (a) compensation paid to the
Indemnitee by the Company, (b) activities by the Indemnitee on behalf of the
Company, including actions in which the Indemnitee is plaintiff, (c) actions
alleging a misappropriation of a "corporate opportunity," (d) responses to a
takeover attempt or threatened takeover attempt of the Company, (e) transactions
by the Indemnitee in Company securities, and (f) the Indemnitee's preparation
for and appearance (or potential appearance) as a witness in any proceeding
relating, directly or indirectly, to the Company. In addition, the Company
agrees that, for purposes of this Agreement, all services performed by the
Indemnitee on behalf of, in connection with or related to any subsidiary of the
Company, any employee benefit plan established for the benefit of employees of
the Company or any subsidiary, any corporation or partnership or other entity in
which the Company or any subsidiary has a 5% ownership interest, or any other
affiliate shall be deemed to be at the request of the Company.
7. Advance for Expenses.
7.1 Mandatory Advance. Expenses (including attorneys' fees)
incurred by the Indemnitee in investigating, defending, settling or appealing
any action, suit or proceeding described in Sections 1 or 2 hereof shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding. The Company shall promptly pay the amount of such expenses to the
Indemnitee, but in no event later than 10 days following the Indemnitee's
delivery to the Company of a written request for an advance pursuant to this
Section 7, together with a reasonable accounting of such expenses.
7.2 Undertaking to Repay. The Indemnitee hereby undertakes and
agrees to repay to the Company any advances made pursuant to this Section 7 if
and to the extent that it shall ultimately be found that the Indemnitee is not
entitled to be indemnified by the Company for such amounts.
7.3 Miscellaneous. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's financial ability
to make repayment, and regardless whether indemnification of the Indemnitee by
the Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest-free.
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8. Court-Ordered Indemnification. Regardless whether the Indemnitee has
met the standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case
may be, and notwithstanding the presence or absence of any Determination whether
such standards have been satisfied, the Indemnitee may apply for indemnification
(and/or reimbursement pursuant to Sections 3 or 12 hereof) to the court
conducting any proceeding to which the Indemnitee is a party or to any other
court of competent jurisdiction. On receipt of an application, the court, after
giving any notice the court considers necessary, may order indemnification
(and/or reimbursement) if it determines the Indemnitee is fairly and reasonably
entitled to indemnification (and/or reimbursement) in view of all the relevant
circumstances (including this Agreement).
9. Nondisclosure of Payments. Except as expressly required by Federal
securities laws, neither party shall disclose any payments under this Agreement
unless prior approval of the other party is obtained. Any payments to the
Indemnitee that must be disclosed shall, unless otherwise required by law, be
described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
10. Covenant Not to Sue, Limitation of Actions and Release of Claims.
No legal action shall be brought and no cause of action shall be asserted by or
on behalf of the Company (or any of its subsidiaries) against the Indemnitee,
his spouse, heirs, executors, personal representatives or administrators after
the expiration of two years from the date the Indemnitee ceases (for any reason)
to serve as either an officer or a director of the Company, and any claim or
cause of action of the Company (or any of its subsidiaries) shall be
extinguished and deemed released unless asserted by filing of a legal action
within such two-year period.
11. Indemnification of Indemnitee's Estate. Notwithstanding any other
provision of this Agreement, and regardless whether indemnification of the
Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively, the "Indemnitee's Estate") against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Sections 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
12. Reimbursement of All Legal Expenses. Notwithstanding any other
provision of this Agreement, and regardless of the presence or absence of any
Determination, the Company promptly (but not later than 30 days following the
Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action
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<PAGE>
described in Sections 1 or 2 hereof (including, but not limited to, the matters
specified in Section 6 hereof).
13. Miscellaneous.
13.1 Notice Provision. Any notice, payment, demand or
communication required or permitted to be delivered or given by the provisions
of this Agreement shall be deemed to have been effectively delivered or given
and received on the date personally delivered to the respective party to whom it
is directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2 Entire Agreement. Except for the Company's Restated
Certificate of Incorporation, this Agreement constitutes the entire
understanding of the parties and supersedes all prior understandings, whether
written or oral, between the parties with respect to the subject matter of this
Agreement.
13.3 Severability of Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13.4 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
13.5 Execution in Counterparts. This Agreement and any
amendment may be executed simultaneously or in counterparts, each of which
together shall constitute one and the same instrument.
13.6 Cooperation and Intent. The Company shall cooperate in
good faith with the Indemnitee and use its best efforts to ensure that the
Indemnitee is indemnified and/or reimbursed for liabilities described herein to
the fullest extent permitted by law.
13.7 Amendment. No amendment, modification or alteration of
the terms of this Agreement shall be binding unless in writing, dated subsequent
to the date of this Agreement, and executed by the parties.
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13.8 Binding Effect. The obligations of the Company to the
Indemnitee hereunder shall survive and continue as to the Indemnitee even if the
Indemnitee ceases to be a director, officer, employee and/or agent of the
Company. Each and all of the covenants, terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the successors to the Company
and, upon the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the Indemnitee.
13.9 Nonexclusivity. The rights of indemnification and
reimbursement provided in this Agreement shall be in addition to any rights to
which the Indemnitee may otherwise be entitled by statute, bylaw, agreement,
vote of shareholders or otherwise.
13.10 Effective Date. The provisions of this Agreement shall
cover claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
ADDRESS: THE COMPANY:
- -------- ------------
Compass Plastics & Technologies, Inc. COMPASS PLASTICS & TECHNOLOGIES, INC.
15730 South Figueroa Street
Gardena, California 90248
Attention: Chief Executive Officer By: _______________________________
Name:
Title:
ADDRESS: THE INDEMNITEE:
- -------- ---------------
_______________
_______________
______________________________ _______________
Name:
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AB PLASTICS HOLDING CORPORATION
1996 STOCK OPTION PLAN
1. Purposes.
The purposes of the AB Plastics Holding Corporation 1996 Stock Option
Plan (this "Plan") are to aid AB Plastics Holding Corporation (the "Company")
and its subsidiaries in attracting and retaining capable management and
employees and to enable directors, officers and selected key employees and/or
consultants of the Company and its subsidiaries to acquire or increase ownership
interest in the Company on a basis that will encourage them to perform at
increasing levels of effectiveness and use their best efforts to promote the
growth and profitability of the Company and its subsidiaries. Consistent with
these objectives, this Plan authorizes the granting to directors, officers and
selected key employees and/or consultants of options (collectively, "Options")
to acquire shares of the Company's common stock, $.0001 par value per share
("Common Stock"), pursuant to the terms and conditions hereinafter set forth. As
used herein, the term "subsidiary" has the same meaning as is ascribed to the
term "subsidiary corporation" under Section 425 of the Internal Revenue Code of
1986, as amended (the "Code").
Options granted hereunder may be (i) "Incentive Options" (which term,
as used herein, shall mean Options that are intended to be "incentive stock
options" within the meaning of Section 422 of the Code) granted to selected key
employees of the Company, or (ii) "Nonqualified Options" (which term, as used
herein, shall mean Options that are not intended to be Incentive Options)
granted to directors, officers and/or selected key employees and/or consultants
of the Company.
2. Effective Date.
This Plan shall become effective upon the approval hereof by the
stockholders of the Company; provided, however, that if such approval is not
granted on or prior to August 30, 1997 (being that date which is twelve (12)
months after the date of the adoption of this Plan by the Board of Directors of
the Company (the "Board")), this Plan shall not become effective,
notwithstanding any subsequent approval by the stockholders of the Company.
3. Administration.
(a) This Plan shall be administered by the Compensation
Committee of the Board, or, if no Compensation Committee shall then be
constituted, a committee consisting of three members of the Board, who are
selected by the Board (in either case, the
<PAGE>
"Committee"); provided, however, that in the event that, and for so long as, the
entire Board shall consist of only three members, or the Board shall not have
designated the membership of the Committee, then the Board shall constitute the
Committee hereunder. If, at any time, there are less than three members of the
Committee eligible to serve in such capacity, the Board shall appoint one or
more other eligible members of the Board to serve on the Committee. All
Committee members shall serve, and may be removed, at the pleasure of the Board.
(b) A majority of the members of the Committee (but not less
than two) shall constitute a quorum, and any action taken by a majority of such
members present at any meeting at which a quorum is present, or acts approved in
writing by all such members, shall be the acts of the Committee.
(c) Subject to the other provisions of this Plan, the
Committee shall have full authority to decide the date or dates on which Options
will be granted under this Plan (in each instance, the "Date of Grant"), to
determine whether the Options to be granted shall be Incentive Options or
Nonqualified Options, or a combination of both, to select the directors,
officers and/or key employees and/or consultants to whom Options will be
granted, to determine the number of shares of Common Stock to be covered by each
Option, the price at which such shares may be purchased upon the exercise of
such Option (the "Exercise Price") and other terms and conditions of such
purchase. In making such determinations, the Committee shall solicit the
recommendations of the Chairman and President of the Company and may take into
account each proposed optionee's present and potential contributions to the
Company's business and any other factors which the Committee may deem relevant.
Subject to the other provisions of this Plan, the Committee shall also have full
authority to (i) interpret this Plan and any stock option agreements evidencing
Options granted hereunder ("Option Agreements"), (ii) issue rules for
administering this Plan, (iii) change, alter, amend or rescind such rules, and
(iv) make all other determinations necessary or appropriate for the
administration of this Plan. All determinations, interpretations and
constructions made by the Committee pursuant to this Section 3 shall be final
and conclusive. No member of the Board or the Committee shall be liable for any
action, determination or omission taken or made in good faith with respect to
this Plan or any Option granted hereunder.
4. Eligibility.
(a) Subject to the provisions of Section 7 below, key
employees of the Company and its subsidiaries (including officers and directors
who are employees) shall be eligible to receive Incentive Options under this
Plan, as determined by the Committee.
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(b) All directors, officers and other senior management and/or
key consultants to the Company (as determined by the Committee) shall be
eligible to receive Nonqualified Options under this Plan.
5. Option Shares.
(a) The shares subject to Options granted under this Plan
shall be shares of Common Stock and, except as otherwise required or permitted
by Section 5(b) below, the aggregate number of shares with respect to which
Options may be granted hereunder shall not exceed 200,000 shares. If an Option
expires, terminates or is otherwise surrendered, in whole or in part, the shares
allocable to the unexercised portion of such Option shall again become available
for grants of Options hereunder. As determined from time to time by the Board,
the shares available under this Plan for grants of Options may consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock which have been reacquired by the Company or a subsidiary following
original issuance.
(b) The aggregate number of shares of Common Stock as to which
Options and may be granted hereunder (as provided in Section 5(a) above), the
number of shares covered by each outstanding Option, and the Exercise Price
applicable to each outstanding Option shall be proportionately adjusted for any
increase or decrease in the number of issued and/or outstanding shares of Common
Stock resulting from a stock split, combination of shares, recapitalization or
other subdivision or consolidation of shares or other adjustment, or the payment
of a stock dividend in respect of the Common Stock; provided, however, that any
fractional shares resulting from any such adjustment shall be eliminated.
(c) The aggregate fair market value, determined on the Date of
Grant, of the shares of stock with respect to which Incentive Options are
exercisable for the first time by an Optionee (as such term is defined in
Section 6 below) during any calendar year (under all incentive stock option
plans of the Company and its subsidiaries) may not exceed $100,000.
6. Terms and Conditions of Options.
The Committee may, in its discretion, subject to Section 4
above, grant to prospective optionees only Incentive Options, only Nonqualified
Options, or a combination of both, and each Option granted shall be clearly
identified as to its status. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement between the Company and the director, officer,
key employee and/or key consultant to whom the Option is granted (the
"Optionee") in such form or forms as the Committee, from time to time, shall
prescribe, which agreements may but need not be identical to each other, but
shall comply with and be subject to the following terms and conditions:
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(a) Exercise Price. The Exercise Price at which each share of
Common Stock may be purchased pursuant to an Option shall be determined by the
Committee, except that, subject to Section 7 below, the Exercise Price at which
each share of Common Stock may be purchased pursuant to an Incentive Option
shall be not less than 100% of the fair market value for each such share on the
Date of Grant of such Incentive Option, as determined by the Committee in good
faith in accordance with Section 422 of the Code and applicable regulations
thereunder. Anything contained in this Section 6(a) to the contrary
notwithstanding, in the event that the number of shares of Common Stock subject
to any Option is adjusted pursuant to Section 5(b) above, a corresponding
adjustment shall be made in the Exercise Price per share.
(b) Duration of Options. The duration of each Option granted
hereunder shall be determined by the Committee, except that, subject to Section
7 below, each Incentive Option granted hereunder shall expire and all rights to
purchase shares of Common Stock pursuant thereto shall cease no later than that
date which is the day before the tenth anniversary of the Date of Grant of such
Option. The expiration date of each Option hereunder is referred to herein as
the "Expiration Date".
(c) Vesting of Options. The vesting of each Option granted
hereunder shall be determined by the Committee, provided that, if no vesting
requirements are specified at the time of the granting of any Option hereunder,
then the subject Option shall be deemed to be fully vested and exercisable on
the Date of Grant. Only the vested portion(s) of any Option may be exercised.
(d) Exercise of Options. A person entitled to exercise an
Option, or any portion thereof, may exercise it (or such vested portion thereof)
in whole at any time, or in part from time to time, by delivering to the Company
at its principal office, directed to the attention of the President of the
Company or such other duly elected officer as shall be designated in writing by
the Committee to the Optionee, written notice specifying the number of shares of
Common Stock with respect to which the Option is being exercised, together with
payment in full of the aggregate Exercise Price for such shares. Such payment
shall be made in cash or by certified check or bank draft to the order of the
Company; provided, however, that the Committee may, in its sole discretion,
authorize such payment, in whole or in part, in any other form, including
payment by promissory note, by personal check or by the exchange of shares of
Common Stock owned of record by the person entitled to exercise the Option and
having a fair market value on the date of exercise equal to the price for which
the shares of Common Stock may be purchased pursuant to the Option.
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<PAGE>
(e) Non-Transferability. No Incentive Option granted hereunder
shall be transferable other than by will or the laws of descent and
distribution, and during the subject Optionee's lifetime, no Incentive Option
granted hereunder may be exercised by anyone other than such Optionee.
(f) Termination of Employment; Competition.
(i) Subject to any applicable requirements of the
Code with respect to Incentive Options, the Committee shall have
discretion to determine whether and to what extent any Option shall
terminate or be terminable in the event that the subject Optionee shall
engage in competition with the Company or any of its subsidiaries, or
in the event that the Optionee's employment with the Company or any of
its subsidiaries shall be terminated either (A) by the Company or any
of its subsidiaries for "cause", or (B) by the Optionee voluntarily and
without the written consent of the Company or its subject subsidiary.
(ii) The Committee shall have the further discretion
to determine whether and to what extent any Option shall terminate or
be terminable in the event that the subject Optionee's employment with
the Company or any of its subsidiaries shall terminate for reasons
other than as specified in Section 6(f)(i) above and for other than
death or disability, subject to any applicable requirements of the Code
with respect to Incentive Options.
(iii) In the event of the death or disability of an
Optionee while such Optionee is employed by the Company or any of its
subsidiaries, all outstanding Incentive Options granted hereunder to
such Optionee shall terminate on the first anniversary of such death or
disability, as the case may be, or on the Expiration Date, whichever
shall first occur.
(iv) Anything contained in this Section 6 to the
contrary notwithstanding, an Incentive Option granted pursuant to this
Plan may only be exercised following the subject Optionee's termination
of employment with the Company or any of its subsidiaries if, and to
the extent that, such Incentive Option was exercisable immediately
prior to such termination of employment.
(v) An Optionee's transfer of employment between the
Company and any of its subsidiaries or between subsidiaries shall not
constitute a termination of employment, and the Committee shall
determine in each case whether an authorized leave of absence for
professional education, military service or otherwise shall constitute
a termination of employment.
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<PAGE>
(vi) Nothing contained in this Section 6(f) shall be
deemed to modify or affect any vesting schedule provided in any Option
Agreement, which vesting schedule shall continue in effect and be
applied and enforced notwithstanding any modification of the exercise
period arising by reason of the application of this Section 6(f).
(g) No Rights as a Stockholder or to Continued Employment. No
Optionee shall have any rights as a stockholder of the Company with respect to
any shares covered by an Option prior to the exercise of such Option, and then
only to the extent of such exercise. Neither this Plan nor any Option granted
hereunder shall confer upon an Optionee any right to continued employment by the
Company or any of its subsidiaries or interfere in any way with the right of the
Company or its subsidiaries to terminate the employment of such Optionee
(subject to the terms and conditions of any applicable employment agreement
between the Company or any of its subsidiaries and the subject Optionee).
(h) Other Terms and Conditions. Any Option Agreement entered
into pursuant to this Plan may contain such further terms and conditions
(including a right of first refusal in favor of the Company in the event that
the Optionee shall seek to transfer any shares acquired upon exercise of the
subject Option) as the Committee may determine, provided that such other terms
and conditions are not in violation of, in conflict with or otherwise
inconsistent with the requirements of this Plan.
7. Ten Percent Stockholders.
The Committee shall not grant an Incentive Option to an
individual who, at the time such Incentive Option is to be granted, owns
(directly or by attribution pursuant to Section 425(d) of the Code) shares of
capital stock of the Company possessing more than 10% of the voting power of all
classes of capital stock of the Company unless (a) the Exercise Price at which
each share of Common Stock may be purchased pursuant to such Incentive Option is
at least 110% of the fair market value of each such share on the Date of Grant
(determined as provided in Section 6(a)(i) above), and (b) such Incentive
Option, by its terms, is not exercisable after the expiration of five years from
the Date of Grant thereof.
8. Issuance of Shares; Restrictions.
(a) Subject to the conditions, restrictions and other
qualifications provided in this Section 8, the Company shall, within thirty (30)
business days after an Option has been duly exercised in whole or in part,
deliver to the person who exercised the Option one or more certificates,
registered in the name of such person, for the number of shares of Common Stock
with respect to which the Option has been exercised. The Company may legend any
stock certificate issued hereunder to reflect any restrictions
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<PAGE>
provided for in this Section 8, including but not limited to a "stop transfer"
legend pursuant to Section 8(b) below.
(b) Unless the shares subject to Options granted under the
Plan have been registered under the Securities Act of 1933, as amended (the
"Act") (and, if the person exercising the Option may be deemed an "affiliate" of
the Company as such term is defined in Rule 405 under the Act, such shares have
been registered under the Act for resale by such person), or the Company has
determined that an exemption from registration under the Act is available, the
Company may require, prior to and as a condition of the issuance of any shares
of Common Stock upon exercise of any Option, that the person exercising such
Option hereunder furnish the Company with a written representation in a form
prescribed by the Committee to the effect that such person is acquiring such
shares solely with a view to investment for his or her own account and not with
a view to the resale or distribution of all or any part thereof, and that such
person will not dispose of any of such shares otherwise than in accordance with
the provisions of Rule 144 under the Act unless and until either the sale or
distribution of such shares is registered under the Act or the Company is
satisfied that an exemption from such registration is available.
(c) Anything herein contained to the contrary notwithstanding,
the Company shall not be obligated to sell or issue any shares of Common Stock
pursuant to the exercise of an Option granted hereunder unless and until the
Company is satisfied that such sale or issuance complies with all applicable
provisions of the Act and all other laws and/or regulations by which the Company
is bound or to which the Company or such shares may be subject; and the Company
reserves the right to delay the issuance and/or delivery of shares of Common
Stock for such period of time as may be required in order to effect compliance
with the applicable provisions of the Act and all other applicable laws and/or
regulations as aforesaid.
9. Substitute Options.
Anything herein contained to the contrary notwithstanding,
Options may, at the discretion of the Board, be granted under this Plan in
substitution for options to purchase shares of capital stock of another
corporation which is merged into, consolidated with or all or a substantial
portion of the property or stock of which is acquired by, the Company or a
subsidiary. The terms, provisions and benefits to each Optionee under such
substitute Options shall in all respects be identical to the terms, provisions
and benefits to such Optionee of his or her options of the other corporation on
the date of substitution, except that such substitute Options shall provide for
the purchase of shares of Common Stock of the Company instead of shares of such
other corporation.
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<PAGE>
10. Term of this Plan.
Unless this Plan has been sooner terminated pursuant to
Section 11 below, this Plan shall terminate on, and no Options hereunder shall
be granted after, the tenth (10th) anniversary of the date of Board adoption of
this Plan. Notwithstanding any such Plan termination, the provisions of this
Plan shall nonetheless continue thereafter to govern all Options theretofore
granted (including but not limited to any Nonqualified Options the Expiration
Date of which is extended to any date subsequent to the termination of this
Plan) until the exercise, expiration or cancellation of such Options.
11. Amendment and Termination of Plan.
The Board may at any time terminate this Plan, or amend this
Plan from time to time in such respects as the Board deems desirable; provided,
however, that, without the further approval of the stockholders of the Company,
no amendment shall (i) increase the maximum aggregate number of shares of Common
Stock with respect to which Options may be granted under this Plan, or (ii)
change the eligibility provisions of Section 4 above; and further provided,
that, subject to the provisions of Sections 6 and 8 above, no termination hereof
or amendment hereto shall adversely affect the rights of an Optionee or other
person holding an Option theretofore granted hereunder without the consent of
such Optionee or other person, as the case may be.
8
<PAGE>
AB PLASTICS HOLDING CORPORATION
1997 STOCK OPTION PLAN
1. Purposes.
The purposes of the AB Plastics Holding Corporation 1996 Stock Option
Plan (this "Plan") are to aid AB Plastics Holding Corporation (the "Company")
and its subsidiaries in attracting and retaining capable management and
employees and to enable directors, officers and selected key employees and/or
consultants of the Company and its subsidiaries to acquire or increase ownership
interest in the Company on a basis that will encourage them to perform at
increasing levels of effectiveness and use their best efforts to promote the
growth and profitability of the Company and its subsidiaries. Consistent with
these objectives, this Plan authorizes the granting to directors, officers and
selected key employees and/or consultants of options (collectively, "Options")
to acquire shares of the Company's common stock, $.0001 par value per share
("Common Stock"), pursuant to the terms and conditions hereinafter set forth. As
used herein, the term "subsidiary" has the same meaning as is ascribed to the
term "subsidiary corporation" under Section 425 of the Internal Revenue Code of
1986, as amended (the "Code").
Options granted hereunder may be (i) "Incentive Options" (which term,
as used herein, shall mean Options that are intended to be "incentive stock
options" within the meaning of Section 422 of the Code) granted to selected key
employees of the Company, or (ii) "Nonqualified Options" (which term, as used
herein, shall mean Options that are not intended to be Incentive Options)
granted to directors, officers and/or selected key employees and/or consultants
of the Company.
2. Effective Date.
This Plan shall become effective upon the approval hereof by the
stockholders of the Company; provided, however, that if such approval is not
granted on or prior to June 6, 1998 (being that date which is twelve (12) months
after the date of the adoption of this Plan by the Board of Directors of the
Company (the "Board")), this Plan shall not become effective, notwithstanding
any subsequent approval by the stockholders of the Company.
3. Administration.
(a) This Plan shall be administered by the Compensation Committee of
the Board, or, if no Compensation Committee shall then be constituted, a
committee consisting of three members of the Board, who are selected by the
Board (in either case, the "Committee"); provided, however, that in the event
that, and for so long as, the entire Board shall consist of only three members,
or
<PAGE>
the Board shall not have designated the membership of the Committee, then the
Board shall constitute the Committee hereunder. If, at any time, there are less
than three members of the Committee eligible to serve in such capacity, the
Board shall appoint one or more other eligible members of the Board to serve on
the Committee. All Committee members shall serve, and may be removed, at the
pleasure of the Board.
(b) A majority of the members of the Committee (but not less than
two) shall constitute a quorum, and any action taken by a majority of such
members present at any meeting at which a quorum is present, or acts approved in
writing by all such members, shall be the acts of the Committee.
(c) Subject to the other provisions of this Plan, the Committee
shall have full authority to decide the date or dates on which Options will be
granted under this Plan (in each instance, the "Date of Grant"), to determine
whether the Options to be granted shall be Incentive Options or Nonqualified
Options, or a combination of both, to select the directors, officers and/or key
employees and/or consultants to whom Options will be granted, to determine the
number of shares of Common Stock to be covered by each Option, the price at
which such shares may be purchased upon the exercise of such Option (the
"Exercise Price") and other terms and conditions of such purchase. In making
such determinations, the Committee shall solicit the recommendations of the
Chairman and President of the Company and may take into account each proposed
optionee's present and potential contributions to the Company's business and any
other factors which the Committee may deem relevant. Subject to the other
provisions of this Plan, the Committee shall also have full authority to (i)
interpret this Plan and any stock option agreements evidencing Options granted
hereunder ("Option Agreements"), (ii) issue rules for administering this Plan,
(iii) change, alter, amend or rescind such rules, and (iv) make all other
determinations necessary or appropriate for the administration of this Plan. All
determinations, interpretations and constructions made by the Committee pursuant
to this Section 3 shall be final and conclusive. No member of the Board or the
Committee shall be liable for any action, determination or omission taken or
made in good faith with respect to this Plan or any Option granted hereunder.
