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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-28373
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMCOR CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0329559
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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52-300 ENTERPRISE WAY
COACHELLA, CALIFORNIA 92236
(760) 398-9520
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRED H. BEHRENS, CHIEF EXECUTIVE OFFICER
AMCOR CAPITAL CORPORATION
52-300 ENTERPRISE WAY
COACHELLA, CALIFORNIA 92236
(760) 398-9520
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
THOMAS E. STEPP, JR., ESQ.
WHITE AND STEPP LLP
4100 NEWPORT PLACE
SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(714) 660-9700
BRUCE J. RUSHALL, ESQ.
RUSHALL & MCGEEVER
2111 PALOMAR AIRPORT ROAD
SUITE 200
CARLSBAD, CALIFORNIA 92009
(760) 438-6855
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT PRICE FEE(2)
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Series A 9% Convertible Preferred
Stock............................... 747,500 $10.00 $7,475,000 $2,265.15
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(1) Represents the maximum number of preferred shares to be issued. The Company
is offering 650,000 preferred shares and has granted to the Underwriter an
option, exercisable within 45 days of the Effective Date, to purchase up to
an aggregate of 97,500 additional shares at the public price less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any.
(2) The filing fee has been computed based on the $10.00 per share maximum
offering price. The Underwriter and other parties may be offered certain
discounts on the maximum offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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PROSPECTUS 650,000 SHARES
[AMCOR CAPITAL LOGO] AMCOR CAPITAL CORPORATION
$10.00 SERIES A 9% CONVERTIBLE PREFERRED STOCK
------------------------
AMCOR Capital Corporation, a Delaware corporation ("Company"), is primarily
engaged in agribusiness, biomass recycling, and real estate development and
management, with three core operating divisions: (i) growing, processing and
marketing fresh table grapes in southern California's Coachella Valley (near
Palm Springs); (ii) processing biomass into clean green waste; and (iii) real
estate development, principally related to a 1,350 acre residential subdivision
and championship golf course located southeast of San Antonio, Texas.
Dividends on the shares of $10.00 Series A 9% Convertible Preferred Stock
("Series A Preferred Stock") are cumulative from the date of issue and are
payable quarterly in an annual amount per share equal to 9% of the purchase
price of each share. Holders of the Series A Preferred Stock will have the right
to elect a majority of the members of the Board of Directors of the Company upon
a cumulative default, whether consecutive or not, of 8 quarterly dividends, and
that right shall continue until full and complete payment of all dividends in
arrears on the Series A Preferred Stock.
The Series A Preferred Stock will be convertible to shares of the Company's
Common Stock ("Common Stock") at a price equal to 125% of the closing price of
the Common Stock on the day ("Determination Date") before the effective date of
the Offering ("Effective Date"). The Company shall have the right to compel
conversion of the Series A Preferred Stock at such time as the Common Stock has
traded at a price equal to or greater than 150% of the closing price of the
Common Stock on the Determination Date for a period of 20 consecutive business
days. The Series A Preferred Stock will be senior to the Company's Series B
Preferred Stock and the Common Stock with respect to payment of dividends and
distributions to shareholders upon liquidation, dissolution or winding up of the
Company. Shares of Series A Preferred Stock will not be redeemable at the option
of the Company for five years from the issue date. On and after five years from
the issue date, shares of Series A Preferred Stock will be redeemable for cash
at a redemption price of $10.00 per share. In the event the Company elects to
redeem the Series A Preferred Stock, the Company will provide to holders of the
Series A Preferred Stock written notice of that election, and during that 30 day
period immediately following the date of that notice those holders will have the
option to convert the Series A Preferred Stock to Common Stock at a price equal
to 125% of the closing price of the Common Stock on the Determination Date. If
the Series A Preferred Stock is redeemed in part, such redemption will be on a
pro rata basis. (See "Conversion Rights").
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SERIES A PREFERRED STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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Per Share...................... $10.00 $.90 $9.10
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Total(4)....................... $6,500,000 $585,000 $5,915,000
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(1) Plus accrued dividends, if any, from October 1, 1997.
(2) For information regarding underwriting discounts and commissions, as well as
the indemnification of the Underwriter by the Company, see "Underwriter and
Plan of Distribution."
(3) Before deducting offering expenses and underwriter's expense allowance,
which are payable by the Company.
(4) The Company has granted to the Underwriter an option, exercisable within 45
days of the Effective Date, to purchase up to an aggregate of 97,500
additional shares at the public price less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriter exercises such option in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to the Company will be
$7,475,000, $672,750 and $6,802,250, respectively. See "Underwriter and Plan
of Distribution."
The shares of Series A Preferred Stock are offered by the Underwriter,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter, and subject to its right to reject orders in whole or in part. It
is expected that delivery of the Series A Preferred Stock will be made
electronically in New York, New York on or about September 30, 1997.
TORREY PINES SECURITIES, INC.
The date of this Prospectus is September 19, 1997.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THAT INFORMATION AND
THOSE REPRESENTATIONS SPECIFIED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
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 THE DATE
HEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
THIS DOCUMENT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE
COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING
OF FUTURE EVENTS, ARE NOT BASED ON HISTORICAL FACT AND ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "SHOULD", "COULD",
"ESTIMATE", "ANTICIPATE", "POSSIBLE", "PROBABLE", "CONTINUE", OR SIMILAR TERMS,
VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE "RISK FACTORS" SET
FORTH IN THIS DOCUMENT CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS
DOCUMENT HAVE BEEN COMPILED BY MANAGEMENT OF THE COMPANY ON THE BASIS OF
ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE.
FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND
NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE
FORWARD-LOOKING STATEMENTS. THEREFORE, PROSPECTIVE PURCHASERS OF THE SHARES OF
SERIES A PREFERRED STOCK ARE URGED TO CONSULT WITH THEIR ADVISORS (THE OPINIONS
OF WHICH MAY DIFFER FROM THOSE SPECIFIED IN THOSE FORWARD-LOOKING STATEMENTS)
WITH RESPECT TO THOSE ASSUMPTIONS OR HYPOTHESES.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THIS DOCUMENT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS
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DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED
RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE
FORWARD-LOOKING STATEMENTS.
THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS DOCUMENT HAVE BEEN
COMPILED AS OF THE DATE OF THIS DOCUMENT AND SHOULD BE EVALUATED WITH
CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE OF THIS DOCUMENT. NO
ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS DOCUMENT ARE ACCURATE OR THAT THEY
WILL PROVE TO BE APPLICABLE TO A PARTICULAR PURCHASER OF THE SHARES OF THE
SERIES A PREFERRED STOCK. IT IS THE RESPONSIBILITY OF THE PURCHASERS OF THE
SERIES A PREFERRED STOCK AND THEIR ADVISORS TO REVIEW THOSE FORWARD-LOOKING
STATEMENTS TO CONSIDER THE ASSUMPTIONS ON WHICH THOSE FORWARD-LOOKING STATEMENTS
ARE BASED AND TO ASCERTAIN THEIR REASONABLENESS.
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GLOSSARY OF TERMS
The following defined terms are in addition to those defined terms
specified elsewhere in this Prospectus and are deemed to include the singular,
as well as the plural, and the present tense, as well as the past tense, and,
when they appear in this Prospectus, are defined as follows:
GENERAL TERMS
"Affiliate" shall mean (i) any person who directly or indirectly controls
or is controlled by or under common control with another person or entity; (ii)
a person owning or controlling 10% or more of the outstanding voting securities
of such other person or entity; (iii) any officer or director of such other
person or entity; or (iv) any person who is an officer, director, general
partner, trustee, or holder of 10% or more of the voting securities or
beneficial interests of any of the foregoing.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Funds Available For Distribution" shall mean cash receipts from the
operations of the Company, after deducting cash used to pay all expenses, debt
payments, capital improvements and replacements and less the amounts set aside
for restoration or creation of reserves.
"IRS" shall mean the United States Internal Revenue Service.
"Offering" shall mean the offer of no more, and possibly less, than 747,500
shares of the Series A Preferred Stock, on, and subject to, the terms and
conditions specified in this Prospectus.
"Prospectus" shall mean this Prospectus dated September 19, 1997, and any
and all amendments and supplements thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
BIOMASS TERMS
"Biomass" shall mean any organic waste product.
"Clean green waste" shall mean organic waste containing no more than 0.5
percent physical contaminants by total weight. Clean green waste is typically
composed of waste from plants, including leaves, clippings, cuttings, grass
trimmings, weeds, shrubbery, bushes, tree limbs, tree trunks, and untreated
wooden pallets.
"Chipper" shall mean a machine, typically powered by an internal combustion
engine, which reduces large pieces of wood (tree trunks, wood pallets, etc.)
into wood chips.
"Contaminant" shall mean, when used in connection with clean green waste,
any nonorganic foreign substance. The most common contaminants in clean green
waste are glass, plastic, styrofoam, and metal (such as screws, nails, and
beverage cans).
"Landfill" shall mean a licensed solid waste disposal site where solid
waste is compacted or burned; commonly referred to as a "dump".
"MRF" is an acronym for "Material Recycling Facility".
"Organic" shall mean products originating from living things; farm
operations are typically considered "organic" if they use fertilizers and
mulches consisting of vegetable matter.
"Recycle" shall mean removing usable materials from the waste disposal
process.
"Screen" shall mean a machine, typically powered by an internal combustion
engine, which removes and collects green waste from the waste disposal process.
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"Shear" shall mean a machine, typically powered by an internal combustion
engine, which crushes or cuts wood, metal, or other solid waste products.
REAL ESTATE TERMS
"Championship golf course" shall mean a golf course of more than 7,000
yards designed by a member of the Professional Golfer's Association ("PGA").
"Partnership" shall mean Rancho California Partners II, a California
limited partnership.
AGRICULTURAL TERMS
"Aquifer" shall mean a water-bearing rock, rock formation, or group of
formations.
"Drip Irrigation System" shall mean a water-conserving irrigation system
whereby an emitter delivers water directly to the plant.
"Table Grape" shall mean a grape grown primarily for fresh consumption, as
opposed to a grape grown for use as a base in juice or wine.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus and in the Exhibits to this
Prospectus which are incorporated by reference as if set forth fully herein.
Investors should carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
AMCOR Capital Corporation, a Delaware corporation, defined previously in
this Prospectus as the "Company," is primarily engaged in agribusiness and real
estate development with three core operating divisions: (i) growing, processing
and marketing fresh table grapes in southern California's Coachella Valley (near
Palm Springs); (ii) processing Biomass into clean green waste; and (iii)
developing real estate, principally related to a 1,350 acre residential
subdivision and adjacent championship golf course located southeast of San
Antonio, Texas. The Company also has a 50% ownership interest in a 6,000 acre
irrigated potato and grain farm located in the Columbia River Basin of Eastern
Oregon, with certain Columbia River water rights appurtenant thereto.
The Company currently operates a Coachella Valley table grape business,
which constitutes one of the country's largest growers and shippers of the
popular Flame Seedless table grapes. The Company's combined proprietary and
managed table grape acreage produces nearly 1.5 million boxes (approximately 30
million pounds) of grapes annually. In March, 1997, the Company entered into an
exclusive licensing agreement with Sun World International, Inc. ("Sun World")
to develop and produce the patented Sugraone "Superior Seedless" table grape.
In addition to the Sun World seedless grape licensing agreement, the
Company believes that expansion of its Biomass processing operations is now
advantageous due to the revenue potential in the recycling industry and the
operational advantages that the Company believes it presently maintains over
potential competitors in the Biomass processing industry. AMCOR Biomass Farms
LLC, a subsidiary of the Company, has entered into relationships with major
waste recycling companies, such as CR&R Recycling, Inc., located in Stanton,
California; Waste Recovery & Recycling, Inc., located in South Gate, California;
Sunset Environmental, located in Irvine, California; and CVT Recycling, located
in Anaheim, California. The Company anticipates that AMCOR Biomass Farms LLC
will enter into similar relationships with other major solid waste disposal and
recycling companies. The Company intends to utilize a significant portion of its
available resources, including a portion of the proceeds of this offering, to
expand its Biomass operations during the next one to two years.
Additionally, on August 31, 1997, the Company and Gus K. Franklin agreed
that the Company shall acquire from Mr. Franklin and his wife, Susan K.
Franklin, all of the issued and outstanding capital stock of TransPacific
Environmental Incorporated, a California corporation ("TransPacific"), which
acquisition will be effective as of that date. In connection with the Company's
acquisition of TransPacific's capital stock, Mr. and Mrs. Franklin have agreed
with the Company to remain in the service of TransPacific. Mr. Franklin has more
than 25 years experience in the waste management business, including Biomass and
green waste. TransPacific operates a tree trimming business for various
municipalities in Southern California and a transfer station facility located in
Santa Fe Springs, California.
The Company was incorporated in Delaware on March 10, 1988. The Company's
consolidated operations include its wholly-owned subsidiaries, Sun Goddess
Farms, Inc., a California corporation, and AMCOR Properties, Inc., a California
corporation. The Company also holds a 99% ownership interest in (i) Las Palomas
Country Club Estates LLC, a California limited liability company, which acts as
the development entity for the Las Palomas Golf Course (owned by the Company and
leased to Lake Valley Realty Partners, an Affiliate of the Company) and the
contiguous residential building lot development in Texas (owned by Lake Valley
Realty Partners); (ii) AMCOR Builders LLC, a California limited liability
company, which manages the construction operations of the Company in Texas; and
(iii) AMCOR Biomass Farms LLC, a California limited liability company, which
operates the clean green waste processing facilities. The remaining 1% interest
in Las Palomas Country Club Estates LLC is owned by Fred H. Behrens, Chief
Executive Officer
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and a director of the Company. The remaining 1% interest in AMCOR Builders LLC
is owned by Robert A. Wright, the President and a director of the Company. The
remaining 1% interest in AMCOR Biomass Farms LLC is owned by F. Howard Lee, a
director of the Company. The Company's principal executive office is located at
52-300 Enterprise Way, Coachella, California 92236. The Company's telephone
number is (760)398-9520.
The Company's common stock, par value $.002 per share ("Common Stock"),
trades with its prices quoted on the Over The Counter Bulletin Board Electronic
Quotation System (Symbol: "ACAP"). Recently the Company applied for a Small Cap
Market listing on NASDAQ; that application is currently under review by the
National Association of Securities Dealers, Inc. ("NASD"). Management is not
aware of any reason that the application for a listing on the Small Cap Market
would not be approved. Exhibit A to this Prospectus contains a chart indicating
the recent performance of the Company's Common Stock.
THE OFFERING
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Securities Offered (1)........ 650,000 shares of Series A 9% Convertible Preferred Stock.
Dividends..................... The Series A Preferred Stock shall pay dividends of 9%
annually, paid on a quarterly basis. Holders of the Series A
Preferred Stock will have the right to elect a majority of
the members of the Board of Directors of the Company upon a
cumulative default, whether consecutive or not, of 8
quarterly dividends, and that right shall continue until full
and complete payment of all dividends in arrears on the
Series A Preferred Stock.
Conversion Rights............. The Series A Preferred Stock will be convertible to shares of
Common Stock at a price equal to 125% of the closing price of
the Common Stock on the Determination Date ("Conversion
Price"). The Company shall have the right to compel
conversion of the Series A Preferred Stock at such time as
the Common Stock has traded at a price equal to or greater
than 150% of the closing price of the Common Stock on the
Determination Date for a period of 20 consecutive business
days.
Redemption Rights............. The Series A Preferred Stock may be redeemed by the Company
on or after 5 years from the issue date of the Series A
Preferred Stock for cash at $10.00 per share, plus an amount
equal to accumulated, accrued and unpaid dividends. The
conditions precedent to the Company's right to compel
conversion of the Series A Preferred Stock into Common Stock
will not apply to any redemption by the Company of Series A
Preferred Stock. In the event the Company elects to redeem
the Series A Preferred Stock, the Company will provide to
holders of the Series A Preferred Stock written notice of
that election, and during that 30 day period immediately
following the date of that notice those holders will have the
option to convert the Series A Preferred Stock to Common
Stock at the Conversion Price. If the Series A Preferred
Stock is redeemed in part, such redemption will be on a pro
rata basis.
Liquidation Preference........ $10.00 per share, plus an amount equal to accumulated,
accrued and unpaid dividends.
Voting Rights................. Except as otherwise from time to time required by applicable
law, the holders of shares of Series A Preferred Stock will
have no voting rights.
Ownership Limit............... None.
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(1) Assumes no exercise of the Underwriter's over-allotment option. See
"Underwriter and Plan of Distribution."
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RISK FACTORS
A PURCHASE OF SERIES A PREFERRED STOCK INVOLVES A SIGNIFICANT AND SUBSTANTIAL
NUMBER OF SIGNIFICANT RISKS, WHICH EACH PROSPECTIVE PURCHASER OF SERIES A
PREFERRED STOCK SHOULD CONSIDER PRIOR TO MAKING A DECISION TO PURCHASE SERIES A
PREFERRED STOCK. EACH PROSPECTIVE PURCHASER OF SERIES A PREFERRED STOCK SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHER RISK FACTORS,
WHICH MAY BE SPECIFIED BY THE PROVISIONS OF THIS DOCUMENT. THIS DOCUMENT
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
ACTUAL RESULTS OF THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES MAY DIFFER
MATERIALLY FROM THE RESULTS SPECIFIED IN THE FORWARD-LOOKING STATEMENTS BECAUSE
OF CERTAIN FACTORS, INCLUDING THOSE SPECIFIED IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS DOCUMENT. PROSPECTIVE PURCHASERS OF SERIES A PREFERRED STOCK
MUST BE PREPARED FOR THE POSSIBLE LOSS OF THEIR ENTIRE INVESTMENTS IN THE
COMPANY. THE ORDER IN WHICH THE FOLLOWING RISK FACTORS ARE PRESENTED IS
ARBITRARY, AND PROSPECTIVE PURCHASERS OF SERIES A PREFERRED STOCK SHOULD NOT
CONCLUDE, BECAUSE OF THE ORDER OF PRESENTATION OF THE FOLLOWING RISK FACTORS,
THAT ONE RISK FACTOR IS MORE SIGNIFICANT THAN ANOTHER RISK FACTOR.
POTENTIAL ENVIRONMENTAL LIABILITY AND RELATED RISKS
COMPLIANCE WITH GOVERNMENT AND ENVIRONMENTAL REGULATIONS. The collection
and disposal of solid wastes, including wastes incident to the operation of a
clean green waste processing facility and rendering of related environmental
services, are subject to federal, state and local laws and regulations which
regulate health, safety, the environment, zoning and land-use. Any violation of,
and cost of compliance with, these laws and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. Operating permits are generally required for recycling facilities
and certain collection vehicles, and these permits are subject to revocation,
modification, and renewal. Federal, state and local regulations vary, but
generally govern all types of waste disposal activities and the location and use
of facilities and also impose restrictions to prohibit or minimize soil, air and
water pollution. In connection with the Company's recycling activities, it may
be necessary to expend considerable time, effort and money to bring the existing
or acquired facilities into compliance with applicable requirements and to
obtain the permits and approvals necessary to increase the recycling and storage
capacity of such facilities. In addition, governmental authorities have the
power to enforce compliance with these regulations and to obtain injunctions or
impose fines in the case of violations, including criminal penalties. These
regulations are administered by the United States Environmental Protection
Agency ("EPA") and various other federal, state and local environmental and
health and safety agencies and authorities, including the Occupational Safety
and Health Administration of the United States Department of Labor.
Subtitle D of the Resource Conservation and Recovery Act of 1976, as
amended, establishes a framework for regulating the storage, collection and
disposal of non-hazardous solid wastes. In the past, the Subtitle D framework
has left the regulation of non-hazardous waste storage, collection and disposal
largely to the states. However, in October 1991, the EPA promulgated a final
rule which imposes minimum federal comprehensive solid waste management criteria
and guidelines for disposal facilities and operations, including location
restrictions, facility design and operating criteria, closure and post-closure
requirements, financial assurance standards, groundwater monitoring requirements
and corrective action standards, many of which have not commonly been in effect
or enforced in connection with solid waste landfills. States are required to
revise their landfill regulations to meet these requirements. Because some parts
of the new regulations will be phased in over time, the full effect of these
regulations may not be known for several years. However, other than for
groundwater monitoring and financial assurance requirements, all provisions of
the final rule became effective in October 1993. There can be no assurance that
the EPA will not promulgate similar regulations under Subtitle D in connection
with the collection of non-hazardous solid waste.
On or about July 21, 1997, the Riverside County Local Solid Waste
Management Enforcement Agency ("LEA") issued a cease and desist order pursuant
to the provisions of which AMCOR Biomass Farms LLC is
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prohibited from accepting green waste material at the Murrieta facilities. The
LEA issued that cease and desist order because AMCOR Biomass Farms LLC had at
that time failed to provide to the LEA certain information requested by the LEA
regarding operations at the Murrieta facilities. Since the date of that cease
and desist order, the Company has provided to the LEA the requested information;
provided, however, that cease and desist order is still in effect. AMCOR Biomass
Farms LLC is presently negotiating the revocation of that cease and desist order
pending approval by the LEA of a testing protocol initiated by AMCOR Biomass
Farms LLC and certain related remedial action by AMCOR Biomass Farms LLC at the
Murrieta facilities. No assurance can be given, however, that such cease and
desist order will be revoked or, if revoked, that a similar cease and desist
order will not be issued by the LEA in the future. An unfavorable resolution of
this matter could adversely affect the results of the recycling and biomass
processing operations of AMCOR Biomass Farms LLC at the Murrieta facilities.
The Company has significant acreage in Coachella, California, where it
intends to commence farming operations early next year, which will receive green
waste material processed by AMCOR Biomass Farms LLC and TransPacific. In
addition to the Company's Coachella facilities, there exist various other
facilities to which AMCOR Biomass Farms LLC and TransPacific can transport their
green waste material for deposit, which facilities will be determined by
management of the Company and which determination will be based on the type of
green waste material, the location of the facilities, transportation and
handling costs and other factors. Therefore, in the opinion of management of the
Company, any interruption in the green waste disposal operations at the Murrieta
facilities should not have a material adverse effect on the results of the
Company.
HAZARDOUS SUBSTANCES LIABILITY. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("Superfund" or "CERCLA"),
has been interpreted by some courts to impose strict, joint and several
liability on current and former owners or operators of facilities at which there
has been a release or a threatened release of a "hazardous substance" and on
persons who generate, transport or arrange for the disposal of such substances
at those facilities. Thousands of substances are defined as "hazardous" under
CERCLA and their presence, even in minute amounts, can result in substantial
liability. The statute provides for the remediation of contaminated facilities
and imposes the costs therefor on the responsible parties. The costs of
conducting such a cleanup and the damages can be very significant and, given the
limitations in insurance coverage for these risks, could have a material adverse
impact on the Company and its financial condition. Notwithstanding the efforts
of AMCOR Biomass Farms LLC and TransPacific to comply with applicable
regulations and to avoid transporting and receiving hazardous substances, such
substances may be present in waste collected or received for processing by AMCOR
Biomass Farms LLC and TransPacific. AMCOR Biomass Farms LLC and TransPacific
intend to continue to focus on the non-hazardous clean green waste recycling
market and do not intend to acquire or develop hazardous waste disposal
operations. As used in this Prospectus, "non-hazardous waste" means substances
that are not defined as hazardous wastes under federal regulations.
LACK OF ENVIRONMENTAL LIABILITY INSURANCE. Although AMCOR Biomass Farms LLC
and TransPacific may acquire and maintain site-specific pollution legal
liability insurance, which may provide coverage under certain circumstances for
pollution damage to third parties, such coverage is restrictive in nature, and
subject to certain exclusions and effective dates, consistent with insurance
industry requirements. In addition, such coverage is subject to specific and
aggregate limits which may not be sufficient to cover claims, if they should
arise. If AMCOR Biomass Farms LLC or TransPacific are not able to obtain
comprehensive pollution insurance at reasonable costs, they may carry only such
coverage, if any, as is required by regulatory permits. In addition, the extent
of insurance coverage under certain forms of policies has been the subject in
recent years of litigation in which insurance companies have, in some cases,
successfully taken the position that certain risks are not covered by such
policies. If, in the absence of such insurance, AMCOR Biomass Farms LLC or
TransPacific were to incur liability for environmental damages of sufficient
magnitude, it could have a material adverse effect on the Company and its
financial condition.
CLAIMS AGAINST THE MURRIETA REAL PROPERTY. The Murrieta real property which
AMCOR Biomass Farms LLC used as a depository for clean green waste during the
initial operations of the pilot program developed by AMCOR Biomass Farms LLC is
owned by Rancho California Partners II, a California limited
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partnership formed in or about 1986, which has previously been defined in this
Prospectus as the "Partnership". The general partners of the Partnership are
Fred Behrens, Chief Executive Officer and a director of the Company, and Robert
Wright, President and a director of the Company. On April 6, 1996, the Company
purchased loans owed by the Partnership in the amount of $5,691,686 (including
accrued interest), secured by that real property. The agreements securing these
loans have been assigned to the Company. The purchase price of these loans is
payable pursuant to three secured promissory notes from the Company, which are
secured by that real property and a mortgage on the Texas real property upon
which the Las Palomas Country Club Estates project (championship golf course and
residential lots) is located, owned by the Company and leased to Lake Valley
Realty Partners, an Affiliate of the Company.
RISKS OF FUTURE LEGAL PROCEEDINGS. In addition to the costs of complying
with environmental regulations, recycling companies and other waste management
companies, by the nature of their businesses, may be involved in legal
proceedings in the ordinary course of business. Government agencies may seek to
impose fines on AMCOR Biomass Farms LLC or TransPacific for alleged failure to
comply with laws and regulations or to deny, revoke or impede the renewal of
AMCOR Biomass Farms LLC's or TransPacific's permits and licenses. In addition,
such governmental agencies, as well as surrounding landowners, may claim AMCOR
Biomass Farms LLC or TransPacific is liable for environmental damage. Citizens'
groups have become increasingly active in challenging the grant or renewal of
permits and licenses, and responding to such challenges has further increased
the costs associated with permitting new facilities or expanding current
facilities. A significant judgment against AMCOR Biomass Farms LLC or
TransPacific, the loss of a significant permit or license or the imposition of a
significant fine could have a material adverse effect on the Company's financial
condition. Unfavorable resolution of any such matter could adversely affect the
results of the recycling and Biomass and green waste processing operations of
AMCOR Biomass Farms LLC or TransPacific, respectively.
SEASONALITY. The Company believes that its clean green waste processing
operations may be adversely affected by protracted periods of inclement weather,
which could delay the transfer of clean green waste or reduce the volume of
clean green waste generated, or both. Moreover, different types and volumes of
clean green waste are generated throughout the year, depending upon optimum
growing seasons, government weed abatement programs, and specialized holiday
green waste (for example, the disposal of evergreen trees after the end of the
Christmas season). There can be no assurance that protracted periods of
inclement weather will not have a material adverse effect on the Company's
future results of operations.
COMPETITION IN THE RECYCLING INDUSTRY. AMCOR Biomass Farms LLC and
TransPacific will provide alternatives to landfill disposal (such as recycling,
biomass milling and waste-to-energy). As set forth in other sections of this
Prospectus, there has been an increasing trend at the state and local levels to
mandate waste reduction at the source and to prohibit the disposal of certain
types of wastes at landfills. As this trend continues, the Company expects to
encounter competition from new and existing waste industry members. Management
believes that entry into the industry and ongoing operations within the industry
require a substantial agricultural land base, on-going agricultural operations
and substantial financial resources. The non-hazardous waste industry is led by
several large national waste management companies and numerous regional and
local companies, all of which contribute to the significant competition that
characterizes the industry. Some of these companies have significantly greater
financial and operational resources and more established market positions than
the Company. In addition, the Company may compete with municipalities that
maintain their own waste collection and landfill operations and may have
financial advantages due to the availability of tax revenues and tax-exempt
financing.
EXPANSION AND EQUIPMENT ACQUISITION RISKS. The Company is expanding its
clean green waste processing and recycling operations. New clean green waste
facility expansion is subject to a number of risks, including risks of city,
state and, where necessary, federal licensing delays and cost overruns that may
increase operating costs (see "Compliance with Government and Environmental
Regulations"), risks that leases for such facilities may not be entered into on
schedule or that the recycling operations will not achieve anticipated volume to
generate income to pay operating expenses, and new project commencement risks,
such as the receipt of zoning, occupancy and other required governmental permits
and authorizations and the occurrence of development costs in connection with
projects that are not pursued to completion. Acquisition of machinery incidental
to the operation of such recycling facilities entails risks that the machinery
will fail to perform in
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accordance with expectations and judgments with respect to the costs of such
machinery will prove inaccurate, as well as general investment risks associated
with any expanding business venture. Moreover, because some machinery is being
specially modified for AMCOR Biomass Farms LLC, there are risks that servicing
and maintenance will be more expensive or time-consuming than currently
anticipated.
NO ASSURANCE OF ENFORCEMENT. The Company believes that passage of the
California Integrated Waste Management Act of 1989 (Assembly Bill 939 ("AB
939")) will benefit the clean green waste operations of the Company, because AB
939 requires the diversion of clean green waste material from the existing waste
disposal process. However, there can be no assurance that the local
jurisdictions will comply with AB 939, or that the local enforcement agencies
responsible for monitoring and enforcing compliance with AB 939 will ardently
enforce its provisions.
AGRICULTURAL EXEMPTIONS. AMCOR Biomass Farms LLC presently enjoys certain
exemptions from permitting requirements promulgated and enforced by the State of
California South Coast Air Quality Management District, and the Riverside County
Local Enforcement Agency, because of the status of AMCOR Biomass Farms LLC as an
agricultural business under Standard Industrial Classification ("SIC") Codes. In
the event AMCOR Biomass Farms LLC loses its agricultural exemption, such event
could have a material adverse effect on the Company's business and financial
condition.
REAL ESTATE RISKS
GENERAL. The real property assets of the Company and its Affiliates are
subject to varying degrees of risk, including the risk of rising interest rates.
The yields available from equity investments in real estate depend on the amount
of income generated and expenses incurred. If the properties of the Company and
its Affiliates do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, the Company's income and
ability to make distributions to its stockholders will be adversely affected.
Income from properties of the Company and its Affiliates may be adversely
affected by the general economic climate; local conditions, such as oversupply
of residential housing or a reduction in demand for residential housing in the
area; the attractiveness of the properties to potential buyers; competition from
other available housing; the ability of the owner to provide adequate
maintenance and insurance; and increased operating costs (including real estate
taxes). The Company's income would also be adversely affected if the Company's
golf course and related facilities do not operate at a profit.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are generally illiquid
and, therefore, could limit the ability of the Company to vary its investment
strategies promptly in response to changes in economic or other conditions.
GEOGRAPHIC DIVERSIFICATION. The real property in which the Company and its
Affiliates have ownership or other beneficial interests are located in several
states, including California, Texas, and Oregon. The Company's performance may,
therefore, be influenced by economic conditions in these regions and the markets
for various products and services therein. A decline in the economy in any one
of these markets may adversely affect the ability of the Company to make
distributions to stockholders.
EXPANSION INTO NEW MARKETS. The Company is not restricted from engaging in
the real estate development business in the future. Pursuant to the Company's
plans to complete construction and development of its golf course and adjacent
residential building lots, and to expand its real estate development operations
in other areas, as opportunities may develop, the Company or its Affiliates may
acquire additional undeveloped land in Texas, Southern California, and other
states. The performance of the properties of the Company and its Affiliates in
these new areas may be linked to economic conditions in these areas and the
market for residential housing and recreational services therein, and there is
no assurance that the investments of the Company and its Affiliates in the new
areas will generate the same returns as similar investments have in the past in
these areas.
