-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OQ+xj3ysdhut5giXrtYfj8IfSMrk3MfWOmm7A2N+1G89M8QTUxi1sJ3/GmRG9LQi /6OCK+3C6BKkmTOk1PQ+Cg== 0000950148-96-002108.txt : 19960926 0000950148-96-002108.hdr.sgml : 19960926 ACCESSION NUMBER: 0000950148-96-002108 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960925 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALNETICS CORP CENTRAL INDEX KEY: 0000277376 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 952303687 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08767 FILM NUMBER: 96634389 BUSINESS ADDRESS: STREET 1: 20401 PRAIRIE ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8188869819 MAIL ADDRESS: STREET 1: 20401 PRAIRIE STREET CITY: CHATSWORTH STATE: CA ZIP: 91311 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to ____________ Commission File Number: 0-8767 CALNETICS CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 95-2303687 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311 (Address of principle executive offices) (zip code) (818) 886-9819 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None --- Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant is $9,748,000 as of August 1, 1996. 2,969,799 (number of shares of common stock outstanding as of August 1, 1996) DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders, to be held November 8, 1996, are incorporated by reference in Part III hereof. 2 PART I ITEM 1. BUSINESS. GENERAL Calnetics Corporation, a California corporation ("Calnetics"), and its wholly-owned subsidiaries, Manchester Plastics Co., Inc., a California corporation ("Manchester"), Ny-Glass Plastics, Inc., a California corporation ("Ny-Glass"), and Agricultural Products, Inc., a California corporation ("API"), are hereinafter referred to together as the "Company". Calnetics was incorporated under the laws of the State of California on July 18, 1960. The Company's headquarters are located in Chatsworth, California. All of the Company's manufacturing operations are conducted by its subsidiaries. Manchester manufactures proprietary items and custom products of acrylic, polycarbonate and polystyrene plastic sheet that serve the building materials and industrial plastics industries. Ny-Glass manufactures plastic parts, specializing in injection molding. API, which was acquired as of April 30, 1994, manufactures plastic tubing, fittings, filters and accessories that serve the agricultural irrigation industry. Approximately 70% of the Company's net sales of $35,193,973 are of proprietary products. The remaining portion of the Company's sales consist of custom fabrication and production parts manufactured to each individual customer's specifications. Such custom parts are produced for a wide variety of industries including the electronics industry. MERGERS AND ACQUISITIONS In March 1988, Mr. Clinton G. Gerlach, either directly or through Gerlach Holding Corporation, a Delaware corporation of which Mr. Gerlach was the sole shareholder ("GHC"), acquired an aggregate of 682,004 shares of Calnetics' Common Stock ("Common Stock"). GHC purchased 300,000 newly-issued shares directly from Calnetics, and the remaining shares were purchased by Mr. Gerlach and GHC from individual shareholders of Calnetics. In February 1992, GHC acquired all of the Common Stock holdings owned by Mr. Larry Sacks, a former officer and Director of Calnetics, consisting of 403,500 shares, resulting in an aggregate ownership by GHC of 1,085,504 shares of Common Stock, representing approximately 37% of the total shares outstanding as of June 30, 1996. As of June 30, 1996, Mr. Gerlach owned 52% of the outstanding shares of GHC, with the remaining 48% owned by Mr. Gerlach's son and daughter. Since 1989, Calnetics has actively reviewed and pursued potential merger and acquisition candidates with a goal of increasing revenues and profitability. Calnetics intends to continue reviewing potential merger and acquisition candidates in the future and to pursue mergers and acquisitions where warranted. Acquisitions since the beginning of 1989 are described in the following paragraphs. Page 2 3 On September 18, 1989, Calnetics acquired all of the capital stock of Manchester. Manchester, located in Chatsworth, California, now operates as a wholly-owned subsidiary of Calnetics. On June 3, 1992, Calnetics completed the cash acquisition of substantially all of the assets of PSI, a manufacturer of plastic injection molding components located in Corona, California. The acquisition was accomplished through a subsidiary of the Company, Ny-Glass, which continued the business of PSI under the Ny-Glass name in Corona, California. At the time of the acquisition, Ny-Glass entered into a ten (10) year building lease with respect to the premises formerly occupied by PSI. In September 1992, the Ny-Glass division of the Company, located in Paramount, California, was moved to Corona, California and consolidated with the Ny-Glass subsidiary. As of April 30, 1994, Calnetics acquired all of the capital stock of API for $4,402,144 by payment of $4,000,102 in cash obtained from long-term bank financing, and $402,042 in unsecured notes payable to the former API shareholders. API owns two plants, consisting of approximately 50,000 square feet in Ontario, California and approximately 30,000 square feet in Winter Haven, Florida. API's executive offices are located on site with the plant in Ontario, California. CUSTOMERS AND MARKETING No customer accounted for ten (10%) percent or more of the Company's net sales in the 1996 fiscal year, and export sales accounted for less than five (5%) percent of net sales. The Company's marketing efforts at all four facilities are conducted by in-house personnel and a limited number of outside sales personnel and independent manufacturers representatives. RAW MATERIALS The principal raw materials used by the Company with respect to the manufacture of its products are resins for producing plastic parts. Based on market and economic conditions, as of July 31, 1996, the Company was not experiencing shortages in supply, other than nominal shortages of polycarbonate resin at Manchester. However, there can be no assurances that additional shortages will not result. All items, except polycarbonate resin, necessary for the production of the Company's products are purchased from a variety of suppliers. PATENTS The Company presently does not hold any patents, trademarks, franchises, licenses, or concessions which are material to its operations. Page 3 4 ENVIRONMENTAL MATTERS The Company believes that its policy in controlling the use and discharge of hazardous materials is in compliance with applicable local, state and federal regulations. As of the date hereof, the Company has not received notice from any governmental authority of any assertion of material non-compliance with such laws. SEASONALITY The Company's business (excluding API) is not of a seasonal nature. The Company is diversified across numerous industry lines and customers, and the portion of its business conducted by the subsidiaries other than API has not experienced any substantial seasonal variation to date. However, API's business historically has been seasonal in nature, with demand for its irrigation products being highest during the spring and early summer. In fiscal 1996, the Company's revenue reflected this trend, with $16,398,938 of revenue in the first half of the fiscal year (July - December) and $18,795,035 during the remainder of the fiscal year. INVENTORY The Company maintains what it considers a normal supply of its raw material resins ranging from 30 to 60 days' supply in inventory. These amounts are not increased except in times of expected shortages. The Company maintains an inventory of raw materials and finished goods for sale in order to respond quickly to customer demand. (See Note 3 of Notes to Consolidated Financial Statements.) While such raw materials and finished goods on hand represent a significant commitment of the Company's working capital, the Company believes that a rapid response to customer catalog orders is essential and that its inventory practices are typical of the industry in which it competes. Page 4 5 BACKLOG The Company's backlog of orders consists of written purchase orders and telephone orders generally confirmed in writing or by substantially concurrent delivery and acceptance of product. The Company estimates that approximately 90% of its sales orders are written. The Company normally does not offer cancellation rights and considers its backlog to be firm. The Company's backlog at June 30, 1996 and at the end of the preceding fiscal year was as follows:
JUNE 30 -------------------------------- 1996 1995 ------------ ----------- All Company Products $2,508,000 $2,290,000
