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Keystone Automotive Industries Inc – IPO: ‘424B4’ on 6/21/96

As of: Friday, 6/21/96 · Accession #: 912057-96-12821 · File #: 333-03994

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/21/96  Keystone Automotive Inds Inc      424B4                  1:201K                                   Merrill Corp/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                            58    337K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Acquisitions and Service Center Additions Additional Information Automotive Body Parts Business Capitalization Certain Provisions in the Company's Articles and Bylaws Certain Transactions Competition Competitive Strengths Consolidation Crowell, Weedon & Co Dependence on Key and Foreign Suppliers Description of Capital Stock Dilution Dividend Policy Experts Ford Litigation Government Regulation and Environmental Hazards Growth Strategy Industry Overview Legal Matters Liquidity and Capital Resources Management Management's Discussion and Analysis of Financial Condition and Results of Operations Morgan Keegan & Company, Inc Notes to Financial Statements Offering, The Principal and Selling Shareholders Prospectus Summary Report of Independent Auditors Risk Factors Selected Financial Data Shares Eligible for Future Sale Stock Incentive Plan Suppliers The Offering Underwriting Use of proceeds Variability of Quarterly Results and Seasonality
1	1st Page - Filing Submission
"	Morgan Keegan & Company, Inc
4	Prospectus Summary
6	The Offering
8	Risk Factors
"	Competition
"	Dependence on Key and Foreign Suppliers
9	Variability of Quarterly Results and Seasonality
10	Shares Eligible for Future Sale
"	Dilution
11	Use of proceeds
"	Dividend Policy
13	Capitalization
14	Selected Financial Data
15	Management's Discussion and Analysis of Financial Condition and Results of Operations
17	Liquidity and Capital Resources
19	Business
"	Industry Overview
20	Consolidation
21	Competitive Strengths
22	Growth Strategy
"	Acquisitions and Service Center Additions
23	Automotive Body Parts
25	Suppliers
"	Government Regulation and Environmental Hazards
26	Ford Litigation
27	Management
29	Stock Incentive Plan
33	Certain Transactions
34	Crowell, Weedon & Co
36	Principal and Selling Shareholders
37	Description of Capital Stock
"	Certain Provisions in the Company's Articles and Bylaws
40	Underwriting
41	Legal Matters
"	Experts
42	Additional Information
44	Report of Independent Auditors
49	Notes to Financial Statements

424B4 1st Page of 58 TOC ↑Top Previous Next ↓Bottom Just 1st
PROSPECTUS

2,700,000 SHARES
[Logo] KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

COMMON STOCK
------------

Of the 2,700,000 shares of Common Stock being offered hereby, 1,500,000
shares are being offered by Keystone Automotive Industries, Inc. ("Keystone" or
the "Company") and 1,200,000 shares are being offered by certain shareholders
(the "Selling Shareholders"). See "Principal and Selling Shareholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders.

Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. See "Underwriting" for information relating to
the factors considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "KEYS," subject to official notice of issuance.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

[Download Table]

UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS

Per Share............... $9.00 $0.63 $8.37 $8.37
Total(3)................ $24,300,000 $1,701,000 $12,555,000 $10,044,000

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated to be $650,000 payable by the Company.

(3) The Selling Shareholders have granted the Underwriters a 30-day option from
the date of this Prospectus to purchase up to 405,000 additional shares of
Common Stock on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Selling Shareholders will be $27,945,000, $1,956,150 and $13,433,850,
respectively. If such option is exercised, the Company will not receive any
of the proceeds from the sale of such shares by the Selling Shareholders.
See "Underwriting."

----------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the Underwriters' right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the shares of Common
Stock offered hereby will be made on or about June 26, 1996.

----------------

MORGAN KEEGAN & COMPANY, INC. CROWELL, WEEDON & CO.

THE DATE OF THIS PROSPECTUS IS JUNE 20, 1996

424B4 2nd Page of 58 TOC 1st Previous Next ↓Bottom Just 2nd
"[Logo] Providing A Competitive Choice To The Collision Repair Industry Since
1947"

(Map of the continental United States showing the locations of the regional
hubs,
service centers and manufacturing facilities of the Company)

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

424B4 3rd Page of 58 TOC 1st Previous Next ↓Bottom Just 3rd
(Clockwise from top)
"Steel and Plastic Bumpers"
(Photograph of steel and plastic bumpers)
"Radiators and Condensers"
(Photograph of radiators and condensers)
"Automotive Body Parts"
(Photograph of automotive body parts)
"Automotive Paint and Body Supplies"
(Photograph of automotive paint and body supplies)
"Keystone Route Salesperson"
(Photograph of Keystone route salesperson)

424B4 4th Page of 58 TOC 1st Previous Next ↓Bottom Just 4th
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS REFLECTS A 3.8467-FOR-1 STOCK SPLIT EFFECTED IN APRIL 1996 AND
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS."

THE COMPANY

Keystone Automotive Industries, Inc. ("Keystone" or the "Company") is the
nation's leading distributor of aftermarket collision replacement parts produced
by independent manufacturers for automobiles and light trucks. Keystone
distributes its products primarily to collision repair shops throughout most of
the United States. The Company's product lines consist of automotive body parts,
bumpers, autoglass and remanufactured alloy wheels, as well as the paint and
other materials used in repairing a damaged vehicle. Keystone sells
approximately 13,000 different stock keeping units to over 17,000 collision
repair shops out of an estimated 48,000 shops nationwide. Founded in Southern
California in 1947, the Company operates a "hub and spoke" distribution system
consisting of 41 service centers of which six serve as regional hubs. The
Company's service centers are located in 24 states in the West, Midwest,
Northeast and South, as well as in Tijuana, Mexico. From these service centers,
Keystone's 250 professionally trained salespersons call on an average of 4,000
collision repair shops per day. In addition, the Company has two facilities
which remanufacture collision damaged alloy wheels and one facility which
recycles chrome bumpers.

For the fiscal year ended March 29, 1996, Keystone generated record revenues
of $115.3 million, operating income of $6.7 million before certain charges and
net income of $3.1 million. These results represented increases of approximately
13.5%, 33.7% and 120.9%, respectively, over revenues of $101.6 million,
operating income of $5.0 million before certain charges and net income of $1.4
million in fiscal 1995. For fiscal 1996 and 1995, the Company generated
increases in comparable service center sales of 10% and 19%, respectively. This
growth has been due primarily to a combination of (i) the acquisition of smaller
distributors both in the Company's existing markets and new geographic markets,
(ii) the expansion of existing product lines and the introduction of new product
lines and (iii) increased demand for aftermarket collision parts.

The Aftermarket Body Parts Association ("ABPA"), the principal industry
trade group, estimates that the wholesale market for aftermarket collision parts
in the United States and Canada has grown since its inception in the early 1980s
to between $800 million and $1.2 billion in annual expenditures, or
approximately 10% of the collision parts market. Substantially all of the
remainder of the collision parts market consists of parts produced by original
equipment manufacturers ("OEMs"), which prior to 1980 were the sole source of
all collision parts. Aftermarket collision parts generally sell for between 20%
and 40% less than comparable OEM parts. The market for aftermarket collision
parts has grown primarily due to the increasing availability of such parts and
cost containment efforts by the insurance industry. Industry sources estimate
that approximately 80% of all automobile collision repair work in the United
States is covered in part by insurance.

The aftermarket collision parts distribution industry is highly fragmented
and is consolidating. The Company's competitors generally are independently
owned distributors operating from one to three locations. As a result of the
increasing number of aftermarket collision parts and makes and models of
automobiles, there is increasing pressure on distributors to maintain larger
inventories. In addition, the trend towards larger, more efficient collision
repair shops has increased the pressure on distributors to provide price
concessions, just-in-time delivery and value-added services, including training,
that collision repair shops require in their increasingly complex and
competitive industry. As a result of its competitive strengths, the Company
believes that it is better positioned than its generally smaller competitors to
meet the demands of its customers.

424B4 5th Page of 58 TOC 1st Previous Next ↓Bottom Just 5th
Keystone believes that its growth in sales and earnings has been and will
continue to be driven by its competitive strengths, which include the following:

- LEADING MARKET POSITION. The Company believes that its market position
and distribution system enable it to offer its customers one of the
broadest available selections of aftermarket collision parts, just-in-time
delivery, lower prices due to volume purchasing, worldwide product
sourcing, priority access to new products and superior technical
expertise.

- RELATIONSHIP WITH INSURANCE COMPANIES. Since the founding of its business
in 1947, the Company has fostered its relationship with insurance
companies whose efforts to contain the escalating costs of collision
repairs have been a principal factor in the growth of the market for
aftermarket collision parts.

- EXPERIENCED MANAGEMENT. Keystone's executive officers have been employed
by the Company for an average of over 24 years, and the Company's service
center managers for an average of over nine years. The experience and
tenure of the Company's personnel and the relationships they have
established over the years with collision repair shop operators have been
instrumental in the growth of the Company.

- ENTREPRENEURIAL CORPORATE CULTURE. The manager of each service center is
responsible for its day-to-day operations and is eligible to earn a bonus
of up to 100% of base salary based on the financial performance of the
service center.

- SUPERIOR CUSTOMER SERVICE. The Company strives to develop every aspect of
its business to provide responsive customer service and to foster close
customer relations. In particular, the Company maintains large inventories
of parts to meet diverse customer requirements, provides prompt delivery
of customer orders, usually within 24 hours, by professionally trained
route salespersons and has a policy of complete customer satisfaction
backed by a limited warranty of parts for as long as the repair shop's
customer owns the repaired vehicle.

- MANAGEMENT INFORMATION AND OTHER SYSTEMS. The Company uses proprietary
computerized order taking, inventory control and management information
systems in an effort to achieve additional operating efficiencies and a
higher level of customer service.

The Company intends to continue increasing its market share through an
integrated strategy of acquisitions, the introduction of new product lines and
the expansion of its existing product lines. Since April 1992, the Company has
acquired 19 service centers, of which five have been consolidated with existing
locations and three have been closed, and has opened three additional service
centers. The Company seeks to acquire well-established local distributors with
strong management and significant market share either to expand into new
geographic markets or to increase its penetration of existing markets. Keystone
also continually expands its existing product lines as additional aftermarket
collision parts become available. Since April 1991, the Company has introduced
such additional products as paint and related supplies and equipment, radiators
and condensers, head and tail lamp assemblies, autoglass and remanufactured
alloy wheels.

The Company's principal executive offices are located at 700 East Bonita
Avenue, Pomona, California 91767, and its telephone number is (909) 624-8041.

424B4 6th Page of 58 TOC 1st Previous Next ↓Bottom Just 6th
THE OFFERING

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Common Stock offered by the Company..................... 1,500,000 shares
Common Stock offered by the Selling Shareholders........ 1,200,000 shares(1)
Common Stock to be outstanding after the Offering....... 7,300,000 shares(2)
Use of proceeds......................................... The net proceeds will be used to
pay down the Company's line of
credit with a bank and in
connection with the proposed
acquisition of seven additional
service centers. Subsequent to the
Offering, the Company intends to
use its line of credit for general
corporate purposes and the
acquisition of service centers.
The Company will not receive any
proceeds from the sale of shares
by the Selling Shareholders. See
"Use of Proceeds."
Nasdaq National Market symbol........................... KEYS

------------
(1) See "Principal and Selling Shareholders."

(2) Excludes 730,000 shares reserved for issuance under the Company's stock
incentive plan. See "Management -- Stock Incentive Plan."

424B4 7th Page of 58 TOC 1st Previous Next ↓Bottom Just 7th
SUMMARY FINANCIAL AND OPERATING DATA
(In thousands, except share and per share amounts and operating data)

[Enlarge/Download Table]

FISCAL YEAR(1)
-----------------------------------------------------
1992 1993 1994 1995(2) 1996
--------- --------- --------- --------- ---------

STATEMENT OF INCOME DATA:
Net sales.......................................... $ 75,234 $ 77,320 $ 84,884 $ 101,596 $ 115,326
Gross profit....................................... 28,706 30,062 33,688 40,064 45,080
Certain charges(3)................................. 1,726 958 1,092 1,790 393
Operating income................................... 2,151 883 1,777 3,203 6,285
Net income......................................... 789 78 516 1,406 3,106
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share(4)..................... $ 0.13 $ 0.01 $ 0.09 $ 0.24 $ 0.54
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding(4)(5)... 5,862,909 5,862,755 5,862,755 5,805,166 5,800,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OPERATING DATA (UNAUDITED):
Number of service centers
Starting sites................................... 27 30 40 38 42
Sites acquired................................. -- 12 -- 5 2
Sites opened................................... 3 -- -- -- --
Sites consolidated............................. -- 2 -- 1 2
Sites closed................................... -- -- 2 -- 1
Ending sites..................................... 30 40 38 42 41
Comparable service center sales increase
(decrease)(6).................................... 4% (8)% 8% 19% 10%

[Enlarge/Download Table]

MARCH 29, 1996
--------------------------
ACTUAL AS ADJUSTED(7)
--------- ---------------

BALANCE SHEET DATA:
Working capital........................................................................ $ 10,319 $ 22,224
Total assets........................................................................... 43,035 46,040
Total current liabilities.............................................................. 26,711 17,811
Long-term debt, less current maturities................................................ 813 813
Shareholders' equity................................................................... 15,475 27,380

------------
(1) All references in this Prospectus to fiscal 1992 through fiscal 1996 are to
the fiscal years ended March 27, 1992, March 26, 1993, March 25, 1994, March
31, 1995 and March 29, 1996, respectively.

(2) Fiscal 1995 contained 53 weeks.

(3) Certain charges represent certain general and administrative expenses which
are unusual or non-recurring in nature, consisting of compensation pursuant
to the Company's expired Restricted Stock Option Plan, compensation for the
founding shareholders whose compensation terminated with their retirement
effective March 31, 1996, contributions to the Company's Employee Stock
Ownership Plan (the "ESOP") and a payment made in settlement of litigation.
Operating income before certain charges was $3,877,000, $1,841,000,
$2,869,000, $4,993,000 and $6,678,000 in fiscal 1992, 1993, 1994, 1995 and
1996, respectively. See "Selected Financial Information."

(4) All share and per share amounts have been adjusted retroactively for a
3.8467-for-1 stock split effected on April 16, 1996.

(5) Includes Common Stock equivalents attributable to stock options outstanding,
which are not material.

(6) Comparable service center sales have been computed using sales of service
centers that were open during both fiscal years being compared.

(7) Adjusted to give effect to the sale of the 1,500,000 shares offered by the
Company at $9.00 per share and the anticipated use of the estimated net
proceeds therefrom, including the repayment of indebtedness. See "Use of
Proceeds" and "Capitalization."

424B4 8th Page of 58 TOC 1st Previous Next ↓Bottom Just 8th
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS,
TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

ACQUISITION STRATEGY AND INTEGRATION OF ADDITIONAL SERVICE CENTERS. A
principal component of the Company's growth strategy is to acquire smaller
distributors operating in markets in which the Company currently operates, as
well as in new geographic markets. Since April 1992, the Company has completed
eight acquisitions of a total of 19 service centers, of which five have been
consolidated with existing locations and three have been closed, and has opened
three additional service centers. The Company's ability to maintain or exceed
its historical growth rate will depend in large part on its ability to execute
successfully its acquisition strategy. The successful execution of this strategy
will depend on the Company's ability to identify and to compete for appropriate
acquisition candidates, to consummate such acquisitions on terms favorable to
the Company (including obtaining acquisition financing, if necessary), to retain
and expand the sales and profitability of the acquired centers and to integrate
acquired centers into its financial and reporting control and data processing
systems. The success of the Company's acquisition strategy also is subject to
the Company's ability to anticipate the changes that continued growth would
impose on these systems and management. There can be no assurance that the
Company will be successful in executing its strategy. Although the Company
regularly evaluates new geographic markets and potential acquisition candidates,
and believes that numerous acquisition opportunities exist due to the
preponderance of small local and regional competitors, as of the date of this
Prospectus, there were no existing commitments or agreements with respect to any
acquisition, other than as described in "Business -- Growth Strategy --
Acquisitions and Service Center Additions."

COMPETITION. Based upon industry estimates, the Company believes that 85%
of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and 5% by distributors of salvage
parts. The Company encounters intense competition from OEMs, all of which have
substantially greater financial, distribution, marketing and other resources,
including greater brand recognition and a broader selection of collision parts
than the Company. Accordingly, OEMs are in a position to exert pricing and other
competitive pressures on the Company. The distribution industry for aftermarket
collision parts is highly fragmented. The Company's competitors generally are
independently owned distributors operating from one to three locations. The
Company expects to encounter significant competition in the future from OEMs,
automobile dealerships, distributors of salvage parts, buying groups and other
large distributors. See "Business -- Competition."

DEPENDENCE ON KEY AND FOREIGN SUPPLIERS. The Company is dependent on a
small number of suppliers. For fiscal 1996, the Company's ten largest suppliers
accounted for approximately 60% of the products purchased by the Company.
Although alternative suppliers exist for substantially all products distributed
by the Company, the loss of any one supplier could have a material adverse
effect on the Company until alternative suppliers are located and have commenced
providing products. During fiscal 1996, the Company imported approximately 33%
of its products, substantially all of which were imported from Taiwan. As a
result, the Company's operations are subject to the customary risks of doing
business abroad, including, among other things, transportation delays, political
instability, expropriation, currency fluctuations and the imposition of tariffs,
import and export controls or quotas, as well as the uncertainty regarding the
future relationship between China and Taiwan. Any significant disruption in the
Taiwanese sources of supply or in the Company's relationship with its suppliers
located in Taiwan could have a material adverse effect on the Company. The
percentage of imported products may decline in the future if sales of autoglass,
paint and other materials and equipment and remanufactured alloy wheels, all of
which are manufactured in the United States, continue to grow. The Company
purchases products from foreign suppliers in United States dollars and,
accordingly, its results of operations could be materially and adversely
affected by a devaluation in the dollar. See "Business -- Suppliers."