RISKS RELATING TO FINANCING; DISTRIBUTIONS. The Company anticipates that
its real estate development and acquisition activities, and those of its
Affiliates, will be largely financed by externally generated funds from
borrowings with credit facilities and other secured and unsecured debt financing
and from equity financing. In addition, new golf course and residential building
lot development activities may be financed under lines of credit or other forms
of secured or unsecured construction financing that would result in a risk that
permanent
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financing for newly developed projects might not be available or would be
available only on disadvantageous terms. Accordingly, were the Company unable to
obtain funds from borrowings or the capital markets to refinance new development
or acquisitions undertaken without permanent financing, the Company's ability to
grow through additional development and acquisition activities could be
curtailed, Funds Available For Distribution could be adversely affected and the
Company could be required to reduce distributions to stockholders.
DEPENDENCE UPON KEY EMPLOYEES. The Company is significantly dependent upon
the services of Wayne Gann to manage the operation and maintenance of the
Company's real estate developments. In September, 1995, Las Palomas Country Club
Estates LLC appointed Mr. Gann as Project Administrator for Las Palomas Country
Club Estates and Lake Valley Estates, the residential building lot developments
contiguous to the Company's championship golf course located near San Antonio,
Texas. The Company anticipates that Mr. Gann will enter into an employment
agreement with the Company or one of its Affiliates. In the event that Mr. Gann
is unwilling or unable to fulfill his obligations under the employment agreement
(for example, due to ill health), such a failure to perform could have a
material adverse effect on the Company's real estate development contiguous to
the Company's golf course.
UNINSURED LOSS. The Company or its Affiliates may maintain, in amounts
deemed appropriate by management, general liability, fire, flood (where
applicable), and other insurance with policy specifications, limits and
deductibles customarily maintained for similar properties owned or operated by
the Company and its Affiliates. There are, however, certain types of
extraordinary losses (such as losses resulting from earthquakes) that may be
either uninsurable or not economically insurable. Should such an uninsured loss
occur, the Company could lose its investment in, and anticipated revenue from, a
property.
RECREATIONAL FACILITY OPERATING RISKS
LIMITED HISTORY. The Company's only golf course operation ("Las Palomas
Course") opened in November, 1996 and, accordingly, has only a limited history
of operations. The Company leases the Las Palomas Course to Lake Valley Realty
Partners, an Affiliate of the Company ("Lake Valley"), which owns the contiguous
lots. The Company's prospects for receiving lease income are not solely
dependent upon Lake Valley's ability to operate the Las Palomas Course
profitably. However, Lake Valley's ability to operate the golf course
profitably, considering the risks, expenses and difficulties frequently
encountered by a new business in a highly competitive industry, may be a factor
in determining the ultimate value of the golf course lease to the Company.
DEPENDENCE ON SINGLE LOCATION. The Las Palomas Course is the only golf
course currently owned by the Company. Accordingly, a variety of factors
relating to having golf course operations at only one location could affect the
ongoing viability of the golf course operations and the ultimate value to the
Company of both the lease and the golf course. These factors include local
economic conditions, adverse publicity, accidents that could damage or destroy
the Las Palomas Course, and competition from other local golf course facilities.
SIGNIFICANT COMPETITION. The golf course business is competitive and
includes competition from other local golf courses, as well as other forms of
recreation, which could adversely affect Lake Valley's ability to pay its lease
obligations to the Company. Certain of Lake Valley's competitors may have
considerably greater financial, marketing, personnel, and other resources than
Lake Valley, as well as greater experience and customer recognition. In the San
Antonio area, Lake Valley faces competition from 17 public and 4 military golf
courses, although there are currently no other golf courses in Wilson County,
Texas (the county in which the Company's golf course is located). While
management believes that the location and the amenities associated with the Las
Palomas Course provide it with certain competitive advantages, there can be no
assurance that Lake Valley will be able to compete successfully.
SEASONAL RESULTS. The Company anticipates that revenues derived from the
Las Palomas Course may fluctuate based on weather conditions and the seasonal
nature of recreational golf in the San Antonio area. This seasonal pattern may
cause Lake Valley's results of operations to vary from quarter to quarter.
Accordingly, period-to-period comparisons are not necessarily meaningful and
should not be relied on as indicative of future results of golf course
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
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ADDITIONAL FINANCING REQUIREMENTS. Management believes that the cash
received from the Las Palomas Course will be sufficient for Lake Valley to
conduct its operations as currently contemplated. Although such belief is based
on management's best judgment, there can be no assurance that the assumptions
underlying this belief will prove accurate or that circumstances beyond Lake
Valley's control will not materially adversely affect Lake Valley's financial
condition and results of operations, requiring Lake Valley to seek additional
capital or default on its obligations to the Company.
DEPENDENCE UPON KEY EMPLOYEES. Lake Valley is heavily dependent upon the
services of Bert Buehler to manage the operation and maintenance of the Las
Palomas Course. Mr. Buehler has entered into a five-year employment agreement
with Las Palomas Country Club Estates LLC, a California limited liability
company, 99% of which is owned by the Company and 1% of which is owned by Robert
A. Wright, President and a director of the Company. Las Palomas Country Club
Estates LLC operates the Las Palomas Course for Lake Valley. In the event that
Mr. Buehler becomes unwilling or unable to fulfill his obligations under the
employment agreement (for example, due to ill health), such a failure to perform
could have a material adverse effect on the golf operations at the Las Palomas
Course and on the Company.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. The amount spent by
consumers on discretionary items, such as golf and other recreational and
entertainment activities, is dependent upon consumers' levels of discretionary
income, which may be adversely affected by general or local economic conditions.
A decrease in consumer spending on such activities will have a material adverse
effect on the Las Palomas Course operations.
DEPENDENCE ON SALE OF ADJACENT RESIDENTIAL LOTS. The Las Palomas Course is
bordered by a residential subdivision consisting of 1,300 lots which are owned
by Lake Valley. The number of lots purchased, and the number of residences built
on those lots, may be adversely affected by general or local economic conditions
and may, in turn, adversely affect Lake Valley's ability to meet its obligations
under its lease with the Company for the Las Palomas Course.
POSSIBLE ADVERSE CONSEQUENCES OF ENVIRONMENTAL REGULATION. Golf and
recreational centers use and store various hazardous materials. Under various
federal, state, and local laws, ordinances, and regulations, an owner or
operator of real property is generally liable for the costs of removal or
remediation of hazardous substances that are released on its property,
regardless of whether the owner or operator knew of, or was responsible for, the
release of such hazardous materials. The Company has not been advised of any
non-compliance with all such laws, ordinances, and regulations applicable to the
Las Palomas Course. The Company, however, has not performed any environmental
studies on the Las Palomas Course and, as a result, there may be potential
liabilities or conditions existing on the Las Palomas Course of which the
Company is not aware. If any such liabilities or conditions arise with respect
to the Las Palomas Course or any related facilities which may be constructed,
acquired or operated by the Company or its Affiliates on or near the Las Palomas
Course in the future, there could be a material adverse effect on the Company.
AGRICULTURAL INDUSTRY RISKS
MARKETS FOR AGRICULTURAL PRODUCTS ARE SEASONAL AND VOLATILE. Market demand
for the Company's table grapes is primarily dependent upon growing conditions
and competition, which are always uncertain due to a number of factors. The most
important factors affecting agricultural conditions are weather patterns and
conditions (particularly precipitation) and the U.S. government's agricultural
policies. The agricultural operations of the Company may be subject to
significant interruption, and the Company may be subject to significant
liability, if one or more of its crops are damaged by severe weather or other
natural disaster. Table grape prices are also affected by world supply and
demand factors. The Company's agricultural business is seasonal and typically
the Company realizes most of its revenues during the primary harvest season,
which is May through June each year.
HIGHLY COMPETITIVE BUSINESS. Agricultural products are a global commodity
and customers, including wholesalers and end users, base their purchasing
decisions principally on the price and deliverability of the products. A number
of U.S. agricultural concerns compete with the Company in domestic and export
markets, either directly or indirectly. Agricultural concerns in other
countries, including state-owned and government subsidized entities, compete in
the U.S. and in foreign markets in which the Company competes or in which
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the Company may compete in the future. Due to the passage of the North American
Free Trade Agreement ("NAFTA"), the Company faces substantial competition from
Mexican agricultural concerns. Some of the Company's principal competitors may
have greater total resources than the Company and this competition could have a
material adverse effect on the Company's profitability.
GENERAL RISK FACTORS
RELIANCE ON MANAGEMENT. All decisions regarding management of the Company's
affairs will be made exclusively by the officers and directors of the Company
and not by purchasers of the Series A Preferred Stock. Accordingly, no person
should purchase Series A Preferred Stock unless that person is willing to
entrust all aspects of management to the officers and directors of the Company,
or their successors. Potential purchasers of the Series A Preferred Stock must
carefully evaluate the personal experience and business performance of the
officers and directors of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the efforts and
abilities of its senior management, particularly those of Fred H. Behrens and
Robert A. Wright. The loss of either Mr. Behrens or Mr. Wright could have a
material adverse affect on the business and prospects of the Company. Moreover,
Gus K. Franklin has significant experience in environmental assessment and
related fields. Additionally, Mr. Franklin has certain expertise in negotiating
and bidding municipal tree maintenance and clean green waste recycling
contracts, as well as significant management experience in the clean green waste
industry. Accordingly, the Company is dependent upon the efforts and abilities
of Mr. Franklin for its Biomass and green waste operations. The loss of Mr.
Franklin could have a material adverse affect on the expansion or operation of
the Company's clean green waste recycling operations and related operations.
The officers of the Company believe that all commercially reasonable
efforts have been made to minimize the risks attendant with such dependence on
key personnel and the loss or departure of key personnel. Since 1992, the
Company has maintained key person life insurance policies on Mr. Behrens and Mr.
Wright. However, the proceeds from such policies might not fully compensate the
Company for the loss of either Mr. Behrens or Mr. Wright; but, as owners of
significant portions of the issued and outstanding Common Stock, both Mr.
Behrens and Mr. Wright have incentives to remain with the Company. Moreover, the
Company believes that Mr. Franklin has sufficient incentive to remain in the
service of TransPacific. However, there is no assurance that Messrs. Behrens,
Wright, or Franklin will remain with the Company or its Affiliates or that, if
they should elect to leave the Company and its Affiliates, their respective
replacements would cause the Company to operate profitably.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY. Section
145 of the Delaware General Corporation Law specifies that the Certificate of
Incorporation of a Delaware corporation may include a provision eliminating or
limiting the personal liability of a director or officer to that corporation or
its stockholders for damages for breach of fiduciary duty as a director or
officer, but such a provision must not eliminate or limit the liability of a
director or officer for (a) acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of law; or (b) unlawful distributions
to stockholders. The Certificate of Incorporation of the Company includes a
provision eliminating or limiting the personal liability of the officers and
directors of the Company to the Company and its shareholders for damages for
breach of fiduciary duty as a director or officer. Moreover, Sections 6.1
through 6.6, inclusive, of the Company's By-laws provide certain indemnity to a
controlling person, director or officer which affects such a person's liability
while acting in a corporate capacity. Accordingly, the officers and directors of
the Company may have no liability to the shareholders of the Company for any
mistakes or errors of judgment or for any act or omission, unless such act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to the shareholders of the Company.
LOSS OF DIVIDENDS ON CONVERSION OR REDEMPTION
In the event the Company redeems the Series A Preferred Stock, the holders
of the Series A Preferred Stock will cease receiving dividends payable on the
Series A Preferred Stock. In the event the Company elects to redeem the Series A
Preferred Stock, the Company will provide written notice of that election to the
holders of the Series A Preferred Stock and for a period of 30 days following
the date of that notice those holders shall have the right to convert the Series
A Preferred Stock to shares of the Common Stock at the Conversion Price.
Similarly, in the event the Series A Preferred Stock is converted to shares of
the Common
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Stock, the holders of the Series A Preferred Stock will cease receiving
dividends payable on the Series A Preferred Stock.
DISCLOSURE OF SECURITIES AND EXCHANGE COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 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 SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND IS,
THEREFORE, UNENFORCEABLE.
NO LIMITATION ON INDEBTEDNESS. The organizational documents of the Company
do not contain any limitation on the amount or percentage of indebtedness,
funded or otherwise, the Company might incur. Accordingly, the Company and its
Affiliates could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Funds Available For Distribution and
subsequently its ability to make expected distributions to its stockholders,
including the payment of dividends to the holders of the Series A Preferred
Stock, and result in an increased risk of default on its obligations.
USE OF DEBT FINANCING. The Company and its Affiliates are subject to the
risks normally associated with debt financing, including the risk that the
Company and its Affiliates will have insufficient cash available to meet
required payments of principal and interest. As a result of the use of
indebtedness and leverage by the Company and its Affiliates, including the use
of debt to finance development and acquisitions and the use of variable rate
financing, the cumulative effect of the risks associated with borrowing is
greater than that of each of these risks considered individually. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company or its Affiliates are unable to meet mortgage payments or if certain
other events of default occur, that property could be foreclosed upon by or
otherwise transferred to the mortgagee with a consequent loss of income and
asset value to the Company.
ADVERSE IMPACT OF INCREASING INTEREST RATES ON STOCK PRICE. One of the
factors that may influence the price of the Company's Series A Preferred Stock
in the public markets is the annual yield on the share price paid from dividend
distributions by the Company. Thus, a continued increase in market interest
rates may lead purchasers of shares of Series A Preferred Stock to demand a
higher annual yield, which could adversely affect the market price of the Series
A Preferred Stock.
RISK OF LIMITATION ON ACQUISITION AND CHANGE IN CONTROL. The Certificate of
Incorporation of the Company authorizes the Board of Directors of the Company to
issue shares of preferred stock and to establish the preferences and rights of
any preferred stock issued. The issuance of additional preferred stock could
have the effect of delaying or preventing a change in control of the Company,
even if a change in control were in the stockholders' interests.
DETERMINATION OF OFFERING PRICE. The offering price of the Series A
Preferred Stock was determined by mutual agreement between the Company and the
Underwriter and does not necessarily relate to the assets, book value, results
of operations of the Company and its Affiliates, or other established criteria
of value.
POTENTIAL PRICE VOLATILITY. There may be significant volatility in the
market price of the Company's securities. Period-to-period fluctuations in the
Company's revenues and financial results may have a significant impact on the
perceived value of the Company and, thus, on the market price of the Company's
securities. Although the Company has applied for listing on NASDAQ's Small Cap
Market, there is no assurance that the Company will be so listed. Even if the
Company is so listed, a Small Cap Market listing provides no assurance that an
active, liquid trading market will develop for the Company's securities or, if
developed, will be sustained. The price of the Company's capital stock,
including the Series A Preferred Stock, may be significantly affected by such
factors as the financial results and operating performance of the Company and
its Affiliates. Additionally, in recent years, the stock market has experienced
a high level of price and volume volatility and market prices for many
companies, particularly small and emerging growth companies, have experienced
significant price fluctuations not necessarily related to the operating
performance of those
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companies. The market price for the Company's capital stock, including the
Series A Preferred Stock, may be affected by general stock market volatility.
LIMITED PUBLIC MARKET. Prior to the Offering, there has been no public
trading market for the Company's Series A Preferred Stock; provided, however, no
assurance is given that such a market will be developed or sustained after the
closing of the Offering. The Company plans to facilitate trading of the Series A
Preferred Stock by soliciting securities brokers to become market-makers of the
Series A Preferred Stock; provided, however, no assurance is given that the
Company will be successful in soliciting and obtaining market-makers.
SPECULATIVE INVESTMENT. The business objectives of the Company and its
Affiliates must be considered speculative, and there is no assurance that the
Company, or its Affiliates, will satisfy those objectives. No assurance can be
given that the holders of the Series A Preferred Stock will realize a return on
their purchase of the Series A Preferred Stock, dividends or otherwise, or that
the holders of the Series A Preferred Stock will not lose their investments in
the Company completely. For this reason, each prospective purchaser of Series A
Preferred Stock should read this Prospectus carefully and should consult with
that purchaser's attorney, business advisor, or investment advisor.
LOSS ON DISSOLUTION OF THE COMPANY. In the event of a dissolution of the
Company, the proceeds realized from the liquidation of the Company's assets, if
any, will be distributed to the shareholders of the Company only after
satisfaction of claims of the Company's creditors. The ability of a purchaser of
Series A Preferred Stock to recover all or any portion of his or her purchase
price for the Series A Preferred Stock in that event will depend on the amount
of funds realized and the claims to be satisfied therefrom.
NO GUARANTEED DIVIDENDS. There is no assurance or guarantee that dividends
will be paid by the Company to holders of the Series A Preferred Stock or, if
paid, whether those dividends will be paid on a timely basis. The inability of
the Company to operate profitably could impose significant limitations on the
Company's ability to pay those dividends. Management of the Company may
determine that the cash necessary to pay the required dividends should be used
for other purposes; and, therefore, there is no guarantee or assurance that the
Company will pay those dividends from Funds Available For Distribution. The
Company intends to pay the required dividends on a timely basis; provided,
however, there is no assurance or guarantee that the Company will pay those
dividends timely, or at all. Holders of the Series A Preferred Stock will have
the right to elect a majority of the members of the Board of Directors of the
Company upon a cumulative default, whether consecutive or not, of 8 quarterly
dividends, and that right shall continue until full and complete payment of all
dividends in arrears on the Series A Preferred Stock.
GENERAL ALLOCATION OF PROCEEDS. The officers and directors of the Company
have complete discretion in the allocation of proceeds of the Offering;
therefore, purchasers of the shares of Series A Preferred Stock must entrust the
ultimate allocation of those proceeds to the judgment of those officers and
directors. It is anticipated by management of the Company that proceeds of the
Offering will be used as set forth under the caption "USE OF PROCEEDS" in this
Prospectus. Management of the Company, however, will have broad discretion
regarding the application of the proceeds of the Offering.
REMUNERATION OF DIRECTORS, OFFICERS AND SENIOR MANAGEMENT. Compensation
received by officers, directors and management personnel of the Company and its
Affiliates will be determined from time to time by the Board of Directors of the
Company. Officers, directors, and management personnel of the Company and its
Affiliates will be reimbursed for any out-of-pocket expenses incurred on behalf
of the Company.
RECEIPT OF COMPENSATION REGARDLESS OF PROFITABILITY. The officers,
directors and employees of the Company and its Affiliates may receive
significant compensation, payments, and reimbursements regardless of whether the
Company or its Affiliates operates at a profit or at a loss.
CONFLICTS OF INTEREST. Several of the directors of the Company are employed
independently of the Company and its Affiliates and those persons may engage in
other activities. The persons serving as officers and directors of the Company
shall have conflicts of interest in allocating time, services, and functions
between the other business ventures in which those persons may be or become
involved and, also, the affairs of the Company and its Affiliates. As a result,
conflicts of interest between the Company and the other activities of those
persons, including the affairs of the Company's Affiliates, may occur from time
to time.
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The Company will attempt to resolve any such conflicts of interest in favor
of the Company. The officers and directors of the Company are accountable to the
Company and the Company's shareholders as fiduciaries (subject to the
restrictions set forth in the paragraph entitled "Limitation on Liability of
Officers and Directors of the Company" above), which requires that such officers
and directors exercise good faith and integrity in handling the Company's
affairs. Moreover, the officers and directors of the Company believe that the
Company will have sufficient staff, consultants, employees, agents, contractors,
and managers to adequately conduct the business of the Company and its
Affiliates.
Certain directors of the Company have ownership interests in Affiliates of
the Company, which may result in possible conflicts of interest. For a more
detailed account of such possible conflicts of interest, see the information
contained under the heading "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in
this Prospectus.
NO ARM'S LENGTH AGREEMENTS. Certain agreements and arrangements, including
those relating to compensation and payments between the Company and its
Affiliates, are not the result of arm's length negotiations. (See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.")
COMMON RELATIONSHIPS. The accountants for the Company may be or become the
accountants for the Company's Affiliates. The attorneys for the Company, also,
may be or become the attorneys for the Company's Affiliates. If any controversy
occurs following the completion of the Offering in which the interests of the
purchasers of the Series A Preferred Stock appear to be in conflict with the
interests of the Company, other accountants and attorneys, as appropriate, may
be retained for one or all of the parties in connection with such controversy.
Purchasers of the Series A Preferred Stock should be aware, however, instances
may occur where the interests of the Company and the purchasers may diverge and
in such instances a conflict of interest may exist.
DETERMINATION OF PER SHARE PRICE. The purchase price of the Series A
Preferred Stock has been determined by mutual agreement between the Underwriter
and the Company. The purchase price of the Series A Preferred Stock has no
relationship to any established criteria of value, such as book value or
earnings per share or any combination thereof. The purchase price of the Series
A Preferred Stock does not necessarily indicate current market value for the
assets owned by the Company or its Affiliates. No valuation or appraisal has
been prepared for the business of the Company or its Affiliates.
LIMITED RESOURCES OF THE COMPANY. The Company believes it has the financial
resources to serve and satisfy its obligations to its shareholders, including
the commitment of the Company to meet the ongoing administrative and business
expenses of the Company and its Affiliates. A significant financial reversal for
the Company or its Affiliates could adversely affect the ability of the Company
to meet and satisfy typical business obligations and to conduct the businesses
of the Company and its Affiliates. Additionally, a significant financial
reversal for the Company or its Affiliates could adversely affect the ability of
the Company to pay the dividends for the Series A Preferred Stock.
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY. Although the
Company and its Affiliates are committed to growth strategies in the
agricultural, real estate, and clean green waste processing operations of the
Company and its Affiliates, implementation of these strategies will depend in
large part on the ability of the Company and its Affiliates to (i) maintain
appropriate procedures, policies and systems in regard to compliance with
federal, state and local regulatory agencies; (ii) hire, train, and retain
skilled employees; (iii) continue to operate profitably in the face of
increasing competition; and (iv) obtain adequate financing on favorable terms to
fund the business and growth strategies of the Company and its Affiliates. The
inability of the Company or its Affiliates to obtain or maintain any or all of
these factors could impair the ability of the Company and its Affiliates to
implement their business strategies successfully, which could have a material
adverse effect on the results of operations and financial condition of the
Company.
ADDITIONAL FINANCING MAY BE REQUIRED. If all the Series A Preferred Stock
is sold, the Company believes that there will be adequate funds available from
the proceeds of the Offering and from cash from the operations of the Company
and its Affiliates to fund the business operations and obligations of the
Company and its Affiliates. There is no assurance that additional funds will be
available from any source should they be needed by the Company or its
Affiliates; and, if not available, the Company or its Affiliates may not be able
to conduct the operations of the Company or its Affiliates as effectively as the
Company or its Affiliates could if
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such financing were available. The proceeds from the sale of the Series A
Preferred Stock are expected to be sufficient for the Company's purposes.
However, additional financing may be acquired by additional securities offerings
or from bank financing. If additional shares of preferred stock of the Company
are issued to obtain financing, purchasers of the Series A Preferred Stock will
suffer a dilutive effect on their percentage of preferred stock ownership in the
Company. However, the book value of their Series A Preferred Stock may not be
diluted, provided additional shares of preferred stock of the Company are sold
at prices greater than that paid by purchasers of the Series A Preferred Stock.
The officers and directors of the Company do not anticipate that subsequent
offerings will dilute the book value of the Series A Preferred Stock.
UNCERTAINTY OF FUTURE FINANCIAL RESULTS; FLUCTUATIONS IN OPERATING
RESULTS. The results of operations of the Company and its Affiliates may vary
from period to period due to a variety of factors, including, but not limited
to, cost increases from third-party manufacturers or suppliers, supply
interruptions, the availability and costs of raw materials, changes in marketing
or sales expenditures, market acceptance of the products and services of the
Company or its Affiliates, competitive pricing pressures, and general economic
and industry conditions that affect demand in the various business operations of
the Company and its Affiliates. Poor operating results of the Company or its
Affiliates may leave the Company without the resources to make the dividend
payments for the Series A Preferred Stock.
DETERMINATION OF OFFERING PRICE
The purchase price of the Series A Preferred Stock has been determined by
mutual agreement between the Company and the Underwriter after consideration of
a number of objective and subjective factors, and does not necessarily relate to
the assets, book value, results of operations, or other established criteria of
value of the Company and its Affiliates. Among the factors considered in
determining the initial public offering price were the future prospects of the
Company, its Affiliates, and their businesses in general, sales, earnings, the
capital requirements of the Company and its Affiliates, certain other financial
and operating information of the Company and its Affiliates in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain other financial and operating information of companies engaged in
activities similar to those of the Company and its Affiliates. The price of the
Series A Preferred Stock does not necessarily indicate current market value for
the assets owned by the Company or its Affiliates. No valuation or appraisal has
been prepared for the business and potential business expansion of the Company
or its Affiliates.
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THE COMPANY
AMCOR Capital Corporation, a Delaware corporation, defined earlier in this
Prospectus as the "Company", is primarily engaged in agribusiness and real
estate development with three core operating divisions: (i) growing, processing
and marketing fresh table grapes in southern California's Coachella Valley (near
Palm Springs); (ii) processing Biomass into clean green waste; and (iii)
developing real estate, principally related to a 1,350 acre residential
subdivision and championship golf course located southeast of San Antonio,
Texas. The Company also holds a 50% ownership interest in a 6,000 acre irrigated
potato and grain farm located in the Columbia River Basin of Eastern Oregon,
with certain Columbia River water rights appurtenant thereto.
The Company's genesis dates back to 1981 when its predecessor began as a
syndicator and manager of agricultural properties. By 1986 that predecessor had
raised more than $200 million of venture capital, principally to acquire and
develop agricultural properties. Although many of those properties have now been
liquidated, certain of those properties have evolved into substantial business
operations. One such operation is the Company's Coachella Valley table grape
business, which constitutes one of the country's largest growers and shippers of
Flame Seedless table grapes. The Company's combined proprietary and managed
table grape acreage produces nearly 1.5 million boxes (approximately 30 million
pounds) of table grapes annually.
The Company, itself, was incorporated in Delaware on March 10, 1988. On
December 20, 1988, pursuant to a plan of reorganization, the Company acquired
100% of the common stock of AMCOR Capital, Inc., a California corporation, in
exchange for 6,591,271 shares of the Company's Common Stock. AMCOR Capital, Inc.
had been formed as a holding company in 1986 to consolidate the businesses of
several entities. The Company's consolidated operations include its wholly-owned
subsidiaries, Sun Goddess Farms, Inc., a California corporation, and AMCOR
Properties, Inc., a California corporation. The Company also holds a 99%
ownership interest in (i) Las Palomas Country Club Estates LLC, a California
limited liability company, which acts as the development entity for the Las
Palomas Course and the contiguous residential building lot development in Texas;
and (ii) AMCOR Builders LLC, a California limited liability company which
manages the construction operations of the Company in Texas; and (iii) AMCOR
Biomass Farms LLC, a California limited liability company, which operates the
clean green waste processing facilities. The remaining 1% interest in Las
Palomas Country Club Estates LLC is owned by Fred H. Behrens, Chief Executive
Officer and a director of the Company. The remaining 1% interest in AMCOR
Builders LLC is owned by Robert A. Wright, the President and a director of the
Company. The remaining 1% interest in AMCOR Biomass Farms LLC is owned by F.
Howard Lee, a director of the Company. The Company's principal executive office
is located at 52-300 Enterprise Way, Coachella, California 92236. The Company's
telephone number is (760)398-9520.
The Common Stock, par value $.002 per share ("Common Stock"), trades with
its prices quoted on the Over The Counter Bulletin Board Electronic Quotation
System (Symbol: "ACAP"). Recently the Company applied for a Small Cap Market
listing on NASDAQ; that application is currently under review by the NASD.
Management is not aware of any reason that the application for a listing on the
Small Cap Market would not be approved. Exhibit A to this Prospectus contains a
chart indicating the recent performance of the Company's common stock.
RECENT DEVELOPMENTS
There are significant recent developments in all three of the Company's
core business operations. The Company's first major area of business operation
involves its table grape business. The Company has entered into a letter of
intent with Sun World, a major agricultural corporation based jointly in
Bakersfield, California and Coachella, California, which provides that Sun World
will license the Company to plant 160 acres of "Sugraone" variety grapevines to
be planted in February, 1998. (For a more detailed discussion, see the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS").
The Company's second major area of business operations involves the clean
green waste processing operations conducted by AMCOR Biomass Farms LLC and
TransPacific. In July, 1996, AMCOR
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Biomass Farms LLC initiated a pilot project to process organic material derived
from the greater Los Angeles waste processing system and use the processed
material as a soil amendment for agricultural real property owned by the
Company. The Company's clean green waste operations have been significantly
influenced by California legislation, previously described in this Prospectus as
AB 939, which requires that all California municipalities immediately recycle
25% of their processed waste (as a diversion from over-crowded landfills), a
requirement that increases to 50% by the year 2000. By processing the clean
green component of processed waste, the end product, which is a mulch material,
can be incorporated back into the soil. As previously defined in this
Prospectus, to be "clean green", the processed material must be 99.5% free of
any non-organic matter.
The Company has concluded that the pilot project is commercially feasible,
and AMCOR Biomass Farms LLC acquired required heavy equipment for use in its
clean green waste processing operations. Contracts have been obtained from
certain major waste haulers to deliver Biomass product for processing.
Additionally, AMCOR Biomass Farms LLC has entered into a working relationship
with CR&R Recycling to process grass clippings and related clean green waste
material. AMCOR Biomass Farms LLC has also entered into working relationships to
receive and process clean green waste material with other major waste recycling
companies, such as Waste Recovery & Recycling, Inc., located in South Gate,
California; Sunset Environmental, located in Irvine, California; and CVT
Recycling, located in Anaheim, California. AMCOR Biomass Farms LLC anticipates
entering into similar working relationships with other major solid waste
disposal and recycling companies. With the diversion rate required by AB 939
doubling to 50% by January 1, 2000, substantial expansion opportunities appear
to exist for this business.
TransPacific specializes in municipal service contracts, primarily
tree-trimming. TransPacific also operates a transfer station facility located in
Santa Fe Springs, California. The Company contemplates expanding its green waste
processing operations to other facilities in Southern California.
Gus Franklin holds active California state contractors' licenses for tree
trimming and landscaping and is a certified arborist. Mr. Franklin has extensive
experience in bidding and performing municipal and commercial tree and
maintenance green waste contracts.
On or about July 29, 1997, the Company learned that on or about July 21,
1997, the LEA issued a cease and desist order pursuant to the provisions of
which AMCOR Biomass Farms LLC is prohibited from accepting green waste at the
facilities located in Murrieta, California. The LEA issued that cease and desist
order because AMCOR Biomass Farms LLC failed to provide to the LEA certain
information requested by the LEA regarding operations at those facilities. Since
the date of the issuance of that cease and desist order, the Company has
provided to the LEA the requested information. The cease and desist order,
however, remains in effect. The Company is presently negotiating the revocation
of that cease and desist order pending approval by the LEA of a testing protocol
initiated by AMCOR Biomass Farms LLC and certain related remedial action by
AMCOR Biomass Farms LLC at those facilities. No assurance can be given, however,
that such cease and desist order will be revoked or, if revoked, that a similar
cease and desist order will not be issued by the LEA in the future. An
unfavorable resolution of this matter could adversely affect the results of the
recycling and biomass processing operations of AMCOR Biomass Farms LLC at those
facilities.
The Company has significant acreage in Coachella, California, where it
intends to commence farming operations early next year, and which will receive
green waste material processed by AMCOR Biomass Farms LLC and TransPacific. In
addition to the Company's Coachella facilities, there exist various other
facilities to which AMCOR Biomass Farms LLC and TransPacific can transport their
green waste material for deposit, which facilities will be determined by the
Company and which determination shall be based on the type of green waste
material, the location of the facilities, transportation and handling costs and
other factors. Therefore, in the opinion of management of the Company, any
interruption in the green waste disposal operations at those Murrieta facilities
should not have a material adverse effect on the results of the Company.
