<PAGE> 1
3,227,630 Shares FILED PURSUANT
TO RULE 424(b)(3)
URETHANE TECHNOLOGIES, INC. File No. 33-74838
and 33-96610
COMMON STOCK
-------------------
The 3,227,630 shares of Common Stock, $.01 par value, of Urethane
Technologies, Inc. (the "Registrant" or "UTI") covered by this Prospectus (the
"Shares") consist of 2,236,751 outstanding shares held by certain shareholders;
663,750 shares issuable upon exercise of outstanding warrants (the "Unit
Warrants") issued in a 1995 private offering; 250,000 shares issuable upon
exercise of a warrant (the "1992 Underwriter's Warrant") held by the
underwriter of the Registrant's 1992 public offering, and certain of that
underwriter's employees; 27,129 shares issuable upon the exercise of other
outstanding warrants ("Lender Warrants"); and 50,000 shares issuable upon
exercise of an option (the "Consultant's Option") held by one optionee. All of
such shares are offered for sale by or on behalf of the holders of such
securities (the "Selling Securityholders"), named in this Prospectus under the
caption "Selling Securityholders." The Registrant previously has agreed to
register the Shares under the Securities Act of 1933, as amended (the
"Securities Act"). The Registrant will not receive any of the proceeds from the
sale of the Shares by the Selling Securityholders. The Registrant would
receive proceeds from full or partial exercise of the Unit Warrants in the
amount of $7.00 per share, up to a maximum of $4,646,250, but as the $7.00 per
share exercise price of the Unit Warrants materially exceeds the prevailing
market price of the Registrant's common stock as of the date of this
Prospectus, any such exercise or receipt of proceeds must be considered
unlikely. The Lender Warrants are exercisable at $2.375 per share, the
Underwriter's Warrant at $2.50 per share, and the Consultant's Option at $2.625
per share, which could yield additional proceeds to the Registrant in the
respective amounts of $64,431, $625,000 and $131,250. As such exercise prices
also exceed the prevailing market price of the Registrant's common stock as of
the date of this Prospectus, no such exercise can be assured.
The Registrant has been advised by the Selling Securityholders that
they intend to sell all or a portion of the Shares from time to time in the
over-the-counter market, on the Boston Stock Exchange, in negotiated
transactions or otherwise, and on terms and at prices then obtainable. The
Selling Securityholders and any broker-dealers, agents or underwriters that
participate with the Selling Securityholders in the distribution of any of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commission received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The Registrant and the Selling
Securityholders have agreed to certain indemnification arrangements. The
Registrant will bear the cost of preparing and printing this Prospectus and any
Prospectus Supplements and all filing fees and legal and accounting expenses
associated with registration under federal and state securities laws. The
Selling Securityholders will pay any brokerage commissions and dealer mark-ups
or mark-downs associated with sales of their respective Shares. See "Plan of
Distribution."
The Registrant's Common Stock is quoted on the Nasdaq Stock Market and
listed on the Boston Stock Exchange. On May 17, 1996, the last sales price of
the Registrant's Common Stock as reported on the Nasdaq Stock Market was $1.81
per share.
----------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS," PAGES FIVE THROUGH TEN HEREOF, FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SHARES 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
THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Revised Prospectus is May 22, 1996
<PAGE> 2
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"), and with the
Boston Stock Exchange, on which the Registrant's Common Stock is listed. Such
reports, proxy statements and other information filed by the Registrant can be
inspected and copied at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission located at 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, New York, New York 10048 and at the Boston Stock Exchange.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the Commission.
The Registrant has also filed with the Commission two registration
statements (together with all amendments and exhibits thereto, the
"Registration Statements") under the Securities Act of 1933, as amended (the
"Securities Act"). The first of such Registration Statements (Commission file
number 33-74838) relates to the sale of 663,251 of the outstanding Shares, and
to the Shares issuable upon exercise of the 1992 Underwriter's Warrant and the
Consultant's Option. The second of such Registration Statements (Commission
file number 33-96610) relates to the sale of 1,573,500 of the outstanding
Shares, and to the Shares issuable upon exercise of the Unit Warrants and the
Lender Warrants. This Prospectus does not contain all of the information set
forth in the Registration Statements, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statements, copies of which
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by
the Commission.
INCORPORATION BY REFERENCE
The following documents filed by the Registrant with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (1) the
Registrant's annual report on Form 10-K for the year ended December 31, 1995,
(2) an amendment (Form 10-K/A), filed April 29, 1995, to such annual report,
(3) the Registrant's current report on Form 8-K filed March 29, 1996, (4) the
Registrant's quarterly report on Form 10-Q, filed May 15, 1996, for the period
ended March 31, 1996, and (5) the description of the Registrant's Common Stock
contained in the Registrant's Registration Statement on Form 8-A. All
documents subsequently filed by the Registrant pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act and prior to the termination of this
offering shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such documents. Any statement
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Registrant will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus (other
than any exhibits thereto). Requests for such documents should be directed to
the Registrant at its principal executive offices: 1202 East Wakeham Avenue,
Santa Ana, California 92705, Attn.: Mark Creatura, tel. (714) 973-0800.
________________
2.
<PAGE> 3
THE COMPANY
Urethane Technologies, Inc. (the "Registrant") develops and markets
specially formulated liquid chemical compositions ("systems") for use in the
manufacture of polyurethane-based materials and products. In addition to
supplying polyurethane chemical systems, the Company also supplies
non-polyurethane polymers and engages in limited research and development
activities. Substantially all the Company's business in the year ended
December 31, 1995 was conducted through its subsidiary Polymer Development
Laboratories, Inc. ("PDL"). References in this Prospectus to the "Company"
refer to the Registrant and its subsidiaries on a consolidated basis.
Polyurethanes are petrochemical-based materials characterized by their
mechanical strength and versatility of formulation, which can substitute for
traditional materials such as rubber, wood and metals in a variety of
applications. To date, the Company's chemical systems have been used to
produce polyurethane products including, but not limited to, insulation, other
construction materials, exercise equipment, foam toys, filters, spas,
automotive components, caster wheels, and non-pneumatic (airless) bicycle and
wheelchair tires. The Company believes that the distinctive features of
polyurethanes, such as mechanical strength and wear resistance, make them
suitable for a number of specific product applications, including packaging,
automobile components and body parts, footwear, industrial and sport tires,
casters and medical equipment. Since polyurethanes are petrochemical-based
materials, the prices for such chemicals are subject to fluctuations in the
price of petroleum-based raw material feedstocks.
The Company's principal products are two-component liquid chemical
systems, whose formulations are proprietary to the Company. The Company
prepares such systems by specifying and formulating their chemical composition
to achieve specific properties, such as rigidity, strength and insulation value
necessary to satisfy customer requirements. In use, such systems are sprayed
or poured, thus mixing the two components. When mixed, the two components
react chemically, and the heat generated by the chemical reaction fuses them
into polyurethane products of various consistencies, shapes, forms, sizes,
weights and strengths. The two separate components are known generically as
"polyols" and "isocyanates."
