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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-38601
ADVANCED MATERIALS GROUP, INC.
2,830,807 Shares
of
COMMON STOCK
($.001 par value)
The shares of Common Stock of Advanced Materials Group, Inc. ("AMG" or
the "Company") offered hereby (the "Shares") will be sold from time to time by
and for the account of certain selling stockholders ("Selling Stockholders") in
transactions in the national over-the-counter market or in negotiated
transactions, at market prices prevailing at the time of the sale or at
negotiated prices. The Company will not receive any of the proceeds from the
sale of the Shares. The expenses incurred in registering the Shares, estimated
to be $25,000, will be paid by the Company, except that certain of the Selling
Stockholders have agreed to reimburse the Company for certain of its expenses,
up to a maximum of $15,000.
The Shares offered hereby have been or upon the exercise of outstanding
warrants or options will be acquired by the Selling Stockholders from the
Company or from affiliates of the Company in private transactions and are or
will be "restricted securities" under the Securities Act of 1933, as amended
(the "Act"), prior to their sale hereunder. This Prospectus has been prepared
for the purpose of registering the Shares under the Act to allow for future
sales by the Selling Stockholders to the public without restriction. To the
knowledge of the Company, the Selling Stockholders have made no arrangement with
any brokerage firm for the sale of the Shares. The Selling Stockholders may be
deemed to be "underwriters" within the meaning of the Act. Any commissions
received by a broker or dealer in connection with resales of the Shares may be
deemed to be underwriting commissions or discounts under the Act. See "Plan of
Distribution."
Brokers or dealers effecting transactions in the Shares should confirm
the registration of the Shares under the securities laws of the states in which
such transactions occur or the existence of an exemption from such registration,
or should cause such registration to occur in connection with any offer or sale
of the Shares.
The Common Stock of the Company is traded in the over-the-counter market
and quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") SmallCap Market, under the NASDAQ symbol "ADMG". The bid and
asked prices for the Common Stock on January 22, 1998, as reported on NASDAQ,
were $3 7/16 and $3 9/16 per share, respectively.
THE COMMON STOCK OFFERED HEREBY IS HIGHLY SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS."
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.
---------------------------------------------------
The date of this Prospectus is January 23, 1998
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TABLE OF CONTENTS
AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 4
THE COMPANY 4
RISK FACTORS 5
USE OF PROCEEDS 10
SELLING STOCKHOLDERS 10
PLAN OF DISTRIBUTION 12
DESCRIPTION OF CAPITAL STOCK 13
LEGAL MATTERS 14
EXPERTS 14
OTHER MATTERS 14
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934 (the "1934 Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwest
Atrium Building, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, or from the Commission's web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Securities and Exchange Commission and are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1996;
(b) The Company's Quarterly Reports on Form 10-QSB for the quarters
ended February 28, 1997, June 1, 1997 and August 31, 1997;
(c) The Company's Current Reports on Form 8-K filed December 3, 1996,
August 7, 1997 and September 27, 1997, and on Form 8-K/A filed October 7, 1997;
and
(d) The description of the Company's Common Stock contained in the
Registration Statement filed pursuant to Section 12 of the Exchange Act,
together with all amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering of Common Stock offered hereby shall be deemed to be
incorporated by reference into this Prospectus and to be part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been incorporated into this Prospectus by
reference (other than exhibits to such documents). Requests for such copies
should be directed to Steve F. Scott, Chairman, President and Chief Executive
Officer, Advanced Materials Group, Inc., 20211 South Susana Road, Rancho
Dominguez, California 90221 (Telephone (310) 537-5444).
No person is authorized to give any information or make any
representations 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. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the registered
shares to which it relates or an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in or incorporated by reference into this Prospectus
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general business conditions,
including a worsening economy which might slow the overall demand for the
Company's products; increased inflationary pressures which might lead to
increasing prices for raw materials, labor, and increases of interest costs
based on the Company's borrowing activities; competitive factors, including the
entry of new competitors into the marketplace and/or heightened competition from
existing competitors; and the introduction of new products or technologies by
customers or competitors; under utilization of the Company's factories and
plants, or of any new plants; concentrations of sales in markets and customers;
failure to obtain new customers, retain customers or volume reductions by
current customers; concentrations of raw material suppliers, including
difficulties or delays in obtaining raw materials; inability to execute
marketing and sales plans, including price increases; failure to attract and
retain R&D/engineering staffing to support sales efforts; inability to develop
cost effective means for timely production of new product orders in required
quantities; delays or cancellations of orders; timing of significant orders, and
introduction of new products; short-term fluctuations in margins due to yields
and efficiencies; loss of executive management or other key employees; changes
in financing amount, availability or cost; the effects of changes in costs and
availability of insurance coverage; the effects of changes in compensation or
benefit plans; adoptions of new, or changes in, accounting policies and
practices and the application of such policies and practices; adverse results in
significant litigation matters; and other factors referenced in the Prospectus.