ACCEPTANCE OF AFTERMARKET COLLISION PARTS. Although the market for
aftermarket collision parts is estimated to have grown since its inception in
the early 1980s to between $800 million and $1.2 billion in annual expenditures
in 1995, the Company's business is highly dependent upon the continued
acceptance of such parts by insurers, collision repair shops, consumers and
governmental agencies. In particular, the availability of aftermarket collision
parts has been a major factor in the insurance industry's ability and efforts

424B4 9th Page of 58 TOC 1st Previous Next ↓Bottom Just 9th
to contain the escalating costs of collision repairs. Based upon industry
sources, the Company estimates that approximately 80% of automobile collision
repair work is covered in part by insurance. Accordingly, the Company's business
is highly dependent upon the continued acceptance of aftermarket collision parts
by the insurance industry. See "Business -- Industry Overview" and "Business --
Ford Litigation."

CONSOLIDATION OF COLLISION REPAIR SHOPS. The collision repair shop industry
is in the process of consolidation. The trend towards larger, more efficient
collision repair shops will increase the competition among distributors for the
remaining accounts and the pressure on distributors to provide price concessions
and just-in-time delivery, maintain larger inventories and offer training and
other value-added services, which may have a material adverse effect on the
Company's sales and profitability. See "Business -- Industry Overview."

REDUCTION IN NUMBER OF COLLISION REPAIR JOBS. Management believes that the
number of collision repair jobs has declined over the past several years, and
may continue to do so, due to, among other things, automotive safety
improvements, more rigorous enforcement of stricter drunk driving laws,
resulting in fewer accidents and the increase in unit body construction and
higher collision repair costs, resulting in a larger number of automobiles being
declared a total loss in lieu of being repaired. The continuation of this
decline may have a material adverse effect on the Company. See "Business --
Industry Overview -- Consolidation."

VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY. The Company has
experienced, and expects to continue to experience, a substantial variation in
its sales and profitability from quarter to quarter due, in part, to the
seasonal nature of the Company's business and the timing and integration of
acquisitions. The number of collision repair jobs is dependent on the weather.
Accordingly, the Company's sales generally are highest during the five month
period between December and April. Other factors which influence quarterly
variations include the reduced number of business days during the holiday
seasons, the timing of the introduction of new products, the level of consumer
acceptance of new products, general economic conditions that affect consumer
spending, the timing of supplier price changes and the timing of expenditures in
anticipation of increased sales and customer delivery requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Variability of Quarterly Results and Seasonality."

RELIANCE ON KEY PERSONNEL. The success of the Company depends to a great
extent on the efforts of its executive officers, including Virgil K. Benton II,
Charles J. Hogarty and Al A. Ronco. The loss of the services of any such person,
or the failure of the Company to attract and retain other qualified personnel,
could have a material adverse effect on the Company's operations. Although the
Company has entered into three-year employment agreements with Messrs. Benton,
Hogarty and Ronco, such agreements may be ineffective in retaining the services
of such officers and do not restrict them from competing with the Company in the
event of a termination of employment. In addition, although the Company has been
successful in retaining the services of its senior management to date, there can
be no assurance that the Company will be able to do so in the future. See
"Business -- Competitive Strengths."

COMPLIANCE WITH GOVERNMENT REGULATIONS; ENVIRONMENTAL HAZARDS. The Company
and its customers are subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health Administration
and the United States Environmental Protection Agency (the "EPA"), have
jurisdiction over the operations of the Company with respect to matters
including worker safety, community and employee "right-to-know" laws, and laws
regarding clean air and water. Under various federal, state and local laws and
regulations, an owner or lessee of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner or lessee knew of, or was responsible for, the presence of
such hazardous or toxic substances. The Company does not currently generate
substantial hazardous waste in the ordinary course of its business. The Company
believes it currently is in substantial compliance with all applicable laws and
regulations, and is not aware of any material environmental problem at any of
its current or former facilities. No assurance can be given, however, that the
Company's prior activities, or the activities of a prior owner or lessee, have
not created a material environmental problem or that future uses or conditions
(including, without limitation, changes in

424B4 10th Page of 58 TOC 1st Previous Next ↓Bottom Just 10th
applicable laws and regulations) will not result in the imposition of material
environmental liability upon the Company. Furthermore, compliance with
legislative or regulatory changes may cause future increases in the Company's
operating costs or otherwise adversely affect operations. Certain of the
Company's products, such as paints and solvents, are highly flammable.
Accordingly, the storage and transportation of these materials expose the
Company to the inherent risk of fire. See "Business -- Government Regulation and
Environmental Hazards."

CONTROL BY EXISTING SHAREHOLDERS AND ANTI-TAKEOVER PROVISIONS. Upon the
sale of the 2,700,000 shares of Common Stock offered hereby, and assuming that
the Company's existing shareholders do not purchase any shares in this Offering,
the Company's existing shareholders will own in the aggregate approximately 63%
of the Company's outstanding Common Stock (57.5% if the Underwriters'
overallotment option is exercised in full). These existing shareholders will
remain in a position to elect a majority of the directors and to approve or
disapprove any matter submitted to a vote of the shareholders and, accordingly,
to exercise significant control over the policies and operations of the Company.
The ownership positions of the existing shareholders, together with the
anti-takeover effect of certain provisions in the California General Corporation
Law and in the Company's Restated Articles of Incorporation and Bylaws, may have
the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price of the Common Stock and may adversely affect the market price
of the Common Stock. See "Principal and Selling Shareholders" and "Description
of Capital Stock."

NO PRIOR MARKET; VOLATILITY OF STOCK PRICE. Prior to this Offering, there
has been no market for the Common Stock, and there can be no assurance that an
active market will develop or be sustained. The trading price of the Common
Stock could be subject to significant fluctuations in response to quarterly
variations in the Company's actual or anticipated operating results, changes in
general market conditions and other factors. In recent years, significant price
and volume fluctuations have occurred in the stock prices of companies, which
often have been unrelated or disproportionate to their operating performance.
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price of the Common Stock has been determined by negotiations among the Company,
the Selling Shareholders and the Representatives of the Underwriters. See
"Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE. Upon the completion of this Offering,
there will be 7,300,000 shares of Common Stock outstanding. Of these shares, the
2,700,000 shares sold in this Offering will be freely tradeable without
restriction, except for any shares purchased by an "affiliate" of the Company.
The remaining 4,600,000 shares of Common Stock are "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). The Company and each of its directors,
officers and existing shareholders (other than the ESOP) have agreed, for a
period of 270 days from the date of this Prospectus, not to sell or otherwise
dispose, directly or indirectly, of any shares of Common Stock in the public
market, without the prior consent of the Representatives. As a result,
commencing 270 days after the completion of this Offering (91 days after
completion of this Offering with respect to the 1,578,335 shares held by the
ESOP), the 4,600,000 restricted shares of Common Stock will be eligible for sale
in the public market pursuant to Rule 144. The market price of the Company's
Common Stock could be materially and adversely affected by the sale or
availability for sale of shares now held by the existing shareholders of the
Company or of shares which may be issued under the Company's stock incentive
plan. See "Management -- Stock Incentive Plan," "Description of Capital Stock --
Shares Eligible for Future Sale" and "Underwriting."

DILUTION. Purchasers in this Offering will incur an immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. Without taking into account any changes in net
tangible book value after March 29, 1996, other than to give effect to the sale
by the Company of 1,500,000 shares of Common Stock in this Offering, based upon
the initial public offering price of $9.00 per share and after deducting the
underwriting discounts and commissions and the estimated offering expenses, the
net tangible book value of the Company at March 29, 1996 would have been
approximately $26.8 million, or $3.68 per share. This represents an immediate
increase in net tangible book value of $1.11 per share to the existing
shareholders and an immediate net tangible book value dilution of $5.32 per
share to purchasers in this Offering. See "Dilution."

424B4 11th Page of 58 TOC 1st Previous Next ↓Bottom Just 11th
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by it in this Offering, after deducting
offering expenses, are estimated to be $11.9 million, at the initial public
offering price of $9.00 per share. The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders.

The Company intends to use approximately $8.9 million of the net proceeds of
the Offering to pay down the Company's indebtedness under its revolving line of
credit with a bank, which indebtedness was incurred for general corporate
purposes and acquisitions, and to use approximately $3.0 million to pay a
portion of the purchase price of an acquisition, if consummated, of the
inventory, locations, accounts receivable and equipment of a distributor of
aftermarket collision parts currently operating seven service centers which the
Company is negotiating to acquire. The aggregate purchase price of these assets
is estimated to be approximately $4.0 million, payable approximately $3.0
million at closing and the balance over two years, together with interest at the
prime rate. For a description of the proposed acquisition of additional service
centers, see "Business -- Growth Strategy -- Acquisitions and Service Center
Additions." At March 29, 1996, the outstanding balance under the Company's
revolving bank line of credit was $12.3 million, $6.3 million of which bears
interest at the lender's reference rate (8.25% at March 29, 1996) plus 0.25% and
$6.0 million of which bears interest at LIBOR (5.695% at March 29, 1996) plus
1.5%. The line of credit expires on August 1, 1997. The amounts repaid under
such line of credit will be reborrowed from time to time and may be used,
together with the remaining net proceeds, if any, for general corporate
purposes, including to finance the growth of new product lines and the
acquisition of service centers. See "Business -- Growth Strategy." For further
information with respect to the Company's line of credit, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and Note 2 of Notes to Financial Statements.

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings to provide funds for the
operation and expansion of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors, and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, general business conditions and restrictions in credit
agreements. The Company's line of credit currently prohibits the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

424B4 12th Page of 58 TOC 1st Previous Next ↓Bottom Just 12th
DILUTION

At March 29, 1996, the net tangible book value of the Company was
approximately $14.9 million, or $2.57 per share of Common Stock. Net tangible
book value per share represents total tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding. Net tangible book
value dilution represents the difference between the amount per share paid by
purchasers in this Offering and the net tangible book value per share after the
Offering. Without taking into account any changes in net tangible book value
after March 29, 1996, other than to give effect to the sale by the Company of
1,500,000 shares of Common Stock in this Offering, based upon the initial public
offering price of $9.00 per share and after deducting the underwriting discount
and the estimated offering expenses, the net tangible book value of the Company
at March 29, 1996 would have been approximately $26.8 million, or $3.68 per
share. This represents an immediate increase in net tangible book value of $1.11
per share to the existing shareholders and an immediate net tangible book value
dilution of $5.32 per share to purchasers in this Offering, as illustrated by
the following table.

[Download Table]

Initial public offering price................................. $ 9.00
Net tangible book value per share at March 29, 1996......... $ 2.57
Increase in net tangible book value per share attributable
to new investors........................................... 1.11
---------
Net tangible book value per share after this Offering......... 3.68
---------
Dilution to new investors..................................... $ 5.32
---------
---------

The following table summarizes as of March 29, 1996, the differences between
the number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by the existing
shareholders and to be paid by the investors purchasing shares of Common Stock
in this Offering before deducting the underwriting discounts and estimated
offering expenses.

[Enlarge/Download Table]

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------

Existing shareholders (1).............. 5,800,000 79.5% $ 218,240 1.6% $ 0.03
New investors.......................... 1,500,000 20.5% 13,500,000 98.4% 9.00
---------- ----- ------------- -----
Total.............................. 7,300,000 100.0% $ 13,718,240 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----

------------
(1) Consists of cash and marketable securities paid for the Company's stock in
connection with the incorporation of the Company in 1974 and excludes the
value of services in consideration of which shares have been issued under
the Company's Restricted Stock Option Plan and to the ESOP.

424B4 13th Page of 58 TOC 1st Previous Next ↓Bottom Just 13th
CAPITALIZATION

The following table sets forth the short-term debt and the capitalization of
the Company at March 29, 1996 and as adjusted to give effect to the sale of the
1,500,000 shares of Common Stock offered by the Company at the initial public
offering price of $9.00 per share and the anticipated use of the estimated net
proceeds therefrom. See "Use of Proceeds." The information set forth below
should be read in conjunction with the Company's financial statements and notes
thereto.

[Enlarge/Download Table]

MARCH 29, 1996
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)

Short-term debt:
Line of credit............................................................................ $ 12,250 $ 3,350
Bankers acceptances and short term debt................................................... 3,520 3,520
Long-term debt, due within one year....................................................... 400 400
--------- ---------
Total short-term debt............................................................... $ 16,170 $ 7,270
--------- ---------
--------- ---------
Long-term debt:
Bank credit facility, less current maturities............................................. $ 813 $ 813
Shareholders' equity:
Preferred Stock, no par value; 3,000,000 shares authorized; none issued and outstanding... -- --
Common Stock, no par value; 20,000,000 shares authorized; 5,800,000 shares issued and
outstanding; 7,300,000 shares as adjusted (1)........................................... 4,299 16,204
Additional paid-in capital.................................................................. 436 436
Retained earnings........................................................................... 10,740 10,740
--------- ---------
Total shareholders' equity.......................................................... 15,475 27,380
--------- ---------
Total capitalization................................................................ $ 16,288 $ 28,193
--------- ---------
--------- ---------

------------
(1) Does not include up to 220,000 shares of Common Stock that will be reserved
for issuance upon the exercise of stock options to be granted under the
Company's stock incentive plan, exercisable at the initial public offering
price. See "Management -- Stock Incentive Plan."

424B4 14th Page of 58 TOC 1st Previous Next ↓Bottom Just 14th
SELECTED FINANCIAL DATA

The selected financial data presented below for, and as of the end of, each
of the fiscal years in the three-year period ended March 29, 1996 have been
derived from financial statements of the Company, which have been audited by
Ernst & Young LLP, independent auditors, appearing elsewhere in this Prospectus.
The operating data were derived from unaudited information maintained by the
Company. The selected financial data presented below for, and as of the end of,
each of the fiscal years in the two-year period ended March 26, 1993 have been
derived from financial statements audited by Ernst & Young LLP, independent
auditors, which are not included in this Prospectus. The following data is
qualified in its entirety by, and should be read in conjunction with, the other
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND OPERATING DATA)

[Enlarge/Download Table]

FISCAL YEAR(1)
-----------------------------------------------------
1992 1993 1994 1995(2) 1996
--------- --------- --------- --------- ---------

STATEMENT OF INCOME DATA:
Net sales................................................... $ 75,234 $ 77,320 $ 84,884 $ 101,596 115,326
Cost of sales............................................... 46,528 47,258 51,196 61,532 70,246
--------- --------- --------- --------- ---------
Gross profit................................................ 28,706 30,062 33,688 40,064 45,080
Selling and distribution expenses........................... 19,984 23,428 25,308 28,635 31,230
General and administrative expenses......................... 4,845 4,793 5,511 6,436 7,172
Certain charges(3)
ESOP contribution(4)...................................... 650 300 174 190 --
Special stock compensation(5)............................. -- -- 562 1,200 --
Founders' compensation(6)................................. 626 658 356 400 393
Litigation settlement(7).................................. 450 -- -- -- --
--------- --------- --------- --------- ---------
1,726 958 1,092 1,790 393
--------- --------- --------- --------- ---------
Operating income............................................ 2,151 883 1,777 3,203 6,285
Interest expense............................................ 727 767 680 962 1,156
--------- --------- --------- --------- ---------
Income before income taxes.................................. 1,424 116 1,097 2,241 5,129
Income taxes................................................ 635 38 447 835 2,023
Cumulative effect of accounting change for income taxes..... -- -- 134 -- --
--------- --------- --------- --------- ---------
Net income.................................................. $ 789 $ 78 $ 516 $ 1,406 $ 3,106
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share(8)..................................... $ 0.13 $ 0.01 $ 0.09 $ 0.24 $ 0.54
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding(8)(9)............ 5,862,909 5,862,755 5,862,755 5,805,166 5,800,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OPERATING DATA (UNAUDITED):
Number of service centers
Starting sites............................................ 27 30 40 38 42
Sites acquired.......................................... -- 12 -- 5 2
Sites opened............................................ 3 -- -- -- --
Sites consolidated...................................... -- 2 -- 1 2
Sites closed............................................ -- -- 2 -- 1
Ending sites.............................................. 30 40 38 42 41
Comparable service center sales increase (decrease)(10)..... 4% (8%) 8% 19% 10%
[Enlarge/Download Table]

MARCH 29,
1996
MARCH 27, MARCH 26, MARCH 25, MARCH 31, ---------
1992 1993 1994 1995 ACTUAL
----------- ----------- ----------- ----------- ---------

BALANCE SHEET DATA:
Working capital.......................................... $ 6,307 $ 6,239 $ 7,004 $ 8,319 $ 10,319
Total assets............................................. 30,489 29,718 34,531 36,664 43,035
Total current liabilities................................ 19,935 18,653 23,046 22,640 26,711
Long-term debt, less current maturities.................. 165 729 416 1,215 813
Shareholders' equity..................................... 9,676 9,754 10,569 12,369 15,475

AS ADJUSTED(11)
-----------------

BALANCE SHEET DATA:
Working capital.......................................... $ 22,224
Total assets............................................. 46,040
Total current liabilities................................ 17,811
Long-term debt, less current maturities.................. 813
Shareholders' equity..................................... 27,380

-----------------
(1) All references in this Prospectus to fiscal 1992 through fiscal 1996 are to
the fiscal years ended March 27, 1992, March 26, 1993, March 25, 1994, March
31, 1995 and March 29, 1996, respectively.
(2) Fiscal 1995 contained 53 weeks.
(3) Certain charges represent certain general and administrative expenses which
are unusual or non-recurring in nature. Such costs are not expected to be
incurred in the future. Operating income before certain charges was
$3,877,000, $1,841,000, $2,869,000, $4,993,000 and $6,678,000 in fiscal
1992, 1993, 1994, 1995 and 1996, respectively.
(4) Reflects contributions to the ESOP to buy back shares from retiring
participants or those withdrawing from the ESOP. The Company does not intend
to make contributions to the ESOP in the foreseeable future.
(5) Reflects compensation expense incurred in connection with the issuance of
stock under the Company's Restricted Stock Option Plan for executives, which
plan expired in fiscal 1995.
(6) Reflects compensation paid to the founding shareholders whose compensation
terminated with their retirement effective March 31, 1996.
(7) Reflects payments made in June 1993 in settlement of litigation with Ford
Motor Company. See "Business -- Ford Litigation."
(8) All share and per share amounts have been adjusted to reflect a
3.8467-for-1 stock split effected in April 1996.
(9) Includes Common Stock equivalents attributable to stock options
outstanding, which were not material.
(10) Comparable service center sales have been computed using sales of service
centers that were open during both fiscal years being compared.