On July 30, 1997, the Company provided to the LEA the results of heavy
metals testing conducted by Del Mar Analytic Laboratories at those Murrieta
facilities. Additionally, tests were conducted and the results thereof were
provided to the LEA on August 6, 1997. Based on those results, the Company
believes that there are no heavy metal contaminants at those facilities which
exceed the soluble threshold limit concentration of such heavy metals
characterized as "hazardous" in the State of California. The Company has
provided
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additional documentation to the LEA demonstrating that the material that has
been transported to those facilities and incorporated into the soil at those
facilities meets the "clean green" material criteria established by regulation
pursuant to Title 14, California Code of Regulations, Division 7, Chapter 3.1,
Section 17868.4 Subsections (a), (b) and (d).
The Company's third major area of business operations involves a 1,350-acre
golf course and residential development known as Las Palomas Country Club
Estates, which is located 30 miles southeast of San Antonio, Texas. The Company
has planned and manages a 1,300 lot residential subdivision for Lake Valley, an
Affiliate of the Company. During 1996 the Company, for its own account,
completed development of the 7,000 yard championship golf course. The Company
leases the golf course to Lake Valley, the owner of the contiguous subdivision.
The golf course opened for play in late 1996. The Company has a development
agreement with Lake Valley, and the Company receives revenue as lots are
completed and sold. Lots are currently being sold and homes are being
constructed on those lots.
It is anticipated that the residential lots of Las Palomas Country Club
Estates will be marketed during a five to seven year period, generating lot
sales proceeds approximating $35 million, for which the Company shall receive a
development fee of 50% of the gross income realized from those lot sales. There
are an additional 300 units of multi-family and timeshare units approved for the
Las Palomas Country Club Estates project. The Company owns a 99% interest in
AMCOR Builders LLC, a California limited liability company, which is currently
building homes on Las Palomas Country Club Estates residential lots and may
build additional homes in the future.
STRATEGIES FOR GROWTH
The Company will continue to manage the real estate based operations in
agribusiness, real estate development, and clean green waste processing. In
agribusiness, this will involve expansion of its proprietary table grape
operations in Coachella Valley, where the Company is currently planning to
increase its planted acreage, principally of white seedless grape varieties to
complement its red seedless table grape production. In that regard, in March,
1997, the Company entered into an exclusive licensing agreement with Sun World
to plant and produce the Sugraone "Superior Seedless" table grape. The Company
owns or controls sufficient additional acreage to plant approximately 700 more
acres during the next two years, although the Company anticipates using only a
portion of this acreage. The Company's overall objective is to increase
proprietary table grape production by 50%; provided, however, no assurance is
given that the Company will achieve that objective or increase proprietary table
grape production. The Company presently has excess cold storage and processing
capacity and should be able to assimilate the additional production; provided,
however, no assurance is given that the Company will assimilate additional
production.
The Company anticipates income from real estate activities, particularly
related to the San Antonio, Texas development, as well as from golf course
operations, which commenced in late 1996.
The Company believes that an expansion of its combined clean green waste
processing operations is now an immediate priority due to the momentum that
these operations have established and the advantages AMCOR Biomass Farms LLC and
TransPacific maintain over potential competitors by virtue of existing
agricultural operations and substantial real estate holdings. Therefore, clean
green waste processing will be the major expansionary program of the Company for
the next one to two years; provided, however, no assurance is given that the
Company will be able to expand its clean green waste processing operations. The
Company anticipates that the clean green waste processing operations of AMCOR
Biomass Farms LLC and TransPacific should be profitable, primarily due to their
competitive pricing; provided, however, no assurance or guaranty is or can be
provided that these operations will be profitable. Presently, green waste
comprises approximately 27% of the waste processing system. As the diversionary
requirement (from Landfills) increases from 25% to 50% by January 1, 2000, there
will be a substantially increased need for recycling services. The Company
intends to use a significant portion of the proceeds received from the Offering
to implement the Company's plan to meet green waste recycling needs in Southern
California.
Even at the present 25% diversionary rate, many municipalities are not
meeting compliance minimums. As the State of California intensifies its
enforcement procedures, it could begin to levy the statutory fine,
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which can be as much as $10,000 per day. AMCOR Biomass Farms LLC and
TransPacific have the ability to provide waste haulers with certificates of
compliance confirming that the diversionary minimums have been met.
Under the direction of Gus K. Franklin, the Company has developed a plan
for clean green waste recycling facilities in Santa Fe Springs, California for
the conversion of biomass material into a milled clean green waste soil
amendment. AMCOR Biomass Farms LLC has entered into a working relationship with
CR&R Recycling, Inc. in Stanton, California to process green waste, a portion of
which has been earmarked for use as a soil amendment on the Company's Coachella
vineyards in preparation for the Company's planned vineyard expansion arising
from the Sun World licensing agreement. The Company's Coachella Valley
agricultural real property and other locations deemed appropriate by management
of the Company will be repositories for the clean green waste processed from the
Santa Fe Springs Biomass milling operations.
TransPacific is presently operating a clean green waste recycling facility
in Santa Fe Springs, California. TransPacific's tree maintenance service has
long-term, renewable annual contracts with 7 southern California cities, and has
been awarded one of the largest tree-trimming contracts offered for bid by the
State of California, Department of Transportation. In the last two years,
TransPacific has been awarded tree maintenance contracts with 22 cities, the
County of Los Angeles, and the State of California. TransPacific is bonded by
the largest bonding company in the United States, Amwest Surety Insurance
Company, which has rated the firm for coverage in excess of One Million Dollars
per municipal tree contract based on TransPacific's proven ability to perform
these types of contracts. In addition, Mr. Franklin will work with the County of
Riverside Local Enforcement Agency to develop a testing protocol for the clean
green waste recycling operations of AMCOR Biomass Farms LLC.
BIOMASS PROCESSING OPERATIONS
Currently the clean green waste processing operations of TransPacific and
AMCOR Biomass Farms LLC are located in Santa Fe Springs, California.
TransPacific has obtained from the City of Santa Fe Springs a Conditional Use
Permit which allows for the operation of a transfer station. Additionally, AMCOR
Biomass Farms LLC has a Conditional Use Permit from the City of Santa Fe Springs
which allows for the processing of clean green waste. The Company anticipates
combining these operations and is presently negotiating for additional clean
green waste processing sites. The Company is actively bidding on additional
contracts. The Company is actively seeking to expand its green waste recycling
operations through bidding on green waste recycling projects and continuing to
develop its relationship with the private sector.
The Santa Fe Springs facility essentially functions as a soil amendment
milling operation, in that, through the process of grinding and reducing the
Biomass to a clean green waste material, there is a significant reduction in the
volume of the residual material, primarily due to moisture evaporation.
Therefore, the transportation costs to deliver the clean green waste to the
appropriate clean green waste repository should be reduced substantially.
One challenge to conducting a clean green processing operation is obtaining
an acceptable location -- one that meets local zoning approval. TransPacific's
Santa Fe Springs facility recently renewed its Conditional Use Permit for
transfer station operations, which Conditional Use Permit will not be subject to
review for almost five years. AMCOR Biomass Farms LLC's application for a
Conditional Use Permit was approved by the Santa Fe Springs City Council in May,
1997; however, that Conditional Use Permit is subject to review on December 1,
1997. The Company is exploring alternate locations with anticipated expansion of
its clean green waste processing operations as it obtains additional contracts.
The Company anticipates that the Santa Fe Springs facilities will conduct
the principal Biomass processing operations. Clean green waste will be shipped
from the Santa Fe Springs facilities to the appropriate properties, including
the Company's vineyards in Coachella, California, as soil amendment material. In
certain circumstances the processed clean green waste may be temporarily stored
at Santa Fe Springs prior to being transported to the appropriate properties.
According to Riverside County authorities, because the Company's vineyards in
Coachella, California are classified as agricultural operations, those
operations are exempt from certain regulations promulgated by the State of
California South Coast Air
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Quality Management District and the Riverside County Local Enforcement Agency,
which allows the Company's vineyards in Coachella, California to receive the
large quantities of clean green waste.
THE CALIFORNIA INTEGRATED WASTE MANAGEMENT ACT OF 1989 ("AB 939")
The provisions of AB 939 redefine solid waste management in terms of both
objectives and planning responsibilities for local jurisdictions and the State
of California. AB 939 required cities and counties to reduce solid waste
disposal 25% as of December 31, 1995, and which is increasing ratably to 50% by
January 1, 2000. In addition, AB 939 establishes a waste management compliance
system. The new system includes, in order of priority, source reduction;
recycling and feedstocking; and environmentally safe Landfill disposal and
transformation (e.g., incineration of solid waste materials).
To manage waste in accordance with this system, AB 939 requires each local
jurisdiction to prepare and implement the following solid waste elements:
- Source Reduction and Recycling Element ("SRRE")
- Household Hazardous Waste Element ("HHWE")
- Nondisposal Facility Element ("NDFE")
In addition, each county, except for counties within the jurisdiction of
certain regional agencies, must prepare a Countywide Integrated Waste Management
Plan ("CIWMP") consisting of a Siting Element, a Countywide Integrated Waste
Management Summary Plan ("Summary Plan"), and all SRREs, HHWEs, and NDFEs for
jurisdictions within the county.
Given the stringent requirements of AB 939, management of the Company
believes that the Company and certain of its Affiliates are ideally situated to
provide assistance. In particular, AMCOR Biomass Farms LLC and TransPacific
provide certificates to the municipalities documenting compliance with the
diversion provisions of AB 939. This certifies that clean green waste has been
diverted from the landfills.
POLICIES AND PROCEDURES FOR PROCESSING CLEAN GREEN WASTE
The policy of the Company is that all material delivered to the various
properties must satisfy the clean green material processing requirements of the
law. AMCOR Biomass Farms LLC receives most of the clean green waste material to
be processed from a California state licensed Materials Recovery Facility
("MRF") or directly from tree trimming operations and other sources.
TransPacific receives clean green waste material directly from tree trimming
operations. Additionally, local green yard waste can be received through the
authority of the local county Local Enforcement Agency.
Clean green waste material consists of and contains waste from plants,
leaves, clippings, cuttings, trimmings of grass, weeds, shrubbery, bushes,
trees, garden wastes, and wood products. The wood products come from both
commercial and residential locations, and include sawdust, tree trunks and
stumps, scrap lumber and pallets, branches and twigs. Industry sources indicate
that approximately three million tons of wood are lost to Landfills every year,
which is anticipated to be a large percentage of the clean green waste material
received at the various facilities. Moreover, the material received as clean
green waste can not contain more than 0.5% Contaminants (see definition of
"Contaminant" in the "GLOSSARY OF TERMS" section of this Prospectus). In order
to assure compliance with AB 939, AMCOR Biomass Farms LLC has entered into a
working relationship with CR&R Recycling, Inc. ("CR&R") by which AMCOR Biomass
Farms LLC operates a clean green waste screen at CR&R's MRF in Stanton,
California and processes grass clippings and related green waste prior to
accepting clean green waste at the various repositories.
Waste haulers have an economic incentive to recycle as well. Additionally,
the Company anticipates that waste haulers should not experience at the
facilities of TransPacific and AMCOR Biomass Farms LLC the lengthy delays
experienced at most California Landfills. Additionally, the diversion credit
that waste haulers shall receive by complying with AB 939 shall be an additional
incentive for those waste haulers to do business with AMCOR Biomass Farms LLC
and TransPacific.
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USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting the
underwriting discounts and commissions and all expenses of the Offering payable
by the Company, are expected to be approximately $5,516,135. The Company expects
to use the net proceeds of the Offering for four principal purposes: (i) to
finance expansion of the clean green waste processing operations, (ii) for
expanded table grape development, (iii) to acquire additional locations for the
deposit of clean green waste and, (iv) to retire certain short-term indebtedness
and for general working capital purposes; provided, however, no assurance is
given that those proceeds will be used as specified below.
A summary of the projected use of proceeds is as follows:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL PROCEEDS
--------------
<S> <C> <C>
Underwriting Discounts and Commissions...................... $ 585,000 9.00%
Offering Expenses........................................... 398,865 6.14%
Santa Fe Springs Expansion
Green Waste Processing and Related Expenses............... 1,000,000 15.38%
Installation and Leasehold Improvements................... 400,000 6.16%
----------
Table Grape Vineyard Development
Vineyard Development...................................... 1,000,000 15.38%
District Water/Irrigation System.......................... 860,000 13.23%
----------
Acquire additional green waste repositories................. 1,000,000 15.38%
Equipment Required for Municipal Contracts.................. 876,135 13.48%
Start up costs Required for Municipal Contracts............. 180,000 2.77%
----------
Debt Service................................................ 200,000 3.08%
----------
$6,500,000 100%
==========
</TABLE>
The principal processing equipment includes a large shear to grind and
reduce the Biomass volume into a clean green waste material. This will require
heavy equipment to load, unload and transfer the clean green waste material to
volume reduction holding containers. Large scales will be required to weigh the
incoming and outgoing materials. An extensive conveyer belt system will be
installed to minimize handling. The Company anticipates that the costs of a
portion of the equipment acquired may be financed, if interest rates are
competitive.
24
<PAGE> 26
CAPITALIZATION
The following table sets forth, at February 28, 1997, the (i) actual
capitalization of the Company; (ii) the issuance of the Company's Common Stock,
par value $.002 per share, subscribed at May 31, 1997; (iii) pro forma
capitalization of the Company giving effect to the conversion of all outstanding
shares of Series B Convertible Preferred Stock, par value $.001 per share
("Series B Preferred Stock"), into 628,972 shares of the Company's Common Stock,
par value $.002 per share; and (iv) the subsequent conversion into an equal
number of shares of Common Stock capitalization as adjusted to give effect to
the sale of the Series A Preferred Stock at an assumed public offering price of
$10.00 per share and the application of the estimated net proceeds therefrom and
after deducting the estimated underwriting discounts and commissions and other
estimated offering expenses. See "USE OF PROCEEDS" herein. This table should be
read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and the consolidated financial statements
of the Company and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 31, 1997
-------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Current portion of long term debt................... $ 6,861,256 $ 6,861,256 $ 6,861,256
Long term debt and other obligations, net of current
portion........................................... $13,935,764 $13,935,764 $13,935,764
Stockholders' equity
Series A Convertible Preferred Stock ($0.01 par
value; 747,500 shares authorized, issued and
outstanding, outstanding, as adjusted)............ -- -- $ 7,475
Series B Convertible Preferred Stock ($0.01 par
value; 750,000 shares authorized, 628,972 actual
shares issued and outstanding; no shares issued
and outstanding, pro forma; and as adjusted....... $ 6,290 -- --
Common Stock, $.002 par value, 25,000,000 shares
authorized; 6,028,019 actual shares issued and
outstanding actual; 7,320,126 shares issued and
outstanding pro forma; and as adjusted............ $ 12,056 $ 14,640 $ 14,640
Common Stock subscribed........................... $ 3,012,365 -- --
Paid-In Capital................................... $11,221,252 $14,237,323 $21,704,848
Accumulated Earnings.............................. $ 2,660,700 $ 2,660,700 $ 2,660,700
</TABLE>
25
<PAGE> 27
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 (of which this Prospectus is a part)("Registration Statement"), under the
Securities Act, with respect to the Series A Preferred Stock. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as allowed by the rules and
regulations of the Commission. Information contained in this Prospectus as to
the content of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of the contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For additional information regarding the Company and the Series A
Preferred Stock, reference is hereby made to the Registration Statement and the
exhibits and schedules to the Registration Statement which may be obtained from
the Commission at its principal office in Washington, D.C., upon payment of fees
prescribed by the Commission.
The Company is subject to the information filing requirements of the
Exchange Act, and, in accordance therewith, files reports, proxy and information
statements and other information with the Commission. The reports, proxy and
information statements and other information and the Registration Statement and
the exhibits and financial statement schedules thereto filed by the Company with
the Commission can be inspected and copied at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; copies of such materials can also be obtained by mail at
prescribed rates. Moreover, the Company is an electronic filer using the
Commission's Electronic Data Gathering, Analysis and Retrieval automated
electronic filing system ("EDGAR"). The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission using EDGAR. The
Commission's Web site address is http://www.sec.gov.
As set forth above, the Common Stock is listed for trading on the Over The
Counter Bulletin Board Electronic Quotation System.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) the Company's annual report on Form 10-KSB for the fiscal year ended August
31, 1996; and (ii) the Company's current report on Form 10-QSB filed July 15,
1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Series A Preferred Stock shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing such documents.
Any information contained herein or in a document incorporated herein by
reference or deemed to be incorporated herein by reference shall be deemed to be
modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that information contained in the Registration
Statement or this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such information. Any such information so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
Copies of all documents which are incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates), will be provided without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
request of that person. Requests for such copies should be directed to Ms. Robin
Swanson, Corporate Secretary, AMCOR Capital Corporation, 52-300 Enterprise Way,
Coachella, California 92236.
26
<PAGE> 28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Fred H. Behrens, CPA, has been the Chairman, Chief Executive Officer, and a
director of the Company since 1988 and Treasurer and Chief Financial Officer of
the Company since 1990. Mr. Behrens is, also, the Chairman and a director of Sun
Goddess Farms, Inc. ("SGF"), a wholly-owned subsidiary of the Company. Mr.
Behrens has been actively involved with the Company and its affiliates since
August 1979. From 1966 to 1971, Mr. Behrens was on the audit staff of Arthur
Andersen & Co.; between 1971 and 1973, he was a principal in a real estate
development company; and from 1973 to August 1979, he was employed as a Vice
President of an agricultural management company. Mr. Behrens received a Bachelor
of Science degree from the University of Minnesota School of Business
Administration in 1966.
Robert A. Wright has been the President, Chief Operating Officer, and a
director of the Company since 1988. Mr. Wright is also the President and a
director of SGF. During the past 25 years, Mr. Wright has been, and continues to
be, a principal in and the President of a farm equipment manufacturing company
located in central Illinois. Mr. Wright has made substantial investments in
various agricultural properties during the past several years. Mr. Wright also
served as general partner or co-general partner for several agricultural real
estate partnerships which were not organized by the Company or its Affiliates.
Mr. Wright has been active with the Company and its Affiliates since 1981. Mr.
Wright received a Bachelor of Science degree in Business (Management and
Finance) from the University of Colorado in 1958. Moreover, Mr. Wright, along
with Mr. Behrens, are the general partners of Rancho California Partners II, a
California limited partnership formed in or about 1986, which has been defined
previously in this Prospectus as the "Partnership", which filed a voluntary
Chapter 11 Reorganization Petition under the federal Bankruptcy Act to resolve
certain issues with the Riverside County Tax Assessor's Office on or about March
20, 1996. Those issues have been favorably resolved and the Partnership has
dismissed that Petition.
Marlene A. Tapie has been a Vice President and director of the Company
since 1988. Between 1988 and 1994 she was also the Secretary of the Company.
From 1992 through 1995, Ms. Tapie owned and operated a clothing company, Marlene
& Company, which was active in Los Angeles County and Orange County, California.
In October, 1994 she and her husband, Alan Tapie, a PGA golf professional,
purchased Buena Park Golf Center, a golf course and driving range located in
Buena Park, California, which they currently own and operate. Ms. Tapie also
acts as marketing director for Virginia Dixon Photography and Morgan Rae, Inc.,
a photography studio and publishing company located in Mission Viejo,
California. Ms. Tapie has been active with the Company and its Affiliates since
August, 1979.
Dale P. Paisley, CPA, was elected as a director of the Company in February
1997. Mr. Paisley was a CPA and general partner in the "Big 6" accounting firm
of Coopers & Lybrand from 1977 through 1991. Mr. Paisley directed that firm's
mergers and acquisitions practice and was responsible for services provided to
Shearson Lehman Brothers. From mid-1991 through mid-1993, he was Chief Operating
Officer of CMS Capital Ventures, a Newport Beach, California firm specializing
in providing financial and asset-management services to the Resolution Trust
Corporation and the Federal Deposit Insurance Corporation. From May 1993 to
October 1995, Mr. Paisley provided accounting and financial consulting services
to Pacific Snax Corporation. From October 1995 to April 1997 he was a director
and Chief Financial Officer of TravelMax International, Inc. In the past 5 years
he has also provided financial consulting services to companies such as
Telluride Management Solutions, Directors Mortgage Loan Company, and Admor
Memory Corporation. Mr. Paisley received a Bachelor of Arts degree in Accounting
from San Diego State University in 1965. On August 15, 1997, a complaint for
damages was filed by TravelMax International, Inc. in the Superior Court of
Orange County, California which alleges that certain conduct by the therein
specified defendants, including Mr. Paisley, purportedly resulted in damages to
TravelMax International, Inc. in an unascertained amount, but believed to be in
excess of $13,000,000. The causes of action alleged in that complaint against
Mr. Paisley are (i) fraud, (ii) breach of fiduciary duty, (iii) negligence, (iv)
conversion, (v) misappropriation of funds, (vi) money had and received, (vii)
unjust enrichment, and (viii) determination of a constructive trust. Mr. Paisley
denies the allegations specified in that complaint. Moreover, Mr. Paisley
believes he has been released by TravelMax International, Inc. for his conduct
while in its service.
27
<PAGE> 29
F. Howard Lee was elected as a director of the Company in February 1997.
Mr. Lee is President of AMCOR Biomass Farms LLC, a California limited liability
company, a subsidiary of the Company and for which the Company serves as
Manager. Mr. Lee has held that position since on or about October 28, 1996. Mr.
Lee was a self-employed field biologist for major developers in Riverside County
from 1980 through 1992, providing Environmental Impact Reports and acting as a
liaison between developers and various state regulatory agencies. From 1993
through August, 1996 he was a field biologist and director of training for
Target Specialty Products, a wholesale distributor of specialty chemical
products, particularly pesticides and herbicides, located in Santa Fe Springs,
California. Mr. Lee is a Registered Environmental Assessor with the State of
California, and also holds a California Agricultural Pest Control Advisor's
license with all categories, including a special certification for Ground Water
Protection Advisories through the Department of Pesticide Regulations. In
addition, Mr. Lee has more than 20 years experience as a field biologist and is
approved as an Environmental Impact Biologist in Riverside County, California,
with 12 years experience in environmental assessments. Mr. Lee has been a
college instructor for 3 years in these fields and holds a lifetime teaching
credential. Additionally, Mr. Lee received a Bachelor of Science degree in
Biology from the University of California at Riverside in 1972 and a Masters
Degree in Business from the University of Redlands in 1985. Mr. Lee has
continued his formal education in pursuit of a doctorate degree and has
completed all of the requirements for such a degree except for his dissertation.
Accordingly, on completion of that dissertation, Mr. Lee should be able to
receive his doctorate degree.
Marlin T. McKeever was elected as a director of the Company in February
1997. Mr. McKeever is Vice President of Sales at Andreini & Company, an
insurance brokerage firm located in Orange County, California, and has held that
position since 1989. Prior to that he was Vice President of another such firm,
Johnson & Higgins, also located in Orange County, California. Mr. McKeever was
also a professional football player with several teams, including the Los
Angeles Rams, Minnesota Vikings and Washington Redskins from 1961 through 1973.
Mr. McKeever received a Bachelors Degree in Finance from the University of
Southern California in 1961 and a Masters Degree in Business from the University
of Southern California in 1965. He has been licensed as an insurance broker in
California since 1974.
Barry Goverman has been a Vice President of the Company since 1983 and
maintains an office in Stoughton, Massachusetts, located near Boston. Mr.
Goverman has been active with the Company and its Affiliates since 1981. Between
1977 and 1981, Mr. Goverman was a principal of a management consulting firm
specializing in researching investments for brokers, accountants, attorneys, and
financial advisors. During 1976, he was on the staff of a national consulting
firm providing management consulting and research to agencies of federal and
state governments. From 1967 to 1975, Mr. Goverman was a management advisor to
various officials in the Massachusetts state government. Mr. Goverman received a
Bachelor of Arts degree and a Master of Public Administration degree from
Northeastern University in Boston in 1967 and 1971, respectively.
Jacques Genicot has been a Vice President of the Company since 1996, having
joined the Company in 1993 to assist with banking and international investor
relations. Mr. Genicot was born in Belgium and has lived in Oceanside,
California since August, 1992. His principal expertise is investment banking. He
was employed by Citibank from 1974 to 1982 in various capacities, including as
Manager of Corporate Banking, in Brussels, London, Liege and Paris. In 1982 he
was employed by Canadian Imperial Bank of Commerce Limited ("CIBC") in London as
Associate Director for Loan Syndications and Capital Markets. From 1983 to 1986
he was with the CIBC International SA in Paris, serving as General Manager and
Director. From 1986 to 1989 he was Branch Manager of National Westminster Bank
in Nantes, France. From 1990 to mid-1992 he was Managing Director of Translink
SA, an investment banking firm located in Paris, France; from mid-1992 through
1993 he was self-employed as an independent consultant to various financial
institutions and businesses. Mr. Genicot graduated from Hautes Etudes
Commerciales (Brussels) with a Bachelor's Degree in Business and has an MBA in
Finance from U.S. International University. Mr. Genicot has also been a member
of the Treasury Management Association since 1995. He speaks French, English,
Dutch and Italian.
28
<PAGE> 30
OTHER KEY PERSONNEL
Edward W. Madigan, CPA, has been Controller of the Company since 1990 and
is responsible for all accounting and financial reporting matters. From 1974
through 1981 Mr. Madigan was employed by the Los Angeles office of Arthur
Andersen & Co., a "Big 6" international accounting firm, as a manager in the
audit division. From 1981 to 1986, he served as Vice President of Executive
Business Management, a Los Angeles-based entertainment industry business
management firm. Prior to joining the Company, he was Controller of Royal
International Partners, located in Palm Springs. Mr. Madigan graduated with a
Bachelor of Science degree in Accounting, with honors, from Loyola University of
Los Angeles in 1973. He is a Certified Public Accountant, a Certified Computing
Professional, and a Microsoft Certified Professional.
Gus Franklin is the President and Chief Operating Officer of TransPacific
Environmental, Inc. and has held those positions from 1994 to the present. The
Company contemplates the acquisition of TransPacific's remaining business. Mr.
Franklin was the President and owner of Allied Tree Company of California
("Allied") from 1972 through 1982. Allied performed municipal tree maintenance
contracts for more than 25 Southern California cities. Mr. Franklin was
President and owner of United Pacific Corporation of California ("United
Pacific") from 1983 through 1992. United Pacific performed municipal tree
maintenance services for more than 48 cities and recycled green waste for more
than 15 cities in Southern California. After he sold United Pacific, he served
as Vice President and General Manager of United Pacific of California, Nelson
Services of Texas and La Compost of Louisiana, which were all divisions of
Western Waste Industries, from 1992 through 1994. He holds active California
State Contractor's licenses for tree trimming and landscaping and is a certified
arborist. He has extensive experience in bidding and performing municipal and
commercial tree maintenance and green waste recycling contracts.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW. The Company, together with its affiliated partnerships, has its
primary operations in the Coachella Valley of California, where it historically
has been, and still remains, a major table grape producer and processor. The
Company also grows dates for two managed partnerships. The Company manages real
estate located in Southern California and Texas, and during fiscal 1996,
commenced development of the 1,300 lot Las Palomas Country Club Estates
residential subdivision located 30 miles southeast of San Antonio, Texas, which
includes an 18-hole championship golf course. The residential lot development
project is owned by Lake Valley Realty Partners, an Affiliate of the Company,
defined previously in this Prospectus as "Lake Valley"; the golf course, which
officially opened November 15, 1996, is owned by the Company and leased to Lake
Valley. AMCOR Biomass Farms LLC and TransPacific are currently providing clean
green waste processing from their facilities in Santa Fe Springs, California. As
TransPacific is a recent acquisition, the Company anticipates consolidating its
clean green waste processing operations at one location in Santa Fe Springs, and
thereafter expanding to additional green waste processing facilities in Southern
California. The Company is actively submitting bids to perform green waste
processing for various municipalities in Southern California, and anticipates
continued expansion of its clean green waste processing operations.
AGRICULTURAL BUSINESS. As set forth above, the Company's agricultural
division has been engaged in a variety of food producing activities since the
Company's formation. The Company is a leading producer of red and white table
grapes, specializing in early season (May and June) grapes which, typically,
command premium prices. The Company has the advantage of being a "vertical
producer", i.e., it packs, cold stores and ships its own grapes to nationally
known retailers such as Vons, Safeway, Winn-Dixie, and Kroeger. In 1995, the
Company obtained a 50% ownership interest in a 6,000 acre farming operation in
eastern Oregon, where it grows potatoes for McDonalds Corporation and corn for
Green Giant Foods. The Company also manages approximately 140 acres of producing
date gardens for Indio Date and Oasis Date, Affiliates of the Company, with
combined annual production of approximately 1,000,000 pounds. Dates are
harvested in September through December. The Company does not anticipate
expanding date operations in the next year.
The Company anticipates expansion of its Coachella grape producing
activities. Most of the planned expansion will be in the white grape activities
in order to balance processing capacity utilization and provide both red and
white table grapes. The Company has entered into a letter of intent with Sun
World, a major agricultural corporation based jointly in Bakersfield, California
and Coachella, California, which provides that Sun World will license the
Company to plant 160 acres of "Sugraone" variety grapevines beginning in
February, 1998. Sun World will provide the Company with all necessary rootings
in exchange for payment by the Company to Sun World of a licensing fee. The
Company will also pay Sun World an annual fruit production royalty. Sun World
has only one other domestic licensee, a former Sun World officer.
The Company has also agreed to provide Sun World with approximately 250,000
boxes of Red Flame Seedless table grapes, Thompson Seedless table grapes and
Perlette Seedless table grapes for Sun World to market in the 1997 season, and,
subject to satisfactory performance by both parties, Sun World and the Company
may enter into a long-term marketing agreement by which Sun World will provide
expanded marketing services to the Company.
On July 1997, the Coachella Valley Water District ("Water District") agreed
to deliver water to a significant portion of the Company's vineyard acreage. As
a result, the Company has determined that it will be quite feasible to develop
additional acreage to grow the grapes contemplated for delivery to Sun World.
The existing vineyard acreage of the Company should benefit from the Water
District's decision to deliver additional water, as the water from existing
wells will be used to irrigate the expansion acreage and the additional water
provided by the Water District will be used to irrigate the Company's existing
vineyard acreage.
The Company will be required to cause to be designed, engineered and
constructed a one mile pipeline from the acreage to the Water District's outlet.
Additionally, the Company will be required to cause to be designed, engineered
and constructed an additional holding reservoir to hold water delivered from the
pipeline.
30
<PAGE> 32
The Company anticipates that there will be significant costs to design,
engineer and construct the infrastructure (pipes, connections, valves, tanks,
meters, etc.) necessary to deliver and store the additional water. The Company
will use a portion of the proceeds from the Offering to pay those costs. See
"USE OF PROCEEDS."
The Company intends to use a substantial portion of the clean green waste
generated by the processing and recycling operations of AMCOR Biomass Farms LLC
on the proposed Sugraone vineyard development, a 700 acre parcel contiguous to
the Company's existing vineyards in Coachella, California. Grading and ground
preparation, including the importation of soil amendments, will take place from
July through December of 1997, in anticipation of planting an initial 160 acres
of Sugraone grapevines in February, 1998.
RECYCLING, COMPOSTING AND MILLING. With the recent acquisition of
TransPacific, the Company is continuing its expansion into the clean green waste
processing industry. AMCOR Biomass Farms LLC and TransPacific are currently in
operation in the City of Santa Fe Springs, processing clean green waste for use
as a soil amendment on its agricultural properties and diverting other green
waste to other repositories. The Company anticipates expanding the clean green
waste operations to include additional facilities. Moreover, in April, 1997,
AMCOR Biomass Farms LLC began a working relationship with CR&R, a major
recycling concern with principal offices in Stanton, California. This working
relationship contemplates that AMCOR Biomass Farms LLC will operate its green
waste screening equipment at CR&R's MRF in Stanton and thereafter transport the
processed clean green waste to various appropriate locations. A green waste
screen has been installed at the CR&R MRF and a permit for that screen has been
issued by the South Coast Air Quality Management District, the State of
California agency which has permit jurisdiction in Los Angeles, Orange, and
parts of Riverside and San Bernardino counties.