THE COMPANY
GENERAL
The Company, through its subsidiaries and division, develops,
manufactures and markets a wide variety of industrial products. The Company's
principal subsidiary, Advanced Materials, Inc. (formerly known as Wilshire
Advanced Materials, Inc.) ("AM"), is the successor to a forty-four year old
business that converts specialty materials including foams, foils, films and
adhesive composites into components and finished products such as printer
cartridge inserts and inking felts, disk drive gaskets, automobile air
conditioning insulators, water and dust seals, surgical pads and applicators for
the medical, electronics, automotive and consumer products markets. The
Company's Condor Utility Products, Inc. ("Condor") subsidiary produces
specialized systems for mixing and dispensing multi-component chemicals which,
when combined, form sealants which are sold to end-users, chemical manufacturers
and repackagers for use in the telecommunications and power utility industries.
The Company's Performance Polymer Division plans, under license, to manufacture
and market a hydrophilic polymer developed by Innovative Technologies, Ltd.
("IT") assuming satisfactory results are obtained in testing the product.
Product testing is ongoing and the Company is unable to predict when, if ever,
such new product will be commercialized.
The Company, which was formerly known as Far West Ventures, Inc., was
incorporated in Nevada in October, 1986. The Company was inactive from January
1990 until April 1993, when it acquired AM. AM had previously been formed as a
California corporation in August, 1992 for the purpose of acquiring the assets
of the General Foam Products division of Wilshire Technologies, Inc. ("WTI").
The assets acquired by AM constituted a portion of the business and assets
previously acquired by WTI from Wilshire Foam Products, Inc. in November, 1990.
The Company's principal executive offices are located at 20211 S. Susana
Road, Rancho Dominguez, California 90221, and its telephone number is (310)
537-5444.
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RISK FACTORS
THE SECURITIES WHICH ARE OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK INCLUDING,
BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS SET FORTH BELOW. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE RISK FACTORS INHERENT IN AND AFFECTING
THE BUSINESS OF THE COMPANY AND THIS OFFERING IN MAKING AN INVESTMENT DECISION.
LOSSES FROM OPERATIONS; ACCUMULATED DEFICIT
The Company realized net income of $4,184,000 in fiscal 1996 (ending
November 30, 1996) (which included a $4,310,000 extraordinary gain resulting
from sales of securities previously held for investment and an extraordinary
gain of $508,000 from the early extinguishment of debt), and incurred net losses
of $2,979,000 and $2,756,000 in fiscal 1995 (ending November 30, 1995) and
fiscal 1994 (ending November 30, 1994) respectively. Past losses have been
funded by borrowings and by the sale of the Company's securities in private
placements. In addition, the Company had an accumulated deficit as at August
31, 1997, of $1,558,000. There is no assurance that the Company's operations
will be profitable in the future. If additional losses are sustained, or
profits are not generated in an amount sufficient to diminish the accumulated
deficit, the accumulated deficit will continue to negatively affect the value of
stockholders' equity and, accordingly, the value of each share of Common Stock.
In addition, losses from operations would, and the accumulated deficit will,
continue to impair the Company's ability to raise additional financing,
including debt financing.
RISKS OF BORROWING; RISK OF INABILITY TO SERVICE DEBT IN EVENT OF FLUCTUATIONS
IN INTEREST RATES OR INSUFFICIENT CASH FLOW
AM has established a revolving line of credit with a commercial lender,
and also owes, $405,000 to the holders of 7 1/2% convertible debentures issued
in the first half of 1994. If the Company is unable to generate sufficient cash
flow from operations in the future, it may be unable to pay principal or
interest on its borrowings when due and may be required to refinance all or a
portion of its existing debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company.