(11) Adjusted to give effect to the sale of the 1,500,000 shares offered by the
Company at $9.00 per share and the anticipated use of the estimated net
proceeds therefrom, including the repayment of indebtedness. See "Use of
Proceeds" and "Capitalization."

424B4 15th Page of 58 TOC 1st Previous Next ↓Bottom Just 15th
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.

The following table sets forth, for the periods indicated, certain selected
income statement items as a percentage of net sales.

[Enlarge/Download Table]

FISCAL YEAR
--------------------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- -----------

Net sales.................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 61.2 60.3 60.6 60.9
Gross profit................................................. 38.8 39.7 39.4 39.1
Selling and distribution expenses............................ 30.3 29.8 28.1 27.1
General and administrative expenses.......................... 6.2 6.5 6.3 6.2
Certain charges.............................................. 1.2 1.4 1.8 0.3
Income from operations....................................... 1.1 2.0 3.2 5.5
Interest expense............................................. 1.0 0.8 1.0 1.0
Net income................................................... 0.1% 0.6% 1.4% 2.7%
----- ----- ----- -----
----- ----- ----- -----

FISCAL 1995 COMPARED TO FISCAL 1996

Net sales increased from $101.6 million in fiscal 1995 to $115.3 million in
fiscal 1996, an increase of 13.5%. This increase was due primarily to (i) an
increase of $7.9 million in sales of automotive body parts, (ii) an increase of
$3.3 million in sales of bumpers, and (iii) an increase of $3.1 million in sales
of paint and related supplies. Fiscal 1996 includes 52 weeks of operating
results compared to 53 weeks in fiscal 1995.

Gross profit increased from $40.1 million (39.4% of net sales) in fiscal
1995 to $45.1 million (39.1% of net sales) in fiscal 1996, an increase of 12.5%.
The decrease in gross profit as a percentage of net sales was due primarily to
the increase in sales of paint and related supplies, which generally have a
lower gross profit margin than the Company's other products.

Selling and distribution expenses increased from $28.6 million (28.1% of net
sales) in fiscal 1995 to $31.2 million (27.1% of net sales) in fiscal 1996, an
increase of 9.1%. Selling and distribution expenses as a percentage of net sales
were positively affected by operating efficiencies due to increased sales.

General and administrative expenses increased from $6.4 million (6.3% of net
sales) in fiscal 1995 to $7.2 million (6.2% of net sales) in fiscal 1996, an
increase of 12.5%. The decrease in general and administrative expenses as a
percentage of net sales was due primarily to efficiencies achieved by allocating
the Company's fixed expenses over the increased revenue base.

During fiscal 1995 and fiscal 1996, the Company incurred certain charges
that are not expected to continue into future periods. In fiscal 1995, these
charges totalled $1.8 million compared to $393,000 in fiscal 1996. For fiscal
1995, these charges included a $190,000 ESOP contribution, $1.2 million of
compensation pursuant to the Company's Restricted Stock Option Plan which
expired in fiscal 1995, and $400,000 of compensation paid to the founders of the
Company who retired effective March 31, 1996. For fiscal 1996, these certain
charges totalled $393,000, which consisted entirely of compensation paid to the
founders of the Company.

Interest expense increased from $962,000 in fiscal 1995 to $1.2 million in
fiscal 1996, an increase of 20.2%, primarily due to increased short-term debt
incurred in connection with financing the purchase of inventory, including
inventory acquired in connection with the acquisition of service centers.

424B4 16th Page of 58 TOC 1st Previous Next ↓Bottom Just 16th
FISCAL 1994 COMPARED TO FISCAL 1995

Net sales increased from $84.9 million in fiscal 1994 to $101.6 million in
fiscal 1995, an increase of 19.7%. This increase was due to an increase in
comparable service center sales of $15.8 million, primarily as a result of
increases in sales of paint and related supplies of $5.5 million and an increase
in the sale of automotive body parts of $7.4 million. Fiscal 1995 included 53
weeks of operating results compared to 52 weeks in fiscal 1994.

Gross profit increased from $33.7 million (39.7% of net sales) in fiscal
1994 to $40.1 million (39.4% of net sales) in fiscal 1995, an increase of 19.0%.
The increase in gross profit and the decrease in gross profit as a percentage of
net sales in fiscal 1995 were adversely impacted by an increased inventory
reserve of $1.3 million and increased product costs related to inventory
acquired in connection with the acquisition of service centers in October 1994.

Selling and distribution expenses increased from $25.3 million (29.8% of net
sales) in fiscal 1994 to $28.6 million (28.1% of net sales) in fiscal 1995, an
increase of 13.0%. The decrease in selling and distribution expenses as a
percentage of net sales was due primarily to operating efficiencies due to
increased sales, which were offset in part by generally higher selling expenses
initially incurred at service centers which were acquired by the Company in the
third quarter of fiscal 1995.

General and administrative expenses increased from $5.5 million (6.5% of net
sales) in fiscal 1994 to $6.4 million (6.3% of net sales) in fiscal 1995, an
increase of 16.4%. The decrease in general and administrative expenses as a
percentage of net sales was due primarily to efficiencies achieved by allocating
the Company's fixed expenses over the increased revenue base.

During fiscal 1994, the Company incurred certain charges totaling $1.1
million compared to $1.8 million for fiscal 1995. These charges included a
$174,000 ESOP contribution, $562,000 of compensation pursuant to the Company's
Restricted Stock Option Plan, and $356,000 of compensation paid to the founders
of the Company. For fiscal 1995, these certain charges totalled $1.8 million.
The ESOP contribution was $190,000, the special stock compensation was $1.2
million and the founders' compensation was $400,000.

Interest expense increased from $680,000 in fiscal 1994 to $962,000 in
fiscal 1995, an increase of 41.5%, primarily due to higher interest rates and
increased short-term debt incurred in connection with financing the purchase of
inventory, including inventory acquired in connection with the acquisition of
service centers.

FISCAL 1993 COMPARED TO FISCAL 1994

Net sales increased from $77.3 million in fiscal 1993 to $84.9 million in
fiscal 1994, an increase of 9.8%. This increase was due primarily to an increase
in comparable service center sales of $6.1 million and to sales at eight service
centers acquired during fiscal 1993 totaling $2.1 million.

Although sales increased, they were adversely effected in fiscal 1993 and,
to a lesser extent, in fiscal 1994 as a result of a corrective advertising
campaign required in connection with the settlement of the Company's lawsuit
with Ford Motor Company and the action by certain insurance companies to cease
temporarily listing the Company as an approved supplier of aftermarket collision
parts. See "Business -- Ford Litigation."

Gross profit increased from $30.0 million (38.8% of net sales) in fiscal
1993 to $33.7 million (39.7% of net sales) in fiscal 1994, an increase of 12.3%.
The increase in gross profit as a percentage of net sales was due primarily to
increased competition among the Company's foreign suppliers which resulted in
lower product costs, the introduction by the Company of recycled rubber bumpers
which have a substantially higher gross profit margin than the Company's other
products and improvements in the operating results at certain acquired service
centers.

Selling and distribution expenses increased from $23.4 million (30.3% of net
sales) for fiscal 1993 to $25.3 million (29.8% of net sales) for fiscal 1994, an
increase of 8.1%. The decrease in selling and distribution expense as a
percentage of net sales was due primarily to operating efficiencies from
increased sales, which were offset in part by generally higher selling and
distribution expenses initially incurred at service centers which were acquired
by the Company during fiscal 1993.

424B4 17th Page of 58 TOC 1st Previous Next ↓Bottom Just 17th
General and administrative expenses increased from $4.8 million (6.2% of net
sales) for fiscal 1993 to $5.5 million (6.5% of net sales) for fiscal 1994, an
increase of 14.6%. The increase in general and administrative expenses as a
percentage of net sales was due primarily to expenses incurred in connection
with integrating the fiscal 1993 acquisitions.

During fiscal 1993, the Company incurred certain charges totaling $958,000,
which included a $300,000 contribution to the ESOP and $658,000 of compensation
paid to the Company's founders who retired effective March 31, 1996, as compared
to aggregate certain charges totalling $1.1 million in fiscal 1994.

Interest expense declined from $767,000 in fiscal 1993 to $680,000 in fiscal
1994, a decline of 11.3%, due to a decline in interest rates generally, which
was offset in part by an increase in short-term debt incurred in connection with
financing the purchase of inventory, including inventory purchased in connection
with the acquired service centers and financing the payment of taxes.

VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY

The Company has experienced, and expects to continue to experience, a
substantial variation in its sales and profitability from quarter to quarter
due, in part, to the seasonal nature of the Company's business and the timing
and integration of acquisitions. The number of collision repair jobs is
dependent on the weather. Accordingly, the Company's sales generally are highest
during the five month period between December and April. Such seasonality may be
reduced somewhat in the future should the Company become more geographically
diversified. Other factors, which influence quarterly variations, include the
reduced number of business days during the holiday seasons, the timing of the
introduction of new products, the level of consumer acceptance of new products,
general economic conditions that affect consumer spending, the timing of
supplier price changes and the timing of expenditures in anticipation of
increased sales and customer delivery requirements.

The following unaudited table sets forth the Company's net sales, certain
charges, operating income and net income (loss) for the eight quarters ended
March 29, 1996. The operating results for any quarter are not necessarily
indicative of the results of any future period. Each quarter includes 13 weeks
of operations except for the first quarter of fiscal 1995 which includes 14
weeks.

[Enlarge/Download Table]

FISCAL 1995 FISCAL 1996
------------------------------------------ --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER (2)
--------- --------- --------- --------- --------- --------- --------- -----------

(IN THOUSANDS)
Net sales......................... $ 26,112 $ 23,937 $ 24,663 $ 26,884 $ 26,523 $ 26,969 $ 28,694 $ 33,140
Certain charges(1)................ 151 146 743 750 174 173 178 (132)
Operating income.................. 1,665 1,345 84 109 1,139 1,429 1,617 2,100
Net income (loss)................. 932 706 (115) (117) 517 686 792 1,111

------------

(1) Certain charges represent certain general and administrative expenses which
are unusual or non-recurring in nature, consisting of ESOP contributions to
buy back shares from retiring participants or those withdrawing from the
plan, compensation pursuant to the Company's Restricted Stock Option Plan
and compensation for the founding shareholders whose compensation terminated
with their retirement effective March 31, 1996. Such costs are not expected
to be incurred in the future. Operating income before certain charges was
$4,993,000 and $6,678,000 in fiscal 1995 and 1996, respectively. See
"Selected Financial Information."

(2) In the fourth quarter of fiscal 1996, the Company determined not to provide
any amounts for the ESOP and to reverse the Company's estimated $225,000
ESOP contribution recorded through the third quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary need for funds has been to finance its growth in
accounts receivable and inventory and, to a lesser extent, the acquisition and
opening of new service centers. At March 29, 1996, working capital was $10.3
million, compared to $8.3 million at March 31, 1995. The Company has financed
its working capital requirements from its cash flow from operations, advances
drawn under its line of credit and, to a limited extent, indebtedness to certain
of the sellers of its acquired service centers. Subject to the

424B4 18th Page of 58 TOC 1st Previous Next ↓Bottom Just 18th
size of the acquisitions which the Company may complete in the future, the
Company believes that its cash flow from operations and the credit available
under its line of credit will enable it to finance its anticipated growth in
sales for at least the next twelve months.

Net cash provided by operating activities for fiscal 1996 was $62,000,
compared to $2.8 million for fiscal 1995. The decrease in fiscal 1996 was
primarily as a result of increases in accounts receivable and inventory.
Inventory increased from $17.2 million at March 31, 1995 to $22.2 million at
March 29, 1996, an increase of 29.1%, due to an expected increase in demand for
the Company's products.

The Company has a secured line of credit with a commercial bank pursuant to
which the Company may borrow from time to time up to 80% of the net amount of
eligible accounts receivable (as defined) and 50% of the value of eligible
inventory (as defined), up to $17.0 million at any time outstanding, with a
sublimit of $6.0 million for letters of credit for the importation of automotive
parts. Revolving credit advances up to $17.0 million bear interest at the
lender's reference rate (8.25% at March 29, 1996) plus 0.25%; provided, however,
that at the Company's option up to $6.0 million of revolving credit advances, in
increments of $500,000, may bear interest at LIBOR (5.695% at March 29, 1996)
plus 1.5%. Bankers' acceptances bear a commission rate of 1% per annum over the
lender's discount rate for acceptances (6.58% at March 29, 1996) and mature 90
days from the date of issuance. The Company currently requires its suppliers to
bear such commission. Borrowings are secured by the Company's accounts
receivable, inventory, general intangibles and cash deposits. The Company is
subject to certain restrictive covenants, including, but not limited to, a
prohibition on the payment of dividends, a minimum tangible net worth
requirement, a minimum ratio of net profit to current debt, a maximum inventory
turnover, a prohibition on the sale of assets or mergers, restrictions on
executive compensation and restrictions on the incurring of other indebtedness.
The line of credit expires on August 1, 1997. At March 29, 1996, the Company had
reference rate based advances of $6.3 million, LIBOR based advances of $6.0
million, and letters of credit and bankers' acceptances outstanding of $3.5
million. At such date, $2.1 million was available under the line of credit.

The Company believes that consolidation among distributors of aftermarket
collision parts is creating opportunities for the Company to acquire and open
service centers in new and existing markets. The Company intends to explore
acquisition opportunities that may arise from time to time. At the date of this
Prospectus, there are no existing commitments or agreements with respect to any
acquisition, other than as described in "Business -- Growth Strategy --
Acquistition and Service Center Additions". To date, the Company's acquisitions
have been financed by cash flow from operations, advances drawn under its credit
facility and indebtedness to certain of the sellers of its acquired centers. To
implement its acquisition strategy, the Company may incur indebtedness or issue
additional equity or debt securities to third parties or the sellers of the
acquired businesses. There can be no assurance that additional capital, if and
when required, will be available on terms acceptable to the Company, or at all.
In addition, future issuances of equity securities, if any, would dilute the
existing ownership of all shareholders of the Company, including investors in
this Offering.

INFLATION

The Company does not believe that the relatively moderate rates of inflation
over the past three years have had a significant effect on its net sales or its
profitability.

NEW ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the fiscal 1997 and, based on current circumstances, does not believe that
the effect of adoption will be material. In October 1995, the FASB issued
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which establishes
financial accounting and reporting standards for stock-based compensation plans.
The Company will comply with the standard in fiscal 1997. The Company is
currently determining which alternatives available within the standard will be
adopted.

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BUSINESS

GENERAL

Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes its products primarily to collision repair
shops throughout most of the United States. The Company's product lines consist
of automotive body parts, bumpers, autoglass and remanufactured alloy wheels, as
well as the paint and other materials used in repairing a damaged vehicle.
Keystone sells approximately 13,000 different stock keeping units to over 17,000
collision repair shops out of an estimated 48,000 shops nationwide. Founded in
1947 as a chrome bumper recycler serving collision repair shops in Southern
California, the Company operates a "hub and spoke" distribution system
consisting of 41 service centers, of which six serve as regional hubs. The
Company's service centers are located in 24 states in the West, Midwest,
Northeast and South, as well as in Tijuana, Mexico. From these service centers,
Keystone's 250 professionally trained salespersons call on an average of 4,000
collision repair shops per day. In addition, the Company has two facilities
which remanufacture collision damaged alloy wheels and one facility which
recycles chrome bumpers.

For the fiscal year ended March 29, 1996, Keystone generated record revenues
of $115.3 million, operating income of $6.7 million before certain charges and
net income of $3.1 million. These results represented increases of approximately
13.5%, 33.7% and 120.9%, respectively, over revenues of $101.6 million,
operating income of $5.0 million before certain charges and net income of $1.4
million in fiscal 1995. For fiscal 1996 and 1995, the Company generated
increases in comparable service center sales of 10% and 19%, respectively. This
growth has been primarily due to a combination of (i) the acquisition of smaller
distributors both in the Company's existing markets and new geographic markets,
(ii) the expansion of existing product lines and the introduction of new product
lines and (iii) increased demand for aftermarket collision parts.

The Company's business was founded in 1947 as a recycler of chrome bumpers
for automobiles and trucks. A primary component of the business strategy from
the outset was the creation and expansion of support among insurance companies
for the use of recycled bumpers to reduce the costs of claims for collision
repairs. While the bumper recycling business was sold in 1969, key management
did not change, and in 1974, that management incorporated the Company in
California and reacquired the business. The founder, whose son Virgil K. Benton
II is the Chairman of the Board and Chief Executive Officer of the Company,
retired as a director in March 1996.

INDUSTRY OVERVIEW

HISTORY. The ABPA estimates that the wholesale market for aftermarket
collision parts in 1995 ranged between $800 million and $1.2 billion in annual
expenditures, or approximately 10% of the collision parts market. Substantially
all of the remainder of the collision parts market consists of parts produced by
OEMs, and a substantial number of collision parts are available solely from OEMs
and are likely to remain so. Although the Company believes that the most
frequently replaced collision parts currently are available from independent
producers, it is unable to determine the percentage of all collision parts which
are available from independent producers or which likely will become available
in the future. The growth in sales of aftermarket collision parts has been due
primarily to the increased availability of such parts and to the cost
containment efforts by the insurance industry.

Before 1980, automotive collision parts were manufactured almost exclusively
by OEMs. During the 1960's and 1970's, due to prohibitive tariffs on imported
automobiles and restrictions on foreign ownership of manufacturing facilities in
Taiwan, certain Taiwanese automobile manufacturers commenced producing
automobiles for sale in Taiwan. Since the early 1980's, these Taiwanese
manufactures have sought to reduce the effect on their business of the cyclical
demand for new automobiles by producing aftermarket collision parts.