The Company in the past has purchased all of its chemical raw
materials from third-party suppliers for blending and resale to its customers.
With the acquisition of the assets of the Brin-Mont Corporation (discussed on
the next page), the Company will produce internally a portion of its polyol
requirements. Although the intention is to produce internally from 30% to 45%
of its polyol requirements, and thereby to increase overall margins on sales of
polyurethane systems, there can be no assurance that the Company will succeed
in producing polyol raw materials at a lower cost than it would otherwise pay
to purchase such polyols from unaffiliated third parties.
Historically, the Company's chemical systems and equipment have been
marketed by the Company's officers, key employees and independent sales
representatives. With the acquisition of PDL and its existing sales staff, the
Company has reduced its use of, and dependence upon, independent sales
representatives, to the extent that approximately 96% of the Company's sales in
1995 were made to end-users by the Company's own sales staff, with independent
distributors and independent sales representatives accounting for the balance.
3.
<PAGE> 4
RECENT DEVELOPMENTS
On March 15, 1996, the Company, acting through a subsidiary ("BMCA"),
acquired substantially all of the assets of Brin-Mont Corporation
("Brin-Mont"). Such assets comprise a plant of approximately 31,000 square
feet on a lot of approximately 3.3 acres, machinery and equipment used in the
production of polyols and of polyurethane systems, inventory, accounts
receivable, and other miscellaneous assets, such as office equipment. The
Company also assumed certain liabilities of Brin-Mont, principally its accounts
payable in favor of suppliers. Using the acquired assets, the Company intends
to continue the business of Brin-Mont. That business consists of (i)
production of polyols (which the Company plans to produce for its own use and
for the account of unaffiliated parties), and (ii) sales of polyurethane
systems.
In January 1995, the Company determined to dispose of its parts
molding business, which had incurred substantial losses since its 1994
inception. In June 1995 the Company agreed to sell that business to an
unaffiliated purchaser, Polytech Components, Inc. ("Polytech"), and transferred
operational control to Polytech. The final terms of the transaction were
agreed to in August 1995, and the sale was consummated and instruments of
transfer exchanged on August 26, 1995. The consideration received by the
Company consisted of a combination of $50,000 in cash, notes receivable in the
approximate amount of $509,000, and a note receivable of approximately $285,000
to reimburse the Company for its lease obligations on equipment utilized by the
molding division.
The results of operations of the molding division in 1994, asset
writedowns associated with the decision to cease its operations, and expected
shutdown costs were recorded as losses from discontinued operations in the year
ended December 31, 1994. In 1995, the Company's loss from discontinued
operations for the molding division exceeded the amount accrued in 1994, and
such additional losses are recorded as losses from discontinued operations in
1995. Approximately $98,000 of payments due to the Company in 1995 from
Polytech were not paid when due and were subsequently added to the principal
amount of the notes receivable. Management believes Polytech is thinly
capitalized; accordingly, it is reasonably possible that a portion of the
amount due to the Company under these notes receivable will not be collectible
in the future.
In November 1995, the Company determined to cease operations of its
Detectable Warning Systems ("DWS") division, which had been in the business of
supplying "detectable warning mats." That product had been the subject of an
impending federal mandate, but effectiveness of such regulations was deferred
on October 30, 1995 until at least July 1998. The results of operations of the
DWS division, asset writedowns associated with the decision to cease its
operations, and expected shutdown costs are recorded as losses from
discontinued operations in the year ended December 31, 1995.
In June and July 1995 the Company issued and sold (in the "Unit
Offering"), 132.75 "Units" of its equity securities for an aggregate purchase
price of $2,655,000. Each Unit was sold for cash consideration of $20,000, and
comprised 10,000 shares of common stock, warrants (the "Unit Warrants")
exercisable through July 31, 1996 to purchase 5,000 shares of common stock at
an exercise price of $7.00 per share, and contingent warrants (the "Contingent
Warrants") to purchase 10,000 shares of common stock at an exercise price of
$1.00 per share. The Contingent Warrants would have become exercisable only if
the Company had failed to register by December 23, 1995 for public re-sale the
Shares included in the Units or issuable upon exercise of the Unit Warrants.
As the Company did so register such Shares, the Contingent Warrants have become
void. In the Unit Offering, the Company received aggregate net proceeds
(after deduction of placement agent's commissions and other expenses) of
approximately $2,200,000. Of the 132.75 Units sold, 120.00 were sold through
Paradise Valley Securities, Inc. of Phoenix, Arizona. The remaining Units were
sold directly by the Company.
4.
<PAGE> 5
RISK FACTORS
The shares of Common Stock offered hereby are speculative and involve
a high degree of risk, including, but not necessarily limited to, the risk
factors described below. Each prospective investor should consider carefully
the following risk factors inherent in and affecting the business of the
Company and this offering before making an investment decision.
1. HISTORY OF LOSSES. The Company has incurred significant net
losses in each fiscal year since 1985, including losses of $2,347,000,
$5,277,000 and $3,808,000 for the years ended December 31, 1995, 1994 and 1993,
respectively and $593,736 for the quarter ended March 31, 1996. The loss for
the year ended December 31, 1995 includes a loss from discontinued operations of
$1,660,330. The loss from continuing operations was $686,472. At December 31,
1995, the Company had an accumulated deficit of approximately $19,700,420, and
at March 31, 1996, such accumulated deficit was $20,294,156. Management
believes that by (i) eliminating the DWS and molding division operations; (ii)
shifting its strategic focus to expanding its specialty chemical business; and
(iii) reducing its research and development and administrative expenses, the
Company's future operating results should improve. However, there can be no
assurance that significant operating losses will not continue.
2. IMMEDIATE SUBSTANTIAL DILUTION. This offering involves
immediate and substantial dilution of $1.58 between the net tangible book
value per share ($.04 at March 31, 1996) and the market bid price of the Common
Stock prevailing immediately prior to the date of this Prospectus. The closing
bid price of the Common Stock as reported by the Nasdaq Stock Market on May 17,
1996 was $1.625 per share. See "Dilution."
3. SEASONALITY. Customer demand for the Company's chemical
systems exhibits significant seasonality. Typically, sales in the second and
third calendar quarters are stronger than sales in the first and fourth
quarter. Accordingly, revenues and results of operations for any one quarter
may not be accurate predictors of revenues or results of operations for
complete years. Quarterly sales in 1995 were distributed as follows: first
quarter, 20.3%; second quarter, 27.8%; third quarter, 29.1%; and fourth
quarter, 22.8%. As the Company's sales to customers expected to be seasonal
constitute a growing portion of the Company's total sales, it is possible that
a greater variation from quarter to quarter may occur in the current and future
years than was the case in 1995. Accordingly, there can be no assurance that
results of operations for any portion of the current year will be indicative of
results for the year as a whole.
4. LITIGATION. In September 1993, the Company filed an action in
the Superior Court for the State of California, County of Orange, against its
former European sales agent (Hugh Sims-Hilditch) and Dateline Investments, Ltd.
(an affiliate of Mr. Sims-Hilditch), seeking the court's declaration that
certain purported agreements between the Company and the defendants were void.