SUBSTANTIAL NUMBER OF SHARES REGISTERED FOR SALE; CHANGE IN CONTROL
The number of shares registered for sale hereunder, including shares
issuable upon the exercise of warrants held by the Selling Stockholders as of
January 22, 1998, represents approximately 32.8% of the total number of shares
which are outstanding or which are issuable upon the exercise of warrants or
options held by the Selling Stockholders. Sales of substantial amounts of the
Company's Common Stock registered for sale hereunder, or even the potential for
such sales, could have a negative effect on the market price of shares of the
Company's Common Stock and could impair the Company's ability to raise capital
through the sale of its own equity securities.
In addition to the shares registered hereunder the Company separately
has repurchased from Trilon Dominion Partners, LLC, a Delaware limited liability
company ("Trilon"), 2,000,000 shares of the Company's common stock at a price of
$1.75 per share. Prior to such transaction Trilon owned, assuming exercise of
warrants held by Trilon, approximately 39.9% of the outstanding shares of common
stock and, after such transaction, Trilon owned (assuming exercise of warrants)
approximately 26.9% of the outstanding common stock. Trilon then, on September
15, 1997, in a privately negotiated transaction, sold all of its shares, and
warrants to acquire shares, of the Company's common stock to certain of the
Selling Stockholders named herein. All of the shares held by such Selling
Stockholders, and all shares of the Company's common stock issuable upon
exercise of warrants held by such Selling Stockholders, are being registered on
the registration statement of which this Prospectus forms a part.
Accordingly, the sale of all or substantially all of the shares
registered for sale hereunder would result in a change in control of the
Company. A change in control of the Company could result in a change in the
Company's management which, in turn, could result in a change in the Company's
business plans and policies or other aspects of
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the Company's business. There can be no assurance that a new control person or
group would continue to pursue the policies or business practices of existing
management, and there can likewise be no assurance that such a change in control
will not have a material adverse effect on the Company's financial condition or
results of operations, or on the value of the Common Stock, or on the ability of
the Company to attract additional financing.
PROCEEDS TO BENEFIT SELLING STOCKHOLDERS
The Company will not receive any of the proceeds from the sale of shares
hereunder, but will receive payment upon exercise of the warrants. The sale by
the Selling Stockholders of all or substantially all of the shares owned or
issuable upon the exercise of warrants or options held by them could also have a
negative effect on the market price of shares of the Company's Common Stock. In
addition, as noted above, a change in control of the Company could result in a
change in the Company's management which, in turn, could result in a change in
the Company's business plans and policies or other aspects of the Company's
business. There can be no assurance that a new control person or group would
continue to pursue the policies or business practices of existing management,
and there can likewise be no assurance that such a change in control will not
have a material adverse affect on the Company's financial condition or results
of operations, or on the value of the Common Stock, or on the ability of the
Company to attract additional financing.
The average of the bid and asked prices of the Common Stock as reported
by NASDAQ on January 22, 1998, was $3.50. Of the 2,830,807 shares being
registered for sale hereunder, 1,600,807 were acquired at a price of $1.75 per
share, and 1,230,000 may be acquired upon exercise of warrants and options at
exercise prices ranging from $0.75 to $3.44.
RELATED PARTY TRANSACTIONS WITH TRILON
In 1994, a major shareholder sold shares of the Company's common stock
to Dominion Capital, Inc. ("Dominion"), which also purchased shares directly
from the Company. William J. Hopke, an officer of Dominion, was named Chairman
of the Company. As a result, immediately prior to June 30, 1995, Dominion owned
approximately 32% of the Company's outstanding common stock. In a transaction
reported on a Schedule 13D filed by Dominion and others dated June 30, 1995,
Dominion contributed its ownership of such common stock, including warrants to
acquire common stock of the Company and a line of credit, to Trilon in exchange
for a non-voting Class B membership interest in Trilon. Mr. Hopke became
Executive Vice President and Director of Trilon. Subsequently, Mr. Hopke was
replaced as a director and as Chairman of the Board of the Company by Ronald W.
Cantwell, the President of Trilon. Trilon subsequently acquired additional
shares of the Company's common stock in a private placement.