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Collision Repair Industry Insight ("Insight"), an industry trade
publication, estimates that approximately 80% of all automobile collision repair
work is covered in part by insurance. Accordingly, the major insurance companies
exert significant influence over the selection of collision parts used by
collision repair shops. The availability of aftermarket collision parts has been
a major factor in the insurance industry's ability and efforts to contain the
escalating costs of collision repairs. Aftermarket collision parts generally
sell for between 20% and 40% less than comparable OEM parts. The ABPA estimates
that the competition afforded by aftermarket collision parts has resulted in
price reductions of between 25% and 50% for selected OEM collision parts, and
that the availability of aftermarket collision parts saved insurance companies
approximately $800 million in 1994. These savings have been realized both
directly by providing consumers with less expensive parts and indirectly by
creating competition resulting in lower prices for comparable OEM parts. The
Company believes that it is somewhat insulated from downturns in the economy
generally as a result of the fact that most of the cost of collision repairs is
paid for by insurance.

As a part of their ongoing efforts to improve customer service, most major
insurance companies have adopted programs designating selected collision repair
shops in particular geographic areas as Direct Repair Providers ("DRPs"). DRPs
are generally directed additional collision repair business by the insurers in
return for adhering to certain criteria, which include the use of aftermarket
collision parts when available. To encourage consumers to use DRPs, the insurers
authorize the repair of collision damage without obtaining the prior approval of
the insurer's adjuster (thereby generally providing for a quicker return of the
vehicle to its owner) and offer additional warranties concerning the repair
services and parts used.

Companies offering collision support services, including Automated Data
Processing ("ADP"), Mitchell International and CCC Information Services, Inc.,
have developed proprietary software and databases to provide insurance claims
adjustors and collision repair shops with computerized access to the inventories
and prices of selected distributors of both aftermarket and OEM collision parts
nationwide. The Company's inventory and prices are included in these databases.
Access to the providers' databases enables distributors with computerized
inventory control systems, such as the Company, to update prices rapidly and
notify collision repair shops of the availability of new products.

QUALITY ASSURANCE. In 1987, the Certified Automotive Parts Association
("CAPA") was founded to provide insurance companies, distributors, collision
repair shops and consumers with an objective method of evaluating the functional
equivalence of aftermarket and OEM collision parts. CAPA, a non-profit
association of insurance companies, manufacturers, importers, distributors,
collision repair shops and consumer groups, establishes the specifications for,
tests and certifies the quality of aftermarket collision parts. Through
independent testing laboratories, CAPA develops precise engineering
specifications for aftermarket collision parts based upon an examination of OEM
parts; certifies the factories, manufacturing processes and quality control
procedures used by independent manufacturers; and certifies the materials, fit
and finish of specific aftermarket collision parts. According to CAPA, the
number of collision part applications entitled to bear the CAPA certification
has increased from approximately 600 in January 1994 to approximately 1,300 in
December 1995. CAPA randomly reviews both the factories and individual parts
previously certified by it and solicits comments concerning the quality of
certified parts from collision repair shops and consumers on a regular basis.

Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of collision parts to seek CAPA certification. Management believes
that Keystone is the largest distributor of CAPA certified parts in the United
States.

CONSOLIDATION. The collision repair shop industry is in the process of
consolidation due to, among other things, (i) an increase in the technical
complexity of collision repair jobs generally, (ii) an increase in governmental
regulations, including environmental regulations, applicable to collision repair
shops, (iii) the designation of certain collision repair shops as DRPs and (iv)
a reduction in the number of collision repair jobs generally. The increasing
number of aftermarket collision parts and makes and models of automobiles has
resulted in distributors being required to maintain larger inventories. In
addition, the trend towards

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fewer, larger and more efficient collision repair shops has increased the
pressure on distributors to provide price concessions, just-in-time delivery and
value-added services, including training, that collision repair shops require in
their increasingly complex and competitive industry. These pressures are
contributing to a consolidation of distributors of aftermarket collision parts,
providing the Company with an opportunity to expand its operations into new
markets and to further penetrate existing markets.

COMPETITIVE STRENGTHS

Keystone believes that the following characteristics enable it to compete
effectively:

LEADING MARKET POSITION. Keystone believes that it derives significant
benefits from its position as the nation's leading distributor of aftermarket
collision parts. These benefits include its ability to offer its customers one
of the broadest available selections of aftermarket collision parts thereby
allowing its customers to simplify their business by relying on fewer vendors,
just-in-time delivery, lower prices as a result of volume purchasing power,
worldwide product sourcing and superior technical expertise. As a result of the
Company's volume purchases, it obtains favorable pricing and has less difficulty
than its generally smaller competitors in assembling entire containers for
shipment from foreign manufacturers. In addition, as a result of its leading
market position, the Company periodically is requested to introduce new
aftermarket collision parts.

RELATIONSHIP WITH INSURANCE COMPANIES. Since the founding of its business
in 1947, Keystone has fostered its relationship with insurance companies whose
efforts to contain escalating costs of collision repairs have been a principal
factor in the growth of the market for aftermarket collision parts. The
Company's inventory and prices are included in the parts databases used by most
major insurance companies. In addition, the Company's national marketing staff
routinely conducts seminars for regional insurance executives and claims
adjusters to explain the role of aftermarket collision parts in containing the
cost of claims and to encourage the implementation of the insurance companies'
policies favoring such parts. Charles J. Hogarty, the Company's President and
Chief Operating Officer, was active in the efforts of ABPA and CAPA to provide
insurance companies an objective method of evaluating the quality of aftermarket
collision parts. As a result of its distribution system, which covers most of
the United States, and its position as the nation's largest distributor of
aftermarket collision parts, the Company believes that it is well positioned to
deal with major insurance companies on a national basis. The Company's business
is highly dependent upon the continued acceptance of aftermarket collision parts
by the insurance industry.

EXPERIENCED EXECUTIVE MANAGEMENT AND SERVICE CENTER MANAGERS. Keystone
believes that its key employees, including its service center managers, are
among the most experienced in its industry. The Company's executive officers
have been employed by the Company for an average of over 24 years, and the
Company's service center managers for an average of over nine years. The
experience and tenure of the Company's service center managers and the
relationships they have established with collision repair shop operators have
enabled the Company to compete successfully in local markets.

ENTREPRENEURIAL CORPORATE CULTURE. Keystone fosters an entrepreneurial
corporate culture in which the manager of each service center is responsible for
its day-to-day operations, including the management of a staff of four to 55
employees. Each service center manager participates in an incentive compensation
program through which the manager may earn a bonus of up to 100% of base salary,
based upon the profitability of the service center in particular, as well as
increases in sales, the collection of accounts receivable, inventory turns and
the promotion of new product lines. The Company regularly distributes to all
service center managers a ranking of all managers by key performance indicators.
The Company believes that its entrepreneurial corporate culture has contributed
to its growth in sales and profitability and has enabled the Company to attract
and retain employees and to be highly responsive to customer requirements and
preferences, actions by competitors and changes in local market conditions.

SUPERIOR CUSTOMER SERVICE. Keystone believes that its high level of
customer service is one of the most important factors which differentiates it
from its competitors. The Company periodically introduces new programs to
provide responsive customer service and to foster close customer relations. For
example, most orders are filled by the Company within 24 hours of receipt as a
result of the large inventories maintained in

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its regional hubs and service centers, its computerized inventory control system
and its fleet of more than 300 delivery trucks. In addition, the Company offers
its customers one of the broadest available selections of aftermarket collision
parts and makes placing orders convenient and accurate through a computerized
order taking system which regularly updates the prices and the availability of
parts. Moreover, the Company generally warrants its products on a limited basis
against defects in material and workmanship for as long as the repair shop's
customers own the vehicle. The Company has 250 professionally trained route
salespersons who call on an average of 4,000 collision repair shops per day and
are a resource for customers concerning technical and regulatory developments in
an increasingly complex and competitive industry. The Company believes that its
superior customer service has resulted in long term customer relationships which
present the opportunity to cross-sell additional products.

MANAGEMENT INFORMATION SYSTEMS. Keystone believes that its computerized
order taking, inventory control and management information systems are among the
most advanced in its industry. The Company periodically upgrades these systems
to achieve additional operating efficiencies and a higher level of customer
service. The ordering, shipment, storage and delivery of the Company's products
are managed through a proprietary centralized information system that allows the
Company's corporate headquarters, regional hubs and service centers to obtain
timely information regarding the location and availability of products,
customers, sales and other financial and operating data. The Company's
electronic parts catalog and price list allow rapid updating of prices and
availability of products both within the Company's distribution system and
within the electronic databases maintained by various collision support services
for use by claims adjusters and collision repair shops. The Company's
computerized order taking system reduces the time required for a customer to
place an order, reduces errors in order taking and aids in the cross-selling of
related products.

GROWTH STRATEGY

The Company's growth strategy includes the following key elements:

ACQUISITIONS AND SERVICE CENTER ADDITIONS. Since April 1992, Keystone has
completed eight acquisitions of 19 service centers in the Northeast, Midwest,
South and Mexico, of which five have been consolidated with existing locations
and three have been closed, and it has opened three additional service centers.
The aggregate consideration for the acquired centers was approximately $5.2
million, and each acquisition was structured as a purchase of assets in which
the Company assumed no significant liabilities, other than leases. The Company
intends to continue to take advantage of the consolidation of its industry by
acquiring service centers in new and existing markets. In the ordinary course of
its business, the Company regularly evaluates new geographic markets and
potential acquisitions and believes that numerous acquisition opportunities
exist due to the preponderance of small local or regional competitors. In
evaluating potential acquisitions, the Company seeks well-established local
distributors with strong management and significant market share, which operate
in markets that the Company believes will provide additional growth and
acquisition opportunities. Through a combination of broader product lines,
volume purchase discounts, efficient inventory management, more experienced
management and a national distribution system, the Company believes that it is
generally able to operate acquired service centers more profitably than the
prior owners. As of the date of this Prospectus, there were no existing
commitments or agreements with respect to any acquisition.

The Company is currently negotiating the purchase of the inventory, accounts
receivable and equipment of a distributor of aftermarket collision parts
currently operating seven service centers. It is currently anticipated that the
Company will assume no liabilities with respect to the acquired service centers,
other than obligations under existing leases and accrued vacation pay. The
aggregate purchase price is estimated to be approximately $4.0 million, payable
approximately $3.0 million at closing and the balance over two years, together
with interest at the prime rate. Consummation of the acquisition is subject to
the parties entering into definitive documentation and, accordingly, no
assurances can be given that the transaction will be consummated.

EXPANSION OF PRODUCTS. Since April 1992, Keystone has introduced additional
product lines, including autoglass, remanufactured alloy wheels and paint and
related supplies and equipment. In addition, the

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Company has expanded its existing product lines as additional aftermarket
collision parts have become available, such as radiators, condensors and head
and tail lamp assemblies for the growing number of makes and models of
automobiles on the road today. The number of collision parts distributed by the
Company has increased from 3,048 at December 31, 1992 to 3,908 at December 31,
1995. The Company intends to continue to expand its existing product lines, as
well as to continue to introduce new product lines compatible with its
distribution system.

INCREASE IN MARKET SHARE. Comparable service center sales increased
approximately 19% in fiscal 1995 and 10% in fiscal 1996. Keystone's strategy is
to continue to increase its market share in existing markets in the future by
introducing new products and product lines, capitalizing on the competitive
advantages provided by its position as a market leader and continuing to
emphasize customer service.

PRODUCTS

The Company distributes approximately 13,000 different stock keeping units
of aftermarket collision parts and repair materials for most popular models of
domestic and foreign automobiles and light trucks generally for the seven most
recent model years. The Company's principal product lines consist of automotive
body parts, bumpers, paint and other materials, autoglass, light truck
accessories and remanufactured alloy wheels.

AUTOMOTIVE BODY PARTS. The Company distributes more than 4,000 automotive
and light truck body parts manufactured by seven foreign and ten domestic
manufacturers, including fenders, hoods, radiators and condensers and head and
tail lamp assemblies. These products accounted for $49.9 million, or 43.3% of
the Company's net sales in fiscal 1996.

BUMPERS. The Company distributes more than 3,000 models of new and
remanufactured plastic bumper covers and steel bumpers manufactured by three
foreign and seven domestic manufacturers. For fiscal 1996, sales of bumpers
accounted for $40.3 million, or 35.0% of the Company's net sales.

The Company was founded in 1947 as a chrome bumper recycler serving
collision repair shops in Southern California. The Company has reduced the
number of recycling centers from twelve in 1983 to one by 1993. The Company's
remaining facility produced less than one percent of the recycled chrome bumpers
sold by the Company during fiscal 1996.

PAINT AND OTHER MATERIALS. Beginning in fiscal 1993, the Company
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle. Other materials include sandpaper,
abrasives, masking products and plastic filler. For fiscal 1996, sales of paint
and other materials, which are purchased from approximately 20 domestic
suppliers, accounted for $17.0 million, or 14.7% of the Company's net sales.
Certain of these products are distributed under the "Keystone" name.

LIGHT TRUCK ACCESSORIES. The Company distributes a limited number of
accessories for light trucks, including grills, step bumpers and bedliners. For
fiscal 1996, sales of accessories for light trucks accounted for $5.3 million,
or 4.6% of the Company's net sales.

AUTOGLASS. The Company distributes over 750 items of autoglass, including
windshields, side windows and rear windows, which are purchased from two
domestic manufacturers. For fiscal 1996, sales of autoglass, which was
introduced in fiscal 1993, accounted for $2.6 million, or 2.3% of the Company's
net sales.

REMANUFACTURED ALLOY WHEELS. In October 1995, the Company acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and in April 1996 opened a second remanufacturing facility in Bethlehem,
Pennsylvania. According to industry sources, the percentage of new automobiles
equipped with alloy wheels, as opposed to steel wheels and hub caps, has
increased from 11% in 1985 to 45% for the 1996 model year. The average wholesale
cost of a new replacement alloy wheel is $225, compared to an average wholesale
cost of $140 for a remanufactured alloy wheel. The remanufactured alloy wheel
industry is highly fragmented and generally consists of small independent
operators. The Company believes

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that there is a large and growing demand for remanufactured alloy wheels and
that, using its existing distribution system and customer base, Keystone is
well-positioned to service that demand. The sale of remanufactured alloy wheels
accounted for an insignificant portion of the Company's net sales in fiscal
1996.

DISTRIBUTION, MARKETING AND SALES

The Company strives to develop every aspect of its business, particularly
its expanded distribution system, marketing organization and programs,
management information systems and incentive compensation program, to provide
responsive customer service and to foster long-term close customer relations.

DISTRIBUTION SYSTEM. The Company has developed a national "hub and spoke"
distribution system consisting of 41 service centers, of which six serve as
regional hubs. The map on the inside front cover of this Prospectus displays the
location of the Company's facilities. Each regional hub receives container
shipments directly from foreign and domestic manufacturers. Using the Company's
fleet of over 300 delivery trucks, each regional hub makes regular shipments to
the service centers in its region, which in turn make regular deliveries to its
repair shop customers. By maintaining a fleet of delivery trucks, the Company
ensures rapid delivery within its distribution system and to its customers. In
addition, each service center can order products directly from any hub or
service center. The Company manages the ordering, shipment, storage and delivery
of products through a centralized information system that allows the Company's
corporate headquarters, regional hubs and service centers to obtain timely
information regarding the location and availability of products. The continuing
increase in the number of makes and models of automobiles and the number of
aftermarket collision parts has increased the pressure on distributors to
maintain larger inventories. The Company believes that its "hub and spoke"
distribution system allows it to offer its customers one of the broadest
available selections of aftermarket collision parts and to fill most orders
within 24 hours, while minimizing inventory costs.

SALES AND MARKETING STAFF. The Company has an eight-person marketing staff
in its corporate headquarters and 53 sales representatives and 250 route
salespersons operating from its service centers. The national marketing staff
develops all marketing and promotional materials, assists the service centers in
recruiting and training sales representatives, route salespersons and customer
service representatives, supervises Keystone's in-house management training
program and supports general managers of its service centers, sales
representatives and route salespersons with computerized analyses of sales by
product, route and customer. In addition, the national marketing staff conducts
educational programs for regional insurance executives and claims adjusters to
explain the role of aftermarket collision parts in containing the escalating
costs of claims and in order to facilitate the implementation of the insurance
company's policies favoring aftermarket collision parts.

The general managers of the Company's service centers have been employed by
the Company for an average of over nine years and are actively involved in
customer calls. The Company estimates that the general managers of its service
centers and route salespersons make over 4,000 customer calls per day. The
Company believes that this local control and expertise have contributed
significantly to the growth of the Company. In addition, through its periodic
training programs and performance reviews, the Company seeks to enhance the
professionalism and technical expertise of its route salespersons. As a result,
the Company believes that its route salespersons are highly attendant to the
needs of the Company's customers.

MARKETING PROGRAMS. The Company offers various marketing programs to foster
closer customer relations. For example, the Company generally warrants its
products against defects in material and workmanship for as long as the repair
shop's customer owns the vehicle. In addition, the Company's management
information system allows it to provide individual collision repair shops with
personalized product usage reports, which enable them to better manage their
inventory by controlling inventory shrinkage and ensuring timely reordering.

CUSTOMERS

The Company currently markets its products to more than 17,000 regular
collision repair shop customers throughout most of the United States, none of
whom accounted for more than 1% of the Company's net

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sales in fiscal 1996. The size of its customer base reduces the Company's
dependence on any single customer and its national scope mitigates the effects
of regional economic changes and regional weather patterns. Insight estimates
that there are over 48,000 collision repair shops nationwide. The number of
collision repair shops to whom the Company sold products increased from 13,421
in fiscal 1993 to 17,607 in fiscal 1996. Management estimates that the average
monthly net sales per customer increased from $480 in fiscal 1993 to $546 in
fiscal 1996, primarily as a result of the increase in the products offered by
the Company.

The Company's regional hubs also sell collision parts to local distributors
who may compete with the Company. Approximately 10% of the Company's net sales
in fiscal 1996 were attributable to sales to other local distributors. No
distributor accounted for more than 1% of the Company's net sales for such
fiscal year.