4. Eligibility.
(a) Subject to the provisions of Section 7 below, key employees of
the Company and its subsidiaries (including officers and directors who are
employees) shall be eligible to receive Incentive Options under this Plan, as
determined by the Committee.
(b) All directors, officers and other senior management and/or key
consultants to the Company (as determined by the Committee) shall be eligible to
receive Nonqualified Options under this Plan.
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<PAGE>
5. Option Shares.
(a) The shares subject to Options granted under this Plan shall be
shares of Common Stock and, except as otherwise required or permitted by Section
5(b) below, the aggregate number of shares with respect to which Options may be
granted hereunder shall not exceed 1,000,000 shares (after giving effect to the
5.4-for-1 stock split of the outstanding Common Stock being effected by the
Company on June 6, 1997). If an Option expires, terminates or is otherwise
surrendered, in whole or in part, the shares allocable to the unexercised
portion of such Option shall again become available for grants of Options
hereunder. As determined from time to time by the Board, the shares available
under this Plan for grants of Options may consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock which
have been reacquired by the Company or a subsidiary following original issuance.
(b) The aggregate number of shares of Common Stock as to which
Options and may be granted hereunder (as provided in Section 5(a) above), the
number of shares covered by each outstanding Option, and the Exercise Price
applicable to each outstanding Option shall be proportionately adjusted for any
increase or decrease in the number of issued and/or outstanding shares of Common
Stock resulting from a stock split, combination of shares, recapitalization or
other subdivision or consolidation of shares or other adjustment (other than the
June 6, 1997 stock split referred to in Section 5(a) above), or the payment of a
stock dividend in respect of the Common Stock; provided, however, that any
fractional shares resulting from any such adjustment shall be eliminated.
(c) The aggregate fair market value, determined on the Date of
Grant, of the shares of stock with respect to which Incentive Options are
exercisable for the first time by an Optionee (as such term is defined in
Section 6 below) during any calendar year (under all incentive stock option
plans of the Company and its subsidiaries) may not exceed $100,000.
6. Terms and Conditions of Options.
The Committee may, in its discretion, subject to Section 4 above, grant
to prospective optionees only Incentive Options, only Nonqualified Options, or a
combination of both, and each Option granted shall be clearly identified as to
its status. Each Option granted pursuant to this Plan shall be evidenced by an
Option Agreement between the Company and the director, officer, key employee
and/or key consultant to whom the Option is granted (the "Optionee") in such
form or forms as the Committee, from time to time, shall prescribe, which
agreements may but need not be identical to each other, but shall comply with
and be subject to the following terms and conditions:
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<PAGE>
(a) Exercise Price. The Exercise Price at which each share of Common
Stock may be purchased pursuant to an Option shall be determined by the
Committee, except that (i) subject to Section 7 below, the Exercise Price at
which each share of Common Stock may be purchased pursuant to an Incentive
Option shall be not less than 100% of the fair market value for each such share
on the Date of Grant of such Incentive Option, as determined by the Committee in
good faith in accordance with Section 422 of the Code and applicable regulations
thereunder, and (ii) the Exercise Price at which each share of Common Stock may
be purchased pursuant to a Nonqualified Option shall be not less than 100% of
the fair market value for each such share on the Date of Grant of such
Nonqualified Option, determined by the Committee as aforesaid; provided,
however, that if the consolidated net pre-tax income of the Company and its
subsidiaries in the full fiscal year immediately preceding the Date of Grant of
such Nonqualified Option (the "Prior Year") exceeded 125% of the mean average
annual consolidated net pre-tax income of the Company and its subsidiaries for
the three fiscal years immediately preceding the Prior Year, then the Exercise
Price per share under such Nonqualified Option may be an amount not less than
85% of the fair market value per share on the Date of Grant of such Nonqualified
Option, determined by the Committee as aforesaid. For purposes hereof, the
consolidated net pre-tax income of the Company and its subsidiaries for any
fiscal year shall be the consolidated net pre-tax income of the Company and its
subsidiaries as reflected in the Company's consolidated audited financial
statements for such fiscal year, prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout all periods in
question. Anything contained in this Section 6(a) to the contrary
notwithstanding, in the event that the number of shares of Common Stock subject
to any Option is adjusted pursuant to Section 5(b) above, a corresponding
adjustment shall be made in the Exercise Price per share.
(b) Duration of Options. The duration of each Option granted
hereunder shall be determined by the Committee, except that, subject to Section
7 below, each Incentive Option granted hereunder shall expire and all rights to
purchase shares of Common Stock pursuant thereto shall cease no later than that
date which is the day before the tenth anniversary of the Date of Grant of such
Option. The expiration date of each Option hereunder is referred to herein as
the "Expiration Date".
(c) Vesting of Options. The vesting of each Option granted hereunder
shall be determined by the Committee, provided that, if no vesting requirements
are specified at the time of the granting of any Option hereunder, then the
subject Option shall be deemed to be fully vested and exercisable on the Date of
Grant. Only the vested portion(s) of any Option may be exercised.
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<PAGE>
(d) Exercise of Options. A person entitled to exercise an Option, or
any portion thereof, may exercise it (or such vested portion thereof) in whole
at any time, or in part from time to time, by delivering to the Company at its
principal office, directed to the attention of the President of the Company or
such other duly elected officer as shall be designated in writing by the
Committee to the Optionee, written notice specifying the number of shares of
Common Stock with respect to which the Option is being exercised, together with
payment in full of the aggregate Exercise Price for such shares. Such payment
shall be made in cash or by certified check or bank draft to the order of the
Company; provided, however, that the Committee may, in its sole discretion,
authorize such payment, in whole or in part, in any other form, including
payment by promissory note, by personal check or by the exchange of shares of
Common Stock owned of record by the person entitled to exercise the Option and
having a fair market value on the date of exercise equal to the price for which
the shares of Common Stock may be purchased pursuant to the Option.
(e) Non-Transferability. No Incentive Option granted hereunder shall
be transferable other than by will or the laws of descent and distribution, and
during the subject Optionee's lifetime, no Incentive Option granted hereunder
may be exercised by anyone other than such Optionee.
(f) Termination of Employment; Competition.
(i) Subject to any applicable requirements of the Code with
respect to Incentive Options, the Committee shall have discretion to
determine whether and to what extent any Option shall terminate or be
terminable in the event that the subject Optionee shall engage in
competition with the Company or any of its subsidiaries, or in the
event that the Optionee's employment with the Company or any of its
subsidiaries shall be terminated either (A) by the Company or any of
its subsidiaries for "cause", or (B) by the Optionee voluntarily and
without the written consent of the Company or its subject subsidiary.
(ii) The Committee shall have the further discretion to
determine whether and to what extent any Option shall terminate or be
terminable in the event that the subject Optionee's employment with the
Company or any of its subsidiaries shall terminate for reasons other
than as specified in Section 6(f)(i) above and for other than death or
disability, subject to any applicable requirements of the Code with
respect to Incentive Options.
(iii) In the event of the death or disability of an Optionee
while such Optionee is employed by the Company or any of its
subsidiaries, all outstanding Incentive Options granted hereunder to
such Optionee shall terminate on the
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<PAGE>
first anniversary of such death or disability, as the case may be, or
on the Expiration Date, whichever shall first occur.
(iv) Anything contained in this Section 6 to the contrary
notwithstanding, an Incentive Option granted pursuant to this Plan may
only be exercised following the subject Optionee's termination of
employment with the Company or any of its subsidiaries if, and to the
extent that, such Incentive Option was exercisable immediately prior to
such termination of employment.
(v) An Optionee's transfer of employment between the Company and
any of its subsidiaries or between subsidiaries shall not constitute a
termination of employment, and the Committee shall determine in each
case whether an authorized leave of absence for professional education,
military service or otherwise shall constitute a termination of
employment.
(vi) Nothing contained in this Section 6(f) shall be deemed to
modify or affect any vesting schedule provided in any Option Agreement,
which vesting schedule shall continue in effect and be applied and
enforced notwithstanding any modification of the exercise period
arising by reason of the application of this Section 6(f).
(g) No Rights as a Stockholder or to Continued Employment. No
Optionee shall have any rights as a stockholder of the Company with respect to
any shares covered by an Option prior to the exercise of such Option, and then
only to the extent of such exercise. Neither this Plan nor any Option granted
hereunder shall confer upon an Optionee any right to continued employment by the
Company or any of its subsidiaries or interfere in any way with the right of the
Company or its subsidiaries to terminate the employment of such Optionee
(subject to the terms and conditions of any applicable employment agreement
between the Company or any of its subsidiaries and the subject Optionee).
(h) Other Terms and Conditions. Any Option Agreement entered into
pursuant to this Plan may contain such further terms and conditions (including a
right of first refusal in favor of the Company in the event that the Optionee
shall seek to transfer any shares acquired upon exercise of the subject Option)
as the Committee may determine, provided that such other terms and conditions
are not in violation of, in conflict with or otherwise inconsistent with the
requirements of this Plan.
7. Ten Percent Stockholders.
The Committee shall not grant an Incentive Option to an individual
who, at the time such Incentive Option is to be granted, owns (directly or by
attribution pursuant to Section 425(d) of the
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<PAGE>
Code) shares of capital stock of the Company possessing more than 10% of the
voting power of all classes of capital stock of the Company unless (a) the
Exercise Price at which each share of Common Stock may be purchased pursuant to
such Incentive Option is at least 110% of the fair market value of each such
share on the Date of Grant (determined as provided in Section 6(a)(i) above),
and (b) such Incentive Option, by its terms, is not exercisable after the
expiration of five years from the Date of Grant thereof.
8. Issuance of Shares; Restrictions.
(a) Subject to the conditions, restrictions and other qualifications
provided in this Section 8, the Company shall, within thirty (30) business days
after an Option has been duly exercised in whole or in part, deliver to the
person who exercised the Option one or more certificates, registered in the name
of such person, for the number of shares of Common Stock with respect to which
the Option has been exercised. The Company may legend any stock certificate
issued hereunder to reflect any restrictions provided for in this Section 8,
including but not limited to a "stop transfer" legend pursuant to Section 8(b)
below.
(b) Unless the shares subject to Options granted under the Plan have
been registered under the Securities Act of 1933, as amended (the "Act") (and,
if the person exercising the Option may be deemed an "affiliate" of the Company
as such term is defined in Rule 405 under the Act, such shares have been
registered under the Act for resale by such person), or the Company has
determined that an exemption from registration under the Act is available, the
Company may require, prior to and as a condition of the issuance of any shares
of Common Stock upon exercise of any Option, that the person exercising such
Option hereunder furnish the Company with a written representation in a form
prescribed by the Committee to the effect that such person is acquiring such
shares solely with a view to investment for his or her own account and not with
a view to the resale or distribution of all or any part thereof, and that such
person will not dispose of any of such shares otherwise than in accordance with
the provisions of Rule 144 under the Act unless and until either the sale or
distribution of such shares is registered under the Act or the Company is
satisfied that an exemption from such registration is available.
(c) Anything herein contained to the contrary notwithstanding, the
Company shall not be obligated to sell or issue any shares of Common Stock
pursuant to the exercise of an Option granted hereunder unless and until the
Company is satisfied that such sale or issuance complies with all applicable
provisions of the Act and all other laws and/or regulations by which the Company
is bound or to which the Company or such shares may be subject; and the Company
reserves the right to delay the issuance and/or delivery of shares of Common
Stock for such period of time as may be required in order to effect compliance
with the
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applicable provisions of the Act and all other applicable laws and/or
regulations as aforesaid.
9. Substitute Options.
Anything herein contained to the contrary notwithstanding, Options
may, at the discretion of the Board, be granted under this Plan in substitution
for options to purchase shares of capital stock of another corporation which is
merged into, consolidated with or all or a substantial portion of the property
or stock of which is acquired by, the Company or a subsidiary. The terms,
provisions and benefits to each Optionee under such substitute Options shall in
all respects be identical to the terms, provisions and benefits to such Optionee
of his or her options of the other corporation on the date of substitution,
except that such substitute Options shall provide for the purchase of shares of
Common Stock of the Company instead of shares of such other corporation.
10. Term of this Plan.
Unless this Plan has been sooner terminated pursuant to Section 11
below, this Plan shall terminate on, and no Options hereunder shall be granted
after, the tenth (10th) anniversary of the date of Board adoption of this Plan.
Notwithstanding any such Plan termination, the provisions of this Plan shall
nonetheless continue thereafter to govern all Options theretofore granted
(including but not limited to any Nonqualified Options the Expiration Date of
which is extended to any date subsequent to the termination of this Plan) until
the exercise, expiration or cancellation of such Options.
11. Amendment and Termination of Plan.
The Board may at any time terminate this Plan, or amend this Plan
from time to time in such respects as the Board deems desirable; provided,
however, that, without the further approval of the stockholders of the Company,
no amendment shall (i) increase the maximum aggregate number of shares of Common
Stock with respect to which Options may be granted under this Plan, or (ii)
change the eligibility provisions of Section 4 above; and further provided,
that, subject to the provisions of Sections 6 and 8 above, no termination hereof
or amendment hereto shall adversely affect the rights of an Optionee or other
person holding an Option theretofore granted hereunder without the consent of
such Optionee or other person, as the case may be.
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement"), dated as of October 1, 1996,
but to be effective as of August 1, 1996 (the "Effective Date") between AB
PLASTICS CORPORATION, a California corporation (the "Company"), AB PLASTICS
HOLDING CORPORATION, a Delaware corporation ("Holding"), and COMPASS PLASTICS &
TECHNOLOGIES, INC., a Delaware corporation (the "Consultant").
W I T N E S S E T H:
WHEREAS, Michael A. Gibbs ("Gibbs"), an affiliate of the Consultant, is
a principal stockholder of Holding, the sole stockholder of the Company, and is
a member of the Board of Directors of Holding and the Company; and
WHEREAS, Gibbs is intimately familiar with the affairs and business of
the Company, having provided consulting services to the Company for a number of
months prior to the Effective Date of this Agreement; and
WHEREAS, the Board of Directors of Holding and the Company has
determined that it would be in the best interests of the Company to continue to
retain, through the Consultant, the services of Gibbs to the Company to provide
general management, corporate planning and financial consulting services to the
Company, and the Consultant is willing to render such services upon the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto intending to be bound hereby, the parties
hereto agree as follows:
Section 1. Definitions. For purposes of this Agreement, the
following terms have the meanings set forth below:
"Affiliate" means, (a) with respect to the Consultant, Michael A.
Gibbs, the sole stockholder, President and Chief Executive Officer of the
Consultant, and (b) with respect to any other Person, any Person controlling,
controlled by or under common control with such Person or any of its Affiliate.
"Competitive Business" has the meaning set forth in Section
9.1 of this Agreement.
"Consulting Fee" has the meaning set forth in Section 4.1 of
this Agreement.
"Cause" means:
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(a) the commission by the Consultant or its Affiliate of any
act constituting (i) theft, (ii) embezzlement, (iii) fraud, (iv)
misappropriation of material property under applicable law, or (v)
non-disclosure and misappropriation of any corporate opportunity,
(b) the conviction of the Consultant or its Affiliate of
a crime resulting in material injury to the business or
property of the Company or Holding, or
(c) the material breach by the Consultant or its Affiliate of
this Agreement, including (i) the failure by the Consultant or its
Affiliate to following all reasonable and lawful directions of the
Board of Directors of the Company or Holding, or (ii) the taking of any
action by the Consultant or its Affiliate that would be reasonably
likely to cause material injury to the Company or Holding or that would
be in conflict with any material interest of the Company or Holding.
"Company" means AB Plastics Corporation, a California corporation.
"Confidential Information" means information that is not generally
known to the public and that was or is used, developed or obtained by the
Company or Holding in connection with their businesses, including (a) products
or services, (b) fees, costs and pricing structures, (c) designs, (d) analysis,
(e) drawings, photographs and reports, (f) computer software, including
operating systems, applications and program listings, (g) flow charts, manuals
and documentation, (h) data bases, (i) accounting and business methods, (j)
inventions, devices, new developments, methods and processes, whether patentable
or unpatentable and whether or not reduced to practice, (k) customers and
clients and customer or client lists, (l) other copyrightable works, (m) all
technology and trade secrets, and (n) all similar and related information in
whatever form or medium. Confidential Information will not include any
information that has been published in a form generally available to the public
prior to the date of disclosure or use of such information. Information will not
be deemed to have been published merely because individual portions of the
information have been separately published, but only if all material features
comprising such information have been published in combination.
"Consulting Period" has the meaning set forth in Section 2 of this
Agreement.
"Consultant" means the individual and collective reference to Compass
Plastics & Technologies, Inc., a Delaware corporation, and its Affiliate,
Michael A. Gibbs.
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"Holding" shall mean AB Plastics Holding Corporation, a Delaware
corporation.
"Initial Period" has the meaning set forth in Section 3. l(b) of this
Agreement.
"Intellectual Property" has the meaning set forth in Section 7 of this
Agreement.
"Noncompetition Period" has the meaning set forth in Section 9.1
hereof.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Reimbursable Expenses" has the meaning set forth in Section 4.4 of
this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (a) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (b) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes of this Agreement, a
Person or Persons will be deemed to have a majority ownership interest in a
partnership, limited liability company, association or other business entity if
such Person or Persons are allocated a majority of partnership, limited
liability company, association or other business entity gains or losses or
control the managing director or member or general partner of such partnership,
limited liability company, association or other business entity.
Section 2. Consulting Period. The Company hereby engages the
Consultant, and the Consultant hereby accepts its engagement with the Company
and Holding, upon the terms and conditions set forth in this Agreement for the
period beginning on the Effective Date of this Agreement and ending September
30, 2001 (the "Consulting Period").
Section 3. Position and Duties.
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3.1 Duties and Time Commitment.
(a) Duties. During the Consulting Period, the
Consultant and its Affiliate shall serve as a consultant to the Company and
Holding with primary responsibility, subject at all times to the direction of
the Board of Directors of the Company, to consult in respect of: (i) the general
policies and direction of the Company and Holding, (ii) assistance in connection
with various forms of financings for the Company and Holding, (iii) interfacing
with operating management of the Company in all aspects of manufacturing, sales,
distribution and customer relations, (iv) establishment of operating systems and
cost savings techniques for the Company, (v) supervision of the contemplated
establishment of manufacturing facility in Mexico, and (vi) establishment of
budgets and performance goals for senior executive officers of the Company and
Holding. The Consultant and its Affiliate shall, consistent with the foregoing,
perform such duties as may, from time to time, be determined and assigned to him
by the Board of Directors of the Company.
(b) Time Commitment. The Affiliate of the
Consultant shall:
(i) devote approximately sixty-six and 2/3
(66-2/3) percent of his business and professional time to the business of the
Company during the period commencing on the Effective Date and ending not
earlier than ninety (90) days from the Effective Date and not later than one
hundred and eighty (180) days from the Effective Date (the "Initial Period").
During the Initial Period, such Affiliate shall devote not less than fifty (50%)
percent of the time he is required to spend on Company business at the Company's
facilities to oversee the transition of ownership of the Company;
(ii) following the Initial Period and until
such time as Consultant's annual consulting fee shall be reduced to the annual
rate of $100,000 per annum, as provided in Section 4.1(b) (the "Fee Reduction
Date"), devote approximately twenty-five (25%) percent of his business and
professional to the business of the Company, plus five (5) business days per
month of on-site visits to the Company's facilities; and
(iii) following the Fee Reduction Date and
throughout the remaining term of this Agreement, devote such time as shall be
necessary to participate in management oversight, including review and
assistance in preparation of management budgets, financings and attendance at
one management meeting per month.
In connection with the foregoing, the Consultant shall not be required to
relocate his personal residence or, except as contemplated above, be required to
engage in extensive travel in connection with the performance of his duties
hereunder.
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(c) Title. During the Initial Period and
thereafter for so long as requested by the Board of Directors of the Company,
Gibbs shall hold the title of Chief Executive Officer of the Company, without
any additional compensation.
3.2 Performance of Duties; Other Activities. The Consultant
shall cause its Affiliate to devote his best efforts, attention and skills
toward performing the consulting duties on behalf of the Company and Holding,
and such portion of the business and professional time of the Consultant's
Affiliate as is specified in Section 3. l(b) in order to enable the Consultant
to fully and faithfully perform such duties and responsibilities to the best of
its abilities in a diligent, trustworthy, businesslike and efficient manner.
Subject to performance of its commitments hereunder, the Consultant and its
Affiliate shall be entitled to engage in outside business investments,
employment and consulting duties, or charitable or political activities of their
choosing; provide ~ that such outside investments, business and other activities
do not unreasonably interfere with the performance of the Consultant's duties
hereunder.
3.3 Reporting. The Consultant will report to the Board
of Directors of the Company or any executive committee hereafter
established by such Board of Directors.
Section 4. Compensation and Benefits.
4.1 Consulting Fees and Payments.
(a) Initial Payments. On the Effective Date, Holding
and the Company shall cause to be paid to the Consultant the sum of: (i) One
Hundred and Fifty Thousand ($150,000) Dollars, in consideration of services
rendered by the Consultant to the Company and Holding prior to the Effective
Date; (ii) $33,333.32, representing accrued consulting fees owed for the months
of August and September 1996; and (iii) the sum of _______________________
($______) as full reimbursement for all traveling, entertainment, professional
fees, and other costs and expenses actually paid or owed by the Consultant or
its Affiliate prior to the Effective Date on behalf of the Company and Holding,
all of which have been itemized verified to the satisfaction of the Board of
Directors of Holding (the "Prior Expenses").
(b) Ongoing Consulting Payments. During the
Consulting Period, the Consultant's consulting fee will be at the rate of One
Hundred Thousand ($100,000) Dollars per annum (the "Consulting Fee"), which
Consulting Fee will be payable at the rate of $8,333.33 per month on the 1st day
of each month or in other regular installments in accordance with the general
payroll practices of the Company and Holding. Notwithstanding the foregoing,
during the Initial Period and continuing thereafter until the earlier to occur
of: (i) December 31, 1998; or (ii) the
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employment by the Company of a full-time Chief Executive Officer of the Company,
the Consulting Fee shall be at the rate of Two Hundred Thousand ($200,000)
Dollars per annum, payable at the rate of $16,666.66 per month, as aforesaid.
4.2 Benefits. In addition to the Consulting Fee and any
bonuses payable to the Consultant pursuant to this Agreement, the Consultant's
Affiliate shall (to the maximum extent permitted by applicable law) be entitled
to the following benefits during the Consulting Period such major medical, life
insurance and disability insurance coverage (collectively, "Benefits") as is, or
may during the Consulting Period, be provided for other senior executive
officers of the Company and Holding, up to a maximum of $20,000 per annum of
such Benefits. Notwithstanding the foregoing, any increase in the Benefits
provided to the Consultant or any of its Affiliate must be approved by a
majority of the disinterested members of the Board of Directors of the Company.
4.3 Expenses. The Company will reimburse the Consultant for
all reasonable expenses incurred by it in the course of performing its duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses ("Reimbursable Expenses"), subject to the Company's requirements with
respect to reporting and documentation of expenses.
Section 5. Term and Termination.
5.1 Term. Unless renewed by written agreement between the
Company and the Consultant, the Consulting Period and this Agreement shall
terminate on September 30, 2001 (the "Expiration Date"); provided, that the
Consulting Period shall terminate prior to the Expiration Date upon: (a) the
Consultant's resignation, (b) the death of the Affiliate of the Consultant, (c)
such disability or incapacity of the Affiliate of the Consultant which prevents
the Consultant from utilizing the services such Affiliate hereunder for a period
of six consecutive months (a "Permanent Disability"), or (d) if the Consultant
shall be terminated for Cause.
5.2 Unjustified Termination. Except as otherwise provided in
Section 5.3 below, if the Consulting Period shall be terminated by the Company
prior to the Expiration Date for any reason, other than: (a) for Cause; (b) as a
result of the Consultant's resignation; or (c) as a result of the death or
Permanent Disability of the Affiliate of the Consultant (collectively, an
"Unjustified Termination"), the Consultant shall be entitled to receive, for so
long as the Consultant has not breached and does not breach the provisions of
Sections 6, 9, 8 or 9 of this Agreement: (i) its Consulting Fee through the
Expiration Date, (ii) a bonus as provided in Section 4.2, pro-rated based upon
the number of days elapsed since the beginning of the fiscal year during which
the Consulting Period is terminated, and (iii)
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reimbursement of all Reimbursable Expenses incurred by the Consultant prior to
the termination of the Consulting Period. The amounts payable pursuant to this
Section 5.2 shall be payable in the same manner as the Consulting Fee is payable
pursuant to Section 4.1(b) above, provided, that, at the option of the Company,
amounts payable pursuant to this Section 5.2 may be paid in one limp sum
payment, within 30 days following termination of the Consulting Period;
provided, that such amount will be equal to the present value of the payments
otherwise payable pursuant to this Section 5.2, discounted at a rate of 8% per
annum.