When Trilon advised the Company that it proposed to sell its holdings in
the Company the Company formed an independent committee of the Board of
Directors to determine whether it would be fair to the stockholders of the
Company from a financial point of view to repurchase some of those shares from
Trilon. The independent committee, after deliberation, recommended to the Board
of Directors that the Company purchase 2,000,000 shares from Trilon at a price
of $1.75 per share, and further agreed to recommend to the Board of Directors to
register the remainder of the shares, including shares issuable upon exercise of
warrants, on the registration statement of which this Prospectus forms a part,
on behalf of Trilon or any approved purchaser from Trilon. Trilon subsequently
sold its shares, and its warrants to acquire shares, of the Company's common
stock to certain of the Selling Stockholders named herein. Mr. Cantwell then
resigned from the Board and was replaced as a director by Timothy R. Busch, a
representative of certain of the Selling Stockholders.
COMPETITION; OBSOLESCENCE
The custom materials fabrication industry in which AM competes is highly
competitive. High barriers to entry and fragmented competition characterize the
industry. Barriers to entry are high because most of the products must be
produced by customized, proprietary equipment which is designed and/or built
in-house and cannot be produced with standard equipment. Most of the Company's
competitors are small, privately held companies, which generally specialize in
only one product or process. Three of the Company's principal competitors are
Boyd Industrial, which has four
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locations in the Western United States, Packaging Alternatives Corp. and Foam
Molders. AM competes primarily on the basis of its ability to meet customers'
specifications promptly and cost effectively, and on the quality of its
products.
Current competitors or new market entrants could introduce new or
enhanced products with features which render AM's products obsolete or less
marketable, or could develop means of producing competitive products at a lower
cost. The ability of AM to compete successfully will depend in large measure on
its ability to adapt to technological changes in the industry. There can be no
assurance that AM will be able to keep pace with the technological demands of
the market place or successfully develop new products, which are in demand by
the industry.
The market in which Condor competes is competitive. Condor competes
against one large competitor, Courtaulds Aerospace, which has substantially
greater financial, marketing, personnel, and other resources than Condor, and at
least three smaller competitors, which supply only small segments of the market.
Condor competes primarily on the basis of the quality and utility of its
products rather than on the basis of price.
GOVERNMENT REGULATION
The manufacture of certain products by AM and Condor requires the
purchase and use of chemicals and other materials, which are or may be,
classified as hazardous substances. The Company and its subsidiaries do not
maintain environmental impairment insurance. There can be no assurance that the
Company and its subsidiaries will not incur environmental liability or that
hazardous substances are not or will not be present at their facilities.
The Company and its AM and Condor subsidiaries are subject to
regulations administered by the United States Environmental Protection Agency,
various state agencies and county and local authorities acting in conjunction
with federal and state agencies. Among other things, these regulatory bodies
impose restrictions to control air, soil and water pollution. The extensive
regulatory framework imposes significant complications, burdens and risks on the
Company. Governmental authorities have the power to enforce compliance with
these regulations and to obtain injunctions and/or impose civil and criminal
fines or sanctions in the case of violations.
The Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict joint and several
liability on the present and former owners and operators of facilities which
release hazardous substances into the environment. The Federal Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), regulates the
generation, transportation, treatment, storage and disposal of hazardous waste.
In California, the handling and disposal of hazardous substances is governed by
the law, which contains the California counterparts of CERCLA and RCRA. The
Company and its subsidiaries believe that their manufacturing activities are in
substantial compliance with all material Federal and state laws and regulations
governing their respective operations. Amendments to existing statutes and
regulations could require the Company or its subsidiaries to modify or alter
methods of operations at costs, which could be substantial. There can be no
assurance that the Company or its subsidiaries will be able, for financial or
other reasons, to comply with applicable laws and regulations.
Various laws and regulations relating to safe working conditions,
including the Occupational Safety and Health Act ("OSHA"), are also applicable
to the Company and its subsidiaries. The Company believes it and its
subsidiaries are in substantial compliance with all material Federal, state and
local laws and regulations regarding safe working conditions.
RELIANCE ON MAJOR CUSTOMERS; REGIONAL BUSINESS
AM generally sells its products pursuant to customer purchase orders.
There can be no assurance that any such customers will continue to purchase
products from AM in the future. These customers are in the computer printer,
medical disposables, automotive air conditioning and consumer cleaning supply
markets. Management believes that this diversity spreads the risk of dependence
upon one customer or one market sector. However, one customer accounted for 28%
and 13% of consolidated revenue for the year ended November 30, 1996 and 1995,
respectively. While AM has acquired new customers as well as orders for new
products from existing customers, the loss of one or more of its
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largest customers or a decline in the economic prospects of such customers
could, and in the case of its largest customer would, have an adverse effect on
AM's business.