As set forth above, the Company anticipates using substantial portions of
the clean green waste as a soil amendment on the Company's planned Sugraone
vineyard acreage in Coachella, California.
The LEA is presently reviewing the Company's green waste processing testing
protocols. The LEA is aware that the Company is implementing new green waste
processing technologies and has offered to work closely with the Company in
evaluating the Company's green waste processing technologies and quality control
systems. The Company has provided the LEA with all required testing on the
Murrieta site. The Company believes that the cease and desist order on the
Murrieta site will ultimately be removed, as the Company's green waste
processing standards exceed the California statutory requirements for clean
green waste.
In summary, the clean green waste processing facilities of AMCOR Biomass
Farms LLC and TransPacific should proactively respond to a compelling
environmental mandate, while at the same time improving the quality of the soil
on the various agricultural properties of the Company and its Affiliates.
Landfills in Southern California's metropolitan areas are generally becoming
overcrowded; recycling has become a reality, and the Company anticipates that it
should play an increasing role in this industry.
GOLF COURSE AND SUBDIVISION ACTIVITIES. Over the past decade, the
popularity of golf throughout the United States and the demand for golf courses
and related facilities has experienced continued growth. According to the
National Golf Foundation ("NGF"), the number of golfers in the United States
increased to approximately 25 million players in 1995 from approximately 21.2
million players in 1987. Management believes that this trend will continue for
the foreseeable future, as golf becomes an increasingly popular recreational
activity. Industry statistics of the NGF indicate that women and juniors are
learning and playing golf in increasing numbers. Management believes these
population segments will be important factors in the demand for golf facilities
similar to the type the Company presently owns.
In 1996, the Company developed (and now owns) a championship level 18-hole
golf course located on 153 acres of land southeast of San Antonio, Texas, which
opened for play on November 15, 1996. San Antonio is a growing city with annual
tourism exceeding 10,000,000 visitors per year, and was recently rated as one of
the top ten vacation destinations in the world by Conde' Nast Magazine. The San
Antonio area has gained prominence as a national convention location. The Texas
Department of Commerce reports that approxi-
31
<PAGE> 33
mately $2 billion was spent in San Antonio by 10.3 million visitors in 1994. The
local economy has grown at a steady rate for the last five years.
The Company's golf course is located approximately 30 miles from San
Antonio's central business district and is directly accessible from Texas State
Highway 539. The Company's golf course is located on the principal aquifer in
the area, the Carrizo Sands aquifer. Excluding the existing military golf
courses, there are 17 other golf courses in the greater San Antonio area. The
current adult population of San Antonio is approximately 750,000, of which
160,000 are military and civilian workers at various military bases serviced by
4 additional golf courses. Management believes that the existing playing demand
in the greater San Antonio area far exceeds the existing playing capacity. At
present, the Company's golf course is the only golf course in Wilson County,
Texas.
The Company has funded total development costs for its golf course totaling
approximately $2,500,000 and additional costs of project infrastructure related
to building lot improvements totaling approximately $2,000,000, totaling
approximately $4,500,000. Real estate surrounding the golf course has been
subdivided into 1,000 residential lots and 300 condominium lots for sale to
independent residential builders and the public. The Company has a financial
interest in the development and sale of these lots pursuant to a development
agreement with Lake Valley, consisting of 50% of the gross proceeds from lot
sales. The Company also owns 99% of AMCOR Builders LLC, a California limited
liability company, and, therefore, has an interest in any profits derived from
house construction on those lots.
The subdivision lot marketing plan contemplates a 5 to 7 year development
consisting of 1,000 single-family lots and 300 condominium units. Approval by
the United States Department of Housing and Urban Development has been obtained
for the initial phases (206 lots) of this development. The Company leases the
golf course to Lake Valley for a flat fee of $275,000 per year, with yearly
increases determined by the Consumer Price Index. However, for the initial year
this lease rate has been reduced 50% to compensate for "start-up" costs and
other factors related to the new golf course.
OTHER REAL ESTATE DEVELOPMENT PROJECTS. The Company and certain Affiliates
own several small parcels of real estate which may be used for commercial or
residential developments.
FINANCIAL POSITION. As of May 31, 1997, the Company has 39.4% equity and
60.6% indebtedness. This indebtedness primarily represents partnership and
working relationship interests in various development projects. The Company is
consolidating certain of these outstanding interests by an acquisition program
pursuant to which certain affiliated partnerships will be liquidated during the
next two years. The Company anticipates that, due to California tax credits for
enterprise zones, the Company's California state income tax liability should
remain modest.
RESULTS OF OPERATIONS
OVERVIEW. As outlined below, the Company's overall financial condition as
compared to August 31, 1996, has improved considerably. Total assets have
increased over 34% to $42.9 million, due primarily to the acquisition of a
160-acre table grape vineyard and 130 acres of date properties from affiliates,
and higher inventories pertaining to a large 1997 table grape crop.
The Company's current ratio decreased to 1.46 at May 31, 1997, from 2.46 at
August 31, 1996, primarily due to the advances to affiliates to fund real estate
development costs, and for borrowings related to the 1997 table grape crop. In
addition, $2.8 million of 5% notes became current, due December 31, 1997.
REVENUES. The Company's revenues are derived principally from the following
three sources: (i) farming operations (including packing and cold storage
services), (ii) management/development fees for real estate development-land
partnerships, and (iii) the processing and recycling of "clean green" biomass.
For the nine months ended May 31, 1997, the Company's gross revenues were
significantly higher than the comparable nine months ended May 31, 1996, due
primarily to significantly higher table grape revenues than the previous period
and from increased management and development fees related to the Las Palomas
subdivision located southeast of San Antonio, Texas, and income related to its
California biomass operations.
32
<PAGE> 34
CROP SALES AND OTHER FARM INCOME. The Company generates fees and profits
from its table grape and date operations, both from third parties and its
affiliates. During a typical season, the table grape processing facility (which
is leased to the Company) processes approximately 1.5 million boxes of table
grapes, for which the combined gross processing and cooling fees typically
approximates $2 million. The Company expects its crop sales to continue to
increase as additional properties are acquired through further partnership
terminations and more acreage is farmed by the Company. In addition, it has
recently entered into a letter of intent to plant 160 acres of the patented
Superior Seedless table grape under a licensing agreement with Sun World
International, Inc.
Crop sales and other farm income of $3.5 million were up 135% for the
nine-months ended May 31, 1997, as compared to the comparable nine-months ended
May 31, 1996, due to a much larger and earlier maturing crop. Substantially all
of the Company's crop sales occur in the third and fourth quarters of the fiscal
year.
MANAGEMENT AND OTHER FEES. The Company has earned in the past, and will
continue to earn, management and accounting fees from its managed affiliated
partnerships. This source will continue to decrease as additional partnership
terminations are completed. The accounting fees generally range from $5,000 to
$10,000 per year per partnership.
Management and other fee income increased substantially from the comparable
nine-month period ended May 31, 1997, due to a development contract related to
the 1,000-lot subdivision, owned by an affiliate, located 30 miles southeast of
San Antonio, Texas, and from pre-development fee income related to California
real estate. Other income consists primarily of income related to the Company's
start-up golf course and biomass operations. Other income increased from $39,000
to $225,000 for the nine-months ended May 31, 1997, due to increasing golf
course and biomass revenues. The golf course, which is owned by the Company, is
leased to an affiliate for a rental of $137,500 for the 1997 calendar year and
$275,000 per year thereafter.
OPERATING COSTS AND EXPENSES. The Company's total operating costs and
expenses were $3.4 million and $$2.2 million for the nine months ended May 31,
1997 and 1996, respectively. These costs and expenses include, among others,
corporate overhead expenses, biomass processing costs, farming costs and cost of
crops sold and depreciation expenses.
FARMING COSTS AND COST OF CROPS SOLD. Farming costs and costs of crops sold
increased $957,000 (78%) for the nine-month period ended May 31, 1997, as
compared to the comparable nine-month period ended May 31, 1996, due to the much
larger and earlier maturing crop than the prior year.
OTHER OPERATING EXPENSES. Other operating expenses increased $279,000 (65%)
to $709,000 for the nine-months ended May, 31, 1997, as compared to the prior
nine-months, due to increased legal, accounting, and other administrative
expenses related primarily to the Company's start-up biomass operations.
INCOME FROM OPERATIONS. The Company posted operating income of $2,158,000
for the nine months ended May 31, 1997 as compared to operating income of
$212,000 for the comparable prior period, primarily from the increased profit
margin from a substantially larger 1997 table grape crop, but also due to
increased management and development fee income related to the Las Palomas
project, biomass operations, and from predevelopment fee income related to
California real estate.
GAIN ON ASSET SALES. A gain on asset sales of $821,000 was realized for the
nine months ended May 31, 1996, due to the sale of the San Luis Obispo vineyards
and repurchase option which resulted in a gain of $830,000. There were no such
sales in the current six-month period.
INTEREST INCOME. The Company generates interest income from notes
receivables from certain related partnerships, affiliates and third parties.
This income increased 190% due primarily from a $5.6 million secured note
receivable acquired in 1996 due from an affiliate.
INTEREST EXPENSE. Interest expense increased by $245,000 (52%) to $720,000
primarily due to the acquisition in 1996 of $5.6 million of notes payable
acquired in connection with a corresponding note receivable due from an
affiliate (see Interest Income above), and from a $4.3 million note from an
insurance company acquired during 1996, collateralized by real and personal
property.
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<PAGE> 35
LIQUIDITY AND CAPITAL RESOURCES. The Company's liquidity, including its
ability to access conventional credit sources, has significantly improved over
the last two years primarily due to the following: (i) consistent management of
cash flow, (ii) implementation of effective cost cutting measures, (iii)
profitable agricultural operations plus potential new revenues from real estate
and biomass activities, and (iv) disposal of marginal or nonproducing assets.
The Company anticipates that the continued recovery of the company's common
stock price should provide access to capital markets. These changes have
positioned the Company to obtain credit from more conventional, and less costly,
sources.
ANY FORWARD LOOKING STATEMENTS OF MANAGEMENT CONTAINED IN THIS DOCUMENT
HAVE BEEN COMPILED ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED
TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE
IMPOSSIBLE TO PREDICT AND NO REPRESENTATION OR WARRANTY REGARDING FUTURE
OPERATING RESULTS OF THE COMPANY IS TO BE INFERRED FROM ANY FORWARD LOOKING
STATEMENTS CONTAINED IN THIS DOCUMENT.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All ongoing present and future transactions with Affiliates of the Company
have been, and will continue to be, on terms no less favorable to the Company
than could have been obtained from unaffiliated parties, and will be approved by
a majority of the Company's independent directors who do not have an interest in
those transactions and who have access, at the Company's expense, to the
Company's counsel or independent legal counsel.
Pursuant to the Company's management relationships with its affiliated
limited partnerships, those partnerships are often indebted to the Company in
the form of promissory notes, accounts receivable and other advances. Accounts
receivable by the Company from those partnerships consist primarily of farming
costs incurred by the Company on behalf of those partnerships and advances to
those partnerships collateralized by accounts receivable from crop sales. Those
costs and advances totalled $5,337,704 at August 31, 1996, are due and payable
on demand and are without interest. The Company also has a promissory note
receivable from the Partnership in the principal amount of $5,691,686 at August
31, 1996.
In March 1992, the Company obtained $2 million key person life insurance
policies on each of the lives of Fred H. Behrens and Robert A. Wright, officers,
directors and principal shareholders of the Company. According to the provisions
of those policies, $2 million would be paid upon the death of either person, of
which 50% would be paid to the Company and 50% to the insureds' beneficiaries.
The Company currently pays annual premiums of $6,484 and $11,519 on behalf of
Mr. Behrens and Mr. Wright, respectively.
In 1996, the Company acquired a 50% interest in PS III Farms, LLC, an
Oregon limited liability company that leases approximately 6,000 acres to an
Affiliate of the other member of that limited liability company, and which is
not affiliated with the Company. The remaining lease term is for 40 months, and
the primary crop grown on the farm is potatoes, with a renewal option with terms
subject to mutual agreement.
The Company holds a 99% ownership interest in Las Palomas Country Club
Estates LLC, a California limited liability company which acts as the
development entity for the golf course (owned by the Company and leased to Lake
Valley) and a residential building lot development in Texas (owned by Lake
Valley). Fred H. Behrens, Chief Executive Officer, director, and principal
shareholder of the Company holds a 1% ownership interest in Las Palomas Country
Club Estates LLC. The Company also holds a 99% ownership interest in AMCOR
Builders LLC, a California limited liability company which manages the
construction operations of the Company in Texas. Robert A. Wright, President,
director, and principal shareholder of the Company, holds a 1% ownership
interest in AMCOR Builders LLC. The Company holds a 99% ownership interest in
AMCOR Biomass Farms LLC. F. Howard Lee, a director of the Company, owns the
remaining 1% ownership interest in AMCOR Biomass Farms LLC. Enterprise Packing
Company, a California general partnership, which has as its only partners Mr.
Behrens and Mr. Wright (each owning a 50% partnership interest) owns 442 limited
partnership interests issued by Lake Valley. Mr. Behrens and Mr. Wright are the
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<PAGE> 36
only general partners of Lake Valley. There are 2,600 limited partnership
interests of Lake Valley presently issued and outstanding. Therefore, by
attribution of their ownership interests in Enterprise Packing Company, Mr.
Wright and Mr. Behrens jointly own 17% of the issued and outstanding limited
partnership interests issued by Lake Valley.
Fred H. Behrens, Chief Executive Officer and a member of the Board of
Directors of the Company, is a party defendant in two federal litigation matters
alleging violation of Section 16 of the Securities Exchange Act of 1934.
Specifically, it is alleged that Mr. Behrens entered into various transactions
within a six month period in which he sold and purchased certain shares of the
Company's Common Stock. Immediately upon the Company demand therefor, Mr.
Behrens disgorged to the Company the "profits" (calculated pursuant to that
Section 16) from those transactions. The other officers and members of the Board
of Directors of the Company are satisfied that Mr. Behrens' conduct in these
matters was unintentional and inadvertent. Although Mr. Behrens has disgorged
those profits to the Company, those litigation matters are still pending, as
opposing counsel in those litigation matters are seeking to recover their
attorneys' fees. It is Mr. Behrens' opinion that these litigation matters are
without merit and he is defending those claims for attorneys' fees zealously.
The law firm of White and Stepp LLP, which serves as counsel to the
Company, has retained Judy Cannavo, on an independent contractor basis, to
render legal services, i.e., court appearances, for the benefit of various
clients of that law firm, including the Company and the Partnership. Ms. Cannavo
is the wife of Marlin McKeever, a director of the Company. Ms. Cannavo will be
compensated by the law firm of White and Stepp LLP who, in turn, will be
reimbursed by the Company for the compensation paid to Ms. Cannavo. The
compensation which Ms. Cannavo receives is determined by arms' length
negotiations with the law firm of White and Stepp LLP. The Company believes that
the compensation which it shall pay for the services rendered by Ms. Cannavo is
not greater, and is probably less, than compensation which the Company would pay
to non-affiliated third persons rendering similar legal service in the same
geographic area.
A diagram specifying certain relationships between the Company and its
Affiliates is included in this Prospectus as Exhibit B.
DESCRIPTION OF SERIES A 9% CONVERTIBLE PREFERRED STOCK
The summary of certain terms and provisions of the Series A Preferred Stock
contained in this Prospectus does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the terms and provisions of the
Company's Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation"), Bylaws, as amended, and the Certificate of Designations setting
forth the particular terms of the Series A Preferred Stock ("Series A
Certificate").
On or about January 16, 1997, the Certificate of Incorporation was amended
to specify that 25,000,000 shares of $.002 par value common stock and 2,000,000
shares of $.01 par value preferred stock shall be the Company's authorized
capital. To accomplish that amendment, the Board of Directors of the Company
approved, by unanimous written consent, an amendment to the Certificate of
Incorporation of the Company so that the Certificate of Incorporation specifies
that 25,000,000 shares of $.002 par value common stock and 2,000,000 shares of
$.01 par value preferred stock are the Company's authorized capital.
There are 1,371,028 shares of $.01 par value preferred stock currently
authorized but not issued. As set forth in the Series A Certificate, the 628,972
shares of the Company's $.01 par value preferred stock which are issued and
outstanding have been designated Series B Preferred Stock.
On April 5, 1997, the Board of Directors authorized the Company to classify
and issue up to 812,500 shares of the Series A Preferred Stock as part of the
2,000,000 shares of the Company's authorized preferred stock. The Board of
Directors also voted, by adopting the Series A Certificate, to amend the
Certificate of Designations for the previous series A preferred stock of the
Company such that the shares of such Series A preferred stock shall be and
hereby are Series B Preferred Stock, and such Series B Preferred Stock is
subordinate and junior, with respect to payment of dividends and amounts upon
liquidation, dissolution or winding up of the Company, to the Series A Preferred
Stock.
When issued, the Series A Preferred Stock will be validly issued, fully
paid and nonassessable. The Series A Preferred Stock will not be subject to any
sinking fund or other obligation of the Company to redeem
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<PAGE> 37
or retire the Series A Preferred Stock. Unless converted into shares of Common
Stock or redeemed by the Company, the Series A Preferred Stock will have a
perpetual term, with no maturity. The Company has submitted to the NASD an
application to obtain a Small Cap Market listing for the shares of Series A
Preferred Stock.
Additional shares of the Company's preferred stock may be issued from time
to time in one or more series, without stockholder approval, with such
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and conditions of
redemption thereof as shall be established by the Board of Directors. Therefore,
without stockholder approval, the Company could authorize the issuance of
preferred stock with voting, conversion and other rights that could dilute the
voting power and other rights of the holders of Common Stock and Series A
Preferred Stock.
SENIORITY. The Series A Preferred Stock will be senior to the Series B
Preferred Stock and to the Common Stock with respect to payment of dividends and
amounts upon liquidation, dissolution or winding up of the Company.
While any shares of Series A Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks prior or senior to the Series A Preferred Stock with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up without the consent of the holders of two-thirds of the outstanding
shares of Series A Preferred Stock. However, the Company may create additional
classes of stock, increase the authorized number of shares of preferred stock or
issue series of preferred stock which rank on a parity with the Series A
Preferred Stock with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution or winding up of the Company ("Parity
Stock") without the consent of any holder of Series A Preferred Stock. See
"Voting Rights" below.
DIVIDENDS. Holders of shares of Series A Preferred Stock will be entitled
to receive, when and as declared by the Board of Directors of the Company, out
of funds of the Company legally available for payment thereof, cumulative cash
dividends payable in an amount per share equal to 9% annually. Such dividends
will be payable quarterly on October 1st, January 1st, April 1st and July 1st of
each calendar year(1) (and, in the case of any accumulated or accrued but unpaid
dividends, at such additional times and for such interim periods, if any, as
determined by the Board of Directors). Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, not exceeding 60 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors of the
Company. Dividends will accrue from the date of original issuance of the Series
A Preferred Stock. Dividends will be cumulative from such date, whether or not
in any dividend period or periods such dividends shall be declared or there
shall be funds of the Company legally available for the payment of such
dividends. Accumulated dividends on shares of Series A Preferred Stock will not
accrue interest. Dividends payable on the Series A Preferred Stock for any
period less than a full dividend period will be computed on the basis of twelve
30-day months and a 360-day year. There is no guarantee or assurance that the
Company will have the resources to pay those dividends. Therefore, the Company
may be unable to pay those dividends. Holders of the Series A Preferred Stock
will have the right to elect a majority of the members of the Board of Directors
of the Company upon a cumulative default, whether consecutive or not, of 8
quarterly dividends, and that right shall continue until full and complete
payment of all dividends in arrears on the Series A Preferred Stock.
LIQUIDATION PREFERENCE. The holders of shares of Series A Preferred Stock
will be entitled to receive in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, $10.00 for each
share of Series A Preferred Stock, plus an amount for each share of Series A
Preferred Stock equal to all dividends accumulated, accrued and unpaid thereon
to the date of final distribution to such holders ("Liquidation Preference"),
and no more.
Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of junior
stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock are insufficient to
- ---------------
1The Company's fiscal year ends August 31st.
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<PAGE> 38
pay in full the Liquidation Preference and the liquidation preference with
respect to any other shares of Parity Stock, then such assets, or the proceeds
thereof, will be distributed among the holders of shares of Series A Preferred
Stock ratably in accordance with the respective amounts which would be payable
on such shares of Series A Preferred Stock if all amounts payable thereon were
paid in full. Neither a consolidation or merger of the Company with another
corporation, a statutory share exchange by the Company nor a sale or transfer of
all or substantially all of the Company's assets will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
VOTING RIGHTS. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of shares of Series A Preferred
Stock will have no voting rights.
Holders of the Series A Preferred Stock will have the right to elect a
majority of the members of the Board of Directors of the Company upon a
cumulative default, whether consecutive or not, of 8 quarterly dividends, and
that right shall continue until full and complete payment of all dividends in
arrears on the Series A Preferred Stock.
The approval of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock will be required in order to amend the Certificate of
Incorporation to affect materially and adversely the rights, preferences or
voting power of the holders of the Series A Preferred Stock or to authorize,
create, or increase the authorized amount of, any class of stock having rights
prior or senior to the Series A Preferred Stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up. However, the
Company may create additional classes of Parity Stock or junior stock, increase
the authorized number of shares of Parity Stock or junior stock and issue
additional series of Parity Stock or junior stock without the consent of any
holder of Series A Preferred Stock.
Except as required by law, the holders of Series A Preferred Stock will not
be entitled to vote on any merger or consolidation involving the Company or a
sale of all or substantially all of the assets of the Company. See "Conversion
Price Adjustments" below.
CONVERSION RIGHTS. Shares of Series A Preferred Stock will be convertible,
in whole or in part, at any time, at the option of the holder thereof, into
authorized but previously unissued shares of Common Stock, at a conversion price
equal to 125 percent of the closing price of the Common Stock on the
Determination Date, subject to adjustment as described below.
Conversion of shares of Series A Preferred Stock, or a specified portion
thereof, may be effected by delivering certificates evidencing such shares,
together with written notice of conversion and a proper assignment of such
certificates to the Company, or in blank, to the office or agency to be
maintained by the Company for that purpose. Initially, such office will be the
principal office of American Stock Transfer & Trust Company, 40 Wall Street, New
York, NY 10005.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Series
A Preferred Stock shall be surrendered and notice shall have been received by
the Company (and, if applicable, payment of an amount equal to the dividend
payable on such shares shall have been received by the Company as described
below) and the conversion shall be at the Conversion Price in effect at such
time and on such date.
Holders of shares of Series A Preferred Stock at the close of business on a
dividend record date will be entitled to receive the dividend payable on such
shares on the corresponding dividend payment date, notwithstanding the
conversion of such shares following such dividend record date and prior to such
dividend payment date. However, shares of Series A Preferred Stock surrendered
for conversion during the period between the close of business on any dividend
record date and the opening of business on any corresponding dividend payment
date (except shares converted after the issuance of a notice of redemption with
respect to a redemption date during such period) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such dividend
payment date. A holder of shares of Series A Preferred Stock on a dividend
record date who (or whose transferee) tenders any such shares for conversion
into shares of Common Stock on such dividend payment date will receive the
dividend payable by the Company on such shares of Series A Preferred Stock on
such date, and the converting holder need not include payment of the amount of
such dividend upon surrender of shares of Series A Preferred Stock for
conversion. Except as provided above,
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<PAGE> 39
the Company will make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
Fractional shares of Common Stock will not be issued upon conversion but,
in lieu thereof, the Company will pay an amount in cash based on the closing
market price of the Common Stock on the day prior to the conversion date.
COMPANY'S RIGHT TO COMPEL CONVERSION. The Company shall have the right to
compel conversion of the Series A Preferred Stock when the Common Stock has
traded at a price equal to or greater than 150% of the closing price of the
Common Stock on the Determination Date for a period of 20 consecutive business
days. If the Company elects to cause the mandatory conversion of the Series A
Preferred Stock, the Company shall send to the holders of the Series A Preferred
Stock at least 20 days prior written notice of the date when the conversion will
take place.
CONVERSION PRICE ADJUSTMENTS. The Conversion Price is subject to adjustment
upon certain events, including (i) dividends (and other distributions) payable
in Common Stock or any class of capital stock of the Company; (ii) the issuance
to all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock at a price per share less than the fair
market value per share of Common Stock; (iii) subdivisions, combinations and
reclassifications of Common Stock; and (iv) distributions to all holders of
Common Stock of evidences of indebtedness of the Company or of assets (including
securities and cash, but excluding those dividends, rights, warrants and
distributions referred to in clauses (i), (ii) and (iii) above and excluding
cash dividends and cash distributions on shares of Common Stock to the extent
the same either constitute Permitted Common Stock Cash Distributions (as herein
defined) or result in a payment of an equal cash dividend to the holders of
shares of Series A Preferred Stock (see "Dividends")). In addition to the
foregoing adjustments, the Company will be permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the holders of the Common Stock or, if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event.
"Permitted Common Stock Cash Distributions" means cash dividends and cash
distributions paid on the Common Stock after August 31, 1997 not in excess of
the sum of the (i) Company's cumulative undistributed net earnings at August 31,
1997, plus (ii) cumulative amount of Funds Available For Distribution, as
determined by the Board of Directors on a basis consistent with the financial
reporting practices of the Company, after August 31, 1997, and minus (iii) the
cumulative amount of dividends accumulated, accrued or paid on the Series A
Preferred Stock and all other classes of Preferred Stock after August 31, 1997.
In case the Company shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, tender offer for
all or substantially all of the shares of Common Stock or sale of all or
substantially all of the Company's assets), in each case as a result of which
shares of Common Stock will be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series A Preferred Stock, if convertible after the consummation of the
transaction, will thereafter be convertible into the kind and amount of shares
of stock, securities and other property receivable (including cash or any
combination thereof) upon the consummation of such transaction by a holder of
that number of shares of Common Stock into which one share of Series A Preferred
Stock was convertible immediately prior to such transaction (assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount of stock, securities and other property (including
cash or any combination thereof) received per share by a plurality of
nonelecting shares). The Company may not become a party to any such transaction,
unless the terms thereof are consistent with the foregoing.
No adjustment of the Conversion Price will be required to be made in any
case, until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.
REDEMPTION. The shares of Series A Preferred Stock are redeemable at the
option of the Company, in its sole and absolute discretion, on or after 5 years
from the date of issuance for cash at a redemption price of $10.00 per share,
plus any accumulated, accrued and unpaid dividends. If redemption of the Series
A Preferred Stock occurs in part, such redemption will be on a pro rata basis.
The conditions precedent to the
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<PAGE> 40
Company's right to compel conversion of the Series A Preferred Stock will not
apply to the redemption by the Company of Series A Preferred Stock.
Notice of redemption will be given by mail or by publication (with
subsequent prompt notice by mail) to the holders of record of the Series A
Preferred Stock not less than 30 nor more than 60 days prior to the date of
redemption. The redemption date will be a date selected by the Company not less
than 10 nor more than 60 days after the date on which the Company gives the
notice of redemption.
On the redemption date, the Company must pay in cash on each share of
Series A Preferred Stock to be redeemed any accumulated, accrued and unpaid
dividends, if any, on the redemption date. In the event a redemption date is
fixed after a dividend record date and prior to the related dividend payment
date, the holders of the Series A Preferred Stock at the close of business on
such record date will be entitled to receive the dividend payable on such shares
on the corresponding dividend payment date, notwithstanding the redemption of
such shares following such dividend record date. Except as provided for in the
preceding sentences, no payment or allowance will be made for accumulated or
accrued dividends on any shares of Series A Preferred Stock called for
redemption.
On and after the date fixed for redemption, provided that the Company has
made available at the office of the Transfer Agent a sufficient amount of cash
to effect the redemption, dividends will cease to accumulate or accrue on the
Series A Preferred Stock called for redemption (except that, in the event a
redemption date is fixed after a dividend record date and prior to the related
dividend payment date, holders of Series A Preferred Stock on the dividend
record date will be entitled on such dividend payment date to receive the
dividend payable on such shares), such shares shall no longer be deemed to be
outstanding and all rights of the holders of such shares of Series A Preferred
Stock shall cease, except the right to receive cash payable upon such
redemption, without interest from the date of such redemption.
In the event the Company elects to redeem the Series A Preferred Stock, the
Company will provide to holders of the Series A Preferred Stock written notice
of that election, and during that 30 day period immediately following the date
of that notice those holders will have the option to convert the Series A
Preferred Stock to Common Stock at the Conversion Price.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND REDEMPTION
AGENT. The transfer agent, registrar, dividend disbursing agent and redemption
agent for the shares of Series A Preferred Stock will be American Stock Transfer
& Trust Company, 40 Wall Street, New York, NY 10005.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31, YEAR ENDED NOVEMBER 30
--------------------- ---------- -----------------------
1996 1995 1994 1993 1992
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings(loss)......................... 3,145,412 1,896,641 1,052,364 607,786 (1,633,730)
--------- --------- ------- ---------- ----------
Interest Expense....................... 930,190 711,039 332,552 1,347,914 1,399,081
--------- --------- ------- ---------- ----------
Ratio of Earnings to Fixed Charges..... 3.38 2.67 3.16 (0.45) (1.17)
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs.
DIVIDEND POLICY ON SERIES B PREFERRED STOCK AND COMMON STOCK
The Company has paid or accrued dividends on Series B Preferred Stock since
1994 by issuing additional shares of Series B Preferred Stock, which is in
accordance with the terms of the Series B Preferred Stock. On August 31, 1995,
the payment of dividends on the Series B Preferred Stock was effected through
the issuance
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<PAGE> 41
of additional shares of Series B Preferred Stock cumulating to $398,791 in
value. Management of the Company does not anticipate paying any cash dividends
on the Company's Common Stock or on the Company's Series B Preferred Stock in
the foreseeable future. Instead, management of the Company intends to retain any
earnings to pay dividends on the Series A Preferred Stock, to finance the
Company's growth strategies, for working capital, and for general corporate
purposes. Any payment of dividends on the Common Stock and Series B Preferred
Stock will be at the discretion of the Company's Board of Directors and will
depend upon earnings, financial condition, capital requirements, amount of
indebtedness, contractual restrictions with respect to payment of such
dividends, if any, and other factors.
FEDERAL INCOME TAX CONSIDERATIONS TO THE STOCKHOLDERS
The following summary of material federal income tax considerations to the
stockholders is (i) based on current law, (ii) for general information only, and
(iii) not tax advice. This information does not purport to deal with all aspects
of taxation that may be relevant to particular stockholders regarding their
personal investments or tax circumstances, or except to the extent discussed
under the heading "Taxation of Foreign Stockholders," to certain types of
shareholders (including insurance companies, financial institutions or
broker-dealers) subject to special treatment under the federal income tax law.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE SERIES A PREFERRED STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
REDEMPTION AND CONVERSION. A cash redemption of shares of the Series A
Preferred Stock will be treated under Section 302 of the Code as a distribution
taxable as a dividend (to the extent of the Company's current and accumulated
earnings and profits) at ordinary income rates, unless the redemption satisfies
one of the tests set forth in Section 302(b) of the Code and is, therefore,
treated as a sale or exchange of the redeemed shares. The cash redemption will
be treated as a sale or exchange if it (i) is "substantially disproportionate"
with respect to the holder, (ii) results in a "complete termination" of the
holder's stock interest in the Company, or (iii) is "not essentially equivalent
to a dividend" with respect to the holder, all within the meaning of Section
302(b) of the Code. In determining whether any of these tests have been
satisfied, shares of capital stock (including Common Stock, Preferred Stock and
other equity interests in the Company) considered to be owned by the holder by
reason of certain constructive ownership rules set forth in the Code, as well as
shares of capital stock actually owned by the holder, must generally be taken
into account. Because the determination as to whether any of the alternative
tests of Section 302(b) of the Code will be satisfied with respect to any
particular holder of the Series A Preferred Stock depends upon the facts and
circumstances at the time that the determination must be made, prospective
holders of the Series A Preferred Stock are advised and encouraged to consult
their own tax advisors to determine the appropriate tax treatment.