The Company is seeking a declaration of invalidity (and damages of $200,000)
because of failures to perform, or to perform adequately, under the purported
agreements. On October 19, 1993, Dateline Investments filed a lawsuit against
the Company in London, England, seeking damages in the approximate amount of
$365,000, which are alleged to be compensation owing under the same purported
agreements. On December 6, 1993, Mr. Sims-Hilditch and Dateline Investments
("Cross-complainants") filed a cross-complaint in the California court,
alleging that the Company's termination of the sales agency relationship had
caused damage to the Cross-complainants (primarily in the form of lost future
sales and damage to their reputations) of approximately $30,700,000. The
English court on July 18, 1994, ordered that the litigation in England be
stayed pending resolution of the case in California. The Cross-complainants
subsequently amended their cross-complaint to include the claims that had been
brought before the London court, and the Company has also amended its
complaint, to expand and modify its original claims. The Company plans to
contest vigorously this litigation, which is scheduled for trial in November
1996. Of the claims advanced against the Company, $27,000,000 represents
commissions that are alleged would have been earned on sales that would have
been made had the sales agency relationship continued for a period of 20 years
(the initial five-year term of the purported agreement and three five-year
extensions), $2,000,000 represents alleged expenditures by and damages to the
reputations of the Cross-complainants, and the balance represents an alleged
commitment on the part of the Company to pay minimum additional fees of
$440,000 per year for a four-year period. If the sales agency relationship
were in force throughout the years ended December 31, 1993, 1994 and 1995, the
Company would have recognized commissions in the approximate amounts of $5,000;
$3,000; and $3,000; and additional fees in the approximate amounts of $24,000;
$13,000; and $10,000, respectively. The rate of sales during
5.
<PAGE> 6
those periods, if continued throughout the initial term, was insufficient to
have entitled the sales representative to any extensions. Based on those
figures, the Company believes that any liability it may have for commissions
would not have a material adverse effect on the Company's financial condition.
In the opinion of the Company's management, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's financial
condition or the results of its operations. However, there can be no assurance
as to the outcome.
5. DEPENDENCE ON CREDIT LINE TO FUND OPERATIONS. The Company and
its PDL subsidiary are dependent on PDL's $4,200,000 line of credit, which UTI
has guaranteed. The line of credit is secured by PDL's receivables and
inventory and matures in November 1997. Borrowings on the line of credit bear
interest at the prime rate plus 2.5% which presently results in interest
accruing at the rate of 10.75% per annum. Under the line of credit, PDL is
permitted to borrow up to 80% of eligible receivables. As of March 31, 1996,
PDL had drawn approximately $3,616,000 on the credit line and had approximately
$109,000 available under the borrowing base formula on that date. There can be
no assurance that such a borrowing base formula will enable PDL to continue to
finance its working capital requirements through borrowings under the credit
line. There can also be no assurance that the $4,200,000 maximum advance on
the line will be sufficient to finance PDL's working capital requirements, if
PDL's sales were to grow substantially.
Currently, the credit line imposes a restriction under which PDL may
not pay a dividend to UTI of more than 25% of PDL's pre-tax profits for the
previous fiscal year. The dividend restriction has in the past represented a
material constraint on the Company's ability to utilize the working capital of
PDL. Effective November 1995, the Company and its lender have agreed that
$1,200,000 per annum of UTI expenses may be charged against PDL, which
agreement has materially relieved such constraint. Additional covenants
require that PDL maintain certain financial restrictions, including a total
debt to net worth ratio of no more than 1.75 to one, net worth of at least
$4,900,000 ($4,750,000 through April 30, 1996) and a ratio of current assets to
current labilities of at least one-to-one. All of such financial covenants are
tested on a monthly basis. All such covenants were met in the quarter ended
March 31, 1996. Increased inventories and concomitant increases in accounts
payable and line of credit borrowings in April 1996 may result in
non-compliance with the Company's debt-to-net-worth covenant as of April 30,
1996. Although the Company believes (based on preliminary discussions with its
lender) that such noncompliance will be waived, the Company may incur increased
costs under its credit line. It is also possible that the Company and the
lender may fail to reach agreement, and that the Company could be required
immediately to seek alternate financing arrangements for its working capital
needs. The Company has not specifically identified such alternate
arrangements, as it believes such an outcome to be unlikely. As to compliance
in the future with financial covenants, the company (including its PDL
subsidiary) expects to be in compliance with all such requirements at all
relevant times in the future. However, there can be no assurance that the
Company will be able to continue to operate within such existing financial
restrictions. A failure to fulfill such covenants would be a default under the
credit line, in which event the Company could be required to seek alternate
financing under severely adverse conditions.
The Company is currently discussing with its lender an expansion of
this credit line, to allow borrowings against receivables generated at its
Greensboro, North Carolina plant and against eligible inventories. There can
be no assurance that such discussions will result in an agreement with the
current lender for an expanded credit line on acceptable terms, or at all. If
no such agreement is reached, then the Company may seek alternative credit
facilities from other potential lenders. If the Company does terminate its
existing credit line, as it would do upon obtaining an alternative credit line
with more favorable terms, the Company would incur a prepayment penalty of
approximately $84,000. There can be no assurance that the Company will be
successful in negotiating more favorable terms for any such credit facility,
nor that it would be successful in attracting additional or replacement lenders
for PDL's working capital requirements in the future should the existing line
go into default or prove to be inadequate in size.
6. COMPETITION. The market for the polyurethane systems is
highly competitive. The Company competes with numerous well-established
foreign and domestic systems suppliers, including both integrated producers of
polyurethane systems, and companies that produce polyurethane systems, as does
the Company, by blending raw materials purchased from others. Some of such
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company and have established reputations for success
in the development, sale and service of polyurethane products, as well as
traditional materials such as rubber and plastic. Aggressive competition on
the basis of price is common in the market for established applications for
polyurethane system, which results in pressure to erode margins. The Company
seeks to meet such competition by providing attentive service and
6.
<PAGE> 7
high quality product to its customers, but there can be no assurance that
competitive pressures will not have an adverse effect on the Company's sales,
or on the margins it is able to achieve on such sales.
7. TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's
products are characterized by technical changes, changing environmental
protection regulations, and new product introductions. Current competitors or
new market entrants could introduce new or enhanced products with features that
render the Company's products obsolete or less marketable. The Company's
ability to compete successfully will depend in large measure on the Company
having a technically competent research and development staff and quality
control procedures and on the Company's ability to adapt to technological
changes and advances in the polyurethane industry, including ensuring
continuing compatibility with the evolving requirements of its customers and
with regulatory mandates. To date, the Company's research and development and
quality control capabilities and resources have been limited. The Company
anticipates that certain of its competitors will continue to expend
substantially greater funds than the Company on research and development.
There can be no assurance that the Company will be able to keep pace with the
technological demands of the marketplace or successfully enhance its products
or develop new products that are compatible with needs of specific customers.