AM's prices are competitive with other fabricators of custom materials.
AM sales are typically made on terms which require payment of the net amount due
in 30 days.
Major customers for Condor are primarily in the telecommunications and
power utility business. Condor has identified the electronics and aerospace
industries as future target markets for a new line of adhesive products, which
Condor has developed and is launching in the near future.
AM's domestic customers are located primarily in the West, Southwest and
Southeast regions of the United States. For bulky, low value products, high
freight costs on long distance shipments from AM's Rancho Dominguez, Portland,
Denver and Dallas facilities make it difficult for AM to be competitive in other
regions of the United States or internationally.
DEPENDENCE ON MAJOR SUPPLIERS
AM purchases raw materials primarily consisting of polyurethane foam,
crosslinked polyolefin foams and pressure sensitive adhesives. Polyurethane
foam accounted for approximately 48% of the raw materials purchased by AM in
fiscal 1996 and fiscal 1995. The Company's largest supplier of raw materials is
Foamex Engineered Polyurethanes ("Foamex"), which in fiscal 1996 and fiscal 1995
supplied approximately 31% and 39%, respectively, of AM's raw materials'
requirements.
AM is an authorized fabricating distributor for a number of raw material
suppliers, including Foamex, Voltek, Avery Dennison (pressure sensitive
adhesives), Zotefoam (crosslinked polyethylenes) and Ensolite (vinyl foam).
Management believes that these supply arrangements, many of which have been
active for 25 years or more, provide AM with a diverse mix of raw materials at
the best available prices. AM purchases raw materials pursuant to purchase
orders placed from time to time in the ordinary course of business. Failure or
delay by such suppliers in supplying necessary raw materials to AM could
adversely affect AM's ability to manufacture and deliver products on a timely
and competitive basis. AM purchases its raw materials on standard credit terms
and considers its relationship with its suppliers to be good.
Management believes that the loss of either Foamex or Voltek as a major
supplier of foam would not have a materially adverse effect on AM's business in
the long term because other suppliers of foam could be relied upon to meet AM's
requirements at a comparable cost. However, the loss of either Foamex or Voltek
would have a materially adverse effect on AM's business in the short term
(approximately three months), and the Company has secured contingent business
interruption insurance to offset such losses. Management believes that the loss
of any other supplier would not have a material adverse effect on AM.
AM's business is subject to the risk of price fluctuations and periodic
shortages of raw materials. AM purchases raw materials pursuant to purchase
orders placed from time to time in the ordinary course of business. Failure or
delay by such suppliers in supplying necessary raw materials to AM could
adversely affect AM's ability to manufacture and deliver products on a timely
and competitive basis.
PROPRIETARY RIGHTS; LACK OF PATENT PROTECTION
None of AM's current manufacturing processes or products are protected
by patents. AM relies on proprietary know-how and employs various methods to
protect its processes. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop such processes.
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DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon the efforts and abilities of its senior
management, especially its Chairman, President and Chief Executive Officer,
Steve F. Scott. The loss of any of the Company's senior management could have
an adverse effect on its business and prospects. The Company has not obtained
any key man life insurance on any of its senior management other than a $500,000
policy on Mr. Scott. The Company has, however, entered into employment
agreements with Mr. Scott and with two other senior officers, David Lasnier and
J. Douglas Graven.
NO DIVIDENDS CONTEMPLATED ON COMMON STOCK
To date, no dividends have been paid on the Common Stock, and the
Company does not currently anticipate paying any such cash dividends in the
foreseeable future, but rather intends to invest profits, if any, in its
business.
EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS
Warrants and options to acquire 2,863,467 shares of Common Stock are
outstanding as of January 22, 1998. During the terms of such options and
warrants, the holders thereof will have the opportunity to profit from an
increase in the market price of Common Stock with resulting dilution in the
interest of holders of Common Stock. The existence of such options and warrants
may adversely affect the terms on which the Company can obtain additional
financing, and the holders of such options and warrants can be expected to
exercise such options and warrants at a time when the Company, in all
likelihood, would be able to obtain additional capital by offering shares of its
Common Stock on terms more favorable to the Company than those provided by the
exercise of such options and warrants.