It is anticipated that approximately 95% of the backlog at June 30, 1996 will be filled during the 1997 fiscal year. GOVERNMENT CONTRACTS The Company does not have any government contracts or any other contracts which are subject to renegotiation of profits or termination at the election of the government. CURRENT BORROWING ARRANGEMENTS Calnetics has a credit agreement for a $2,500,000 bank unsecured line of credit, subject to certain conditions. As of June 30, 1996, no outstanding balances existed on this bank credit line. The credit agreement expires December 31, 1996 and bears interest at the bank's reference rate, 8.25% at June 30, 1996. (See Note 4 to the Consolidated Financial Statements.) To finance the acquisition of API, the Company entered into two five-year collateralized bank term loans with two banks for a total of $4.5 million, with one such loan bearing interest at the bank's reference rate (8.25% at June 30, 1996) plus 3/4%, and the other loan bearing interest at the bank's prime rate (8.25% at June 30, 1996) plus 3/4%. As part of the API purchase price, the Company also executed unsecured promissory notes totaling $402,042, payable to the former API shareholders, with interest payable semi-annually at a rate of 7.50% per annum and principal payable in four equal annual installments beginning June 1996. (See Note 5 to the Consolidated Financial Statements.) Page 5 6 As part of the acquisition of API, the Company assumed an industrial revenue bond payable, which had an outstanding principal balance of $1,440,000 at June 30, 1996, principal due in annual sinking fund installments ranging from $15,000 to $130,000 through December 2021, plus interest due monthly with an adjustable interest rate, which was 4.7% at June 30, 1996. In addition, the Company assumed mortgages payable to a bank, with an outstanding principal balance of $274,687 at June 30, 1996, secured by the related building and land, payable in monthly installments at an interest rate of three-quarter percent (3/4%) over the bank's prime rate with a balloon payment of $201,415 due on March 5, 2000. (See Note 5 to the Consolidated Financial Statements.) COMPETITION The Company encounters competition from many competitors, many of which are larger and have greater financial resources. The number of businesses in the plastics manufacturing industry in which the Company competes is impossible to estimate, but it generally consists of numerous small and large corporations and proprietorships. To the Company's knowledge, no single competitor is dominant. Competition is principally based on price, product quality, customer service and the ability to deliver products on schedule. The Company believes it has developed a good following in the industries it serves including a favorable reputation for product quality and prompt and reliable customer service. RESEARCH AND DEVELOPMENT The Company conducts routine product analysis to develop additional catalog and custom products as part of its normal operations; however, the expenditures required for such developments have not been and are not anticipated to be material to the Company's operations. EMPLOYEES At June 30, 1996, the Company employed approximately 243 employees, none of which are subject to a collective bargaining agreement. The Company considers the relationship with its employees to be good and has not experienced any work stoppage from any labor dispute. Page 6 7 ITEM 2. PROPERTIES. The Company operates from leased facilities in Chatsworth, California and Corona, California. The Chatsworth facilities consist of a one-floor, 56,600 square foot building and the Corona facilities consist of a one-floor, 30,000 square foot building. At the Manchester facility in Chatsworth, the lease expires on December 6, 1999. At the Ny-Glass facility in Corona, the lease expires on May 31, 2002. The Company also operates from two plants owned by API, consisting of facilities of 50,000 square feet in Ontario, California and 30,000 square feet in Winter Haven, Florida. The Company believes the above facilities are in good repair, adequate for the Company's current operations, and sufficient to accommodate up to a twenty (20%) percent increase of present production levels, which would, however, require additional equipment, and in certain cases, additional semi-skilled labor. ITEM 3. LEGAL PROCEEDINGS. The Company is not currently subject to any legal actions which are expected to have a material adverse effect on its operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Page 7 8 ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY. The names, ages and positions of all the executive officers of the Company are listed below, followed by a brief account of their business experience during the past five years. Officers are normally appointed annually by the Board of Directors at a meeting of the Directors immediately following the Annual Meeting of Shareholders. There are no family relationships among these officers or any arrangements or understandings between any officers and any other person pursuant to which an officer was selected. None of these officers has been involved in any court or administrative proceeding within the past five years adversely reflecting on his or her ability or integrity.
NAME AGE POSITION ------------------ --- ----------------------- Clinton G. Gerlach 70 President, Chairman of the Board and Chief Executive Officer Michael A. Hornak 53 Vice President Steven L. Strawn 42 Vice President Teresa S. Louie 42 Treasurer Barbara Guyer 33 Secretary Lon Schultz 62 President and Director of API
Clinton G. Gerlach has served as the President, Chairman of the Board, and Chief Executive Officer of Calnetics since March of 1988, the Chairman of the Board and Director of Manchester since September 1989, Chairman of the Board, Chief Executive Officer and Director of Ny-Glass since June 1992, and Chairman of the Board and Director of API since June 1994. Mr. Gerlach was the Chairman of the Board and Chief Executive Officer of Gerlach Industries, Inc. from November 1983 to December 1986, and was the Chairman of the Board and Chief Executive Officer of Tannetics, Inc. from August 1969 to November 1983. From January 1987 to March 1988, Mr. Gerlach was self employed. Michael A. Hornak has been a Vice President of Calnetics since 1974 and a Director since 1984. Mr. Hornak has also been President of the Ny-Glass Plastics division of the Company since 1985, President, Chief Financial Officer and Director of Ny-Glass since June 1992, and was President of the Hydro Flight division of the Company from 1983 to 1985. Steven L. Strawn has been a Vice President of Calnetics since September 1989 and a Director since February 1992. Mr. Strawn has also been President and Director of Manchester since 1989 and has held various other positions with its predecessor, Manchester Products, from 1980 to 1989. Page 8 9 Teresa S. Louie has been with the Company since August 1973 and was appointed Treasurer of Calnetics in February 1992, and has held various offices with Calnetics including Assistant Treasurer, Assistant Secretary and Controller. Barbara Guyer joined Manchester in April 1985, was appointed Treasurer and Controller of Manchester in February 1992 and was appointed Secretary of Calnetics in May 1996. Lon Schultz is the founder, President and a Director of API. API was formed in 1973 and Mr. Schultz has been the Chief Executive Officer of API since the date of inception. Mr. Schultz has also been a Director of Story Plastics, Inc. since 1975. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. (a) Market Information Until June 19,1996, Calnetics Common Stock was traded on The Nasdaq Smallcap Market, but began trading on The Nasdaq National Market on June 20, 1996. The stock is quoted in the National Daily Quotation Service under the symbol CALN. The following table sets forth the high and low bid and asked quotations for the periods indicated. Quotations represent prices between dealers, without retail markups, markdowns or commissions and may not necessarily represent actual transactions. Common Stock price information (in dollars):
BID ASKED ---------------------------------------------- HIGH LOW HIGH LOW ----- ----- ----- ----- Year Ended June 30, 1996 First Quarter 4 3-3/4 4-3/4 4-1/2 Second Quarter 3-1/4 3 4-1/4 3-3/4 Third Quarter 4-3/4 4-1/2 5-1/8 5-1/8 Fourth Quarter 9-1/2 4-7/8 10-1/4 5-1/4 Year Ended June 30, 1995 First Quarter 3-1/4 2-3/4 3-1/2 3 Second Quarter 4 2-3/4 4-1/2 3 Third Quarter 5-3/4 3-1/4 6-1/4 3-3/4 Fourth Quarter 5-1/4 3-1/2 5-3/4 4
Page 9 10 (b) There were 310 shareholders of record as of August 15, 1996. Nasdaq National Market maintenance standards require that Calnetics has at least 400 shareholders or 300 shareholders of round lots. Based solely upon the number of sets of proxy materials requested by brokers, dealers and other entities for the 1995 Annual Meeting of Shareholders, Calnetics believes that the actual number of beneficial owners of Calnetics Common Stock is in excess of 600. (c) To date the Company has not paid any dividends, and the Company currently does not intend to pay any dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. The following table summarizes certain selected consolidated financial data of the Company for each of the years in the five-year period ended June 30, 1996. The selected consolidated financial data should be read in conjunction with (i) the Company's Consolidated Financial Statements and the Notes thereto as set forth in Item 14 below, and (ii) "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 below.