8. LIMITED MARKETING CAPABILITY. The Company markets its
products through the efforts of its executive officers, sales personnel,
independent distributors and independent sales representatives. The Company's
executive officers devote a significant amount of time to developing and
maintaining continuing relations with the Company's customers. The bulk of the
Company's sales (approximately 96% in 1995) were made to end-users by the
Company's own sales staff, with independent distributors and independent sales
representatives accounting for the balance. There can be no assurance that the
Company's marketing efforts will result in a steady or increased level of
sales.
9. DEPENDENCE ON THIRD PARTY SUPPLIERS AND MANUFACTURERS. The
Company is dependent on third party suppliers for all of its supply of
chemicals and other raw materials used in the formulation of its polyurethane
systems. Failure by these suppliers to continue to supply the Company with
chemicals would have a material adverse effect on the Company. While the
Company attempts to maintain alternative sources for the Company's raw
materials and believes that alternative sources are currently available for all
of such chemicals and materials, the Company's business is generally subject to
the risk of price fluctuations and periodic shortages of raw materials. Since
the Company's chemicals are petrochemical based, the prices for such chemicals
are subject to fluctuations in the price of petroleum, a significant increase
in the cost of which could have an adverse effect on the Company. An
industry-wide increase in raw materials prices, which was coupled with or
resulted from a shortage of one of the two basic components of polyurethane
system, has had an adverse effect on the Company's results from operations in
the year ended December 31, 1995. The Company achieved gross margins in that
quarter of approximately 19.6%, as compared to 22.0% in the first quarter of
1995, and attributes the reduced margin primarily to such increased cost of raw
materials. The Company has no long-term supply agreements with any of its
suppliers and, accordingly, purchases raw materials pursuant to purchase orders
placed from time to time in the ordinary course of business. Failure or delay
by suppliers in supplying necessary raw materials to the Company would
adversely affect the Company's ability to obtain and deliver products on a
timely and competitive basis. The Company is currently seeking to enter into
one or more long-term supply agreements, with the aim of reducing the Company's
exposure to price instability and to shortages. There can be no assurance that
the Company will enter into any such agreements.
10. GOVERNMENT REGULATION AND ASSOCIATED POTENTIAL LIABILITY. The
formulation of the Company's polyurethane products requires the use of
chemicals and other materials that are classified under applicable laws as
hazardous chemicals and substances and can cause severe respiratory reactions
in workers. The Company does not maintain environmental impairment insurance.
There can be no assurance that the Company will not incur environmental
liability arising out of the use of hazardous chemicals and substances. The
use of hazardous chemicals and substances is subject to extensive and
frequently changing federal, state and local laws and substantial regulation
under these laws by governmental agencies, including the United States
Environmental Protection Agency, the Occupational Safety and Health
Administration, various state agencies and county and local authorities acting
in conjunction with federal and state authorities. Among other things, these
regulatory bodies impose requirements to control air, soil and water pollution,
to protect against occupational exposure to such chemicals, including health
and safety risks, and to require notification or reporting of the storage, use
and release of certain hazardous chemicals and substances. The Company
believes, based on consultation with its counsel, Mark Creatura, who is an
employee of
7.
<PAGE> 8
the Company and, accordingly, not entirely independent, that it is in
substantial compliance with all material federal, state and local environmental
and occupational health and safety laws and regulations governing its
operations, and that it has obtained all licenses and permits required for the
operation of its business. To date, no material environmental, safety, health
or other similar claims have been brought against the Company. There can be no
assurance, however, that the Company will not be subject to claims relating to
exposure to, or discharge of, hazardous chemicals and substances, which could
have a material adverse effect on the Company. Future amendments to statutes
and regulations and the Company's expansion into new areas could require that
the Company continually modify or alter methods of operations at costs which
could be substantial. There can be no assurance that the Company will be able,
for financial or other reasons, to comply with applicable laws and regulations.
Failure by the Company to comply with applicable laws and regulations could
subject the Company to civil remedies, including fines and injunctions as well
as potential criminal sanctions, which could have a material adverse effect on
the Company.
11. RELIANCE ON TRADE SECRETS. The Company's chemical system
formulations are confidential. Although the Company employs various methods to
protect the confidentiality of such formulations, including confidentiality
agreements with its employees and certain of its suppliers and customers, such
methods may not afford complete protection. There can be no assurance that
others will not independently develop such know-how or obtain access to the
Company's know-how, concepts, ideas and documentation. Since the Company
believes that its formulations and other trade secrets are important to its
business, failure to protect such information could have a material adverse
effect on the Company.
12. POTENTIAL PRODUCT LIABILITY. The Company may be exposed as a
supplier of raw materials to potential product liability claims by OEMs who
incorporate the Company's products into their products or by their customers.
The Company maintains a general liability insurance policy which includes
domestic product liability coverage of $1,000,000 per occurrence and $2,000,000
per year in the aggregate and foreign product liability coverage of $1,000,000
per occurrence and $5,000,000 per year in the aggregate. Any product liability
claims that may arise out of sales by PDL prior to July 1994 would not be
covered by such policy, but rather by a general liability insurance policy that
had been maintained by PDL since 1990. The limit on such other policy is
$1,000,000 overall, and no coverage is provided with respect to products sold
prior to 1990. Although no material product liability claims have been
previously asserted against the Company and the Company believes its present
insurance coverage is adequate for the types of products currently marketed,
there can be no assurance that such insurance will be sufficient to cover
potential claims or that the present level of coverage will be available in the
future at a reasonable cost. A partially or completely uninsured successful
claim against the Company could have a material adverse effect on the Company.
13. CONCENTRATION OF OWNERSHIP; CONFLICTS OF INTEREST. Terren
Peizer, formerly chairman of the board of directors of the Company, owns
approximately 20.7% of the outstanding shares of Common Stock of the Company,
and by the exercise of certain options may raise that percentage to 24.3%.
Accordingly, Mr. Peizer will be in a position to exercise significant influence
over the affairs of the Company. The Company has engaged in certain
transactions with Mr. Peizer and his affiliates, including the 1991 acquisition
by the Company of Carousel, the 1992 acquisition of certain assets of Success
Polymers, Inc. and the Company's retaining a corporation wholly owned by Mr.
Peizer as a financial consultant for a one-year term that ended in June 1995.
In addition, in the year 1991 (but not since then) a significant portion of the
Company's working capital requirements were funded by Mr. Peizer through an
equity investment and a loan that was subsequently converted into Common Stock
of the Company. Such transactions involved potential conflicts of interest.
To protect the Company's interests, such transactions have been considered and
reviewed by members of the Board of Directors, excluding Mr. Peizer. In the
case of the Carousel acquisition, which involved the issuance of 1,920,000
shares of common stock (1,344,000 to Mr. Peizer), the transaction was
considered by an independent committee of the Board of Directors, which
committee, based in part on a fairness opinion delivered by an independent
investment advisory firm, determined that the transaction was fair to the
Company. In the case of the acquisition of certain assets of Success Polymers,
Inc., which involved aggregate payments of approximately $100,000, the Board of
Directors (Mr. Peizer not voting) determined that the transaction was fair to
the Company. In the case of the Company's retaining a corporation wholly-owned
by Mr. Peizer to provide financial consulting services, which involved total
payments of approximately $100,000, the Board of Directors (Mr. Peizer not
voting) determined that the transaction was fair to the Company. In connection
with the Company's Unit Offering, Mr. Peizer agreed, at the request of the
placement agent in that offering, to refrain from sales of his shares for a
period extending through January 1, 1997 (with limited exceptions). In
consideration of Mr. Peizer's agreeing to that restricted period of
approximately 18 months, the Company agreed to extend the expiration date of
8.