If a cash redemption of shares of the Series A Preferred Stock is not
treated as a distribution taxable as a dividend to a particular holder, it will
be treated, as to that holder, as a taxable sale or exchange. As a result, such
holder will recognize gain or loss for federal income tax purposes in an amount
equal to the difference between (i) the amount of cash and the fair market value
of any property received (less any portion thereof attributable to accumulated
and declared but unpaid dividends, which will be taxable as a dividend to the
extent of the Company's current and accumulated earnings and profits), and (ii)
such holder's adjusted basis in the shares of the Series A Preferred Stock for
tax purposes. Such gain or loss will be capital gain or loss if the shares of
the Series A Preferred Stock have been held as a capital asset, and will be
long-term gain or loss if such shares have been held for more than one year.
If a cash redemption of shares of the Series A Preferred Stock is treated
as a distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
the Series A Preferred Stock for tax purposes will be transferred to the
holder's remaining shares of capital stock in the
40
<PAGE> 42
Company, if any. If the holder owns no other shares of capital stock in the
Company, such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
REDEMPTION PREMIUM. Under Section 305(c) of the Code and applicable
Treasury Regulations, if the cash redemption price of the Series A Preferred
Stock exceeds the issue price by more than a reasonable redemption premium, the
amount of such excess may be deemed to be a constructive distribution (treated
as a dividend to the extent of the current and accumulated earnings and profits
and otherwise subject to the treatment described above for distributions)
taxable to the holder over the period during which the Series A Preferred Stock
cannot be redeemed.
A redemption premium is considered to be reasonable if it is in the nature
of a penalty for a premature redemption of redeemable preferred stock and if
such premium does not exceed the amount which the issuer would be required to
pay for such redemption right under market conditions existing at the time of
issuance of the stock. Applicable Treasury Regulations currently provide that a
redemption premium not exceeding 10% of the issue price of preferred stock which
is not redeemable for five years from the date of issue will be considered
reasonable.
Proposed amendments to the Treasury Regulations provide that the existence
of a redemption premium will result in a constructive distribution only if,
based upon all of the facts and circumstances as of the issue date, redemption
by the Company is more probable than not to occur. The proposed regulation
provides a safe harbor pursuant to which redemption will be treated as more
probable than not to occur if (i) the issuer and the holder are not related,
(ii) there are no arrangements that effectively require the issuer to redeem the
stock, and (iii) exercise by the issuer of the right to redeem would not reduce
the yield of the stock. Although the Revenue Reconciliation Act of 1990
substituted a 0.25% de minimis rule for the 10% "safe harbor" set forth in the
Treasury Regulations, the applicable legislative history and the proposed
Treasury Regulations provide that the reduced de minimis test will not apply to
stock which (such as the Series A Preferred Stock) is neither manditorily
callable by the issuer nor puttable by the holder.
The Company believes that the redemption premium on the Series A Preferred
Stock should be considered reasonable. There can be no assurance, however, that
the IRS will regard the redemption premium on the Series A Preferred Stock as
reasonable. If the Series A Preferred Stock is deemed to have an unreasonable
redemption premium, holders would be required to accrue the premium over the
period of time during which the Series A Preferred Stock cannot be called for
redemption.
CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK. In general, no
gain or loss will be recognized for federal income tax purposes upon conversion
of the Series A Preferred Stock solely into shares of Common Stock. The basis
that a holder will have for tax purposes in the shares of Common Stock received
upon conversion will be equal to the adjusted basis for the holder in the shares
of Series A Preferred Stock so converted, and, provided that the shares of
Series A Preferred Stock were held as a capital asset, the holding period for
the shares of Common Stock received would include the holding period for the
shares of Series A Preferred Stock converted. A holder will, however, recognize
gain or loss on the receipt of cash in lieu of fractional shares of Common Stock
in an amount equal to the difference between the amount of cash received and the
holder's adjusted basis for tax purposes in the Series A Preferred Stock for
which cash was received. Additionally, under certain circumstances, a holder of
shares of Series A Preferred Stock may recognize gain or dividend income to the
extent that there are dividends in arrears on those shares at the time of
conversion into Common Stock.
ADJUSTMENTS IN CONVERSION PRICE. Adjustments in the Conversion Price (or
the failure to make such adjustments) pursuant to any anti-dilution provisions
of the Series A Preferred Stock, or otherwise, may result in constructive
distributions to the holders of Series A Preferred Stock that could, under
certain circumstances, be taxable to them as dividends pursuant to Section 305
of the Code. If such a constructive distribution occurs, a holder of Series A
Preferred Stock could be required to recognize ordinary income for tax purposes
without receiving a corresponding distribution of cash.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year and the
amount of tax withheld, if any. Under the backup
41
<PAGE> 43
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder that does not provide the Company with his or her correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See "Taxation of Foreign Stockholders."
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made in this document to
provide more than a summary of the rules. Prospective Non-U.S. Stockholders
should consult with their own tax advisors to determine the impact of federal,
state and local income tax laws with regard to a purchase of Series A Preferred
Stock, including any reporting requirements.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. These distributions,
ordinarily, will be subject to a withholding tax equal to 30% of the gross
amount of the distribution, unless an applicable tax treaty reduces that tax. To
the extent that these distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, these distributions will result in tax liability if the
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale
or disposition of his or her shares in the Company, as described below. If
income from the investment in the shares is treated as effectively connected
with the Non-U.S. Stockholder's conduct of a United States trade or business,
the Non-U.S. Stockholder generally will be subject to a tax at graduated rates,
in the same manner as U.S. stockholders are taxed with respect to the dividends
(and may also be subject to the 30% branch profits tax in the case of a
stockholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends made to each Non-U.S. Stockholder unless (i) a lower treaty rate
applies and the Non-U.S. Stockholder provides certification, if necessary, or
(ii) the Non-U.S. Stockholder files an IRS Form 4224 with the Company certifying
that the investment to which the distribution relates is effectively connected
to a United States trade or business of such Non-U.S. Stockholder. Distributions
in excess of current and accumulated earnings and profits of the Company will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but, rather, will reduce the
adjusted basis of such shares. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distributions will be subject
to withholding at the same rate as dividends. However, amounts thus withheld are
refundable, if it is subsequently determined that the distribution was, in fact,
in excess of current and accumulated earnings and profits of the Company.
In the case of Non-U.S. Stockholders, any distribution of gain generally
will not be subject to taxation, unless (i) the investment in the shares is
effectively connected with the Non-U.S. Stockholder's United States trade or
business, in which event the Non-U.S. Stockholder will be subject to the same
treatment as U.S. Stockholders with respect to the gain (except that a
stockholder that is a foreign corporation may also be subject to the 30% branch
profits tax), or (ii) the Non-U.S. Stockholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, in which event the nonresident
alien individual will be subject to a 30% tax on the individual's capital gains.
Non-U.S. Stockholders may be required to certify their non-U.S. status to be
exempt from backup withholding.
OTHER TAX CONSEQUENCES. The Company's stockholders may be subject to state
or local taxation in various state or local jurisdictions, including those in
which they transact business or reside. The state and local tax treatment of the
Company's stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective purchasers of Series A Preferred
Stock should consult their own
42
<PAGE> 44
tax advisors regarding the effects of state and local tax laws resulting from a
purchase of Series A Preferred Stock.
UNDERWRITER AND PLAN OF DISTRIBUTION
Under the terms and subject to the conditions of the Underwriting Agreement
("Underwriting Agreement") Torrey Pines Securities, Inc., (the "Underwriter"),
has agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter, 650,000 shares of Series A Preferred Stock ("Firm Shares"),
with an option to purchase an additional 97,500 shares of Series A Preferred
Stock ("Option Shares"), subject to certain terms and conditions, some of which
are specified below.
The Underwriter is committed to take and pay for all of the Firm Shares, if
any are taken. The Company has been advised by the Underwriter that it proposes
to offer the shares of Series A Preferred Stock to the public at the initial
public offering price of $10.00 per share. The Underwriter will purchase the
Series A Preferred Stock at a concession (discount) of 90%. The Underwriter
initially proposes to offer part of the shares of the Series A Preferred Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and part to certain dealers at a price that
represents a concession not in excess of 6.5% of the initial public offering
price. The initial public offering price, concession and discount to dealers may
be changed by the Underwriter after the shares of Series A Preferred Stock are
released for sale to the public. The Underwriter has informed the Company that
it does not intend to confirm sales to any account over which it exercises
discretionary authority. The Company will also pay the Underwriter a 3% non-
accountable expense allowance, of which to date $61,250 has been paid.
Upon completion of the Offering, the Company will grant to the Underwriter
warrants to purchase 65,000 shares of Series A Preferred Stock (10% of the Firm
Shares). These warrants will entitle the Underwriter to purchase shares of
Series A Preferred Stock at a price equal to 120% of the Offering Price for a
period commencing one year after the Effective Date and ending 5 years after
that date. The Company has agreed to pay all costs and expenses incident to the
registration and qualification of the Series A Preferred Stock with the
Commission, the NASD, and such state securities regulatory agencies as the
Underwriter may reasonably request.
The Underwriter has a 30 day right of refusal, for a period of 3 years
after the Effective Date, to act as underwriter or agent with respect to any
public offering or private financing by the Company. The Company has filed an
application with the NASD to obtain a Small Cap Market listing for the Series A
Preferred Stock. The disclosure provisions set forth in Regulations 228.506 and
228.507 of Regulation S-B promulgated under the Securities Act and the Exchange
Act are not applicable to the Offering.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Series A Preferred
Stock are subject to the approval of certain legal matters by counsel and to
certain other conditions.
The Underwriter may, for a period of 45 days following the Effective Date,
purchase any or all of the Option Shares at the initial public offering price
set forth on the cover page hereof, less underwriting discounts and commissions.
The Underwriter may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares of Series A
Preferred Stock. The Underwriter has informed the Company that it does not
intend sales to discretionary accounts.
The purchase price of the Series A Preferred Stock has been determined by
mutual agreement between the Company and the Underwriter. The offering price has
no direct relationship to any established criteria of value, such as book value
or earnings per share or any combination thereof. The price of the Series A
Preferred Stock does not necessarily indicate current market value for the
assets owned by the Company or the Company's Affiliates. No valuation or
appraisal has been prepared for the business and potential business of the
Company or its Affiliates. See "DETERMINATION OF OFFERING PRICE." The Company
has agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act. See "DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES."
43
<PAGE> 45
EXPERTS
Kelly & Company is responsible for the audit of the Company's financial
statements for the fiscal year ended August 31, 1996 for inclusion in the 1996
Annual Report on Form 10-KSB to stockholders.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by White and
Stepp LLP, located in Newport Beach, California. Certain legal matters will be
passed upon for the Underwriter by Rushall & McGeever located in Carlsbad,
California.
INTEREST OF NAMED EXPERTS AND COUNSEL
None of the named experts or counsel have been hired on a contingent basis,
or will receive a direct or indirect interest in the Company, nor was any expert
or counsel a promoter, underwriter, voting trustee, director, officer, or
employee of the Company.
44
<PAGE> 46
EXHIBIT A
OTC BULLETIN BOARD(R)
ACAP AMCOR CAPITAL CORP NEW
DAILY TRADING SUMMARY REPORT -- JUNE AND JULY 1997
<TABLE>
<CAPTION>
PRICE
------------
DATE HIGH LOW
- -------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
1997-June....................................................................... 5 7/16 4 7/8
1997-July....................................................................... 5 3/16 4 3/4
</TABLE>
A-1
<PAGE> 47
[CHART]
B-1
<PAGE> 48
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Face Page of Prospectus............... 1
Risk Factors.......................... 8
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... 15
Determination of Offering Price....... 18
The Company........................... 19
Use of Proceeds....................... 24
Capitalization........................ 25
Available Information................. 26
Incorporation of Certain Documents by
Reference........................... 26
Management............................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Results of Operations................. 32
Certain Relationships and Related
Transactions........................ 34
Description of Series A 9% Convertible
Preferred Stock..................... 35
Ratio of Earnings to Fixed Charges.... 39
Dividend Policy on Series B Preferred
Stock and Common Stock.............. 39
Federal Income Tax Considerations to
the Stockholders.................... 40
Underwriter and Plan of
Distribution........................ 43
Experts............................... 44
Legal Matters......................... 44
Interest of Named Experts and
Counsel............................. 44
</TABLE>
======================================================
======================================================
650,000 SHARES
[LOGO OF AMCOR]
SERIES A
9% CONVERTIBLE PREFERRED STOCK
------------------------
PROSPECTUS
------------------------
TORREY PINES SECURITIES, INC.
SEPTEMBER 19, 1997
======================================================
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses of the offering,
other than underwriting discounts and commissions (1):
<TABLE>
<S> <C>
Registration fees.................................................. $12,265
Federal taxes (estimated).......................................... $ 0
State taxes and fees (estimated)................................... $ 0
Trustees' and transfer agents' fees (estimated).................... $ 5,000
Costs of printing and engraving (estimated)........................ $90,000
Legal fees and costs (estimated)................................... $70,000
Accounting fees and costs (estimated).............................. $25,000
Engineering fees (not applicable)..................................
Listing fees....................................................... $ 1,600
</TABLE>
- ---------------
(2) Include as a separate item any premium paid on any policy to insure
directors or officers against any liabilities incurred in the registration
or sale of the securities: Not applicable
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, by-laws, contracts or other arrangements
that insure or indemnify a controlling person, director or officer of the
Registrant which affects his or her liability in that capacity are as follows:
Indemnification by Statute. The Company is a corporation duly formed and
existing under the laws of the State of Delaware. Section 145(a) of the Delaware
General Corporation Law permits indemnification of officers, directors,
employees or agents for attorneys' fees and other expenses as well as judgments
or amounts paid in settlement of civil cases. This section applies only to third
party actions, not to actions brought by or in the right of the Company. The
person seeking indemnification must have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Company in respect to the claim made against him or her. In criminal cases, the
indemnitee may be indemnified for fines and costs provided that, in addition to
the foregoing standard of conduct, he or she did not have reasonable cause to
believe his or her conduct was unlawful.
Additionally, Section 145(b) of the Delaware General Corporation Law
permits limited indemnification for actions brought by or in the right of the
Company, in that it permits indemnification only of expenses in derivative suits
and does not authorize indemnification of judgments or amounts paid in
settlement of derivative suits. Section 145(c) of the Delaware General
Corporation Law provides mandatory indemnification for an indemnitee in the
event he or she wins a judgment on the merits or otherwise in defense of any
action, suit or proceeding referenced in Sections 145(a) or 145(b) of the
Delaware General Corporation Law.
Indemnification in Bylaws. The Company's Bylaws contain provisions which
provide certain indemnity to a controlling person, director or officer which
affects such a person's liability while acting in a corporate capacity. The
pertinent sections of the Company's bylaws are as follows:
"Section 6.1 Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable
law as it presently exists or may hereafter be amended, any person who was
or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a 'proceeding'), by reason of the fact that he, or a person
for whom he is the legal representative, is or was a director or officer of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans (an 'indemnitee'),
against all liability and loss suffered and
II-1
<PAGE> 50
expenses (including attorneys' fees) reasonably incurred by such
indemnitee. The corporation shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if the initiation of such proceeding (or part thereof) by the
indemnitee was authorized by the Board of Directors of the corporation.
Section 6.2 Payment of Expenses. The corporation shall pay the
expenses (including attorneys' fees) incurred by an indemnitee in defending
any proceeding in advance of its final disposition; provided, however, that
the payment of expenses incurred by a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not
entitled to be indemnified under this Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after
a written claim therefor by the indemnitee has been received by the
corporation, the indemnitee may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the indemnitee was not
entitled to the requested indemnification or payment of expenses under
applicable law.
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
person by this Article VI shall not be exclusive of any rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.5 Other Indemnification. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership,
working relationship, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
Section 6.6 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any
right or protection hereunder of any person in respect of any act or
omission occurring prior to the time of such repeal or modification."
INDEMNIFICATION IN CERTIFICATE OF INCORPORATION. Section 145 of the
Delaware General Corporation Law specifies that the Certificate of Incorporation
of a Delaware corporation may include a provision eliminating or limiting the
personal liability of a director or officer to a corporation or its stockholders
for damages for breach of fiduciary duty as a director or officer, but such a
provision must not eliminate or limit the liability of a director or officer for
(i) acts or omissions which involve intentional misconduct, fraud, or a knowing
violation of law; or (ii) unlawful distributions to stockholders. The
Certificate of Incorporation of the Company includes a provision eliminating or
limiting the personal liability of the officers and directors of the Company to
the Company and its shareholders for damages for breach of fiduciary duty as a
director or officer. Accordingly, the officers and directors of the Company may
have no liability to the shareholders of the Company for any mistakes or errors
of judgment or for any act or omission, unless such act or omission involves
intentional misconduct, fraud, or a knowing violation of law or results in
unlawful distributions to the shareholders of the Company.
II-2
<PAGE> 51
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1 Underwriting Agreement
1.1 Standard Dealer Agreement
1.2 Master Agreement Among Underwriters*
1.3 Underwriter's Warrant Agreement
2 Plan of Acquisition (N/A)
4 Instruments defining the rights of holders, including indentures
5 Opinion re: legality*
8 Opinion re: tax matters*
10 Material contracts*
10.1 Stock Option Agreement with Howard Lee*
10.2 Stock Option Agreement with Dale Paisley*
10.3 Stock Option Agreement with Marlin McKeever*
10.4 Stock Option Agreement with Jacques Genicot*
10.5 Stock Option Agreement with Barry Goverman*
11 Statement re: computation of per share earnings*
13 Annual or quarterly reports, Forms 10-KSB and 10-QSB (incorporated by reference,
filed with Commission August 31, 1996 and July 15, 1997, respectively, file no.
0-17594).
15 Letter on unaudited interim financial information (N/A)
16 Letter on change in certifying accountant (N/A)
23.1 Consent of experts
23.2 Consent of counsel*
24 Power of Attorney (included on signature page of this Registration Statement)
25 Statement of eligibility of trustee (N/A)
26 Invitation for competitive bids (N/A)
27 Financial data schedule (N/A -- filing does not include interim financial
statements)
99 Additional exhibits (N/A)
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS. 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, 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.
(f) If the Registrant relies on Rule 430A under the Securities Act, the
Registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance on Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial bona fide
offering for those securities.
II-3
<PAGE> 52
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Fred H. Behrens with full power to act as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (until and unless revoked in a writing) to sign any and
all amendments (including but not limited to post-effective amendments and
amendments thereto) to this Registration Statement on Form S-2 of AMCOR Capital
Corporation, a Delaware corporation, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to make this Registration Statement on Form S-2 effective, as fully
and for all intents and purposes, as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that the Registrant meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on September 19, 1997.
(Registrant) AMCOR CAPITAL CORPORATION, A DELAWARE CORPORATION
By: /s/ FRED H. BEHRENS
----------------------------------
Fred H. Behrens, Chairman of the
Board
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>
<S> <C>
(Signature) /s/ FRED H. BEHRENS (Signature) /s/ ROBERT A. WRIGHT
---------------------------------------- ----------------------------------------
Fred H. Behrens Robert A. Wright
(Title) Director (Title) Director
(Date) September 19, 1997 (Date) September 19, 1997
(Signature) /s/ MARLENE A. TAPIE (Signature) /s/ DALE P. PAISLEY
---------------------------------------- ----------------------------------------
Marlene A. Tapie Dale P. Paisley
(Title) Director (Title) Director
(Date) September 19, 1997 (Date) September 19, 1997
(Signature) /s/ F. HOWARD LEE (Signature) /s/ MARLIN T. MCKEEVER
---------------------------------------- ----------------------------------------
F. Howard Lee Marlin T. McKeever
(Title) Director (Title) Director
(Date) September 19, 1997 (Date) September 19, 1997
</TABLE>
II-4
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
----------- -----------------------------------------------------------------------------
<S> <C> <C>
1 Underwriting Agreement............................................
1.1 Standard Dealer Agreement.........................................
1.2 Master Agreement Among Underwriters*..............................
1.3 Underwriter's Warrant Agreement...................................
2 Plan of Acquisition (N/A).........................................
4 Instruments defining the rights of holders, including
indentures........................................................
5 Opinion re: legality*.............................................
8 Opinion re: tax matters*..........................................
10.1 Stock Option Agreement with Howard Lee*...........................
10.2 Stock Option Agreement with Dale Paisley*.........................
10.3 Stock Option Agreement with Marlin McKeever*......................
10.4 Stock Option Agreement with Jacques Genicot*......................
10.5 Stock Option Agreement with Barry Goverman*.......................
11 Statement re: computation of per share earnings*..................
13 Annual or quarterly reports, Forms 10-KSB and 10-QSB (incorporated
by reference, filed with Commission August 31, 1996 and July 15,
1997, respectively, file no. 0-17594).............................
15 Letter on unaudited interim financial information (N/A)...........
16 Letter on change in certifying accountant (N/A)...................
23.1 Consent of experts................................................
23.2 Consent of counsel*...............................................
24 Power of Attorney (included on signature page of this Registration
Statement)........................................................
25 Statement of eligibility of trustee (N/A).........................
26 Invitation for competitive bids (N/A).............................
27 Financial data schedule (N/A -- filing does not include interim
financial statements).............................................
99 Additional exhibits (N/A).........................................
</TABLE>
- ---------------
* Previously filed.
II-5
<PAGE> 1
EXHIBIT 1
SERIES A 9% CONVERTIBLE PREFERRED STOCK
AMCOR CAPITAL CORPORATION
UNDERWRITING AGREEMENT
================================================================================
TORREY PINES SECURITIES, INC.
140 Marine View Drive, Suite 110
Solana Beach, California 92075
Gentlemen:
AMCOR CAPITAL CORPORATION, a corporation organized under the laws of
the State of Delaware (the "Company"), confirms its agreement with Torrey Pines
Securities, Inc., a California corporation ("Torrey Pines"), and each of the
underwriters, if any, named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Torrey Pines is acting as
representative (in such capacity, Torrey Pines shall hereinafter be referred to
as "you" or the "Representative"), with respect to the sale by the Company of a
total of Six Hundred and Fifty Thousand (650,000) of the Company's Series A 9%
Convertible Preferred Stock (the "Preferred Stock") and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of
Preferred Shares set forth opposite their names on Schedule A. Such shares of
Preferred Stock are hereinafter referred to as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional Ninety-Seven Thousand and Five Hundred (97,500) shares of
Preferred Stock (fifteen percent (15%) of the Firm Shares) for the purpose of
covering over-allotments, if any (the "Option Shares"). The Firm Shares and
the Option Shares are hereinafter together referred to as the "Shares." The
Underwriters are purchasing the Preferred Shares for resale and distribution
within the United States. The Company also proposes to issue and sell to you
warrants (the "Underwriters' Warrant") pursuant to the Underwriters' Warrant
Agreement (the "Underwriters' Warrant Agreement") for the purchase of up to an
additional number of shares of Preferred Stock equal to ten percent (10%) of
the aggregate of the Firm Shares. The shares of Preferred Stock issuable upon
exercise of the Underwriters' Warrant are hereinafter referred to as the
"Underwriter's Preferred Shares". The Firm Shares, the Option Shares, the
Underwriters' Warrant and the Underwriter's Preferred Shares (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus defined below.
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE UNDERWRITERS
a. The Company makes the following representations and warranties
to each of the Underwriters as of the date hereof, and as of
the Closing Date (hereinafter defined) and the Option Closing
Date (as hereinafter defined). Each and every certificate
signed by any officer of the Company, and delivered to the
Underwriter or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company
to the Underwriter as to the matters covered thereby.
(i) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration
statement, and amendment or amendments thereto, on Form S-2 (No.
333-28373), including any related preliminary prospectus
("Preliminary Prospectus"), for the registration of the Firm Shares
and the Option Shares under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations of the Commission under the
Act. For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the
time the registration statement becomes effective (including the
prospectus, financial statements, schedules, exhibits, and all other
documents filed as a part thereof or incorporated therein (including,
but not limited to, those documents or information incorporated by
reference therein and all information deemed to be a part thereof as
of such time pursuant to paragraph (b) of Rule 430(A) of the Rules and
Regulations)), is hereinafter called the "Registration Statement", and
the form of prospectus in the form first filed with the Commission
pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus".
(ii) Neither the Commission nor any securities exchange or
state authority has issued any order preventing or suspending the use
of any preliminary Prospectus, as defined under the Act (a
"Preliminary Prospectus"), the Registration Statement or the
Prospectus or any part thereof and no proceedings for a stop order
suspending the effectiveness of the Registration Statement or any of
the Company's securities have been instituted or are pending or to the
Company's knowledge, threatened. Each Preliminary Prospectus, the
Registration Statement and the Prospectus as of the time of filing
thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of any Preliminary Prospectus, the Registration
Statement or Prospectus at the time of filing thereof contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein and necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, except that this
-2-
<PAGE> 3
representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(iii) When the Registration Statement becomes effective and
at all times subsequent thereto up to the Closing Date and each Option
Closing Date, if any, and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the
Prospectus will contain all statements which are required to be stated
therein in accordance with the Act, and the Rules and Regulations and
will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any 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, provided, however, that this representation and warranty
does not apply to statements made or statements omitted in reliance
upon and in conformity with information furnished to the Company in
writing with respect to the Underwriters by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(iv) Each of the Company and each of its controlled
corporations, partnerships and limited liability companies as
described in the Registration Statement (hereinafter referred to as
the "Subsidiaries"), has been duly organized and is validly existing
and in good standing under the laws of the state of its formation.
Except as disclosed in the Prospectus, neither the Company nor any
Subsidiary owns a material interest in any corporation, partnership,
trust, joint venture or other business entity. Each of the Company
and each Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each state or other jurisdiction
in which its ownership or leasing of any properties or the character
of its operations requires such qualification or licensing. Each of
the Company and each Subsidiary has all requisite power and authority,
and to the best knowledge of the Company, each has obtained any and
all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the
Prospectus; to the best knowledge of the Company, each of the Company
and each Subsidiary is and has been doing business in compliance with
all such authorizations approvals, orders, licenses, certificates,
franchises and permits and all federal, state and local laws, rules
and regulations, and except as set forth in the Prospectus, at the
Closing Date and at the Option Closing Date, if any, neither the
Company nor any subsidiary shall have received
-3-
<PAGE> 4
notice of any proceedings relating to the revocation or modification
of any such authorization, approval, order, license, certificate,
franchise or permit, or in the aggregate, if subject to any
unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the
earnings, position, or prospects of the Company and its Subsidiaries
taken as a whole.
(v) This Underwriting Agreement has been duly authorized,
executed, and delivered by the Company and is binding upon the Company
in accordance with its terms; the issuance and delivery of the
Preferred Shares and Warrants to be purchased hereunder and the
Underwriters' Warrant, the execution, delivery and performance of this
Underwriting Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under: (i) any
contract, indenture, mortgage, deed of trust, loan agreement, bond
debenture, note, or other evidence of indebtedness, lease, contract,
or other agreement or instrument to which the Company or any
Subsidiary is a party or by which it or any of its properties may be
bound; (ii) the Company's or any Subsidiary's articles of
incorporation or bylaws; or (iii) any statute, law, order, rule,
regulation, writ, injunction, or decree of any court, foreign or
domestic, or governmental agency or body having jurisdiction over the
Company or any Subsidiary or their properties; and no consent,
approval, authorization, or order of any court or governmental agency
or body is required for the consummation by the Company of the
transactions on its part contemplated herein, except as may be
required under the Act and the Rules and Regulations, or under the
applicable securities laws of any state.
(vi) Except as set forth in the Prospectus, there shall
not be at the Closing Date or at the Option Closing Date, if any, to
the knowledge of the Company, any pending or threatened action, suit,
or proceeding to which the Company and/or any subsidiary is named as a
party before any court or governmental agency or body which might
result in a material adverse change, individually or in the aggregate,
in the condition, financial or otherwise, business or prospects of the
Company and its subsidiaries taken as a whole, and there are no
contracts or documents of the Company that are required to be
described in or filed as exhibits to the Registration Statement by the
Rules and Regulations that have not been described in or filed as
exhibits to the Registration Statement.
(vii) The outstanding shares of the capital stock of the
Company and the equity securities of each Subsidiary have been duly
authorized and validly issued and are fully paid, nonassessable, and
free of preemptive rights; the capital stock of the Company conforms
to the statements about it in the Registration Statement and
Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); all issued
and outstanding shares of the capital stock of the Company and the
equity securities of each Subsidiary and all other securities issued
and sold or exchanged by the Company and each Subsidiary have been
issued and sold or exchanged.
-4-
<PAGE> 5
in compliance with all applicable securities laws and regulations; the
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Underwriting Agreement against payment
therefor, the Securities will be duly and validly issued, fully paid,
nonassessable, and free of preemptive rights; the Underwriters'
Warrants have been authorized for issuance to the Representative and
will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Underwriters' Warrant filed as
an exhibit to the Registration Statement; the securities underlying
the Preferred Shares to be issued upon exercise of the Underwriters'
Warrant, when issued and delivered against payment therefor in
accordance with the terms of the Underwriters' Warrant, will be duly
and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the
authorization and issuance of the Underwriters' Warrant, and the
securities underlying any Securities to be issued upon their exercise,
have been validly and sufficiently taken; and there are no outstanding
options, warrants, or other rights granted by the Company or any
Subsidiary or to the Company's knowledge, by any person named in the
table under "Principal Stockholders" in the Prospectus to purchase
Preferred Stock or other securities of the Company other than as
described in the Prospectus; and to the Company's knowledge, no
option, warrant or other right has been granted to any person, the
exercise of which would cause that person to own more than five
percent (5%) of any capital stock of the Company except as described
in the Prospectus. The Company is the sole record and beneficial
owner of all of the outstanding equity securities of each Subsidiary,
except as described in the Prospectus.
(viii) Kelly & Company, Independent Auditors, who have
examined the August 31, 1996 and 1995 financial statements filed with
the Commission as a part of the Registration Statement and included in
the Prospectus, are independent public accountants within the meaning
of the Act and the Rules and Regulations; the financial statements
filed as a part of the Registration Statement and included in the
Prospectus fairly present the financial position, results of
operations, stockholders' equity, and cash flows of the Company and
the Subsidiaries at the respective dates and for the respective
periods to which they apply and have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved. The financial statement schedules,
if any, included in the Registration Statement present fairly the
information required to be stated therein.
(ix) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as may be otherwise stated or contemplated in the Registration
Statement or the Prospectus, as the case may be, there has not been
(a) any material adverse change in the business, properties, business
prospects, results of operations, or condition (financial or other) of
the Company or any Subsidiary, (b) any transaction entered into by the
Company or any Subsidiary that is material to the Company and the
Subsidiaries taken as a whole, except transactions in the
-5-
<PAGE> 6
ordinary course of business, (c) any direct or contingent obligation
incurred by the Company or any Subsidiary, except obligations incurred
in the ordinary course of business, (d) any transaction entered into
by the Company or any Subsidiary that is required to be and is not
described in the Prospectus or an appropriate amendment or supplement
thereto, (e) other than in the ordinary course of the Company's
business, any material change in the outstanding indebtedness of the
Company or any Subsidiary, (f) any material change in the capital
stock of the Company or equity securities of any subsidiary, or (g)
any dividend or distribution of any kind declared, paid, or made on
the Company's capital stock.