SUPPLIERS

The products distributed by the Company are manufactured by over 60
manufacturers, the ten largest of which provided approximately 60% of the
products purchased by the Company during fiscal 1996. The Company believes that
it is one of the largest customers of each of its ten largest suppliers.
Approximately 67% of the products distributed by the Company is manufactured in
the United States or Canada and 33% is manufactured abroad, substantially all of
which were imported from Taiwan. See "Risk Factors -- Dependence on Key and
Foreign Suppliers." Keystone's orders from domestic suppliers generally are
received within ten days, and orders from foreign manufacturers generally are
received in between 60 and 90 days. Although the Company has no manufacturing
agreements with any of its suppliers and competes with other distributors for
production capacity, the Company believes that its sources of supply and its
relationships with its suppliers are satisfactory. Although alternative
suppliers exist for substantially all products distributed by the Company, the
loss of any one supplier could have a material adverse effect on the Company
until alternative suppliers are located and have commenced providing products.

COMPETITION

Based upon industry estimates, the Company believes that approximately 85%
of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and an additional 5% by distributors
of salvage parts. The Company encounters intense competition from OEMs, all of
which have substantially greater financial, distribution, marketing and other
resources, including greater brand recognition and a broader selection of
collision parts than the Company. Accordingly, OEMs are in a position to exert
pricing and other competitive pressure on the Company. The distribution industry
for aftermarket collision parts is highly fragmented. The Company's competitors
generally are independently owned distributors having from one to three
distribution centers.

The Company expects to encounter significant competition in the future,
including competition from OEMs, automobile dealerships, distributors of salvage
parts, buying groups and other large distributors.

The Company competes with OEMs primarily on the basis of price. In addition,
the Company competes with distributors of aftermarket collision parts primarily
on the basis of the competitive advantages provided by its position as a market
leader, experienced executive management and service center managers,
entrepreneurial corporate culture, superior customer service, relationship with
insurance companies and management information systems and centralized
administrative functions, as well as price.

GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS

The Company and its customers are subject to increasing restrictions imposed
by various federal, state and local laws and regulations. Various state and
federal regulatory agencies, such as the Occupational Safety and Health
Administration and the EPA, have jurisdiction over the operations of the Company
with respect to matters including worker safety, community and employee
"right-to-know" laws, and laws regarding clean air and water. Under various
federal, state and local laws and regulations, an owner or lessee of real estate
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether the owner or lessee knew of, or was
responsible for, the presence of such hazardous or toxic substances. The Company
does not currently generate substantial hazardous waste in the ordinary course
of its business. The Company's chrome bumper

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recycling business was reduced from twelve sites in 1983 to one in 1993. The
Company believes it currently is in substantial compliance with all applicable
laws and regulations, and is not aware of any material environmental problem at
any of its current or former facilities. No assurances can be given, however,
that the Company's prior activities or the activities of a prior owner or lessee
did not create a material environmental problem or that future uses or
conditions (including, without limitation, changes in applicable laws and
regulations) will not result in the imposition of material environmental
liability upon the Company. Furthermore, compliance with legislative or
regulatory changes may cause future increases in the Company's operating costs
or otherwise adversely affect operations. Certain of the Company's products,
such as paints and solvents, are highly flammable. Accordingly, the storage and
transportation of these materials expose the Company to the inherent risk of
fire.

FORD LITIGATION

In 1987, Ford Motor Company ("Ford") filed suit against the Company on the
grounds that between 1982 and 1987, the Company had misrepresented the quality
of the aftermarket collision parts sold by it to repair Ford automobiles. In May
1992, Ford and the Company settled this lawsuit. As part of the settlement, the
Company and its insurance companies paid Ford $1.8 million, of which the Company
contributed $450,000, as damages and to finance a one-year corrective
advertising campaign conducted by Ford using the Company's name. As a result of
this settlement and the corrective advertising campaign, certain insurance
companies ceased listing the Company as an approved supplier of aftermarket
collision parts. Currently, most major insurance companies list the Company as
an approved supplier of aftermarket collision parts, and all major insurance
companies reimburse the cost of collision repairs using the Company's products.
The Company's business is highly dependent on the continued acceptance of
aftermarket collision parts in general, and the Company's products in
particular, by insurers, collision repair shops, consumers and governmental
agencies.

EMPLOYEES

At March 29, 1996, the Company had 748 full-time employees, of whom eight
were engaged in corporate management, 83 in administration, 444 in sales and
customer service and 213 in warehousing and shipping. Two sales persons in the
St. Louis, Missouri service center, nine persons in the Newark, New Jersey
chrome bumper recycling facility and seven persons in its Kenilworth, New Jersey
service center are covered by collective bargaining agreements. The Company
considers its relations with its employees to be satisfactory.

PROPERTIES

The Company's principal executive offices are located in Pomona, California.
These premises contain approximately 20,000 square feet and are owned by the
Company. In addition, the Company owns facilities used as service centers in
Chicago, Illinois, Bethlehem, Pennsylvania, New Albany, Indiana and Palmyra, New
Jersey, of which two of the facilities also serve as regional hubs and one
serves as a wheel remanufacturing facility. The Company leases its remaining
facilities, consisting of 37 service centers, of which four serve as regional
hubs, and two serve as manufacturing centers.

The Company's regional hubs range from approximately 47,000 square feet to
163,000 square feet. Its service centers range from approximately 4,000 square
feet to 30,000 square feet. All of its leased properties are leased for terms
expiring on dates varying from the date hereof to October 2002, many with
options to extend the lease term. The Company believes that no single lease is
material to its operations, its facilities are adequate for the foreseeable
future and alternative sites presently are available at market rates. Three of
the Company's service centers are leased from parties in whom officers,
directors or shareholders of the Company have an interest. The Company believes
that the terms and conditions of leases with affiliated parties are no less
favorable than could have been obtained from unaffiliated parties in
arm's-length transactions at the time of the execution of such leases. See
"Management -- Certain Transactions." The Company also leases six small depots
in larger cities to facilitate distribution.

LEGAL PROCEEDINGS

The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any material
pending litigation.

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MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL

The following table sets forth information regarding the directors,
executive officers and certain key personnel of the Company.

[Enlarge/Download Table]

YEARS
EMPLOYED
NAME AGE POSITION BY COMPANY
---------------------------------------- ---- ---------------------------------------- -----------

DIRECTORS AND EXECUTIVE OFFICERS
Virgil K. Benton II 40 Chairman of the Board and Chief 21
Executive Officer
Charles J. Hogarty 54 President, Chief Operating Officer and 36
Director
Al A. Ronco 60 Executive Vice President, Secretary and 37
Director
Robert L. Blanton 53 Vice President -- Finance 27
John M. Palumbo 40 Vice President and Treasurer *
Timothy C. McQuay(1) 44 Director --
George E. Seebart(1) 67 Director --

KEY PERSONNEL
Christopher Northup 36 National Marketing Director 13
Larry Bussard 53 National Computer Operations Director 18
Scott Haddon 34 Director of Purchasing 12

------------
* Less than one year.

(1) Nominated to serve on the Board of Directors upon the completion of this
Offering, at which time the nominee will serve on the Audit and Compensation
Committees.

VIRGIL K. BENTON II has served as the Chairman of the Board and Chief
Executive Officer of the Company since 1993. From his joining the Company in
1975 until 1993, Mr. Benton held various positions, including template maker,
route salesman, production manager, general manager and vice president.

CHARLES J. HOGARTY has served as the President, Chief Operating Officer and
a director of the Company since 1987. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,
general manager and regional manager. Mr. Hogarty served as a director of the
ABPA from 1984 to 1993, President in 1989 and Chairman in 1990.

AL A. RONCO has served as the Executive Vice President, Secretary and a
director of the Company since 1987. From his joining the Company in 1959 until
1987, Mr. Ronco held various positions, including salesman, production manager,
general manager and regional manager.

ROBERT L. BLANTON has served as the Vice President -- Finance of the Company
since 1976. From his joining the Company in 1969 until 1976, Mr. Blanton held
various positions, including as office manager of a wheel fabrication plant and
staff accountant.

JOHN M. PALUMBO, CPA, joined the Company as Vice President and Treasurer in
March 1996. From 1988 until he joined the Company in 1996, Mr. Palumbo served as
Chief Financial Officer, Treasurer and Corporate Secretary of American United
Global, Inc., a public company engaged in the manufacture of certain automotive
parts.

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TIMOTHY C. MCQUAY has been nominated to serve on the Board of Directors upon
the completion of this Offering. Mr. McQuay joined Crowell, Weedon & Co. as
Managing Director -- Corporate Finance in October 1994. From May 1993 to October
1994, Mr. McQuay was Vice President, Corporate Development with Kerr Group,
Inc., a NYSE-listed plastics manufacturing company. From May 1990 to May 1993,
Mr. McQuay was Managing Director -- Merchant Banking with Union Bank.

GEORGE E. SEEBART has been nominated to serve on the Board of Directors upon
the completion of this Offering. From 1964 until his retirement in 1993, Mr.
Seebart was employed in various executive positions with Farmers Group, Inc.,
including as Senior Vice President -- California Zone since 1992 and President
of Mid-Century Insurance Company from 1987 to 1992.

CHRISTOPHER NORTHUP has served as the National Marketing Director of the
Company since 1987. From his joining the Company in 1983 until 1987, Mr. Northup
held the position of Publications Manager.

LARRY BUSSARD has served as the National Computer Operations Director of the
Company since 1986. From his joining the Company in 1978 until 1986, Mr. Bussard
held various positions, including salesman and branch manager.

SCOTT HADDON has served as the Director of Purchasing of the Company since
1987. From his joining the Company in 1984 until 1987, Mr. Haddon held various
positions, including salesman and assistant manager.

All directors are elected annually and serve until the next annual meeting
of shareholders or until their successors have been elected and qualified. The
Company's Restated Articles of Incorporation provide that, upon the satisfaction
of certain conditions, the Board of Directors will be divided into three classes
of directors, each serving for staggered three-year terms. See "Description of
Capital Stock -- Certain Provisions in the Company's Articles and Bylaws."

COMMITTEES OF THE BOARD OF DIRECTORS

Upon the completion of this Offering, the Board of Directors will establish
an Audit Committee and a Compensation Committee, whose members will be Messrs.
McQuay and Seebart. Members serve at the pleasure of the Board of Directors.

DIRECTOR COMPENSATION

Upon the completion of this Offering, the Company will pay to each director
who is not employed by the Company an annual retainer of $7,500 per year,
payable in equal quarterly installments, and $1,000 for each board meeting and
$500 for each committee meeting attended, and will reimburse such person for all
reasonable and documented expenses incurred by him in his capacity as a director
of the Company. The Board of Directors may modify such compensation in the
future. In addition, each director not employed by the Company, upon joining the
Board of Directors, will receive an option to purchase 10,000 shares of the
Common Stock of the Company. Such options will have an exercise price equal to
the market price of such shares on the date of grant, will be immediately
exercisable and will have a term of five years. Upon the completion of this
Offering, each of Messrs. McQuay and Seebart will be granted options to purchase
10,000 shares of Common Stock at the initial public offering price.

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EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities during the fiscal year ended
March 29, 1996 to each person who acted in the capacity of an executive officer
(the "Named Executives").

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

ANNUAL COMPENSATION (1)
---------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($)(2) COMPENSATION ($)(3)
--------------------------- ----------- ----------- ------------------- -------------------

Virgil K. Benton, Sr. (4) 111,000 -- 8,299 10,000
John G. Jordan (4) 282,000 -- 9,866 2,895
Virgil K. Benton II 425,000 182,744 20,718 9,069
Charles J. Hogarty 145,000 214,395 11,616 310
Al A. Ronco 125,000 187,787 11,640 3,682
Robert L. Blanton 102,000 25,000 3,195 5,391

------------
(1) Consists of compensation paid by the Company for services rendered in fiscal
1996.

(2) Consists of automobile lease and related expenses.

(3) Consists of reimbursement of medical and dental expenses not covered by
insurance plans provided by the Company to employees generally.

(4) Virgil K. Benton, Sr. and John G. Jordan, the founders of the Company,
retired as directors and employees of the Company effective as of March 31,
1996.

Effective as of the completion of this Offering, the Company will enter into
three-year employment agreements with Messrs. Benton, Hogarty, Ronco and Blanton
pursuant to which each such person is entitled to (i) receive an annual base
salary of $295,000, $250,000, $185,000 and $100,000, respectively, (ii) receive
such performance-based bonus, if any, as may be determined by the Board of
Directors, (iii) participate in all plans sponsored by the Company for executive
officers in general and (iv) receive the use of an automobile leased and
maintained by the Company. For fiscal 1997, Messrs. Benton, Hogarty, Ronco and
Blanton shall be entitled to a bonus of up to 35%, 30%, 25% and 10%,
respectively, of a bonus pool. The bonus pool ranges from 20% of such executive
officers' aggregate annual base salaries if the Company's pre-tax profit margin
equals or exceeds 5% to 70% of such aggregate annual base salaries if the
Company's pre-tax profit margin equals or exceeds 10%. In the event the Company
terminates employment before the end of the stated term without cause or the
individual terminates his employment for specified causes, the Company is
obligated to pay the base salary through the stated term of the agreement. In
the event the Company terminates employment before the end of the stated term
with cause, the Company is obligated to pay the base salary only through the
date of termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the Offering, all decisions involving executive officer
compensation were made by the Company's Board of Directors, which consisted of
Virgil K. Benton, Sr., John G. Jordan, Virgil K. Benton II, Charles J. Hogarty,
Al A. Ronco and Robert L. Blanton, as the Board of Directors did not then have a
Compensation Committee.

STOCK INCENTIVE PLAN

GENERAL. The Board of Directors of the Company has adopted the 1996
Employee Stock Incentive Plan (the "Option Plan") pursuant to which officers,
directors, employees and independent contractors of the Company will be eligible
to receive shares of the Common Stock of the Company or other securities or
benefits with a value derived from the value of the Common Stock of the Company.
The purpose of the

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Option Plan is to enable the Company to attract, retain and motivate officers,
directors, employees and independent contractors by providing for or increasing
their proprietary interests in the Company and, in the case of non-employee
directors, to attract such directors and further align their interests with
those of the Company's shareholders by providing for or increasing their
proprietary interests in the Company. The maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the Option Plan is
730,000 (subject to adjustments to prevent dilution).

ADMINISTRATION. The Option Plan will be administered by a committee of two
or more disinterested directors appointed by the Board of Directors of the
Company (the "Committee"), except that grants to non-employee directors will be
made by the Board of Directors pursuant to a predetermined formula. The
Committee has full and final authority to select the recipients of awards and to
grant such awards. Subject to the provisions of the Option Plan, the Committee
has a wide degree of flexibility in determining the terms and conditions of
awards and the number of shares to be issued pursuant thereto, including
conditioning the receipt or vesting of awards upon the achievement by the
Company of specified performance criteria. The expenses of administering the
Option Plan will be borne by the Company.

TERMS OF AWARDS. The Option Plan authorizes the Committee to enter into any
type of arrangement with an eligible recipient that, by its terms, involves or
might involve the issuance of Common Stock or any other security or benefit with
a value derived from the value of Common Stock. Awards are not restricted to any
specified form or structure and may include, without limitation, sales or
bonuses of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares. An award may consist of
one such security or benefit or two or more of them in tandem or in the
alternative.

An award granted under the Option Plan may include a provision accelerating
the receipt of benefits upon the occurrence of specified events, such as a
change of control of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transactions. The Committee may grant
options that either are intended to be "incentive stock options" as defined
under Section 422 of the Internal Revenue Code of 1986, as amended, or are not
intended to be incentive stock options ("non-qualified stock options"). Awards
to non-employee directors may only be non-qualified stock options.

An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or part
of such employee's tax withholding obligation with respect to such issuance, by
(i) delivering previously owned shares of capital stock of the Company or other
property, (ii) reducing the amount of shares or other property otherwise
issuable pursuant to the award or (iii) delivering a promissory note, the terms
and conditions of which will be determined by the Committee. If an option
permits the recipient to pay for the shares issuable pursuant thereto with
previously owned shares, the recipient would be able to exercise the option in
successive transactions, starting with a relatively small number of shares and,
by a series of exercises using shares acquired from each such transaction to pay
the purchase price of the shares acquired in the following transaction, to
exercise an option for a large number of shares with no more investment than the
original share or shares delivered. The exercise price and any withholding taxes
are payable in cash by non-employee directors, although the Board of Directors
at its discretion may permit such payment by delivery of shares of Common Stock,
or by delivery of broker instructions authorizing a loan secured by the shares
acquired upon exercise or payment to the Company of proceeds from the sale of
such shares.

Subject to limitations imposed by law, the Board of Directors may amend or
terminate the Option Plan at any time and in any manner. However, no such
amendment or termination may deprive the recipient of an award previously
granted under the Option Plan of any rights thereunder without his consent.

1996 AWARDS. Concurrently with the sale of the shares offered hereby,
options will be granted to (i) Messrs. McQuay and Seebart, who have been
nominated to serve on the Board of Directors upon the completion of this
Offering, to purchase up to 10,000 shares of Common Stock and (ii) 25 employees
of the Company to purchase up to an aggregate of 200,000 shares of Common Stock,
all at an exercise price equal

424B4 31st Page of 58 TOC 1st Previous Next ↓Bottom Just 31st
to the initial public offering price of the Common Stock offered hereby. The
options to be granted to Messrs. McQuay and Seebart will be exercisable
immediately upon grant. The options to be granted to employees will become
exercisable in four equal annual installments commencing on the first
anniversary of the effective date of this Offering. All such options will expire
on the tenth anniversary of the date of grant.

The Company intends to register under the Securities Act of 1933, as
amended, the shares of its Common Stock issuable upon exercise of options
granted pursuant to the Option Plan. See "Description of Capital Stock -- Shares
Eligible for Future Sale."

EMPLOYEE DEFINED BENEFIT PENSION PLAN

GENERAL. The Board of Directors adopted the Employee Defined Benefit
Pension Plan (the "Pension Plan"), originally effective as of April 1, 1978, for
the benefit of the eligible employees of the Company. Since the implementation
of the Pension Plan, the Company has amended the Pension Plan from time to time.
Most recently, the Company amended and restated the Pension Plan in order to
comply with the requirements of the Tax Reform Act of 1986 and later
legislation, generally effective as of April 1, 1989. The primary purpose of the
Pension Plan is to provide a retirement benefit for participating employees who
continue in the employ of the Company until their retirement. All employees of
the Company who have completed at least one year of service and attained 21
years of age are eligible to participate in the Pension Plan on the April 1 or
October 1 falling on or next following the date they meet the Pension Plan's
service and age requirements. Employees who are covered by collective bargaining
units and whose retirement benefits are the subject of good faith bargaining,
however, are not eligible to participate in the Pension Plan.