5.3 Justified Termination. If the Consulting Period shall be terminated
by the Company prior to the second anniversary of the date of this Agreement (a)
for Cause, (b) as a result of the Consultant's resignation, or (c) as a result
of the death or Permanent Disability of both of the Affiliate of the Consultant
(collectively, a "Justified Termination"), the Consultant shall be entitled to
receive its Consulting Fee through the date of termination and reimbursement of
all Reimbursable Expenses incurred by the Consultant prior to the termination of
the Consulting Period. A termination for Cause shall become effective on the
date designated by the Company. Notwithstanding the foregoing, in the event of
the death of the Affiliate of the Consultant during the Consulting Period, the
Consultant or the estate of Gibbs shall continue to receive six months of
consulting fees and, if and to the extent that the Company shall then maintain
any key man term life insurance insuring the life of the Affiliate of the
Consultant, the Company shall apply an applicable portion of the death benefits
from such key man insurance to pay to the Consultant the balance of its
Consulting Fee payable as at the date of the death of the Affiliate, discounted
as provided in Section 5.2 above. The balance of any such death benefits shall
be retained by and be the sole property of the Company.
5.4 Benefits. Except as otherwise required by law, all of the
Consultants rights to fringe benefits under this Agreement, if any, accruing
after the termination of the Consulting Period as a result of a Justified
Termination will cease upon such Justified Termination.
Section 6. Nondisclosure and Nonuse of Confidential Information.
Neither the Consultant nor its Affiliate shall disclose or use at any time
during the period which shall be the greater of: (a) such period as the
Consultant or its Affiliate shall be receiving compensation from the Company or
Holding (whether pursuant to this Agreement or otherwise), or (b) for so long as
the Consultant or its Affiliate shall own shares of Common Stock of the Company
(the "Non-Disclosure Period"), any Confidential Information of which the
Consultant or its Affiliate is or becomes aware, whether or not such information
is developed by it or them, except to the extent that such disclosure or use is
directly related to and required by the Consultant's performance of
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duties assigned to the Consultant pursuant to this Agreement. The Consultant and
its Affiliate will take all appropriate steps to safeguard Confidential
Information and to protect it against disclosure, misuse, espionage, loss and
theft.
Section 7. Ownership of Intellectual Property. Throughout the
Non-Disclosure Period, in the event that the Consultant or any Affiliate of the
Consultant, as part of its or their activities on behalf of the Company, Apogee
or any other Subsidiary of the Company generates, authors or contributes to any
invention, design, new development, device, product, method of process (whether
or not patentable or reduced to practice or comprising Confidential
Information), any copyrightable work (whether or not comprising Confidential
Information) or any other form of Confidential Information relating directly or
indirectly to the business of manufacturing or selling of custom injection
molded plastic products (collectively, "Intellectual Property"), the Consultant
and its Affiliate acknowledges that such Intellectual Property is the sole and
exclusive property of the Company and Holding, and hereby assigns all right,
title and interest in and to such Intellectual Property the Company. Any
copyrightable work prepared in whole or in part by the Consultant or its
Affiliate during the Non-Disclosure Period will be deemed "a work made for hire"
under Section 201(b) of the Copyright Act of 1976, as amended, and the Company
will own all of the rights comprised in the copyright herein. The Consultant and
its Affiliate will promptly and fully disclose all Intellectual Property and
will cooperate with the Company and Holding to protect the Company's interests
in and rights to such Intellectual Property (including providing reasonable
assistance in securing patent protection and copyright registrations and
executing all documents as reasonably requested by the Company or Holding,
whether such requests occur prior to or after termination of this Agreement.
Section 8. Delivery of Materials Upon Termination of Employment. As
requested by the Company from time to time and upon the termination of the
Consultant's services to the Company for any reason, the Consultant will, and
will cause its Affiliate to, promptly deliver to the Company all copies and
embodiments, in whatever form or medium, of all Confidential Information or
Intellectual Property in the possession of the Consultant or its Affiliate or
within its or their control (including written records, notes, photographs,
manuals, notebooks, documentation, program listings, flow charts, magnetic
media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, will provide the
Company with written confirmation that all such materials have been delivered to
the Company.
Section 9. Noncompetition and Nonsolicitation.
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9.1 Noncompetition. The Consultant and its Affiliate hereby
acknowledge that in the course of his prior services to the Company, the
Consultant and its Affiliate have become familiar with, and during the term of
this Agreement, will become familiar with, trade secrets and other confidential
information concerning the Company and Holding, and that such services have been
and will be of special, unique and extraordinary value to the Company.
Accordingly, the Consultant and its Affiliate hereby agree that, subject to
compliance by the Company and Holding of its payment obligations hereunder, for
such period as shall equal the greater of: (i) the period in which the
Consultant or its Affiliate shall continue own shares of Common Stock of the
Company or hold warrants or options to purchase shares of Common Stock of the
Company, or (ii) the term of the Consulting Period (the "Noncompetition
Period"), neither the Consultant nor any Affiliate thereof will not directly or
indirectly own, manage, control, participate in, consult with, render services
for, or in any manner engage in any business which shall be engaged in the
manufacture, marketing, distribution or sale of custom injection-molded plastic
products usable in the consumer electronics industry for consumer electronics
applications (a "Competitive Business") within any geographical area in which
the Company or Holding engage or plan to engage in such Competitive Business.
Nothing herein will prohibit the Consultant or its Affiliate from being a
passive owner of not more than 4.9% of the outstanding stock of any class of a
corporation which is publicly traded and is engaged in a Competitive Business,
so long as such Person has no active participation in the business of such
corporation.
9.2 Nonsolicitation. During the Non-Competition Period,
neither the Consultant nor its Affiliate will directly or indirectly through
another entity (a) induce or attempt to induce any employee of the Company or
any of Holding to leave the employ of the Company or such Subsidiary, or in any
way interfere with the relationship between the Company or any of Holding and
any employee thereof, (b) hire any individual who was an employee of the Company
or any of Holding at any time during the Non-Competition Period, or (c) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company or any of Holding to cease doing business with the Company or
such Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any of
Holding.
9.3 Enforcement. If, at the time of enforcement of the Section
9, a court holds that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances will be
substituted for the stated duration, scope or area and that the court will be
permitted to revise the restrictions contained in this Section 9 to cover the
maximum period, scope and area permitted by law.
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Section 10. Equitable Relief. The Consultant and its Affiliate hereby
acknowledge and agree that a breach or threatened breach by any of them of any
of the covenants and agreement with the Company contained in Sections 6, 7, 8 or
9 of this Agreement could cause irreparable harm to the Company or Holding for
which it or they would have no adequate remedy at law. Accordingly, and in
addition to any remedies which the Company or Holding may have at law, in the
event of an actual or threatened breach by the Consultant or any of its
Affiliate of any of their covenants and agreements contained in Sections 6, 7, 8
or 9 of this Agreement, the Company or its Subsidiary(ies) shall have the
absolute right to apply to any court of competent jurisdiction for such
injunctive or other equitable relief as such court may deem necessary or
appropriate in the circumstances.
Section 11. Securities Ownership. The parties hereto acknowledge and
agree that:
11.1 Warrant. The Consultant has been issued a warrant exercisable at
any time through and including October 31, 2001 (the "Consultant's Warrant")
entitling the Consultant or any designee of Gibbs to purchase five (5%) percent
of the "Fully Diluted Common Stock" (as defined in the Consultant's Warrant) of
Holdings. A true copy of the Consultant's Warrant is annexed hereto as Exhibit A
and made a part hereof.
11.2 Consultant's Option. The Consultant has been issued a stock option
exercisable at any time through and including October 31, 2001 (the
"Consultant's Option") entitling the Consultant or any designee of Gibbs to
purchase, under certain conditions specified in the Consultant's Option, an
additional five (5%) percent of the "Fully Diluted Common Stock" (as defined in
the Consultant's Option) of Holdings. A true copy of the Consultant's Option is
annexed hereto as Exhibit B and made a part hereof.
11.3 Risk of Forfeiture of Securities. The right of Consultant to
exercise the Consultant's Option described in Section 11.2 is subject to the
satisfaction of certain financial criteria by the Company, as specified in the
Consultant's Option. Nothing contained in this Agreement shall be deemed to
create any other risk of forfeiture by the Consultant or any other designee of
Gibbs of their rights of the holder of the Consultant's Warrant or Consultant's
Option; it being understood and agreed that the Consultant's Warrant and
Consultant's Option was issued as part of the initial subscriptions to capital
stock of Holding and has been offered in consideration of the efforts and
services provided by Gibbs to Holding and its stockholders prior to the date of
this Agreement.
Section 12. Certain Representations. The Consultant and its Affiliate
hereby severally represent and warrant to the Company that (a) the execution,
delivery and performance of this Agreement
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by the Consultant and its Affiliate does not and will not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order,
judgment or decree to which the Consultant or such Affiliate is a party of by
which it or he is bound, and (b) upon the execution and delivery of this
Agreement by the Company, this Agreement will be the valid and binding
obligation of the Consultant and its Affiliate, enforceable in accordance with
its terms.
Section 13. Miscellaneous.
13.1 Remedies. The Company will have all rights and remedies
set forth in this Agreement, all rights and remedies which the Company has been
granted at any time under any other agreement or contact and all of the rights
which the Company has under any law. The Company will be entitled to enforce
such rights specifically, without posting a bond or other security, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
13.2 Consent to Amendments. The provisions of this Agreement
may be amended or waived only by a written agreement executed and delivered by
the Company and the Consultant. No other course of dealing between the parties
to this Agreement or any delay in exercising any rights hereunder will operate
as a waiver of any rights of any such parties.
13.3 Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not; provided that the Consultant may not
assign its rights or delegate his obligations under this Agreement to any
Person, other than to the Affiliate individually, without the prior written
consent of the Company.
13.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
13.5 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any on of which need not contain the
signatures of more than one party, but all of which counterparts taken together
will constitute one and the-same agreement.
13.6 Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience only and do not
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constitute a part of this Agreement.
13.7 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally to the recipient, two business days after the date when sent to the
recipient by reputable express courier service (charges prepaid) or four
business days after the date when mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications will be sent to the Consultant and to the
Company at the addresses set forth below.
If to the Consultant or its Affiliate:
Michael A. Gibbs, President
Compass Plastics & Technologies, Inc.
15 Father Peters Lane
New Canaan, CT 06840
If to the Company or Holding:
AB Plastics Corporation
15730 South Figueroa Street
Gardena, CA 90247
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
13.8 No Third Party Beneficiary. This Agreement will not
confer any rights or remedies upon any person other than the Company, the
Consultant, its Affiliate, and their respective heirs, executors, successors and
assigns.
13.9 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter hereof.
13.10 Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
Any reference to any federal, state, local or foreign statute or law will be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The use of the word "including" in this
Agreement means "including without limitation" and is intended by the parties to
be by way of example rather than limitation.
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13.11 Survival. Sections 6, 7, 8, 9 and 11 of this Agreement
will survive and continue in full force in accordance with their teens
notwithstanding any termination of the Consulting Period.
13.12 GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY
THE INTERNAL LAW AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
AB PLASTICS CORPORATION
By: /s/Geoffrey Gorman
--------------------------------
Its:Chairman & Vice President
--------------------------------
AB PLASTICS HOLDING CORPORATION
By: /s/Geoffrey Gorman
--------------------------------
Its:Chairman
--------------------------------
COMPASS PLASTICS & TECHNOLOGIES,
INC.
By: /s/Michael A. Gibbs
--------------------------------
Its:President
--------------------------------
/s/Michael A. Gibbs
------------------------------------
MICHAEL A. GIBBS
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AB PLASTICS CORPORATION
15730 South Figueroa Street
Gardena, California 90247
September 27, 1996
Mr. James S. Adams
70 Rockinghorse Road
Rancho Palos Verdes, California 90274
Dear Jim:
This will confirm our agreement with respect to your continued
employment with AB Plastics Corporation (the "Company"), primarily in connection
with customer relations and strategic long-term planning, subject to the terms
and conditions set forth herein.
1. The Company has agreed to employ you, and you have agreed
to be employed with the Company, in a management capacity, primarily in
connection with customer relations and strategic long-term planning, from the
date hereof through and including June 30, 1999. You will initially have the
title of President of the Company, but the Company reserves the right to change
your title at any time in the Company's sole discretion and/or to assign you
other or additional titles at any time and from time to time. You will perform
your services hereunder from time to time, at the Company's reasonable request,
at such times and in such manner as shall be mutually agreeable, including (a)
attending meetings at the Company's offices, (b) working with the Company's
personnel in customer relations and development matters, developing long-term
strategy and new business ideas, and fostering business relationships on behalf
of the Company, and (c) participating in such other projects and functions as
may be mutually agreeable. Throughout the term of this agreement, you will have
the non-assignable right, at your discretion, to serve on the Board of
Directors of the Company (the "Board"). You will report directly to an Executive
Committee of the Board comprised of Michael A. Gibbs and Geoffrey J. F. Gorman,
provided that if either of Messrs. Gibbs or Gorman is not serving on the Board
at any time, then his replacement shall be as determined by a majority of the
members of the Board.
2. Although your services hereunder will require a significant
portion of your business time, the Company will not require your full-time
services, and will endeavor to be flexible as to the specific times and manner
in which your services will be required. In particular, it is expected that you
will provide substantial services hereunder to the Company during the first year
of this agreement, but that, during the balance of the term of this
<PAGE>
agreement, your services will be substantially reduced and will generally be
provided at times primarily within your discretion. You may perform services for
other businesses provided that same do not (a) interfere with your commitments
and responsibilities to the Company hereunder, and (b) violate the provisions of
the Non-Competition and Non-Disclosure Agreement of even date herewith by and
among AB Plastics Holding Corporation, the Company and yourself (the
"Non-Competition Agreement").
3. As compensation for all of your services hereunder, the
Company will pay you a salary at the rate of $100,000 per annum, which will be
payable periodically (but in no event less frequently than monthly) in
accordance with the Company's standard payroll practices from time to time.
During the period of your employment hereunder, the Company will also continue
to make payments, consistent with past practice, in respect of the leasing of
your Company-provided automobile. The Company will also make available to you
(and, with respect to health and medical insurance, members of your immediate
family in the manner and to the extent provision therefor is included in the
subject benefit plan), throughout the period of your employment hereunder, such
further benefits and perquisites as are generally provided by the Company to its
management employees, including but not limited to eligibility for participation
in any group life, health, dental or accident insurance, pension plan,
profit-sharing plan, or other such benefit plan or policy maintained by the
Company from time to time; provided, however, that nothing herein contained
shall be deemed to require the Company to adopt or maintain any particular plan
or policy.
4. In order to assist you in providing your services
hereunder, the Company will, as and to the extent reasonably required by you in
connection with such services, provide you with the use of an office, telephone,
fax and other reasonable and customary administrative support at the Company's
offices. The Company will also reimburse you for any and all reasonable expenses
(including travel, transportation, meals and lodging) which you may incur from
time to time in connection with your services hereunder; provided, however, that
no reimbursement shall be made for any expenses that are not deductible (in
whole or in part) for federal income tax purposes; and further provided, that
any individual expense item in excess of $500, and any and all expense items
over and above $1,500 (in the aggregate) in any calendar month, shall first be
approved by the Chairman of the Company, or by the President of the Company
(unless you are then serving as the President of the Company).
5. The Company reserves the right to terminate this agreement
in the event that (a) you commit any fraud, criminal misconduct, self-dealing,
or gross or willful misconduct in connection with the performance of your
responsibilities hereunder, (b) you die or become physically or mentally
disabled or impaired
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<PAGE>
so as to prevent you from continuing the normal performance of your
responsibilities hereunder for a period in excess of three (3) consecutive
months, (c) you commit or suffer any breach of the Non-Competition Agreement,
or (d) you repeatedly fail, refuse or are unable to perform services requested
hereunder as and to the extent contemplated hereby. You will have the right to
terminate this agreement upon 14 days' prior written notice to the Company in
the event that the Company fails to make any required payment hereunder within
20 days after written notice of non-payment is given to the Company. In the
event of any termination of this agreement, the Company will be liable for, and
will pay to you or your estate or personal representative, as the case may be,
all salary and other compensation hereunder accrued through the effective date
of termination; provided, that in the event that this agreement is terminated by
reason of your death or disability, the Company will nonetheless continue to
provide you with your salary and health and medical benefits (including medical
insurance for yourself and your family, subject to the terms of the applicable
benefit plan) for the remainder of the stated term of this agreement (i.e.,
through June 30, 1999). Termination shall be without prejudice to any other
rights and remedies of the parties, subject to any applicable requirements to
mitigate damages.
6. In the event of any suit, action or proceeding brought
against you as a direct result of your performance of your duties under this
agreement, unless the suit, action or proceeding arose out of your own
negligence, misconduct or other ultra vires act, or in any other instance in
which there may be a conflict of interest between the Company's defense and your
defense, the Company will defend, indemnify and hold you harmless from and
against all damages, losses, costs and expenses (including reasonable costs of
defense) sustained or incurred by you in respect of such action, suit or
proceeding or the subject matter thereof.
7. You will not assign or attempt to assign any of your rights
or obligations hereunder without the express prior written consent of the
Company. You will notify the Company of any change in your permanent residence
from that indicated above, or of any anticipated absence from your permanent
residence for a period in excess of one (1) month; provided, however, that your
failure to give any such notice will not affect the Company's obligations
hereunder.
8. Any amendment or modification of this agreement, or any
waiver hereunder, must be in writing and signed by the party to be charged
therewith.
9. This agreement will be governed by and construed in
accordance with the laws of the State of California.
-3-
<PAGE>
If the foregoing accurately reflects our agreement and
understanding with respect to the subject matter hereof, kindly acknowledge same
by countersigning and returning a counterpart copy of this letter, whereupon
same shall become an agreement between us which shall be binding upon and inure
to the benefit of us and our respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
Very truly yours,
AB PLASTICS CORPORATION
By:/s/ Michael A. Gibbs
--------------------
Acknowledged and Agreed To:
/s/James S. Adams
- ----------------------------
James S. Adams
-4-
<PAGE>
AB PLASTICS CORPORATION
15730 South Figueroa Street
Gardena, California 90247
January 31, 1997
Mr. G. Michael Frink
1295 Lost Acre Drive
Felton, CA 95018
Dear Michael:
This will confirm our agreement with respect to your
employment as Senior Vice President-Sales and Marketing of AB Plastics
Corporation (the "Company"), subject to the terms and conditions set forth
herein.
1. Nature of Employment.
(a) The Company agrees to employ you, and you have agreed to
render services to the Company, in the capacity and with the title of Senior
Vice President-Sales and Marketing of the Company, with responsibilities
relating primarily to the creation, development and maintenance of customer
accounts and customer relations, servicing Sony and other existing customers,
and supervising all sales personnel and functions of the Company, together with
such other or related duties as may be assigned to you from time to time by the
Board of Directors of the Company (the "Board"). Notwithstanding the assignment
of certain duties by the Board, it is expected that, on a day-to-day basis, you
will report and be accountable directly to the Chief Executive Officer of the
Company.
(b) Throughout the period of your employment hereunder, you
shall: (i) devote your full business time, attention, knowledge and skills,
faithfully, diligently and to the best of your ability, to the active
performance of your duties and responsibilities hereunder on behalf of the
Company; (ii) observe and carry out such reasonable rules, regulations,
policies, directions and restrictions as may be established from time to time by
the Board, including but not limited to the standard policies and procedures of
the Company as in effect from time to time; and (iii) do such traveling as may
reasonably be required in connection with the performance of such duties and
responsibilities; provided, however, that except for your initial relocation to
the greater Los Angeles area (to be completed within six (6) months after the
date of this agreement), you shall not be assigned to regular duties that would
reasonably require you to relocate your permanent residence from the greater Los
Angeles area.
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<PAGE>
2. Term of Employment.
(a) Your employment hereunder will begin on or prior to
February 28, 1997, with the precise starting date to be at your discretion in
line with any required departure notice that you may be required to give to your
existing employer. Subject to prior termination in accordance with paragraph
2(b) below, your employment will continue through and including February 28,
1998, and will renew for successive additional one (1) year periods thereafter,
subject in each case to achievement of those sales and performance criteria set
forth in Schedule A attached hereto.
(b) This agreement:
(i) may be terminated upon mutual written agreement of the
Company and you;
(ii) may be terminated, at your option, upon ninety (90)
days' prior written notice to the Company, with or without cause, effective as
of a date on or after February 28, 1998;
(iii) may be terminated, at your option, upon fourteen
(14) days' prior written notice to the Company, in the event that the Company
shall (A) fail to make any payment required to be made to you under the terms of
this agreement within thirty (30) days after payment is due, or (B) fail to
perform any other material covenant or agreement to be performed by it hereunder
or take any action prohibited by this agreement, and fail to cure or remedy same
within thirty (30) days after written notice thereof to the Company;
(iv) may be terminated, at the option of the Company, upon
sixty (60) days' prior written notice to you, effective as of a date on or after
February 28, 1998 (and each anniversary thereof in the event of any renewal(s)
of this agreement in accordance with paragraph 2(a) above), in the event that
you or the Company fail to satisfy any of the sales or performance criteria set
forth in Schedule A attached hereto;
(v) may be terminated, at the option of the Company, upon
written notice to you, "for cause" (as hereinafter defined);
(vi) may be terminated, at the option of the Company, upon
written notice to you, in the event of your "permanent disability" (as
hereinafter defined); or
(vii) may be terminated, at the option of the Company,
upon written notice to you at any time after six (6) months after the date of
this agreement and prior to the completion of your relocation to the greater Los
Angeles area, in the event that you have not completed such relocation within
six (6) months after the date of this agreement; or
(viii) shall automatically terminate upon your death.
2
<PAGE>
(c) As used herein, the term "for cause" shall mean and be
limited to: (i) any willful and material breach of this agreement (including,
without limitation, the covenants contained in paragraph 5 below) by you which
in any case is not corrected within thirty (30) days after written notice of
same from the Company to you; (ii) gross neglect by you of your duties and
responsibilities hereunder which in any case is not corrected within thirty (30)
days after written notice of same from the Company to you; (iii) any fraud,
criminal misconduct, breach of fiduciary duty, dishonesty, or gross and willful
misconduct by you in connection with the performance of your duties and
responsibilities hereunder; (iv) your being habitually drunk or otherwise
intoxicated during normal working hours, or your being drunk or addicted to
drugs (provided that this shall not restrict you from the use of
physician-prescribed medication in accordance with the applicable prescription);
(v) the commission by you of any felony or crime of moral turpitude, or any
other action by you which may materially impair or damage the reputation of the
Company; or (vi) habitual breach by you of any of the material provisions of
this agreement (regardless of any prior cure thereof).
(d) As used herein, the term "permanent disability" shall
mean, and be limited to, any physical or mental illness, disability or
impairment that has prevented and/or may reasonably be expected to prevent you
from continuing the performance of your normal duties and responsibilities
hereunder for an aggregate period in excess of three (3) consecutive months. For
purposes of determining whether a "permanent disability" has occurred under this
agreement, the written determination thereof by two (2) qualified practicing
physicians selected and paid for by the Company (and reasonably acceptable to
you) shall be conclusive.
(e) Upon any termination of this agreement as hereinabove
provided, you (or your estate or legal representatives, as the case may be)
shall be entitled to receive any and all unpaid Base Salary and Bonus (as such
terms are hereinafter defined) and other compensation hereunder appropriately
prorated to and as of the effective date of termination (based on the number of
days in the subject fiscal year elapsed prior to the date of termination), and
any other amounts then due and payable to you hereunder. All such payments shall
be made on the next applicable payment date(s) therefor (as provided in
paragraph 3 below) following the effective date of termination. Such payments
shall constitute all amounts to which you shall be entitled upon termination of
this agreement. Furthermore, in the event that termination is pursuant to
paragraph 2(b)(vii) above and the Company has previously paid to you all or any
portion of the non-accountable expense fund pursuant to paragraph 3(g) below,
then you will, within ten (10) days after your receipt of such notice of
termination, refund to the Company the amount previously paid to you in respect
of such expense fund.
3. Compensation and Benefits.
(a) Base Salary. As compensation for your services to be
rendered hereunder, the Company shall pay to you a base salary at the rate of
One Hundred Thousand ($100,000) Dollars per annum (the "Base Salary"), which
shall be payable in periodic installments in accordance with the standard
payroll practices of the Company in effect from time to time, and
3
<PAGE>
shall be subject to customary payroll deductions and withholdings as required by
law and/or by the Company's benefit plans in which you are a participant.