YEAR ENDED JUNE 30 (IN DOLLARS) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Net sales 35,193,973 29,172,106 17,996,617 16,564,448 13,570,6880 Net income 1,671,915 1,006,066 616,975 502,176 407,222 Earnings per 0.55 0.33 0.21 0.17 0.14 common share Capital 995,026 512,153 113,884 340,617 180,549 expenditures Total assets 18,686,292 17,122,578 16,376,776 7,484,777 7,894,373 Long-term 4,740,820 5,551,284 6,284,524 --- 234,375 debt Shareholders' 8,872,771 7,136,146 6,099,882 5,296,342 4,794,166 equity
Page 10 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. MANCHESTER ACQUISITION In September 1989, the Company acquired Manchester. The acquisition expanded the Company's operations to include the manufacturing of acrylic, polycarbonate and polystyrene plastic sheet that serves the building materials and industrial plastics industries. Prior to the acquisition, the Company was primarily engaged in the manufacturing of molded plastic components by injection, transfer and compression processes. PSI ACQUISITION On June 3, 1992, the Company acquired for cash substantially all of the assets of PSI, a manufacturer of plastic injection molding components located in Corona, California. The acquisition was accomplished through a subsidiary of the Company, Ny-Glass, which continued the business of PSI, under the Ny-Glass name in Corona, California. The cash purchase price paid for the assets acquired amounted to $320,100, $250,000 of which was obtained from a short-term bank loan, utilizing the Company's then existing credit line of $1,000,000. Current assets acquired as part of the acquisition amounted to $354,182 and current liabilities assumed totaled $306,081. API ACQUISITION In fiscal 1994, the Company completed the acquisition of all of the outstanding stock of API of Ontario, California from the API shareholders effective as of April 30, 1994. The purchase price was $4,402,144, consisting of cash of $4,000,102 and unsecured promissory notes payable to the former API shareholders of $402,042. API, which was a closely held private company, is a manufacturer of plastic water handling products, including tubing, filters and drip system accessories with manufacturing plants in Ontario, California and Winter Haven, Florida. Net assets acquired totaled $3,528,341, resulting in recording of goodwill of $873,803 which is being amortized on a straight-line basis over 20 years. CHANGE IN INVENTORY PRICING Effective July 1, 1994, the Company changed its method of pricing finished goods inventories at Manchester from FIFO to LIFO. The change in method was made to more properly match current expenses with revenues. Page 11 12 At June 30, 1996 and 1995, if the FIFO method had been used to value Manchester finished goods inventories, the stated value of inventories would have been approximately $421,000 and $408,000 higher, respectively, and the effect on 1996 and 1995 operations would have increased income before provision for income taxes by $13,000 and $408,000, respectively, and net income by $7,000 and $230,000, respectively. (See Note 3 to the Consolidated Financial Statements). RESULTS OF OPERATIONS 1996 COMPARED WITH 1995 Net sales for the fiscal year ended June 30, 1996 increased 21% from $29,172,106 to $35,193,973. The increase is attributed to broader customer acceptance of the Company's products proportionally obtained by all three subsidiaries. Cost of sales, as a percentage of sales, amounted to 74.6% for the twelve months ended June 30, 1996, as compared to 74.5% for the same period in the prior year. Selling, general and administrative expenses increased during the twelve months ended June 30, 1996 to $5,627,299, as compared with $5,187,534 for the same period in the prior fiscal year. The increase is attributed to the increased sales volume in 1996 as compared with 1995. Net income for the year ended June 30, 1996 amounted to $1,671,915 after provision for income taxes of $1,262,000, as compared with $1,006,066 after a provision for income taxes of $739,000 in the previous year. Income per share increased from $0.33 per share in 1995 to $0.55 per share in 1996. The increase in net income and income per share is primarily attributed to increased sales volume at all three subsidiaries. RESULTS OF OPERATIONS 1995 COMPARED WITH 1994 Net sales for the fiscal year ended June 30, 1995 increased 62% over the prior fiscal year from $17,996,617 to $29,172,106. The increase is principally attributed to the Company's ownership of API. API operating results were included for only two months in fiscal 1994 as compared to twelve months in fiscal 1995. Cost of sales, as a percentage of sales, decreased to 74.5% for the twelve months ended June 30, 1995, as compared to 75.7% for the same period in the prior year. The decrease is primarily attributed to the increased sales volume in 1995 as compared with 1994. Selling, general and administrative expenses increased during the twelve months ended June 30, 1995 to $5,187,534, as compared with $3,253,056 for the same period in the prior fiscal year. The increase is attributed to the increased sales volume in 1995 as compared with 1994 in large part due to the addition of API. Page 12 13 Net income for the year ended June 30, 1995 amounted to $1,006,066 after provision for income taxes of $739,000, as compared with $616,975 after a provision for income taxes of $522,000 in the previous year. Income per share increased from $0.21 per share in 1994 to $0.33 per share in 1995. The increase in net income and income per share is primarily attributed to increased sales volume primarily from the API acquisition. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the primary source of liquidity for the Company was cash generated from operations. Working capital at June 30, 1996 increased to $7,926,721 as compared with $7,234,385 at June 30, 1995, and current ratios were 2.6 and 2.7 at June 30, 1996 and 1995, respectively. Expenditures for property and equipment were $995,026 for the fiscal year ended June 30, 1996 as compared with $512,153 for the fiscal year ended June 30, 1995. The increase for the fiscal year ended June 30, 1996 was attributed to the purchase of approximately $500,000 of new injection molding equipment for Ny-Glass. The Company has no immediate plans for any significant capital expenditures in fiscal 1997. The Company believes that its available funds and internally generated cash from operations will be sufficient to meet its working capital needs in fiscal 1997. Certain loan agreements limit capital expenditures by the Company to $1,000,000 in 1997 and thereafter. The Company has a credit agreement with a bank under which the Company may borrow up to $2,500,000 on an unsecured basis. No borrowings were made against this credit line in fiscal 1996. The agreement expires on December 31, 1996 and bears interest at the bank's reference rate (8.25% at June 30, 1996). Although the impact of inflation is difficult to accurately assess, management of the Company does not believe that inflation has had a significant impact on the Company's net sales and revenues, or on income from continuing operations in the current period, or in the two preceding fiscal years. As part of the Company's business strategy, the Company frequently evaluates potential acquisitions of companies in the thermoplastics industry and in other industries which management believes offer significant growth opportunities. The Company has no present understanding or commitment with respect to any acquisition. The Company expects to finance any future acquisitions through either cash flow from operations, borrowings under existing or future credit facilities, the issuance of debt or equity securities or a combination of the foregoing. The Company may also consider the issuance of long-term convertible subordinated debentures or the issuance of convertible preferred stock to enhance long-term liquidity. Page 13 14 ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA. The financial statements are listed under Part IV, Item 14 in this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS OF THE COMPANY The information under "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1996 Proxy Statement is incorporated herein by this reference. EXECUTIVE OFFICERS OF THE COMPANY The "Executive Officers of the Company" are discussed under Part I, Item 4A of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information under the captions "Information Regarding the Board of Directors," "Committees" and "Executive Compensation" in the 1996 Proxy Statement is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the caption "Ownership of Certain Beneficial Owners and Management" in the 1996 Proxy Statement is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under "Certain Transactions and Other Matters" in the 1996 Proxy Statement is incorporated herein by this reference. Page 14 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 1. EXHIBITS See Index to Exhibits set forth in this form 10-K following the financial statements below.
reference to this Form 10-K 2. FINANCIAL STATEMENT SCHEDULES Independent Auditors' Report 16 Consolidated Balance Sheets, June 30, 1996 and 1995 17 Consolidated Statements of Income and Retained Earnings for the Years Ended June 30, 1996, 1995 and 1994 19 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1996, 1995 and 1994 20 Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 21 Notes to Consolidated Financial Statements 23 Schedule II - Valuation and Qualifying Accounts 33