<PAGE> 9
certain options held by Mr. Peizer by 18 months, from June 25, 1996 to December
26, 1998. The Company believes that all transactions and arrangements with Mr.
Peizer and his affiliates have been fair and reasonable from the Company's
viewpoint and were made on terms no less favorable to the Company than could
have been obtained from unaffiliated third parties. There can be no assurance,
however, that future transactions or arrangements between the Company and Mr.
Peizer or his affiliates, if any, will be advantageous to the Company, that
conflicts of interest will not arise with respect to such transactions or
arrangements, or that if conflicts do arise, they will be resolved in a manner
favorable to the Company. No such future transactions are currently planned,
(including any amendments to current transactions and arrangements) and any
such future transactions would be approved by the Company's Board of Directors
(including a majority of the independent and disinterested members of the Board
of Directors), or by the Company's shareholders and, to the extent deemed
necessary or appropriate by the Board of Directors, the Company will obtain
appraisals or fairness opinions in connection with any such transactions. In
all events, any ongoing or future transactions with affiliates will be on terms
no less favorable to the Company than those that can be obtained from
unaffiliated third parties.
14. POSSIBLE VOLATILITY OF COMMON STOCK PRICE. The market price
for the Company's Common Stock has been subject to volatility and following
this offering may be highly volatile as has been the case with the securities
of other companies in emerging growth businesses. Factors such as the
Company's financial results, introduction of new products by the Company or its
competitors and various factors affecting the polyurethane industry generally
may have a significant impact on the market price of the Company's securities.
15. NO DIVIDENDS. To date, the Company has not paid any cash
dividends on its Common Stock and does not expect to declare or pay any cash or
other dividends on its Common Stock in the foreseeable future.
16. AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation authorize the issuance of "blank check" preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's Common Stock.
As the means to raise approximately 61% of the financing used in the
acquisition of PDL, the Company sold an aggregate of 330 shares of Series A
convertible preferred stock ("Series A Preferred"). The Series A Preferred was
sold for and had a stated value of $10,000 per share, accrued a 6% dividend on
its stated value, was required to be redeemed in May 1996 for its stated value
plus any accrued and unpaid dividends, and each share thereof was convertible
at the option of its holder into the number of shares of common stock equal to
$10,000 divided by 78% of the market price of the common stock prevailing at
the time of conversion. During the year ended December 31, 1994, all of the
330 shares of Series A Preferred were so converted, into an aggregate of
1,543,112 shares of common stock. The purchaser of the Series A Preferred also
received a two-year warrant (which has expired) to purchase an aggregate of
300,000 shares of common stock at $3.00 per share. In the event of issuance of
additional preferred stock, such preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present
intention to issue any additional shares of its preferred stock, there can be
no assurance that the Company will not do so in the future.
17. LIMITATION OF INCOME TAX LOSS CARRYFORWARDS. At December 31,
1995, the Company had net operating loss carryforwards for federal tax purposes
of approximately $13,457,000 to offset future taxable income. Under Section
382 of the Internal Revenue Code of 1986, as amended, utilization of prior net
operating loss carryforwards is limited after an ownership change, as defined
in Section 382, to an annual amount equal to the value of the loss
corporation's outstanding stock immediately before the date of the ownership
change multiplied by the federal long-term tax-exempt rate. Due to the change
in control of the Company in 1991, the Company is subject to a $115,000 annual
limitation on the use of its net operating loss carryforwards available as of
December 31, 1991, which will result in at least $2,475,000 of such
carryforwards expiring unused. The use of net operating loss carryforwards
generated by losses incurred by the Company after December 31, 1991
(approximately $11,732,000 as of December 31, 1995) could also be limited as a
result of the Company's public offering in July 1992, the 1993 Public Offering,
grants of stock options the sale and conversion of the Series A Preferred, the
1994 Private Offering, the Unit Offering, and other events. In the event the
Company achieves profitable operations, any significant limitation on the
utilization of net operating loss carryforwards would have the effect of
increasing the Company's tax liability and reducing net income and available
cash resources.
9.
<PAGE> 10
18. SHARES ELIGIBLE FOR FUTURE SALE. As of the date of this
Prospectus, there were approximately 10,426,384 shares of Common Stock
outstanding. Of those shares, approximately 2,162,200 shares are held by the
Company's largest shareholder, Terren Peizer, who has agreed (in connection
with the Unit Offering) to refrain from selling any shares of the Company's
stock for a period extending through December 26, 1996, except that if the
prevailing price of the Common Stock should exceed $7.00 per share for 15
consecutive trading days, then he may sell up to 200,000 shares of the Common
Stock, and except that he may sell up to 225,000 shares to fulfill options
previously written in favor of three optionees. Other than such shares as to
which an agreement restricts sales, substantially all of the remaining shares
of the Company's outstanding Common Stock are currently eligible for public
sale. No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
19. OUTSTANDING OPTIONS AND WARRANTS. As of the date of this
Prospectus, there were 1,700,000 shares of Common Stock reserved for issuance
upon the exercise of options granted or available for grant under the Company's
1992 and 1993 Stock Option Plans, 100,000 shares reserved for issuance upon the
exercise of options granted under a separate plan to the previous owner of PDL
in connection with the acquisition of PDL, 663,750 shares reserved for issuance
upon exercise of the Unit Warrants, 27,129 shares reserved for issuance upon
exercise of the Lender Warrants, 250,000 shares reserved for issuance upon
exercise of the 1992 Underwriter's Warrants, 50,000 shares reserved for
issuance upon exercise of the Consultant's Option, and 784,640 shares of Common
Stock reserved for issuance upon the exercise of other options and warrants.
To the extent that any of such stock options or warrants are exercised,
dilution to the interests of the Company's shareholders may occur. Moreover,
the terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since the holders of the options or warrants
can be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in the options or warrants.
10.
<PAGE> 11
DILUTION
The difference between the offering price per share to the public of
the Common Stock and the net tangible book value per share of the Common Stock
after this offering constitutes the dilution to investors in this offering.
Net tangible book value per share is determined by dividing the net tangible
book value of the Company (total tangible assets less total liabilities), by
the number of outstanding shares of Common Stock.