(b) Bonus. In addition to the Base Salary, in respect of the
period of your employment hereunder, the Company will pay to you, on an annual
basis within ninety (90) days after the close of each fiscal year of the
Company, a bonus (collectively, the "Bonus") of (i) up to $40,000 in respect of
each fiscal year of the Company during which you are at any time employed
hereunder, subject to the Company achieving those target performance levels for
the subject fiscal year as set forth in Schedule B attached hereto, and (ii) an
additional $40,000 in respect of each such fiscal year, subject to the Company
achieving those objectives for diversification of its customer base during such
fiscal year as set forth in Schedule C attached hereto; provided, however, that,
regardless of actual results, the bonus under clause (i) of this paragraph 3(b)
in respect of the Company's fiscal year ending October 31, 1997 shall be not
less than $20,000, which shall be payable on or prior to February 28, 1998.
(c) Stock Options. Simultaneous with the execution and
delivery of this agreement, the Company's corporate parent, AB Plastics Holding
Corporation (the "Parent"), is issuing to you a stock option whereby you may,
subject to the terms and conditions of the stock option agreement, purchase
shares of common stock of the Parent equal to 3% of the fully diluted common
stock of the Parent as of the date hereof.
(d) Auto Allowance and Reimbursement. In addition to the other
compensation and benefits hereunder, the Company will also pay to you,
throughout the period of your employment hereunder, a non-accountable automobile
allowance of $600 per month, payable on or about the first business day of each
calendar month, and will further reimburse you, upon presentment of appropriate
receipts and vouchers therefor, for your actual out-of-pocket costs of insuring
the vehicle which you primarily utilize for business purposes hereunder. The
automobile allowance hereunder is intended to reimburse you for the costs and
expenses of the business use of an automobile, provided that you will not be
required to account to the Company for the actual expenditure of such automobile
allowance, and you will be solely responsible for any and all taxes which may be
payable in respect of the receipt of such automobile allowance.
(e) Other Fringe Benefits. The Company shall also make
available to you, throughout the period of your employment hereunder, such other
benefits and perquisites as are generally provided by the Company to its
executive employees, including but not limited to eligibility for participation
in any group life, health, dental, vision, disability or accident insurance,
pension plan, profit-sharing plan, retirement savings plan, 401(k) plan, or
other such benefit plan or policy which may presently be in effect or which may
hereafter be adopted by the Company for the benefit of its executive employees
generally; provided, however, that nothing herein contained shall be deemed to
require the Company to adopt or maintain any particular plan or policy.
Participation in such benefit plans may be subject to standard waiting periods
following the commencement of full-time employment; provided, however, that
pending your qualification for participation in the Company's group medical
insurance, the Company will
4
<PAGE>
reimburse you, upon presentment of appropriate receipts and vouchers therefor,
for the premium costs payable by you for "COBRA" continuation coverage for you
and your existing dependents under your current employer's medical plan.
(f) Business Expenses. Throughout the period of your
employment hereunder, the Company shall also reimburse you, upon presentment of
appropriate receipts and vouchers therefor, for any reasonable out-of-pocket
business expenses incurred by you in connection with the performance of your
duties and responsibilities hereunder; provided, however, that no reimbursement
shall be required to be made for any expense item which has not previously been
approved if and to the extent required in accordance with the Company's standard
policies and procedures in effect from time to time.
(g) Relocation. Commencing immediately upon the execution and
delivery of this agreement, you will make all reasonable efforts to relocate
your permanent residence to the greater Los Angeles area, with the objective of
completing such relocation within six (6) months after the date of this
agreement. During such six-month period (or such shorter amount of time until
you complete your relocation), the Company will reimburse you, upon presentment
of appropriate receipts and vouchers therefor, for all reasonable commuting
expenses for one round-trip each week to and from your existing residence to the
greater Los Angeles area, so as to permit you to perform your services hereunder
at the Company's facilities first set forth above. In addition, the Company will
also pay or reimburse you, upon presentment of appropriate receipts and vouchers
therefor, for your reasonable moving expenses in moving your family, household
furnishings and other personal belongings to your new permanent residence in the
greater Los Angeles area, and will further pay to you, on prior to
_________________, 1997, the additional sum of $10,000 as a non-accountable
expense fund to cover expenses related to the relocation (such as brokerage fees
and other expenses related to the sale of your current residence, and up-front
payments relating to a mortgage on your new residence), provided that you will
not be required to account to the Company with respect to the expenditure of
such expense fund, and you will be solely responsible for any and all taxes
which may be payable in respect of the receipt of such expense fund.
4. Vacation, etc.
You shall be entitled to take, from time to time, up to four
(4) weeks of paid vacation per year, to be taken at such times as shall be
mutually convenient to you and the Company, and so as not to interfere unduly
with the conduct of the business of the Company. You shall also be entitled to
paid holidays, personal days and sick days in accordance with the Company's
standard policies and procedures in effect from time to time.
5. Restrictive Covenants.
(a) You hereby acknowledge and agree that (i) the business
contacts, customers, suppliers, technology, know-how, trade secrets, marketing
techniques, promotional methods and other aspects of the business of the Company
have been and are of value to the
5
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Company, and have provided and will hereafter provide the Company with
substantial competitive advantage in the operation of its business, and (ii) by
reason of your employment with the Company, you will have detailed knowledge and
will possess confidential information concerning the business and operations of
the Company. You further acknowledge that your business background and skills
are not uniquely suited to businesses of the type conducted by the Company, and
that, if required, you would be able to earn a comparable living in one or more
other lines of business.
(b) You shall not, directly or indirectly, for yourself or
through or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise
disclose or cause to be divulged, transmitted or otherwise disclosed, any of the
Company's proprietary and confidential business contacts, client or customer
lists, technology, know-how, trade secrets, marketing techniques, contracts or
other confidential or proprietary information of the Company of whatever nature,
whether now existing or hereafter created or developed (provided, however, that
for purposes hereof, information shall not be considered to be confidential or
proprietary if (A) it is a matter of common knowledge or in the public domain,
(B) it is generally known in the industry, or (C) you can demonstrate that such
information was already known to the recipient thereof, or was independently
developed or acquired, other than by reason of any breach of any obligation
under this agreement or any other confidentiality or non-disclosure agreement);
and/or
(ii) at any time during the period from the date
hereof through and including the date of the termination of your employment with
the Company, and for an additional period of one (1) year thereafter, (A)
solicit any customers of the Company (or any customers being developed by the
Company) for the purpose or with the result of providing or rendering goods
and/or services relating to the design, manufacture or sale of injection-molded
plastic products of any kind, and/or (B) induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the Company's relationship with any of its employees.
(c) We each hereby acknowledge and agree that, in the event of
any breach by you, directly or indirectly, of the foregoing restrictive
covenants, it will be difficult to ascertain the precise amount of damages that
may be suffered by the Company by reason of such breach; and accordingly, we
hereby agree that, as liquidated damages (and not as a penalty) in respect of
any such breach, the breaching party or parties shall be required to pay to the
Company, on demand from time to time, cash amounts equal to any and all gross
revenues derived by the breaching party or parties, directly or indirectly, from
any and all violative acts or activities. We hereby agree that the foregoing
constitutes a fair and reasonable estimate of the actual damages that might be
suffered by reason of any breach of this paragraph 5 by you, and we hereby agree
to such liquidated damages in lieu of any and all other measures of damages that
might be asserted in respect of any subject breach.
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(d) We each hereby further acknowledge and agree that any
breach by you, directly or indirectly, of the foregoing restrictive covenants
will cause the Company irreparable injury for which there is no adequate remedy
at law. Accordingly, you expressly agree that, in the event of any such breach
or any threatened breach hereunder by you, directly or indirectly, the Company
shall be entitled, in addition to any and all other remedies available
(including but not limited to the liquidated damages provided for in paragraph
5(c) above), to seek and obtain injunctive and/or other equitable relief to
require specific performance of or prevent, restrain and/or enjoin a breach
under the provisions of this paragraph 5.
(e) In the event of any dispute under or arising out of this
paragraph 5, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party or parties, in addition to any damages and/or
other relief that may be awarded, its reasonable costs and expenses (including
reasonable attorneys' fees) incurred in connection with prosecuting or defending
the subject dispute.
6. Non-Assignability.
In light of the unique personal services to be performed by
you hereunder, it is acknowledged and agreed that any purported or attempted
assignment or transfer by you of this agreement or any of your duties,
responsibilities or obligations hereunder shall be void.
7. Notices.
Any notices, requests, demands or other communications
required or permitted under this agreement shall be in writing and shall be
deemed to have been given when delivered personally or three (3) days after
being mailed by certified mail, return receipt requested, addressed to the party
being notified at the address of such party first set forth above, or at such
other address as such party may hereafter have designated by notice; provided,
however, that any notice of change of address shall not be effective until its
receipt by the party to be charged therewith. Copies of any notices or other
communications to the Company shall simultaneously be sent by first class mail
to AB Plastics Holding Corporation, c/o Michael A. Gibbs, 15 Father Peters Lane,
New Canaan, Connecticut 06840, and Private Equity Partners, L.L.C., 808
Lexington Avenue - 2nd Floor, New York, New York 10021, Attn: Geoffrey J. F.
Gorman.
8. General.
(a) Neither this agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith. Any waiver or
amendment shall only be applicable in the specific instance, and shall not
constitute or be construed as a waiver or amendment in any other or subsequent
instance. No failure or delay on the part of either party in respect of any
enforcement of obligations hereunder shall in any manner affect such party's
right to seek or effect enforcement at any other time or in respect of any other
required performance.
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(b) Neither this agreement nor any rights or obligations
hereunder may be assigned by either party without the express prior written
consent of the other party, except that the Company may, without the requirement
of your consent, assign this agreement and all of the Company's rights and
obligations hereunder in connection with and as part of any bona fide sale of
the business of the Company.
(c) The captions and paragraph headings used in this agreement
are for convenience of reference only, and shall not affect the construction or
interpretation of this agreement or any of the provisions hereof.
(d) This agreement, and all matters or disputes relating to
the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
California.
(e) This agreement shall be binding upon and shall inure to
the benefit of each of us and our respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
(f) This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be
brought for injunctive and/or any other equitable relief as contemplated by
paragraph 5(d) above, any dispute involving the interpretation or application of
this agreement shall be resolved by final and binding arbitration before one or
more arbitrators designated by the American Arbitration Association in Los
Angeles, California. The award of such arbitrator(s) may be enforced in any
court of competent jurisdiction. The prevailing party in any action or
proceeding hereunder shall be entitled to an award for its costs and reasonable
attorneys' fees in connection with such action or proceeding, and the
arbitrator(s) in any arbitration hereunder shall be empowered and directed to
make such an award in his, her or their discretion.
(h) This agreement constitutes the sole and entire agreement
and understanding between us as to the subject matter hereof, and supersedes all
prior discussions, agreements and understandings of every kind and nature
between us as to such subject matter.
(i) This agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any right to rely on this agreement or to
claim or derive any benefit herefrom absent the express written consent of the
party to be charged with such reliance or benefit.
(j) If any provision of this agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall
8
<PAGE>
thereupon be deemed modified only to the extent necessary to render same valid,
or not applicable to given circumstances, or excised from this agreement, as the
situation may require; and this agreement shall be construed and enforced as if
such provision had been included herein as so modified in scope or application,
or had not been included herein, as the case may be.
If the foregoing accurately reflects our agreement and understanding
with respect to the subject matter hereof, kindly acknowledge same by
countersigning and returning a counterpart copy of this letter.
Very truly yours,
AB PLASTICS CORPORATION
By:/s/Michael A. Gibbs, CEO
------------------------------
(Title)
Acknowledged, Confirmed and
Agreed To:
/s/ G. Michael Frink
- ----------------------------
G. Michael Frink
9
<PAGE>
Schedule A
[Insert sales and performance criteria relating to continuation of employment.]
10
<PAGE>
Schedule B
[Insert budgets and objectives for bonus purposes.]
11
<PAGE>
Schedule C
[Insert customer base diversification goals for bonus purposes.]
12
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into this 27th day of
September, 1996, by and between AB PLASTICS CORPORATION, a California
corporation having offices at 15730 South Figueroa Street, Gardena, California
90247 (the "Company), and STEPHEN ADAMS, an individual residing at 3735 Gaviota
Avenue, Long Beach, California 90907 (the "Employee");
W I T N E S S E T H :
WHEREAS, the Employee has heretofore and to the date hereof been a
substantial stockholder and principal officer of the Company, and as such has
substantial and valuable knowledge and experience relating to the business of
the Company; and
WHEREAS, on the date hereof, pursuant to that certain Stock Purchase
Agreement dated as of July 11, 1996 by and among AB Plastics Holding Corporation
(the "Buyer"), the Employee and the other parties thereto (the "Purchase
Agreement"), the Buyer is acquiring all of the issued and outstanding capital
stock of the Company and the business of the Company as a going concern; and
WHEREAS, to promote the ongoing business of the Company (particularly
relating to the continued operation of the Company under the ownership of the
Buyer), the Company desires to assure itself of the ongoing right to the
Employee's services from and after the date hereof, on the terms and conditions
of this Agreement; and
WHEREAS, the Employee is willing and able to render his services to the
Company from and after the date hereof, on the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Nature of Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of Vice President-Technology of the Company, with primary responsibility
for the day-to-day supervision of the technical aspects of the Company's
business. The Employee shall (i) devote his full business time, attention,
knowledge and skills, faithfully, diligently and to the best of his ability, to
the active performance of his duties and responsibilities hereunder, (ii)
<PAGE>
observe and carry out such reasonable rules, regulations, policies, directions
and restrictions as may be established from time to time by the Board of
Directors of the Company (the "Board"), including but not limited to the
standard policies and procedures of the Company as in effect from time to time,
and (iii) do such traveling as may reasonably be required in connection with the
performance of his duties and responsibilities; provided, however, that the
Employee shall not, without his prior written consent, be assigned to duties
which would reasonably require his to relocate her permanent residence from that
first set forth above. The Employee shall not, without the express prior written
approval of the Board in each instance, directly or indirectly accept employment
or compensation from, or perform services of any nature for, any person, firm,
corporation or business enterprise other than the Company.
(b) For so long as the Employee is in the full-time employ of the
Company hereunder, the Employee shall have the right, at his discretion, to
serve on the Board, provided that the Employee shall not be entitled to any
additional compensation by reason of any such service.
(c) The Employee shall report directly to an Executive Committee of
the Board comprised of Michael A. Gibbs and Geoffrey J. F. Gorman, provided that
if either of Messrs. Gibbs or Gorman is not serving on the Board at the time in
question, then his replacement shall be as determined by a majority of the
members of the Board.
2. Term of Agreement.
(a) Subject to prior termination in accordance with paragraph 2(b)
below, the term of this Agreement shall commence on the date hereof and shall
continue through June 30, 1999.
(b) This Agreement may be terminated:
(i) upon mutual written agreement of the Company and the
Employee;
(ii) at the option of the Employee, upon fourteen (14) days'
prior written notice to the Company, in the event that the Company shall have
failed to make any payment to the Employee required to be made under the terms
of this Agreement within ten (10) days after written notice of non-payment is
given to the Company, or shall fail to perform any other material covenant or
agreement to be performed by it hereunder or shall take any action prohibited by
this Agreement and shall fail to cure or remedy same within thirty (30) days
after written notice thereof to the Company;
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<PAGE>
(iii) at the option of the Company, upon written notice to the
Employee, "for cause" (as such term is hereinafter defined);
(iv) at the option of the Company in the event of the "permanent
disability" (as such term is hereinafter defined) of the Employee; or
(v) upon the death of the Employee.
(c) As used herein, the term "for cause" shall mean and be limited
to: (i) any material breach of this Agreement by the Employee which in any case
is not fully corrected within thirty (30) days after written notice of same from
the Board to the Employee; (ii) gross neglect by the Employee of his duties and
responsibilities hereunder; (iii) any fraud, criminal misconduct, breach of
fiduciary duty, dishonesty, or gross and willful misconduct by the Employee in
connection with the performance of his duties and responsibilities hereunder;
(iv) the Employee being under the influence of alcohol or drugs during business
hours, or being habitually drunk or addicted to drugs; (v) the commission by the
Employee of any crime of moral turpitude; (vi) material breach by the Employee
of any of his obligations under that certain Non-Competition and Non-Disclosure
Agreement of even date herewith by and among the Buyer, the Company, the
Employee and Robin Adams Tompkins (the "Non-Competition Agreement"), which
breach is not fully cured within thirty (30) days after written notice of same
from the Board to the Employee; or (vii) habitual breach by the Employee of any
of the material provisions of this Agreement or the Non-Competition Agreement
(regardless of any prior cure thereof).
(d) As used herein, the term "permanent disability" shall mean, and
be limited to, any physical or mental illness, disability or impairment that has
prevented and/or will prevent the Employee from continuing the performance of
his normal duties and responsibilities hereunder for a period in excess of six
(6) consecutive months. For purposes of determining whether a "permanent
disability" has occurred under this Agreement, the written determination thereof
by two (2) qualified practicing physicians selected and paid for by the Company
(and reasonably acceptable to the Employee) shall be conclusive.
(e) Upon any termination of this Agreement as hereinabove provided,
the Employee (or his estate or legal representatives, as the case may be) shall
be entitled to receive, on the effective date of termination, any and all unpaid
Base Salary (as hereinafter defined) appropriately prorated to and as of the
effective date of termination (based on the number of days elapsed prior to the
date of termination), and any other amounts then due and payable to the Employee
hereunder. Such rights and obligations are in addition and without prejudice to
any other rights and remedies which the parties
3
<PAGE>
may have at the time of termination, subject to any applicable requirements for
each party to mitigate damages in any instance.
3. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be rendered
hereunder, the Company shall pay to the Employee compensation at the rate of One
Hundred Thousand ($100,000) Dollars per annum (the "Base Salary"). Such Base
Salary shall be payable in periodic installments in accordance with the standard
payroll practices of the Company in effect from time to time, and shall be
subject to payroll deductions and other withholdings as and to the extent
required by law from time to time.
(b) Fringe Benefits. The Company shall also make available to the
Employee, throughout the period of his employment hereunder, such further
benefits and perquisites as are generally provided by the Company to its
management employees, including but not limited to eligibility for participation
in any group life, health, dental or accident insurance, pension plan,
profit-sharing plan, or other such benefit plan or policy which may presently be
in effect or which may hereafter be adopted by the Company for the benefit of
its employees generally; provided, however, that nothing herein contained shall
be deemed to require the Company to adopt or maintain any particular plan or
policy.
(c) Expenses. The Company shall also reimburse the Employee, upon
presentment by the Employee to the Company of appropriate receipts and vouchers
therefor, for any reasonable out-of-pocket business expenses incurred by the
Employee in connection with the performance of his duties and responsibilities
hereunder; provided, however, that no reimbursement shall be required to be made
for any expense which is not properly deductible (in whole or in part) by the
Company for income tax purposes (unless such expense was specifically directed
or authorized by the Chairman or the President of the Company), or for any
expense item which has not previously been approved in accordance with the
Company's standard policies and procedures in effect from time to time.
4. Vacation.
The Employee shall be entitled to take, from time to time, up to
four (4) weeks of paid vacation per year. Such vacations shall be taken at such
times as shall be mutually convenient to the Company and the Employee, and so as
not to interfere unduly with the normal and orderly operation of the Company's
business.
4
<PAGE>
5. Non-Assignability.
In light of the unique personal services to be performed by the
Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
6. Notices.
Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or when mailed by certified mail, return
receipt requested, addressed to the party being notified at the address of such
party first set forth above (with copies in accordance with Section 16.2 of the
Purchase Agreement), or at such other address as such party may hereafter have
designated by notice; provided, however, that any notice of change of address
shall not be effective until its receipt by the party to be charged therewith.
7. General.
(a) Neither this Agreement nor any of the terms or conditions hereof
may be waived, amended or modified except by means of a written instrument duly
executed by the party to be charged therewith. Any waiver or amendment shall
only be applicable in the specific instance, and shall not constitute or be
construed as a waiver or amendment in any other or subsequent instance. No
failure or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party's right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the express prior written consent of the
other party.
(c) The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of California.
5
<PAGE>
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
(g) Any dispute involving the interpretation or application of this
Agreement shall be resolved by final and binding arbitration in accordance with
Section 12.3(b) of the Purchase Agreement.
(h) Except as otherwise set forth or referred to in this Agreement,
this Agreement constitutes the sole and entire agreement and understanding
between the parties hereto as to the subject matter hereof, and supersedes all
prior discussions, agreements and understandings of every kind and nature
between them as to such subject matter.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
AB PLASTICS CORPORATION
By:/s/Michael A. Gibbs
---------------------
/s/Stephen Adams
------------------------
Stephen Adams
6
<PAGE>
The undersigned, AB Plastics Holding Corporation (the "Parent"), being
the parent corporation of AB Plastics Corporation (the "Company"), hereby agrees
that it will (and will cause any transferee of such voting securities to agree
to) vote all voting securities of the Company which the Parent owns from time to
time in favor of the election of Stephen Adams to the Board of Directors of the
Company as contemplated by paragraph 1(b) of the foregoing Agreement.
AB PLASTICS HOLDING CORPORATION
By:/s/Michael A. Gibbs
---------------------
7
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 27th
day of September, 1996, by and between AB PLASTICS CORPORATION, a California
corporation having offices at 15730 South Figueroa Street, Gardena, California
90247 (the "Company"), and JAWED GHIAS, an individual residing at
____________________ _____________________ (the "Employee");
W I T N E S S E T H :
WHEREAS, the Employee has extensive experience relating to the
technical and production elements (including assembly line operations) of
injection molding of plastics products; and
WHEREAS, the Company is engaged in the manufacture, distribution and
sale of custom injection-molded plastic products and related goods and services;
and
WHEREAS, to promote the ongoing business of the Company, the Company
desires to assure itself of the right to the Employee's services on the terms
and conditions of this Agreement; and
WHEREAS, the Employee is willing and able to render his services to the
Company on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Nature of Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of Vice President-Manufacturing of the Company. In such capacity, the
Employee shall have and exercise responsibility for supervising and overseeing
all manufacturing operations of the Company, together with such other similar or
related duties as may be assigned to the Employee from time to time by the Board
of Directors of the Company (the "Board").
(b) Throughout the period of his employment hereunder, the
Employee shall: (i) devote his full business time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, to the active
performance of his duties and responsibilities hereunder on behalf of the
Company; (ii) observe
<PAGE>
and carry out such reasonable rules, regulations, policies, directions and
restrictions as may be established from time to time by the Board, including but
not limited to the standard policies and procedures of the Company as in effect
from time to time; and (iii) do such traveling as may reasonably be required in
connection with the performance of such duties and responsibilities; provided,
however, that the Employee shall not be assigned to regular duties that would
reasonably require him to relocate his permanent residence from that first set
forth above.
2. Term of Employment.
(a) Subject to prior termination in accordance with paragraph
2(b) below, the term of this Agreement and the Employee's employment hereunder
shall be for a term of approximately three (3) years commencing on the date
hereof and continuing through September 30, 1999, and shall thereafter
automatically renew for additional terms of one (1) year each unless either
party gives written notice of termination to the other party not less than
ninety (90) days prior to the end of any term (in which event this Agreement
shall terminate effective as of the close of such term).
(b) This Agreement may be terminated:
(i) upon mutual written agreement of the Company and
the Employee;
(ii) at the option of the Employee, upon fourteen
(14) days' prior written notice to the Company, in the event that the Company
shall (A) fail to make any payment to the Employee required to be made under the
terms of this Agreement within thirty (30) days after payment is due, or (B)
fail to perform any other material covenant or agreement to be performed by it
hereunder or take any action prohibited by this Agreement, and fail to cure or
remedy same within thirty (30) days after written notice thereof to the Company;
(iii) at the option of the Company, upon written
notice to the Employee, "for cause" (as hereinafter defined);
(iv) at the option of the Company in the event of
the "permanent disability" (as hereinafter defined) of the
Employee; or
(v) upon the death of the Employee.
(c) As used herein, the term "for cause" shall mean and be
limited to: (i) any willful and material breach of this Agreement (including,
without limitation, the covenants contained in paragraph 5 below) by the
Employee which in any case is not fully corrected within thirty (30) days after
written notice of same from the Company to the Employee; (ii) gross neglect by
the
2
<PAGE>
Employee of his duties and responsibilities hereunder; (iii) any fraud, criminal
misconduct, breach of fiduciary duty, dishonesty, or gross and willful
misconduct by the Employee in connection with the performance of his duties and
responsibilities hereunder; (iv) the Employee being legally intoxicated during
business hours or while on call, or being habitually drunk or addicted to drugs
(provided that this shall not restrict the Employee from taking
physician-prescribed medication in accordance with the applicable prescription);
(v) the commission by the Employee of any felony or crime of moral turpitude, or
any other action by the Employee which may materially impair or damage the
reputation of the Company; or (vi) habitual breach by the Employee of any of the
material provisions of this Agreement (regardless of any prior cure thereof).