SCHEDULES OMITTED: Schedules not listed above are omitted because of the absence of conditions under which they are required or because the information is included in the financial statement named above or in the notes thereto. 3. REPORTS ON FORM 8-K During the quarter ended June 30, 1996, the Company did not file a Form 8-K. Page 15 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Directors and Shareholders of Calnetics Corporation: We have audited the accompanying consolidated balance sheets of CALNETICS CORPORATION (a California Corporation) and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calnetics Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California July 24, 1996 Page 16 17 CALNETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 1,877,633 $ 1,580,974 Accounts receivable, net of allowances of $316,000 and $263,000 in 1996 and 1995, respectively 4,997,471 4,448,526 Inventories 5,470,710 4,962,037 Prepaid expenses 254,608 312,996 Deferred income taxes 342,000 272,000 ----------- ----------- Total current assets 12,942,422 11,576,533 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 466,288 466,288 Buildings and leasehold improvements 2,269,525 2,204,992 Machinery and equipment 4,587,322 3,752,505 Furniture and fixtures 248,220 224,251 ----------- ----------- 7,571,355 6,648,036 Less--Accumulated depreciation and amortization 3,399,998 2,776,164 ----------- ----------- 4,171,357 3,871,872 ----------- ----------- OTHER ASSETS: Goodwill, net of accumulated amortization of $331,638 and $259,938 in 1996 and 1995, respectively 1,401,268 1,472,968 Deposits and other assets 171,245 201,205 ----------- ----------- 1,572,513 1,674,173 ----------- ----------- $18,686,292 $17,122,578 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. Page 17 18 CALNETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995 LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995 ----------- ----------- CURRENT LIABILITIES: Current portion of long-term debt $ 247,187 $ 338,000 Accounts payable 3,214,786 2,800,655 Accrued liabilities 756,050 707,503 Accrued compensation and benefits 411,657 437,797 Income taxes payable 386,021 58,193 ----------- ----------- Total current liabilities 5,015,701 4,342,148 ----------- ----------- LONG-TERM DEBT, net of current portion 4,740,820 5,551,284 ----------- ----------- DEFERRED INCOME TAXES 57,000 93,000 ----------- ----------- COMMITMENTS (Note 7) SHAREHOLDERS' EQUITY: Preferred stock: Authorized--2,000,000 shares Issued and outstanding--0 shares - - Common stock, no par value: Authorized--20,000,000 shares Issued and outstanding--2,959,799 and 2,914,799 shares in 1996 and 1995, respectively 2,462,345 2,397,635 Retained earnings 6,410,426 4,738,511 ----------- ----------- Total shareholders' equity 8,872,771 7,136,146 ----------- ----------- $18,686,292 $17,122,578 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. Page 18 19 CALNETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
1996 1995 1994 ----------- ----------- ---------- NET SALES $35,193,973 $29,172,106 $17,996,617 COST OF SALES 26,252,121 21,739,246 13,628,257 ----------- ----------- ----------- Gross profit 8,941,852 7,432,860 4,368,360 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,627,299 5,187,534 3,253,056 ----------- ----------- ----------- Income from operations 3,314,553 2,245,326 1,115,304 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Gain on sale of property and equipment 5,950 6,500 760 Interest and other income 29,803 27,345 65,127 Interest expense (416,391) (534,105) (42,216) ----------- ----------- ----------- (380,638) (500,260) 23,671 ----------- ----------- ----------- Income before provision for income taxes 2,933,915 1,745,066 1,138,975 PROVISION FOR INCOME TAXES 1,262,000 739,000 522,000 ----------- ----------- ----------- Net income $ 1,671,915 $ 1,006,066 $ 616,975 =========== =========== =========== Earnings per common share and common share equivalent $ .55 $ .33 $ .21 =========== =========== =========== Weighted average number of shares outstanding 3,057,984 3,030,283 2,921,854 =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. Page 19 20 CALNETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
Common Stock ----------------------- Total Shares Retained Shareholders' Outstanding Amount Earnings Equity BALANCE, June 30, 1993 2,793,799 $2,180,872 $3,115,470 $5,296,342 Net income - - 616,975 616,975 Exercise of stock options 90,000 81,565 - 81,565 Shares issued for services 10,000 20,000 - 20,000 Extension of stock option term (Note 8) - 85,000 - 85,000 --------- ---------- ---------- ---------- BALANCE, June 30, 1994 2,893,799 2,367,437 3,732,445 6,099,882 Net income - - 1,006,066 1,006,066 Exercise of stock options 21,000 30,198 - 30,198 --------- ---------- ---------- ---------- BALANCE, June 30, 1995 2,914,799 2,397,635 4,738,511 7,136,146 Net income - - 1,671,915 1,671,915 Exercise of stock options 45,000 64,710 - 64,710 --------- ---------- ---------- ---------- BALANCE, June 30, 1996 2,959,799 $2,462,345 $6,410,426 $8,872,771 ========= ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. Page 20 21 CALNETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
1996 1995 1994 ---------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,671,915 $1,006,066 $ 616,975 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 758,591 704,497 444,833 Provision for doubtful accounts 98,338 93,531 52,521 Gain on sale of property, plant and equipment (5,950) (6,500) (760) Provision (benefit) for deferred income taxes (106,000) (64,000) 24,000 Common stock issued for services - - 20,000 Extension of stock option term - - 85,000 Change in operating assets and liabilities, net of effects from acquisitions: Decrease (increase) in: Accounts receivable (647,283) (287,260) 589,945 Inventories (508,673) (785,506) (28,860) Prepaid expenses 58,388 (164,599) 75,472 Deposits and other assets 29,960 (26,429) (66,232) Increase (decrease) in: Accounts payable 414,131 839,630 (656,529) Accrued liabilities and compensation and benefits 22,407 (84,661) 518,890 Income taxes payable 327,828 (137,773) 178,000 ---------- ---------- ----------- Net cash provided by operating activities 2,113,652 1,086,996 1,853,255 ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment 14,600 6,500 4,000 Purchases of property, plant and equipment (995,026) (512,153) (113,884) Cash used in acquisitions - - (4,000,102) ---------- ---------- ----------- Net cash used in investing activities (980,426) (505,653) (4,109,986) ---------- ---------- -----------
Page 21 22 - 2 -
1996 1995 1994 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments under line of credit agreement $ - $ - $ (100,000) Proceeds from long-term debt - - 4,500,000 Repayments of long-term debt (901,277) (883,658) (897,887) Net proceeds from issuance of common stock 64,710 30,198 81,565 ---------- ---------- ---------- Net cash provided by (used in) financing activities (836,567) (853,460) 3,583,678 ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 296,659 (272,117) 1,326,947 CASH AND CASH EQUIVALENTS, beginning of year 1,580,974 1,853,091 342,723 CASH OF ACQUIRED ENTITY - - 183,421 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, end of year $1,877,633 $1,580,974 $1,853,091 ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. Page 22 23 CALNETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 1. Basis of Presentation Calnetics Corporation (the Company) is engaged in manufacturing operations through three wholly owned subsidiaries: Manchester Plastics, Co., Inc. (Manchester), located in Chatsworth, California, primarily manufactures proprietary products consisting of acrylic, polycarbonate and polystyrene plastic sheets for the building material and industrial plastics industries. Ny-Glass Plastics, Inc. (Ny-Glass), located in Corona, California, manufactures custom plastic injection molding components for original equipment manufacturers and high-quality, close-tolerance molded plastic components for a wide variety of industries. Approximately one-fifth of its production is proprietary, consisting of products for the electronic, computer, automotive and other high-tech industries. Agricultural Products, Inc. (API), located in Ontario, California and Winter Haven, Florida, manufactures and distributes various irrigation hoses, fittings and other products primarily for the agriculture industry. 2. Acquisition Effective April 30, 1994, the Company acquired all of the outstanding stock of API for $4,402,144, which included a cash payment of $4,000,102 obtained from long-term bank financing and $402,042 in notes payable to the former API shareholders. The API acquisition was accounted for using the purchase method of accounting, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values as follows:
Cash $ 183,421 Accounts receivable 2,491,788 Inventories 1,532,340 Other current assets 124,529 Property, plant and equipment, net 3,273,197 Goodwill and noncurrent assets 897,812 Current liabilities (1,840,121) Long-term debt (2,260,822) ----------- $ 4,402,144 ===========
Page 23 24 The results of operations of API from April 30, 1994 have been included in the accompanying consolidated financial statements. The following summarized unaudited pro forma financial information assumes the acquisition occurred on July 1, 1993:
Year Ended June 30, 1994 ---------- (Unaudited) Net sales $26,849,000 =========== Net income $ 699,000 =========== Earnings per common share $ .24 ===========
3. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Credit Risk The Company's accounts receivable are unsecured and the Company is at risk to the extent such amounts become uncollectible. Customers are located primarily throughout the United States. Revenue Recognition Revenue on product sales is recognized at the time of shipment. Page 24 25 Inventories Inventories include costs of materials, labor and manufacturing overhead, are stated at the lower of cost or market using the first-in, first-out (FIFO) and the last-in, first-out (LIFO) methods. The LIFO method is used for the finished goods inventory at Manchester and totals approximately $1,901,000. Inventories consist of the following:
1996 1995 ---------- ---------- Raw materials $2,661,261 $2,402,121 Finished goods 2,809,449 2,559,916 ---------- ---------- $5,470,710 $4,962,037 ========== ==========
Effective July 1, 1994, the Company changed its method of pricing finished goods inventories at Manchester from FIFO to LIFO. The change in method was made to more properly match current expenses with revenues. At June 30, 1996 and 1995, if the FIFO method had been used to value Manchester finished goods inventories, the stated value of inventories would have been approximately $421,000 and $408,000 higher, respectively, and the effect on 1996 and 1995 operations would have increased income before provision for income taxes by $13,000 and $408,000, respectively, and net income by $7,000 and $230,000, respectively. Property, Plant and Equipment Property, plant and equipment are stated at cost. The Company follows the policy of capitalizing expenditures which materially increase asset lives and charging ordinary maintenance and repairs to operations as incurred. Amounts expensed as maintenance and repairs were approximately $336,000, $370,000 and $163,000 in 1996, 1995 and 1994, respectively. When assets are sold or disposed of, the cost and related depreciation are removed from the accounts and any resulting gain or loss is included in income. Property, plant and equipment are depreciated and amortized using the straight-line and accelerated methods over the following useful lives:
Buildings and improvements 7 - 31.5 years Leasehold improvements term of lease Machinery and equipment 3 - 7 years Furniture and fixtures 5 - 7 years
Page 25 26 Goodwill Goodwill resulted from the purchase of Manchester during 1989 and the purchase of API in 1994. It is being amortized on a straight-line basis over 30 years and 20 years, respectively. Statements of Cash Flows For the purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity date of 90 days or less to be cash and cash equivalents. Cash paid for income taxes was approximately $1,041,000, $932,000 and $330,000 in 1996, 1995 and 1994, respectively. Cash paid for interest was approximately $445,000, $511,000 and $31,000 in 1996, 1995 and 1994, respectively. Earnings Per Common Share Earnings per common share and common share equivalent are based on the weighted average number of shares of common stock and common stock equivalents (dilutive stock options) outstanding during the related periods. The weighted average number of common stock equivalent shares includes shares issuable upon the assumed exercise of stock options, less the number of shares assumed purchased with the proceeds available from such exercise. Fully diluted net income per share does not differ materially from net income per common share and common share equivalent. Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the short maturity of these financial instruments. The carrying amounts of long-term debt approximate fair value because either interest rates fluctuate based on market rates or interest rates appear to approximate market rates for similar instruments. New Authoritative Pronouncements In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which applies the fair value-based method of accounting for stock-based compensation plans. In accordance with the recently issued standard, the Company expects to continue to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Beginning for fiscal year end June 30, 1997, the Company will adopt the appropriate disclosure requirements of SFAS No. 123. Reclassifications Certain amounts in the 1995 and 1994 financial statements have been reclassified to conform to the 1996 financial statement presentation. Page 26 27 4. Line of Credit The Company has a $2,500,000 unsecured line of credit with a bank. At June 30, 1996, the entire amount was available under this credit arrangement, which expires on December 31, 1996. Borrowings under this facility bear interest at the bank's reference rate (8.25 percent at June 30, 1996). The line of credit agreement includes certain restrictive covenants which are discussed in Note 5 below. 5. Long-Term Debt At June 30, 1996 and 1995, long-term debt consists of the following:
1996 1995 ---------- ------------ Term loans payable to banks, unsecured, interest at the banks' reference rate (8.25 percent at June 30, 1996) plus .75 percent, due in various monthly installments of principal and interest through July 1, 1999, with balloon payments totaling $1,458,462 due on August 1, 1999 $2,949,948 $3,683,316 Industrial revenue bond payable, principal due in annual sinking fund installments ranging from $15,000 to $130,000 through December 2021, plus interest due monthly based on the Issuer's Weekly Adjustable Interest Rates for Revenue Bonds (3.4 percent at June 30, 1996), secured by a standby letter of credit issued by a bank with an annual fee of 1.25 percent 1,440,000 1,455,000 Loans payable to former API shareholders, unsecured, interest payable semi-annually at 7.50 percent, principal payable in four equal annual installments beginning June 1996 301,532 402,042 Mortgage payable to bank, secured by the related building and land, principal payable in monthly installments of $1,665 plus interest at the bank's prime rate (8.25 percent at June 30, 1996) plus .75 percent, with a balloon payment of $201,415 due on March 5, 2000 274,687 294,663 Other 21,840 54,263 ---------- ------------ 4,988,007 5,889,284 Less--Current portion of long-term debt 247,187 338,000 ---------- ------------ $4,740,820 $5,551,284 ========== ==========
Page 27 28 The following is a schedule of future principal payments of long-term debt as of June 30, 1996:
1997 $ 247,187 1998 799,779 1999 835,217 2000 1,750,824 2001 25,000 Thereafter 1,330,000 ---------- $4,988,007 ==========
The line of credit agreement (see Note 4), term loans and notes payable include certain restrictive financial and non-financial covenants, including certain cash restrictions and limitations on payment of cash dividends and redemption of stock. At June 30, 1996, the Company was in compliance with all bank covenants. 6. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred income tax assets or liabilities are computed based on the temporary difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. The components of the deferred income tax asset at June 30, 1996 and 1995 are as follows:
1996 1995 -------- ------ Allowance for bad debts $127,000 $106,000 Vacation accrual 56,000 56,000 State taxes 103,000 51,000 Inventory reserve 30,000 30,000 Warranty reserve 26,000 26,000 Other - 3,000 -------- -------- $342,000 $272,000 ======== ========
The primary component of the deferred income tax liability at June 30, 1996 and 1995 was accelerated tax depreciation. Page 28 29 The components of the provision (benefit) for income taxes for the years ended June 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ---------- ---------- -------- Current - Federal $1,048,000 $ 621,833 $392,437 - State 320,000 181,167 105,563 ---------- ---------- -------- 1,368,000 803,000 498,000 ---------- ---------- -------- Deferred - Federal (90,000) (49,000) 19,000 - State (16,000) (15,000) 5,000 ---------- ---------- -------- (106,000) (64,000) 24,000 ---------- ---------- -------- Provision for income taxes $1,262,000 $739,000 $522,000 ========== ======== ========
The components of the provision (benefit) for deferred income taxes for the years ended June 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994 --------- --------- -------- Allowance for doubtful accounts $ (21,000) $(23,000) $ 9,000 Depreciation (40,000) (4,000) 43,000 Accrued expenses and reserves - (27,000) (12,000) State taxes (52,000) (12,000) (6,000) Other 7,000 2,000 (10,000) --------- -------- -------- $(106,000) $(64,000) $ 24,000 ========= ======== ========
A reconciliation of income taxes at the statutory federal income tax rate and the provisions for income taxes for the years ended June 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994 -------------- ------------- ------------- Amount % Amount % Amount % Income tax at statutory federal rate $ 997,531 34.0% $593,322 34.0% $387,252 34.0% State and local income taxes, net of federal income tax effect 180,084 6.1 106,449 6.1 69,477 6.1 Amortization of goodwill 35,033 1.2 35,033 2.0 30,310 2.7 Other items, net 49,352 1.7 4,196 0.2 34,961 3.0 ---------- ---- -------- ---- -------- ---- $1,262,000 43.0% $739,000 42.3% $522,000 45.8% ========== ==== ======== ==== ======== ====
Page 29 30 7. Commitments Employment Agreement In June 1994, the Company entered into a three-year employment agreement with a key employee. The agreement states that if the employee dies or becomes disabled or is terminated for cause (as defined in the agreement) during the employment period, the employee or the employee's beneficiary will receive certain fixed payments as defined in the agreement. Non-Competition Agreement In June 1994, the Company entered into a non-competition agreement with the former shareholders of API. The agreement expires in June 1999. Purchase Agreement In June 1994, the Company entered into a four-year purchase agreement with one of its vendors. The minimum purchase quantities are based on historical purchase trends as defined in the agreement and the purchase price of the parts will be the list price as set forth in the agreement and as adjusted in the future based on the mutual agreement of the parties. Lease Commitments The Company leases certain office and manufacturing facilities and equipment under noncancelable operating leases which expire at various dates through May 2002. The aggregate minimum future lease payments under these leases at June 30, 1996 are approximately as follows:
1997 $ 708,000 1998 705,000 1999 715,000 2000 388,000 2001 147,000 Thereafter 135,000 ---------- $2,798,000 ==========