As of March 31, 1996, the Company had a net tangible book value of
$455,322 or approximately $.044 per common share. Assuming that purchases in
this offering are made at the closing bid price prevailing as of the date of
this Prospectus ($1.625 per share as of May 17, 1996), such purchasers would
suffer an immediate dilution of $1.581 per share. The following table
illustrates dilution to such purchasers on a per share basis:
<TABLE>
<S> <C>
Assumed offering price $1.625
Net tangible book value per share 0.044
------
Dilution to purchaser at $1.625 per share $1.581
======
</TABLE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Securityholders that they,
or their respective pledgees, donees, transferees or successors in interest,
intend to sell all or a portion of the Shares from time to time on the Nasdaq
Stock Market, on the Boston Stock Exchange, or otherwise, at prices and at
terms prevailing at the time of sale or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by one or
more of the following methods: (a) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its own account
pursuant to this Prospectus; (c) a distribution in accordance with the rules of
the Nasdaq Stock Market and/or the Boston Stock Exchange; (d) a block trade in
which the broker or dealer so engaged will attempt to sell the Shares as agent,
but may position and resell a portion of the block as principal to facilitate
the transaction; and (e) in privately negotiated transactions. Paradise Valley
Securities, Inc. ("Paradise Valley"), which was the placement agent in the Unit
Offering, Lehman Bros., Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Whale Securities Co., L.P. (which was the underwriter of the Company's 1992 and
1993 public offerings), Legg-Mason Wood Walker, Smith Barney Shearson and/or
other members of the National Association of Securities Dealers, Inc. may act
as agents for the Selling Securityholders in such transactions. There is no
assurance that any of the Selling Securityholders will sell any or all of the
Shares offered by them.
In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate.
Brokers or dealers will receive commissions or discounts from the Selling
Securityholders in amounts to be negotiated prior to the sale. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, in connection with
such sales. The Company will pay all expenses incident to the offering and
sale of the Shares to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer or other taxes.
The Company has agreed to indemnify in certain circumstances the
Selling Securityholders and any underwriter and certain control and other
persons related to the foregoing persons against certain liabilities, including
liabilities under the Securities Act. The Selling Securityholders have agreed
to indemnify the Company and certain related persons against certain
liabilities, including liabilities under the Securities Act, but only in
limited circumstances arising out of such Selling Securityholder's having
provided incorrect information to the Company.
The Company plans to keep the Registration Statements of which this
Prospectus is a part effective until June 1997, at which time the Company
anticipates that the Selling Securityholders, or substantially all of them,
will be entitled to dispose of the Shares (to the extent any then remain
unsold) without registration, pursuant to Rule 144 promulgated under the
Securities Act.
11.
<PAGE> 12
SELLING SECURITYHOLDERS
The following table lists the Selling Securityholders, the number of
shares of the Company's Common Stock (whether currently outstanding or issuable
upon exercise of the Unit Warrants or Lender Warrants) which each owned as of
the commencement of the respective offerings to which the Registration
Statements relate, the number of shares of the Company's Common Stock expected
to be sold by each, and the number of the Company's shares of Common Stock that
each will own after the offering pursuant to this Prospectus, assuming the sale
of all the Shares expected to be sold. As of the date of this Prospectus, all
or any of such Shares may already have been sold. There can be no assurance as
to which of such shares, if any, will in fact be sold. Other than shares
issuable upon exercise of the Unit Warrants, Lender Warrants, 1992
Underwriter's Warrant or Consultant's Option, and except as otherwise noted,
shares that a Selling Securityholder has the right to acquire pursuant to
warrants, options or rights are excluded from the tabulation below. Except as
otherwise noted below, none of the Selling Securityholders is expected to hold
1% or more of the Company's Common Stock after completion of the offerings.
<TABLE>
<CAPTION>
SHARES OWNED OUTSTANDING WARRANT/OPTION SHARES OWNED
NAME PRIOR TO OFFERING SHARES OFFERED SHARES OFFERED AFTER OFFERING
<S> <C> <C> <C> <C>
Abrams, Ronald L. 15,000 10,000 5,000 0
Ally Capital Management, Inc. 27,129 0 27,129 0
Anari, Nicholas 3,007(1) 0 3,007(1) 0
Andalman, Alan C. 15,000 10,000 5,000 0
Archer, Oscar Daniel 15,000 10,000 5,000 0
Arnell Business Forms Pension 17,000 10,000 5,000 2,000
Plan
Bartkowski, James B. IRA 15,000 10,000 5,000 0
Batcheller, Ann Lyn IRA 22,500 15,000 7,500 0
Behnke, Paul L. 15,000 10,000 5,000 0
Bell, Ward T. 15,000 10,000 5,000 0
Beus, Gilbert & Morrill Profit 40,000 20,000 10,000 10,000
Sharing Trust
Blanford, Joseph 15,000 10,000 5,000 0
Boster, Gary 30,000 20,000 10,000 0
Broidy, Elliott + 285,000(2)(3) 50,000 150,000(2)(3) 30,000
Cynthia Buckwalter 438(1) 0 438(1) 0
Chenoweth, Dean B. 15,000 10,000 5,000 0
Columbia River Properties 18,800 10,000 5,000 3,800
Courneya, Wayne G. 15,000 10,000 5,000 0
Coyne, James M. 15,000 10,000 5,000 0
& Alice M.
Creatura, Mark 10,000 10,000 0 0
Daniel, Donald 29,000 10,000 5,000 14,000
Danielson, Scott S. 28,000 10,000 5,000 13,000
Decker, Rose IRA 15,000 10,000 5,000 0
Dehmer, John IRA 15,000 10,000 5,000 0
DMS 30,000 20,000 10,000 0
Downs, Richard A. 25,000 10,000 5,000 10,000
Eickhoff, L.B. 27,000 10,000 5,000 12,000
Elkhorn Partners 7,500 7,500 0 0
Emmerson, Craig 19,000 10,000 5,000 4,000
& Cynthia
Ernemann, Michael J. 27,500 15,000 7,500 0
Farren, David N. 15,000 10,000 5,000 0
Feder, Jordan 19,000 10,000 5,000 4,000
</TABLE>
12.
<PAGE> 13
<TABLE>
<CAPTION>
SHARES OWNED OUTSTANDING WARRANT/OPTION SHARES OWNED
NAME PRIOR TO OFFERING SHARES OFFERED SHARES OFFERED AFTER OFFERING
<S> <C> <C> <C> <C>
Fetterolf, C.F. 6,000 6,000 0 0
Hayden Fleming 152,000(2) 50,000(2) 100,000 2,000
The Financial Relations Board, 1,285 1,285 0 0
Inc.
Foley, Raymond J. 7,500 5,000 2,500 0
& Rita J.
Fromm, Lorraine 17,500 10,000 5,000 2,500
Gilbertson, David 31,000 10,000 5,000 16,000
Goldstein, Marvin 15,000 10,000 5,000 0
Grace, R. Randall 20,000 10,000 5,000 5,000
Graham, Cookie IRA 16,000 10,000 5,000 1,000
Greenwald, George H. 15,000 10,000 5,000 0
Greenwald, John R. 15,000 10,000 5,000 0
& Rebecca A.