(d) As used herein, the term "permanent disability" shall
mean, and be limited to, any physical or mental illness, disability or
impairment that prevents the Employee from continuing the performance of his
normal duties and responsibilities hereunder for a period in excess of three (3)
consecutive months. For purposes of determining whether a "permanent disability"
has occurred under this Agreement, the written determination thereof by two (2)
qualified practicing physicians selected and paid for by the Company (and
reasonably acceptable to the Employee) shall be conclusive.
(e) Upon any termination of this Agreement as hereinabove
provided, the Employee (or his estate or legal representatives, as the case may
be) shall be entitled to receive any and all unpaid Base Salary and Bonus
appropriately prorated to and as of the effective date of termination (based on
the number of days elapsed prior to the date of termination), and any other
amounts then due and payable to the Employee hereunder; provided, however, that
if the Employee's employment hereunder is terminated "for cause", then the
Employee shall not be entitled to receive any Bonus in respect of the fiscal
year of the Company in which such termination occurs. All such payments shall be
made on the next applicable payment date therefor (as provided in paragraph 3
below) following the effective date of termination. Such payments shall
constitute all amounts to which the Employee shall be entitled upon termination
of this Agreement.
3. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be
rendered hereunder, the Company shall pay to the Employee a base salary at the
rate of One Hundred Forty Thousand ($140,000) Dollars per annum (the "Base
Salary"), which shall be payable in periodic installments in accordance with the
standard payroll practices of the Company in effect from time to time.
3
<PAGE>
(b) Bonus. In addition to the Base Salary, the Employee shall
be eligible to participate in a bonus pool for the executive employees of the
Company, the terms and conditions of which shall hereafter be established by the
Board. Subject to the Company achieving certain levels of performance criteria
to be established by the Board, the Employee may receive, within such bonus
pool, a bonus (the "Bonus") in respect of each fiscal year of the Company in an
amount up to (but not exceeding) one-half of the Employee's Base Salary in the
subject fiscal year. Any such Bonus, to the extent earned, shall be payable
within a reasonable period of time after the close of each fiscal year of the
Company, and after calculation of whether and to what extent the applicable
performance criteria have been achieved in the subject fiscal year.
(c) Fringe Benefits. The Company shall also make available to
the Employee, throughout the period of his employment hereunder, such benefits
and perquisites as are generally provided by the Company to its executive
employees, including but not limited to eligibility for participation in any
group life, health, dental, vision, disability or accident insurance, pension
plan, profit-sharing plan, retirement savings plan, 401(k) plan, or other such
benefit plan or policy which may presently be in effect or which may hereafter
be adopted by the Company for the benefit of its employees generally; provided,
however, that nothing herein contained shall be deemed to require the Company to
adopt or maintain any particular plan or policy. Participation in such benefit
plans may be subject to standard waiting periods following the commencement of
full-time employment.
(d) Expenses. Throughout the period of the Employee's
employment hereunder, the Company shall also reimburse the Employee, upon
presentment by the Employee to the Company of appropriate receipts and vouchers
therefor, for any reasonable out-of-pocket business expenses incurred by the
Employee in connection with the performance of his duties and responsibilities
hereunder; provided, however, that no reimbursement shall be required to be made
for any expense which is not properly deductible (in whole or in part) by the
Company for income tax purposes, or for any expense item which has not
previously been approved if and to the extent required in accordance with the
Company's standard policies and procedures in effect from time to time.
4. Vacation, etc.
(a) The Employee shall be entitled to take, from time to time,
up to three (3) weeks of paid vacation per year, to be taken at such times as
shall be mutually convenient to the Employee and the Company, and so as not to
interfere unduly with the conduct of the business of the Company.
(b) The Employee shall further be entitled to paid
holidays, personal days and sick days in accordance with the
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Company's standard policies and procedures in effect from time to time.
5. Restrictive Covenants.
(a) The Employee hereby acknowledges and agrees that (i) the
business contacts, customers, suppliers, technology, manufacturing methods and
processes, know-how, trade secrets, marketing techniques, promotional methods
and other aspects of the business of the Company have been and are of value to
the Company, and have provided and will hereafter provide the Company with
substantial competitive advantage in the operation of its business, and (ii) by
reason of his employment with the Company, he will have detailed knowledge and
will possess confidential information concerning the business and operations of
the Company. The Employee hereby further acknowledges that his business skills
are not uniquely suited to businesses of the type conducted by the Company, and
that, if required, he could readily adapt and utilize such skills in one or more
other types of businesses.
(b) The Employee shall not, directly or indirectly, for
himself or through or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise
disclose or cause to be divulged, transmitted or otherwise disclosed, any
business contacts, client or customer lists, technology, know-how, trade
secrets, marketing techniques, contracts or other confidential or proprietary
information of the Company of whatever nature, whether now existing or hereafter
created or developed (provided, however, that for purposes hereof, information
shall not be considered to be confidential or proprietary if (A) it is a matter
of common knowledge or public record, (B) it is generally known in the industry,
or (C) the Employee can demonstrate that such information was already known to
the recipient thereof other than by reason of any breach of any obligation under
this Agreement or any other confidentiality or non-disclosure agreement); and/or
(ii) at any time during the period from the date
hereof through and including the date of the termination of the Employee's
employment with the Company, and for an additional period of one (1) year
thereafter (collectively, the "Restrictive Period"), (A) invest, carry on,
engage or become involved, either as an employee, agent, advisor, officer,
director, stockholder (excluding ownership of not more than 3% of the
outstanding shares of a publicly held corporation if such ownership does not
involve managerial or operational responsibility), manager, partner, joint
venturer, participant or consultant, in any business enterprise (other than the
Company and/or its affiliates, successors or assigns) which derives any material
revenues from the manufacture or sale in the United States of any custom
injection-molded plastic products or other goods or services offered or sold by
the Company
5
<PAGE>
or its affiliates, successors or assigns from time to time during the
Restrictive Period, or which engages in any other business similar to or
competitive with the business of the Company or its subsidiaries, affiliates,
successors or assigns (as such business is constituted at the time that the
Employee proposes to become involved in such other business enterprise), and/or
(B) induce or attempt to induce any employee of the Company to leave the employ
of the Company, or in any way interfere with the Company's relationship with any
of its employees.
(c) The Employee and the Company hereby acknowledge and agree
that, in the event of any breach by the Employee, directly or indirectly, of the
foregoing restrictive covenants, it will be difficult to ascertain the precise
amount of damages that may be suffered by the Company by reason of such breach;
and accordingly, the parties hereby agree that, as liquidated damages (and not
as a penalty) in respect of any such breach, the breaching party or parties
shall be required to pay to the Company, on demand from time to time, cash
amounts equal to any and all gross revenues derived by the breaching party or
parties, directly or indirectly, from any and all violative acts or activities
(such gross revenues being limited, in the case of the Employee, to any and all
salary, bonuses, other compensation, dividends and other payments actually
received by him in connection with the violative acts or activities). The
parties hereby agree that the foregoing constitutes a fair and reasonable
estimate of the actual damages that might be suffered by reason of any breach of
this paragraph 5 by the Employee, and the parties hereby agree to such
liquidated damages in lieu of any and all other measures of damages that might
be asserted in respect of any subject breach.
(d) The Employee and the Company hereby further acknowledge
and agree that any breach by the Employee, directly or indirectly, of the
foregoing restrictive covenants will cause the Company irreparable injury for
which there is no adequate remedy at law. Accordingly, the Employee expressly
agrees that, in the event of any such breach or any threatened breach hereunder
by the Employee, directly or indirectly, the Company shall be entitled, in
addition to any and all other remedies available (including but not limited to
the liquidated damages provided for in paragraph 5(c) above), to seek and obtain
injunctive and/or other equitable relief to require specific performance of or
prevent, restrain and/or enjoin a breach under the provisions of this paragraph
5.
(e) In the event of any dispute under or arising out of this
paragraph 5, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party or parties, in addition to any damages and/or
other relief that may be awarded, its reasonable costs and expenses (including
reasonable attorneys' fees) incurred in connection with prosecuting or defending
the subject dispute.
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6. Non-Assignability.
In light of the unique personal services to be performed by
the Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
7. Notices.
Any notices, requests, demands or other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or three (3) days after
being mailed by certified mail, return receipt requested, addressed to the party
being notified at the address of such party first set forth above, or at such
other address as such party may hereafter have designated by notice; provided,
however, that any notice of change of address shall not be effective until its
receipt by the party to be charged therewith. Copies of any notices or other
communications to the Company shall simultaneously be sent by first class mail
to AB Plastics Holding Corporation, c/o Michael A. Gibbs, 15 Father Peters Lane,
New Canaan, Connecticut 06840, and Private Equity Partners, L.L.C., 808
Lexington Avenue - 2nd Floor, New York, New York 10021, Attn: Geoffrey J. F.
Gorman.
8. General.
(a) Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith. Any waiver or
amendment shall only be applicable in the specific instance, and shall not
constitute or be construed as a waiver or amendment in any other or subsequent
instance. No failure or delay on the part of either party in respect of any
enforcement of obligations hereunder shall in any manner affect such party's
right to seek or effect enforcement at any other time or in respect of any other
required performance.
(b) Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the express prior written
consent of the other party.
(c) The captions and paragraph headings used in this Agreement
are for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to
the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
California.
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(e) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
(f) This Agreement may be executed in counterparts, each of
which shall be deemed to be an original hereof, but all of which together shall
constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be
brought for injunctive and/or any other equitable relief as contemplated by
paragraph 5(d) above, any dispute involving the interpretation or application of
this Agreement shall be resolved by final and binding arbitration before one or
more arbitrators designated by the American Arbitration Association in Los
Angeles, California. The award of such arbitrator(s) may be enforced in any
court of competent jurisdiction. The prevailing party in any action or
proceeding hereunder shall be entitled to an award for its costs and reasonable
attorneys' fees in connection with such action or proceeding, and the
arbitrator(s) in any arbitration hereunder shall be empowered and directed to
make such an award in his, her or their discretion.
(h) This Agreement constitutes the sole and entire agreement
and understanding between the parties hereto as to the subject matter hereof,
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them as to such subject matter.
(i) This Agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any right to rely on this Agreement or to
claim or derive any benefit herefrom absent the express written consent of the
party to be charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
AB PLASTICS CORPORATION
By: /s/ Michael A. Gibbs CEO
-----------------------------------
(Title)
/s/ Jawed Ghias
-----------------------------------
Jawed Ghias
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 27th
day of September, 1996, by and between AB PLASTICS CORPORATION, a California
corporation having offices at 15730 South Figueroa Street, Gardena, California
90247 (the "Company"), and PAUL IACONO, an individual residing at 5833 Yearling
Street, Lakewood, California 90713 (the "Employee");
W I T N E S S E T H :
WHEREAS, the Employee has extensive experience relating to the
financial management (both day-to-day management and long-term planning) of
manufacturing businesses; and
WHEREAS, the Company is engaged in the manufacture, distribution and
sale of custom injection-molded plastic products and related goods and services;
and
WHEREAS, to promote the ongoing business of the Company, the Company
desires to assure itself of the right to the Employee's services on the terms
and conditions of this Agreement; and
WHEREAS, the Employee is willing and able to render his
services to the Company on the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Nature of Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of Chief Financial Officer of the Company. In such capacity, the Employee
shall have and exercise responsibility for all aspects of the financial affairs
of the Company (including, without limitation, day-to-day supervision of
financial and accounting matters, maintaining relations with the Company's
lenders and investors, and participating in long-range financial planning),
together with such other similar or related duties as may be assigned to the
Employee from time to time by the Board of Directors of the Company (the
"Board"). Notwithstanding the assignment of certain duties by the Board, the
Employee shall, on a day-to-day basis, report and be accountable directly to the
Chairman and the Chief Operating Officer of the Company.
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(b) Throughout the period of his employment hereunder, the
Employee shall: (i) devote his full business time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, to the active
performance of his duties and responsibilities hereunder on behalf of the
Company; (ii) observe and carry out such reasonable rules, regulations,
policies, directions and restrictions as may be established from time to time by
the Board, including but not limited to the standard policies and procedures of
the Company as in effect from time to time; and (iii) do such traveling as may
reasonably be required in connection with the performance of such duties and
responsibilities; provided, however, that the Employee shall not be assigned to
regular duties that would reasonably require him to relocate his permanent
residence from that first set forth above.
(c) Anything elsewhere contained in this Agreement to the
contrary notwithstanding, the Company acknowledges and confirms that the
Employee may complete his current courses at Pepperdine University, in
connection with which the Employee will be required, through December 14, 1996,
to be out of the Company's offices on each Friday commencing at 12:00 noon, and
to be in classes on Saturdays; and same shall not constitute a breach of this
Agreement.
2. Term of Employment.
(a) Subject to prior termination in accordance with paragraph
2(b) below, the term of this Agreement and the Employee's employment hereunder
shall be for a term of two (2) years commencing not more than three (3) weeks
after such date as the Company shall notify the Employee that (i) AB Plastics
Holding Corporation (the "Parent") has consummated its pending acquisition of
the Company, and (ii) the Company is satisfied with its reference checks on the
Employee (which the Company will undertake promptly following the Parent's
receipt of definitive financing commitments in respect of its pending
acquisition of the Company); and, following such two (2) year term, this
Agreement shall thereafter automatically renew for additional terms of one (1)
year each unless either party gives written notice of termination to the other
party not less than ninety (90) days prior to the end of any term (in which
event this Agreement shall terminate effective as of the close of such term).
Anything elsewhere contained in this Agreement to the contrary notwithstanding,
in the event that the Parent's proposed acquisition of the Company shall be
terminated, or such acquisition shall not be consummated on or prior to October
31, 1996, then the Company shall give prompt written notice thereof to the
Employee, and this Agreement (together with the stock option agreement described
in paragraph 3(c) below) shall be null and void ab initio.
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<PAGE>
(b) This Agreement may be terminated:
(i) upon mutual written agreement of the Company and
the Employee;
(ii) at the option of the Employee, upon fourteen
(14) days' prior written notice to the Company, in the event that the Company
shall (A) fail to make any payment to the Employee required to be made under the
terms of this Agreement within thirty (30) days after payment is due, or (B)
fail to perform any other material covenant or agreement to be performed by it
hereunder or take any action prohibited by this Agreement, and fail to cure or
remedy same within thirty (30) days after written notice thereof to the Company;
(iii) at the option of the Company, upon written
notice to the Employee, "for cause" (as hereinafter defined);
(iv) at the option of the Company in the event of
the "permanent disability" (as hereinafter defined) of the
Employee; or
(v) upon the death of the Employee.
(c) As used herein, the term "for cause" shall mean and be
limited to: (i) any willful and material breach of this Agreement (including,
without limitation, the covenants contained in paragraph 5 below) by the
Employee which in any case is not fully corrected within thirty (30) days after
written notice of same from the Company to the Employee; (ii) gross neglect by
the Employee of his duties and responsibilities hereunder; (iii) any fraud,
criminal misconduct, breach of fiduciary duty, dishonesty, or gross and willful
misconduct by the Employee in connection with the performance of his duties and
responsibilities hereunder; (iv) the Employee being legally intoxicated during
business hours or while on call, or being habitually drunk or addicted to drugs
(provided that this shall not restrict the Employee from taking
physician-prescribed medication in accordance with the applicable prescription);
(v) the commission by the Employee of any felony or crime of moral turpitude, or
any other action by the Employee which may materially impair or damage the
reputation of the Company; or (vi) habitual breach by the Employee of any of the
material provisions of this Agreement (regardless of any prior cure thereof).
(d) As used herein, the term "permanent disability" shall
mean, and be limited to, any physical or mental illness, disability or
impairment that prevents the Employee from continuing the performance of his
normal duties and responsibilities hereunder for a period in excess of three (3)
consecutive months. For
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<PAGE>
purposes of determining whether a "permanent disability" has occurred under this
Agreement, the written determination thereof by two (2) qualified practicing
physicians selected and paid for by the Company (and reasonably acceptable to
the Employee) shall be conclusive.
(e) Upon any termination of this Agreement as hereinabove
provided, the Employee (or his estate or legal representatives, as the case may
be) shall be entitled to receive any and all unpaid Base Salary appropriately
prorated to and as of the effective date of termination (based on the number of
days elapsed prior to the date of termination), and any other amounts then due
and payable to the Employee hereunder. All such payments shall be made on the
next applicable payment date therefor (as provided in paragraph 3 below)
following the effective date of termination. Such payments shall constitute all
amounts to which the Employee shall be entitled upon termination of this
Agreement.
3. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be
rendered hereunder, the Company shall pay to the Employee a base salary at the
rate of Eighty-Five Thousand ($85,000) Dollars per annum during the first year
of the term of this Agreement, and at the rate of One Hundred Thousand
($100,000) Dollars per annum thereafter (in each case, the "Base Salary"), which
shall be payable in periodic installments in accordance with the standard
payroll practices of the Company in effect from time to time.
(b) Bonuses. On the first anniversary of the commencement of
the term of this Agreement, the Employee shall be paid a bonus in the amount of
$42,500 (representing replacement of a tuition benefit forfeited by the Employee
from his previous employer by reason of his departure from such previous
employer to accept his position with the Company hereunder), payment of which
shall be conditioned only upon the Employee's remaining employed with the
Company hereunder on such date. In respect of the second year of the term of
this Agreement, and provided that the Employee remains employed with the Company
hereunder throughout such two (2) year period, the Employee shall be eligible
for a bonus of up to $50,000, payment of which shall be subject to the Company's
achievement (in whole or in part) of its business plan, with the amount of any
such bonus to be determined by the Board in its discretion.
(c) Stock Options. Simultaneous with the execution and
delivery of this Agreement, the Parent is issuing to the Employee a stock option
whereby the Employee may, subject to the terms and conditions of the stock
option agreement, purchase shares of common stock of the Parent equal to 3% of
the fully diluted common stock of the Parent as of the time of the consummation
of the Parent's acquisition of the Company.
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<PAGE>
(d) Fringe Benefits. The Company shall also make available to
the Employee, throughout the period of his employment hereunder, such benefits
and perquisites as are generally provided by the Company to its executive
employees, including but not limited to eligibility for participation in any
group life, health, dental, vision, disability or accident insurance, pension
plan, profit-sharing plan, retirement savings plan, 401(k) plan, or other such
benefit plan or policy which may presently be in effect or which may hereafter
be adopted by the Company for the benefit of its employees generally; provided,
however, that nothing herein contained shall be deemed to require the Company to
adopt or maintain any particular plan or policy. Participation in such benefit
plans may be subject to standard waiting periods following the commencement of
full-time employment.
(e) Expenses. Throughout the period of the Employee's
employment hereunder, the Company shall also reimburse the Employee, upon
presentment by the Employee to the Company of appropriate receipts and vouchers
therefor, for any reasonable out-of-pocket business expenses incurred by the
Employee in connection with the performance of his duties and responsibilities
hereunder; provided, however, that no reimbursement shall be required to be made
for any expense which is not properly deductible (in whole or in part) by the
Company for income tax purposes, or for any expense item which has not
previously been approved if and to the extent required in accordance with the
Company's standard policies and procedures in effect from time to time.
4. Vacation, etc.
(a) Commencing ninety (90) days after the Employee begins
full-time employment with the Company, the Employee shall be entitled to take,
from time to time, up to three(3) weeks of paid vacation per year, to be taken
at such times as shall be mutually convenient to the Employee and the Company,
and so as not to interfere unduly with the conduct of the business of the
Company.
(b) Commencing ninety (90) days after the Employee begins
full-time employment with the Company, the Employee shall further be entitled to
paid holidays, personal days and sick days in accordance with the Company's
standard policies and procedures in effect from time to time.
5. Restrictive Covenants.
(a) The Employee hereby acknowledges and agrees that (i) the
business contacts, customers, suppliers, technology, know-how, trade secrets,
marketing techniques, promotional methods and other aspects of the business of
the Company have been and are of value to the Company, and have provided and
will hereafter provide the Company with substantial competitive advantage in the
operation of
5
<PAGE>
its business, and (ii) by reason of his employment with the Company, he will
have detailed knowledge and will possess confidential information concerning the
business and operations of the Company. The Employee hereby further acknowledges
that his business skills are not uniquely suited to businesses of the type
conducted by the Company, and that, if required, he could readily adapt and
utilize such skills in one or more other types of businesses.
(b) The Employee shall not, directly or indirectly, for
himself or through or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise
disclose or cause to be divulged, transmitted or otherwise disclosed, any
business contacts, client or customer lists, technology, know-how, trade
secrets, marketing techniques, contracts or other confidential or proprietary
information of the Company of whatever nature, whether now existing or hereafter
created or developed (provided, however, that for purposes hereof, information
shall not be considered to be confidential or proprietary if (A) it is a matter
of common knowledge or public record, (B) it is generally known in the industry,
or (C) the Employee can demonstrate that such information was already known to
the recipient thereof other than by reason of any breach of any obligation under
this Agreement or any other confidentiality or non-disclosure agreement); and/or
(ii) at any time during the period from the date
hereof through and including the date of the termination of the Employee's
employment with the Company, and for an additional period of one (1) year
thereafter (collectively, the "Restrictive Period"), (A) invest, carry on,
engage or become involved, either as an employee, agent, advisor, officer,
director, stockholder (excluding ownership of not more than 3% of the
outstanding shares of a publicly held corporation if such ownership does not
involve managerial or operational responsibility), manager, partner, joint
venturer, participant or consultant, in any business enterprise (other than the
Parent, the Company and/or their respective affiliates, successors or assigns)
which derives any material revenues from the manufacture or sale in the United
States of any custom injection-molded plastic products or other goods or
services offered or sold by the Company or its affiliates, successors or assigns
from time to time during the Restrictive Period, or which engages in any other
business similar to or competitive with the business of the Company or its
subsidiaries, affiliates, successors or assigns (as such business is constituted
at the time that the Employee proposes to become involved in such other business
enterprise), and/or (B) induce or attempt to induce any employee of the Company
to leave the employ of the Company, or in any way interfere with the Company's
relationship with any of its employees; provided, however, that the restrictions
pursuant to clause (A) of this paragraph 5(b)(ii) shall not be applicable in
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<PAGE>
the event that, and from and after such time as, (x) the Company terminates the
Employee's employment for any reason not specified in paragraphs 2(b)(iii),
2(b)(iv) or 2(b)(v) above, or (y) the Company affirmatively elects not to renew
this Agreement in accordance with paragraph 2(a) above.
(c) The Employee and the Company hereby acknowledge and agree
that, in the event of any breach by the Employee, directly or indirectly, of the
foregoing restrictive covenants, it will be difficult to ascertain the precise
amount of damages that may be suffered by the Company by reason of such breach;
and accordingly, the parties hereby agree that, as liquidated damages (and not
as a penalty) in respect of any such breach, the breaching party or parties
shall be required to pay to the Company, on demand from time to time, cash
amounts equal to any and all gross revenues derived by the breaching party or
parties, directly or indirectly, from any and all violative acts or activities
(such gross revenues being limited, in the case of the Employee, to any and all
salary, bonuses, other compensation, dividends and other payments actually
received by him in connection with the violative acts or activities). The
parties hereby agree that the foregoing constitutes a fair and reasonable
estimate of the actual damages that might be suffered by reason of any breach of
this paragraph 5 by the Employee, and the parties hereby agree to such
liquidated damages in lieu of any and all other measures of damages that might
be asserted in respect of any subject breach.
(d) The Employee and the Company hereby further acknowledge
and agree that any breach by the Employee, directly or indirectly, of the
foregoing restrictive covenants will cause the Company irreparable injury for
which there is no adequate remedy at law. Accordingly, the Employee expressly
agrees that, in the event of any such breach or any threatened breach hereunder
by the Employee, directly or indirectly, the Company shall be entitled, in
addition to any and all other remedies available (including but not limited to
the liquidated damages provided for in paragraph 5(c) above), to seek and obtain
injunctive and/or other equitable relief to require specific performance of or
prevent, restrain and/or enjoin a breach under the provisions of this
paragraph 5.
(e) In the event of any dispute under or arising out of this
paragraph 5, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party or parties, in addition to any damages and/or
other relief that may be awarded, its reasonable costs and expenses (including
reasonable attorneys' fees) incurred in connection with prosecuting or defending
the subject dispute.
6. Non-Assignability.
In light of the unique personal services to be performed
by the Employee hereunder, it is acknowledged and agreed that any
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<PAGE>
purported or attempted assignment or transfer by the Employee of this Agreement
or any of his duties, responsibilities or obligations hereunder shall be void.