LITIGATION
In October 1996, the Company was notified that it was named in a bodily
injury lawsuit pending in 192nd Judicial District Court of Dallas County Texas,
involving silicon breast implants. The suit alleges that AMI supplied certain
foam "wipers" which were incorporated into certain implants by manufacturers
also named in the suit, which have allegedly caused adverse effects to the
plaintiffs. The suit asks for unspecified damages. The Company believes it has
no exposure in this case as: (1) AMI was not incorporated at the time of such
implants; (2) AMI has had no involvement with silicone or other breast implants;
(3) AMI has never marketed such "wipers"; and, (4) there exists two
indemnification agreements with sellers of businesses acquired by the Company
that provide protection to the Company. The Company believes the aforementioned
provide several layers of protection in the event this case progresses.
Accordingly, no provision for any liability has been made in the Company's
financial statements. An adverse ruling could, however, have a marked adverse
effect on the Company's financial condition.
AMI currently maintains product liability insurance in the amount of
$1,000,000, with excess umbrella coverage in the amount of $10,000,000. Except
for the breast implant suit, no product liability claims have been made to date.
However, there can be no assurance that any such claims will not be made in the
future in excess of such limits or that any such claims, if successful and in
excess of such limits, will not have a material adverse effect on AMI's assets
and its ability to conduct its business.
The Company's Condor subsidiary was named in a lawsuit originally filed
in the Superior Court of California, San Joaquin County, on January 24, 1992 by
Vern Auten and Shirley Auten, doing business as Aglo Plastics Company.
Plaintiffs alleged that Condor breached a supply contract by obtaining various
molds from a competing supplier, and are seeking damages therefor. Plaintiffs
are also seeking damages based upon an alleged intentional infliction of
emotional distress upon plaintiffs by a Condor employee and by its then owner
(and current President). Condor filed a cross-complaint alleging that
plaintiffs breached the contract. Plaintiffs received a nonbinding arbitration
award of approximately $267,000 plus interest. Condor had requested a trial de
novo. Condor subsequently received notice from an attorney representing the
plaintiffs of an alleged infringement by Condor of a patent held by the
plaintiffs. Condor believes the plaintiff's claims to be without merit, intends
to vigorously defend against the claims, and moved for declaratory relief in
federal district court for the eastern district of California, and joined the
actions that were the subject of claims between Condor and the plaintiffs in
state court. Trial has been set to commence in June, 1998.
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The sellers of Condor have agreed to indemnify the Company with respect
to any potential liability from the alleged breach of contract. The ultimate
outcome of this litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication has been made in
the Company's financial statements. An adverse ruling could, however, have a
material adverse effect on the Company's financial condition.
USE OF PROCEEDS
All of the Shares offered hereby are being offered by the Selling
Stockholders. The Company will not receive any proceeds from the sales of the
Shares by the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling Stockholders
as of January 22, 1998, and as adjusted to reflect the sale of the shares.
<TABLE>
<CAPTION>
Maximum Beneficial Ownership and
Beneficial Number of Percentage of Common
Ownership of Shares of Stock After Giving Effect
Common Stock at Common Stock to Proposed Sale
Name of Selling January 22, 1998 Offered for Sale (2)
Shareholder (1) (1) Number Percent
<S> <C> <C> <C> <C>
Dito Caree Limited 1,330,096 1,330,096 0 0%
Partnership
Dennis Harwood 29,558 29,558 0 0%
Gregory A. Busch and
David L. Keligian,
Trustees of the Lenawee
Trust, dated December 30, 873,795 873,795 0 0%
1992(3)
Timothy R. Busch(3) 20,000 20,000 0 0%
Four JM, LLC 133,010 133,010 0 0%
David B. Hehn 8,399 8,399 0 0%
David L. Keligian 47,293 47,293 0 0%
Gregory A. Busch(3) 48,770 48,770 0 0%
George P. Mulcaire 11,999 6,999 5,000 *
James J. Scheinkman 8,399 8,399 0 0%
Karen M. Busch 2,800 2,800 0 0%
Clay Stevens 4,199 4,199 0 0%
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Steven P. Howard 4,199 4,199 0 0%
Douglas M. Stevens 2,800 2,800 0 0%
Rudy J. Fuchs 4,199 4,199 0 0%
John Savage 6,999 6,999 0 0%
Sherri Schaefer 6,999 6,999 0 0%
Rick S. Weiner 47,293 47,293 0 0%
Steve F. Scott(4) 595,000 85,000 319,000 3.7%
J. Douglas Graven(5) 227,417 50,000 177,417 2.1%
David Lasnier(6) 260,000 50,000 190,000 2.2%
Ronald W. Cantwell(7) 20,000 20,000 0 0%
N. Price Paschall(8) 240,000 10,000 70,000 *
Michael A. Ledeen(9) 90,000 10,000 30,000 *
Allan H. Meltzer(10) 51,000 10,000 21,000 *
Sarah Casey(11) 10,000 10,000 0 0%
</TABLE>
* Less than 1%.