Rental expense charged to operations was approximately $700,000, $641,000 and $595,000 for the years ended June 30, 1996, 1995 and 1994, respectively. Page 30 31 8. Employee Stock Options In 1988, the Company established an Employee Stock Option Plan under which options to purchase a total of 275,000 shares of common stock may be granted to certain employees as determined by the Company's Board of Directors. Options granted under this plan vest in equal amounts on the first and second anniversary dates of the granting of the options. The Company extended the expiration date for one year on 1988 options to acquire 85,000 shares. This extension resulted in additional compensation expense of $85,000 in 1994. At June 30, 1996, options to acquire 79,000 shares are outstanding and exercisable under this plan, expiring at various dates through July 24, 1997. In 1993, the Company established the 1993 Stock Option Plan, which provides for granting options to purchase up to 250,000 shares of the Company's common stock to employees, officers, directors and consultants of the Company. The 1993 plan is a non-statutory stock option plan and options to purchase 150,000 shares have been granted and are outstanding under this plan at June 30, 1996. Options granted to purchase 100,000 shares expire on March 1, 2003 and vest in three equal amounts on March 1, 1995, 1996 and 1997. The remaining option granted to purchase 50,000 shares (granted in fiscal 1995) expires on July 18, 2004 and vests in three equal amounts on July 19, 1995, 1996 and 1997. In fiscal 1995, the Board of Directors approved the establishment of the 1995 Stock Option Plan, which will provide for granting options to purchase up to 250,000 shares of the Company's common stock. At June 30, 1996, 162,335 options were exercisable under all plans. All options have been granted at prices equal to the fair market value of the common stock at the grant date. A summary of option activities for all plans is as follows:
Number Option of Shares Prices --------- --------------- Balance, June 30, 1994 245,000 $1.438 to 2.000 Granted 50,000 3.000 Exercised (21,000) 1.438 -------- --------------- Balance, June 30, 1995 274,000 1.438 to 3.000 Exercised (45,000) 1.438 -------- --------------- Balance, June 30, 1996 229,000 $1.438 to 3.000 ======= ===============
Page 31 32 9. Employee Benefit Plans API provides a profit-sharing plan and 401(k) plan for its employees. The Board of Directors can authorize discretionary contributions with no required minimum contribution. API's contribution to the profit-sharing plan for the periods ended June 30, 1996 and 1995 was $120,000 for each period. There were no API contributions to the 401(k) plan for the periods ended June 30, 1996 and 1995. 10. Unaudited Quarterly Results Unaudited quarterly results of operations for each of the quarters in the three years ended June 30, 1996 are presented below:
First Second Third Fourth Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- Year ended June 30, 1996 Net sales $8,772,000 $7,627,000 $9,090,000 $9,705,000 Gross profit 1,965,000 1,797,000 2,345,000 2,835,000 Net income 296,000 271,000 444,000 661,000 Earnings per share .10 .09 .14 .22 1995 Net sales $6,647,000 $6,275,000 $7,705,000 $8,545,000 Gross profit 1,590,000 1,579,000 1,992,000 2,272,000 Net income 170,000 179,000 280,000 377,000 Earnings per share .06 .06 .09 .12 1994 Net sales $3,938,000 $3,656,000 $4,100,000 $6,303,000 Gross profit 833,000 855,000 870,000 1,810,000 Net income 108,000 123,000 135,000 251,000 Earnings per share .04 .04 .05 .08
Page 32 33 SCHEDULE II CALNETICS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
Balance Additions at Charged Deductions Balance Beginning to from at End of of Period Expense Allowance Other Period --------- ------- --------- ----- ------ Allowance for doubtful accounts: Year ended June 30, 1996 $263,015 $98,338 $45,353 $ - $316,000 ======== ======= ======= ======= ======== Year ended June 30, 1995 $197,525 $93,531 $28,041 $ - $263,015 ======== ======= ======= ======= ======== Year ended June 30, 1994 $141,399 $52,521 $76,395 $80,000(a) $197,525 ======== ======= ======= ======= ========
(a) Represents Agricultural Products, Inc.'s allowance for doubtful accounts balance at the date of acquisition. Page 33 34 INDEX TO EXHIBITS
Number Description - ------ ----------- 3.1 Amended and Restated Articles of Incorporation of Calnetics (Exhibit 3.1 to Form 10-K filed September 25, 1989). 3.2 Bylaws of Calnetics (Exhibit 1.2 to Form 10-K filed September 21, 1978). 3.3 Amendment to Bylaws of Calnetics (Exhibit 3 to Form 8 filed September 28, 1989). 10.1 Lease dated November 22, 1989 between Manchester and Tom Schneider and Arlene Schneider and Amendment to said lease dated December 5, 1989 (Exhibit 10.12 to Form 10-K dated June 30, 1991). 10.2 Lease dated June 2, 1992 by and between Honey Protas and Ny-Glass (Exhibit 10.19 to Form 10-K dated June 30, 1992). 10.3 Addendum No. 1 to Lease dated June 2, 1992 (Exhibit 10.20 to Form 10-K dated June 30, 1992). 10.4 Lease Guaranty Agreement entered into as of June 2, 1992 by Calnetics (Exhibit 10.21 to Form 10-K dated June 30, 1992). 10.5 Memorandum of Lease with Right of First Refusal and Option to Purchase dated May 22, 1992 (Exhibit 10.22 to Form 10-K dated June 30, 1992). 10.6 Side Letter Agreement re Standard Industrial Commercial Single Tenant Lease by and between Honey Protas as lessor and Ny-Glass as lessee dated May 22, 1992 (Exhibit 10.23 to Form 10-K dated June 30, 1992).
Page 34 35
10.7 Calnetics Corporation 1988 Employee Stock Option Plan (Exhibit 10.25 to Form 10-K dated June 30, 1993). 10.8 Calnetics Corporation 1993 Nonstatutory Stock Option Plan (Exhibit 10.26 to Form 10-K dated June 30, 1993). 10.9 Business Loan Agreement dated June 28, 1993 among Bank of America National Trust and Savings Association, Calnetics, Manchester and Ny-Glass (Exhibit 10.27 to Form 10-K dated June 30, 1993). 10.10 First Amendment to Business Loan Agreement of June 28, 1993 dated as of June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester and Ny-Glass (Exhibit 10.17 to Form 10-K dated June 30, 1994). 10.11 Stock Purchase Agreement among Calnetics and the Selling Shareholders of API effective as of April 30, 1994. (Exhibit 2 to Form 8-K filed June 24, 1994). 10.12 Business Loan Agreement dated June 20, 1994 among The Bank of California, N.A., Calnetics, Manchester, Ny-Glass and API (Exhibit 10.19 to Form 10-K dated June 30, 1994). 10.13 Security Agreement (Receivables and Inventory) dated June 20, 1994 between Calnetics and The Bank of California, N.A. (Exhibit 10.20 to Form 10-K dated June 30, 1994). 10.14 Security Agreement (Receivables and Inventory) dated June 20, 1994 between Ny-Glass and The Bank of California, N.A. (Exhibit 10.21 to Form 10-K dated June 30, 1994). 10.15 Security Agreement (Receivables and Inventory) dated June 20, 1994 between Manchester and The Bank of California, N.A. (Exhibit 10.22 to Form 10-K dated June 30, 1994).
Page 35 36
10.16 Security Agreement (Receivables and Inventory) dated June 20, 1994 between API and The Bank of California, N.A. (Exhibit 10.23 to Form 10-K dated June 30, 1994). 10.17 Term Loan Note dated June 20, 1994 among The Bank of California, N.A., Calnetics, Manchester, Ny-Glass and API (Exhibit 10.24 to Form 10-K dated June 30, 1994). 10.18 Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.25 to Form 10-K dated June 30, 1994). 10.19 Security Agreement dated June 20, 1994 between Calnetics and Bank of America National Trust and Savings Association (Exhibit 10.26 to Form 10-K dated June 30, 1994). 10.20 Security Agreement dated June 20, 1994 between Ny-Glass and Bank of America National Trust and Savings Association (Exhibit 10.27 to Form 10-K dated June 30, 1994). 10.21 Security Agreement dated June 20, 1994 between Manchester and Bank of America National Trust and Savings Association (Exhibit 10.28 to Form 10-K dated June 30, 1994). 10.22 Security Agreement dated June 20, 1994 between API and Bank of America National Trust and Savings Association (Exhibit 10.29 to Form 10-K dated June 30, 1994). 10.23 Noncompetition and Noninterference Agreement dated June 20, 1994 among Calnetics, API and Lon Schultz, individually and as trustee of the Lon Schultz Charitable Remainder Unitrust (Exhibit 10.31 to Form 10-K dated June 30, 1994). 10.24 Employment Agreement dated June 20, 1994 between API and Lon Schultz, an individual (Exhibit 10.32 to Form 10-K dated June 30, 1994).
Page 36 37
10.25 Parts Purchase and Supply Agreement dated June 20, 1994 between API and Story Plastics, Inc., a California corporation (Exhibit 10.33 to Form 10-K dated June 30, 1994). 10.26 Loan Agreement dated December 31, 1991 between California Statewide Communities Development Authority and API (Exhibit 10.34 to Form 10-K dated June 30, 1994). 10.27 Reimbursement Agreement dated December 1, 1991 between API and Union Bank (Exhibit 10.35 to Form 10-K dated June 30, 1994). 10.28 Standby Reimbursement Agreement dated December 1, 1991 between API and The Bank of California, N.A. (Exhibit 10.36 to Form 10-K dated June 30, 1994). 10.29 Sixth Amendment to the Standby Reimbursement Agreement of December 1, 1991 dated July 1, 1994 (Exhibit 10.37 to Form 10-K dated June 30, 1994). 10.30 Renewal/Consolidation Promissory Note and Security Agreement dated March 13, 1992 between API as borrower and First Union National Bank of Florida as lender (Exhibit 10.38 to Form 10-K dated June 30, 1994). 10.31 Amendment dated November 30, 1994 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API. (Exhibit 10.25 to Form 10-K dated June 30, 1994). 10.32 Mortgage Modification, Consolidation, Spreader, and Extension Agreement dated March 31, 1995 among First Union National Bank of Florida, API and Calnetics. (Exhibit 10.32 to Form 10-K Dated June 30, 1995). 10.33 API Profit Sharing Plan Adoption Agreement dated November 21, 1991 (Exhibit 10.39 to Form 10-K dated June 30, 1994).