7. Notices.
Any notices, requests, demands or other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or three (3) days after
being mailed by certified mail, return receipt requested, addressed to the party
being notified at the address of such party first set forth above, or at such
other address as such party may hereafter have designated by notice; provided,
however, that any notice of change of address shall not be effective until its
receipt by the party to be charged therewith. Copies of any notices or other
communications to the Company shall simultaneously be sent by first class mail
to AB Plastics Holding Corporation, c/o Michael A. Gibbs, 15 Father Peters Lane,
New Canaan, Connecticut 06840, and Private Equity Partners, L.L.C., 808
Lexington Avenue - 2nd Floor, New York, New York 10021, Attn: Geoffrey J. F.
Gorman.
8. General.
(a) Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith. Any waiver or
amendment shall only be applicable in the specific instance, and shall not
constitute or be construed as a waiver or amendment in any other or subsequent
instance. No failure or delay on the part of either party in respect of any
enforcement of obligations hereunder shall in any manner affect such party's
right to seek or effect enforcement at any other time or in respect of any other
required performance.
(b) Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the express prior written
consent of the other party.
(c) The captions and paragraph headings used in this Agreement
are for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to
the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
California.
(e) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
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<PAGE>
(f) This Agreement may be executed in counterparts, each of
which shall be deemed to be an original hereof, but all of which together shall
constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be
brought for injunctive and/or any other equitable relief as contemplated by
paragraph 5(d) above, any dispute involving the interpretation or application of
this Agreement shall be resolved by final and binding arbitration before one or
more arbitrators designated by the American Arbitration Association in Los
Angeles, California. The award of such arbitrator(s) may be enforced in any
court of competent jurisdiction. The prevailing party in any action or
proceeding hereunder shall be entitled to an award for its costs and reasonable
attorneys' fees in connection with such action or proceeding, and the
arbitrator(s) in any arbitration hereunder shall be empowered and directed to
make such an award in his, her or their discretion.
(h) This Agreement constitutes the sole and entire agreement
and understanding between the parties hereto as to the subject matter hereof,
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them as to such subject matter.
(i) This Agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any right to rely on this Agreement or to
claim or derive any benefit herefrom absent the express written consent of the
party to be charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
AB PLASTICS CORPORATION
By: /s/Michael A. Gibbs CEO
------------------------------
(Title)
/s/Paul Iacono
------------------------------
Paul Iacono
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<PAGE>
COMMERCIAL LOAN AGREEMENT
This Commercial Loan Agreement dated as of September 27, 1996
("Agreement") is between THE SUMITOMO BANK OF CALIFORNIA ("Bank") and AB
PLASTICS CORPORATION, a California corporation ("Borrower").
1.CREDIT FACILITIES, AMOUNT AND TERMS.
Bank agrees to make available to Borrower the following line(s) of
credit and/or credit accommodations (collectively, the "Loans") on the following
terms, covenants and conditions:
1Line of Credit Amount.
(a)Accounts Receivable/Inventory Revolving Line of Credit. During the
Availability Period, Bank will, on a revolving basis, make advances to Borrower,
which may not at any time exceed, in the aggregate outstanding, the lesser of
TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (the "Commitment") or the
Borrowing Base. Borrower's obligation to repay advances under this revolving
line of credit (the "Revolving Line of Credit") is evidenced by a promissory
note, substantially in the form of Exhibit A attached hereto (the "Revolving
Line Note").
(i)"Borrowing Base" shall mean the sum of (A) eighty-five percent (85%) of the
net face amount of Borrower's Eligible Accounts, after deduction of such
reserves as Bank deems necessary and proper in its good faith judgment, plus (B)
fifty percent (50%) of Borrower's Eligible Inventory, after deduction of such
reserves as Bank deems necessary and proper in its good faith judgment, plus (C)
the Borrowing Base Supplemental Amount, but such advances combined shall not, at
any time, exceed the Commitment.
(ii)"Borrowing Base Supplemental Amount" shall mean, from the Closing Date to
October 30, 1996, an amount equal to $6,000,000, and thereafter, as of the last
day of each month (commencing with October 31, 1996), an amount equal to the
Borrowing Base Supplemental Amount in effect during such month minus $100,000.
(iii)"Accounts Receivable" shall mean open accounts arising in the ordinary
course of Borrower's business from services performed or goods sold by Borrower.
(iv)"Account Debtor" shall mean the obligor on any Accounts Receivable.
<PAGE>
(v)"Eligible Accounts" shall mean Accounts Receivable, excluding the following:
(A)Accounts Receivable which remain uncollected more than 90 days from the date
they are first invoiced.
(B)Accounts Receivable due from an Account Debtor which suspends business,
suffers a business failure or the termination of its existence, or makes an
assignment for the benefit of creditors, or as to which a dissolution,
insolvency or bankruptcy proceeding has been commenced, or as to whose property
a trustee, receiver or conservator has been appointed.
(C)Accounts Receivable due from an Account Debtor affiliated with Borrower, such
as a stockholder, owner, parent, subsidiary, officer, director, agent or
employee of Borrower.
(D)Accounts Receivable with respect to which payment is contingent or
conditional.
(E)Accounts Receivable due from an Account Debtor who is not a resident or
citizen of, located in, or subject to service of process in the United States of
America.
(F)Accounts Receivable to the extent there is asserted thereagainst a defense,
counterclaim, discount or setoff.
(G)Accounts Receivable due from an Account Debtor which is any national,
federal, state, county or municipal government, including, without limitation,
any instrumentality, division, agency, body or department thereof.
(H)Accounts Receivable commonly known as "bill and hold" or subject to any
repurchase or return agreement, or which relate to goods on consignment or on
approval or any similar arrangement.
(I)Accounts Receivable relating to an Account Debtor with respect to which
twenty-five percent (25%) or more of the total Accounts Receivable owing by such
Account Debtor are over 90 days delinquent.
(J)Accounts Receivable due from an Account Debtor (excluding Sony Corporation
and its affiliates) which, in the aggregate, exceed twenty-five percent (25%) of
the aggregate amount of all Eligible Accounts, but only to the extent of such
excess.
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(K)Accounts Receivable due from Sony Corporation and its affiliates which, in
the aggregate, exceed sixty percent (60%) of the aggregate amount of all
Eligible Accounts.
(L)Accounts Receivable as to which Borrower is or may become liable to an
Account Debtor for services rendered or sales made or for any other reason,
except to the extent that such Accounts Receivable exceed the amount of such
liability.
(M)Accounts Receivable which are not owned by Borrower or are not free of all
liens, encumbrances, charges, rights or interests of any kind, except in favor
of Bank.
(N)Accounts Receivable which are evidenced by chattel paper or an instrument of
any kind.
(O)Accounts Receivable which are not evidenced by an invoice or other
documentation in form reasonably acceptable to Bank.
(P)Accounts Receivable which are otherwise unacceptable to Bank in its
reasonable judgment.
(vi)"Eligible Inventory" shall mean those items of Inventory consisting of raw
materials, and finished goods which are in good condition and currently saleable
in the ordinary course of Borrower's business and are not otherwise unacceptable
to Bank in its reasonable discretion. Such Inventory shall not be subject to any
other lien or claim, shall not have been consigned or sold to any person (nor
have been purchased by Borrower) as part of any bulk sale unless there was
compliance with all applicable bulk sale or transfer laws. Such Inventory shall
be located at such locations as are acceptable to Bank and shall, at all times,
be subject to and covered by, Bank's perfected security interest.
(vii)"Inventory" shall mean all inventory (as that term is defined in the
Commercial Code of the State of California) wherever located, which is or may at
any time be held for sale or lease, furnished under any contract of service or
held as raw materials, work in process, supplies or materials used or consumed
in Borrower's business or which are or might be used in connection with the
manufacturing, shipping, advertising or selling or finishing of such goods,
merchandise and other personal property and all documents of title or documents
representing the same, and all such property, the sale or other disposition of
which has given rise to Accounts Receivable and which has been returned to or
repossessed or stopped in transit by Borrower.
<PAGE>
(b)Collection of Accounts Receivable. Borrower shall have the privilege, subject
to revocation at the sole discretion of Bank, to collect, at Borrower's expense,
the payments due on Accounts Receivable upon the express condition that all such
collections shall be received by Borrower in trust for Bank. Upon demand by
Bank, whether before or after an Event of Default, Borrower shall promptly
deliver to Bank, at the location specified in this Agreement, in kind, all
remittances received by Borrower on Accounts Receivable, or if sales are made
for cash, the identical checks, cash, or other form of payment. The receipt of
any check or other item of payment by Bank shall not be considered a payment in
reduction of the Loan Balance until such check or other item of payment is
honored and finally paid. At any time during the continuance of an Event of
Default, Bank in its sole discretion may, but is not obligated to, notify any
Account Debtor to make payment directly to Bank, and exercise any and all of
Borrower's rights regarding the Account Receivable or the Account Debtor.
(c)Revolving Line. This is a revolving Line of Credit. During the Availability
Period, Borrower may repay principal amounts and reborrow them.
(d)Minimum Advance. Each advance must be for at least fifty thousand dollars
($50,000), or for the amount of the remaining available Revolving Line of
Credit, if less.
(e)Maximum Loan Balance. Borrower agrees not to permit the outstanding
principal balance of the Revolving Line of Credit (such sum is the "Loan
Balance") to exceed the lesser of the Commitment or the Borrowing Base.
2Availability Period. The period under which Borrower may draw on the Revolving
Line of Credit ("Availability Period") is between the date of this Agreement and
July 31, 2001 (the "Maturity Date"), provided, however, that Bank need not make
any advances upon the occurrence or during the continuance of any Event of
Default or any other event which, with the giving of notice or the passage of
time (or both), would constitute an Event of Default.
3Interest Rate.
(a)Unless Borrower elects an Optional Interest Rate as described below, the
interest rate is Bank's Prime Rate in effect from time to time plus one-half of
one percent (.50%) per annum.
(b)The "Prime Rate" equals the rate of interest set from time to time by Bank at
its head office in San Francisco, California as its Prime Rate. The Prime Rate
is determined by Bank as a means of pricing credit extensions to some customers
and
<PAGE>
is neither tied to any external rate of interest or index nor is it necessarily
the lowest rate of interest charged by Bank at any given time for any particular
class of customers or credit extensions. Any changes in the interest rate
resulting from a change in the Prime Rate shall take effect without notice on
the date specified at the time the Prime Rate is set.
(c)Optional Interest Rate. Instead of the interest rate based on Bank's Prime
Rate, Borrower may elect to have all or portions of the Revolving Line of Credit
(during the Availability Period) bear interest at the rate(s) described below
(each an "Optional Interest Rate") during an interest period agreed to by Bank
and Borrower (subject to the limitations set forth below). Each interest rate is
a rate per annum. Interest will be paid monthly in arrears and shall be due on
the first day of each month. At the end of any interest period, the interest
rate will revert to the rate based on the Prime Rate, unless Borrower has
designated another Optional Interest Rate for that portion.
(d)Offshore Rate/Rate Plus Disclosed Spread. Borrower may elect to have all or
portions of the principal balance of the Revolving Line of Credit bear interest
at the Offshore Rate plus two and three quarters percent (2.75%) per annum.
Designation of an Offshore Rate portion is subject to the following
requirements:
(i)The interest period during which the Offshore Rate will be in effect will be
a period of thirty (30), sixty (60) or ninety (90) days as selected by Borrower
with consent of Bank, provided that no interest period shall extend beyond the
Maturity Date. The last day of the interest period will be determined by Bank
using the practices of the offshore dollar inter-bank market.
(ii)Each Offshore Rate portion will be for an amount not less than one million
dollars ($1,000,000.).
(iii)The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by Bank as of the first day of interest period.)
Offshore Rate = Eurodollar Rate
------------------
- ------
(1.00 - Reserve
Percentage)
Where,
<PAGE>
(A)"Eurodollar Rate" means the interest rate (rounded upward to the nearest
1/16th of one percent) at which Bank's Nassau Branch, Nassau, Bahamas, would
offer U.S. dollar deposits for the applicable interest period to other major
banks in the offshore dollar inter-bank market.
(B)"Reserve Percentage" means the total of the maximum reserve percentages for
determining the reserves to be maintained by member banks of the Federal Reserve
System for Eurocurrency Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve percentages.
(iv)Borrower may not elect an Offshore Rate with respect to any portion of the
principal balance of the Revolving Line of Credit which is scheduled to be
repaid before the last day of the applicable interest period.
(v)No portion of the principal balance of the Revolving Line of Credit already
bearing interest at the Offshore Rate may be converted to a different rate
during its interest period.
(vi)Each prepayment of an Offshore Rate option, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued interest
on the amount prepaid, and a prepayment fee equal to the amount (if any) by
which
(A)the additional interest which would have been payable on the amount prepaid
had it not been paid until the last day of the interest period, exceeds
(B)the interest which would have been recoverable by Bank by placing the amount
prepaid on the deposit in the offshore dollar market for a period starting on
the date on which it was prepaid and ending on the last day of the interest
period for such portion.
(vii)Bank will have no obligation to accept an election of an Offshore Rate
portion if any of the following described events has occurred and is continuing:
(A)Dollar deposits in the principal amount, and for periods equal to the
interest period, of an Offshore Rate portion are not available in the offshore
Dollar interbank market; or
(B)the Offshore Rate does not accurately reflect the cost of an Offshore Rate
portion.
<PAGE>
4Repayment Terms/Revolving Line of Credit.
(a)Borrower will pay interest in arrears commencing on November 1, 1996, and on
the first day of each month thereafter until payment in full of all amounts
outstanding under the Revolving Line of Credit.
(b)Borrower will repay in full, all principal, interest and other charges
outstanding under the Revolving Line of Credit no later than the Maturity Date.
5Equipment Line. During the Equipment Line Availability Period, Borrower may
request equipment loans (each an "Equipment Loan") from Bank under this
equipment line of credit (the "Equipment Line") in an aggregate principal amount
not to exceed, at any one time outstanding, TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) (the "Equipment Line Commitment") . Borrower's obligation to
repay advances under this Equipment Line is evidenced by a promissory note
substantially in the form of Exhibit B attached hereto (the "Equipment Line
Note"). Any advances made under the Equipment Line that are repaid may not be
reborrowed.
(a)Equipment Line Availability Period. The period under which Borrower may draw
on the Equipment Line (the "Equipment Line Availability Period") is between the
date of this Agreement and July 31, 1997, provided that Bank need not make any
Equipment Loan upon the occurrence and during the continuance of any Event of
Default or any other event which, with the giving of notice or the passage of
time (or both), would constitute and Event of Default.
(b)Interest Rate. During the Equipment Line Availability Period, each Equipment
Loan outstanding under the Equipment Line will bear interest at a rate per annum
equal to the Bank's Prime Rate in effect from time to time. Commencing August 1,
1997, each Equipment Loan outstanding under the Equipment Line will bear
interest at a rate per annum equal to the Bank's Prime Rate in effect from time
to time plus one quarter of one percent (.25%).
(c)Purpose/Advance Rates. Each Equipment Loan shall be used solely to purchase
new capital equipment for use in Borrower's business and operations as currently
conducted, or to reimburse Borrower for previous purchases of such capital
equipment occurring between January 1, 1996 and the Closing Date; provided,
however, that the aggregate principal amount of Equipment Loans made to finance
the purchase of tenant improvements and refurbishments for Borrower's leased
office space and office furniture shall not exceed $200,000. All equipment
acquired with the proceeds of such Equipment Loan shall be free and clear of any
security
<PAGE>
interests, liens, encumbrances or rights of others except the security interests
of Bank under any security agreements required under this Agreement. Each
request for an Equipment Loan shall be accompanied by a copy of the purchase
order or invoice for the equipment to be purchased with the proceeds of the
advance. The amount of each Equipment Loan shall not exceed eighty percent (80%)
of the purchase price of such equipment.
(d)Repayment Terms.
(i)Borrower will pay interest monthly in arrears on the first day of each month
commencing with the first day of the month following the month in which the
first Equipment Loan is made, and then on the first day of each month thereafter
until payment in full of all amounts outstanding under the Equipment Line.
(ii)The aggregate principal amount outstanding under the Equipment Line shall be
repaid by Borrower in thirty-six (36) equal monthly payments, with the first
such payment to be made on September 1, 1997 and then on the first day of each
month thereafter, provided that the last such payment shall be made on July 31,
2000.
(e)Voluntary Repayment. Borrower may prepay all or any portion of the
outstanding principal balance of the Equipment Line at any time. Any such
prepayment will be applied first to interest charges and then to the most remote
installments of principal due in respect of the Equipment Line.
2.FEES, EXPENSES AND DEPOSITS.
1Fees.
(a)Facility Fee. Borrower agrees to pay a Fifty Thousand Dollar ($50,000)
facility fee due on the Closing Date.
(b)Unused Revolving Line of Credit Commitment Fee. Borrower agrees to pay a
quarterly fee on any difference between the Revolving Line of Credit Commitment
and the amount of credit it actually uses under the Revolving Line of Credit,
determined by the weighted average Loan Balance maintained during the preceding
calendar quarter. The fee will be calculated at .25% per year. This fee is due
on January 1, 1997 and on the first day of each calendar quarter thereafter,
with the last such payment due July 31, 2001 (which final payment shall be based
upon the portion of the then current calendar quarter ending July 31).
(c)Unused Equipment Line Commitment Fee. Borrower agrees to pay a quarterly
fee on any difference between the Equipment Line Commitment and the amount of
<PAGE>
credit it actually uses under the Equipment Line, determined by the weighted
average of the aggregate outstanding principal balance of all Equipment Loans
maintained during the preceding calendar quarter. The fee will be calculated at
.25% per year. This fee is due on January 1, 1997 and on the first day of each
calendar quarter thereafter, with the last such payment due August 1, 1997
(which final payment shall be based upon the portion of the then current
calendar quarter ending July 31).
2Expenses.
(a)Borrower agrees to immediately repay Bank for reasonable, out-of-pocket
expenses incurred in connection with the transactions contemplated by this
Agreement, including filing, recording and search fees, appraisal fees, audit
fees, title report fees and documentation fees. Such costs and expenses may
include the allocated costs of Bank's in-house staffs, such as legal, appraisal
and audit.
(b)Borrower agrees to reimburse Bank for any reasonable expenses it incurs in
the negotiation and preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of Bank's in-house
counsel.
(c)Borrower agrees to reimburse Bank for the reasonable cost of periodic audits
and appraisals of the personal property collateral securing Borrower's
obligations under the Loan Documents, at such intervals as Bank may reasonably
require. The audits and appraisals may be performed by employees of Bank or by
independent appraisers.
3.COLLATERAL.
1All Personal Property. Borrower's obligations to Bank under this Agreement are
secured by, and Borrower hereby grants Bank a security interest in, all personal
property Borrower now owns or will own in the future, including Borrower's
Accounts Receivable, Inventory, equipment, general intangibles and other
property described in Exhibit C attached hereto (collectively, the
"Collateral"), and as is further described in a security agreement of even date
herewith executed by Borrower in favor of Bank (the "Security Agreement").
2Stock of Borrower Supporting Guaranty. Borrower's obligations under the Loan
Documents shall be guaranteed by AB Plastics Holding Corporation, a Delaware
corporation ("AB Plastics Holding Corp."), pursuant to the terms of a guaranty
(the "Guaranty") of even date herewith executed by AB Plastics Holding Corp. in
favor of Bank. The obligations of AB Plastics Holding Corp. under the Guaranty
will be
<PAGE>
secured by a pledge of 100% of the capital stock of Borrower held by AB Plastics
Holding Corp., in accordance with the terms of a stock pledge agreement ("Stock
Pledge Agreement") of even date herewith executed by AB Plastics Holding Corp.
in favor of Bank.
4.DISBURSEMENTS, PAYMENTS AND COSTS.
1Request for Credit. Each request for an extension of credit will be made in
writing in a manner reasonably acceptable to Bank, or by another means
reasonably acceptable to Bank.
2Disbursements and Payments. Each disbursement by Bank and each payment by
Borrower will be:
(a)made at Bank's branch (or other location) selected by Bank from time to time.
(b)made for the account of Bank's branch selected by Bank from time to time.
(c)made in immediately available funds, or such other type of funds selected by
Bank.
(d)evidenced by records kept by Bank. In addition, Bank may, at its discretion,
require Borrower to sign one or more promissory notes.
3Telephone Authorization.
(a)Bank may honor telephone instructions for advances or repayments or for the
designation of Optional Interest Rates given by any officer of Borrower or a
person or persons so authorized by any officer of Borrower.
(b)Advances will be deposited in, and repayments will be withdrawn from,
Borrower's account number 05815113070 (the "Account"), or such other account(s)
with Bank as designated in writing by Borrower.
(c)Bank will provide written confirmation to Borrower of transactions made based
on telephone instructions. Borrower agrees to notify Bank promptly of any
discrepancy between the confirmation and telephone instructions. If there is a
discrepancy and Bank has already acted on the telephone instructions, the
telephone instructions will prevail over the written confirmation.
(d)Borrower indemnifies and holds harmless Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection with
any act resulting
<PAGE>
from compliance with telephone instructions it reasonably believes are made by
an officer of Borrower or a person authorized by an officer of Borrower. This
indemnity and agreement to hold harmless will survive this Agreement's
termination.
4Direct Debit.
(a)Borrower agrees that interest and principal payments and any fees will be
deducted automatically on the due date from the Account.
(b)Bank will debit the Account on the dates the payments become due. If a due
date does not fall on a Banking Day, Bank will debit the Account on the first
Banking Day following the due date.
(c)Borrower will maintain sufficient funds in the Account on the dates Bank
enters debits authorized by this Agreement. If there are insufficient funds in
the Account on the date Bank enters any debit authorized by this Agreement
Borrower shall immediately pay such shortfall to Bank.
5Banking Days. Unless otherwise provided in this Agreement, a "Banking Day" is a
day other than a Saturday or a Sunday, on which Bank is open for business in
California. For amounts bearing interest at an Offshore Rate (if any), a Banking
Day is a day other than a Saturday or a Sunday on which Bank is open for
business in California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a Banking Day will be due
on the next Banking Day. All payments received on a day which is not a Banking
Day will be applied to the Revolving Line of Credit or the Equipment Line (as
applicable) on the next Banking Day.
6Taxes. Borrower will not deduct any taxes from any payments made to Bank. If
any government authority imposes any taxes or charges on any payments made by
the Borrower (other than taxes based on Bank's income), Borrower will pay the
taxes or charges. Upon request by Bank, Borrower will confirm that it has paid
the taxes by giving Bank official tax receipts (or notarized copies) within 30
days after the due date.
7Additional Costs. Borrower will pay Bank, on demand, for Bank's costs or losses
arising from the adoption or amendment of any statute or regulation subsequent
to the date hereof, or any request or requirement of a regulatory agency which
is applicable to Bank. The costs and losses will be allocated to the loans in a
manner determined by Bank, using any reasonable method. The costs include the
following:
<PAGE>
(a)any reserve or deposit requirements; and
(b)any capital requirements relating to Bank's assets and commitments for
credit.
8Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
9Interest on Late Payments. At Bank's sole option in each instance, any amount
not paid when due under this Agreement (including interest) shall bear interest
from the due date until paid at the Default Rate described below. This may
result in compounding of interest.
10Default Rate. Upon the occurrence and during the continuance of any Event of
Default, at Bank's sole option Borrower shall pay interest on the outstanding
principal and interest at the Bank's Prime Rate plus two and one-half percent
(2.50%) (the "Default Rate"). This will not constitute a waiver of any Event of
Default.
11Overdrafts. At Bank's sole option in each instance, Bank may make advances
under this Agreement to prevent or cover an overdraft on any account of Borrower
with Bank. Each such advance will accrue interest from the date of the advance
or the date on which the account is overdrawn, whichever occurs first, at the
interest rate described in this Agreement.
12Overadvances. If at any time the Loan Balance exceeds the lesser of the
Commitment or the Borrowing Base, at Bank's option the amount over-advanced
shall be immediately due and payable on demand. If at any time the aggregate
outstanding principal balance of the Equipment Line exceeds the Equipment Line
Commitment, at Bank's option the amount over-advanced shall be immediately due
and payable on demand.
5.CONDITIONS.
1Initial Advance. Bank must have received the following items, in form and
content acceptable to Bank, before it is required to extend any credit to
Borrower under this Agreement:
(a)Authorizations. Evidence that the execution, delivery and performance by
Borrower and each guarantor or subordinating creditor of this Agreement and any
instrument or agreement required under this Agreement have been duly authorized.
<PAGE>
(b)Notes. The fully executed Revolving Line Note and Equipment Line Note.
(c)Security Agreements. Signed original Security Agreement and such other
security agreements and financing statements which Bank requires. Borrower shall
also have delivered to Bank all such Collateral in which Bank requires a
possessory security interest.
(d)Evidence of Priority. Evidence that security interests and liens in favor of
Bank are valid, enforceable and prior to all other rights and interests, except
those Bank consents to in writing.