(x) Except as set forth in the Prospectus, the Company
and each Subsidiary has good and marketable title to all properties
and assets, tangible and intangible, described in the Prospectus as
owned by it, free and clear of all liens, charges, encumbrances, or
restrictions. All of the leases and subleases under which the Company
or any Subsidiary holds properties are in full force and effect, and
the Company has no notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any
Subsidiary under any of such leases or subleases, or affecting or
questioning the rights of the Company or any Subsidiary to the
continued possession of the leased or subleased premises or property
under any such lease or sublease.
(xi) The Company and each Subsidiary has filed all
required state and federal income, employment, excise, and franchise
tax returns or has filed extensions for the filing thereof, and has
paid all taxes shown as due thereon; and the Company has no knowledge
of any tax deficiency that might be asserted against it or any
Subsidiary that might materially and adversely affect the Company's or
any Subsidiary's business or properties.
(xii) Except as disclosed in the Prospectus, the Company
and each Subsidiary maintains insurance of the types and in amounts
generally deemed adequate for its business and consistent in coverage
and amount with insurance maintained by similar companies and
business, including, but not limited to, property and casualty
insurance and all other risks customarily insured against, all of
which insurance is in full force and effect.
(xiii) To the best knowledge of the officers and directors
of the Company so named in the Prospectus (hereinafter referred to as
the Company's management), no labor disturbance by the employees of
the Company or any Subsidiary exists or is imminent.
(xiv) To the best knowledge of the Company's management,
neither the Company nor any Subsidiary nor any employee or agent of
the Company or any
-6-
<PAGE> 7
Subsidiary has made any payment of funds of the Company or any
Subsidiary or received or retained any funds in violation of the law.
(xv) To the best knowledge of the Company's management
there is no occurrence or likely occurrence of any event or events
that would cause it to use the proceeds of the offering in a way
materially different from that stated in the Prospectus.
(xvi) To the best knowledge of the Company's management
there is no factual basis for any claim, by any present or former
employee of the Company or any Subsidiary, for salary, wages or the
like, reinstatement or damages of any kind related to his or her
employment.
(xvii) To the best knowledge of the Company's management
there is no factual basis for any claim, relating to its or any
Subsidiary's use, storage, handling or disposal of toxic wastes or to
such use, storage, handling or disposal by any other person on
property owned or leased by the Company or any Subsidiary.
(xviii) Neither the Company nor any of its employees,
directors, stockholders, partners, or affiliates, as defined in
Section 1(a)(xxiii)below, of any of the foregoing has taken or will
take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under
the Exchange Act, or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities or otherwise.
(xix) Except as otherwise disclosed in the Prospectus, none
of the trademarks, service marks, trade names and copyrights, and
license and rights to the foregoing presently owned or held by the
Company or any Subsidiary are in dispute so far as known by the
Company or are in any conflict with the right of any other person or
entity.
(xx) Except as described in the Prospectus under
"Underwriting", there are no claims, payments, issuances, arrangements
or understandings, whether oral or written, for services in the nature
of a finder's or origination fee with respect to the sale of the
Securities or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its
officers, directors, stockholders, partners, employees or affiliates
that may affect the Underwriters' compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
(xxi) Neither the Company's management nor any of its
employees, agents, or any other person acting on behalf of the
Company, has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to
-7-
<PAGE> 8
customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (United States or foreign) or
instrumentality of any government (United States or foreign) or any
political party or candidate for office (United States or foreign) or
other person who was, is, or may be in a position to help or hinder
the business of the Company (or assist the Company in connection with
any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any
civil, criminal or governmental litigation or proceeding (United
States or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the
Company, or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company.
(xxii) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of the Laws of Florida,
Charter 92-198 Act Relating to Disclosure of Doing Business with
Cuba, and the Company further agrees that if it or any affiliate
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with
the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's, or any affiliate's, business with Cuba or with any person
or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(xxiii) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under
the Rules and Regulations) of any of the foregoing persons or entities
has or has had, either directly or indirectly, (a) an interest in any
person or entity which furnishes or sells services or products which
are furnished or sold or are proposed to be furnished or sold by the
Company or purchases from or sells or furnishes to the Company any
goods or services, or (b) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "CERTAIN
TRANSACTIONS", there are no existing agreements, arrangements,
understandings or transactions or proposed agreements, arrangements,
understandings or transactions, between or among the Company and any
officer, director, or Principal Stockholder (as such term is defined
in the Prospectus) of the Company or any partner, affiliate or
associate of any of the foregoing persons or entities.
(xxiv) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all
meetings and actions of the directors, stockholders, audit committee,
compensation committee and any other
-8-
<PAGE> 9
committee of the Board of Directors of the Company, respectively,
since the time of its incorporation, and reflect all transactions
referred to in such minutes accurately in all material respects.
(xxv) Except and to the extent described in the
Registration Statement, no holders of any securities of the Company or
of any options, warrants or other convertible or exchangeable
securities of the Company have the right to include any securities
issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the
Company to file a registration statement under the Act and no person
or entity holds any anti-dilution rights with respect to any
securities of the Company.
b. Torrey Pines and each of the Underwriters makes the following
representations and warranties to the Company as of the date hereof, and as of
the Closing Date (as hereinafter defined) and the Option Closing Date (as
hereinafter defined). Each and every certificate signed by any officer of
Torrey Pines and such Underwriter and delivered to the Company or to Company's
Counsel (as defined herein) shall be deemed a representation and warranty by
Torrey Pines and such Underwriter as to the matters covered thereby.
(i) Torrey Pines and such Underwriter (A) is a
corporation duly organized, validly existing and in good standing
under the laws of the state of its organization; and (B) has all
requisite power and authority to own its properties and to carry on
its business as it is now being conducted and as it is proposed to be
conducted during the Offering.
(ii) Torrey Pines and such Underwriter (A) is a member in
good standing of the NASD, and represents that it is a member in good
standing of the NASD; and (B) in making sales of the Shares, will
comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation with Respect to Free-Riding and
Withholding and Section 2110 of the NASD's Conduct Rules.
(iii) The execution, delivery and performance by Torrey
Pines and such Underwriter of this Agreement are within the corporate
power and authority of Torrey Pines and such Underwriter and have been
duly authorized by all necessary corporate action, and this Agreement
has been duly and validly authorized, executed and delivered by Torrey
Pines and such Underwriter and constitutes a valid and binding
obligation of Torrey Pines and such Underwriter enforceable against
Torrey Pines and such Underwriter in accordance with its terms.
(iv) Neither Torrey Pines nor such Underwriter has a
direct or indirect affiliation or association with any officer or
director of the Company or with any beneficial owner of five percent
(5.0%) or more of the Company's voting securities.
-9-
<PAGE> 10
(v) The information furnished by Torrey Pines or such
Underwriter or its counsel for inclusion in the Registration Statement
and the Prospectus, and in any amendment or supplement thereto, is
true and accurate in all material respects and no material information
has been omitted therefrom that would be necessary in order to make
the statements in the Registration Statement or the Prospectus
prepared in reliance on such information, in light of the
circumstances under which they were made, not misleading.
(vi) Neither Torrey Pines nor such Underwriter has taken,
or will take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in the stabilization
or the manipulation of the price of the Shares or the Common Stock of
the Company except as may be authorized in writing by the
Representative.
(vii) To the best knowledge of Torrey Pines and such
Underwriter, no proceeding is pending or threatened against Torrey
Pines or such Underwriter or any of its directors or officers in any
court of competent jurisdiction, or before the Commission, any state
securities commission, or the NASD, concerning Torrey Pines or such
Underwriter's activities as a broker and/or dealer.
(viii) Neither Torrey Pines nor such Underwriter has
published, issued, or circulated or authorized the publication,
issuance, or circulation of any circular, notice or advertisement
regarding the Securities which has not previously been approved by the
Representative, the Company and Company's Counsel.
(ix) Neither Torrey Pines nor such Underwriter or any of
their associated persons, parents, or affiliates has a "Conflict of
Interest" with the Company within the meaning of Section 2(g) of
Schedule E to the NASD Bylaws.
(x) Neither Torrey Pines nor such Underwriter has made
any material representation, in writing or otherwise, to any purchaser
of the Shares regarding the Company, the Shares or the Offering, other
than such material representations as are set forth in the Prospectus
and/or the Registration Statement.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to Torrey Pines, as Representative of each
Underwriter, and each Underwriter, severally and not jointly, agrees to
purchase from the Company at a price of $9.10 per share, which is ninety-one
percent (91%) of the initial public offering price per Preferred Share, that
number of Firm Shares set forth in Schedule A opposite the name of such
Underwriter, plus any
-10-
<PAGE> 11
additional number of Firm Shares which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 11 hereof.
b. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Representative and at the election of the Representative each Underwriter,
severally and not jointly, in the amounts designated in writing by the
Representative to purchase all or any part of the Option Shares at a price of
$9.10 per share, which is ninety-one percent (91%) of the initial public
offering price per Preferred Share. The option granted hereby will expire 45
days after (i) the date the Registration Statement becomes effective with the
Commission, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations and may be exercised in
whole or in part from time to time only for the purpose of covering over-
allotments which may be made in connection with the offering and distribution
of the Firm Shares upon notice by the Representative to the Company setting
forth the number of Option Shares as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for any
such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Representative, but shall not be later than
three (3) full business days after the exercise of said option, nor in any
event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representative and the Company. Nothing herein contained
shall obligate the Underwriters to make any over-allotments. No Option Shares
shall be delivered unless the Firm Shares shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
c. Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of Torrey Pines
Securities, Inc. at 140 Marine View Drive, Suite 110, Solana Beach, California
92075, or at such other place as shall be agreed upon by the Representative and
the Company. Such delivery and payment shall be made at 10:00 AM Pacific time)
on _____________________, 1997 or at such other time and date as shall be
agreed upon by the Representative and the Company, but not more than three (3)
full business days after the effective date of the Registration Statement (such
time and date of payment and delivery being herein called "Closing Date"). In
addition, in the event that any or all of the Option Shares are purchased by
the Underwriters, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above-mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made
to the Underwriters against payment by the Underwriters, severally and not
jointly, of the purchase price for the Firm Shares and the Option Shares, if
any, to the order of the Company for the Firm Shares and the Option Shares, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not
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<PAGE> 12
jointly, shall purchase that proportion of the total number of Option Shares
then being purchased which the number of Firm Shares set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares, subject in each case to such adjustments as the Representative in its
discretion shall make to eliminate any sales or purchases of fractional
Preferred Shares. Certificates of the Firm Shares and the Option Shares, if
any, shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Shares and the Option Shares, if any, shall be made
available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 AM on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
d. On the Closing Date, the Company shall issue and sell to the
Representative, the Underwriters' Warrant. The Underwriters' Warrant shall
entitle the holders thereof to purchase an aggregate of 65,000 shares of
Preferred Stock (ten percent (10%) of the number of the total number of
Preferred Shares sold in the Offering). The Underwriters' Warrant shall be
exercisable for a period of twenty-four (24) months commencing twelve (12)
months from the effective date of the Registration Statement. The
Underwriters' Warrant Agreement and form of Warrant certificate shall be
substantially in the form filed as Exhibit A to that Agreement. Payment for
the Underwriters' Warrant shall be made on the Closing Date.
3. PUBLIC OFFERING OF THE PREFERRED SHARES
As soon after the Registration Statement becomes effective as the
Representative deems advisable, the Underwriters shall make a public offering
of the Preferred Shares (other than to residents of or in any jurisdiction in
which qualification of the Preferred Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after distribution of the Preferred Shares has been completed to
such extent as the Representative, in its discretion deems advisable. The
Underwriters may enter into one or more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY
The Company covenants and agrees with each of the Underwriters as
follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective with the
Commission as promptly as practicable and will not at any time, whether before
or after the effective date of the Registration Statement, file any amendment
to the Registration Statement or supplement to the Prospectus or file any
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<PAGE> 13
document under the Act or the Exchange Act before termination of the offering
of the Preferred Shares by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected within two (2) business days after its
receipt thereof or which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective
with the Commission and, if the provisions of Rule 430A promulgated under the
Act will be relied upon, when the Prospectus has been filed in accordance with
said Rule 430A and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the issuance by the Commission of any stop
order or of the initiation or the threatening of any proceeding suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose, (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or the state
securities commission authority of any state shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifteenth business day after the
effective date of the Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission, as the
case may be at the time the Registration Statement becomes effective, whether
or not such revised prospectus is required to be filed pursuant to Rule 424(b)
of the Rules and Regulations), and will furnish the Representative with copies
of any such amendment or supplement no later than two (2) business days after
its receipt thereof prior to such proposed filing or use, as the case may be,
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<PAGE> 14
and will not file any such prospectus to which the Representative or Rushall &
McGeever ("Underwriters' Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities or the Underwriter's Preferred Shares is required to
be delivered under the Act, any event shall have occurred as a result of which,
in the opinion of counsel for the Company or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any 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, or if it is necessary at any time
to amend the Prospectus to comply with the Act, the Company will notify the
Representative promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may request.
(g) During a period of three (3) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, each annual
report (including financial statements audited by independent public
accountants), and each report on Form 10-KSB (or 10-K, as the case may be),
including each amendment thereto, a copy of any report on Form 10-QSB (or 10-Q,
as the case may be), including any amendment thereto and each current report on
Form 8-K, including any amendment thereto, and will promptly deliver a copy of
each such report to the Representative and will deliver to the Representative:
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<PAGE> 15
(i) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs which was released or prepared by or on behalf
of the Company; and
(ii) any additional information of a public nature
concerning the Company (and any future subsidiary) or its businesses
which the Representative may request.
During such three (3)-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated.
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 Preferred Stock.
i. The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the Representative may
request.
j. Neither the Company, nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
k. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "USE
OF PROCEEDS" in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds will be used, directly or indirectly, to acquire
any securities issued by the Company.
l. The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange
Act, and the Rules and Regulations, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act, and the Rules and Regulations.
(m) The Company shall furnish to the Representative as early as
practicable prior to each of the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company (which
in no event shall be as of a date more than thirty (30) days prior to the
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<PAGE> 16
date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in its letter to be furnished
pursuant to Section 6(i) hereof.
(n) The Company shall use its best efforts to cause the Common
Stock to be quoted on NASDAQ and for a period of five (5) years from the date
of such listing, if any, use its best efforts to establish and maintain the
NASDAQ quotation of the Preferred Stock to the extent outstanding.
(o) Until the completion of the distribution of the Preferred
Shares, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other
than trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
(p) The Company hereby grants to the Representative a preferential
right on the terms and subject to the conditions set forth in this paragraph,
for a period of three (3) years from the effective date of the Registration
Statement with the Commission to purchase for its account, or to sell for the
account of the Company or its present or future affiliates or subsidiaries, any
securities of the Company or any of its present or future affiliates or
subsidiaries, with respect to which the Company or any of its present or future
affiliates or subsidiaries may seek a public or private sale of such securities
pursuant to an underwriting or placement by a broker-dealer for compensation.
During such period the Company will consult, and will cause such present or
future affiliates or subsidiaries to consult with, the Representative with
regard to any such offering or placement of its securities and will offer, or
cause any of its present or future affiliates or subsidiaries to offer, to the
Representative the opportunity, on terms not more favorable to the Company or
such present or future affiliate or subsidiary than they can secure elsewhere,
to purchase or sell any such securities. If the Representative fails to accept
in writing such proposal made by the Company or any of its present or future
affiliates or subsidiaries within thirty (30) days after receipt of a notice
containing such notice, then the Representative shall have no further claim or
right with respect to the proposal contained in such notice. If, thereafter,
such proposal is materially modified, the Company shall again consult, and
cause each present or future affiliate or subsidiary to consult, with the
Representative in connection with such modification and shall in all respects
have the same obligations and adopt the same procedures with respect to such
proposal as are provided hereinabove with respect to the original proposal.
5. PAYMENT OF EXPENSES
a. The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel incident to the
performance of the obligations of the Company under
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<PAGE> 17
this Agreement and the Underwriters' Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreements, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters and such dealers as the Underwriters may request,
in quantities as hereinabove stated, (iii) the printing, engraving, issuance
and delivery of the Securities, including, but not limited to, (A) the purchase
by the Underwriters of the Securities and the purchase by the Representative of
the Underwriters' Warrants from the Company, (B) the consummation by the
Company of any of its obligations under this Agreement and the Underwriters'
Warrant Agreement, and (C) the resale of the Securities by the Underwriters in
connection with the distribution contemplated hereby, (iv) the qualification of
the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey", if any, and disbursements and fees of the Company's counsel in
connection therewith, (v) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any consultant
retained, (vi) fees and expenses of the transfer agent and registrar, (vii) the
fees payable to the Commission and the NASD, and (viii) the fees and expenses
incurred in connection with the quotation of the Securities on the appropriate
NASDAQ Market and any other exchange.
b. If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 12 hereof, the Company shall
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses.
c. The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3.0%) of the gross proceeds received by the Company from the sale of
the Firm Shares, $_________ of which has been paid to date. In the event the
Representative elects to purchase the Option Shares described in Section 2(b)
hereof, the Company agrees to pay to the Representative on the Option Closing
Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the Option Shares) a
non-accountable expense allowance equal to three percent (3.0%) of the gross
proceeds received by the Company from the sale of the Option Shares, none of
which to date has been paid to Representative.
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<PAGE> 18
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company herein
as of the date hereof and as of the Closing Date and each Option Closing Date,
if any, with respect to the Company as if it had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
the officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the closing Date and each Option
Closing Date, if any, of its covenants and obligations hereunder and to the
following further conditions:
a. At the Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or shall be pending or contemplated by the Commission and any request on the
part of the Commission for additional information shall have been complied with
to the reasonable satisfaction of Underwriters' Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the price of the
Preferred Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to Closing date
the Company shall have provided evidence satisfactory to the Representative of
such timely filing, or a post- effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
b. The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state
a fact which, in the Representative's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material,
or omits to state a fact which, in the Representative's opinion, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
c. At the Closing Date, the Underwriters shall have received the
favorable opinion of White and Stepp LLP, legal counsel to the Company, dated
as of the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) Each of the Company and each Subsidiary (A) has been
duly organized and is validly existing as an entity of its respective
form in good standing under the laws
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<PAGE> 19
of its jurisdiction, (B) is duly qualified and licensed and in good
standing as a foreign entity in each jurisdiction in which its
ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, and (C) has all
requisite power and authority; and the Company has obtained any and
all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the
Prospectus. The disclosures in the Registration Statement concerning
the effects of federal, state and local laws, rules and regulations on
the business of the Company and each Subsidiary as currently
conducted and as contemplated are correct in all material respects and
do not omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they
were made.
(ii) The Preferred Shares, the Underwriters' Warrant and
the Underwriter's Preferred Shares to be sold by the Company hereunder
and under the Underwriter's Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Preferred Shares,
the Underwriters' Warrant and the Underwriters' Preferred Shares has
been duly and validly taken; and the certificates representing the
Preferred Shares and the Underwriters' Warrant, are in due and proper
form. The Underwriters' Warrant constitutes a valid and binding
obligation of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company
called for thereby. Upon the issuance and delivery pursuant to this
Agreement and the Underwriters' Warrant Agreement of the Preferred
Shares and the Underwriters' Warrant, respectively, to be sold by the
Company, the Underwriters and the Representative, respectively, will
acquire good and marketable title to the Preferred Shares and the
Underwriters' Warrant free and clear of any pledge, lien, charge,
claim, encumbrance, security interest, or other restriction or equity
of any kind whatsoever.
(iii) Each of the Company and each subsidiary is and has
been doing business in material compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state and local laws, rules and
regulations. The disclosures in the Registration Statement concerning
the effects of federal, state and local laws, rules and regulations on
the Company's and the Subsidiary's business as currently conducted and
as contemplated are correct in all material respects and do not omit
to state a fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
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<PAGE> 20
(iv) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for
it to issue any material amount of capital stock, rights, warrants,
options or other securities, except for this Agreement, the
Underwriters' Warrant Agreement and as described in the Prospectus.
The Securities conform in all material respects to all statements with
respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason
of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of
the Company. The Preferred Shares, the Underwriters' Warrant and the
Underwriter's Preferred Shares to be sold by the Company hereunder and
under the Underwriters' Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Preferred Shares,
the Underwriters' Warrant and the Underwriter's Preferred Shares has
been duly and validly taken; and the certificates representing the
Preferred Shares and the Underwriters' Warrants are in due and proper
form. Each of the Underwriters' Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof
and payment therefor, the number and type of securities of the Company
called for thereby. Upon the issuance and delivery pursuant to this
Agreement and the Underwriters' Warrant Agreement of the Preferred
Shares and the Underwriters' Warrants, respectively, to be sold by the
Company, the Underwriters and the Representative, respectively, will
acquire good and marketable title to the Preferred Shares and
Underwriters' Warrant free and clear of any pledge, lien, charge,
claim, encumbrance, security interest, or other restriction or equity
of any kind whatsoever.
(v) The Registration Statement is effective under the Act
and if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or,
to the best of such counsel's knowledge, threatened or contemplated
under the Act;
(vi) Each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial
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<PAGE> 21
statements and other financial and statistical data included thereon,
as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
(vii) To the best of such counsel's knowledge, (A) there
are no agreements, contracts or other documents required by the Act to
be described in the Registration Statement and the Prospectus and
filed as exhibits to the Registration Statement other than those
described in the Registration Statement (or required to be filed under
the Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein) and the Prospectus and filed
as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies;
(B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which it is bound,
including any document to which the Company is a party or by which it
is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects
and fairly represent the information required to be shown by Form S-2;
(C) there is not pending or threatened against the Company any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic
or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all material respects), (y) questions the validity of the capital
stock of the Company or this Agreement or the Underwriters' Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E)
there is no action, suit or proceeding pending, or threatened, against
or affecting the Company before any court or arbitrator or
governmental body, agency or official (or any basis thereof known to
such counsel) in which there is a reasonable possibility of an adverse
decision which may result in a material adverse change in the
condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company, which could
adversely affect the present or prospective ability of the Company to
perform its obligations under this Agreement or the Underwriters'
Warrant Agreement or which in any manner draws into question the
validity or enforceability of this Agreement or the Underwriters'
Warrant Agreement;
(viii) The Company has full legal right, power and authority
to enter into each of this Agreement and the Underwriters'
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<PAGE> 22
Warrant Agreement, and to consummate the transactions provided for
therein; and each of this Agreement and the Underwriters' Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Underwriters' Warrant
Agreement, assuming due authorization, execution and delivery by each
other party thereto constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution
may be limited by applicable law), and none of the Company's execution
or delivery of this Agreement and the Underwriters' Warrant Agreement,
its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms
of, (A) the certificate of incorporation or by-laws of the Company,
(B) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is
a party or by which it is or may be bound or to which any of its
respective properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its activities
or properties;
(ix) Except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body (other than such as
may be required under Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the Preferred
Shares pursuant to the Prospectus, the issuance of the Underwriters'
Warrant, and the Registration Statement, the performance of this
Agreement and the Underwriters' Warrant Agreement, and the
transactions contemplated hereby and thereby;
(x) The business and properties of the Company conform in
all material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good
and marketable title to, or valid and enforceable leasehold estates
in, all items of real and personal property stated in the Prospectus
to be owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any
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<PAGE> 23
kind whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
(xi) To the best knowledge of such counsel, the Company is
not in breach of, or in default under, any term or provision of any
license, contract, indenture, mortgage, installment sale agreement,
deed of trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money,
or any other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the property or
assets (tangible or intangible) of the Company is subject or affected;
and the Company is not in violation of any term or provision of its
certificate of incorporation, bylaws, or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation;
(xii) The Prospectus has been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in
all material respects;
(xiii) Except as described in the Prospectus, such counsel
is not aware of any person, corporation, trust, partnership,
association or other entity which has the right to include and/or
register any securities of the Company in the Registration Statement,
require the Company to file any registration statement or, if filed,
to include any security in such registration statement.
(xiv) Except as described in the Prospectus, such counsel
is not aware of any claim, payment, issuance, arrangement or
understanding for services in the nature of a finder's or origination
fee with respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD.
(xv) Except as described in the Prospectus, the Company
does not (A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has never
completely or partially withdrawn from a multi employer plan.
(xvi) To the best of such counsel's knowledge after due
inquiry, the Registration Statement and the Prospectus do not contain
any untrue statement of material fact relating to the Company, or omit
to state any material fact relating to the Company which is required
to be stated in the Registration Statement and the Prospectus or is
necessary to make the statements therein not misleading.
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<PAGE> 24
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which
lead them to believe that either the Registration Statement any amendment
thereto, at the time such Registration Statement or amendment became effective
or the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion 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 (it being understood
that such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data included in
the Preliminary Prospectus, the Registration Statement or the Prospectus).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon.
d. On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6 hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
e. Prior to and on each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change or
development involving a prospectus, change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
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<PAGE> 25
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii)
except as may be described in the Prospectus, the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) except as may be described in the Prospectus, the Company
shall not have issued any securities (other than the Securities), the Company
shall not have declared or paid any dividend or made any distribution in
respect of its capital stock of any class, and there has not been any change in
the capital stock of the Company, or, other than in the ordinary course of its
business, any material change in the debt (long or short term) or liabilities
or obligations of the Company (contingent or otherwise); (v) no material amount
of the assets of the Company shall have been pledged or mortgaged, except as
set forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
prospects or financial condition or income of the Company, except as set forth
in the Registration Statement and Prospectus; and (vii) no stop order shall
have been issued under the act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
f. At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
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 the Option Closing Date, as the case may be, and the
Company has complied with all agreements and covenants and satisfied
all conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such Closing Date or Option Closing Date,
as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, after due inquiry are
contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and none
of the Registration Statement, the Prospectus nor any
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<PAGE> 26
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and neither the Preliminary Prospectus nor any supplement
thereto included any untrue statement of a material fact or omitted to
state any 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
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(a) the Company has not incurred up to and including the Closing Date
or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) the Company has not paid or
declared any dividends or other distributions on its capital stock;
(c) the Company has not entered into any transactions not in the
ordinary course of business; (d) there has not been any material
change in the capital stock of the Company or any material change in
the debt (long or short-term) of the Company other than in its
ordinary course of business; (e) the Company has not sustained any
material loss or damage to its property or assets, whether or not
insured; (f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company, or any
affiliated party of any of the foregoing which is required to be set
forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
Section 6(f) are to such documents as amended and supplemented at the date of
such certificate.
g. By the Closing Date, the Underwriters will have received
clearance from the Corporate Financing Department of the NASD as to the amount
of compensation allowable or payable to the Underwriters, as described in the
Registration Statement.
h. At the time of this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all
respects to the Underwriters and Underwriters' Counsel, Rushall & McGeever, a
Professional Law Corporation, from the independent auditors:
(i) Confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
(ii) Stating that it is their opinion that the financial
statements of the Company as of August 31, 1996 and 1995 and for the
years ended August 31,
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1996 and 1995 all included in the Company's annual report on Form
10K-SB/A for the year ended August 31, 1996 and incorporated by
reference in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the
Representative may rely upon their opinion with respect to such
financial statements incorporated by reference in the Registration
Statement;
(iii) Stating that, on the basis of the latest available
unaudited interim financial statements of the Company, a reading of the
latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company, and
consultations with officers of the Company responsible for financial
and accounting matters (A) the unaudited financial statements of the
Company incorporated by reference in the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of the Company incorporated by reference in the
Registration Statement, and (B) at a specified date not more than five
(5) days prior to the effective date of the Registration Statement,
there has not been any change in the capital stock of the Company, any
change in the long-term debt of the Company, or any decrease in the
stockholders' equity of the Company or any decrease in the net current
assets or net assets of the Company as compared with amounts shown in
the August 31, 1996 balance sheets included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during the
period from August 31, 1996 to a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there
was not any decrease in net revenues or net earnings of the Company or
decrease in net earnings per common share of the Company, in each case
as compared with the corresponding period beginning September 1, 1995
other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount
of such decrease;
(iv) Setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of
liabilities of the Company; and
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(v) Stating that they have compared specific dollar
amounts, numbers of shares, earnings, and interest expense pertaining
to the Company set forth in the Prospectus under the captions
"Capitalization" and "Ratio of Earnings to Fixed Charges" in each case
to the extent that such amounts, numbers, and information may be
derived from the general accounting records, including work sheets, of
the Company and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) and found them to be in
agreement.
i. At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Kelly & Company a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm the statements made in the letter furnished pursuant to Section
6(h) hereof except that the specified date referred to shall be a date not more
than five days prior to the Closing Date or the Option Closing Date, as the
case may be, and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of Section 6(h) with respect to certain amounts,
percentages and financial information as specified by the Representative and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in clause 6(h)(v) above.
j. The Company shall have delivered to the Representative a
letter from Kelly & Company addressed to the Company stating that they have not
during the immediately preceding two year period brought to the attentions of
the Company's management any "weakness" as defined in Statement of Auditing
Standards No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
k. On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Shares.
l. No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to Section 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date,
if any, and no proceedings for that purpose shall have been instituted or shall
be contemplated.
m. On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Underwriter's Warrant Agreement
substantially in the form filed
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<PAGE> 29
as Exhibit ____ to the Registration Statement in final form and substance
satisfactory to the Representative, and (ii) the Underwriters' Warrant in such
denominations and to such designees as shall have been provided to the Company.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION
a. The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including, but not limited to, any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called an "application") executed
by the Company or based upon written information furnished by the Company
filed, delivered or used in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, NASDAQ or any other securities exchange, (B)
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in the light of the circumstances under which they
were made), or (C) any breach of any representation, warranty, covenant or
agreement of the Company contained herein or in any certificate by or on behalf
of the Company or any of its officers delivered pursuant hereto unless, in the
case of clause (A) or (B) above, such statement or omission was made in the
reliance upon and in conformity with written information furnished to the
Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary
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<PAGE> 30
Prospectus, the Registration Statement or any Prospectus, or any amendment
thereof or supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
b. Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering.
The Company acknowledges that the statements with respect to the public
offering of the Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriters
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
c. Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this Section 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section 7 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise). In case any such action,
investigation, inquiry, suit or proceeding is brought against any indemnified
party, and it notifies an indemnifying party or parties of the commencement
thereof, the indemnifying party or parties will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
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. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
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the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the
indemnifying parties party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that such
consent was not unreasonably withheld. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, investigation, inquiry, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action),
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such claim,
action, suit or proceeding and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
d. In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, 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
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigation, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted
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<PAGE> 32
in such losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. In any case where the Company is the
contributing party and the Underwriters are the indemnified party, the relative
benefits received by the Company on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Securities (before deducting expenses) bear to the
total underwriting discounts received by the Underwriters hereunder, in each
case as set forth in the table on the Cover Page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action, claim, investigation, inquiry,
suit or proceeding. Notwithstanding the provisions of this subdivision (d) the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have hereunder or otherwise than under this subparagraph (d), or
to the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to
any liabilities which any indemnifying party may have at common law or
otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY
All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Company submitted
pursuant hereto, shall be deemed to be representations, warranties and
agreements at the Closing Date and the Option Closing Date, as the case may be,
and such representations, warranties and agreements of the Company and the
indemnity agreements contained in Section 7 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf
of any Underwriter, the Company,
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<PAGE> 33
any controlling person of any Underwriter or the Company, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriters and the Representative, as the case may be.
9. EFFECTIVE DATE
This Agreement shall become effective at 10:00 a.m., Pacific Daylight
time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Section 5, Section 7 and
Section 10 of this Agreement shall at all times be effective. For purposes of
this Section 9, the Shares to be purchased hereunder shall be deemed to have
been so released upon the earlier of dispatch by the Representative of
telegrams to securities dealers releasing such shares for offering or the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Shares.