- --------------------------------
(1) Includes shares of Common Stock which may be acquired through the
exercise of warrants, as follows: Dito Caree Limited Partnership (430,096);
Dennis Harwood (9,558); Gregory A. Busch and David L. Keligian, Trustees of the
Lenawee Trust dated December 30, 1992 (419,988); Four JM, LLC (43,010); David B.
Hehn (2,399); David Keligian (15,293); Gregory A. Busch (15,770); George P.
Mulcaire (1,999); James J. Scheinkman (2,399); Karen M. Busch (800); Clay R.
Stevens (1,199); Steven Howard (1,199); Douglas M. Stevens (800); Rudy J. Fuchs
(1,199); John Savage (1,999), Sherri Schaefer (1,999); Rick S. Weiner (15,293).
Includes shares of Common Stock which may be acquired through the execution of
options, as follows: Timothy R. Busch (20,000); Steve F. Scott (160,000); J.
Douglas Graven (100,000); David Lasnier (100,000); Ronald W. Cantwell (20,000);
N. Price Paschall (10,000); Michael A. Ledeen (10,000); Allan H. Meltzer
(10,000); and Sarah Casey (10,000).
(2) Assumes the sale of all shares covered by this Registration Statement
and by the Company's other registration statement on Form S-3 (Registration No.
33-72500). There can be no assurance that any of the Selling Stockholders will
sell any or all of the shares of Common Stock offered by them hereunder.
(3) Timothy R. Busch is presently a director and Chairman of the Company.
Shares beneficially owned by the Lenawee Trust, of which Mr. Busch is a
beneficiary, includes 453,807 outstanding shares of Common Stock, as well as
419,988 shares of Common Stock which may be acquired through the exercise of
warrants as described in Note 1. Shares deemed beneficially owned by Mr. Busch
includes such shares, as well as 20,000 shares issuable upon exercise of an
option held by Mr. Busch that is exercisable on or after March 15, 1998.
Gregory A. Busch, a brother of Timothy R. Busch, is a co-trustee of the Lenawee
Trust and disclaims beneficial ownership of the shares owned beneficially by
Lenawee Trust and Timothy R. Busch.
(4) Steve F. Scott is presently the President and Chief Executive Officer of
the Company.
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(5) J. Douglas Graven is Vice President, Chief Financial Officer and
Secretary of the Company.
(6) David Lasnier is Senior Vice President of the Company and General
Manager of the Company's Advanced Materials, Inc. subsidiary.
(7) Ronald W. Cantwell was Chairman of the Board from January, 1997 to
September, 1997.
(8) N. Price Paschall is a director of the Company.
(9) Michael A. Ledeen is a director of the Company.
(10) Allan H. Meltzer is a director of the Company.
(11) Sarah Casey is an employee of the Company.
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Stockholders for
their own account. The Company will not receive any of the proceeds from the
sale of the Shares pursuant to this Prospectus. Except as described below, the
Company has agreed to bear the expenses of the registration of the Shares,
including legal and accounting fees, and such expenses are estimated to be
$25,000. Certain of the Selling Shareholders have agreed to reimburse the
Company for certain of such expenses up to a maximum of $15,000.
The Selling Stockholders may offer and sell the Shares from time to time
in transactions in the over-the-counter market or in negotiated transactions, at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Stockholders have advised the Company that they have not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their Shares, nor is there an underwriter
or coordinating broker acting in connection with the proposed sale of Shares by
the Selling Stockholders. Sales may be made directly or to or through
broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
Shares for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions).
The Selling Stockholders and any broker-dealers acting in connection
with the sale of the Shares hereunder may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Act, and any commissions received by
them and any profit realized by them on the resale of Shares as principals may
be deemed underwriting compensation under the Act.
The Company has informed the Selling Stockholders that the
anti-manipulative Regulation M under the Securities Exchange Act of 1934, as
amended, may apply to its sales in the market and has furnished the Selling
Stockholders with a copy of these Rules and has informed it of the need for
delivery of copies of this Prospectus.