Page 37 38
10.34 API 401(k) Plan Adoption Agreement effective as of January 1, 1993 (Exhibit 10.40 to Form 10-K dated June 30, 1994). 10.35 Nonstatutory Stock Option Agreement between Calnetics and Michael A. Hornak dated February 28, 1994 (Exhibit 10.41 to Form 10-K dated June 30, 1994). 10.36 Nonstatutory Stock Option Agreement between Calnetics and Steven L. Strawn dated February 28, 1994 (Exhibit 10.42 to Form 10-K dated June 30, 1994). 10.37 Nonstatutory Stock Option Agreement between Calnetics and Lon Schultz dated July 18, 1994 (Exhibit 10.37 to Form 10-K dated June 30, 1995). 10.38* Amendment No.2 dated December 21, 1995 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API. (Exhibit 10.25 to Form 10-K dated June 30, 1994). 10.39* Amendment No.3 dated June 28, 1996 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API. (Exhibit 10.25 to Form 10-K dated June 30, 1994). 10.40* 1995 Employee Stock Option Plan Dated September 27, 1995 21* Subsidiaries of the Company (Exhibit 22 to Form 10-K Dated June 30, 1994). 27* Financial Data Schedule
- ------------------------------------------------------------------------------ * Filed herewith Page 38 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALNETICS CORPORATION
By: /s/ Teresa S. Louie Dated: September 3, 1996 ----------------------------------------- ------------------- Teresa S. Louie Treasurer
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Clinton G. Gerlach Dated: September 3, 1996 - --------------------------------------------- ------------------- Clinton G. Gerlach Chairman of the Board, President Director /s/ Peter H. Griffith Dated: September 3, 1996 - ----------------------------------------------- ------------------- Peter H. Griffith Director /s/ Fred E. Edward Dated: September 3, 1996 - --------------------------------------------- ------------------- Fred E. Edward Director /s/ Michael A. Hornak Dated: September 3, 1996 - -------------------------------------------- ------------------- Michael A. Hornak Vice President, Director /s/ Steven L. Strawn Dated: September 3, 1996 - -------------------------------------------- ------------------- Steven L. Strawn Vice President, Director /s/ Teresa S. Louie Dated: September 3, 1996 - --------------------------------------------- ------------------- Teresa S. Louie Treasurer (Principal Financial and Accounting Officer)
Page 39 EX-10.38 2 AM #2 TO BUSINESS LOAN AGREEMENT 1 Exhibit 10.38 Bank of America Amendment to Documents AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT This Amendment No. 2 (the "Amendment") dated as of December 21, 1995, is among Bank of America National Trust and Savings Association (the "Bank") and Calnetics Corporation ("Borrower 1"), Manchester Plastics Co., Inc. ("Borrower 2"), NY-Glass Plastics, Inc. ("Borrower 3") and Agricultural Products, Inc. ("Borrower 4") (Borrower 1, Borrower 2, Borrower 3 and Borrower 4 are sometimes referred to collectively as the "Borrowers" and individually as the "Borrower") . RECITALS A. The Bank and the Borrowers entered into a certain Business Loan Agreement dated as of June 20, 1994, as previously amended (the "Agreement") . B. The Bank and the Borrowers desire to further amend the Agreement. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 In Paragraph 1A.1(a) of the Agreement, the amount "Two Million Five Hundred Thousand dollars ($2,500,000)" is substituted for the amount "Two Million Dollars ($2,000,000)". 2.2 In Paragraph 1A.2 of the Agreement, the date "December 31, 1996" is substituted for the date "December 30, 1995". 2.3 Paragraph 1A.3(a) of the Agreement is amended to read in its entirety as follows: "(a) The interest rate if the Bank's Reference Rate." 2.4 In Paragraph 2.1(a) of the Agreement, the amount "Two Hundred Thousand Dollars ($200,000)" is substituted for the amount "One Hundred Thirty Thousand dollars ($130,000)". 2.5 Paragraph 3.2 of the Agreement is amended to read in its entirety as follows: "3.2 RELEASE OF COLLATERAL. If (i) the Borrowers' total liabilities to tangible net worth is less than 1.50:1.00, as evidenced by financial statements of the Borrowers' delivered to the Bank, (ii) there are no defaults hereunder, and (iii) the Bank has received satisfactory evidence that The Bank of California N.A. ("Bank Cal") has released its security interest in all collateral of the Borrowers excluding only the collateral of Borrower 4 securing Borrower 4's reimbursement obligations in respect of a standby letter of credit issued by Bank Cal and subject to Bank Cal's agreement that it may only realize proceeds of receivables up to a maximum of Five Hundred Thousand Dollars ($500,000), then the Bank will release the collateral required under paragraph 3.1 of this Agreement within a reasonable period following receipt of such financial statements and evidence of the release of collateral." - ------------------------------------------------------------------------------- AmendL (10/92) -1- 003091-10062 Page 40 2 2.6 Paragraph 7.5 of the Agreement is amended to read in its entirety as follows: "7.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain on a consolidated basis, a ratio of total liabilities to tangible net worth not exceeding 3.00:1.00, from and including the date hereof to but excluding the date of any release of collateral under Paragraph 3.2 of this Agreement, and not exceeding 2.00:1.00 thereafter. This ratio will be calculated on the last day of each fiscal quarter of the Borrowers. "Total liabilities" means the sum of current liabilities plus long term liabilities." 2.7 Paragraph 7.6 of the Agreement is amended to read in its entirety as follows: "7.6 CASH FLOW RATIO. To maintain quarterly on a consolidated basis, a cash flow of at least 1.25:1.00, as calculated on the last day of each such quarter. "Cash flow ratio" means the ratio of cash flow to the aggregate of the current portion of long term debt. "Cash flow" is defined as consolidated net income after taxes, plus depreciation and other net non-cash charges plus the assurance of stock, less gain on sale of assets, dividends, withdrawals, treasury stock purchases and capital expenditures, the sum of which is divided by the aggregate of the current portion of long term debt. This ratio will be calculated at the end of each fiscal quarter, using fiscal year-to-date results on an annualized basis. The current portion of long term debt will be measured as of the last day of the current quarter." 2.8 Paragraph 7.9 of the Agreement is amended to read in its entirety as follows: "7.9 CAPITAL EXPENDITURES. With respect to all Borrowers on an aggregate basis, not to spend or incur obligations (excluding capital leases) to acquire fixed or capital assets for more than Seven Hundred Fifty Thousand Dollars ($750,000) in any single fiscal year." 3. CONDITIONS. This Amendment will not be effective until the Bank has received the following: (a) A copy of this Amendment, duly executed by Borrower; and (b) A written consent to the terms of this Amendment, duly executed by The Bank of California, N.A. 4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. - ------------------------------------------------------------------------------- AmendL (10/92) -2- 003091-10062 Page 41 3 This Amendment is executed as of the date stated at the beginning of this Amendment. BANK OF AMERICA National Trust and Savings Calnetics Corporation Association X /s/ Janet K. Trout X /s/ Steven L. Strawn --------------------------------- --------------------------------- By: Janet K. Trout, Vice President By: Steven L. Strawn, Vice President X /s/ Clinton G. Geriach --------------------------------- By: Clinton G. Geriach, Chairman of the Board and President Manchester Plastics Co., Inc. X /s/ Steven L. Strawn --------------------------------- By: Steven L. Strawn, President X /s/ Clinton G. Geriach --------------------------------- By: Clinton G. Geriach Chairman of the Board NY-Glass Plastics, Inc. X /s/ Michael A. Hornak --------------------------------- By: Michael A. Hornack, President X /s/ Clinton G. Geriach --------------------------------- By: Clinton G. Geriach Chairman of the Board Agricultural Products, Inc. X /s/ Lon Schultz --------------------------------- By: Lon Schultz, President X /s/ Clinton G. Geriach --------------------------------- By: Clinton G. Geriach Chairman of the Board - ------------------------------------------------------------------------------ AmendL (10/92) -3- 003091-10062 Page 42 EX-10.39 3 AM #3 TO BUSINESS LOAN AGREEMENT 1 Exhibit 10.39 AMENDMENT NO.3 TO BUSINESS LOAN AGREEMENT This Amendment No. 3 to Business Loan Agreement (this "Amendment") is entered into as of June 28, 1996, is among Bank of America National Trust and Savings Association (the "Bank"), and Calnetics Corporation ("Borrower 1"), Manchester Plastics Co., Inc. ("Borrower 2"), NY-Glass Plastics, Inc. ("Borrower 3") and Agricultural Products, Inc. ("Borrower 4") (Borrower 1, Borrower 2, Borrower 3 and Borrower 4 are sometimes referred to collectively as, the "Borrowers" and, individually, as the "Borrower"). RECITALS A. The Bank and the Borrowers are parties to that certain Business Loan Agreement dated as of June 20, 1994, as modified by amendments dated as of November 30, 1994, and December 21, 1995 (as amended, the "Loan Agreement"). B. The parties hereto now desire to amend the Loan Agreement on the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings ascribed to them in the Loan Agreement. 