10. TERMINATION
a. Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representative's opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Pacific
Stock Exchange, the Chicago Board of Trade, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Commission or any other
government authority having jurisdiction; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities
of the Company shall have been delisted on any exchange; or (v) if the United
States shall have become involved in a war or major hostilities, or if there
shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared; or (vi) if a banking moratorium
has been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company or any
Subsidiary shall have sustained a loss material or substantial to the Company
or the Subsidiary by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act which, whether or not such loss
shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have occurred any outbreak or escalation of hostilities or any calamity
or crisis or there shall have been such a material adverse change in the
general market, political or economic conditions, in the United States or
elsewhere as in the Representative's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities.
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<PAGE> 34
b. If this Agreement shall not be carried out within the time
specified herein, or any extension thereof granted to the Representative, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 12 hereof) then, the
Company shall promptly reimburse and indemnify the Representative for all of
its actual out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to Section
5(c) hereof). In addition, the Company shall remain liable for all Blue Sky
counsel fees and expenses and filing fees.
11. SUBSTITUTION OF THE UNDERWRITERS
If one or more of the Underwriters shall fail (otherwise than for a
reason sufficient to justify the termination of this Agreement under the
provisions of Section 12 hereof) to purchase the Securities which it or they
are obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 24 hours
thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms herein set forth.
12. DEFAULT BY THE COMPANY
If the Company shall fail at the Closing Date or at any Option Closing
Date, as applicable, to sell and deliver the number of Shares which it is
obligated to sell hereunder on such date, then this Agreement shall terminate
(or, if such default shall occur with respect to any Option Shares to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section 12 shall relieve the Company from
liability, if any, in respect of such default.
13. NOTICES
All notices and communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been
duly given if mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed to the Representative at 140
Marine View Drive, Suite 110, Solana Beach, California 92075, Attention William
Patton and Jack C. Smith, with a copy to Rushall & McGeever, 2111 Palomar
Airport Road, Suite 200, Carlsbad, California 92009, Attention: Bruce J.
Rushall, Esq. Notices to the Company shall be directed to the Company at
52-300 Enterprise Way, Coachella, California 92236, Attention: Fred H. Behrens,
Chief Executive Officer, with a copy to White
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<PAGE> 35
& Stepp LLP, 4100 Newport Place, Suite 800, Newport Beach, California 92660,
Attention: Thomas E. Stepp, Jr., Esq.
14. GENERAL PROVISIONS
PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without giving
effect to the choice of law or conflict of laws principles.
COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Underwriters'
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representative and the Company.
Please confirm that the foregoing correctly sets forth the
understanding between you and the Company by executing this letter in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
AMCOR CAPITAL CORPORATION
By:_________________________________
Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF
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<PAGE> 36
THE DATE FIRST ABOVE WRITTEN.
TORREY PINES SECURITIES, INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By: _________________________________
Jack C. Smith
President
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<PAGE> 37
SCHEDULE A
Number of Firm Shares
Name of Underwriters to be
Purchased
Torrey Pines Securities, Inc. ________________________________
Total ________________________________
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<PAGE> 1
EXHIBIT 1.1
TORREY PINES SECURITIES, INC.
140 MARINE VIEW DRIVE, SUITE 110
SOLANA BEACH, CALIFORNIA 92075
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with this public offering by Amcor Capital Corporation, a
Delaware corporation (the "Company"), of 650,000 Shares of its $10.00 Series A
9% Convertible Preferred Stock and the underwriters' over-allotment option to
purchase up to 97,500 additional shares (the "Offering") underwritten by a group
of underwriters (the "Underwriters") represented by us, you may be offered the
opportunity to purchase a portion of such securities, as principal, at a
discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with the Offering, will govern all such purchases of the securities
and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for the securities will be strictly subject to confirmation and we reserve
the right in our uncontrolled discretion to reject any order in whole or in
part. Upon release by us, you may reoffer such securities at the offering price
fixed by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories or possessions and
not registered under the Securities Exchange Act of 1934 (a "non-member
<PAGE> 2
foreign dealer") or (iii) a bank not eligible for membership in the NASD. If you
are a non-member foreign dealer, you agree to make no sales of securities within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Non-member foreign dealers and banks
agree, in making any sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. In accepting a selling concession where
we are acting as Representative of the Underwriters, in accepting a reallowance
from us whether or not we are acting as such Representative, and in allowing a
discount to any other person, you agree to comply with the provisions of Section
2740 of the Conduct Rules of the NASD (the "Conduct Rules"), and, in addition,
if you are a non-member foreign dealer or bank, you agree to comply, as though
you were a member of the NASD, with the provisions of Sections 2730 and 2750 of
the Conduct Rules and to comply with Section 2420 of the Conduct Rules as that
Section applies to a non-member foreign dealer or bank. You represent that you
are fully familiar with the above provisions of the Conduct Rules of the NASD.
3. The securities will have been registered under the Securities Act
of 1933 (the "1933 Act"). In offering and selling the securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating to such registration. You confirm that you are familiar
with the rules and policies of the Securities and Exchange Commission relating
to the distribution of preliminary and final prospectuses, and you agree that
you will comply therewith in any offering covered by this Agreement. As
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering documents, as you may reasonably request.
4. You agree that you will not sell any of the securities to any
account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our
office, located at 140 Marine View Drive, Suite 110, Solana Beach, California
92075 (or at such other place as we may advise), at the offering price less the
concession allowed to you, on such date as we may advise, by certified or
official bank check in clearing house funds (or such other funds as we may
advise), payable to our order, against delivery of the securities to be
purchased by you. We shall have authority to make appropriate arrangements for
payment for and/or delivery through the facility of a depository or similar
facility for the securities.
6. In the event that, prior to the completion of the distribution of
the securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriter
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
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<PAGE> 3
7. At any time prior to the completion of the distribution of the
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such unsold
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell securities in any jurisdiction.
9. You agree that in connection with any offering of securities
covered by this Agreement you will comply with the applicable provisions of the
1933 Act and the 1934 Act and the applicable rules and regulations of the
Securities and Exchange Commission thereunder, the applicable rules and
regulations of the NASD, and the applicable rules of any securities exchange
having jurisdiction over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the Offering. We shall be
under no liability to you except for our lack of good faith and for obligations
assumed by us in this Agreement, except that you do not waive any rights that
you may have under the 1933 Act or the rules and regulations thereunder.
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to the offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for sale
or, as to any or all such provisions, at such earlier time as we may advise. All
other provisions of this Agreement shall remain operative and in full force and
effect with respect to such offering.
13. You shall comply with the provisions of Rule 2720 of the Conduct
Rules of the NASD and, in regard thereto, you and your associated persons,
parent and affiliates do not, in the aggregate, beneficially own (i) 10% or more
of the outstanding subordinated debt of the Company; (ii) 10% or more of the
common equity (including the Common Stock) of the
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<PAGE> 4
Company; or (iii) 10% or more of the preferred equity (including the Series A
and the Series B Preferred Stock) of the Company.
14. You shall comply with the provisions of Rules 2730 and 2750 of the
Conduct Rules of the NASD.
15. You do not have any direct or indirect affiliation or association
with any officer, director or five percent (5%) or greater shareholder of the
Company.
16. This Agreement shall be governed by the laws of the State of
California.
17. This Agreement may be executed in any number of counterparts, each
of which, when taken together, shall be deemed a fully executed agreement
between the parties.
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate copy
to us at 140 Marine View Drive, Suite 110, Solana Beach, California 92085,
Attention: Jack C. Smith, President. Upon receipt thereof, this instrument and
such signed duplicate copy will evidence the agreement between us.
Very truly yours,
TORREY PINES SECURITIES, INC.
By:
CONFIRMED AND ACCEPTED AS OF
THE DAY OF , 1997.
------- ------------
Name of Dealer
Authorized Officer or Partner
(if not Officer or Partner, attach
copy of Instrument of Authorization)
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<PAGE> 1
EXHIBIT 1.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES
FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF
SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE SECURITIES
LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT
THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF WARRANTHOLDER'S
COUNSEL, IN FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS ALSO RESTRICTED BY THAT CERTAIN
UNDERWRITER'S WARRANT PURCHASE AGREEMENT DATED __________, 1997, A COPY OF WHICH
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
AMCOR CAPITAL CORPORATION
UNDERWRITERS' WARRANT AGREEMENT
FOR THE PURCHASE OF _________ SHARES OF SERIES A 9% CONVERTIBLE PREFERRED STOCK
COMMON STOCK AND REDEEMABLE WARRANTS
AT $________ PER SHARE
DATED ____________, 1997
This Underwriters' Warrant Purchase Agreement (the "Agreement") is
made by and between AMCOR CAPITAL CORPORATION, a corporation organized under the
laws of the State of Delaware (the "Company"), and Torrey Pines Securities,
Inc., a California corporation (the "Holder") on behalf of the Underwriters, as
defined below.
The Company hereby issues to the Holder a purchase warrant (the
"Warrant") for the purchase of an aggregate of_________________________________
(__________) shares of the Company's Series A 9% Convertible Preferred Stock
(the "Underwriters' Shares"), subject to adjustment pursuant to Section 8 below.
The Warrant is being issued pursuant to Section 2.d of the Underwriting
Agreement, dated effective as of September 19, 1997 (the "Underwriting
Agreement"), in connection with the Offering of the Company's Series A 9%
Convertible Preferred Stock (the "Preferred Stock") as more particularly
described in that certain Registration Statement filed on Form S-2 (Registration
No. 333-28373) filed with the U.S. Securities and Exchange Commission on June 3,
1997, as amended ("Registration Statement"). The Underwriting Agreement is by
and among the Company, the Warrantholder as representative of each of the
Underwriters, and each Participating Dealer, if any, (as defined in the
Underwriting Agreement)
<PAGE> 2
who expressly adopts and agrees to be bound by the terms of the Underwriting
Agreement (the "Underwriters"). The Warrantholder, as the Representative of the
Underwriters, is executing this Agreement for its own behalf and as the
representative of the Underwriting Group (as defined in Subsection 1(d) hereof)
who may be entitled to receive the Warrants pursuant to Subsection 1(d) hereof.
Capitalized terms used, but not defined herein, shall have the meanings ascribed
to such terms in the Underwriting Agreement.
In consideration of the foregoing and for the purpose of defining
the terms and provisions of the Warrant and the respective rights and
obligations hereunder, the Company and the Holder, for value received, hereby
agree as follows:
1. FORM AND TRANSFERABILITY OF WARRANT
(a) Certification. The Warrant (or Warrants should the Warrant be
divided and/or assigned as provided herein) shall be numbered and shall be
registered on the books of the Company when issued.
(b) Form of Warrant. The text and the form of the Warrant
Certificate shall be in the form of Exhibit A attached hereto and by this
reference incorporated herein. The price per share as determined in accordance
with the provisions of Section 7 hereof (the "Warrant Price") and the number of
the Securities issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events, all as hereinafter provided in Section 8
hereof.
The Warrant shall be executed on behalf of the Company by its
president or a vice president, under its corporate seal reproduced thereon
attested by its secretary or an assistant secretary. A Warrant bearing the
signature of an individual who was at any time the proper officer of the Company
shall bind the Company, notwithstanding that such individual shall have ceased
to hold such office prior to the delivery of such Warrant or did not hold such
office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by
the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
(c) Transfer. The Warrant shall be divisible and transferable only
on the books of the Company maintained at its principal office in Coachella,
California, or at the office of the Company's stock transfer agent, upon
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Warrant to the person entitled thereto.
(d) Limitations on Transfer of Warrant. The Warrant shall not be
sold, transferred, assigned, exchanged or hypothecated by the Holder, except to:
(i) an Underwriter or to a broker-dealer firm which has participated in the
Offering as a participating dealer and has executed, and is not then in default
of, its respective Participating Dealer Agreement regarding the Offering (the
"Underwriting Group") and one or more persons, each of whom on the date of
transfer is an officer (including officer-director) or partner of a member of
the Underwriting Group or an officer (including officer-director) or partner of
a successor to a member of the Underwriting Group; (ii) one or more persons,
each of whom on the date of transfer is an officer (including officer-director)
of a Holder or an officer (including officer-director) or partner of a successor
to a Holder as provided herein; (iii) a partnership or partnerships, all of the
partners of which
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<PAGE> 3
are a Holder and one or more persons, each of whom on the date of transfer is an
officer (including officer-director) of a Holder or an officer (including
officer-director) or partner of a successor to a Holder; (iv) a successor to a
Holder through merger or consolidation; (v) a purchaser of all or substantially
all of a Holder's assets; (vi) the stockholders of a Holder or the stockholders
or partners of its transferee in the event of liquidation or dissolution; or
(vii) any person receiving the Warrant from one or more persons listed in this
Subsection (d) at such person's or persons' death pursuant to will, trust or the
laws of intestate succession. The Warrant may be divided or combined, upon
request to the Company by the Holder, into a certificate or certificates
representing the right to purchase the same aggregate number of Underwriters'
Shares.
(e) Exchange or Assignment of Warrant. Subject to Subsection 1(d),
any Warrant certificate may be exchanged without expense for another certificate
or certificates entitling the Holder to purchase a like aggregate number of
Underwriters' Shares as the certificate or certificates surrendered then
entitled such Holder to purchase. Any Holder desiring to exchange a Warrant
certificate shall make such request in writing delivered to the Company, and
shall surrender, properly endorsed, the certificate evidencing the Warrant to be
so exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested. Any Holder desiring
to assign a Warrant shall make such request in writing delivered to the Company,
and shall surrender, properly endorsed, the certificate evidencing the Warrant
to be so assigned, with an instrument of assignment duly executed accompanied by
proper evidence of assignment, succession or authority to transfer, funds
sufficient to pay any transfer tax, and any other documents which the Company or
its counsel may reasonably request, whereupon the Company shall, without charge,
execute and deliver a new Warrant certificate in the name of the assignee named
in such instrument of assignment and the original Warrant certificate shall
promptly be canceled. The text and form of the request for assignment shall be
substantially as set forth in Exhibit A attached hereto and by this reference
incorporated herein.
(f) Holder. Unless the context indicates otherwise, the term
"Holder" shall include any transferee of the Warrant pursuant to Subsection
1(c), Subsection 1(d), Subsection 5, and Subsection 11(e) above, and the term
"Warrant" shall include any and all Warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution, or transfer pursuant to this Agreement.
2. TERMS AND EXERCISE OF WARRANTS
Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the forty-eight (48) month period (the "Exercise
Period") commencing on the first anniversary date of the effective date of the
Offering (the "Exercise Date") and ending at 5:00 p.m., Pacific time, on the
fifth anniversary date of the Exercise Date and shall be void thereafter (the
"Warrant Expiration Date"), or if any such date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, to purchase from the Company up to the number of
fully paid and nonassessable Underwriters' Shares which the Holder may at the
time be entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office in Coachella, California or at the office of
the Company's stock transfer agent or at such other address as the Company may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company, of the certificate evidencing the Warrant
to be exercised, together with the form of Election to Purchase included in
Exhibit A duly completed and signed, and upon payment to the Company of the
Warrant Price (as determined in accordance with the provisions of Section 7 and
Section 8 hereof), for the
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<PAGE> 4
number of Underwriters' Shares with respect to which such Warrant is then
exercised together with all taxes applicable upon such exercise. Payment of the
aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
Upon such surrender of the Warrant certificate and payment of such
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to the Holder in such name or names as the Holder
may designate in writing, a certificate or certificates for the number of full
Underwriters' Shares so purchased upon the exercise of the Warrant, together
with cash, as provided in Section 9 hereof, with respect to any fractional
Underwriters' Shares otherwise issuable upon such surrender. 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 such Underwriters'
Shares as of the close of business on the date of the surrender of the Warrant
and payment of the Warrant Price, as aforesaid, notwithstanding that the
certificates representing such Common Stock and/or Redeemable Warrants
comprising the Underwriters' Shares, shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed. The Warrant
shall be exercisable, at the election of the Holder, either in full or from time
to time in part, and, in the event that the certificate evidencing the Warrant
is exercised with respect to less than all of the Underwriters' Shares specified
therein at any time prior to the Warrant Expiration Date, a new certificate
evidencing the remaining Underwriters' Shares shall be issued by the Company.
3. MUTILATED OR MISSING WARRANT
In case the certificate or certificates evidencing the Warrant shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Holder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and in
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and date and representing
an equivalent right or interest, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant, and of
reasonable bond of indemnity, if requested, also satisfactory in form and amount
and at the applicant's cost. Applicants for such replacement certificates agree
to comply with other reasonable requirements of the Company and to pay such
other reasonable charges as the Company may prescribe.
4. RESERVATION OF UNDERWRITERS' SHARES
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrant remains outstanding, out of its authorized
Common Stock, such number of Shares of its Common Stock as shall be subject to
purchase under the Warrant. Every transfer agent for the Common Stock issuable
upon the exercise of the Warrant shall be irrevocably authorized and directed at
all times to reserve such number of authorized Shares as shall be requisite for
such purpose. The Company shall keep a copy of this Agreement on file with its
transfer agent for the Shares of Common Stock issuable upon the exercise of the
Warrant. The Company shall supply such transfer agent with duly executed stock
and other certificates for such purpose and shall provide or otherwise make
available any cash which may be payable as provided in Section 9 hereof.
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<PAGE> 5
5. LEGEND ON WARRANT AND CERTIFICATE FOR UNDERWRITERS' SHARES
Notwithstanding the provisions in Subsection 1(d) of this Agreement
imposing limitations on the transfer of the Warrant, neither the Warrant nor the
Underwriters' Shares shall be sold, transferred, pledged, issued in a name other
than of the holder thereof or otherwise disposed except in compliance with the
Securities Act of 1933, as amended (the "Act"). Each certificate evidencing the
Warrant and each certificate for securities initially issued upon exercise of a
Warrant, unless at the time of exercise such securities are registered with the
Securities Exchange Commission (the "Commission"), under the Act shall bear the
following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE
OR THE SECURITIES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT
PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER THAT REGISTRATION IS NOT REQUIRED. TRANSFER OF THE SECURITIES
REPRESENTED HEREBY IS ALSO RESTRICTED BY THAT CERTAIN UNDERWRITERS'
WARRANT PURCHASE AGREEMENT DATED __________________, 1997, A COPY OF
WHICH IS AVAILABLE FROM THE ISSUER.
Any certificate issued at any time in exchange or substitution for
any certificate bearing such legend (except a new certificate issued upon
completion of a public underwriting pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of such counsel as shall be reasonably approved by the
Company, the securities represented thereby need no longer be subject to such
restrictions.
6. PAYMENT OF TAXES
The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Warrant and the shares of Common
Stock issuable upon the exercise thereof; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable with respect
to any secondary transfer of the Warrant or such securities.
7. WARRANT PRICE
The price per share at which the shares of Common Stock shall be
purchasable on the exercise of the Warrant (the "Warrant Price") shall be
_________________________ dollars ($______) per Share (i.e. 120% of the Offering
Price of the Shares, subject to adjustment pursuant to Section 8 hereof.
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF UNDERWRITERS' SHARES
The number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) In case the Company shall (i) pay a dividend in Common Stock,
(ii) subdivide its outstanding Common Stock, (iii) combine its outstanding
Common Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its Common Stock other securities of the Company,
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the number and kind of securities purchasable upon the exercise of the Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the number and kind of securities of the Company which it would have
owned or would have been entitled to receive after the happening of any of the
events described above had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this Subsection (a) shall become effective on the effective
date of such event retroactive to the record date, if any, for such event.
(b) No adjustment in the number of securities purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of securities (calculated to the
nearest full share) then purchasable upon the exercise of the Warrant or, if the
Warrant is not then exercisable, the number of securities purchasable upon the
exercise of the Warrant on the first date thereafter that the Warrant becomes
exercisable; provided, however, that any adjustment which by reason of this
Section 8 is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(c) Whenever the number of the securities purchasable upon the
exercise of the Warrant is adjusted as herein provided, the Warrant Price
payable upon the exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of the securities purchasable upon the exercise of
the Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of the securities so purchasable immediately thereafter.
(d) For the purpose of this Section 8, the term "Common Stock" shall
mean: (i) the class of stock designated as the Common Stock of the Company at
the date of this Agreement; or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, the Holder shall become entitled to purchase any
securities of the Company other than the securities, thereafter the number of
such other securities so purchasable upon the exercise of the Warrant and the
Warrant Price of such securities 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 securities contained in this Section 8.
(e) Whenever the number of the securities purchasable upon the
exercise of the Warrant or the Warrant Price is adjusted as herein provided, the
Company shall cause to be promptly mailed to the Holder by first class mail,
postage prepaid, notice of such adjustment and a certificate of a firm of
independent certified 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 the securities purchasable upon the exercise of the Warrant
or the Warrant Price after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was made.
(f) In case of any reclassification, capital reorganization or other
change in the outstanding shares of Common Stock of the Company (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of an issuance of Common Stock by way of dividend or
other distribution, or of a subdivision or combination of the Common Stock for
which an adjustment to the Warrant is made by reason of Subsection 8(a) hereof,
or in case of any consolidation or merger of the Company with or into another
corporation or entity (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
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reclassification or capital reorganization of the Company) as a result of which
the holders of the Company's Common Stock become holders of other shares or
securities of the Company or of another corporation or entity, or such holders
receive cash or other assets, or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Holder an agreement that
the Holder shall have the right thereafter upon payment of the Warrant Price in
effect immediately prior to such action to purchase upon the exercise of the
Warrant the kind and number of securities and property which it would have owned
or have been entitled to have received after the happening of such
reclassification, capital reorganization, change in the outstanding shares of
Common Stock of the Company, consolidation, merger, sale or conveyance had the
Warrant been exercised immediately prior to such action.
The agreement referred to in this Subsection 8(f) shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Subsection
8(f) shall similarly apply to successive reclassifications, capital
reorganizations, changes in the outstanding shares of Common Stock of the
Company, consolidations, mergers, sales or conveyances.
(g) Except as provided in this Section 8, no adjustment with respect
to any dividends shall be made during the term of the Warrant or upon the
exercise of the Warrant.
(h) No adjustments shall be made in connection with the public sale
and issuance of Common Stock, or the options or warrants issued in connection
therewith, or for any warrants or options outstanding on the date of this
Agreement or for any Common Stock issuable upon the exercise of any such
warrants or options.
(i) Irrespective of any adjustments in the Warrant Price or the
number or kind of securities purchasable upon the exercise of the Warrant, the
Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in the
Underwriters' Warrant initially issuable pursuant to this Agreement.
9. FRACTIONAL INTEREST
The Company shall not be required to issue fractional shares of
Common Stock or upon the exercise of the Warrant. If any fraction of a
Underwriters' Shares would, except for the provisions of this Section 9, be
issuable upon the exercise of the Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the then current market price of
the Company's Common Stock multiplied by such fraction. For purposes of this
Agreement, the term "current market price" shall mean: (a) if the Common Stock
is traded in the over-the-counter market and not on the American Stock Exchange
(the "AMEX") or on any national securities exchange, the average between the per
share closing bid and asked prices of the Common Stock for the 30 consecutive
trading days immediately preceding the date in question, as reported by the AMEX
or an equivalent generally accepted reporting service; or (b) if the Common
Stock is traded on the AMEX or on a national securities exchange, the average
for the 30 consecutive trading days immediately preceding the date in question
of the daily per share closing prices of the Common Stock on the AMEX or on the
principal national stock exchange on which it is listed, as the case may be. The
closing price referred to in clause (b) above shall be the last reported sales
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked
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<PAGE> 8
prices on the AMEX or on the principal national securities exchange on which the
Common Stock is then listed, as the case may be.
10. NO RIGHTS AS SHAREHOLDER; NOTICES OF HOLDER
Nothing contained in this Agreement or in the Warrant shall be
construed as conferring upon the Holder or its transferee any rights as a
shareholder of the Company, either at law or in equity, including the rights to
vote, receive dividends, consent or receive notices as a shareholder with
respect to any meeting of shareholders for the election of directors of the
Company or for any other matter. If, however, at any time prior to the Warrant
Expiration Date and prior to the exercise of the Warrant, any action which
requires an adjustment pursuant to Section 8 occurs, or a dissolution,
liquidation or winding up of the Company (other than in connection with a
consolidation, merger or sale of its property, assets and business as an
entirety) is proposed, then the Company shall give notice in writing of such
occurrence or proposal to the Holder, as provided in Section 13 hereof, at least
30 days prior to the date fixed as the record date or the date of closing the
transfer books for the determination of the shareholders entitled to any
relevant dividend, underwriting, subscription rights or other rights or for the
determination of the shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or such
date of closing the transfer books, as the case may be.
11. REGISTRATION RIGHTS
(a) Demand Registration. When so requested in writing at any time
during the Exercise Period, but in no event after the fifth anniversary date of
the effective date of the Offering, by the holder or holders then of record of
more than 50% of the outstanding Warrant(s) and shares of Common Stock purchased
upon the Exercise of a Warrant (the "50% Holders") if any, the Company shall, as
promptly as practicable after receipt of such request, but in no event later
than 90 days therefrom, prepare and file with the Commission a registration
statement pursuant to Rule 415 promulgated under the Act on such form as may
then be available to the Company, for the registration under the Act of a public
offering by such 50% Holders of all or any portion of the common stock issuable
(and issued, if any) upon the exercise of the Warrants (the "Underlying
Securities").
Within ten (10) days after receiving any such request, the Company
shall give notice to any other holders of Warrants and any Underlying Securities
advising them that the Company is filing such registration statement, and
offering to include therein all or any portion of the Underlying Securities of
such holders or the Warrants for Underlying Securities of a holder who desires
to exercise and/or resell his or her Underlying Securities. The Company shall
not be obligated to any such other holder unless such other holder shall accept
such offer by notice in writing to the Company within thirty (30) days after the
receipt thereof. The Company shall be required to file only one such
registration statement hereunder, but shall use its best efforts to keep such
registration statement effective for a period of not less than nine (9) months;
provided, however, that the Company shall have no duty to file any amendment to
any such registration statement at any time that the Company reasonably believes
that disclosure of the information required to be included in such amendment
would be premature or contrary to the best interests of the Company and its
security holders. The registration rights of the holder shall not be
extinguished if the registration statement is withdrawn for any reason.
Notwithstanding any provision to the contrary, the Company's obligation to file
a registration statement pursuant to this Subsection 11(a) shall not be
satisfied unless and until the registration statement is declared effective by
the Commission and it is effective for a period of at least nine (9) months
following such effective date.
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<PAGE> 9
The Company may include other of its securities in such registration
statement, unless the underwriter of such offering reasonably advises the
Company that the inclusion of such other securities will materially and
adversely affect the underwriting of, or the market for, the Underlying
Securities. The preparation and filing of the registration statement requested
pursuant to this Subsection (a) shall be without any expense to such Holders
(other than fees and expenses of counsel to such Holders and any underwriting
discounts or commissions) for that one time only.
(b) Piggyback Registration. In addition to the rights of the Holders
pursuant to Subsection 11(a) above, if the Company shall at any time during the
period commencing with the Exercise Date and ending with the Warrant Expiration
Date, but in no event after the seventh anniversary date of the effective date
of the Offering, prepare and file a registration statement under the Act with
respect to the public offering of any of its securities (other than on Forms
S-8, S-14 or S-15 or other similar form inappropriate to the registration of the
Warrant or Underlying Securities), and pursuant to the then applicable rules and
regulations under the Act a secondary offering of the Underlying Securities by a
Holder may be combined with such public offering in a single registration, the
Company shall in every such instance give reasonable written notice thereof to
the Holders thirty (30) or more days prior to the filing of such registration
statement, and shall upon the written request of a Holder made within fifteen
(15) days of the mailing of said written notice by the Company, include in such
registration statement such number of Underlying Securities as the Holder may
request. Any such registration statement shall remain effective for a period of
not less than nine (9) months following its effective date; provided, however,
that if the Holder defers the sale of its Underlying Securities pursuant to
Subsection 11(c) below, then the Company shall keep such registration statement
current for an additional period of ninety (90) days; provided further, that the
Company shall have no duty to file any amendment to any such registration
statement at any time that the Company reasonably believes that disclosure of
the information required to be included in such amendment would be premature or
contrary to the best interests of the Company and its security holders. The
inclusion of such Underlying Securities in any registration statement shall be
without any expense to the Holder, other than fees and expenses of counsel to
the Holder and any underwriting discounts or commissions. Neither the delivery
of such notice by the Company nor such request by the Holder shall in any way
obligate the Company to file such registration statement, and notwithstanding
the filing of such registration statement, the Company may, at any time prior to
the effective date thereof, determine not to offer the securities to which such
registration statement relates, without liability to the Holder. In the event
the Company fails to receive written notice from a Holder within fifteen (15)
days of the mailing of said written notice by the Company, then the Company
shall treat such failure as having the same force and effect as if such Holder
had advised the Company that it does not intend to include any of its Underlying
Securities in such registration statement. If a Holder shall advise or be deemed
to have advised the Company of its intention not to include any of its
Underlying Securities in such registration statement, then such Holder shall,
for a period of ninety (90) days thereafter, refrain from demanding its rights
pursuant to Subsection 11(a) hereof.
(c) Notwithstanding the provisions of Subsection 11(b) hereof, if
the offering subject to any registration statement referred to therein is made
by the Company and is underwritten, and if the underwriter makes a written
determination prior to the effectiveness of such registration statement and so
requests and such request is based upon the opinion of the underwriter that the
sale of the Underlying Securities to be registered on such registration
statement by the Holder pursuant to Subsection 11(b) will materially and
adversely interfere with such planned offering, then: (i) the Holder shall agree
not to sell any Underlying Securities, whether pursuant to such registration
statement or otherwise, for a period not to exceed ninety (90) days following
the effective date of such registration statement, and the Company
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<PAGE> 10
shall, at the expiration of such ninety (90) day period, at its expense,
maintain the currency of the registration statement and take such other steps as
may be required to permit the Holder to sell Underlying Securities pursuant to
such registration statement for an additional period of ninety (90) days
following the expiration of such ninety (90) day period; provided, however, that
the Company shall have no duty to file any amendment to any such registration
statement at any time that the Company reasonably believes that disclosure of
the information required to be included in such amendment would be premature or
contrary to the best interests of the Company and its security holders; and (ii)
the Holder shall agree that the Underlying Securities shall be sold through such
underwriter in the same manner as the other securities that are the subject of
the registration, and shall pay to such underwriter a commission in respect of
such Underlying Securities at the same rate as the commission to be paid to such
underwriter in respect of the other securities that are the subject of such
registration.
If securities are proposed to be offered for sale pursuant to such
registration statement by other security holders of the Company, and the total
number of securities to be offered by the Holder and any other selling security
holders is required to be reduced pursuant to a request from the underwriter
(which request shall be made only for the reasons and in the manner set forth
above in this Subsection 11(c), then the number of Underlying Securities to be
offered by all selling Holders pursuant to such registration statement shall
equal the number that bears the same ratio to the maximum number of securities
that the underwriter believes may be included for all the selling security
holders (including the Holder) as the original number of Underlying Securities
proposed to be sold by such Holder bears to the total original number of
securities proposed to be offered by all selling Holders and any other selling
security holders. In no event shall there be a reduction in the number of shares
of any securities offered by the Company pursuant to the registration statement
referred to in Subsection 11(b) hereof.
(d) The Company shall use its best efforts to cause any registration
statement covering all or any portion of the Underlying Securities to become
effective as promptly as possible and, if any stop order shall be issued in
connection therewith, to use its best efforts to obtain the removal of such
order. The Company shall furnish the selling Holder with copies of preliminary
prospectuses (together with any supplements thereto) and other documents
necessary or incidental to the offering being made by each Holder in such
quantities as each Holder may reasonably request. The Holders agree to cooperate
in all respects with the Company in effectuating the foregoing. The obligations
of the Company to the Holders hereunder are expressly conditioned on the timely
furnishing in writing by each selling Holder to the Company of such information
concerning the Holder and the terms of the Holder's proposed sale as the Company
may reasonably request.