(e)Landlord's/Mortgagee Waivers. For any personal property Collateral located on
real property which is subject to a mortgage or deed of trust or which is not
owned by the Borrower, a Landlord's and/or Mortgagee's Waiver from the
owner/lessor of the real property and the holder of any mortgage or deed of
trust.
(f)Insurance. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
(g)Environmental Questionnaire. A completed Bank form Environmental
Questionnaire and Disclosure Statement, together with an environmental site
assessment concerning any potential toxic or hazardous condition.
(h)Guaranty and Stock Pledge Agreement. The Guaranty and the Stock Pledge
Agreement signed by AB Plastics Holding Corp.
(i)Subordination Agreement. Subordination Agreement ("Subordination Agreement")
of even date herewith in favor of Bank signed by Sirrom Investments, Inc., a
Tennessee corporation ("Sirrom"). The Subordination Agreement pertains to the
obligations of Borrower and AB Plastics Corp. to Sirrom (the "Subordinate Debt
Obligations") arising under a Loan Agreement of even date herewith by and among
Borrower, AB Plastics Holding Corp. and Sirrom, and the other "Loan Documents"
described therein (collectively, the "Subordinate Debt Documents").
(j)Legal Opinion. A written opinion from Borrower's legal counsel, covering such
matters as Bank may require. The legal counsel and the terms of the opinion must
be acceptable to Bank.
(k)Good Standing. Certificates of good standing for Borrower from its state of
incorporation and from any other state in which Borrower is required to qualify
to conduct its business.
<PAGE>
(l)Accounts. The Account shall have been opened, and Borrower shall have
established with Bank all of Borrower's primary operating and business accounts.
(m)Solvency Certificate. A Solvency Certificate, in form and substance
satisfactory to Bank, signed by Borrower's chief financial officer.
(n)Consummation of Acquisition. The Stock Purchase Agreement dated as of July
11, 1996 by and between the prior stockholders of Borrower, as seller, and AB
Plastics Corp., as buyer, and all other instruments, documents and agreements to
be executed in connection therewith (collectively, the "Purchase Documents"),
shall have been fully executed and delivered, and all conditions to the
consummation of the transactions contemplated thereby necessary to complete such
transaction (other than funding under this Agreement) shall have been satisfied
or waived with Bank's consent.
(o)Sources and Uses of Funds Certificate. A certificate executed by the chief
executive officer and chief financial officer of Borrower, setting forth in
reasonable detail the sources and uses of funds in the transactions contemplated
herein and in the Subordinate Debt Documents, including without limitation
consummation of the transactions contemplated by the Purchase Documents.
(p)Pay Proceeds Letter. A letter executed by Borrower directing Bank to disburse
approximately $4,478,950.50 under the Revolving Line of Credit directly to
Manufacturers Bank, to repay certain existing indebtedness of Borrower.
(q)Stock Certificates. The stock certificate(s) evidencing the shares of
Borrower's capital stock pledged to Bank pursuant to the Stock Pledge Agreement,
together with a duly endorsed stock power for each such certificate (endorsed in
blank), with the signature thereto guaranteed by a commercial bank, a trust
company or a member firm of any registered national securities exchange.
(r)Other Required Documentation. Such other documents, instruments and
agreements as Bank may reasonable require, including the UCC-2 financing
statement termination previously provided to Borrower by Bank.
The date on which all of the foregoing conditions have been
satisfied is the "Closing Date." As used in this Agreement, "Loan Documents"
shall mean, collectively, this Agreement, the Revolving Line Note, the Equipment
Line Note, the Security Agreement, the Guaranty, the Stock Pledge Agreement, the
Subordination Agreement and any other certificates, documents or agreements of
any type or nature heretofore or hereafter executed or delivered by Borrower, AB
Plastics Holding Corp. and/or any other party to Bank in any way relating to or
in
<PAGE>
the furtherance of this Agreement, in each case either as originally executed or
as the same may from time to time be supplemented, modified, amended, restated
or extended.
2Conditions to Each Advance. Before each extension of credit, including the
first:
(a)With respect to advances under the Revolving Line of Credit, a Borrowing Base
Certificate signed by Borrower and delivered to Bank.
(b)An invoice detailing the items being purchased with the proceeds of each
advance.
(c)Bank's most recent audit of Borrower's records must be satisfactory to Bank
in its reasonable discretion.
(d)The Representations and Warranties hereunder must be true and correct in all
material respects.
(e)Any other items that Bank reasonably requires.
6.REPRESENTATIONS AND WARRANTIES.
When Borrower signs this Agreement, and until Bank is repaid in full,
Borrower makes the following representations and warranties. Each request for an
extension of credit constitutes a renewed representation.
1Organization of Borrower. Borrower and AB Plastics Holding Corp. are each a
corporation duly formed and validly existing under the laws of the state where
organized.
2Authorization. This Agreement, and any instrument or agreement required
hereunder, are within Borrower's powers, have been duly authorized, and do not
conflict with any of its organizational papers.
3Enforceable Agreement. This Agreement and the other Loan Documents are legal,
valid and binding agreements of Borrower or AB Plastics Holding Corp., as
applicable, enforceable against Borrower and AB Plastics Holding Corp., as
applicable, in accordance with their terms, and any instrument or agreement
required hereunder or thereunder, when executed and delivered, will be similarly
legal, valid, binding and enforceable, except in each case as may be limited by
bankruptcy, insolvency and other laws affecting creditors' rights generally, and
subject to judicial discretion in the award of equitable remedies.
<PAGE>
4Good Standing. In each state in which Borrower does business, it is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes.
5No Conflicts. The Loan Documents do not conflict with any law, agreement, or
obligation by which Borrower or AB Plastics Holding Corp. is bound.
6Financial Information. All financial and other information that has been or
will be supplied to Bank, including Borrower's financial statement dated as of
April 30, 1996, is:
(a)sufficiently complete to give Bank accurate knowledge of Borrower's financial
condition;
(b)in form and content required by Bank; and
(c)in compliance with all government regulations that apply.
Since the date of the financial statements specified above,
there has been no material adverse change in the assets or the financial
condition of Borrower.
7Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened
against Borrower except as disclosed on Schedule 6.7 attached hereto.
8Collateral. All Collateral required in this Agreement is owned by the grantor
of the security interest, free of any title defects or any liens or interests of
others except as disclosed on Schedule 6.8 attached hereto, (collectively , the
"Permitted Encumbrances").
9Permits, Franchises. Borrower possesses all permits, memberships, franchises,
contracts and licenses required and all trademark rights, trade name rights,
patent rights and fictitious name rights necessary to enable it to conduct the
business in which it is now engaged without conflict with the rights of others.
10Other Obligations. Borrower is not in default on any obligation for borrowed
money, any purchase money obligation or any other material lease, commitment,
contract, instrument or obligation.
11Income Tax Returns. Borrower has filed all required tax returns and has no
knowledge of any pending assessments or adjustments of its income tax for any
year.
<PAGE>
12No Event of Default. No event has occurred which is, or with notice or lapse
of time or both would be, an Event of Default under this Agreement.
13ERISA Plans.
(a)Borrower has fulfilled its obligations, if any, under the minimum funding
standards of ERISA and the Code with respect to each Plan and is in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code, and has not incurred any liability with respect to any Plan under
Title IV of ERISA.
(b)No reportable event has occurred under Section 4043(b) of ERISA for which the
PBGC requires 30 day notice.
(c)No action by Borrower to terminate or withdraw from any Plan has been taken
and no notice of intent to terminate a Plan has been filed under Section 4041 of
ERISA.
(d)No proceeding has been commenced with respect to a Plan under Section 4042 of
ERISA, and no event has occurred or condition exists which might constitute
grounds for the commencement of such a proceeding.
(e)The following terms have the meanings indicated for purposes of this
Agreement:
(i)"Code" means the Internal Revenue Code of 1986, as amended from time to time.
(ii)"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
(iii)"PBGC" means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
(iv)"Plan" means any employee pension benefit plan maintained or contributed to
by Borrower and insured by the Pension Benefit Guaranty Corporation under Title
IV of ERISA.
7.COVENANTS.
Borrower agrees, so long as credit is available under this
Agreement and until Bank is repaid in full:
<PAGE>
1Use of Proceeds. To use the proceeds of the Revolving Line of Credit only for
repayment of existing debt owed by Borrower, working capital purposes, payment
of up to $1,000,000 to the sellers under the Purchase Documents, and payment of
certain costs (not to exceed $1,000,000) associated with the transactions
contemplated by the Purchase Documents.
2Financial Information. To provide the following financial information and
statements and such additional information as requested by Bank from time to
time:
(a)Within 120 days of Borrower's fiscal year end, Borrower's annual financial
statements. These financial statements must be audited (with an unqualified
opinion) by a Certified Public Accountant ("CPA") reasonably acceptable to Bank.
The statements shall be prepared on an unconsolidated basis.
(b)Within 30 days of the period's end, Borrower's monthly financial statements
(including a balance sheet, income statement and statement of cash flows). These
financial statements may be Borrower prepared. The statements shall be prepared
on an unconsolidated basis, and shall reflect the results for the month just
ended as well as the results from the beginning of the current fiscal year
through the month just ended.
(c)Within 15 days of period end, a monthly detailed aging of Borrower's accounts
receivable and accounts payable, a detailed analysis of Borrower's Inventory and
a Borrowing Base Certificate.
(d)Within 60 days after the start of each of Borrower's fiscal years, a 2-year
operating plan covering the current fiscal year and the next fiscal year. Such
plan will detail, on a monthly basis for the then current fiscal year and
annually for the subsequent fiscal year, Borrower's best estimate of revenues,
expenses and balance sheet categories, and will be presented in the customary
form of balance sheets and income statements.
3Quick Ratio. To maintain on an unconsolidated basis as of the last day of each
month, a ratio of quick assets to current liabilities (exclusive of amounts
outstanding under the Revolving Line of Credit) of at least 1.0:1.0.
"Quick Assets" means cash, short-term cash investments, net
trade receivables and marketable securities not classified as long-term
investments.
4Tangible Net Worth. To maintain on an unconsolidated basis as of the last day
of each month, Tangible Net Worth equal to at least the sum of the following:
<PAGE>
(a)$5,000,000;
(b)the sum of 50% of the cumulative net income after income taxes earned after
October 31, 1996;
(c)the net proceeds from any equity securities issued after the date of the
Agreement; and
(d)any increase in stockholders' equity resulting from the conversion of debt
securities to equity securities after the date of this Agreement.
"Tangible Net Worth" means the gross book value of Borrower's
assets (excluding goodwill, patents, trademarks, trade names, organization
expense, treasury stock, unamortized debt discount and expense, deferred
research and development costs, deferred marketing expenses, and other like
intangibles), plus debt subordinated to Bank in a manner acceptable to Bank,
less total liabilities, including, without limitation, accrued and deferred
income taxes, and any reserves against assets.
5Total Liabilities to Tangible Net Worth. To maintain on an unconsolidated basis
as of the last day of each month, a ratio of Total Liabilities not subordinated
to Tangible Net Worth not exceeding the amounts indicated for each period
specified below:
Period Ratio
------ -----
prior to 10/31/96 3.00 : 1.00
10/31/96 - 9/30/97 2.25 : 1.00
10/31/97 - Maturity Date 2.00 : 1.00
"Total Liabilities not subordinated" means the sum of current
liabilities plus long term liabilities, excluding debt subordinated to
Borrower's obligations to Bank in a manner acceptable to Bank.
6Fixed Charge Coverage Ratio. To maintain on an unconsolidated basis as of the
last day of each month a ratio of EBITDA to Fixed Charges of at least the
amounts indicated for each period specified below:
Period Ratio
------ -----
11/1/96 - 10/31/98 1.10 : 1.00
11/1/98 - Maturity Date 1.25 : 1.00
<PAGE>
"EBITDA" means, for any period, (a) net income for that
period, plus (b) interest expense for that period, plus (c) provision for income
tax expense for that period, plus (d) depreciation and depletion expense for
that period, plus (e) amortization expense for that period.
"Fixed Charges" means, for any period, (a) interest expense
for that period, plus (b) capital expenditures (net of new purchase money
financing) during such period, plus (c) income taxes paid for such period, plus
(d) the current portion of long-term debt paid during such period.
During the 1997 fiscal year, the ratio of EBITDA to Fixed
Charges will be calculated at the end of each month using fiscal year-to-date
results on an annualized basis. Thereafter, this ratio will be calculated at the
end of each month, using the results of that month and each of the 11
immediately preceding months. For any month, the current portion of long term
debt will be measured as of the date of calculation.
7Profitability. To maintain on an unconsolidated basis a positive net income
before taxes and extraordinary items and a positive net income after taxes and
extraordinary items as of the end of each of Borrower's fiscal years. In
addition, Borrower shall not experience, on an unconsolidated basis, a negative
net income (either before or after taxes and extraordinary items) in each of any
two (2) consecutive fiscal quarters.
8Other Debts. Not to have outstanding or incur any direct or contingent debts or
lease obligations (other than those to Bank), or become liable for the debts of
others without Bank's written consent. This does not prohibit:
(a)Acquiring goods, supplies, or merchandise on normal trade credit.
(b)Endorsing negotiable instruments received in the usual course of business.
(c)Debts in existence on the date of this Agreement disclosed in writing to Bank
prior to the date of this Agreement in Borrower's financial statement dated
April 30, 1996.
(d)Additional debts and lease obligations for the acquisition of fixed or
capital assets, to the extent permitted elsewhere in this Agreement.
(e)Subject to the terms of the Subordination Agreement, the Subordinate Debt.
<PAGE>
9Other Liens. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property Borrower now or later owns, except:
(a)Liens or security interests in favor of Bank.
(b)Liens for taxes not yet due, which are being contested in good faith by
appropriate proceedings (so long as Borrower has established and maintains
adequate reserves for the payment of the same and by reason of which nonpayment
and contest no material item or portion of Borrower's property is in jeopardy of
being seized, levied upon or forfeited).
(c)The Permitted Encumbrances outstanding on the date of this Agreement.
(d)Additional purchase money security interests in fixed assets acquired after
the date of this Agreement.
(e)Liens or security interests granted to Sirrom to secure the Subordinate Debt,
which liens or security interests (and the Subordinate Debt) shall be
subordinate to the liens and security interest in favor of Bank and to
Borrower's obligations to Bank, all in accordance with the terms of the
Subordination Agreement.
10Leases. Not to permit the aggregate payments due in any fiscal year under all
leases (including capital and operating leases for real or personal property) to
exceed one million dollars ($1,000,000).
11Dividends/Distributions. Not to declare or pay any dividends or distributions
on any of its shares and not to purchase, redeem or otherwise acquire for value
any of its shares, or create any sinking fund in relation thereto.
12Loans to Officers. Not to make any loans, advances or other extensions of
credit to any of Borrower's executives, officers, directors, shareholders or
employees (or any relatives of any of the foregoing) which, together with all
other such loans, advances and other extensions of credit, exceed $100,000 at
any time outstanding.
13Change of Ownership. Not to cause, permit, or suffer any change, direct or
indirect, in Borrower's ownership in excess of 50%.
14Notices to Bank. To promptly notify Bank in writing of:
(a)any lawsuit over five hundred thousand dollars ($500,000) against Borrower or
AB Plastics Holding Corp.;
<PAGE>
(b)any substantial dispute between Borrower or AB Plastics Holding Corp. and any
government authority;
(c)any failure to comply with this Agreement;
(d)any material adverse change in Borrower's or AB Plastics Holding Corp.
financial condition or operations;
(e)any change in Borrower's name, address, or legal structure; and
(f)the occurrence of any Event of Default.
15Books and Records. To maintain adequate books and records.
16Audits. To allow Bank and its agents to inspect Borrower's properties and
examine, audit and make copies of books and records at any reasonable time upon
reasonable prior notice. If any of Borrower's properties, books or records are
in the possession of a third party, Borrower authorizes that third party to
permit Bank or its agents to have access to perform inspections or audits and to
respond to Bank's requests for information concerning such properties, books and
records.
17Compliance with Laws. To comply with the laws, regulations, and orders of any
government body with authority over Borrower's business (including any
fictitious name statute and all statutes regarding the processing, manufacture,
storage, transportation, sale or use of hazardous or toxic materials).
18Preservation of Rights. To maintain and preserve all rights, privileges, and
franchises Borrower now has which are necessary to carry on Borrower's business.
19Maintenance of Properties. To make any repairs, renewals, or replacements to
keep Borrower's properties in good working condition (reasonable wear and tear
excepted).
20Perfection of Liens. To help Bank perfect and protect its security interests
and liens, and reimburse the Bank for related costs incurred to protect its
security interests and liens.
21Cooperation. To take any action reasonably requested by Bank to carry out the
intent of this Agreement.
22Insurance.
<PAGE>
(a)Insurance Covering Collateral. To maintain all risk property damage insurance
policies covering the tangible property comprising the Collateral. Each
insurance policy must be for the full replacement cost of the Collateral and
include a replacement cost endorsement. The insurance must be issued by an
insurance company reasonably acceptable to Bank and must include a lender's loss
payable endorsement in favor of Bank in a form acceptable to Bank.
(b)General Business Insurance. To maintain insurance as is usual for the
business it is in.
(c)Evidence of Insurance. Upon the request of Bank, to deliver to Bank a copy of
each insurance policy, or, if permitted by Bank, a certificate of insurance
listing all insurance in force.
23Operating/Business Accounts. Establish and maintain with Bank all of
Borrower's operating and business accounts and all other banking services
associated with the operation of Borrower's business, including without
limitation any demand deposit accounts.
24Additional Negative Covenants. Not to, without Bank's prior written consent:
(a)engage in any business activities substantially different from Borrower's
present business.
(b)liquidate or dissolve Borrower's business.
(c)enter into any consolidation, merger, pool, joint venture, syndicate or other
combination which involves a business activity unrelated to Borrower's business
activity (as presently conducted), or after which Borrower is not the surviving
legal entity.
(d)sell, lease or dispose of all or (in Bank's reasonable opinion) a substantial
part of Borrower's business or Borrower's assets.
(e)acquire or purchase a business or its assets (provided that Bank will not
unreasonably withhold or delay its consent to any such transaction).
(f)sell or otherwise dispose of any assets for less than fair market value, or
enter into any sale and leaseback agreement covering any of its fixed or capital
assets.
<PAGE>
(g)voluntarily suspend its business for more than five days in any seven day
period, other than a routine shutdown, not to exceed fourteen (14) consecutive
days, consistent with past practice.
(h)enter into any transaction with AB Plastics Holding Corp. or any other
affiliate of Borrower on terms less favorable than those available to Borrower
from other persons or entities in the ordinary course of such persons' and
entities' business.
25No Consumer Purpose. Not to use any loans or advances hereunder for personal,
family or household purposes.
26ERISA Plans. To give prompt written notice to Bank of:
(a)The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b)Any action by Borrower to terminate or withdraw from a Plan or the filing of
any notice of intent to terminate under Section 4041 of ERISA.
(c)Any notice of noncompliance made with respect to a Plan under Section 4041(b)
of ERISA.
(d)The commencement of any proceeding with respect to a Plan under Section 4042
of ERISA.
27Appointment of Bank as Attorney in Fact. Until all the obligations of Borrower
to Bank have been paid in full, Borrower irrevocably appoints Bank as its
attorney in fact and authorizes and empowers it to:
(a)Endorse and affix Borrower's name to or upon any check, draft, note,
instrument or other writing relating to the collection of Accounts Receivable,
or relating to any other Collateral, or upon any check or other instrument given
in payment thereof, or upon any omitted assignment, notification of assignment,
demand or auditor's verification relating to Collateral and upon all other
instruments and writings required to assert and protect Bank's rights in the
Collateral.
(b)Upon the occurrence and during the continuance of an Event of Default,
receive, open and dispose of all mail addressed to Borrower and notify the Post
Office authorities to change the address for the delivery of mail addressed to
Borrower to such address as Bank may designate. These powers, being coupled with
an interest, are irrevocable while Borrower's obligations to Bank remain unpaid.
<PAGE>
8.DEFAULT.
1Events of Default. The occurrence of any one or more of the following events
shall constitute an "Event of Default":
(a)Failure to Pay. Borrower fails to make a payment under this Agreement when
due.
(b)Non-Compliance. Borrower or any other party (other than Bank) fails to meet
the conditions of, or fails to perform any obligation under:
(i)this Agreement,
(ii)any other Loan Document, or
(iii)any other agreement Borrower has with Bank or any affiliate of Bank;
which in any case is not cured within ten (10) days after the
occurrence thereof, provided that if such failure cannot be cured with
ten days but Borrower has commenced within such 10-day period to cure
such failure and is otherwise diligently pursuing such cure, then
Borrower shall have such additional time as is reasonably necessary to
effect such cure, but in no event more than twenty (20) days beyond the
initial 10-day cure period. The foregoing notwithstanding, in the event
any other Loan Document specifically sets forth events which constitute
a "Default" or "Event of Default" thereunder, then the occurrence of
any such "Default" or "Event of Default" shall constitute an Event of
Default hereunder and the foregoing cure period shall not apply
thereto.
(c)Other Defaults. Any default occurs under the Subordinate Debt Documents or
any other agreement in connection with any credit Borrower or AB Plastics
Holding Corp. has obtained from any other creditor(s) or which Borrower or AB
Plastics Holding Corp. has guaranteed if the default consists of failing to make
a payment when due or gives the other creditor(s) the right to accelerate any
obligations in an aggregate amount in excess of five hundred thousand dollars
($500,000).
(d)Lien Priority. Bank fails to have an enforceable first lien (except for any
liens to which Bank has consented in writing) on or security interest in any
Collateral (other than "Emission Rights," as defined in the Security Agreement).
(e)False Information. Any representation or warranty under this Agreement or
any agreement, instrument or certificate executed pursuant to this Agreement or
in
<PAGE>
connection with any transaction contemplated hereby shall prove to have been
false or misleading in any material respect when made or when deemed to have
been made.
(f)Bankruptcy. Borrower or AB Plastics Holding Corp. files a bankruptcy
petition, a bankruptcy petition is filed against Borrower or AB Plastics Holding
Corp., or Borrower or AB Plastics Holding Corp. makes a general assignment for
the benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against Borrower or AB Plastics Holding Corp. is dismissed within
a period of sixty (60) days after the filing; provided, however, that Bank will
not be obligated to extend any additional credit to Borrower during any
bankruptcy period.
(g)Receivers. Borrower's or AB Plastics Holding Corp.'s business is terminated,
or a receiver or similar official is appointed for Borrower's or AB Plastics
Holding Corp.'s business and, in the event such appointment is the result of an
involuntary action or proceeding, such appointment is not terminated, dismissed
or discharged within sixty (60) days.
(h)Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against Borrower or AB Plastics Holding Corp. in an aggregate amount
of five hundred thousand dollars ($500,000) or more in excess of any insurance
coverage, and such lawsuit or lawsuits are not dismissed or fully bonded within
ten (10) calendar days after service of process upon Borrower or AB Plastics
Holding Corp. (as applicable).
(i)Judgments. Any judgments or arbitration awards in an aggregate amount in
excess of five hundred thousand dollars ($500,000) are entered against Borrower
or AB Plastics Holding Corp. and, absent procurement of a stay of execution,
such judgment or award remains unbonded or unsatisfied for ten (10) calendar
days after the date of entry; or Borrower or AB Plastics Holding Corp. enters
into any settlement agreement with respect to any litigation or arbitration, in
an aggregate amount of five hundred thousand dollars ($500,000) or more in
excess of any insurance coverage.
(j)Government Action. Any government authority takes action that Bank believes
adversely affects Borrower's or AB Plastics Holding Corp.'s financial condition
or ability to repay.
(k)Default under Guaranty or Subordination Agreement. The Guaranty, the Stock
Pledge Agreement, the Subordination Agreement, or any other security agreement,
deed of trust, or other document required by this Agreement is revoked or no
longer in effect.
<PAGE>
(l)Material Adverse Change. A material adverse change occurs in Borrower's or AB
Plastics Holding Corp.'s financial condition, properties or prospects, or
ability to repay the obligations hereunder.
(m)ERISA Plans. The occurrence of a reportable event with respect to a Plan
which is, in the reasonable judgment of Bank, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, or could reasonably
be expected, in the reasonable judgment of Bank, to subject Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, would exceed $500,000.