ADMINISTRATION. The Pension Plan is administered by a committee (the "Plan
Committee") whose members are appointed by the Board of Directors of the
Company. The Committee oversees the day-to-day administration of the Pension
Plan and is responsible for making determinations on questions of
administration, interpretation and application of Pension Plan terms, including
questions of eligibility, service and distribution of plan benefits to
participants.

NORMAL RETIREMENT BENEFITS AND VESTING. The Pension Plan provides for
employer contributions only. Each year, the Company makes a contribution to the
Pension Plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis equal to
1 1/2% of a participant's average monthly compensation multiplied by his years
of service, to a maximum of 30 years, offset by 74% of the monthly primary
social security benefit. This benefit formula was frozen as of March 31, 1989.
Effective April 1, 1989, the new benefit formula provides a participant with a
normal retirement benefit equal to 3/4% of his average monthly compensation
multiplied by his years of service. For purposes of calculating a participant's
normal retirement benefit, average monthly compensation is defined in the
Pension Plan as average monthly compensation during the five consecutive years
or 60 consecutive months of the participant's employment which yields the
highest average compensation.

The maximum monthly benefit provided under the Pension Plan is not to exceed
the lesser of $7,500 or 100% of the average for the highest three years of the
participant's compensation. The monthly retirement benefit payable by the
Pension Plan is a benefit payable in the form of a straight life annuity with no
ancillary benefits. For a participant who is to receive benefits other than in
the form of a straight life annuity, the monthly retirement benefit will be
adjusted to an equivalent benefit in the form of a straight life annuity on an
actuarial equivalent basis.

A participant becomes fully vested in his accrued benefits under the Pension
Plan upon attainment of normal retirement age (age 65), or the termination of
the Pension Plan. If a participant terminates employment with the Company prior
to retirement, the vested interest he has in accrued benefits under the Pension
Plan is based on years of service, with 20% after three years of service, 20%
for each year of service thereafter, with 100% vesting after seven or more years
of service.

PENSION PLAN INVESTMENTS. The Committee selects vehicles for the investment
of plan assets. The Committee then directs the trustee to invest employer
contributions in the investment option selected by the Committee under the
Pension Plan.

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PENSION PLAN AMENDMENT OR TERMINATION. Under the terms of the Pension Plan,
the Company reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit accrued under the Pension Plan prior to the effective
date of the amendment or termination.

ESTIMATED MONTHLY BENEFITS. The following table sets forth the estimated
monthly benefits under the Pension Plan based on the current benefit structure:

PENSION PLAN TABLE

[Enlarge/Download Table]

YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
----------------------------------- --------- --------- --------- --------- ---------

$125,000........................... $ 1,172 $ 1,563 $ 1,953 $ 2,344 $ 2,734
150,000........................... 1,407 1,875 2,344 2,813 3,281
175,000........................... 1,407 1,875 2,344 2,813 3,281
200,000........................... 1,407 1,875 2,344 2,813 3,281
225,000........................... 1,407 1,875 2,344 2,813 3,281
250,000........................... 1,407 1,875 2,344 2,813 3,281
300,000........................... 1,407 1,875 2,344 2,813 3,281
400,000........................... 1,407 1,875 2,344 2,813 3,281
450,000........................... 1,407 1,875 2,344 2,813 3,281
500,000........................... 1,407 1,875 2,344 2,813 3,281

The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation, but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not), contributions
to this or any other retirement plans or programs, or the value of any other
fringe benefits provided at the expense of the Company. For benefit calculation
purposes, a "highest-five-year" average of compensation is used. Benefits are
paid as straight-life annuities with no subsidies or offsets. The compensation
covered by the Pension Plan for all of the Named Executives was limited to
$150,000 in accordance with Section 401(a)(17) of the Internal Revenue Code of
1986, as amended.

The years of credited service for each Named Executive who participates in
the Pension Plan are as follows:

[Download Table]

NAME YEARS
--------------------------------------------------------------- ---------

Virgil K. Benton II............................................ 21 years
Charles J. Hogarty............................................. 36 years
Al A. Ronco.................................................... 37 years
Robert L. Blanton.............................................. 27 years

EMPLOYEE STOCK OWNERSHIP PLAN

GENERAL. The Board of Directors adopted the Employee Stock Ownership Plan
(the "ESOP"), originally effective as of April 1, 1975, for the benefit of the
eligible employees of the Company. Since the implementation of the ESOP, the
Company has amended the ESOP from time to time. Most recently, the Company
amended and restated the ESOP in order to comply with the requirements of the
Tax Reform Act of 1986 and later legislation, generally effective as of April 1,
1989. The primary purpose of the ESOP is to permit participating employees to
share in the growth and prosperity of the Company through the ownership of
Company stock under the ESOP. All employees of the Company are eligible to
participate in the ESOP as of their date of hire. The Company does not intend to
make contributions to the ESOP for the foreseeable future.

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ADMINISTRATION. The ESOP is administered by a committee (the "Committee)
whose members are appointed by the Board of Directors of the Company. The
Committee oversees the day-to-day administration of the ESOP and is responsible
for making determinations on questions of administration, interpretation and
application of ESOP terms, including questions of eligibility, service and
distribution of plan benefits to participants. The Committee will carry out its
responsibilities under the ESOP in a uniform and nondiscriminating manner.

ESOP CONTRIBUTIONS AND VESTING. The ESOP provides for employer
contributions only, and the amount of which is determined by the Board of
Directors on an annual basis. In the absence of a Board determination in any
year, the amount of contribution the Company will make to the ESOP will be 10%
of the compensation of participants. Tax law limits deductible contributions to
the ESOP to 15% of the total compensation paid during the year to participating
employees.

For purposes of calculating the amount of a participant's employer
contributions in any year, compensation means all wages and salaries paid to the
participant during the year, including bonuses, overtime, and commissions.

A participant will become fully vested in his employer contributions upon
the attainment of normal retirement age, death, or termination of the ESOP. If
the participant terminates employment prior to retirement age, the vested
interest he has in his employer contributions will be based on his years of
service with the Company, with 20% of vesting upon the completion of three years
of service, and 20% for each additional year thereafter, with 100% vesting after
seven or more years of service.

ESOP INVESTMENTS. Because the ESOP is an employee stock ownership plan, it
is designed to comply with the legal requirement that plan assets be invested
primarily in Company stock. Cash contributions made by the Company to the ESOP,
therefore, are used by the trustee to purchase Company stock at such time as the
trustee deems it prudent to do so.

In compliance with applicable legal requirements, the ESOP also permits
eligible participants to diversify the investment of their plan assets under the
ESOP. An eligible participant is a participant who has attained age 55 and who
has at least ten years of participation in the ESOP. An eligible participant is
entitled to diversify up to 25% of his account balance for a six-year period,
and at the end of the six-year period, he will be entitled to diversify up to
50% of his account balance. For purposes of meeting diversification
requirements, the Company will either make a distribution to the eligible
participant of his diversified amount, or provide three investment funds under
the ESOP to enable the eligible participant to diversify the investment of his
plan assets.

ESOP AMENDMENT OR TERMINATION. Under the terms of the ESOP, the Company
reserves the right to amend or terminate the ESOP at any time and in any manner.
No amendment or termination, however, may deprive a participant of any benefit
he has accrued under the ESOP prior to the effective date of the amendment or
termination.

CERTAIN TRANSACTIONS

The Company has entered into three lease agreements with two partnerships
whose partners include certain of the Company's directors and officers and two
lease agreements with a corporation which is owned by a family member of a
Company officer and director, as described below. The Company believes that the
terms and conditions of such leases with affiliated parties are no less
favorable than could have been obtained from unaffiliated parties in arm's
length transactions at the time such leases were entered into.

The Company has entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for an 8,000 square foot warehouse facility in Ontario,
California, with a lease term of three years (with an option to renew the lease
for an additional three years on the same terms and conditions), for a monthly
rent of $3,494. V-JAC Properties, Ltd. is a partnership whose interests are held
equally by Virgil K. Benton, Sr., John G. Jordan, Al A. Ronco and Charles J.
Hogarty, each of whom is a co-founder, director or executive officer of the
Company.

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The Company has also entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for a 10,000 square foot warehouse facility in Palmyra, New
Jersey, with a lease term of three years (with an option to renew the lease for
an additional three years on the same terms and conditions), for a monthly rent
of $2,985.

The Company has entered into a lease dated January 5, 1995, with B-J
Properties, Ltd. for a 25,000 square foot warehouse facility in St. Louis,
Missouri, with a lease term of three years (with an option to renew the lease
for an additional three years on the same terms and conditions), for a monthly
rent of $5,067. B-J Properties, LTD is a partnership whose interests are held
61.75% by Virgil Benton, Sr., the Company's founder, and 38.25% by John Jordan,
the Company's co-founder, both of whom retired as directors of the Company
effective March 31, 1996.

The Company has entered into a lease dated April 1, 1995, with Benton Real
Properties, Inc., relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in the
first year of the lease, increasing to $6,271, $6,459, $6,653 and $6,853,
respectively, in each year thereafter. Benton Real Properties, Inc. is wholly
owned by Bertha Benton, the mother of Virgil K. Benton II, the Company's Chief
Executive Officer and a director.

In January 1996, the Company exercised a five year lease option expiring on
December 31, 2000, with respect to a lease dated January 1, 1991, with Benton
Real Properties, Inc., relating to approximately 20,000 square feet in Ontario,
California, for a monthly rent of $5,634 in the first year of the lease,
increasing to $5,803, $5,977, $6,157 and $6,341, respectively, in each year
thereafter.

From time to time, the Company has borrowed funds from its directors,
officers and principal shareholders for general working capital purposes. In
March 1996, all such indebtedness was repaid. During the last three fiscal
years, the maximum principal amount outstanding under each such loan was
$123,668 and $240,596 to John G. Jordan, who retired as a director of the
Company effective March 31, 1996, and Charles J. Hogarty, respectively. The
Company believes the terms of such transactions were no less favorable to the
Company than could have been obtained from an unaffiliated party.

Crowell, Weedon & Co. ("Crowell, Weedon"), one of the Representatives of the
Underwriters of this Offering, provided certain financial advisory services to
the Company during fiscal 1996. Timothy C. McQuay, a director nominee of the
Company, is a Managing Director -- Corporate Finance of Crowell, Weedon.

The Company has adopted a policy that it will not enter into any material
transaction in which a Company director or officer has a direct or indirect
financial interest, unless the transaction is determined by the Company's Board
of Directors to be fair to the Company and is approved by a majority of the
Company's disinterested directors or by the Company's shareholders, as provided
for under California law.

LIMITATION ON LIABILITY AND INDEMNIFICATION

The Restated Articles of Incorporation of the Company limit the liability of
the Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its shareholders, except to the extent
otherwise required by the California General Corporation Law. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or recision.

The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by applicable law, including
circumstances in which indemnification is otherwise discretionary. The Company
has entered into indemnification agreements with its directors and executive
officers containing provisions which are in some respects broader than the
specific indemnification provisions contained in the California General
Corporation Law. Such agreements may require the Company, among other things,
(i) to indemnify its officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers provided
such persons acted in good faith and in a manner reasonably believed to be in
the best interests of the Company and, with respect to any criminal action, had
no cause to believe their conduct was unlawful, (ii) to advance the expenses
actually and reasonably incurred by its officers and directors as a result of
any proceeding against them as to which they could be indemnified

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and (iii) to obtain directors' and officers' insurance if available on
reasonable terms. There is no action or proceeding pending or, to the knowledge
of the Company, threatened which may result in a claim for indemnification by
any director, officer, employee or agent of the Company.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the shares offered
hereby, the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of March 29, 1996, and as adjusted to reflect
the sale of the shares offered hereby, by (i) each person known to the Company
to be the beneficial owner of more than five percent of the outstanding Common
Stock of the Company, (ii) those shareholders of the Company who are selling
shares in this Offering (the "Selling Shareholders"), (iii) each director,
director nominee and executive officer and (iv) all directors and executive
officers as a group.

[Enlarge/Download Table]

SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
------------------------- NUMBER OF -------------------------
NUMBER OF PERCENT OF SHARES NUMBER OF PERCENT OF
NAME AND ADDRESS(1) SHARES CLASS OFFERED SHARES CLASS
---------------------------------------- ---------- ------------- ----------- ---------- -------------

Virgil K. Benton II(4).................. 1,908,720 32.9% 500,000 1,408,720 19.3%
Employee Stock Ownership Plan........... 1,578,335 27.2% -- 1,578,335 21.6%
JFJ Partners Ltd.(5).................... 1,130,493 19.5% 604,699 525,794 7.2%
Charles J. Hogarty(6)................... 447,226 7.7% -- 447,226 6.1%
Robert L. Blanton(7).................... 66,376 1.1% -- 66,376 *
Kimberly Jordan......................... 44,607 * 22,301 22,306 *
Donald I. Jordan........................ 44,607 * 33,454 11,153 *
Ronald J. Jordan........................ 44,607 * 28,992 15,615 *
Karen Jordan............................ 21,111 * 10,554 10,557 *
Al A. Ronco(8).......................... 347,677 6.0% -- 347,677 4.8%
Timothy C. McQuay(9).................... -- -- -- 10,000 *
George E. Seebart(9).................... -- -- -- 10,000 *
All directors and executive officers as
a group (5 persons)(10)............... 2,769,999 47.8% 500,000 2,269,999 31.1%

------------
* Less than one percent.

(1) The business address of each beneficial owner is 700 East Bonita Avenue,
Pomona, California 91767.

(2) Each person has sole voting and investment power over the shares of Common
Stock shown as beneficially owned, subject to community property laws where
applicable.

(3) Assumes no exercise of the Underwriters' over-allotment option.

(4) Excludes (i) 166,241 shares held by or in trust for members of the Benton
family, as to which shares Mr. Benton disclaims beneficial ownership, and
(ii) 21,344 shares held for the benefit of Mr. Benton by the ESOP. The
listed shares were acquired from Virgil Benton, Sr., a founder of the
Company, in a family transaction.

(5) Excludes 154,932 shares held by members of the Jordan family.

(6) Excludes 55,831 shares held for the benefit of Mr. Hogarty by the ESOP.

(7) Excludes 26,613 shares held for the benefit of Mr. Blanton by the ESOP.

(8) Excludes 50,997 shares held for the benefit of Mr. Ronco by the ESOP.

(9) Consists of shares issuable upon the exercise of stock options to be granted
pursuant to the Company's stock incentive plan to the named individual, who
has been nominated to serve on the Board of Directors upon the completion of
this Offering. See "Management -- Stock Incentive Plan."

(10) Excludes 154,610 shares held for the benefit of directors and executive
officers by the ESOP.

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DESCRIPTION OF CAPITAL STOCK

The Company currently is authorized to issue up to (i) 20,000,000 shares of
Common Stock, of which 5,800,000 shares are outstanding and held of record by 18
shareholders, and (ii) 3,000,000 shares of Preferred Stock, none of which are
outstanding.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders (other than the
election of directors). The Company's shareholders currently may cumulate their
votes for the election of directors so long as at least one shareholder has
given notice at the meeting of shareholders prior to the voting of that
shareholder's desire to cumulate his or her votes. Cumulative voting will no
longer be required or permitted under the Company's Restated Articles of
Incorporation (the "Articles") at such time as (i) the Company's shares of
Common Stock are listed on the Nasdaq National Market and the Company has at
least 800 holders of its equity securities as of the record date of the
Company's most recent annual meeting of shareholders or (ii) the Company's
shares of Common Stock are listed on the New York Stock Exchange or the American
Stock Exchange. At the same time, the Company will divide its Board into three
classes of directors. The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, and the Company
may have at least 800 holders of its equity securities by the record date for
its next annual meeting of shareholders. Shareholder actions generally require
the approval of the holders of a majority of the Company's outstanding shares of
Common Stock. Subject to preferences which may be granted to the holders of
Preferred Stock, each holder of Common Stock is entitled to share ratably in
distributions to shareholders and to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of the liquidation, dissolution or winding up of the Company, is
entitled to share ratably in all assets of the Company remaining after payment
of liabilities. Holders of Common Stock have no conversion, preemptive or other
rights to subscribe for additional shares, and there are no redemption rights or
sinking fund provisions with respect to the Common Stock. The outstanding shares
of Common Stock are, and the shares to be sold by the Company in this Offering
will be, when issued and delivered against receipt of the consideration set
forth in this Prospectus, validly issued, fully paid and nonassessable.
Additional shares of Common Stock may be issued by the Company from time to
time.

PREFERRED STOCK

The Board of Directors, without further action by the holders of Common
Stock, may issue shares of Preferred Stock in one or more series and may fix or
alter the relative, participating, optional or other rights, preferences,
privileges and restrictions, including the voting rights, redemption provisions
(including sinking fund provisions), dividend rights, dividend rates,
liquidation preferences and conversion rights, and the description of and number
of shares constituting any wholly unissued series of Preferred Stock. The Board
of Directors, without further shareholder approval, can issue Preferred Stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock. No shares of Preferred Stock presently are
outstanding, and the Company currently has no plans to issue shares of Preferred
Stock. The issuance of Preferred Stock in certain circumstances may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the shareholders, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price, and the voting and other rights of
the holders, of Common Stock.

CERTAIN PROVISIONS IN THE COMPANY'S ARTICLES AND BYLAWS

SHAREHOLDER MEETINGS. The Articles provide that any action required to be
taken or that may be taken at any meeting of the Company's shareholders may only
be taken at a meeting of shareholders or by the written consent of the holders
of two-thirds of the outstanding voting shares. In addition, if a shareholder
wishes to propose an item for consideration at a special meeting of
shareholders, or at the first annual meeting of shareholders after the date of
this Offering, he must give written notice to the Company not less

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than 30 nor more than 60 days prior to the meeting or, if later, the tenth day
following the first public announcement of such meeting, or such other date as
is necessary to comply with applicable federal proxy solicitation rules or other
regulations. The Bylaws of the Company (the "Bylaws") provide that, if a
shareholder wishes to propose an item for consideration at any annual meeting of
shareholders (other than the first annual meeting after the date of this
Offering), he must give written notice to the Company not less than 90 days
prior to the day and month on which, in the immediately preceding year, the
annual meeting for such year had been held.