2. Amendments. The Loan Agreement shall be amended as follows: "2.1 Paragraph 7.9 is amended and restated in its entirety to read as follows: "7.9 Capital Expenditures. With respect to all Borrowers on an aggregate basis, not to spend or incur obligations (excluding capital leases) to acquire fixed or capital assets for more than One Million Dollars ($1,000,000) in any single fiscal year." 3. Conditions. This Amendment will not be effective until the Bank has received the following: (a) A copy of this Amendment, duly executed by the Borrowers; and (b) A copy of a fully executed amendment between the Borrowers and The Bank of California, N.A., amending the loan agreement among such parties on substantially the same terms and conditions as provided in this Amendment. -1- Page 43 2 4. Representations and Warranties. Borrowers represent and warrant to Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Loan Agreement, (b) the representations and warranties in the Loan Agreement are true as of the date of this Amendment as if made on the date hereof, (c) this Amendment is within each Borrower's powers, has been duly authorized, and does not conflict with any Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which any Borrower is bound. 5. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. BANK OF AMERICA NATIONAL CALNETICS CORPORATION TRUST AND SAVINGS ASSOCIATION By: /s/ Janet K. Trout By: /s/ Steven L. Strawn --------------------------- --------------------------- Janet K. Trout Steven L. Strawn Title: Vice President Title: Vice President By: /s/ Clinton G. Gerlach --------------------------- Clinton G. Gerlach Title: Chairman of the Board and President MANCHESTER PLASTICS CO., INC. By: /s/ Steven L. Strawn --------------------------- Steven L. Strawn Title: President By: /s/ Clinton G. Gerlach --------------------------- Clinton G. Gerlach Title: Chairman of the Board (Signatures continue) -2- Page 44 3 NY-GLASS PLASTICS, INC. By: /s/ Michael A. Hornak --------------------------- Michael A. Hornak Title: President By: /s/ Clinton G. Gerlach --------------------------- Clinton G. Gerlach Title: Chairman of the Board AGRICULTURAL PRODUCTS, INC. By: /s/ Lon Schultz --------------------------- Lon Schultz Title: President By: /s/ Clinton G. Gerlach --------------------------- Clinton G. Gerlach Title: Chairman of the Board Certified to be a true and correct copy By: /s/ Janet K. Trout ------------------------------------ Janet K. Trout, VP -3- Page 45 EX-10.40 4 1995 EMPLOYEE STOCK OPTION PLAN 1 Exhibit 10.40 PROPOSAL 2 APPROVAL OF 1995 EMPLOYEE STOCK OPTION PLAN GENERAL The Company's Board of Directors has adopted the 1995 Employee Stock Option Plan (the "1995 Plan") effective as of June 14, 1995, subject to approval by the Company's shareholders. Approval of the 1995 Plan requires the affirmative vote of a majority of the outstanding shares of Common Stock of the Company represented and voting in person or by proxy at the Annual Meeting or any adjournments or postponements thereof. The Board of Directors unanimously recommends that the shareholders vote FOR approval of the 1995 Plan. The following is a summary of principal features of the 1995 Plan, and is qualified in its entirety by reference to the full text of such plan: PURPOSE AND ELIGIBILITY The purpose of the 1995 Plan is to promote the interests of the Company, its subsidiaries and its shareholders by using incentive stock options (stock options representing the right to purchase Common Stock of the Company that qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) to attract and retain key personnel, to encourage and reward their contributions to the performance of the Company, and to align their interests with the interests of the Company's shareholders. Any officer or employee of the Company is eligible to be granted options under the 1995 Plan. There are approximately 220 such officers and employees currently eligible to participate in the 1995 Plan. 9 Page 46 2 ADMINISTRATION The 1995 Plan shall be administered by a committee (the "Stock Option Committee") appointed by the Board of Directors which shall consist of three Board members, each of whom shall be "disinterested" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. Subject to the provisions of the 1995 Plan, the Stock Option Committee shall have the full and final power in its discretion to select the eligible persons to whom options shall be granted under the 1995 Plan, to determine the terms of such options, including the number of shares issued pursuant thereto, to construe the 1995 Plan and any options thereunder, to determine all questions arising thereunder, to adopt and amend rules to regulate the 1995 Plan and to otherwise carry out the terms of the 1995 Plan. PARTICIPATION BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES The determine of which eligible persons (including executive officers) will receive options under the 1995 Plan and the number of shares underlying such options will be made by the Stock Option Committee in its sole discretion. Accordingly, future option grants to be received by executive officers and other employees under the 1995 Plan are not currently determinable. SECURITIES SUBJECT TO THE PLAN No more than 250,000 shares of Common Stock may be issued upon exercise of options granted under the 1995 Plan. The number of shares of Common Stock available under the 1995 Plan in general, as well as the number of shares for which issued or unissued options may be exercised and the exercise price per share of options will be proportionately adjusted to reflect any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of shares, stock dividends, stock splits, and similar capital stock transactions. The Company's Common Stock is traded in the over-the-counter market and is quoted in the National Daily Quotation Service, under the symbol "CALN." On August 25, 1995, the closing bid for the Company's Common stock was $4-1/2. No options have been granted to date under the 1995 Plan. VESTING, EXERCISE AND TERM Options granted under the 1995 Plan shall vest and may be exercised as determined by the Stock Option Committee. The exercise price of any option granted shall not be less than that amount necessary to enable the option to qualify as an incentive stock option (generally, 100% of fair market value of the Company's Common Stock on the date of grant). Options granted under the 1995 Plan may be exercised at any time after they vest and before their expiration. The term of an option may be for up to ten years from the date the option was granted, as determined by the Stock Option Committee, subject to earlier termination due to termination of the employment of the option holder. 10 Page 47 3 PLAN EFFECTIVENESS AND DURATION The 1995 Plan became effective June 14, 1995, subject to shareholder approval, and will continue (unless earlier terminated by the Board of Directors or the Stock Option Committee) until its expiration on June 14, 2005. Such expiration will not effect any option previously made or granted which is then outstanding. AMENDMENT AND TERMINATION The Board of Directors or the Stock Option Committee may at any time terminate or amend the 1995 Plan. No such termination will affect options previously granted, nor may any amendment make any change in any option previously granted which adversely affects the rights of any participant without their consent, nor may any amendment be made without shareholder approval if such amendment would materially increase the number of shares subject to the 1995 Plan, extend the final date on which options may be exercised, materially modify employee eligibility for participation requirements, or materially increase benefits which may accrue to participants under the 1995 Plan. FEDERAL INCOME TAX CONSEQUENCES Pursuant to the 1995 Plan, employees may be granted options which are intended to qualify as incentive stock options under Section 422 of the Code. In general, an optionee is not taxed and the Company is not entitled to a deduction on the grant or exercise of an incentive stock option. However, if the optionee sells the shares acquired upon exercise of an incentive stock option at any time within (a) one year after the date of transfer of shares to the optionee pursuant to exercise of such incentive stock option or (b) two years after the date of grant of such incentive stock option, then the optionee will recognize ordinary income in an amount equal to the excess, if any, of the lesser of the sale price of the shares or the fair market value of the shares on the date of exercise over the exercise price of such incentive stock option. In such case, the Company will generally be entitled to a tax deduction in an amount equal to the amount of ordinary income recognized by such optionee. The amount by which the fair market value of the shares received upon exercise of an incentive stock option exceeds the exercise price will be included as a positive adjustment in the calculation of an optionee's "alternative minimum taxable income" in the year of exercise. 11 Page 48 EX-21 5 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARY STATE OF INCORPORATION Agricultural Products, Inc. California Manchester Plastics Co., Inc. California NY-Glass Plastics, Inc. California Page 49 EX-27 6 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1 1,877,633 0 5,313,471 316,000 5,470,710 12,942,422 7,571,355 3,399,998 18,686,292 5,015,701 4,740,820 0 0 2,462,345 6,410,426 18,686,292 35,193,973 35,193,973 26,252,121 26,252,121 0 98,338 416,391 2,933,915 1,262,000 0 0 0 0 1,671,915 .55 .55
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