2Remedies. Upon the occurrence and during the continuance of an Event of
Default, Bank shall have all of the following rights and remedies:
(a)All obligations and indebtedness hereunder may, at the option of Bank and
without demand, notice, or legal process of any kind, be declared, and
immediately shall become, due and payable;
(b)The Loans shall bear interest at the Default Rate;
(c)All of the rights and remedies of a secured party under the California
Commercial Code or other applicable law, all of which rights and remedies shall
be cumulative, and not exclusive, to the extent permitted by law, in addition to
any other rights and remedies contained in this Agreement or in any of the
documents or agreements executed in connection herewith or which Bank may
otherwise have under any applicable law or in equity;
(d)The right to (i) peacefully enter upon the premises of Borrower or any other
place or places where the Collateral is located, without any obligation to pay
rent to Borrower or any other person, through self-help and without judicial
process or first obtaining a final judgment or giving Borrower notice and
opportunity for a hearing on the validity of Bank's claim, and remove the
Collateral from such premises and places to the premises of Bank or any agent of
Bank, for such time as Bank may require to collect or liquidate the Collateral,
and/or (ii) require Borrower to assemble and deliver the Collateral to Bank at a
place to be designated by Bank;
(e)The right to (i) open Borrower's mail and collect any and all amounts due
from Account Debtors or direct that Borrower's mail be diverted to a post office
box or other location as determined by Bank, (ii) notify Account Debtors that
the Accounts Receivable have been assigned to Bank and that Bank has a security
interest therein and (iii) direct such Account Debtors to make all payments due
from them upon the Accounts Receivable, directly to Bank or to a lock box
designated by Bank. Bank shall promptly furnish Borrower with a copy of any such
notice sent and Borrower
<PAGE>
hereby agrees that any such notice in Bank's sole discretion, may be sent on
Bank's stationery, in which event, Borrower shall, upon demand, co-sign such
notice with Bank; and
The right to sell, lease or to otherwise dispose of all or
any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or
sales, in lots or in bulk, for cash or on credit, all as Bank, in its
sole discretion, may deem advisable. At any such sale or sales of the
Collateral, the Collateral need not be in view of those present and
attending the sale, nor at the same location at which the sale is being
conducted. Bank shall have the right to conduct such sales on
Borrower's premises or elsewhere and shall have the right to use
Borrower's premises without charge for such sales for such time or
times as Bank may see fit. Bank is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains
to the Collateral, in advertising for sale and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit but Bank shall have no obligations
thereunder. Bank may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of actual
payment of such purchase price, may setoff the amount of such price
against amounts due under this Agreement. The proceeds realized from
the sale of any Collateral shall be applied first to the costs and
expenses, including reasonable attorneys' fees, incurred by Bank for
collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the Collateral; second to interest due
upon the Loans; and third to the principal of the Loans. Bank shall
account to Borrower for any surplus. If any deficiency shall arise,
Borrower shall remain liable to Bank therefor.
3Costs and Expenses. Bank shall be entitled to recover all costs, expenses, and
attorneys' fees (including any allocated costs of in-house counsel) in
connection with the administering or enforcing of this Agreement following the
occurrence and during the continuance of any Event of Default, whether or not an
action is filed.
9.MISCELLANEOUS.
1GAAP. Except as otherwise stated in this Agreement, all financial information
provided to Bank and all financial covenants will be made under generally
accepted accounting principles consistently applied.
2California Law. This Agreement is governed by California law.
<PAGE>
3Successors and Assigns. This Agreement is binding on Borrower's and Bank's
successors and assignees. Borrower agrees that it may not assign this Agreement
without Bank's prior written consent. Bank may sell participations in or assign
these loans, or any portion thereof, and may exchange financial information
about Borrower with actual or potential participants or assignees. If a
participation is sold or any portion of the loans is assigned, the purchaser
will have the right of set-off against Borrower.
4Severability; Waivers. If any part of this Agreement is not enforceable, the
rest of the Agreement may be enforced. No failure on the part of Bank to
exercise, and no delay in exercising, any right, power, or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Agreement preclude any other or further
exercise thereof or the exercise of any other right. Any consent or waiver under
this Agreement must be in writing. If Bank waives a default, it may enforce a
later default.
5Costs and Expenses. In addition to the recovery of costs and expenses upon an
occurrence of an Event of Default, if Bank incurs any reasonable out-of-pocket
expenses in connection with the preparation, administering or enforcing of this
Agreement, Borrower shall pay Bank all such costs and reasonable attorneys'
fees, including any allocated costs of Bank's in-house staffs, such as legal,
appraisal and audit.
6Multiple Borrowers. If two or more borrowers sign this Agreement, each will be
individually obligated to repay Bank in full, and all will be obligated
together.
7Individual Liability. If this Agreement is signed by a sole proprietor or
general partner, Bank may proceed against that person's business and
non-business property in enforcing this and other agreements relating to the
obligations hereunder.
8Entire Agreement. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a)represent the sum of the understandings and agreements between Bank and
Borrower concerning this credit; and
(b)replace any prior oral or written agreements between Bank and Borrower
concerning this credit; and
(c)are intended by Bank and Borrower as the final, complete and exclusive
statement of the terms agreed to by them.
<PAGE>
In the event of any conflict between this Agreement and any
other agreements required by this Agreement, this Agreement will prevail.
9Notices. Except as otherwise provided herein, all notices required under this
Agreement shall be personally delivered or sent by first class mail, postage
prepaid, to the addresses on the signature page of this Agreement, or to such
other addresses as Bank and Borrower may specify from time to time in writing.
10Headings; Construction. Article and paragraph headings are for reference only
and shall not affect the interpretation or meaning of any provisions of this
Agreement. As used in this Agreement and the other Loan Documents, the term
"include(s)" means "include(s), without limitation," and the term "including"
means "including, but not limited to."
11Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
12Further Assurances. Borrower shall, at its expense and without expense to
Bank, do, execute and deliver such further acts and documents as Bank from time
to time reasonably requires for the assuring to Bank the rights created or
intended to be created by this Agreement, the perfection or priority of Bank's
liens and security interests, and for carrying out the intention or facilitating
the performance of the terms of this Agreement or any document executed in
connection with this Agreement.
13Hazardous Waste Indemnification. Borrower will indemnify and hold harmless
Bank from any loss or liability directly or indirectly arising out of the use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance by Borrower (or its
agents, or subtenants) or on or emanating from Borrower's premises. This
indemnity will apply whether the hazardous substance is on, under or about
Borrower's property or operations or property leased to Borrower. The indemnity
includes but is not limited to reasonable attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to Bank, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any federal, state or local
law. This indemnity will survive repayment of Borrower's obligations to Bank.
<PAGE>
Upon demand by Bank, Borrower will defend any investigation,
action or proceeding alleging the presence of any hazardous substance in any
such location, which affects any of Borrower's property or operations or
property leased to Borrower or which is brought or commenced against Bank,
whether alone or together with Borrower or any other person, all at Borrower's
own cost and by counsel to be approved by Bank in the exercise of its reasonable
judgment. In the alternative, Bank may elect to conduct its own defense at the
expense of Borrower.
14Waiver of Jury Trial. The parties to this Agreement acknowledge that jury
trials often entail additional expenses and delays not occasioned by nonjury
trials. The parties to this Agreement further agree and stipulate that a fair
trial may be had before a state or federal judge by means of a bench trial
without a jury. In view of the foregoing, and as a specifically negotiated
provision of this Agreement, each party to this Agreement hereby expressly
waives any right to trial by jury of any claim, demand, action or cause of
action (1) arising under this Agreement or any other instrument, document or
agreement executed or delivered in connection herewith, or (2) in any way
connected with or related or incidental to the dealings of the parties hereto or
any of them with respect to this Agreement or any other instrument, document or
agreement executed or delivered in connection herewith, or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether sounding in contract or tort or otherwise; and each party
hereby agrees and consents that any such claim, demand, action or cause of
action shall be decided by court trial without a jury, and that any party to
this Agreement may file an original counterpart or a copy of this section with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to trial by jury.
<PAGE>
This Agreement is executed as of the date stated at the top of
the first page.
"Borrower"
AB PLASTICS CORPORATION, a California
corporation
By /s/Geoffrey Gorman
---------------------------------------------
Geoffrey Gorman, Chairman and Vice
President
[Printed Name and Title]
By /s/Stephen A. Weiss
---------------------------------------------
Stephen A. Weiss, Secretary
---------------------------------------------
[Printed Name and Title]
Address where notices to Borrower are to be sent:
AB Plastics Corporation
15730 South Figueroa Street
Gardena, CA 90248
Attn: Michael A. Gibbs
With a courtesy copy to:
Greenberg, Traurig, Hoffman
Lipoff, Rosen & Quentel
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Stephen A. Weiss, Esquire
<PAGE>
"Bank"
THE SUMITOMO BANK OF CALIFORNIA
By /s/David W. Shaw
---------------------------------------------
David W. Shaw, Vice President
---------------------------------------------
[Printed Name and Title]
Address where notices to Bank are to be sent:
The Sumitomo Bank of California
20100 Magnolia Street
Huntington Beach, California 92646
Attn: Mr. David W. Shaw
<PAGE>
AGREEMENT
THIS AGREEMENT, entered into as of the 1st day of May, 1994, by and
between MELEA LIMITED, the licensor, whose address is:
PO Box 239
Suites 2 & 3 Gibralter Heights
215 Main Street
Gibralter
hereinafter referred to as "MELEA" and AB PLASTICS CORPORATION, the
licensee, whose address is:
15730 South Figueroa Street
Gardena, CA 90248
hereinafter referred to as the "COMPANY".
WHEREAS, MELEA owns the entire right, title and interest in and to
United States Patent No. 4,101,617 and other Patents and Patent Applications in
the United States and other foreign countries listed in Schedule A attached;
WHEREAS, MELEA is the owner of proprietary technology relating to
gas-assisted plastic injection molding, hereinafter called GAIN TECHNOLOGY and
is authorized to grant a license under Patents and Patent Applications covering,
and know-how related to, gas-assisted plastic injection molding processes and
equipment;
WHEREAS, the COMPANY desires to enter the field of manufacturing
products with this technology and is interested in the GAIN TECHNOLOGY for this
purpose; and
WHEREAS, the COMPANY is desirous of obtaining from MELEA a nonexclusive
license to use GAIN TECHNOLOGY in the manufacture of plastic products.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I -- DEFINITIONS
A. LICENSED PATENTS
The term "LICENSED PATENTS n shall refer to the United States Patents
and Patent Applications, and their foreign counterparts, identified in Schedule
A and to further acquired patents of MELEA which MELEA may add to Schedule A
from time to time.
B. KNOW-HOW
The term "KNOW-HOW" means any information furnished by MELEA
to the COMPANY hereunder pertaining to gas-assisted plastic
injection molding, which includes, but is not limited to, that
information described in Schedule B.
C. LICENSED FACILITY
The term "LICENSED FACILITY" shall mean the molding facility
(or facilities), as identified in Schedule C, which is the only
facility (facilities) at which the COMPANY is authorized to use
GAIN TECHNOLOGY.
D. GAIN TECHNOLOGY
The term "GAIN TECHNOLOGY" shall refer to MELEA's proprietary
technology related to gas-assisted plastic injection molding as
identified by the LICENSED PATENTS and KNOW-HOW partially listed in
Schedules A and B.
E. PRODUCTS
The term "PRODUCTS" shall refer to articles produced using GAIN
TECHNOLOGY.
- 2 -
<PAGE>
ARTICLE II -- LICENSE
A. GRANT
MELEA grants to the COMPANY the nonexclusive license (with no
right to sub-license), to manufacture (except in Japan), use and/or
sell PRODUCTS produced at the LICENSED FACILITY using GAIN
TECHNOLOGY.
B. LIMITATIONS OF LICENSE
Nothing in this Agreement shall be construed as:
1. A warranty or representation by MELEA as to the validity
or scope of any LICENSED PATENT; or
2. A warranty or representation that the practice or use of
GAIN TECHNOLOGY, or any plastic molded product produced, under this
Agreement is or will be free from infringement of patents or other
claims of third parties; or
3. A requirement that MELEA shall file any patent
application, secure any patent or maintain any patent in force: or
4. An obligation to bring or prosecute actions or suits
against third parties for infringement; or
5. Licensing use of GAIN TECHNOLOGY for any equipment other
than that at the LICENSED FACILITY; or
6. Conferring rights to export PRODUCTS to other territories
for which such export is forbidden.
C. RIGHTS TO IMPROVEMENTS
Any improvements to the GAIN TECHNOLOGY made by the COMPANY or jointly
at the COMPANY's facility with MELEA shall be the sole
- 3 -
<PAGE>
property of MELEA. If any patents result from this development work, such
patents shall be solely owned by MELEA and the COMPANY shall be automatically
granted a license for any such new patents under this Agreement.
D. EXISTING PATENTS
If any patents or patent applications concerning gas-assisted injection
molding technology are owned by the COMPANY before execution of this Agreement,
MELEA shall be granted a royalty-free transferable license including the right
to grant sub-licenses for the life of such patents.
ARTICLE III -- TECHNICAL ASSISTANCE AND COOPERATION
A. TRAINING
MELEA agrees to use its best efforts to make available technical
personnel who will provide training of the COMPANY's personnel at the LICENSED
FACILITY for a reasonable number of days to be determined by MELEA at a charge
of Eight Hundred US Dollars ($US 800.00) per day to the COMPANY. The COMPANY
will pay any travel or other related expenses of such personnel. It is agreed
that MELEA does not assume responsibility, nor shall it be liable for any injury
which may occur to any person, or damage to any property, during any training
period or otherwise.
- 4 -
<PAGE>
B. COOPERATION
MELEA agrees to make available to the COMPANY from time to time upon
reasonable request KNOW-HOW to assist the COMPANY in utilizing this license.
ARTICLE IV -- PAYMENTS
A. ROYALTY TERMS
The COMPANY agrees to pay MELEA royalties in the amount set
forth on Schedule D attached. The COMPANY, however, shall be
relieved of paying any royalties if all the LICENSED PATENTS are
held invalid by a court of final jurisdiction.
B. PAYMENTS
All payments made to MELEA herein shall be in O.S. Dollars
deposited by wire transfer within ten (10) days of the date of this
Agreement and on each anniversary of this Agreement to the bank
designated by METFA. A facsimile of such wire transfer "hall be
sent to MELEA on the same day after deposit is made. The COMPANY
will receive credit for only payments actually received by MEIEA in
the designated account.
C. RECORDS AND REPORTS
The COMPANY shall keep records in sufficient detail to allow it to
report to MELEA on its net sales in conformity with the reporting requirements
established by MELEA. Each annual royalty payment shall be accompanied by a
report of net sales utilizing the format required by MELEA. Further, the COMPANY
shall complete the
- 5 -
<PAGE>
report attached as Schedule E for each applicable sold and submit it to MELEA
prior to the production of any PRODUCTS from such mold. MELEA shall also have
the right to have its duly authorized representative examine such records of the
COMPANY necessary to verify the accuracy of the sales reports made by the
COMPANY. In addition, MELEA shall have the right to inspect during normal
business hours the LICENSED FACILITY and the PRODUCTS manufactured in such
facility.
ARTICLE V -- CONFIDENTIALITY
The COMPANY agrees to keep confidential all proprietary information
relating to GAIN TECHNOLOGY to the same extent that it protects its own
proprietary and confidential material. Further, the COMPANY agrees to reveal
such information only to such persons and to such extent as may be required to
permit the COMPANY to utilize such information for its benefit in practicing the
license granted herein. These obligations do not apply to information that is
generally available to the public from another source, is lawfully acquired from
a source that is not a party to this Agreement, or is lawfully in the possession
of the COMPANY prior to disclosure by MELEA in written or other recorded form.
- 6 -
<PAGE>
ARTICLE VI -- TERM AND TERMINATION
A. TERM
This Agreement, unless terminated earlier as provided below, shall
continue for a period of five (5) years from the date it is entered into, or
until the expiration of the last-to-expire LICENSED PATENTS covered by this
agreement, whichever is later.
B. TERMINATION
1. BY MELEA
a. Breach by the COMPANY
In the event of a material breach of any of the terms of this
Agreement by the COMPANY, MELEA shall have the right to give the COMPANY written
notice of any such breach, and, if the breach is not cured by the COMPANY within
a period of thirty (30) days commencing with receipt of such notice, then MELEA
shall have the right to terminate this Agreement by written notice to the
COMPANY without waiving any rights accrued prior to termination. Material breach
shall include, but not be limited to, unauthorized disclosure or use of MELEA's
confidential information and nonpayment of money due to MELEA.
b. Receivership, Liquidation or Bankruptcy
This Agreement will immediately terminate upon the
appointment of a receiver or liquidator for, or the liquidation of, all or any
portion of the COMPANY's assets, the adjudication of the COMPANY as a bankrupt
or an assignment by the COMPANY for the benefit of its creditors.
- 7 -
<PAGE>
2. BY THE COMPANY
a. Breach by MELEA
In the event of a material breach of any of the terms of this
Agreement by MELEA, the COMPANY shall have the right to give MELEA written
notice of any such breach, and if the breach is not cured by MELEA within a
period of thirty (30) days commencing upon receipt of such notice, then the
COMPANY shall have the right to terminate this Agreement by written notice to
MET FA without waiving any rights accrued prior to termination.
b. Notice
The COMPANY shall have the right to terminate this Agreement on any
anniversary thereof after the fourth year by giving MELEA six (6) months advance
written notice of its intention to terminate.
c. Procedure on Termination
Upon termination, the COMPANY will immediately discontinue all
production and delivery of any PRODUCTS and cease use of the KNOW-HOW, and at
MELEA's request, promptly return to MELEA all documents and things including
copies containing or embodying KNOW--HOW and certify to MELEA that all such
documents and things have been returned.
- 8 -
<PAGE>
ARTICLE VII -- DISPUTE RESOLUTION AND GOVERNING LAW
A. DISPUTE RESOLUTION
The parties agree that any claim based on a controversy arising out of
or relating to this Agreement shall be brought in the U.S. District Court for
the Eastern District of Michigan and the parties consent to the jurisdiction of
such Court.
B. LIMITATION OF REMEDIES
Any award against MELEA cannot exceed one-half of any royalty
payments made to MELEA the previous one year period before notice
to MELEA of any dispute.
C. GOVERNING LAW
This Agreement shall be governed as to all matters including validity,
construction and performance, by the laws of the State of Michigan, U.S.A.
ARTICLE VIII -- OTHER MATTERS
A. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties; provided, however, it shall not be
assigned by the COMPANY without the prior written consent of MELEA, which
consent shall not be unreasonably withheld.
B. NOTICES
1. Any notice, order or communication to be given or made
under the Agreement shall be made in writing in the English
- 9 -
<PAGE>
language and delivered personally by hand or transmitted by cable, telex,
facsimile or registered air mail addressed to the following address of each
party or such changed address as shall be given by written notice:
If to MELEA:
MELEA Limited
PO Box 239
Suites 2 & 3 Gibralter Heights
215 Main Street
Gibralter
with copy to:
GAIN Technologies
6400 Sterling Drive North
Sterling Heights, MI 48312
Fax: (810) 826-8906
ATTN: Jon Erikson
If to the COMPANY:
AB PLASTICS CORPORATION
15730 South Figueroa Street
Gardena, CA 90248
ATTN: Mr. Bob Adams
FAX: (310) 324-8287
2. Notice, order or communication shall be deemed to have
been received:
a. If delivered by hand: at time of delivery.
b. If sent by telex: at time of transmission.
c. If sent by facsimile: at time of transmission. The
original copy shall be sent by air mail.
d. If sent by mail: ten (10) business days after the
date of mailing.
- 10 -
<PAGE>
Wherever possible, facsimile will be used to expedite communication
between the COMPANY and MELEA.
C. NOTICE OF PATENTED PROCESS
The COMPANY agrees that it will include on any of it's blue prints or
engineering drawings, or engineering specifications for PRODUCTS the following:
"NOTE: This gas assisted injection molded part may embody a patented or
proprietary process which requires a license from MELEA Limited for their "GAIN
TECHNOLOGY" process prior to manufacture under the following patents:
U.S.P.N. 4,101,617 4,781,554 4,750,409
4,830,812 4,855,094 4,913,644
4,942,006 4,943,407 4,944,910
4,848,547 5,028,377 5,032,345
5,069,858 5,069,859 5,098,637
5,114,660 5,137,680 5,110,535
5,131,226 4,555,225 4,474,717
D. NOTICE OF THIRD PARTY ACTIVITY
The COMPANY shall immediately notify MELEA in writing as to possible
infringement by any third party of any of the LICENSED PATENTS, or wrongful
taking of any of the KNOW-HOW, and shall provide MELEA with all details and
documents as are in its possession relating thereto. If MELEA, at its
discretion, elects to take action in respect of such third party activity, then
the COMPANY shall, at the request of MELEA, render reasonable
- 11 -
<PAGE>
assistance and shall be reimbursed by MELEA for reasonable expenses
incurred by the COMPANY.
E. DEFENSE OF INFRINGEMENT SUITS
In the event MELEA or the COMPANY receives from any third party
notification that the COMPANY's exercise of GAIN TECHNOLOGY is an infringement
of patents controlled by the third party, the party receiving such notice shall
promptly notify the other hereto in writing of its receipt of such notice
whereupon the following provisions shall become applicable:
1. The parties hereto shall mutually decide (but if the parties cannot
agree on the decision, MELEA shall decide) whether to seek to obtain a license
from the third party or whether to defend any suit then filed or thereafter
filed by the third party for the alleged infringement.
2. If suit is filed for infringement, the parties hereto shall mutually
decide (but if the parties cannot agree on the decision, the COMPANY shall
decide) upon the selection of patent trial counsel for the responsibility and
conduct of the defense in such suit.
3. The legal expenses incurred by reason of all third party
infringement allegations shall be shared by MELEA and the COMPANY according to
the following schedule:
- 12 -
<PAGE>
LEGAL EXPENSES COMPANY MELEA
- -------------------------------------------------------------------------------
Up to 1/2 of previous year's 50% 50%
royalties
In excess of 1/2 of previous 100% ---
year's royalties
4. Anything in the above to the contrary notwithstanding, it is
understood and agreed that in the event of such notification of infringement,
the COMPANY shall, prior to entering into any agreement or taking any action in
any litigation, notify MELEA in writing of its intentions in this regard. If
MELEA within sixty (60) days after receiving such notification and details,
notifies the COMPANY in writing that MEIEA will defend, at its own expense, and
indemnify and hold harmless the COMPANY with respect to the claim of the third
party of such infringement, then the COMPANY shall relinquish control thereof,
in favor of MEIEA. The COMPANY shall thereafter cooperate with MEIEA in the
prosecution of this suit, and it is agreed that the COMPANY shall bear its own
costs and expenses in connection with the suit.
F. NON-INTERFERENCE OF PATENT APPLICATIONS
In the event that the COMPANY shall commence any proceeding, such as by
formal opposition, challenging the validity or enforceability of any patent, or
the patentability of any application of MELEA'S anywhere in the world, such
conduct shall be cause for termination of this Agreement at the option of MELEA.
- 13 -
<PAGE>
G. SEVERABILITY
The parties agree that if any term, provision or part of this Agreement
is illegal or invalid, such illegality or invalidity shall not invalidate this
entire Agreement, but this Agreement shall be construed as if it did not contain
the offending term, provision or part and the rights and obligation of the
parties hereto shall be construed and enforced accordingly.
H. SOLE AGREEMENT OF THE PARTIES
There are no agreements or understandings between the parties, either
oral or in writing, with respect to the LICENSED PATENTS, and this Agreement can
only be amended or modified in a writing signed by both parties. The terms and
conditions of this Agreement shall supersede those of any purchase order or
other agreement issued by the COMPANY for this license.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
signatures as of the day and year written below.
MELEA LIMITED AB PLASTICS CORPORATION
By: /s/ Signature By: /s/Robert J. Adams
------------------------ ---------------------------
Its: Director Its: Vice President
----------------------- --------------------------
Date: 02/05/94 Date: May 1, 1994
---------------------- -------------------------
- 14 -
<PAGE>
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of Incorporation Percentage Owned
- ------------------ ---------------------- ----------------
AB Plastics Corporation Delaware 100%
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Compass Plastics & Technologies, Inc.
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1), and related prospectus of Compass Plastics &
Technologies, Inc. and to the incorporation by reference therein of our report
dated December 31, 1996 with respect to the consolidated financial statements as
of October 27, 1996 and for the fifty-two weeks then ended.
/s/ Marcum & Kliegman LLP
- --------------------------
Marcum & Kliegman LLP
Woodbury, New York
June 6, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
AB Plastics Corporation
Gardena, California
We consent to the incorporation by reference in this registration statement on
Form S-1 of our report dated December 14, 1995, relating to the balance sheet
of AB Plastics Corporation (an S Corporation) as of October 29, 1995 and the
related statements of operations, shareholders' equity and cash flows for the
fifty-two weeks then ended and to the reference to our firm under the heading
"Experts" in the Prospectus. We have read the last paragraph under "Experts"
and are in agreement with the statements contained therein.
/s/ Block, Plant, Eisner, Fiorito & Belak-Berger
------------------------------------------------
BLOCK, PLANT, EISNER, FIORITO & BELAK-BERGER
Encino, California
June 5, 1997
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<FISCAL-YEAR-END> OCT-26-1997 OCT-27-1996
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