(e) In connection with any registration of all or any portion of the
Underlying Securities (and the Warrant, if applicable), the Company shall,
without any expense to the Holder (other than fees and expenses of counsel to
the Holder and any underwriting discounts or commissions), prepare and file such
documents as may be necessary to register or qualify such Underlying Securities
under the securities or blue sky laws of such states as the Holder shall
reasonably request, and use its best efforts to do any and all other acts and
things, consistent with its existing business practices, that may reasonably be
necessary or advisable to enable the Holders to consummate a public sale in such
states of such Underlying Securities; provided, however, that in connection with
any registration statement filed pursuant to Subsection 11(b) hereof, the
Company shall be required to make the Underlying Securities eligible for public
offering and sale only in such states (including the District of Columbia) as
any other securities of the Company included in such registration statement are
eligible for public offering and sale. In no event shall the Company be
obligated to qualify to do business in any state where it is not so qualified at
the time of filing such
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<PAGE> 11
documents or to take any action which would subject it to unlimited service of
process in any state where it is not so subject at such time. The Company shall
keep any such filing current for the time period it is obliged to keep any
registration statement current pursuant to this Section 11.
(f) Nothing herein shall be construed to require a Holder to
exercise its Warrant with respect to any Underlying Securities which a Holder is
entitled to require the Company to register pursuant to any provision of this
Section 11 prior to the effective date of the registration statement effecting
such registration, and the Holders, at their election, to the extent permissible
by law, may exercise such Warrant against payment of the proceeds of the sale of
the registered Underlying Securities in the offering covered by such
registration statement.
(g) The provisions of this Section 11 and of Section 12 hereof shall
apply to the extent provided herein if the Company chooses to file an offering
statement under Regulation A promulgated under the Act.
(h) The Company agrees that until the Underlying Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all materials required to be filed with the
Commission in order to permit holders of the Underlying Securities, if they
otherwise comply with the requirements of Rule 144, to sell Underlying
Securities under such Rule.
12. INDEMNITY AND CONTRIBUTION PROVISIONS
The Company, the Representative, and each Participating Dealer
hereby agree to the following indemnity provisions:
(a) In the event of the filing of any registration statement with
respect to the Warrant or the Underwriters' Shares pursuant to Section 11
hereof, the Company agrees to indemnify and hold harmless the Holder(s) and any
person who controls any such person within the meaning of the Act, and each of
their directors, officers, employees, and agents, against losses, claims,
damages, or liabilities, joint and several, to which any such person, or any
director, officer, employee, or agent, 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 statement or
alleged untrue statement of any material fact contained in the Prospectus, or
arise out of or are based upon 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. Subject to Subsection
12(c) hereof, the Company agrees to reimburse any legal or other expenses
reasonably incurred by such Representative, each member of the selling group,
and such controlling person, and each of their directors, officers, employees,
and agents, in connection with the investigation or the defense of any such
loss, claim, damage, liability, or action; provided, however, that the Company
will not be liable under this Subsection 12(a), if such loss, claim, or
liability arises out of or is based on an untrue statement or alleged untrue
statement or omission or alleged omission made in the Prospectus in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of the Holder(s) specifically for use in preparation thereof. A person
who controls the Holder(s) or any of their directors, officers, employees, or
agents, will be covered by the indemnity agreement in this Subsection 12(a), for
all such losses, claims, damages, liabilities, and expenses irrespective of
whether they are based on the Act. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
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<PAGE> 12
(b) Each Holder agrees, jointly and severally, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and any person 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, if such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of material fact contained in the Prospectus
or arise out of or are based upon 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 each case if,
but only if, such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Prospectus in reliance upon and in conformity
with written information concerning the Holder(s) furnished to the Company by or
on behalf of the Holder(s) specifically for use in the preparation thereof.
Subject to Subsection 12(c) hereof, the Representative and each Participating
Dealer agrees, jointly and severally, to reimburse any legal or other expense
reasonably incurred by the Company or such director, officer, or controlling
person in connection with the investigation or the defense of any such loss,
claim, damage, liability, or action. This indemnity agreement will be in
addition to any liability which such person may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 12 of notice of the commencement of any action, the indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 12, notify the indemnifying party in writing of the
commencement thereof; but the omission 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 12. In case any such action is brought against
any indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel who shall be reasonably
satisfactory to such indemnified party; and after notice from the indemnifying
party to such indemnified party of its election to so assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 12 for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. In any such action, any indemnified party
shall have the right to retain its own counsel, but the fees and expense of such
counsel shall be at the expense of such indemnified party unless: (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel; or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing legal defenses or
interests between them. The indemnifying party shall not be liable for any
settlement of any proceeding or claim effected without its written consent; but
if settled with such consent or if there is a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in Subsection 12(a) or
Subsection 12(b) hereof is for any reason, other than as specified in such
sections, held by a court to be unavailable and the Company or the Holder(s) has
been required to pay damages as a result of a determination by a court that the
Prospectus contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, then the Company shall
contribute to the damages paid by the Holder(s) and such persons shall
contribute to the damages paid by the Company (but in each case only to the
extent that such damages arise out of
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or are based upon such untrue statement or omissions): (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Holder(s) on the other from the offering of the Securities; or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect the relative
fault of the Company and the Holder(s) in connection with statements or
omissions which resulted in such damages, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Holder(s) shall be deemed to be in the same proportion as the total net proceeds
from the Offering (before deducting expenses) received by the Company bears to
the total commissions received by the Holder(s) as set forth in the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or Holder(s) and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such untrue statement or omission. For purposes of this
Subsection 12(d), the term "damages" shall include any legal or other expenses
reasonably incurred by the Company or Holder(s) in connection with investigation
or defending any action or claim which is the subject of the contribution
provisions of this Subsection 12(d). Notwithstanding the provisions of this
Subsection 12(d), the Warrantholder shall not be required to contribute any
amount in excess of the amount by which the total Warrantholders' compensation
received by it under the Underwriters' Agreement exceeds the amount of any
damages which such Warrantholder has otherwise been required to pay by reason of
any such untrue statements or omissions. No person adjudged guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Act shall be
entitled to contribution from any person who was not adjudged guilty of such
fraudulent misrepresentation. Under this Subsection 12(d), the obligations of
the Warrantholder(s) to contribute are several in proportion to their respective
obligations and not joint.
(e) The agreements contained in this Section 12 and the
representations and warranties of the Company and the Holder in this Agreement
shall remain operative and in full force and effect regardless of: (i) any
investigation made by or on behalf of: (a) the Holder or any person controlling
the Holder; or (b) the Company, any of its directors, officers or agents, or any
person controlling the Company or any of its directors, officers or agents; (ii)
acceptance of any Underwriters' Shares and payment therefor hereunder; and (iii)
any termination of this Agreement.
13. NOTICES
(a) Notices. Except as otherwise expressly provided herein, notice
given pursuant to any of the provisions of this Agreement shall be in writing
and shall be delivered personally, by first class, certified, or registered
mail, by facsimile transmission, or by Federal Express or any other reputable
overnight courier service addressed as set forth below (or in each case to such
other address as the person to be notified may have requested in writing):
If to the Company:
AMCOR CAPITAL CORPORATION
52-300 Enterprise Way
Coachella, California 92236
Attn: Fred H. Behrens
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<PAGE> 14
With a copy to:
Thomas E. Stepp, Jr., Esq.
WHITE AND STEPP, LLP
4100 Newport Place, Suite 800
Newport Beach, California 92660
If to the Warrantholder, to their
Representative hereunder:
Torrey Pines Securities, Inc.
140 Marine View Drive, Suite 110
Solana Beach, California 92075
Attention: Jack C. Smith
President
With a copy to:
Bruce J. Rushall, Esq.
RUSHALL & McGEEVER
2111 Palomar Airport Road, Suite 200
Carlsbad, California 92009
14. PARTIES IN INTEREST
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company, the Holder, and, to the extent expressed,
any holder of any shares of Common Stock purchased upon the exercise of an
Underwriters' Warrant, any person controlling the Company or the Holder or any
holder of such securities, directors of the Company, nominees for directors (if
any) named in the final prospectus, or officers of the Company who have signed
the registration statement, any legal or equitable right, remedy or claim under
this Agreement, and this Agreement shall be for the sole and exclusive benefit
of the aforementioned parties.
15. MISCELLANEOUS PROVISIONS
(a) Successors. All the covenants and provisions of this Agreement
by or for the benefit of the parties included in Section 14 hereof shall bind
and inure to the benefit of their respective executors, administrators,
successors and assigns hereunder; provided, however, that the rights of the
Holder shall be assignable only to those persons and entities specified in
Subsection 1(d), hereof, in which event such assignee shall be bound by each of
the terms and conditions of this Agreement.
(b) Merger or Consolidation of the Company. The Company shall not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless it complies
with the provisions of Subsection 8(f), hereof.
(c) Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties
-14-
<PAGE> 15
hereunder. Notwithstanding any investigations made by or on behalf of the
parties to this Agreement, all representations, warranties and agreements made
by the parties to this Agreement or pursuant hereto shall survive.
(d) Choice of Law. This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
state of California, including all matters of construction, validity,
performance, and enforcement, and without giving effect to the principles of
conflict of laws.
(e) Jurisdiction. The parties submit to the jurisdiction of the
Courts of the State of California for the resolution of all legal disputes
arising under the terms of this Agreement.
(f) Entire Agreement. Except as provided herein, this Agreement,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Agreement.
(g) Severability. If any provision of this Agreement is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Agreement.
(h) Captions. The captions in this Agreement are inserted only as a
matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Agreement or the relationship of
the parties, and shall not affect this Agreement or the construction of any
provisions herein.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first above written.
"THE COMPANY" "THE WARRANTHOLDER"
AMCOR CAPITAL CORPORATION TORREY PINES SECURITIES INC.,
a corporation organized under the a California corporation
laws of the State of Delaware
By: By:
--------------------------------- ----------------------------------
- ------------------------------------ -------------------------------------
Name and Title Name and Title
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<PAGE> 1
Exhibit 4
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RELATIVE RIGHTS, QUALIFICATIONS AND
RESTRICTIONS OF THE SERIES A 9% CONVERTIBLE
PREFERRED STOCK OF
AMCOR CAPITAL CORPORATION
-----------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------
AMCOR Capital Corporation, a corporation organized and existing
pursuant to and by virtue of, the provisions of the General Corporation Law of
the State of Delaware, certifies as follows:
The undersigned, Robert A. Wright and Robin Swanson, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of AMCOR Capital Corporation, a Delaware corporation
("Corporation");
2. WHEREAS, the Certificate of Incorporation of the Corporation, as
amended, authorizes the issuance of 2,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Shares"), and, additionally, authorizes the
issuance of shares of Preferred Stock from time to time in one or more series as
may from time to time be determined by the Board of Directors, each of those
series to be distinctly designated, and on such terms and for such consideration
as shall be determined by the Board of Directors of the Corporation, and,
additionally, grants to the Board of Directors of the Corporation the authority
to determine by resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers, if any, and
the designations, privileges, powers, preferences and rights of the shares of
each such series and the qualifications, limitations and restrictions thereof;
and
3. WHEREAS, the Board of Directors of the Corporation, pursuant to
action taken at a special meeting of that Board of Directors held on May 17,
1997, has duly adopted the following resolutions authorizing the creation of and
issuance of a series of that Preferred Stock to be known as Series A 9%
Convertible Preferred Stock; NOW, THEREFORE, IT IS:
RESOLVED, the Board of Directors of the Corporation hereby determines
and fixes the number, designations, preferences, privileges, rights and
limitations of another series of the Preferred Shares on the terms and with the
provisions herein specified:
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1. DESIGNATION. A series of Preferred Stock of the Corporation is
hereby designated "Series A 9% Convertible Preferred Stock" ("Series A 9%
Convertible Preferred Stock"), consisting initially of 747,500 shares. The
Series A 9% Convertible Preferred Stock shall have a par value of $.01 per
share. The Series A Preferred Stock issued by the Corporation and outstanding
as of the date of this Certificate shall be and hereby is designated "Series B
Preferred Stock" and shall be junior and subordinate to the Series A 9%
Convertible Preferred Stock.
2. PRIORITY. Shares of the Series A 9% Convertible Preferred Stock
shall rank prior to the Corporation's Common Stock, $.002 par value per share
("Common Stock"), with respect to the payment of dividends and upon liquidation.
The Series B Preferred Stock presently outstanding and other classes of
Preferred Shares shall be subordinated to and shall rank junior to the Series A
9% Convertible Preferred Stock with respect thereto; provided, however, that
holders of Series A 9% Convertible Preferred Stock, by vote or written consent
of the holders of sixty-six and two-thirds percent (66 2/3%) or more of the then
outstanding Series A 9% Convertible Preferred Stock, may elect from time to time
to allow other series or classes of Preferred Shares to rank senior to the
Series A 9% Convertible Preferred Stock with respect to dividends, assets or
liquidation. The Company may create additional classes of stock, increase the
authorized number of shares of Preferred Stock or issue series of Preferred
Stock which rank on a parity with the Series A Preferred Stock with respect, in
each case, to the payment of dividends and amounts upon liquidation, dissolution
or winding up of the Company ("Parity Stock") without the consent of any holder
of Series A Preferred Stock.
3. DIVIDENDS.
(a) Dividend rates on the shares of Series A 9% Convertible Preferred
Stock shall be at an annual rate of nine percent (9%) for each quarterly
dividend period ("Quarterly Dividend Period"), which Quarterly Dividend Periods
shall commence on October 1, January 1, April 1 and July 1 in each year and
shall end on and include the day immediately preceding the first day of the next
Quarterly Dividend Period. Dividends shall be cumulative (but not compounded)
and accrue quarterly from the date of original issue of the Series A 9%
Convertible Preferred Stock and shall be payable, if, when, and as declared by
the Board of Directors of the Corporation, on October 31 in respect of the
Quarterly Dividend Period beginning the preceding July 1); January 31, (in
respect of the Quarterly Dividend Period beginning the preceding October 1);
April 30 (in respect of the Quarterly Dividend Period beginning the preceding
January 1); and July 31, (in respect of the Quarterly Dividend Period beginning
the preceding April 1) of each year. Each dividend shall be paid to the holders
of record of the Series A 9% Convertible Preferred Stock as they shall appear on
the stock register of the Corporation on such record date, not exceeding sixty
(60) days nor less than ten (10) days preceding the payment date thereof, as
shall be fixed by the Board of Directors of the Corporation or a duly authorized
committee thereof. If declared, dividends shall be payable in cash.
(b) No dividends shall be payable on any shares of any class of the
Corporation's capital stock ranking junior and subordinate to the Series A 9%
Convertible Preferred Stock as to the payment of dividends, unless all accrued
dividends on the Series A 9% Convertible Preferred Stock to the record date of
the proposed dividends on the junior class and subordinate shall have been paid
or have been declared and an amount sufficient for the payment of those
dividends reserved.
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(c) Upon any conversion of any shares of Series A 9% Convertible
Preferred Stock, as described in Section 6 hereof, the holders thereof shall be
entitled to receive in cash any accumulated, accrued or unpaid dividends in
respect of such shares of the Series A 9% Convertible Preferred Stock.
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series A 9% Convertible Preferred Stock shall be
entitled to receive, out of the assets of the Corporation, whether such assets
are capital or surplus and whether or not any dividends as such are declared,
$10.00 per share plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for distribution, and no more, before any distribution
shall be made to the holders of the Common Stock or any other class of shares or
series thereof ranking junior and subordinate to the Series A 9% Convertible
Preferred Stock with respect to the distribution of assets.
(b) For purposes of this Section 4, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations with or into the Corporation, or the sale
of all or substantially all of the assets of the Corporation, or any other
corporate reorganization, in which consolidation, merger, sale of assets or
reorganization the stockholders of the Corporation receive distributions in cash
or securities of another corporation or corporations as a result of such
consolidation, merger, sale of assets or reorganization, shall be treated as a
liquidation, dissolution or winding up of the Corporation, unless the
stockholders of the Corporation hold more than fifty percent (50%) of the voting
equity securities of the successor or surviving corporation immediately
following such consolidation, merger, sale of assets or reorganization, in which
case such consolidation, merger, sale of assets or reorganization shall not be
treated as a liquidation, dissolution, or winding up within the meaning of this
Section 4.
(c) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, specifying a
payment date and the place where the distributive amounts shall be payable,
shall be given by mail, postage prepaid, not less than thirty (30) days prior to
the payment date elected therein, to the holders of record of the Series A 9%
Convertible Preferred Stock at their respective addresses as the same shall
appear on the books of the Corporation.
(d) No payment on account of such liquidation, dissolution or winding
up of the affairs of the Corporation shall be made to the holders of any class
or series of stock ranking on a parity with the Series A 9% Convertible
Preferred Stock in respect of the distribution of assets, unless there shall
also be paid at the same time to the holders of the Series A 9% Convertible
Preferred Stock similar proportionate distributive amounts, ratably, in
proportion to the fully distributive amounts to which they and the holders of
such parity stock are respectively entitled with respect to such preferential
distribution.
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5. VOTING RIGHTS. Except as specified in Sections 2 and 8 hereof, the
holders of Series A 9 % Convertible Preferred Stock shall not have any voting
powers, either general or special.
6. CONVERSION.
6.1. VOLUNTARY CONVERSION. Each share of Series A 9%
Convertible Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of the Series A 9% Convertible
Preferred Stock at the office of the Corporation or, if the Corporation shall
have appointed a transfer agent for the Series A 9% Convertible Preferred Stock,
at the office of such transfer agent, into authorized but previously unissued
shares of Common Stock, at a conversion price equal to 125 percent of the
closing price of the Common Stock ("Conversion Price") on the day before the
date the Registration Statement on Form S-2 regarding the Series A 9%
Convertible Preferred Stock filed by the Corporation with the Securities and
Exchange Commission becomes effective ("Effective Date"). For these purposes,
the closing price of a whole share of Common Stock shall be the closing price of
the Common Stock on the day before the Effective Date. The closing price on day
before the Effective Date shall be the last sale price, regular way, or, in the
case no such sale takes place on the day before the Effective Date, the average
of the high bid and low bid asked prices in the over-the-counter market, or such
other system then in use, or, if on the day before the Effective Date the Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common Stock, which market maker shall be selected by the Board of Directors of
the Corporation. If on the day before the Effective Date no such market maker is
making a market in the Common Stock, the closing price of the Common Stock on
the day before the Effective Date as determined in good faith by the Board of
Directors of the Corporation shall be utilized.
6.2. MANDATORY CONVERSION. At such time as the closing price
of the Common Stock (as determined above), for a period of 20 consecutive
business days, is an amount equal to or greater than that amount which is equal
to 150% of the closing price of the Common Stock on the day before the Effective
Date, the Company shall have the right to require and compel each holder of
Series A 9% Convertible Preferred Stock to convert the Series A 9% Convertible
Preferred Stock to Common Stock on those terms specified by the provisions of
Section 6.1 above.
6.3. MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon any conversion of Series A 9% Convertible Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction. Before any
holder of Series A 9% Convertible Preferred Stock shall be entitled to convert
the same into full shares of Common Stock and to receive certificates therefor,
the holder shall surrender the certificate or certificates representing and
evidencing the Series A 9% Convertible Preferred Stock, duly endorsed, at the
office of the Corporation, or if the Corporation shall have appointed a transfer
agent for the Series A 9% Convertible Preferred Stock, at the office of such
transfer agent, and shall give written notice to the Corporation at either such
office that the holder elects to convert the same; provided, however,
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<PAGE> 5
that in the event of any mandatory conversion pursuant to Section 6.2 above, the
outstanding shares of Series A 9% Convertible Preferred Stock shall be converted
automatically without any further action by the holders of such shares, whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent, if any; and provided, further, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such mandatory conversion unless the
certificates evidencing such shares of Series A 9% Convertible Preferred Stock
are either delivered to the Corporation or its transfer agent, if any, as
provided above, or the holder notifies the Corporation or its transfer agent, if
any, that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series A 9% Convertible Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which the holder
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as a result of the conversion into fractional shares
of Common Stock. In the case of any mandatory conversion pursuant to Section
6.2, such conversion shall be deemed to have been made immediately prior to the
close of business on the date of the event causing the required conversion. The
person or persons entitled to receive the shares of Common Stock issuable upon
any such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
6.4 ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR
CONSOLIDATIONS OF COMMON STOCK. If the outstanding shares of Common Stock are
subdivided (by stock split, stock dividend or otherwise), into a greater number
of shares of Common Stock, the number of shares of Common Stock into which each
share of Series A 9% Convertible Preferred Stock may be converted shall,
concurrently with the effectiveness of such subdivision, be proportionately
increased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the number of shares of Common Stock which each share of
Series A 9% Convertible Preferred Stock may be converted into shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
6.5. ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS.
If the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive any
distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, and other than as otherwise adjusted in this Section 6
or as provided in Paragraph (a) of Section 3, then and in each such event the
holders of Series A 9% Convertible Preferred Stock shall receive at the time of
such distribution, the amount of property or the number of securities of the
Corporation that they would have received had their Series A 9% Convertible
Preferred Stock been converted into Common Stock on the date of such event.
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<PAGE> 6
6.6. ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. Except as provided in Section 4, upon any liquidation, dissolution
or winding up of the Corporation, if the Common Stock issuable upon conversion
of the Series A 9% Convertible Preferred Stock is changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares provided for above), the number of shares of Common
Stock into which each share of Series A 9% Convertible Preferred Stock may be
converted shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A 9%
Convertible Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Series A 9% Convertible Preferred Stock
immediately before the change.
6.7. REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time there is a capital reorganization of
the Common Stock (other than a subdivision, combination, consolidation,
reclassification, substitution or exchange of shares provided for elsewhere in
this Section 6), or a merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation, or sale, provision shall be made so that
the holders of the Series A 9% Convertible Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A 9% Convertible Preferred
Stock, the number of shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 6 with respect to the
rights of the holders of the Series A 9% Convertible Preferred Stock after the
reorganization, merger, consolidation, or sale to the end that the provisions of
this Section 6 shall be applicable after that event as nearly equivalent as may
be practicable.
6.8. NO IMPAIRMENT. Except as provided in Section 7, the
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A 9% Convertible Preferred
Stock against impairment.
6.9. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the number of shares of Common Stock which
each share of Series A 9% Convertible Preferred Stock may be converted into
pursuant to this Section 6, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the
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terms hereof and furnish to each holder of Series A 9% Convertible Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
6.10 REDEMPTION. Shares of Series A 9% Convertible Preferred
Stock will be redeemable, at the option of the Corporation, in its sole and
absolute discretion, on or after 5 years from the date of issuance, for cash at
a redemption price of $10.00 per share, plus any accumulated, accrued and unpaid
dividends. If redemption of the Series A 9% Convertible Preferred Stock occurs
in part, such redemption shall occur on a pro rata basis. The conditions
precedent to the Corporation's right to compel conversion of the Series A 9%
Convertible Preferred Stock will not apply to the redemption by the Corporation
of the Series A 9% Convertible Preferred Stock.
Notice of redemption will be given by mail or by publication (with
subsequent prompt notice by mail) to the holders of record of the Series A 9%
Convertible Preferred Stock not less than 30 nor more than 60 days prior to the
date of redemption, in the case of a redemption for cash. The redemption date
will be a date selected by the Corporation not less than 10 nor more than 60
days after the date on which the Corporation gives the notice of redemption.
On the redemption date, the Corporation must pay in cash on each share
of Series A 9% Convertible Preferred Stock to be redeemed any accumulated,
accrued and unpaid dividends, if any, on the redemption date. In the case of a
redemption date falling after a dividend record date and prior to the related
dividend payment date, the holders of the Series A 9% Convertible Preferred
Stock at the close of business on such record date will be entitled to receive
the dividend payable on such shares on the corresponding dividend payment date,
notwithstanding the redemption of such shares following such dividend record
date. Except as provided for in the preceding sentences, no payment or allowance
will be made for accumulated or accrued dividends on any shares of Series A 9%
Convertible Preferred Stock called for redemption.
In the event that full cumulative dividends on the Series A 9%
Convertible Preferred Stock and any Parity Stock have not been paid or declared
and set apart for payment, the Series A 9% Convertible Preferred Stock may not
be redeemed in part and the Corporation may not purchase or acquire shares of
Series A 9% Convertible Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of shares of Series A 9%
Convertible Preferred Stock.
On and after the date fixed for redemption, provided that the
Corporation has made available at the office of the Registrar and Transfer Agent
a sufficient amount of cash to effect the redemption, dividends will cease to
accumulate or accrue on the Series A 9% Convertible Preferred Stock called for
redemption
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(except that, in the case of a redemption date after a dividend record date and
prior to the related dividend payment date, holders of Series A 9% Convertible
Preferred Stock on the dividend record date will be entitled on such dividend
payment date to receive the dividend payable on such shares), such shares shall
no longer be deemed to be outstanding and all rights of the holders of such
shares of Series A 9% Convertible Preferred Stock shall cease except the right
to receive cash payable upon such redemption, without interest from the date of
such redemption.
In the event the Corporation elects to redeem the Series A 9%
Convertible Preferred Stock, the Corporation will provide to holders of the
Series A 9% Convertible Preferred Stock written notice of that election, and
during that 30 day period immediately following the date of that notice those
holders will have the option to convert the Series A 9% Convertible Preferred
Stock to Common Stock at a price equal to 125% of the closing price of the
Common Stock on the day before the effective date of the offering to the public
of the Series A 9% Convertible Preferred Stock. If the Series A 9% Convertible
Preferred Stock is redeemed in part, such redemption will be on a pro rata
basis.
6.11 NOTICES OF RECORD DATE. If the Corporation proposes at
any time to:
(a) declare any dividend or distribution upon its Common Stock, whether
in cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus;
(b) offer for subscription pro rata to the holders of any class or
series of its capital stock any additional shares of capital stock of any class
or series or other rights;
(c) effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock;
(d) merge or consolidate with or into any other corporation, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
(e) cause the mandatory conversion of the Series A 9% Convertible
Preferred Stock; or
(f) redeem the Series A 9% Convertible Preferred Stock,
then, in connection with each such event, this Corporation shall send to the
holders of the Series A 9% Convertible Preferred Stock:
(i) at least twenty (20) days prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (a) and (b) above; and
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(ii) in the case of the matters referred to in (c), (d), (e)
and (f) above, at least twenty (20) days prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred or Common Stock shall be entitled or compelled to exchange their
Preferred or Common Stock for securities or other property deliverable upon the
occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series A 9%
Convertible Preferred Stock at the address for each such holder as shown on the
books of this Corporation.
7. VOTING RIGHTS UPON DEFAULT REGARDING PAYMENT OF DIVIDENDS. Holders
of the Series A 9% Convertible Preferred Stock will have the right to elect a
majority of the members of the Board of Directors of the Corporation upon a
cumulative default, whether consecutive or not, of 8 quarterly dividends, and
that right shall continue until full and complete payment of all dividends in
arrears on the Series A 9% Convertible Preferred Stock.
8. STATUS OF CONVERTED STOCK. If any shares of Series A 9% Convertible
Preferred Stock are repurchased or converted pursuant to Section 6, the shares
so repurchased or converted shall be retired and shall thereafter have the
status of authorized and unissued shares of Preferred Shares which may be
reissued by the Corporation at any time as shares of any series of Preferred
Shares.
9. RESTRICTIONS AND LIMITATIONS
(a) At such time as any shares of Series A 9% Convertible Preferred
Stock remain outstanding, the Corporation shall not, without the vote or written
consent of the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the then outstanding shares of Series A 9% Convertible Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value, any share
or shares of Series A 9% Convertible Preferred Stock, otherwise than by
conversion in accordance with Section 6:
(ii) Redeem, purchase or otherwise acquire any of the Common
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary of the Corporation pursuant to agreements pursuant to which the
Corporation has the option to repurchase such shares at cost upon the occurrence
of certain events, such as the termination of employment;
(iii) Authorize or issue, or obligate itself to issue, any
other equity security (including any security convertible into or exercisable
for any equity security) senior to or on a parity with the Series A 9%
Convertible Preferred Stock as to dividend or redemption rights and liquidation
preferences;
(iv) Effect any sale, lease, assignment, transfer, or other
conveyance of all or substantially all of the assets of the Corporation or any
of its subsidiaries, or any consolidation or merger involving the Corporation or
any of its subsidiaries, or any reclassification or other change of any stock,
or any recapitalization of the Corporation; or
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(v) Increase or decrease (other than by conversion) the total
number of authorized shares of Series A 9% Convertible Preferred Stock.
(b) The Corporation shall not amend its Certificate of Incorporation
without the approval, by vote or written consent, by the holders of 66 2/3% of
the Series A 9% Convertible Preferred Stock, if such amendment would amend,
modify, annul, supersede, or otherwise change any of the rights, preferences,
privileges of, or limitations provided for herein for the benefit of any shares
of the Series A 9% Convertible Preferred Stock. Without limiting the generality
of the preceding sentence, the Corporation will not amend its Certificate of
Incorporation without the approval by the holders of sixty-six and two-thirds
percent (66 2/3%) of the Series A 9% Convertible Preferred Stock, if such
amendment would:
(i) Reduce the dividend rate on the Series A 9% Convertible
Preferred Stock provided for herein, or make such dividends noncumulative, or
defer the date from which dividends will accrue, or cancel accrued and unpaid
dividends, or change the relative seniority rights of the holders of the Series
A 9% Convertible Preferred Stock as to the payment of dividends in relation to
the holders of any other capital stock of the Corporation;
(ii) Reduce the amount payable to the holders of the Series A
9% Convertible Preferred Stock upon the voluntary or involuntary liquidation,
dissolution, or winding up the Corporation, or change the relative seniority of
the liquidation preferences of the holders of the Series A 9% Convertible
Preferred Stock to the rights upon liquidation of the holders of any other
capital stock of the Corporation; or
(iii) Cancel or modify the conversion rights of the Series A
9% Convertible Preferred Stock provided for in Section 6.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Relative Rights, Qualifications and Restrictions
of the Series A 9% Convertible Preferred Stock to be duly executed by its Chief
Executive Officer and President and attested to by its Secretary and has caused
its corporate seal to be affixed hereto, this 27th day of May, 1997.
(Corporate Seal)
/s/ Fred H. Behrens
----------------------------------------
Fred H. Behrens, Chief Executive Officer
/s/ Robert A. Wright
----------------------------------------
ATTEST: /s/ Robin Swanson Robert A. Wright, President
-------------------------
Robin Swanson, Secretary
10
<PAGE> 11
The undersigned, Robert A. Wright and Robin Swanson, the President and
Secretary, respectively, of AMCOR Capital Corporation, a Delaware corporation,
each declares under penalty of perjury under the laws of the State of California
that the matters set out in the foregoing Certificate are true of his or her own
knowledge.
Executed at Coachella, California on May 27, 1997.
/s/ Robert A. Wright
----------------------------
Robert A. Wright
/s/ Robin Swanson
----------------------------
President
Robin Swanson
Secretary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-2 and the related Prospectus of AMCOR
Capital Corporation, a Delaware corporation, for the registration of up to
747,500 shares of its Series A 9% Convertible Preferred Stock, and to the
incorporation by reference therein of the consolidated financial statements of
AMCOR Capital Corporation included in its annual report on Form 10-KSB for the
fiscal year ended August 31, 1996. The Form 10-KSB was filed with the Securities
and Exchange Commission.
KELLY & COMPANY
By: /s/ Gerald Kelly
------------------------
Title: President
--------------------