BOARD OF DIRECTORS. The Bylaws provide that the number of directors shall
be not less than five nor more than nine until changed by an amendment duly
adopted by the Company's shareholders. The Bylaws further provide that the exact
number of directors shall be fixed from time to time, within such range, by the
Board of Directors. The number of directors currently is fixed at five. The
Articles provide that, upon the satisfaction of certain conditions, the Board of
Directors will be divided into three classes of directors, each serving for
staggered three-year terms. See "Management."

AMENDMENT OF ARTICLES AND BYLAWS. The Bylaws may not be amended without the
approval of the holders of at least two-thirds of the outstanding voting shares
or the approval of at least two-thirds of the authorized directors; provided,
however, that the provisions of the Bylaws relating to shareholder proposals and
the number and nomination of directors require the approval of the holders of at
least two-thirds of the outstanding voting shares. In addition, the provisions
contained in the Articles and Bylaws with respect to the required vote for
shareholder action without a meeting, the classification of the Board of
Directors, the elimination of cumulative voting, indemnification of directors,
officers and others and the Preferred Stock may not be amended without the
affirmative vote of at least two-thirds of the outstanding voting shares.

The foregoing provisions of the Articles and the Bylaws may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the shareholders, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.

TRANSFER AGENT AND REGISTRAR

The Company has appointed U.S. Stock Transfer Corporation, Glendale,
California as the transfer agent and registrar for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of the Common Stock of the Company
in the public market could adversely affect prevailing market prices.

Upon the completion of this Offering, there will be 7,300,000 shares of
Common Stock outstanding, excluding shares issuable under the Company's stock
incentive plan. Of these shares, the 2,700,000 shares sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act, except for any such shares purchased by an "affiliate" of the
Company. The remaining shares (the "Restricted Shares"), and any shares
purchased in this Offering by an "affiliate" of the Company, may not be sold
without registration under the Securities Act or pursuant to an applicable
exemption therefrom.

The Company and each of its officers, directors and existing shareholders
(other than the ESOP) have agreed, for a period of 270 days from the date of
this Prospectus (the "Lock-Up Period"), not to, directly or indirectly, sell or
otherwise dispose of any shares of Common Stock in the public market, without
the prior written consent of the Representatives. See "Underwriting."

Upon the expiration of the Lock-Up Period (or, with respect to the 1,578,335
shares held by the ESOP, 91 days after the consummation of this Offering), or
such earlier date as the Representatives may approve, the 4,600,000 shares now
held by the current shareholders will become eligible for sale in the public
market under Rule 144.

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In general, under Rule 144 promulgated under the Securities Act, as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years (including the
holding period of any prior owner other than an "affiliate" of the Company), or
who is an "affiliate" of the Company, is entitled to sell within any three-month
period a number of such Restricted Shares or, in the case of an "affiliate," a
number of such Restricted Shares and shares purchased in this Offering, that
does not exceed the greater of (i) 1% of the then outstanding shares of the
Company's Common Stock (approximately 73,000 shares immediately after this
Offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the public market during the four calendar weeks immediately preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner of sale, notice and availability of current public information
regarding the Company. A person who has not been an "affiliate" of the Company
at any time during the three months preceding a sale, and who has beneficially
owned Restricted Shares for at least three years, is entitled to sell such
shares under Rule 144 without regard to the volume limitations, manner of sale
provisions or notice requirements. Upon expiration of the Lock-Up Period, or
such earlier date as the Representatives may approve, 4,419,867 of the
Restricted Shares will have been held for more than three years. Of these
outstanding shares of the Company's Common Stock, 2,949,357 shares are held by
officers, directors or principal shareholders of the Company who may be deemed
to be "affiliates" of the Company.

Concurrently with the sale of the shares of Common Stock offered hereby to
the several Underwriters, the Company will grant options to purchase an
aggregate of 220,000 shares of Common Stock pursuant to the Option Plan. An
additional 510,000 shares are reserved for issuance under the Option Plan. See
"Management -- Stock Incentive Plan." The Company intends to register the sale
of such shares under the Securities Act. Accordingly, as awards under the Option
Plan vest, shares issued pursuant thereto will be freely tradeable.

424B4 40th Page of 58 TOC 1st Previous Next ↓Bottom Just 40th
UNDERWRITING

The Underwriters named below (the "Underwriters"), represented by Morgan
Keegan & Company, Inc. and Crowell, Weedon & Co. (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.

[Enlarge/Download Table]

NUMBER OF
NAME OF UNDERWRITER SHARES
------------------------------------------------------------------------------------------- ----------

Morgan Keegan & Company, Inc............................................................... 660,000
Crowell, Weedon & Co....................................................................... 660,000

CS First Boston Corporation................................................................ 60,000
Dillon, Read & Co. Inc..................................................................... 60,000
A.G. Edwards & Sons, Inc................................................................... 60,000
Lehman Brothers Inc........................................................................ 60,000
Montgomery Securities...................................................................... 60,000
Oppenheimer & Co., Inc..................................................................... 60,000
PaineWebber Incorporated................................................................... 60,000
Prudential Securities Incorporated......................................................... 60,000
Smith Barney Inc........................................................................... 60,000

Advest Inc................................................................................. 30,000
Robert W. Baird & Co. Incorporated......................................................... 30,000
William Blair & Company, L.L.C............................................................. 30,000
J.C. Bradford & Co......................................................................... 30,000
Brean Murray, Foster Securities, Inc....................................................... 30,000
Cowen & Company............................................................................ 30,000
Dain Bosworth Incorporated................................................................. 30,000
Dominick & Dominick, Incorporated.......................................................... 30,000
EVEREN Securities, Inc..................................................................... 30,000
First of Michigan Corporation.............................................................. 30,000
Furman Selz Incorporated................................................................... 30,000
Interstate/Johnson Lane Corporation........................................................ 30,000
Legg Mason Wood Walker, Incorporated....................................................... 30,000
McDonald & Company Securities, Inc......................................................... 30,000
The Ohio Company........................................................................... 30,000
Principal Financial Securities, Inc........................................................ 30,000
Rauscher Pierce Refsnes, Inc............................................................... 30,000
Raymond James & Associates, Inc............................................................ 30,000
The Robinson-Humphrey Company, Inc......................................................... 30,000
Scott & Stringfellow, Inc.................................................................. 30,000
The Seidler Companies Incorporated......................................................... 30,000
Stephens Inc............................................................................... 30,000
Stifel, Nicolaus & Company, Incorporated................................................... 30,000
Sutro & Co. Incorporated................................................................... 30,000
Tucker Anthony Incorporated................................................................ 30,000
Vector Securities International, Inc....................................................... 30,000
Wedbush Morgan Securities Inc.............................................................. 30,000
Wheat First Butcher Singer................................................................. 30,000
----------
Total.................................................................................. 2,700,000
----------
----------

The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares are
purchased. The Company and the Selling Shareholders have been advised by the

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Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the initial public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $.36 per share of Common Stock. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $.10 per share to other
dealers. The initial public offering price and the concessions and discount to
dealers may be changed by the Underwriters after the initial public offering.

The Selling Shareholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase on a pro
rata basis up to an additional 405,000 shares of Common Stock at the initial
public offering price, less underwriting discounts and commissions, as shown on
the cover page of this Prospectus. The Underwriters may exercise such option
solely for the purpose of covering over-allotments incurred in the sale of the
shares of Common Stock offered hereby.

The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.

The Company and each of its directors, officers and existing shareholders
(other than the ESOP) have agreed, for a period of 270 days from the date of
this Prospectus, not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase, or otherwise dispose (or
announce any offer, sale, grant of any option to purchase or other disposition)
of any shares of Common Stock, or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock, in the public market,
without the prior written consent of the Representatives.

The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiations among the Company, the Selling Shareholders and
the Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock were the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the general condition of the securities market at the
time of the Offering and the market prices of publicly traded companies that the
Company, the Selling Shareholders and the Representatives believe to be
comparable to the Company.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "KEYS," subject to official notice of issuance. The
Company and the Selling Shareholders have been advised by the Representatives
that each of the Representatives presently intend to make a market in the Common
Stock offered hereby; however, the Representatives are not obligated to do so,
and any market making activity may be discontinued at any time. There can be no
assurance that an active public market for the Common Stock will develop and
continue after this Offering.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Manatt, Phelps & Phillips,
LLP, Los Angeles, California. Certain legal matters will be passed upon for the
Underwriters by Troy & Gould Professional Corporation, Los Angeles, California.

EXPERTS

The financial statements of Keystone Automotive Industries, Inc. at March
31, 1995 and March 29, 1996 and for each of the three years in the period ended
March 29, 1996, appearing in this Prospectus and the Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.

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ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance such statements are qualified in
their entirety by reference to the copy of such contract or other document filed
as an exhibit to the Registration Statement. For further information concerning
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, and to the exhibits and schedules thereto, which may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Room 1014, Washington, D.C. 20549, and at the Commission's
Regional Offices located at Seven World Trade Center, New York, New York and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS

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Report of Independent Auditors....................................................... F-2

Balance Sheets at March 31, 1995 and March 29, 1996.................................. F-3

Statements of Income for years ended March 25, 1994, March 31, 1995 and March 29,
1996............................................................................... F-4

Statements of Shareholders' Equity for the years ended March 25, 1994, March 31, 1995
and March 29, 1996................................................................. F-5

Statements of Cash Flows for the years ended March 25, 1994, March 31, 1995 and March
29, 1996........................................................................... F-6

Notes to Financial Statements........................................................ F-7

F-1

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.

We have audited the accompanying balance sheets of Keystone Automotive
Industries, Inc. as of March 29, 1996 and March 31, 1995, and the related
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 29, 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 Keystone Automotive
Industries, Inc. at March 29, 1996 and March 31, 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
March 29, 1996, in conformity with generally accepted accounting principles.

As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for income taxes in 1994.

ERNST & YOUNG LLP

Los Angeles, California
May 24, 1996

F-2

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)

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MARCH 31, MARCH 29,
1995 1996
----------- -----------

ASSETS
Current assets:
Cash..................................................................................... $ 3,916 $ 2,677
Accounts receivable, less allowance for doubtful accounts of $376 in 1995 and $280 in
1996................................................................................... 7,842 10,799
Inventories, primarily finished goods.................................................... 17,223 22,226
Prepaid expenses......................................................................... 758 604
Other receivables........................................................................ 242 --
Deferred taxes........................................................................... 978 724
----------- -----------
Total current assets............................................................... 30,959 37,030
Property, plant and equipment, at cost:
Land..................................................................................... 348 376
Buildings and leasehold improvements..................................................... 4,013 4,495
Machinery and equipment.................................................................. 1,366 1,451
Furniture and fixtures................................................................... 4,060 4,496
----------- -----------
9,787 10,818
Accumulated depreciation and amortization................................................ (5,676) (6,487)
----------- -----------
4,111 4,331
Deferred taxes............................................................................. 94 22
Other assets............................................................................... 1,500 1,652
----------- -----------
Total assets....................................................................... $ 36,664 $ 43,035
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit........................................................................... $ 11,050 $ 12,250
Bankers acceptances and other short term debt............................................ 2,453 3,520
Accounts payable......................................................................... 6,417 8,597
Notes payable to officers, shareholders and other related parties........................ 344 150
Accrued salaries, wages and related benefits............................................. 492 810
Other accrued liabilities................................................................ 806 984
Long-term debt, due within one year...................................................... 1,078 400
----------- -----------
Total current liabilities.......................................................... 22,640 26,711
Long-term debt............................................................................. 1,215 813
Accrued pension cost....................................................................... 440 36
Commitments
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 3,000,000
None issued and outstanding -- --
Common stock, no par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 5,800,000 in 1995 and 1996, at stated value........... 4,299 4,299
Additional paid-in capital............................................................... 436 436
Retained earnings........................................................................ 7,634 10,740
----------- -----------
Total shareholders' equity......................................................... 12,369 15,475
----------- -----------
Total liabilities and shareholders' equity......................................... $ 36,664 $ 43,035
----------- -----------
----------- -----------

See accompanying notes.

F-3

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

[Enlarge/Download Table]

YEAR ENDED
----------------------------------

MARCH 25, MARCH 31, MARCH 29,
1994 1995 1996
---------- ---------- ----------
Net sales.................................................................. $ 84,884 $ 101,596 $ 115,326
Cost of sales.............................................................. 51,196 61,532 70,246
---------- ---------- ----------
Gross profit............................................................... 33,688 40,064 45,080
Operating expenses:
Selling and distribution expenses........................................ 25,308 28,635 31,230
General and administrative............................................... 6,603 8,226 7,565
---------- ---------- ----------
31,911 36,861 38,795
---------- ---------- ----------
Operating income........................................................... 1,777 3,203 6,285
Interest expense........................................................... 680 962 1,156
---------- ---------- ----------
Income before income taxes and cumulative effect of accounting change for
income taxes............................................................. 1,097 2,241 5,129
Income taxes............................................................... 447 835 2,023
---------- ---------- ----------
Income before cumulative effect of change in method for accounting for
income taxes............................................................. 650 1,406 3,106
Cumulative effect of accounting change for income taxes.................... (134) -- --
---------- ---------- ----------
Net income................................................................. $ 516 $ 1,406 $ 3,106
---------- ---------- ----------
---------- ---------- ----------
Income per share before cumulative effect of accounting change............. $ .11 $ .24 $ .54
Cumulative effect per share................................................ (.02) -- --
---------- ---------- ----------
Net income per share....................................................... $ .09 $ .24 $ .54
---------- ---------- ----------
---------- ---------- ----------
Weighted averages shares outstanding....................................... 5,862,755 5,805,166 5,800,000
---------- ---------- ----------
---------- ---------- ----------

See accompanying notes.

F-4

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

[Enlarge/Download Table]

COMMON STOCK
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- ----------- --------- ---------

Balance at March 26, 1993................................... 5,592,555 $ 3,606 $ 436 $ 5,712 $ 9,754
Issuance of 90,067 shares of common stock to officers
($3.32 per share)........................................ 90,067 299 -- -- 299
Net income................................................ -- -- -- 516 516
---------- --------- ----- --------- ---------
Balance at March 25, 1994................................... 5,682,622 3,905 436 6,228 10,569
Retirement of 62,755 shares of common stock ($3.32 per
share)................................................... (62,755) (209) -- -- (209)
Issuance of 186,343 shares of common stock to officers
($3.34 per share)........................................ 180,133 603 -- -- 603
Net income................................................ -- -- -- 1,406 1,406
---------- --------- ----- --------- ---------
Balance at March 31, 1995................................... 5,800,000 4,299 436 7,634 12,369
Net income................................................ -- -- -- 3,106 3,106
---------- --------- ----- --------- ---------
Balance at March 29, 1996................................... 5,800,000 $ 4,299 $ 436 $ 10,740 $ 15,475
---------- --------- ----- --------- ---------
---------- --------- ----- --------- ---------

See accompanying notes.

F-5

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

[Enlarge/Download Table]

YEAR ENDED
-------------------------------------
MARCH 25, MARCH 31, MARCH 29,
1994 1995 1996
----------- ----------- -----------

OPERATING ACTIVITIES
Net income..................................................................... $ 516 $ 1,406 $ 3,106
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization................................................ 972 798 874
Cumulative effect of accounting change for income taxes...................... 134 -- --
Deferred taxes............................................................... (122) (431) 326
Provision for losses on uncollectible accounts............................... 253 229 241
Provision for losses on inventory............................................ 147 1,263 542
(Gain) loss on sales of assets............................................... (46) 32 (16)
Stock issued for compensation................................................ 299 603 --
Changes in operating assets and liabilities:
Accounts receivable........................................................ (1,614) (730) (3,198)
Inventories................................................................ (4,743) 1,535 (4,694)
Prepaid expenses and other receivables..................................... 682 (329) 739
Other assets............................................................... 57 (50) 170
Accounts payable........................................................... 2,660 (1,325) 2,180
Accrued salaries, wages and related benefits............................... 139 (126) 318
Other accrued liabilities and accrued pension costs........................ 437 (66) (526)
----------- ----------- -----------
Net cash (used in) provided by operating activities............................ (229) 2,809 62
INVESTING ACTIVITIES
Proceeds from sale of assets................................................... 63 46 40
Acquisitions of certain service centers........................................ -- (1,289) (1,342)
Purchases of property, plant and equipment..................................... (550) (1,590) (999)
----------- ----------- -----------
Net cash used in investing activities.......................................... (487) (2,833) (2,301)
FINANCING ACTIVITIES
Borrowings under bank credit facility.......................................... -- 2,750 1,200
Payments under bank credit facility............................................ -- (1,200) --
Bankers acceptances and other short-term debt, net............................. 1,689 (1,024) 1,067
Borrowings on notes payable to officers, shareholders and other related
parties....................................................................... 6 14 178
Payments on notes payable to officers, shareholders and other related
parties....................................................................... (30) (13) (364)
Borrowings on long-term debt................................................... -- 1,880 --
Principal payments on long-term debt........................................... (869) (774) (1,081)
Principal payments on capital lease obligations................................ (34) (141) --
Retirement of stock............................................................ -- (209) --
----------- ----------- -----------
Net cash provided by financing activities...................................... 762 1,283 1,000
----------- ----------- -----------
Net increase (decrease) in cash................................................ 46 1,259 (1,239)
Cash at beginning of year...................................................... 2,611 2,657 3,916
----------- ----------- -----------
Cash at end of year............................................................ $ 2,657 $ 3,916 $ 2,677
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures
Interest paid during the year................................................ $ 663 $ 908 $ 1,175
Income taxes paid during the year............................................ $ 13 $ 1,916 $ 1,382

See accompanying notes.