The Selling Stockholders may also use Rule 144 under the Act to sell the
Shares if they meet the criteria and conform to the requirements of such Rule,
or other such exceptions as may be available to them under the Act.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
25,000,000 shares of Common Stock, par value $.001 per share, of which 8,609,805
were outstanding as of January 22, 1998. All outstanding shares of Common
Stock, including the Shares offered hereby, are fully paid and nonassessable.
All Shares to be issued upon due and proper exercise of outstanding options and
warrants, assuming full payment of the exercise price in connection therewith,
will be fully paid and nonassessable. Holders of Common Stock have no
preemptive, redemption or conversion rights, and are entitled to one vote for
each share held on each matter submitted to a vote of stockholders. Cumulative
voting for the election of directors is not permitted so that holders of more
than 50% of the outstanding Common Stock can elect all of the directors.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of the Company's Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor and in liquidation proceedings.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
5,000,000 shares of Preferred Stock, par value $.001 per share. None of the
Company's Preferred Stock is issued and outstanding. The Company's Board of
Directors has authority, without action by the stockholders, to issue all or any
portion of the authorized but unissued Preferred Stock in one or more series and
to determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series. The Preferred Stock, if and
when issued, will likely carry rights superior to those of the Common Stock.
DEBENTURES
The Company has issued convertible debentures in the aggregate principal
amount of $535,000 which bear interest at the rate of 7 1/2% per annum (the
"Debentures"), of which $130,000 in principal amount had converted as at January
23, 1998. The Debentures are convertible at the holders' option into shares of
the Company's Common Stock at the initial conversion rate for each of the
Debentures of 125% of the closing bid price of the Common Stock on the day prior
to the day of sale of the respective Debentures. The term of the Debentures is
10 years. The Debentures may be pre-paid, in whole or in part, after 18 months
from the issue date, but not before, upon 20 days' prior notice, at a price
equal to the face value of the Debenture plus accrued and unpaid dividends to
the payment date. The Company has the right to require conversion of the
Debentures after 18 months from the issue date, if the average closing bid or
sale price per share of Common Stock, for a period of 10 consecutive trading
days, equals or exceeds 150% of the closing bid price for the Common Stock on
the day prior to the day of sale of the respective Debentures. The holders of
the Debentures have no voting rights. The Debentures have not been registered
under the Act; however, the Company has agreed to register the shares of Common
Stock underlying the Debentures. The Company has terminated its Debenture
offering and has no present plans to offer or sell any additional debentures.
The proceeds from the sale of the Debentures were used to reduce payables and
for general corporate purposes.
TRANSFER AGENT
The Transfer Agent and Registrar with respect to the Company's Common
Stock is American Stock Transfer and Trust Company.
INDEMNIFICATION
The Company's Bylaws and Section 78.751 of the Nevada Revised Code
provide for indemnification of directors and officers against certain
liabilities. Officers and directors of the Company are indemnified generally
against expenses actually and reasonably incurred in connection with actions,
suits or proceedings, whether civil or criminal, provided that it is determined
that they acted in good faith, and, in any criminal matter, had reasonable cause
to believe that their conduct was not unlawful. Insofar as indemnification for
liabilities arising under the Act may be permitted to
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directors, officers or persons controlling the Company pursuant to the foregoing
provisions or otherwise, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Day Campbell & McGill, 3070 Bristol Street, Suite 650, Costa
Mesa, California.
EXPERTS
The audited financial statements of the Company as of November 30, 1995
and November 30, 1996, and for the years then ended incorporated herein by
reference in this Prospectus and the related Registration Statement, have been
audited by Corbin & Wertz, independent auditors, as set forth in their report
thereon, and are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
OTHER MATTERS
The Company's Articles of Incorporation provides that (a) the personal
liability of a director or officer to the Company or its stockholders for
damages for breach of fiduciary duty as a director or officer shall be
eliminated to the fullest extent permissible under Nevada law except for: (i)
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law; or (ii) the payment of distributions in violation of Section
78.300 or the Nevada Revised Statutes, and (b) if the Nevada Revised Statutes
are hereinafter amended to authorize the further elimination or limitation of
the liability of a director or officer, then the liability of a director or
officer of the corporation shall be eliminated or limited to the fullest extent
permitted by the Nevada Revised Statutes, so as amended.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended (the "Securities Act") and
is therefore unenforceable.
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