Gross, Bert IRA 15,000 10,000 5,000 0
Guarisco, Elizabeth M. 15,000 10,000 5,000 0
Guarisco, Peter V. 15,000 10,000 5,000 0
Harkins, Daniel 15,000 10,000 5,000 0
Harlow, Howard D. 14,707(1) 0 14,707(1) 0
Henderson, Robert F. 25,000 10,000 5,000 10,000
Henkemeyer, Gerome G. 33,200 20,000 10,000 3,200
Hess, Maclean R. 15,000 10,000 5,000 0
& Darla K.
Hodge, James H. 15,000 10,000 5,000 0
& Kathleen E.
Hoppmann, Harold 27,000 10,000 5,000 12,000
Hundley, John M. 35,000 20,000 10,000 5,000
Huntington, Bert 17,100 10,000 5,000 2,100
Intergalactic Growth 40,000 20,000 10,000 10,000
Fund, Inc.
Johnson, Harold Stanley 15,000 10,000 5,000 0
Joss Family Trust 15,000 10,000 5,000 0
Juechter, W. Mathew 29,000 10,000 5,000 14,000
Kaefer, Frederick S. 40,000 20,000 10,000 10,000
Kelly, Ellen W. 26,000 10,000 5,000 11,000
Kelly, Richard 25,000 25,000 0 0
Kier, Connie S. IRA 15,000 10,000 5,000 0
Kleist, Keith IRA 15,000 10,000 5,000 0
Klouda, James C. 25,000 10,000 5,000 10,000
Krupka, Keith 50,000 25,000 0 25,000
Lang, William 15,000 10,000 5,000 0
Leibovit, Mark IRA 22,500 15,000 7,500 0
Levine, John D. 15,000 10,000 5,000 0
Lindee, Mark T. 163,650 87,500 31,250 44,900
Linney, Douglas A. 50,000 20,000 10,000 20,000
Linney, Warren T. 75,000 30,000 15,000 30,000
Linsmayer, Robert M. 20,000 10,000 5,000 5,000
Lucille Post Revocable Living 30,000 20,000 10,000 0
Trust, Eldon Post & Stanley
Thompson, Trustees
</TABLE>
13.
<PAGE> 14
<TABLE>
<CAPTION>
SHARES OWNED OUTSTANDING WARRANT/OPTION SHARES OWNED
NAME PRIOR TO OFFERING SHARES OFFERED SHARES OFFERED AFTER OFFERING
<S> <C> <C> <C> <C>
Mandt, Lyle 15,000 10,000 5,000 0
Martin J. Roe Trust 15,000 10,000 5,000 0
Mathwig, Jerry 15,000 10,000 5,000 0
Mayberry, Thomas 28,000 10,000 5,000 13,000
McDonald, Gary E. 15,000 10,000 5,000 0
Meillier, David 20,000 10,000 5,000 5,000
Menayas, Emmannuel B. & 15,000 10,000 5,000 0
Cheryl Ann
Mercedes Group Ltd. 75,000 50,000 25,000 0
Partnership
Miller, Leonard 7,500 5,000 2,500 0
Montelone, Robert 15,000 10,000 5,000 0
Morgan Steel Limited 85,000 20,000 10,000 55,000
Morrisroe, Edward L. 20,000 20,000 0 0
Mueller, Gerald Gustav Trust 15,000 10,000 5,000 0
Mundhenke, Gary 7,500 25,000 12,500 20,000
& Susan L. Mulligan
Nelson, Delano 26,000 10,000 5,000 11,000
Noel K. Atkinson & 30,000 20,000 10,000 0
Eulalia G. Atkinson Living
Trust
North Phoenix Heart Center 37,500 15,000 7,500 15,000
P.C. Profit Sharing Trust
FBO Frank Surdakowski
Orefice, James D. 59,410 45,000 10,000 4,410
Ostrom, Raymond 25,000 10,000 5,000 10,000
Parsow Partnership, Ltd. 127,000 17,500 0 109,500
Patel, Nilkanth J. 15,000 10,000 5,000 0
& Kaumudini
Patel, Janak 15,000 10,000 5,000 0
Phifer, Brook J. IRA 15,000 10,000 5,000 0
Porpoise Investors, I, L.P.+ 784,400 50,000 100,000 634,400
Pritchard, Lenn M. 15,000 10,000 5,000 0
& Kathleen K.
Ribas, Bernard 36,783 25,983 0 10,800
Susan Ribas 31,783 25,983 0 5,800
Rice, Glenn M. & Mary 27,000 10,000 5,000 12,000
Rosenberg, Mark R. 37,500 25,000 12,500 0
Rosow, Dean 15,000 10,000 5,000 0
Rost, Bonnie 15,000 10,000 5,000 0
Schloz, Stanley L. 21,000 10,000 5,000 6,000
Schulte, Vincent 37,500 25,000 12,500 0
Servin, Donald IRA 15,000 10,000 5,000 0
Shemano, Gary J. 10,000 10,000 0 0
Shindel, Neal 15,000 10,000 5,000 0
Siegel, Norman 244,500(4) 25,000 25,000(4) 194,500
Anthony Silverman* 178,000(2) 50,000(2) 100,000 28,000
Silverman, Michael 25,000 10,000 5,000 10,000
Elliot J. Smith 19,028(1) 0 19,028(1) 0
Staley, Henry M. 15,000 10,000 5,000 0
</TABLE>
14.
<PAGE> 15
<TABLE>
<CAPTION>
SHARES OWNED OUTSTANDING WARRANT/OPTION SHARES OWNED
NAME PRIOR TO OFFERING SHARES OFFERED SHARES OFFERED AFTER OFFERING
<S> <C> <C> <C> <C>
Staley, A.E. III Trust 37,500 15,000 7,500 15,000
SWC&T Surgeons Restated 15,000 10,000 5,000 0
Profit-Sharing Plan FBO R.
Randall Grace
Thompson, Merwin 15,000 10,000 5,000 0
Thorstad, A. Roger 15,000 10,000 5,000 0
& Deloris
Thren, Robert C. 25,000 20,000 5,000 0
Tsang, Park 10,000 10,000 0 0
Van de Walker, Roger 15,000 15,000 0 0
Volk, Joseph 15,000 10,000 5,000 0
Wagner, Carlos E. 7,500 5,000 2,500 0
Walters, William G. 29,028(1) 0 19,028(1) 10,000
Weiss, Howard R. 29,000 10,000 5,000 14,000
Whale Securities Co., L.P.(5) 192,304(1) 0 192,304(1) 0
Whitten, James D. 1,488(1) 0 1,488(1) 0
Wilkes, Daniel N. 33,000 10,000 5,000 18,000
Wong, Daniel & Christine 29,000 10,000 5,000 14,000
</TABLE>
(1) All shares appearing in the column "Warrant/Option Shares Offered" are
shares that the Selling Securityholder has the presently exercisable
right to acquire from the Company, and are also included in the column
"Shares Owned Prior to Offering."
(2) Includes 100,000 shares that the Selling Securityholder has the
presently exercisable right to acquire from Mr. Peizer.
(3) Includes 50,000 shares that the Selling Securityholder has the
presently exercisable right to acquire from the Company.
(4) Includes 25,000 shares that the Selling Securityholder has the
presently exercisable right to acquire from Mr. Peizer.
(5) Whale Securities Co., L.P. makes a market in the Common Stock, and in
that capacity holds shares in its trading account in amounts that vary
continuously. Such shares are excluded from the table above.
* The Selling Securityholder has informed the Company that the shares
registered either have been sold prior to the date of this Prospectus
or will not be sold prior to the conclusion of this offering.
+ Such Selling Securityholder was a Selling Securityholder in both of
the Registration Statements, and has provided information to the
Company concerning holdings of common stock as of the commencement of
each of the two offerings to which this Prospectus and the respective
Registration Statements relate. The information appearing above is as
of the commencement of the offering of 1,573,500 outstanding shares
and of shares issuable upon exercise of the Unit Warrants and the
Lender Warrants. As of the earlier commencement of the offering of
663,251 outstanding shares and of shares issuable upon exercise of the
1992 Underwriter's Warrants and the Consultant's Option, the shares
owned prior to offering and shares to be owned after the offering
were, respectively, as to Mr. Broidy, 55,000 and 30,000 shares, as to
Porpoise Investors I, L.P., 480,000 and 355,000 shares, and as to Mr.
Siegel, 239,500 and 214,500 shares.
Of the Selling Securityholders, several have been employees or
officers of the Company, or have had other material relationships with the
Company within the past three years, as follows: Ally Capital Corporation has
acted as a lease-lender to the Company since August 1993. Mr. Archer was an
employee of the Company through December 1995, and headed its detectable
warnings division. Mr. Broidy has been a director of the Company since
December 1994, and previously served the Company as a financial consultant, in
which capacity he continues to serve. Mr. Creatura has been the Company's
Secretary, general counsel and a vice president since October 1993. Mr.
Fetterolf has been a director of the Company since December 1994. Mr. Hess has
been an employee of the Company since October 1994, and is president of the PDL
subsidiary. Mr. Montelone has been the Company's Director of Sales and
Marketing since February 1995. Mr. Orefice has been the Company's Chief
Executive Officer and Chairman of its Board of Directors since February 1994,
and was its Chief Operating Officer from August 1993 to February 1994.
Other than as noted below, the Selling Securityholders acquired their
Shares in the Unit Offering, or in a private offering of common stock that the
Company conducted in December 1994 and January 1995.
15.
<PAGE> 16
Messrs. Hayden Fleming and Anthony Silverman each acquired the shares
being offered by purchase from a then-director of the Company, Terren S.
Peizer, as did Porpoise Investors I, L.P. ("Porpoise"). Each also acquired
warrants to purchase 100,000 shares from Mr. Peizer. The managing general
partner of Porpoise is a managing director of Whale Securities Co., L.P., which
was the underwriter of the Company's July 1992 and April 1993 public offerings.
Whale Securities Co., L.P. acquired the 1992 Underwriter's Warrant as part of
its compensation for acting as underwriter in the Company's July 1992 public
offering. Messrs. Walters, Smith, Harlow, Anari and Whitten and Ms. Buckwalter
are employees of Whale Securities, and received portions of the 1992
Underwriter's Warrant as part of their compensation from Whale Securities. Mr.
Broidy (a director of the Company from December 1994 to the present) acquired
his 25,000 shares of outstanding stock and warrants to purchase 100,000 shares
by purchase from Mr. Peizer. Mr. Broidy received the Consultant's Option as
compensation for financial consulting services performed for the Company. The
Financial Relations Board Inc. received its shares from the Company in
consideration of financial public relations services performed for the Company.
Mr. and Mrs. Ribas and Messrs. Morrisroe and Van de Walker received their
shares to be sold hereunder in settlement of claims against the Company. The
Company issued an aggregate of 51,966 shares of common stock (valued at
$190,000) to Mr. and Mrs. Ribas to settle litigation initiated in February 1993
and discussed in the Company's report on Form 10-K for the year ended December
31, 1993. The Company issued an aggregate of 35,000 shares of common stock
(valued at $118,125) and agreed to pay a total of $15,000 to Messrs. Morrisroe
and Van de Walker, to avoid threatened litigation relating to options
compensation to which such individuals claimed entitlement as a result of their
employment by the Company. Messrs. Morrisroe and Van de Walker were employees
of the Company through September 1992 and June 1993, respectively. Mr.
Morrisroe was the Company's chief financial officer and secretary-treasurer
from November 1989 through September 1992, and a director of the Company from
November 1991 through July 1993.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Securityholders. If the Unit Warrants, 1992 Underwriter's
Warrant, Lender Warrants, or the Consultant's Option should be exercised, in
whole or in part, the Company would receive proceeds from such exercise, less
estimated expenses of exercise, as set forth in the table below. The Company
intends to use such proceeds, if any, for general working capital purposes.
<TABLE>
<CAPTION>
Proceeds to
Number of Exercise Price Company, if
Series Shares Issuable per Share exercised in full.
------ --------------- -------------- ------------------
<S> <C> <C> <C>
Unit Warrants 663,750 $ 7.00 $4,413,937(1)
1992 Underwriter's Warrant 250,000 2.50 625,000
Lender Warrants 27,129 2.375 64,431
Consultant's Option 50,000 2.625 131,250
</TABLE>
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(1) After deduction of a warrant solicitation fee in the amount of
$232,313; the gross proceeds of such assumed full exercise would be
$4,646,250.
It should be noted that the prevailing market bid price of Common
Stock as of the date of this Prospectus is materially less than the exercise
price of each of such series of warrants or options. As of May 17, 1996, such
price was $1.625 per share, which is 23.2% of the exercise price of the Unit
Warrants, 65% of the exercise price of the 1992 Underwriter's Warrant, 68.4% of
the exercise price of the Lender Warrants, and 61.9% of the exercise price of
the Consultant's Option. The Unit Warrants expire July 31, 1996, the 1992
Underwriter's Warrants on June 25, 1997, the Lender Warrants in November 1998
as to 8,182 shares and December 1999 as to 18,947 shares, and the Consultant's
Option on January 15, 1997. There can be no assurance that any of such
warrants or options will be exercised in the immediate future, or at all. At
the currently prevailing market price of the Company's common stock, any such
exercise or receipt of proceeds must be considered unlikely.
16.
<PAGE> 17
LEGAL MATTERS
The legality of the Shares is being passed upon by Mark Creatura,
Esq., Santa Ana, California, who is an officer and full-time employee of the
Registrant, and thus not independent.
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of
operations, cash flows and stockholders' equity for the three years in the
three-year period ended December 31, 1995, and the related financial statement
schedules incorporated by reference in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
17.
<PAGE> 18
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH 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 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.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . 2
Incorporation by Reference . . . . . 2
The Company . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . 5
Dilution . . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . 11
Selling Securityholders . . . . . . . 12
Use of Proceeds . . . . . . . . . . . 16
Legal Matters . . . . . . . . . . . . 17
Experts . . . . . . . . . . . . . . . 17
</TABLE>
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3,227,630 SHARES
URETHANE TECHNOLOGIES, INC.
COMMON STOCK
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PROSPECTUS
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May 22, 1996
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