F-6

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 29, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS INFORMATION

The principal business of Keystone Automotive Industries, Inc. (the
"Company") is the distribution of replacement parts for automobiles and light
trucks to collision repair shops through a network of 41 service centers located
within the United States and Mexico. The significant accounting policies of the
Company are summarized as follows:

FISCAL YEAR

The Company operates using a 52/53 week fiscal year. The Company's fiscal
year ends on the last Friday of March. The fiscal years ended March 25, 1994,
March 31, 1995 and March 29, 1996 included 52, 53 and 52 weeks, respectively.

INVENTORIES

The Company's inventories consist primarily of automotive crash parts and
bumpers. Inventories are stated at the lower of cost (first-in, first-out) or
market.

DEPRECIATION

The Company uses the straight-line method for depreciation of property,
plant, and equipment over the following estimated useful lives:

[Download Table]

Buildings............................... 20 years
Machinery and equipment................. 5-10 years
Furniture and fixtures.................. 5-8 years
Auto and truck.......................... 3-5 years
Leasehold improvements.................. Term of lease or life of the asset,
whichever is shorter

Depreciation and amortization expenses amounted to approximately $972,000,
$798,000 and $874,000 for the years ended March 25, 1994, March 31, 1995 and
March 29, 1996, respectively.

CONCENTRATION OF CREDIT RISK

Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, none representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Receivables are generally due within 30 days.
Credit losses have consistently been within management's expectations. The
Company purchased more than 10% of total purchases from one vendor during the
fiscal years ended March 31, 1995 and March 29, 1996.

ACCOUNTING 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

F-7

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996
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 these estimates.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related Interpretations.

REVENUE RECOGNITION

The Company recognizes revenue from product sales at the time of delivery.
The Company provides its customers the right to return products that are damaged
or defective. The effect of these programs is estimated and current period sales
and cost of sales are reduced accordingly.

EARNINGS PER SHARE

The Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. The Company
restated its Articles of Incorporation and Bylaws to increase the authorized
shares of common stock to 20,000,000 and to authorize 3,000,000 shares of
preferred stock. No preferred stock has been issued. Additionally, the Board of
Directors and shareholders approved a common stock split of 3.8467 to 1 on April
16, 1996. All share and per share amounts in these financial statements have
been adjusted for the common stock split.

Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents attributable to stock options.
Common stock equivalents were calculated using the treasury stock method based
on the appraised fair market value of the Company's common stock obtained
annually as of the end of the fiscal year from an independent appraiser.

NEW ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in 1997 and, based on current circumstances, does not believe the effect of
adoption will be material.

In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which establishes financial accounting and reporting
standards for stock-based compensation plans. The Company will comply with this
standard in 1997. It is currently determining which alternatives available
within the standard will be adopted.

F-8

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

2. FINANCING ARRANGEMENTS

Long-term debt consisted of the following at March 31, 1995 and March 29,
1996:

[Download Table]

1995 1996
------- -------
(IN THOUSANDS)

Note payable to bank, due in monthly installments of
$50,000, plus interest at the prime rate (8.25% at
March 29, 1996), plus .5% due August 1, 1996......... $ 850 $ 250
10.5% mortgage notes payable, principal and interest
payable at $3,316 and $2,225 monthly through October
1998 and June 1999, respectively..................... 207 160
Notes payable to Bumper Exchange, monthly principal of
$6,790 and interest at 1% above the prime rate (8.25%
at March 29, 1996), payable through October 1997.
Secured by inventory, property and equipment......... 210 129
Note payable to FAMA, plus interest at 1% above prime
rate................................................. 338 --
Note payable to PNC bank, monthly payments of $6,649
with a variable interest rate (9.25% at March 29,
1996), payable through April 30, 1999. Secured by
property............................................. 688 674
------- -------
2,293 1,213
Less amount due within one year........................ 1,078 400
------- -------
Amounts due after one year............................. $ 1,215 $ 813
------- -------
------- -------

The mortgage note payable is secured by a purchase-money trust deed covering
land and building, with a net book value of $431,000 and a cost of $618,000 at
March 29, 1996.

Long-term debt due after one year matures approximately as follows: 1997 --
$400,000; 1998 -- $122,000; 1999 -- $60,000; 2000 -- $23,000; 2001 -- $17,000;
and thereafter $591,000.

The Company's credit agreement, which expires on October 31, 1996, provides
for borrowings up to a maximum of $17,000,000, including a term loan up to
$1,200,000, due August 1, 1996, and a revolving credit facility comprising a
line of credit for direct advances, commitments from the bank for borrowings
under bankers' acceptances, and letters of credit. The bank has offered in a
letter to extend the line of credit to August 1, 1997, subject to a definitive
agreement.

Total direct advances under the line of credit are available up to a maximum
of 80% of the amount of eligible accounts receivable and 50% of the amount of
eligible inventory, less any outstanding bankers' acceptances and letters of
credit. The maximum amount of letters of credit allowed by the agreement is
$6,000,000, and this is limited by amounts already outstanding under the
agreement. The Company had available $2,149,000 under the credit agreement as of
March 29, 1996. At March 29, 1996, the balance outstanding under the line of
credit was $12,250,000, of which $6,250,000 bears interest at the bank's
reference rate of 8.25% (6.25% at March 31, 1995), plus .25%. The remaining
$6,000,000 bears interest at LIBOR of 5.695% (6.25% at March 31, 1995), plus
1.5%. Additionally, the Company had outstanding import letters of credit
amounting to approximately $526,000.

The line-of-credit agreement and note payable to the bank are secured by
accounts receivable, inventories, and equipment and are subject to certain
restrictive covenants which restrict the payment of dividends and salaries and
requires the maintenance of minimum tangible net worth and certain financial
ratios. The Company was in compliance with its covenants as of March 29, 1996.

F-9

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

3. RELATED PARTY TRANSACTIONS

The Company has entered into three lease agreements for facilities with two
partnerships whose partners include certain of the Company's directors and
officers and two lease agreements with a corporation which is owned by a family
member of a Company officer and director, as described below. The Company
believes that the terms and conditions of such leases with affiliated parties
are no less favorable than could have been obtained from unaffiliated parties in
arm's length transactions at the time such leases were entered into.

The Company has entered into a lease in 1995 with V-JAC Properties, Ltd.
with a lease term of three years (with an option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent of
$3,494. V-JAC Properties, Ltd. is a partnership whose interests are held equally
by the Company's founders, president and executive vice president.

The Company has also entered into a lease in 1995 with V-JAC Properties,
Ltd. with a lease term of three years (with an option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent of
$2,985.

The Company has entered into a lease in 1995 with B-J Properties, Ltd. with
a lease term of three years (with an option to renew the lease for an additional
three years on the same terms and conditions), for a monthly rent of $5,067.

B-J Properties, LTD is a partnership whose interests are held by the
Company's founders, both of whom retired as directors of the Company effective
March 31, 1996.

The Company has entered into a lease dated April 1, 1995 with Benton Real
Properties, Inc. relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in the
first year of the lease, increasing to $6,271, $6,459, $6,653 and $6,853,
respectively, in each year thereafter. Benton Real Properties, Inc. is wholly
owned by Bertha Benton, the mother of Virgil K. Benton II, the Company's Chief
Executive Officer and a director.

Rent expense paid to related parties amounted to $252,000, $270,000 and
$196,000 for 1994, 1995 and 1996, respectively, exclusive of the Company's
obligation for property taxes and insurance.

Notes payable to officers, shareholders, and other related parties are
unsecured, due October 1, 1998, and bear interest at the prime rate (8.25% at
March 29, 1996) plus 1%. Interest expense incurred in connection with these
obligations was $20,000, $29,000 and $40,000 during the years ended March 25,
1994, March 31, 1995 and March 29, 1996, respectively.

F-10

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

4. INCOME TAXES

Effective for the beginning of the year ended March 25, 1994, the Company
changed its method of accounting for income taxes from the deferred method to
the liability method required by FASB Statement 109, "Accounting for Income
Taxes." As permitted under the new rules, prior years' financial statements have
not been restated. The cumulative effect of adopting Statement 109 decreased net
income by $134,000 in fiscal 1994.

Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Significant components of the Company's deferred tax liabilities and assets
as of March 31 are as follows (in thousands):

[Download Table]

1995 1996
------ ------

Deferred tax assets
Book depreciation over tax............ $ 402 $ 366
Uniform cost capitalization........... 232 226
Inventory reserve..................... 514 107
Accrued expenses not currently
deductible for tax................... 426 393
Other, net............................ -- 35
------ ------
Total deferred tax assets....... 1,574 1,127

Deferred tax liabilities
Prepaid expenses...................... (368) (381)
Other, net............................ (134) --
------ ------
Total deferred tax
liabilities.................... (502) (381)
------ ------
Net deferred assets............. $1,072 $ 746
------ ------
------ ------

No valuation allowance was necessary for deferred tax assets in 1996 or
1995.

Significant components of the provision for income taxes attributable to
operations under the liability method are as follows (in thousands):

[Download Table]

1994 1995 1996
-------- ------- -------

Current:
Federal......................................... $ 451 $ 1,135 $ 1,339
State........................................... 118 276 358
-------- ------- -------
569 1,411 1,697

Deferred:
Federal......................................... (99) (383) 277
State........................................... (23) (193) 49
-------- ------- -------
(122) (576) 326
-------- ------- -------
$ 447 $ 835 $ 2,023
-------- ------- -------
-------- ------- -------

F-11

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income taxes expense is as follows (in thousands):

[Download Table]

1994 1995 1996
---- ---- ------

Income taxes at statutory tax rate................ $373 $762 $1,743
State income taxes, net of federal tax effect..... 61 120 274
Non-deductible expenses........................... 13 4 6
Other, net........................................ (51) --
---- ---- ------
$447 $835 $2,023
---- ---- ------
---- ---- ------

5. EMPLOYEE BENEFIT PLANS

The Company has an employee stock ownership plan which covers substantially
all of its employees. Under the terms of the Internal Revenue Code, each year's
tax deductible contribution is limited to a maximum of 25% of the Company's
qualified payroll. A carryover of unused allowable contributions is allowed,
subject to certain limits. Under the terms of the plan, the Company makes the
contribution to the Trustee, who is required to follow the Administrative
Committee's investment decisions. The Company's contributions to the plan were
$174,000, $190,000 and none in 1994, 1995 and 1996, respectively.

In March 1979, the Company adopted a defined benefit pension plan (the
"Plan") to provide pension benefits to all non-union employees. Plan benefits
are based on an employee's years of service and the compensation during the five
years of employment which would yield the highest average compensation. The
assets of the plan consist primarily of investments in mutual funds, time
certificates of deposit, and marketable debt securities. The Company's policy is
to fund pension cost accrued.

The net periodic pension cost for the Plan for the years ended March 25,
1994, March 31, 1995 and March 29, 1996, consisted of the following (in
thousands).

[Download Table]

1994 1995 1996
----- ----- -----

Service costs -- benefits earned during the
year............................................. $ 105 $ 120 $ 132
Interest cost on projected benefit obligation..... 174 188 213
Actual return on assets........................... (122) (136) (153)
Net amortization and deferral..................... 43 40 45
----- ----- -----
$ 200 $ 212 $ 237
----- ----- -----
----- ----- -----

F-12

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

The following is a summary of the status of the funding of the Plan (in
thousands):

[Download Table]

1995 1996
------- -------

Actuarial present value of benefit obligations:
Vested benefit obligations...................... $(2,228) $(2,414)
Non-vested benefit obligations.................. (66) (65)
------- -------
Accumulated benefit obligations................... $(2,294) $(2,479)
------- -------
------- -------
Projected benefit obligations..................... $(2,668) $(2,902)
Assets of the plan at market...................... 1,853 2,442
------- -------
Projected benefit obligation greater than assets
of the plan..................................... (815) (460)
Unrecognized net loss not yet recognized in
periodic pension cost........................... 1,241 1,148
Unrecognized net transition obligation at March
28, 1987, being recognized over 25 years........ 136 128
Adjustment required to recognize minimum
liability:
Accrued but not expensed........................ 171 (1)
Unfunded liability.............................. 440 36
------- -------
Prepaid pension included in other assets and
prepaid expenses................................ $ 1,173 $ 851
------- -------
------- -------

In determining the actuarial present value of projected benefit obligations
at March 31, 1995 and March 29, 1996, a discount rate of 8% was used. Future
compensation levels are assumed to increase at an annual rate of 5%. The
expected long-term annual rate of return on assets is 8%.

6. STOCK COMPENSATION PLAN

During fiscal 1989, the Company's Board of Directors approved a restricted
stock compensation plan for participating directors, officers, and other key
management personnel, with the aggregate amount of authorized, but unissued,
common shares to be delivered upon the exercise of all options granted, not to
exceed 961,675. Options to purchase 630,466 common shares were granted during
fiscal 1989 and become exercisable in seven equal installments for each of seven
years, commencing with fiscal 1989, provided certain minimum revenue and pre-tax
income increases are achieved during each year of the option period. Options
which do not become exercisable during a given year due to non-attainment of
these increases may become exercisable in the next year, provided the cumulated
increases in revenues and pre-tax income are equal to the minimum amounts
otherwise required for the year in which the exercise may occur. Options which
become exercisable in a particular year expire if not exercised by the end of
such fiscal year. The purchase price of stock covered by each option is
determined by the Stock Option Committee.

During fiscal 1994 and 1995, restricted stock options of 90,067 and 180,133,
respectively, were exercised and were valued at the time of exercise ($3.32 in
1994 and $3.34 in 1995). No options were exercised in 1996. Transactions under
the Plan were as follows:

[Download Table]

STOCK OPTIONS SHARES PRICE
-------------------------------------------------- ------- -----

Outstanding at March 26, 1993..................... 270,200 $--
Exercised......................................... 90,067 $3.32
Outstanding at March 25, 1994..................... 180,133 --
Exercised......................................... 180,133 $3.34
------- -----
Outstanding at March 31, 1995..................... -- --
------- -----
------- -----

F-13

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 29, 1996

7. COMMITMENTS

The Company leases substantially all of its property and a portion of its
plant and equipment. Certain of the leases contain renewal options of from two
to five years. Future minimum lease payments, under noncancelable operating
leases with initial terms of one year or more, are approximately as follows at
March 29, 1996 (in thousands):

[Enlarge/Download Table]

RELATED TOTAL
PARTY BUILDING FLEET OPERATING
LEASES LEASES LEASES LEASES
------- ------- ------ ---------

1997.............................................. $282 $1,541 $ 726 $2,549
1998.............................................. 252 1,288 639 2,179
1999.............................................. 152 941 391 1,484
2000.............................................. 157 809 109 1,075
2001.............................................. 57 569 -- 626
Thereafter........................................ -- 267 -- 267
------- ------- ------ ---------
Total minimum rental payments................. $900 $5,415 $1,865 $8,180
------- ------- ------ ---------
------- ------- ------ ---------

Total rent expense amounted to $1,891,000, $1,698,000 and $2,908,000 for
fiscal 1994, 1995 and 1996, respectively, exclusive of the Company's obligation
for property taxes and insurance. Certain leases contain provisions for rent
escalation which is being amortized on a straight-line basis over the lives of
the leases.

8. ACQUISITION

In November 1994, the Company purchased substantially all of the assets,
primarily inventory, furniture and fixtures, and equipment of FAMA for
approximately $1,289,000 in cash and a note for $388,000. The acquisition was
accounted for using the purchase method, and, accordingly, the acquired assets
and liabilities were recorded at their estimated fair values.

During the year ended March 29, 1996, the Company purchased substantially
all of the assets, primarily inventory and equipment of M.A.P. International,
C.D. Wheel and United Bumper. The Company paid approximately $1,192,000 in cash
and gave a note for $150,000. The Company entered into a new loan with its bank
in connection with one of the purchases. The acquisitions were accounted for
using the purchase method, and, accordingly, the acquired assets and liabilities
were recorded at their estimated fair values.

9. SUBSEQUENT EVENT

The Company is currently negotiating the purchase of substantially all of
the assets, primarily inventory and receivables, for approximately $4,000,000 in
cash and notes of a distributor of aftermarket collision parts currently
operating seven service centers in the Southeast.

F-14

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(Clockwise from top)
"Remanufactured Aluminum Wheels"
(Photograph of remanufactured aluminum wheels)
"Keystone Service Center"
(Photograph of a Keystone service center)
"Private Label Product Line"
(Photograph of the Company's private label product line)

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-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION PRESENTED HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS
OF WHICH SUCH INFORMATION IS GIVEN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES, OR ANY SUCH SHARES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.

------------------

TABLE OF CONTENTS

[Download Table]

PAGE
-----

Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 10
Dividend Policy................................ 10
Dilution....................................... 11
Capitalization................................. 12
Selected Financial Data........................ 13
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................... 14
Business....................................... 18
Management..................................... 26
Principal and Selling Shareholders............. 35
Description of Capital Stock................... 36
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 40
Additional Information......................... 41
Index to Financial Statements.................. F-1

------------------

UNTIL JULY 15, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

2,700,000 SHARES

[LOGO]

KEYSTONE AUTOMOTIVE
INDUSTRIES, INC.

COMMON STOCK

---------------------

P R O S P E C T U S
---------------------

MORGAN KEEGAN &
COMPANY, INC.

CROWELL, WEEDON & CO.

JUNE 20, 1996

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Dates Referenced Herein

		Referenced-On Page
This ‘424B4’ Filing	Date	First	Last	Other Filings

	12/31/00	34	52	None on these Dates
	4/30/99	51
	10/1/98	52
	8/1/97	11	51
	10/31/96	51
	8/1/96	51
	7/15/96	58
	6/26/96	1
Filed on:	6/21/96
	6/20/96	1	58
	5/24/96	44
	4/16/96	7	50
	3/31/96	7	52
	3/29/96	4	56
	12/31/95	23
	4/1/95	34	52
	3/31/95	7	55
	1/5/95	33	34
	3/25/94	7	55
	3/26/93	7	55
	12/31/92	23
	3/27/92	7	14
				List all Filings

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Filing Submission 0000912057-96-012821 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Keystone Automotive Industries Inc – IPO: ‘424B4’ on 6/21/96

As of: Friday, 6/21/96 · Accession #: 912057-96-12821 · File #: 333-03994

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents