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parsed_sections/prospectus_summary/1997/AMZN_amazon_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus.

parsed_sections/prospectus_summary/1997/CIEN_ciena-corp_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the over-allotment options granted to the Underwriters. THE COMPANY CIENA Corporation ("CIENA" or the "Company") designs, manufactures and sells dense wavelength division multiplexing ("DWDM") systems for fiberoptic communications networks. CIENA's first DWDM solution, the MultiWave 1600 system, alleviates capacity, or bandwidth, constraints in high traffic long distance fiberoptic routes without requiring the installation of new fiber. In addition, the MultiWave 1600 system enables flexible provisioning of additional bandwidth without requiring an upgrade of existing network transmission equipment. The MultiWave 1600 system can increase the carrying capacity of a single optical fiber 16 fold by allowing simultaneous transmission of up to 16 optical channels per fiber. This permits fiber currently carrying signals at transmission speeds of up to 2.5 gigabits per second ("Gb/s") to carry up to 40 Gb/s. CIENA's MultiWave 1600 system includes optical transmission terminals, optical amplifiers, optical add/drop multiplexers and network management software. CIENA's MultiWave 1600 system is designed with an open architecture that allows the MultiWave 1600 system to interoperate with carriers' existing fiberoptic transmission systems having a broad range of transmission speeds and signal formats. CIENA recently announced a next generation version of the MultiWave 1600 system, the MultiWave Sentry, which includes enhancements that significantly expand the ability of the MultiWave system to interface with data communications equipment in addition to other types of transmission equipment and increase the distance which can be spanned between transmission terminals. The Company believes it is a worldwide market leader in field deployment of open architecture DWDM systems. For the six months ended April 30, 1997, the Company recorded $140.6 million in revenue, of which $86.6 million was from sales to Sprint Corporation ("Sprint") under a three-year non-exclusive supply agreement which expires in December 1998, and approximately $49.0 million was from sales to LDDS WorldCom ("WorldCom") under a five-year supply agreement which, subject to certain conditions, is exclusive through December 1997. The Company also recently announced a contract to supply MultiWave 1600 systems to Mercury Communications Group ("Mercury"). The Company is actively seeking additional customers among long distance, local and interoffice fiberoptic network operators in the worldwide telecommunications market and has entered into a test agreement with AT&T Corporation ("AT&T"). The Company was incorporated in Delaware in November 1992. The Company's principal executive offices are located at 920 Elkridge Landing Road, Linthicum, Maryland 21090, and its telephone number is (410) 865-8500. All references in this Prospectus to "CIENA" or the "Company" also include its wholly-owned subsidiaries. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] SUBJECT TO COMPLETION, DATED JULY 1, 1997 9,110,622 SHARES LOGO COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ Of the 9,110,622 shares of Common Stock offered, 1,822,124 shares are being offered hereby in an international offering outside the United States and 7,288,497 shares are being offered in a concurrent United States offering. The initial public offering price and the aggregate underwriting discount per share will be identical for both offerings. See "Underwriting". Of the 9,110,622 shares of Common Stock offered, 1,000,000 shares are being sold by the Company and 8,110,622 shares are being sold by the Selling Stockholders. See "Principal and Selling Stockholders". The Company will not receive any proceeds from the sale of the shares being sold by the Selling Stockholders. SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. The last reported sale price of the Common Stock, which is quoted on the Nasdaq National Market under the symbol "CIEN", on June 30, 1997 was $47.125 per share. See "Price Range of Common Stock". ------------------------ 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. ------------------------ <TABLE> <CAPTION> INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2) -------------- ------------ ------------ ------------------- <S> <C> <C> <C> <C> Per Share.............. $ $ $ $ Total (3).............. $ $ $ $ </TABLE> - --------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting estimated expenses of $800,000 payable by the Company and $50,000 payable by the Selling Stockholders. (3) The Company and the Selling Stockholders have granted the International Underwriters an option for 30 days to purchase up to an additional 273,319 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. Additionally, the Company and the Selling Stockholders have granted the U.S. Underwriters a similar option with respect to an additional 1,093,275 shares as part of the concurrent U.S. offering. If such options are exercised in full, the total initial public offering price, underwriting discount, proceeds to the Company and proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting". ------------------------ The shares offered hereby are offered severally by the International Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York, on or about , 1997, against payment therefor in immediately available funds. GOLDMAN SACHS INTERNATIONAL ALEX. BROWN & SONS INTERNATIONAL WESSELS, ARNOLD & HENDERSON ------------------------ The date of this Prospectus is , 1997. THE OFFERINGS The offering of 7,288,497 shares of Common Stock initially being offered in the United States (the "U.S. Offering") and the concurrent offering of 1,822,124 shares of Common Stock initially being offered outside the United States (the "International Offering") are collectively referred to herein as the "Offerings". The closing of the International Offering is conditioned upon the closing of the U.S. Offering and vice versa. See "Underwriting". <TABLE> <S> <C> Common Stock offered by the Company............................... 1,000,000 shares Common Stock offered by the Selling Stockholders(1)............... 8,110,622 shares Common Stock to be outstanding after the Offerings(2)............. 97,946,605 shares Nasdaq National Market Symbol..................................... "CIEN" Use of Proceeds................................................... General corporate purposes. See "Use of Proceeds". </TABLE> - --------------- (1) Includes 269,150 shares issuable upon exercise of outstanding options issued under the Company's Amended and Restated 1994 Stock Option Plan. (2) Excludes 9,742,213 shares of Common Stock issuable upon exercise of options and warrants outstanding on June 30, 1997, at a weighted average exercise price of $3.19 per share. See "Capitalization" and "Management -- Stock Plans". Includes 269,150 shares, to be issued upon exercise of options, to be sold by certain Selling Stockholders in the Offerings. AVAILABLE INFORMATION CIENA Corporation (the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th Floor, New York, New York 10048. Copies of such materials may be obtained from the Web site that the Commission maintains at http://www.sec.gov. The Company has filed with the Commission a registration statement on Form S-1 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. ------------------------ CIENA(TM), the CIENA logo(TM), MultiWave(TM) and MultiWave Sentry(TM) are trademarks, and WaveWatcher(R) is a registered trademark, of the Company. All other brand names or trademarks appearing in this Prospectus are the property of their respective owners. ------------------------ CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY) ALSO MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 103 UNDER THE SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1) (in thousands, except share and per share data) <TABLE> <CAPTION> FOR THE PERIOD FROM INCEPTION SIX MONTHS ENDED (NOVEMBER 2,1992) YEAR ENDED OCTOBER 31, APRIL 30, THROUGH --------------------------- ------------------ OCTOBER 31, 1993 1994 1995 1996 1996 1997 ------------------ ------- ------- ------- ------- -------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenue.................... $ -- $ -- $ -- $54,838 $ -- $140,602 Gross profit............... -- -- -- 32,994 -- 87,762 Operating expenses Research and development......... -- 1,287 6,361 8,922 4,219 7,749 Selling and marketing........... -- 295 481 3,780 1,191 7,083 General and administrative...... 123 787 896 3,905 1,025 8,401 Income (loss) from operations............... (123) (2,369) (7,738) 16,387 (6,435) 64,529 Net income (loss).......... $ (123) $(2,407) $(7,629) $14,718 $(6,069) $ 40,685 ===== ======= ======= ======= ======= ======= Pro forma net income (loss) per common and common equivalent share(2)...... $ 0.15 $ (0.06) $ 0.40 ======= ======= ======= </TABLE> <TABLE> <CAPTION> APRIL 30, 1997 -------------------------- ACTUAL AS ADJUSTED(3) -------- -------------- (UNAUDITED) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents......................................... $180,791 $225,324 Working capital................................................... 191,949 236,482 Total assets...................................................... 276,737 321,270 Long-term debt, excluding current portion......................... 1,691 1,691 Stockholders' equity.............................................. 208,597 253,130 </TABLE> - --------------- (1) During the period from November 2, 1992 to October 31, 1995, CIENA was a development stage company. Planned principal operations commenced during fiscal year 1996. (2) The pro forma weighted average common and common equivalent shares outstanding for the year ended October 31, 1996 and the six months ended April 30, 1996 and April 30, 1997 was 99,111,000, 99,111,000 and 101,493,000, respectively. Pro forma net income per common and common equivalent share is computed using the pro forma weighted average number of common and common equivalent shares outstanding. Pro forma weighted average common and common equivalent shares outstanding include Common Stock, stock options and warrants using the treasury stock method and the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock which occurred at the time of the Company's initial public offering. See Note 1 of Notes to Consolidated Financial Statements. (3) As adjusted to give effect to (i) the sale of 1,000,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $47.125 per share, after deduction of underwriting discounts and commissions and estimated expenses payable by the Company and (ii) the exercise by certain of the Selling Stockholders of options to purchase 269,150 shares of Common Stock to be sold by them in the Offerings. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] AVAILABLE INFORMATION CIENA Corporation (the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th Floor, New York, New York 10048. Copies of such materials may be obtained from the Web site that the Commission maintains at http://www.sec.gov. The Company has filed with the Commission a registration statement on Form S-1 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. ------------------------ This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy the shares of Common Stock in any jurisdiction in which such offer or solicitation is unlawful. There are restrictions on the offer and sale of the shares of Common Stock in the United Kingdom. All applicable provisions of the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995 with respect to anything done by any person in relation to the shares of Common Stock, in, from or otherwise involving the United Kingdom must be complied with. See "Underwriting".

parsed_sections/prospectus_summary/1997/CIK0000047035_herley_prospectus_summary.txt

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+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 does not give effect to the exercise of the over-allotment option described under "Underwriting" or the exercise of any other options or warrants. All references herein to the Company are to Herley Industries, Inc. on a consolidated basis with its subsidiaries, and includes their predecessors, unless the context otherwise requires. Except where otherwise indicated, this Prospectus gives effect to the four-for-three stock split of the Common Stock, effected as a stock dividend, on September 30, 1997. Certain technical and other terms used in this Prospectus are defined in the Glossary appearing at the end of this Prospectus. THE COMPANY Herley Industries, Inc. principally designs, manufactures and sells flight instrumentation components and systems, primarily to the U.S. government, foreign governments, and aerospace companies. Flight instrumentation products include command and control systems, transponders, flight termination receivers, telemetry transmitters and receivers, pulse code modulator ("PCM") encoders and scoring systems. Flight instrumentation products are used to: (i) accurately track the flight of space launch vehicles, targets, and unmanned airborne vehicles ("UAVs"), (ii) communicate between ground systems and the airborne vehicle, (iii) if necessary, destroy the vehicle if it is veering from its planned trajectory, and (iv) train troops and test weapons. The Company's command and control systems are used on training and test ranges domestically and in foreign countries. The Company has an installed base of approximately 100 command and control systems around the world, which are either fixed installations, transportable units or portable units. Herley also manufactures microwave devices used in its flight instrumentation systems and products and in connection with the radar and defense electronic systems on tactical fighter aircraft. Herley believes that the demand for its systems and products should continue to increase because of a number of important factors. The Department of Defense has begun to place more emphasis on improved military readiness, using advanced electronics for enhanced performance and extended life of its equipment. The Company believes the electronic content of the military procurement budget will grow at the expense of traditional armaments. A modern military force must defend against multiple attacking aircraft, cruise missiles, and short range ballistic missiles such as the Exocet and SCUD. The Company's MAGIC(2) system, which uses Global Positioning Satellites ("GPS"), and which the Company believes is the only commercially available command and control system to control complex scenarios such as multiple targets attacking from over the horizon, is being used by the U. S. Navy, the Company's largest customer, to test and train against multiple simultaneous threats. The Company also has supplied its command and control systems and other electronic products to foreign countries worldwide, which historically have followed the lead of the U.S. government in purchasing military electronic products. The Company anticipates supplementing or replacing installed systems and establishing new foreign country clients, through "teaming" arrangements with major domestic military contractors and otherwise. A rapidly growing component of the Company's business is the production of range safety transponders, which are expendable devices used to track satellite space launches. The Company believes that it is the only qualified supplier of space launch range safety transponders in the U.S. The two factors expected to increase the number of commercial space launches and the Company's space launch business are the growing number of global mobile satellite telephone systems and the continued development of the world's satellite communications infrastructure. The Company has grown internally and through five strategic acquisitions. As a result, the Company has experienced a compound annual growth rate of 41% in its operating income before unusual items for the five fiscal years ended August 3, 1997. See "Selected Financial Data." With these acquisitions, the Company has evolved from a components manufacturer to a systems and service provider and has leveraged its technical capabilities and expertise into domestic commercial and foreign defense markets. The new products and systems that the Company plans to design, manufacture and sell are data link systems, which include telemetry data encoders. Data link systems and data encoders are currently being sold by others to the Company's existing customers. With its recent acquisition of Metraplex Corporation ("Metraplex"), the Company may now offer data link systems to its customers, either directly or through teaming arrangements. Upon receipt of an order, the Company will customize the design of a system for its customer for delivery typically nine months after receipt of such order. The Company's growth strategy is to: - Design and manufacture new products and systems using its expertise in digital, software and microwave technologies; - Broaden existing markets for the Company's products through the aggressive pursuit of large data link and command and control system sales; - Expand the sales of the Company's products and systems in international markets; - Extend the capabilities and uses of the Company's products in the rapidly growing space launch industry and certain commercial industrial applications; - Implement cost saving measures through the continued vertical integration of the Company's recent acquisitions; and - Continue to capitalize on strategic acquisition opportunities. The Company was incorporated in New York in 1965 and reincorporated in Delaware in June 1986. The Company's executive offices are located at 10 Industry Drive, Lancaster, Pennsylvania 17603, and its telephone number is (717) 397-2777. THE OFFERING <TABLE> <S> <C> Securities Offered by: The Company................................ 700,000 Shares of Common Stock and 1,100,000 Warrants. Selling Stockholders....................... 400,000 Shares of Common Stock. One Warrant must be purchased for each Share of Common Stock purchased, although the Warrants and the Shares will be separately transferable immediately following the completion of this offering. Description of Warrants...................... Each Warrant is exercisable for 25 months and entitles the registered holder to purchase one share of Common Stock at an exercise price of $14.40 per share for thirteen months from date of issuance and thereafter at $15.60 per share. The Warrant exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment under certain circumstances. See "Description of Securities." Common Stock Outstanding: Before the Offering........................ 4,541,146 Shares(1) After the Offering......................... 5,241,146 Shares(1) Use of Proceeds.............................. The $7,499,400 of net proceeds from the sale by the Company of the Securities will be used for general corporate purposes including working capital and for possible acquisitions. See "Use of Proceeds." Nasdaq National Market Symbols: Common Stock............................... HRLY Warrants................................... HRLYW (Proposed) Risk Factors................................. See "Risk Factors." </TABLE> - --------------- (1) Assumes no exercise of: (i) the Underwriters' over-allotment option to purchase 165,000 Warrants from the Company, (ii) the 1,100,000 Warrants offered by the Company in this offering, (iii) the 220,000 shares of Common Stock issuable upon exercise of the Managing Underwriters' Warrant, including the exercise of the Warrants underlying the Managing Underwriters' Warrant, (iv) the 916,327 shares of Common Stock issuable upon the exercise of the outstanding options under the Company's 1992, 1996 and 1997 stock option plans, and (v) the 320,000 shares of Common Stock issuable upon the exercise of the outstanding warrants issued to officers and directors. See "Management -- Stock Plans," "Description of Securities" and "Underwriting." SUMMARY FINANCIAL INFORMATION The following summary financial information concerning the Company, other than the as adjusted balance sheet data, has been derived from the consolidated financial statements included elsewhere in this Prospectus and should be read in conjunction with such consolidated financial statements and the notes thereto. See "Financial Statements." <TABLE> <CAPTION> 52 WEEKS ENDED 53 WEEKS ----------------------- ENDED JULY 30, JULY 28, AUGUST 3, 1995 1996 1997 --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) <S> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net sales................................................. $ 24,450 $ 29,001 $ 32,195 Cost and expenses......................................... 23,189 25,630 27,047 --------- --------- --------- Operating income before unusual item...................... 1,261 3,371 5,148 Unusual item(1)........................................... (5,447) -- -- --------- --------- --------- Operating income (loss)................................... (4,186) 3,371 5,148 Other income (expense).................................... (700) 400 136 --------- --------- --------- Income (loss) before income taxes......................... (4,886) 3,771 5,284 Provision for income taxes................................ 4 102 480 --------- --------- --------- Net income (loss)......................................... $ (4,890) $ 3,669 $ 4,804 ========= ========= ========= Earnings (loss) per common and common equivalent share(2)................................................ $ (0.98) $ 0.86 $ 1.01 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding(2)................................... 4,978,868 4,253,785 4,733,682 ========= ========= ========= </TABLE> <TABLE> <CAPTION> AUGUST 3, JULY JULY 1997 30, 28, -------------------------- 1995 1996 ACTUAL AS ADJUSTED(3) ------- ------- (IN THOUSANDS) <S> <C> <C> <C> <C> BALANCE SHEET DATA: Total assets................................... $42,229 $42,509 $39,257 $ 46,756 Current liabilities............................ 9,974 7,559 9,813 9,813 Long-term debt, net of current portion......... 10,525 11,021 2,890 2,890 Shareholders' equity........................... $18,988 $21,032 $23,371 $ 30,870 </TABLE> RECENT FINANCIAL PERFORMANCE: For the quarter ended November 2, 1997, the Company's net sales were approximately $10,573,000 as compared to approximately $7,508,000 for the quarter ended November 3, 1996. - --------------- (1) The unusual item consists of settlement costs, legal fees, and related expenses in connection with the settlement of certain legal claims. (2) As adjusted to give effect to a four-for-three stock split on September 30, 1997. (3) The pro forma balance sheet data reflects the anticipated receipt of the net proceeds from this offering and the repayment of certain loans by the Company's officers as if this offering and the repayment of such loans had occurred as of August 3, 1997. See "Use of Proceeds."

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+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. THE ISSUER WAS RECENTLY FORMED TO BE THE OBLIGOR ON THE NOTES AND WILL ACQUIRE DIRECTLY OR INDIRECTLY ALL OF THE PARENT'S INTERESTS IN ITS SUBSIDIARIES IMMEDIATELY PRIOR TO THE ISSUANCE OF THE NOTES (THE "ACQUISITION TRANSACTION"). SUCH INTERESTS COMPRISE ALL OF THE PARENT'S CONSOLIDATED OPERATIONS AND IMMEDIATELY AFTER THE ACQUISITION TRANSACTION PARENT WILL HAVE NO ASSETS OTHER THAN THE STOCK OF THE ISSUER AND NO OPERATIONS EXCEPT IN CONNECTION WITH THE OWNERSHIP OF SUCH STOCK. IMMEDIATELY PRIOR TO THE ACQUISITION TRANSACTION, THE ISSUER WILL HAVE HAD NO OPERATIONS AND ONLY NOMINAL ASSETS AND LIABILITIES. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO THE ISSUER AND, WHERE APPLICABLE, ITS DIRECT AND INDIRECT SUBSIDIARIES AND THE ISSUER'S PREDECESSOR PRIOR TO THE ACQUISITION TRANSACTION. SEE "GLOSSARY" FOR DEFINITIONS OF CERTAIN OTHER TERMS USED IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION OFFERED TO THE UNDERWRITERS IN THE STOCK OFFERING. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS." THE COMPANY The Company is a diversified telecommunications provider with a leading position in facilities-based long distance service in the State of Alaska and, as a result of recent acquisitions, has become Alaska's leading cable television service provider. The Company seeks to become the first significant provider in Alaska of an integrated package of telecommunications and cable television services. Complementing its long distance, cable and cellular resale operations, the Company has announced plans to provide facilities-based competitive local exchange and wireless communications services in Alaska's major population centers. The Company expects to launch local exchange services in the second half of 1997 initially in Anchorage where it has received a local exchange certificate of authority and entered into an interconnection agreement with the incumbent local exchange carrier ("LEC") which has been approved by the Alaska Public Utilities Commission (the "APUC"). The Company also acquired a state-wide 30 MHz B-block personal communication service ("PCS") license in June 1995 for approximately $1.65 million (or about $3.00 per population equivalent or "pop") and is currently evaluating various technologies for a proposed wireless PCS network. The Alaskan voice, video and data markets are unique within the United States. Alaska is physically distant from the rest of the United States and is characterized by large geographical size and relatively small, dense population clusters (with the exception of major population centers such as Anchorage, Fairbanks and Juneau). It lacks a well-developed terrestrial transportation infrastructure, and the majority of Alaska's communities are accessible only by air or water. As a result, Alaska's telecommunications networks are different from those found in the lower 49 states. Alaska today relies extensively on satellite-based transmission for intrastate calling between remote communities where investment in a terrestrial network would be uneconomic or impractical. Also, given the remoteness of Alaska's communities and, in many cases, the lack of major civic institutions such as hospitals, libraries and universities, Alaskans are dependent on telecommunications to access the resources and information of large metropolitan areas in the rest of the U.S. and elsewhere. The Company believes that historical distinctions between telephony, wireless communications and cable television services are disappearing as a result of regulatory and technological changes. Upon becoming the first significant integrated provider of such services in Alaska, the Company believes that it will benefit from a number of advantages that would be difficult and costly for a competitor to replicate. By providing multiple telecommunications and cable services, the Company will be able to (i) expand the Company's addressable market in Alaska and increase the Company's share of its customers' voice, video and data expenditures, (ii) leverage the Company's existing customer base by cross-selling its services, (iii) attract new customers and improve customer retention rates by offering its customers a package of services, a single bill and a single point-of-contact for customer service, (iv) reduce capital spending requirements by sharing facilities, equipment and rights-of-way, (v) contain administrative and personnel costs by combining functional areas and (vi) reduce local access costs by bypassing some or all of the incumbent LECs' facilities. The Company began providing interstate long distance service in 1982 and began providing intrastate long distance service in 1991. The Company provides a full range of long distance services, including direct dial, 800, message toll, private line, private network, operator and calling and debit card services, to residential, commercial and governmental customers and to other common carriers. In addition, the Company sells data communication equipment and offers technical services. The Company operates a state-of-the-art, competitive telecommunications network employing the latest digital transmission technology based upon fiber optic and digital microwave facilities within and between Anchorage, Fairbanks and Juneau, a digital fiber optic cable linking Alaska to the contiguous 48 states and providing access to other carriers' networks for communication around the world, and the use of satellite transmission to remote areas of Alaska (and for certain interstate traffic as well). As of March 31, 1997, the Company's long distance services were available, through the Company's network, to approximately 90% of total Alaskan access lines. As of March 31, 1997, the Company's residential customers were served by approximately 81,150 access lines, representing approximately 41% of all Alaskan residential presubscribed access lines. In addition, the Company had over 11,000 commercial, governmental and other common carrier customers who were served by approximately 57,600 access lines, representing approximately 48% of all non-residential presubscribed access lines in the State. The Company believes its network costs are significantly lower than those of its principal competitor, AT&T Alascom (the other leading long distance provider in Alaska), which, until it was acquired by AT&T Corp. ("AT&T") in August 1995, had benefitted from an annual direct subsidy from AT&T of approximately $80 million. In 1993, the Company entered into a significant business relationship with MCI Telecommunications Corp., a subsidiary of MCI Communications Corporation (together with its subsidiaries, "MCI"), pursuant to which, among other things, the Company agreed to provide transmission services for substantially all Alaska-bound MCI long distance traffic and MCI agreed to provide transmission services for substantially all of the Company's long distance traffic terminating in the lower 49 states (excluding Washington, Oregon and Hawaii). As of June 30, 1997, MCI owned 22.6% of Parent's total combined outstanding Class A common stock, no par value ("Class A Common Stock") and Class B common stock, no par value ("Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), and 19.4% after giving effect to the Stock Offering, the majority of which was acquired concurrently with entering into the 1993 agreements. MCI presently controls nominations to two seats on Parent's board of directors (the "Board") pursuant to a voting agreement among MCI and certain other shareholders (the "Voting Agreement") that was entered into in connection with the Company's acquisition of cable television systems (the "Cable Systems") from several unrelated sellers. In 1993, the Company also entered into an agreement with an affiliate of Sprint Corp. ("Sprint"), pursuant to which the Company agreed to provide transmission services for all Alaska-bound Sprint long distance traffic and Sprint agreed to handle substantially all of the Company's international traffic. The Company's telecommunications services revenues for the three months ended March 31, 1997 were $39.2 million and operating cash flow (or Adjusted EBITDA as defined below) was $3.4 million (including $0.6 million of start-up losses from the Company's local exchange and PCS operations), or approximately 8.7% of telecommunications services revenues for the period. The Company's telecommunications services revenues for the year ended December 31, 1996 were $155.4 million and Adjusted EBITDA was $21.4 million (including $0.9 million of start-up losses for the Company's local exchange and PCS operations), or approximately 13.8% of telecommunications services revenues for the period. In the five-year period ended December 31, 1996, the Company's telecommunications services revenues grew at a compounded annual rate of approximately 15.5%. Effective October 31, 1996, the Company became the leading cable television services provider in Alaska upon its acquisition of the Cable Systems for total consideration of approximately $280.1 million. The Cable Systems serve 21 communities and areas in Alaska, including the state's three largest urban areas, Anchorage, Fairbanks and Juneau. As of March 31, 1997, the Cable Systems passed 162,711 homes or approximately 70% of all households in Alaska and served approximately 104,400 subscribers (92,940 equivalent basic subscribers), representing 64% of households passed by the Cable Systems. As of March 31, 1997, the Cable Systems consisted of approximately 1,765 miles of installed cable plant having between 300 and 450 MHz of channel capacity. See "Business--Cable Television." On a pro forma basis, assuming the Cable Systems had been acquired by the Company as of January 1, 1996, the Cable Systems generated pro forma revenues for the year ended December 31, 1996 of $55.3 million and pro forma Adjusted EBITDA before management fees of $27.0 million, or 48.8% of cable revenues. Pro forma revenues and Adjusted EBITDA from cable services would have represented 26.3% and 54.9%, respectively, of the Company's pro forma consolidated revenues and Adjusted EBITDA for 1996. In connection with its acquisition of the Cable Systems, the Company entered into a management agreement (the "Prime Management Agreement") with Prime II Management, L.P. ("Prime Management"), a Delaware limited partnership affiliated with certain sellers of the Cable Systems serving Anchorage and other areas (the "Prime Sellers") to manage the Cable Systems. Under the Prime Management Agreement, the Company will pay to Prime Management a net annualized fee for managing the Cable Systems in the amount of $1,000,000 for the year ending October 31, 1997, $750,000 for the year ending October 31, 1998, and $500,000 for each year ending October 31 thereafter that the Prime Management Agreement is in effect. The Prime Management Agreement has a term of nine years but either party may terminate the agreement in its discretion after October 31, 1998. Certain of the Prime Sellers which are parties to the Voting Agreement (the "Voting Prime Sellers") have the right to nominate two Board members pursuant to the Voting Agreement, and will own approximately 18.0% of the total outstanding Common Stock after giving effect to the Stock Offering. In providing cable service, the Company competes principally with traditional television broadcasters, direct broadcast satellite television ("DBS") and wireless cable or multichannel, multipoint distribution service ("MMDS") providers. The receipt of DBS signals in Alaska currently has the disadvantage of requiring subscribers to install larger satellite dishes (generally three to six feet in diameter) than are generally required in the lower 48 states because of the weaker satellite signals available in northern latitudes. In addition, existing satellites (situated over the equator) have a relatively low altitude above the horizon when viewed from Alaska, making their signals subject to interference from mountains, buildings and other structures. MMDS also requires that customers' receiving antennas have line-of-sight access to transmitting radio towers, and both MMDS and DBS signals are subject to interference from rain, snow, and wind. BUSINESS STRATEGY The Company's goal is to become the first significant provider of integrated voice, video and data services in Alaska while maximizing growth in its revenues and net income. The Company's strategies to achieve this objective fall generally into four broad categories: (i) integrate the Company's telecommunications and cable operations, (ii) expand the scope of the Alaskan voice, video and data markets that the Company will address, (iii) increase the Company's penetration of these markets, and (iv) improve the Company's consolidated operating margins and utilization of the Company's capital resources. These broad strategies are discussed below. The Company's strategic focus over the next several years will be on Alaska. On a longer term basis, the Company may consider growth opportunities outside Alaska, especially in areas of the world with demographics and infrastructure characteristics similar to those of Alaska. INTEGRATE TELECOMMUNICATIONS AND CABLE OPERATIONS The Company has begun integrating the Cable Systems into its preexisting operations. As part of this integration, the Company plans to combine the marketing and sales organizations, the billing systems, management information systems ("MIS") and customer service organizations of the Cable Systems with those of the Company's historical operations. This integration will enable the Company to coordinate the marketing of its telecommunications and cable services to the full range of the Company's customers, promote introduction of new products and services, leverage consumer awareness of the GCI brand name and provide its customers with a single bill and point-of-contact for customer service. The Company estimates that the essential elements of this integration will be completed by late 1997. EXPAND ADDRESSABLE MARKET As a result of its acquisition of the Cable Systems, the Company has expanded its addressable market in Alaska to include both long distance and cable services, which markets generated approximately $450 million in revenues in 1996 for all providers of such services in Alaska. Following its introduction of local exchange and wireless services, the Company's addressable market will expand to approximately $800 million in total. The Company intends to offer local exchange services in Anchorage and other major Alaskan population centers principally using its own network facilities. The Company expects to provide local exchange services initially in Anchorage in the second half of 1997. The Company has installed 38 miles of a planned 130-mile fiber optic network in Anchorage, has installed a Lucent 5ESS switch with both local and long distance capabilities and has entered into an agreement with the incumbent LEC, Anchorage Telephone Utility ("ATU"), to interconnect the Company's network with that of ATU and to purchase unbundled local loops necessary to provide local service. The Alaskan local service market generated approximately $320 million in revenues in 1996, approximately 34% of which were attributable to Anchorage. The Company anticipates expanding its local service to the Fairbanks and Juneau markets during 1998 and to other markets during 1999, subject to negotiating acceptable interconnection arrangements with the LECs serving those markets and to obtaining the necessary regulatory approvals. The Company plans to enter the facilities-based wireless communications market through development of a PCS network. The Company believes that PCS technology, if successfully implemented, will offer advantages over existing analog cellular technology, such as superior audio quality, additional features, better compatibility with wireline services, and longer battery life. PCS technology is particularly suited for use in Alaska, which has relatively small, dense population clusters in many geographically remote areas. The Company estimates that the Alaskan cellular services market generated approximately $35 million in total revenues in 1996. INCREASE PENETRATION OF ALL MARKET SEGMENTS The Company believes that by offering a variety of branded telecommunications and cable services, by increasing consumer awareness and leveraging brand equity, and by emphasizing customer service and rewarding consumer loyalty, it will be well-positioned to improve customer retention rates and to increase its market share in all service categories. The Company believes that substantially all of its long distance and cable television customers are potential wireless and local service customers. Cross-selling opportunities also exist between the Company's long distance customers and its cable customers. The Company estimates that, as of March 31, 1997, approximately 59% of the Company's residential cable subscribers did not obtain long distance service from the Company and that approximately 23% of the Company's total long distance customers and 27% of the Company's residential long distance customers were passed by the Cable Systems but did not buy cable service. The Company plans significant upgrades to the existing cable plant in order to expand channel capacity, add new services, improve network quality and reliability and reduce theft. The Company expects that, by expanding customers' service options, it will attract new customers, increase average revenue per subscriber and reduce customer attrition rates. Currently, the Cable Systems have between 300 and 450 MHz of channel capacity, or enough capacity to carry between 36 and 60 channels. Over the next two years, the Company plans to increase the capacity of the Cable Systems to between 450 and 550/750 MHz of channel capacity, or enough capacity to carry between 60 and 76 channels. The Company plans to begin offering cable modems in the fourth quarter of 1997. Cable modems represent a new technology which offers significantly faster access to the Internet and other on-line data services than other currently available technologies. The Company believes that Alaskans have a greater propensity to access the Internet than consumers in other states for a variety of reasons. Alaskans on average have completed more years of formal education and have a higher per capita income and mean household income than the U.S. average. Purchasing power is also enhanced by the lack of a state income tax and the annual Permanent Fund dividend that each resident, regardless of age, receives from the State (over $1,100 per person in 1996). In markets outside of Anchorage, Fairbanks and Juneau, the limited availability of traditional sources of information such as libraries, universities and museums contribute to heavy use of the Internet as an information, education and communication resource. In addition to offering cable modems, the Company plans to offer certain specialized telecommunications services to support distance education and telemedicine in rural areas of the State. Rural Alaskans often do not have access to medical professionals within their community and the use of a communication network to deliver a wide range of telemedical services (voice, video and data) enhances the quality and timeliness of the services delivered while concurrently reducing the overall cost of delivery. Likewise, the educational infrastructure is limited in many areas of rural Alaska and distance education services are being deployed to provide specialized curricula to smaller village schools. Like telemedical services, distance education services both improve the quality of education and reduce the cost of delivery. IMPROVE CONSOLIDATED OPERATING MARGINS AND CAPITAL UTILIZATION The Company believes that the combination of its long distance, local, wireless communications and cable operations will enable it to achieve better overall operating margins than would be possible if these operations were managed as stand-alone enterprises. The Company expects to achieve certain efficiencies by combining the marketing, sales, customer service, MIS and administrative organizations of the Cable Systems with each other and with those of the Company's preexisting operations. The Company also expects that its planned provision of local services, while a potentially significant source of revenues, will coincidentally result in a significant reduction in the Company's local access fees paid to Alaskan LECs. Access fees charged to the Company by incumbent Alaskan LECs for the use of their local networks to originate or terminate long distance calls totaled $36.4 million in 1996, or approximately 28.2% of the Company's long distance revenues for this period. The Company estimates that the average access charge payable by it to Alaskan LECs for originating or terminating interstate access is approximately $0.043 per minute of traffic and for originating or terminating intrastate access is approximately $0.07 per minute of traffic (or a total of $0.14 for both originating and terminating access). In addition, the Company expects to leverage its investment in existing cable plant and rights-of-way by, in some cases, overlaying (or using existing) fiber optic cable for telephony or PCS applications. The incremental cost of such network enhancements, especially when combined with planned upgrades to the existing cable plant, is significantly less than the cost of building entirely new network facilities. THE OFFERING <TABLE> <S> <C> Securities Offered.......... $150,000,000 principal amount of % Senior Notes due 2007 (the "Notes"). Maturity.................... The Notes will mature on , 2007. Interest Payment Dates...... Interest on the Notes is payable semiannually on each and commencing , 1998. Optional Redemption......... The Notes will be redeemable at the option of the Issuer, in whole or in part, at any time on or after , 2002, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, prior to ,2000, the Issuer may use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to 33 1/3% of the initially issued aggregate principal amount of the Notes at a redemption price of % of the aggregate principal amount thereof, together with accrued and unpaid interest thereon to the date of redemption; provided that not less than $100 million aggregate principal amount of the Notes remains outstanding following any such redemption. See "Description of Notes--Optional Redemption." Sinking Fund................ None. Change of Control........... Upon a Change of Control, the Issuer will be required to make an offer to purchase the Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. See "Description of Notes--Mandatory Offer to Purchase Upon a Change of Control." Ranking..................... The Notes are senior unsecured obligations of the Issuer, ranking PARI PASSU with other unsubordinated, unsecured indebtedness of the Issuer, and ranking senior in right of payment to any future subordinated indebtedness of the Issuer. The Notes will be structurally subordinated to all liabilities of the Issuer's subsidiaries, including the Credit Facility (as defined). See "Description of Credit Facilities." As of March 31, 1997, after giving effect to the Offerings and the application of the net proceeds therefrom, the total indebtedness and total liabilities (including trade payables and accrued liabilities) of such subsidiaries, on an aggregate basis, would have been approximately $136.4 million, of which $66.1 million would have been indebtedness. As of the date of this Prospectus, the Issuer had no indebtedness that would have been subordinated to the Notes. The Issuer's subsidiaries expect to incur significant additional indebtedness and other liabilities in the future. See "Risk Factors--Substantial Leverage; Ability to Service Debt," "--Holding Company Structure" and "Description of Notes." </TABLE> <TABLE> <S> <C> Certain Covenants........... The Indenture for the Notes will contain limitations on, among other things, (a) the ability of the Issuer and its Restricted Subsidiaries to incur additional Indebtedness, (b) the payment of dividends and other distributions with respect to the Capital Stock of the Issuer and the purchase, redemption or retirement of Capital Stock and subordinated Indebtedness of the Issuer, (c) the incurrence of certain Liens, (d) the ability of the Issuer to allow restrictions on distributions by Restricted Subsidiaries, (e) Asset Sales, (f) transactions with Affiliates and (g) certain consolidations, mergers and transfers of assets. All of these limitations are subject to a number of important qualifications. See "Description of Notes--Certain Covenants" and "--Certain Definitions." Use of Proceeds............. The net proceeds of the Debt Offering (approximately $145.0 million) will be used to reduce borrowings outstanding under the Existing Credit Facilities and to contribute or advance approximately $50 million to GCI Transport Company, an Unrestricted Subsidiary, as defined in the indenture entered into in connection with the Notes (the "Indenture"). The Company expects to reborrow funds under the Credit Facility in the future to fund capital expenditures and for other general corporate purposes, including possible acquisitions and other investments. See "Use of Proceeds."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and historical and pro forma financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that (i) the Underwriters' over-allotment option has not been exercised and (ii) the Reorganization and the Acquisitions (as such terms are defined herein) have occurred. As used in this Prospectus, unless the context indicates otherwise, the term the "Company" or "Rock of Ages" refers to Rock of Ages Corporation after giving effect to the Reorganization and the Acquisitions, and its consolidated subsidiaries and their respective predecessors. THE COMPANY Rock of Ages, founded in 1885, is an integrated granite quarrier, manufacturer and distributor whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and distributor of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 13 active quarry properties and 13 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 2,124 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION The death care industry has traditionally been comprised of three principal segments: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. A majority of death care industry operators consist of small, family-owned businesses. The International Cemetery and Funeral Association estimates that in the United States there are approximately 23,000 active cemeteries, 9,500 of which are commercial (as opposed to religious, family, fraternal, military or municipal) cemeteries. At the end of 1996, publicly held death care companies ("consolidators") owned less than 5% of such active cemeteries, approximately 890, or less than 10%, of such commercial cemeteries and less than 12% of the estimated 22,800 funeral homes in the United States. The death care industry has certain attractive fundamental characteristics, including highly fragmented ownership, significant barriers to entry created by local heritage, community presence and tradition, and stable, predictable demand. Generally, the granite memorialization industry shares certain of these characteristics. However, the granite memorialization industry and its principal areas (i.e., quarrying, manufacturing and retailing) have certain distinguishing characteristics that the Company believes create attractive opportunities. These characteristics include: (i) different times and points of sale than most other death care products or services, with sales of granite memorials traditionally taking place some time after the funeral service and at an independent retailer rather than at a funeral home or cemetery; (ii) fragmented groups of both manufacturers of granite memorials (approximately 140 mostly family-owned firms) and independent memorial retailers (according to Monument Builders of North America, approximately 3,000 of such retailers are located outside funeral homes and cemeteries) in North America; (iii) concentration of memorial grade granite deposits and granite memorial manufacturers in limited geographic areas in North America; (iv) significant barriers to entry to quarrying memorial grade granite, including the limited number of known commercially exploitable memorial grade granite deposits, high capital costs and stringent environmental and other permitting requirements; (v) significant barriers to entry to the manufacturing of granite memorials, including the high capital cost to establish and operate a memorial grade granite manufacturing facility and - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the difficulty of attracting the requisite highly skilled work force; and (vi) the personalization, permanence and visibility of upright granite memorials, which distinguish them from most other death care products and services. The Company believes the U.S. granite memorialization industry, excluding communal interments such as community mausoleums and columbariums, had in excess of $1.0 billion in retail sales in 1996. In 1996, on a pro forma basis giving effect to the Acquisitions as if they occurred on January 1, 1996, wholesale sales of the Company's granite memorials were approximately $41.4 million, which the Company believes accounted for approximately 12% of total wholesale sales of granite memorials in North America. BUSINESS STRATEGY Rock of Ages believes it is well-positioned to capitalize on the industry characteristics described above, and seeks to establish a dominant position in the granite memorialization industry. The Company intends both to improve the efficiency of its existing operations and to expand its business significantly. The principal elements of the Company's operating and growth strategies are summarized below. Operating Strategy. The Company pursues an operating strategy that includes the following key elements: - Providing, primarily through its own quarrying and manufacturing operations, a complete line of high quality granite memorials covering all price points and major color varieties. The Company believes it is the only industry participant with both quarrying and manufacturing operations in three of the four principal granite memorial producing regions of North America. - Enhancing operational efficiencies through the continued integration of acquired quarriers and manufacturers and the rationalization of its sales and distribution efforts. - Increasing advertising and promotion of the Rock of Ages brands, including the flagship Rock of Ages Sealmark and Colorcraft brands, in order to heighten consumer awareness and increase sales of the Company's products. Growth Strategy. The Company seeks to expand the scope and profitability of its operations by implementing a growth strategy that includes forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of this strategy include the following: - Acquiring independent granite memorial retailers in selected markets in order to develop an integrated network of owned Rock of Ages retailers and thereby capture the higher margins that have historically existed at the retail level. - Increasing sales to independent retailers that are current customers and expanding its independent retailer customer base. During the last two years, principally through acquisitions of quarriers and manufacturers, the Company has increased the number of independent retailers to which it sells its products from approximately 495 in 1995 to approximately 2,124 in 1997. - Pursuing strategic alliances with funeral home and cemetery owners, including consolidators, to supply granite memorials to or through them, in order to increase both pre-need and at-need sales of granite memorials. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RECENT AND CONCURRENT ACQUISITIONS The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisition on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. The Company has recently taken further steps to implement its growth strategy by acquiring one, and entering into a definitive agreement to acquire another, significant granite quarrier and memorial manufacturer in Elberton, Georgia, which is the largest of the four principal granite producing regions in North America. The Company has also entered into a definitive agreement to acquire a major memorial retailer that the Company believes is one of the largest independent memorial retailers in the United States. The Company believes that these acquisitions and the continued implementation of the other elements of its operating and growth strategies will enable it to: (i) expand overall industry sales of granite memorials, which heretofore have been actively marketed to consumers primarily only on an at-need basis and in a limited manner; (ii) increase its share of the granite memorial market by offering a complete product line with strong brand names through distribution channels that more directly reach the consumer; and (iii) increase both its relative and total profitability both by enhancing operational efficiencies and by capturing some of the higher margins that have historically existed at the retail level. The Company's recent and pending acquisitions are briefly described below. Keystone. In June 1997, the Company acquired the successor to Keystone Memorials, Inc. ("Keystone"), the largest granite memorial manufacturer in Elberton, Georgia (the "Keystone Acquisition"), which included Keystone's 50% ownership interest in (i) Southern Mausoleums, Inc., a manufacturer of granite mausoleums in Elberton, Georgia ("SMI"); and (ii) three granite quarrying companies operating six granite quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma (collectively, the "Quarry Companies"). In connection with the Keystone Acquisition, the Company issued 263,441 shares of Class B Common Stock and assumed or incurred $2.7 million of indebtedness of Keystone. C&C. In June 1997, the Company entered into a definitive agreement to acquire Childs & Childs Granite Company, Inc. and a related company ("C&C," and, together with the Quarry Companies, SMI and Keystone, the "Elberton Companies"), which the Company believes is the second largest manufacturer of granite memorials in Elberton, Georgia, and the remaining 50% of the Quarry Companies and SMI owned by the stockholders of C&C (the "C&C Acquisition" and, together with the Keystone Acquisition, the "Elberton Acquisitions"). It is currently anticipated that the C&C Acquisition will close concurrently with the consummation of this offering. The Elberton Acquisitions will establish the Company as the largest granite memorial manufacturer in Elberton, Georgia, which is the largest granite producing area in North America, and will give the Company a substantially broader product line and enhanced distribution capabilities in the southern United States. The purchase price payable for C&C is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued at the initial public offering price) and approximately $780,000 to repay outstanding indebtedness of C&C. Upon the closing of the C&C Acquisition, the Company will assume $5.5 million of indebtedness of the Quarry Companies and SMI. Keith. The Company's first significant entry into memorial retailing was initiated in July 1997, when the Company entered into a definitive agreement to acquire (the "Keith Acquisition", and, together with the Elberton Acquisitions, the "Acquisitions") substantially all of the assets and liabilities of Keith Monument Co. and its affiliated companies (collectively, "Keith Monument"). It is currently anticipated that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument, founded in 1867, has been an authorized Rock of Ages retailer for more than 50 years. The Company believes that Keith Monument is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. The purchase price payable for Keith Monument is $16.4 million, consisting - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price) and $1.8 million to repay outstanding indebtedness of Keith Monument assumed by the Company. See "Business -- Recent and Concurrent Acquisitions" and "Business -- Marketing and Distribution; Retailing." The Company's principal executive offices are located at 772 Graniteville Road, Graniteville, Vermont 05654 and its telephone number is (802) 476-3121. THE OFFERING Class A Common Stock offered..... 2,900,000 shares, of which 2,624,518 shares are being offered by the Company and 275,482 shares are being offered by the Selling Stockholders. Common Stock to be outstanding after the offering(1)............ 3,000,000 shares of Class A Common Stock 3,487,957 shares of Class B Common Stock Use of proceeds.................. The net proceeds to the Company of this offering will be used to fund the C&C Acquisition and the Keith Acquisition, and to repay indebtedness under the Company's existing credit facilities, including indebtedness assumed in connection with the Keystone Acquisition. See "Use of Proceeds." Proposed Nasdaq National Market symbol........................... "ROAC" - --------------- (1) Excludes 862,500 shares of Class B Common Stock issuable upon the exercise of outstanding stock options (with a weighted average exercise price of $3.31 per share) granted under the Company's 1994 Amended and Restated Stock Plan (the "1994 Plan") and 383,252 shares of Class A Common Stock issuable upon the exercise of options to be granted in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of the offering (with an exercise price equal to the initial public offering price). See "Certain Relationships and Related Transactions." The rights of holders of the two classes of Common Stock are substantially identical, except that (a) the Class A Common Stock is entitled to one vote per share and the Class B Common Stock is entitled to ten votes per share on all matters, including the election of directors; and (b) the Class B Common Stock is convertible into Class A Common Stock at the option of the holder and automatically upon a transfer to any person other than a Permitted Transferee, as defined herein. See "Description of Capital Stock." - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table presents (i) summary historical consolidated financial data of the Company as of the dates and for the periods indicated and (ii) summary pro forma combined and condensed financial data of the Company as of the dates and for the periods indicated giving effect to the events described in the "Unaudited Pro Forma Combined and Condensed Financial Data" included elsewhere herein as though they had occurred on the dates indicated therein. The summary pro forma combined and condensed financial data are not necessarily indicative of operating results or financial position that would have been achieved had these events been consummated on the date indicated and should not be construed as representative of future operating results or financial position. The summary historical consolidated and pro forma combined and condensed financial data should be read in conjunction with the historical consolidated financial statements and related notes thereto of the Company and the historical financial statements and related notes thereto of Keystone, C&C, the Quarry Companies, SMI and Keith Monument, with the "Unaudited Pro Forma Combined and Condensed Financial Statements" and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus. <TABLE> <CAPTION> PRO FORMA(1) HISTORICAL ---------------------------------- ---------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, ----------------------------- ------------------ ------------ ------------------ 1994 1995 1996 1996 1997(2) 1996 1996 1997 ------- ------- ------- ------- ------- ------------ ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net revenues..................... $34,188 $33,088 $44,669 $19,943 $20,767 $ 73,774 $33,710 $35,253 Gross profit..................... 10,094 10,449 13,406 5,256 5,205 22,294 9,016 9,853 Selling, general and administrative expenses........ 6,049 6,453 9,131 4,649 4,328 15,254 7,338 7,352 ------- ------- ------- ------- ------- -------- ------- ------- Income from operations........... 4,045 3,996 4,275 607 877 7,040 1,678 2,501 Interest expense................. 1,653 1,678 1,723 934 866 1,065 573 565 Other expense.................... -- 564 -- -- -- -- -- -- Income (loss) before provision (benefit) for income taxes..... 2,392 1,754 2,552 (327) 11 5,975 1,105 1,936 Provision (benefit) for income taxes.......................... 577 358 643 (82) 3 1,625 301 527 ------- ------- ------- ------- ------- -------- ------- ------- Net income (loss)................ 1,815 1,396 1,909 (245) 8 4,350 804 1,409 ======= ======= ======= ======= ======= ======== ======= ======= Net income (loss) per share...... .47 .35 .46 (.06) .00 .64 .12 .20 Weighted average number of shares outstanding(3)................. 3,900 4,017 4,106 4,106 4,326 6,768 6,768 7,051 </TABLE> <TABLE> <CAPTION> AS OF JUNE 30, 1997 -------------------------- PRO FORMA AS ACTUAL ADJUSTED(4) ------- ------------ <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................................................ $ 192 $ 2,833 Working capital.......................................................................... 13,232 18,545 Total assets............................................................................. 57,768 86,942 Long-term debt, less current maturities.................................................. 13,897 5,106 Total stockholders' equity............................................................... 19,832 57,727 </TABLE> - --------------- (1) For information regarding the pro forma adjustments made to the Company's historical financial data, see "Unaudited Pro Forma Combined and Condensed Financial Data." (2) Does not include the results of operations of Keystone which was acquired as of June 28, 1997. (3) Includes 362,500 shares of Common Stock issuable upon the exercise of outstanding stock options granted December 31, 1996 and deemed to be outstanding for all periods, an additional 275,000 shares subject to options outstanding granted in 1994 and subsequent periods and 225,000 shares subject to options granted in January, 1996 (and included in 1996 and subsequent periods). See Note 9 to the Company's audited financial statements included elsewhere in this Prospectus. (4) Gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on June 30, 1997, as adjusted to reflect the sale of 2,624,518 shares of Class A Common Stock offered hereby by the Company (at an initial public offering price of $17.00 per share) and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the receipt of the net proceeds therefrom and the application of such net proceeds as described in "Use of Proceeds." See "Business -- Recent and Concurrent Acquisitions,"

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+PROSPECTUS SUMMARY THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES TO THE COMPANY OR INAMED SHALL REFER TO INAMED CORPORATION, A FLORIDA CORPORATION, AND SHALL INCLUDE ITS SUBSIDIARIES, EXCEPT AS OTHERWISE SPECIFICALLY NOTED HEREIN. Inamed Corporation (the "Company" or "Inamed"), through its 26 domestic and international operating subsidiaries, develops, manufactures and markets medical devices and products for surgical specialty applications. The Company's major operating subsidiaries are: McGhan Medical Corporation and CUI Corporation, which develop, manufacture and sell medical devices principally for the plastic and general surgery fields; Bioenterics Corporation which develops, manufactures and sells medical devices and associated instrumentation to the bariatrics and general surgery fields; Biodermis Corporation which develops, produces and distributes premium products for dermatology, wound care and burn treatment; Bioplexus Corporation which is a development stage company that develops, produces and distributes specialty medical products for use by the general surgery profession; Flowmatrix Corporation which manufactures high quality silicone components and devices for Inamed's wholly-owned subsidiaries and distributes an international line of proprietary silicone products; Medisyn Technologies Corporation which focuses on the development and promotion of the merits of the use of silicone chemistry in the fields of medical devices, pharmaceuticals and biotechnology; Inamed Development Company, which is engaged in the research and development of new medical devices using silicone-based technology; McGhan Limited, an Irish corporation which manufactures medical devices principally for the plastic and general surgery fields; Medisyn Technologies, Ltd. and Chamfield Ltd., Irish corporations which specialize in the development of silicone materials for use by Inamed's wholly-owned subsidiaries; and Inamed B.V., a Netherlands corporation, Inamed B.V.B.A., a Belgium corporation, Inamed GmbH, a German corporation, Inamed S.R.L., an Italian corporation, Inamed Ltd., a United Kingdom corporation, Inamed S.A.R.L., a French corporation and Inamed S.A., a Spanish corporation, which all sell medical devices on a direct sales basis in the various countries in which they are located. The Company has five additional foreign and domestic subsidiaries which have recently been formed and which at present have immaterial operations. The Company's executive offices are located at 3800 Howard Hughes Parkway, Suite 900, Las Vegas, Nevada 89109, and its telephone number is (702) 791-3388. Since 1984, the Company has experienced sales growth from approximately $2.4 million to over $94.3 million for the year ended December 31, 1996. With respect to products manufactured by the Company's subsidiaries specializing in plastic surgery products, the Company and/or its subsidiaries are defendants in numerous State and Federal court actions and a Federal class action in the United States District Court, Northern District of Alabama, Southern Division, under Chief Judge Sam C. Pointer, Jr., U.S. District Court, regarding Master File No. C892-P-10000-S (Silicone Gel Breast Implant Products Liability Litigation MDL 926). The claims are for general and punitive damages substantially exceeding provisions made in the Company's consolidated financial statements. The Company is currently in negotiations to settle the primary litigation relating to this matter. See "Risk Factors; Litigation; Product Liability." THE OFFERING <TABLE> <S> <C> Warrants offered.................... 1,846,071, each Warrant is exercisable to purchase one share of Common Stock at a price per share of $8.00, subject to adjustment in certain circumstances. The Company may redeem the Warrants for $.01 in certain circumstances. See "Description of Capital Stock." Warrant Shares offered.............. 1,846,071, shares of Common Stock to be received upon exercise of the Warrants. See "Description of Capital Stock."

parsed_sections/prospectus_summary/1997/CIK0000318870_independen_prospectus_summary.txt

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" MEANS INDEPENDENT BANKSHARES, INC. AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION AND (II) REFLECTS THE 5% COMMON STOCK DIVIDEND PAID TO SHAREHOLDERS IN MAY 1993 AND THE 33 1/3% COMMON STOCK DIVIDEND PAID TO SHAREHOLDERS IN MAY 1995. INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET FORTH UNDER "INVESTMENT CONSIDERATIONS." THE COMPANY The Company is a bank holding company headquartered in Abilene, Texas, located approximately 180 miles west of Dallas. The Company, which is a Texas corporation, indirectly owns through a Delaware subsidiary corporation 100% of the stock of First State Bank, National Association, Abilene, Texas ("First State, N.A., Abilene") and First State Bank, National Association, Odessa, Texas ("First State, N.A., Odessa") (collectively, the "Banks"). The Banks currently operate full-service banking locations in the Texas cities of Abilene (2 locations), San Angelo, Stamford, Winters and Odessa (2 locations). The Company's primary activities are to assist the Banks in the management and coordination of their financial resources and to provide capital, business development, long range planning and public relations for the Banks. Each of the Banks operates under the day-to-day management of its own officers and board of directors and formulates its own policies with respect to banking matters. Although each Bank operates under the management of its own officers and directors, the Banks participate as a group in providing various financial services and extensions of credit, which increases the ability of each Bank to provide such services to customers who might otherwise be required to seek banking services from a larger bank. In connection with its proposed acquisition (the "Acquisition") of Crown Park Bancshares, Inc. ("Crown Park") and its subsidiary Western National Bank ("Western National"), the Company has received the approval of the Office of the Comptroller of the Currency (the "Comptroller") to merge First State, N.A., Odessa with and into First State, N.A., Abilene in order to recognize certain cost savings and to utilize the Banks' capital more effectively than on a stand alone basis. Following the merger of First State, N.A., Odessa with and into First State, N.A., Abilene, which was consummated on December 31, 1996, the Company will continue its decentralized approach to banking with senior management at the main banking offices in Abilene and Odessa exercising substantial autonomy over credit and pricing decisions. Each of the Banks is an established franchise with a significant presence in its respective service area. First State, N.A., Abilene was chartered in 1982 and was the third largest of four commercial banks headquartered in Abilene, Texas, in terms of total assets at December 31, 1995, and was the fifth largest of ten banks in Abilene in terms of total branch assets at that same time. The branches in Stamford and Winters were the largest bank branches in those cities in terms of total assets at December 31, 1995. The branch in San Angelo was the ninth largest of ten banks in terms of total branch assets in that city at December 31, 1995. First State, N.A., Odessa was chartered in 1983 and was the third largest of four commercial banks headquartered in Odessa, Texas, in terms of total assets at December 31, 1995, and was the sixth largest of seven banks in Odessa in terms of total branch assets at that same date. The Banks operate as community banks that focus on long-term relationships with customers and provide individualized, quality service. Reflecting its community banking heritage, the Company has a stable deposit base from customers located within its West Texas market area. Its recent financial performance is characterized by consistent core earnings, an increasingly diversified loan portfolio and strong asset quality. At September 30, 1996, the Company had, on a consolidated basis, total assets of $203,801,000, total deposits of $187,474,000, total loans, net of unearned income, of $90,115,000 and total stockholders' equity of $14,582,000. The Company's net income has grown from $224,000 in 1991 to $1,132,000 in 1995. Net income was $1,046,000 for the nine-month period ended September 30, 1996. Additionally, since 1991, the Company's total loans have grown at a 12.0% average annual rate resulting from a combination of internal growth and the Company's acquisition of community banks. The Company's complete mailing address and telephone number is 547 Chestnut Street, Abilene Texas 79602, (915) 677-5550. BUSINESS STRATEGY The Company's strategic plan contemplates an increase in profitability and shareholder value through the building of a valuable West Texas banking franchise consisting of low cost core deposits as a funding base to support local consumer and commercial lending programs. The Company's acquisition activity has been designed to augment this franchise by increasing market share and expanding into contiguous markets demographically similar to its current service areas. Following the acquisition of Crown Park and its subsidiary Western National, the Company will have locations in four of the fastest growing consumer markets in West Texas. Management believes that it can increase the profitability of the Company through increased operating efficiencies, an increase in the loan to deposit ratio and cross-selling a more expansive product line to newly acquired customers. The Company's operating strategy is to provide customers with the business sophistication and breadth of products of a regional financial services company, while retaining the special attention to personal service and the local appeal of a community bank. Decentralized decision making authority vested in the presidents and senior officers of the Banks allows for rapid response time and flexibility in dealing with customer requests and credit needs. The Company believes that following the merger of First State, N.A., Odessa with and into First State, N.A., Abilene, which was consummated on December 31, 1996, the rapid response time and flexibility in dealing with customer requests and credit needs will continue through the substantial autonomy of senior management at the main banking offices in Odessa and Abilene. The participation of the Company's directors, officers and employees in area civic and service organizations demonstrates the Company's continuing commitment to the communities it serves. Management believes that these qualities distinguish the Company from its competitors and will allow the Company to compete successfully in its market against larger regional and out-of-state institutions. THE ACQUISITION The Company intends to acquire Crown Park and its subsidiary, Western National. The Company and Crown Park have entered into an Agreement and Plan of Reorganization dated July 11, 1996 (the "Reorganization Agreement"). Under the Reorganization Agreement, Crown Park will be merged with and into a subsidiary of the Company to be formed and Western National will be merged with and into First State, N.A., Abilene, and the shareholders of Crown Park will receive merger consideration consisting of cash and/or promissory notes in the amount of $7,425,000 subject to adjustment as set forth below. The maximum amount of the merger consideration that the holders of Crown Park common stock may elect to have paid pursuant to promissory notes is $3,000,000. The Company does not expect that the holders of Crown Park common stock will elect to receive a material amount of the merger consideration in promissory notes. The merger consideration will (i) increase by the amount of interest earned on the merger consideration from December 1, 1996 through the closing date at a rate equal to the 26-week United States Treasury Bill rate plus 2%, (ii) decrease by the amount of $142,779 to be paid to Crown Park's financial advisor, (iii) decrease by the cost of certain director and officer insurance that the Company may elect to purchase in the event Western National fails to purchase such insurance, and (iv) decrease by the amount by which Western National's shareholders' equity, at the effective time of the merger, is less than $5,400,000 and shall be further reduced by the amount by which the shareholders' equity of Crown Park at the effective time is less than $4,000,000, provided that in the event both Western National and Crown Park's shareholders' equity are below the required amounts, then the amount by which those equity accounts are below such required amounts will be deducted only once and further provided that the merger consideration shall not be reduced in the event that Western National's shareholders' equity is less than $5,400,000 or Crown Park's shareholders' equity is less than $4,000,000 for any reason other than the payment of a dividend or distribution. See "The Acquisition." The Company expects to borrow up to $800,000 from Boatmen's First National Bank of Amarillo ("BFNBA") to finance a portion of the cost of acquiring Crown Park. The proposed terms provide that this loan will accrue interest at a floating per annum rate equal to BFNBA's base rate plus one-half percent, interest will be payable quarterly and principal will be payable in equal annual installments over a seven year period and the loan will mature not later than 90 days (with an option by the Company to renew). The loan will be secured by a pledge of all of the stock of First State, N.A., Abilene and will have other customary loan provisions. Management of the Company believes that the Acquisition presents an excellent opportunity for increased earnings. Crown Park, a Texas corporation located in Lubbock, Texas, engages in no significant activities other than owning and managing Western National. At September 30, 1996, Crown Park had total assets of $57,525,000, total loans, net of unearned income, of $38,619,000, total deposits of $50,702,000, and stockholders' equity of $4,318,000. Western National is a community bank that offers interest and noninterest-bearing depository accounts, and makes consumer and commercial loans. The Company intends to increase the profitability of Western National by expanding its loan portfolio and deposit base. The Company believes enhanced marketing efforts, expanded loan and deposit products and increased employee training and personal attention to customers will fuel this growth. The Company also believes that savings can be realized in the area of noninterest expenses through consolidation of operations. See "Business and Properties of the Company--Business Strategy." In addition to the immediate increase in asset size and the potential for improved future profitability, the Acquisition will allow the Company to expand its market area into what it believes are desirable banking locations. This expansion will increase the geographic diversity of the Company's loan portfolio which is expected to decrease the Company's overall lending risks. The closing of this Offering is contingent upon the simultaneous closing of the Acquisition, and if for any reason the Acquisition is not completed, this Offering will not be consummated. There can be no assurance that the Acquisition will be completed. THE OFFERING <TABLE> <S> <C> Securities Offered................ 275,000 shares of Common Stock(1) Common Stock Outstanding After the Offering.............. 1,379,644 shares are expected to be outstanding after this Offering. See "Capitalization."(2) Use of Proceeds................... The Company will use approximately $3,400,000 of the net proceeds from this Offering to fund a portion of the cost of acquiring Crown Park, and the balance, if any, for working capital and general corporate purposes. AMEX Symbol....................... IBK </TABLE> - ------------------------ (1) Of such shares, 30,000 have been reserved for sale to certain persons. See "Underwriting."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Prospectus. THE COMPANY REMEC is a leader in the design and manufacture of microwave multi-function modules ("MFMs") for microwave transmission systems used in defense applications and has recently entered, and now derives significant revenue from, the commercial wireless telecommunications market. The Company believes that its expertise in microwave transmission system components such as filters, amplifiers, mixers, switches and oscillators and its expertise in integrating these components into MFMs give REMEC a strong competitive position in the emerging commercial wireless infrastructure equipment market. The Company's capabilities enable it to develop and manufacture MFMs with reduced size, weight, parts count and cost, and increased reliability and performance. The Company's products operate at high RF (800 MHz to 1 GHz), microwave (1 GHz to 20 GHz) and millimeter wave (20 GHz to 50 GHz) frequencies (collectively referred to in this Prospectus as "microwave"). Modern wireless telecommunications systems employ microwave transmission technology pioneered in the defense industry. Microwave frequency bands have been used for emerging wireless telecommunications applications because they are less congested and have more available bandwidth, affording greater voice, data and video transmission capacity than lower frequency bands. Fueled by technological advances and regulatory changes, demand for wireless telecommunications products has increased in recent years for applications such as mobile telephony (cellular and PCS), rural telephony (VSAT), paging, wireless cable, interactive television and wireless local loop. These emerging wireless applications require a large infrastructure of microwave transmission equipment such as base stations and point-to-point radios. The Company believes that the evolution of cellular and PCS infrastructure, as well as other wireless telecommunications systems, will require increased integration in order to reduce size, weight and cost and to increase reliability and producability of base station equipment. An MFM typically consists of one or a number of microwave circuit boards and/or ceramic substrates mounted into a single package on which electronic components are interconnected to perform signal processing functions such as switching, amplification, conversion from one frequency to another and filtering. Integrating multiple functions into one assembly results in reduced packaging and interconnects, permits improved performance through optimal partitioning and implementation of functions, reduces product size and parts count and increases reliability at lower costs. REMEC's strategy is to maintain and enhance its core MFM technology leadership through selective participation in defense industry programs and to leverage this technology leadership by designing and manufacturing MFMs for original equipment manufacturers ("OEMs") supplying wireless telecommunications infrastructure equipment. REMEC's customers for commercial wireless MFMs and components include Alcatel Network Systems, AT&T Corp., Glenayre Technologies, Inc., Farinon Division of Harris Corporation, Lucent Technologies Inc., Motorola, Inc., Orbital Sciences Corporation, Pacific Communications Sciences, Inc., P-COM, Inc. and STM Wireless, Inc. REMEC's customers for defense microwave MFMs and components include The Boeing Company, Hughes Aircraft Co., Lockheed Martin Corporation, Motorola, Inc., Northrop Grumman Corporation and TRW Inc. As of November 3, 1996, REMEC's total backlog of $131.9 million was comprised of $69.0 million (52%) commercial wireless backlog and $62.9 million (48%) defense backlog. The Company pursues acquisitions to augment MFM technology by acquiring specialized component firms and to take advantage of opportunities to consolidate smaller, niche companies in a currently fragmented microwave equipment industry. In 1996, REMEC acquired Magnum Microwave Corporation, a leading supplier of oscillators and mixers, and RF Microsystems, a satellite communications engineering company. THE OFFERING Common Stock Offered by the Company......... 2,000,000 Shares Common Stock Offered by the Selling Shareholders................................ 750,000 Shares Common Stock to be Outstanding After the Offering.................................... 11,014,342 Shares(1) Use of Proceeds............................. General corporate purposes, including working capital. See "Use of Proceeds." Nasdaq National Market Symbol............... REMC SUMMARY FINANCIAL INFORMATION (2) (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> NINE MONTHS ENDED YEARS ENDED JANUARY 31, ------------------------ ------------------------------------------- OCTOBER 22, NOVEMBER 3, 1992 1993 1994 1995 1996 1995 1996 ------- ------- ------- ------- ------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENTS OF OPERATIONS DATA: Net sales........................... $42,567 $42,347 $46,577 $57,553 $62,145 $45,565 $62,461 Gross profit........................ 13,145 12,598 13,381 14,846 15,547 11,309 15,656 Income from operations.............. 5,082 5,122 5,343 4,574 3,690 2,729 5,134 Net income.......................... $ 3,532 $ 3,694 $ 3,545 $ 2,532 $ 2,156 $ 1,546 $ 3,215 Net income per share(3)............. $ 0.41 $ 0.44 $ 0.52 $ 0.38 $ 0.32 $ 0.23 $ 0.36 Shares used in per share calculations...................... 8,659 8,429 6,852 6,667 6,639 6,664 8,983 </TABLE> <TABLE> <CAPTION> JANUARY 31, 1996 NOVEMBER 3, 1996 ---------------- ------------------------ ACTUAL ACTUAL AS ADJUSTED(4) ---------------- ------- -------------- <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................ $ 1,326 $ 6,513 $ 48,874 Working capital.......................................... 11,912 25,964 68,325 Total assets............................................. 33,739 54,016 96,377 Long-term debt........................................... 1,900 -- -- Total shareholders' equity............................... 20,094 41,519 83,881 </TABLE> <TABLE> <CAPTION> JANUARY 31, 1996 NOVEMBER 3, 1996 ---------------- ---------------- <S> <C> <C> BACKLOG(5) Commercial...................................................... $ 45,134 $ 68,957 Defense......................................................... 42,382 62,928 ---------------- ---------- ------ Total................................................. $ 87,516 $131,885 ================ ================ </TABLE> - --------------- (1) Based on shares outstanding as of November 3, 1996. Does not include 481,864 shares of Common Stock issuable upon the exercise of outstanding options. See Note 5 to Consolidated Financial Statements. (2) Includes results of operations, balance sheet data and backlog of Magnum Microwave Corporation acquired on August 26, 1996, which was accounted for as a pooling of interests. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (3) Computed on the basis described in Note 1 to Consolidated Financial Statements. (4) As adjusted to reflect the sale by the Company of 2,000,000 shares of Common Stock offered by the Company hereby at an assumed price of $22 5/8 per share. See "Capitalization." (5) Backlog is not necessarily indicative of future sales and is generally subject to cancellation. See "Risk Factors -- Backlog" and "Business -- Backlog."

parsed_sections/prospectus_summary/1997/CIK0000784932_surety_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial information (including the notes thereto) appearing elsewhere in this prospectus. As used in this prospectus, unless the context otherwise requires, the term "Company" means Surety Capital Corporation and its subsidiary. As used in the prospectus, unless the context otherwise requires, a description of activities conducted by the Company includes activities conducted by its subsidiary. Unless otherwise indicated, all information in this prospectus assumes that the Underwriter's over-allotment option is not exercised. THE COMPANY GENERAL. Surety Capital Corporation (the "Company") is a bank holding company headquartered in Hurst, Texas. The Company, which is a Delaware corporation, owns all of the outstanding shares of Surety Bank, National Association (the "Bank"). The Company conducts substantially all of its activities through the Bank. The Company operates full-service banking offices in the Texas communities of Chester, Hurst, Kennard, Lufkin, Midlothian, Waxahachie, Wells and Whitesboro. At September 30, 1997, the Company had $176.9 million in total assets, $155.0 million in deposits and $20.8 million in shareholders' equity, and its subsidiary Bank was "well capitalized" under federal regulatory capital adequacy guidelines. The Company has had five consecutive years of increasing net earnings, which have grown from approximately $16 thousand in 1992 to $1.7 million in 1996, and $1.5 million for the nine months ended September 30, 1997. Assuming the successful completion of the acquisition of TexStar National Bank ("TexStar") and the Offering as of September 30, 1997, the Company's total assets, deposits and shareholders' equity on a pro forma basis would have been $253.5 million, $220.7 million and $29.5 million, respectively. BUSINESS STRATEGY. The Company's business strategy has two key aspects: growth through acquisitions of community banks and an emphasis on specialized lending, which it funds using relatively low cost core retail deposits from its network of community banking offices. The Company acquired its first community bank in December, 1989. Since 1992, the Company has established seven new full-service branches by acquiring six community banks and purchasing the deposits and certain assets of a branch of another bank. The Company is conducting the Offering to raise the capital to acquire TexStar, a community bank located in Universal City, Texas, which reported $73.5 million in total assets, $65.7 million in deposits and $5.6 million in shareholders' equity at September 30, 1997. TexStar will be the Company's first presence in the greater San Antonio, Texas, metropolitan area. See "The TexStar National Bank Acquisition". While the Company is actively pursuing its growth strategy, the Company believes that growth is not prudent unless the acquired assets and liabilities can be profitably deployed. It is in this regard that the Company distinguishes itself from other community banking organizations by balancing its traditional community bank lending with the active development of lending niches such as insurance premium financing and medical claims factoring. The ability to fund these lending activities with relatively low cost deposits from the Company's community bank network gives the Company a pricing advantage over non-bank competitors for its loan products. For the nine months ended September 30, 1997, the Company's average cost of funds was 3.7% compared with a loan portfolio yield of approximately 11.7%. The following is a description of the Company's niche and traditional lending activities: . INSURANCE PREMIUM FINANCING. The Company's primary niche product is insurance premium finance ("IPF") lending, which involves the lending of funds to companies and individuals for the purpose of financing their purchase of property and casualty insurance. The Company markets this product through over 5,000 independent insurance agents and maintains a loan portfolio consisting of receivables from nearly 600 insurance companies. At September 30, 1997, the Company reported total gross IPF loans of $46.1 million (approximately 39.5% of gross loans), a 17.7% increase over the December 31, 1996 total balance of $39.2 million in IPF loans (37.1% of gross loans). The loans are relatively short term, generally with maturities of eight to nine months. The down payment and monthly installments on each loan are calculated such that at all times the equity or value of the unearned premium in the policy exceeds the net balance due on the loan. If the borrower does not make the loan payments on time, the Company has the right, after notice to the borrower, to cancel the insurance policy and to receive the entire amount of the unearned premium from the insurance company writing the insurance. The unearned premium is then applied to the net loan balance. The primary risk in IPF lending is not that a borrower will default on the loan but that an insurance company will default on payment of the unearned premium following a default by a borrower. No lending is without risk, but specialized products may present different types of risks than traditional loans. See "Business--Insurance Premium Financing" and "Risk Factors--Insurance Premium Financing Concentration". . MEDICAL CLAIMS FACTORING. Another Company niche product is medical claims factoring. The Company purchases medical claims from a variety of health care providers, including individual medical practices, medical clinics, hospitals, and out-patient facilities. At September 30, 1997, the Company reported $10.5 million in medical claims receivables, representing 9.0% of total loans outstanding. The Company purchases primarily insurance company claims that have been pre-approved for payment by the insurance company, funding only 50%-60% of the face value of each claim to the provider. The average period these receivables remain outstanding, from the date of funding by the Company to collection, is approximately 60 to 120 days. As of September 30, 1997, the Company had realized an annualized yield in excess of 26.4% in this program. See "Business--Medical Claims Receivables Factoring" and "Risk Factors--Medical Claims Factoring". . TRADITIONAL LENDING ACTIVITIES. The Company diversifies its lending risks by balancing its specialty lending with traditional loans. At September 30, 1997, the Company had approximately $56.9 million, or roughly half of its total loan portfolio, in IPF loans and medical claims receivables, with the other half of its loan portfolio in traditional community bank loans, including real estate, commercial and installment loans. The Company believes that its specialized lending products help it achieve a higher loan portfolio yield than it could achieve on traditional community bank loans alone. See "Business-- Commercial and Consumer Banking". THE TEXSTAR ACQUISITION. The acquisition of TexStar complements the Company's business strategy in that it provides the Company with a solid base of core deposits to use to fund its specialty and traditional lending activities. TexStar has traditionally maintained a low loan to deposit ratio, and the Company believes that it can increase the amount of loans originated from TexStar's banking locations by enhanced marketing and access to the Company's normal sources for IPF and medical claims factoring loans. The TexStar acquisition will increase the Company's total assets from $176.9 million to $253.5 million as of September 30, 1997, on a pro forma basis, and the addition of TexStar's main office in Universal City and four full-service branches in the greater San Antonio metropolitan area will increase the Company's number of full-service banking locations from eight to thirteen. The acquisition of TexStar is expected to be completed in the first quarter of 1998. However, the Offering is not contingent upon completion of the TexStar Acquisition. See "The TexStar National Bank Acquisition". THE OFFERING <TABLE> <S> <C> Securities Offered by the Company............ 1,500,000 shares of Common Stock Common Stock to be Out- standing after the Of- fering................. 7,251,882 shares(1) Use of Proceeds......... The proceeds of this Offering will be used to finance the acquisition of TexStar and for general corporate purposes. See "Use of Proceeds". Risk Factors............ Prospective investors are advised to review carefully the matters discussed under "Risk Factors". AMEX Symbol............. "SRY" </TABLE> - -------- (1) Excludes shares issuable upon the exercise of (i) the Underwriter's overallotment option covering 225,000 shares, and (ii) options under the Company's incentive stock option plans. See "Underwriting" and "Management--Executive Compensation and Other Information". SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated financial data of the Company is derived from the unaudited financial statements of the Company as of and for the nine month periods ended September 30, 1997 and 1996, and from the audited financial statements of the Company as of and for the five years ended December 31, 1996. The following summary consolidated financial data of the Company should be read in connection with the consolidated financial statements of the Company and the notes thereto and the information in Management's Discussion and Analysis of Financial Condition and Results of Operations. <TABLE> <CAPTION> NINE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, ------------------ ---------------------------------------------- 1997 1996(1) 1996(1) 1995(2) 1994(3) 1993(3) 1992(3) -------- -------- -------- -------- -------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> INCOME STATEMENT DATA: ($ IN 000'S) Interest income........ $ 12,007 $ 10,476 $ 14,390 $ 9,535 $ 5,387 $ 3,995 $ 3,344 Interest expense....... 4,290 3,962 5,362 3,678 1,488 1,124 978 -------- -------- -------- -------- -------- ------- ------- Net interest income.... 7,717 6,514 9,028 5,857 3,899 2,871 2,366 Provision for credit losses................ 295 90 135 60 107 91 300 -------- -------- -------- -------- -------- ------- ------- Net interest income after provision for credit losses......... 7,422 6,424 8,893 5,797 3,792 2,781 2,067 Noninterest income..... 1,765 1,355 1,877 1,419 1,160 1,182 784 Noninterest expense.... 6,781 6,052 8,135 5,878 4,462 3,592 2,835 -------- -------- -------- -------- -------- ------- ------- Earnings before income taxes................. 2,406 1,727 2,636 1,338 490 371 16 Income taxes........... 875 594 938 451 17 0 0 -------- -------- -------- -------- -------- ------- ------- Net income............. $ 1,531 $ 1,133 $ 1,698 $ 887 $ 473 $ 371 $ 16 ======== ======== ======== ======== ======== ======= ======= COMMON SHARE DATA:(4) Net income............. $ 0.27 $ 0.22 $ 0.32 $ 0.27 $ 0.20 $ 0.19 $ 0.00 Book value............. $ 3.62 $ 3.24 $ 3.35 $ 2.94 $ 2.65 $ 2.32 $ 2.05 Tangible Book Value(5).............. $ 2.57 $ 2.13 $ 2.26 $ 2.18 $ 1.83 $ 2.13 $ 1.84 Weighted average common shares outstanding (in 000's)................ 5,751 5,263 5,389 3,279 2,394 2,002 1,952 Period end shares outstanding (in 000's)................ 5,752 5,748 5,748 3,506 3,041 2,273 1,981 BALANCE SHEET DATA: ($ IN 000'S) Total assets........... $176,894 $160,166 $176,439 $121,339 $102,294 $49,036 $30,964 Insurance premium finance loans, net.... 44,429 33,933 38,224 21,905 20,497 14,209 7,051 Other loans, net....... 69,961 62,879 64,928 45,197 44,167 17,417 12,442 Allowance for credit losses................ 1,367 1,292 1,285 703 698 401 325 Total deposits......... 154,999 152,281 155,690 109,599 92,027 43,596 26,840 Shareholders' equity... 20,806 18,603 19,231 10,295 8,066 5,281 4,058 PERFORMANCE DATA:(4) Return on average total assets................ 1.2% 0.9% 1.0% 0.8% 0.8% 0.8% 0.1% Return on average shareholders' equity.. 10.8 9.5 9.8 9.5 7.4 8.7 0.4 Net interest margin(6)............. 6.5 6.1 6.2 6.1 7.1 7.0 8.7 Efficiency ratio(7).... 68.3 74.6 71.8 78.4 87.5 87.9 89.2 Net loans to deposits.. 72.9 62.7 65.4 60.6 70.3 72.5 72.6 ASSET QUALITY RATIOS:(4) Nonperforming assets to total assets.......... 0.8% 0.4% 0.6% 0.1% 0.2% 0.3% 0.7% Nonperforming loans to total loans........... 0.2 0.3 0.2 0.1 0.2 0.3 0.8 Net loan charge-offs to average loans......... 0.2 0.1 0.2 0.1 0.4 0.3 1.6 Allowance for credit losses to total loans................. 1.2 1.2 1.2 1.0 1.1 1.3 1.7 Allowance for credit losses to nonperforming loans... 576.8 482.4 502.5 996.1 574.8 425.8 201.1 CAPITAL RATIOS: Tier I risk-based capital............... 11.9% 11.1% 11.1% 10.8% 10.1% 11.4% 14.4% Total risk-based capital............... 13.1 12.3 12.3 11.7 11.2 12.6 15.7 Leverage............... 8.7 7.4 7.0 6.9 5.6 10.0 11.9 </TABLE> - -------- (1) In February, 1996, the Company acquired First Midlothian Corporation, Midlothian, Texas. In March, 1996, the Company acquired certain assets and assumed certain liabilities of Providers Funding Corporation, Dallas, Texas. The acquisitions were accounted for as purchase transactions. (2) In September, 1995, the Company completed the acquisition of certain assets and the assumption of certain liabilities of a branch of another bank located in Waxahachie, Texas. This acquisition was accounted for as a purchase transaction. (3) In May, 1994, the Company acquired The Farmers Guaranty State Bank of Kennard, Kennard, Texas, and in December, 1994 the Company acquired First National Bank, Whitesboro, Texas. During 1994, the Company had no effective tax rate as it utilized a net operating loss carryforward. The Company returned to paying federal income taxes at an effective rate of 34% during 1995. As a result, net income for the years ended December 31, 1995 and 1996 may be more indicative of operating trends in the future. Conversely, earnings before income taxes may be a more useful comparison when looking at results of operations in 1994 and prior years. In March, 1993, the Company acquired the Bank of East Texas, Chester, Texas and First State Bank, Wells, Texas. Operations of these two banks have been included in consolidated operations subsequent to February 28, 1993. The information provided for 1992 has been restated to reflect a one for ten reverse stock split in June 1993. All these acquisitions were accounted for as purchase transactions. (4) All interim periods have been annualized. (5) Tangible book value is the book value per share after deducting intangible assets such as goodwill. (6) The net interest margin represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. (7) The efficiency ratio is non-interest expenses (excluding amortization of intangibles), divided by the sum of net interest income plus non-interest income, excluding net gains (losses) on dispositions of investment securities and certain assets. RISK FACTORS In addition to the other information contained in this prospectus, the following factors should be considered carefully in evaluating the Company, its business and prospects before purchasing any of the shares of Common Stock offered hereby. An investment in the securities of the Company may pose risks unique to the Company, or unique to the financial services industry, which are not posed by other investments. INSURANCE PREMIUM FINANCING CONCENTRATION. As of September 30, 1997, IPF loans totaled $46.1 million, representing approximately 39.5% of the total gross loans of the Company. Such a high concentration of IPF loans may expose the Company to different types of risks and a greater risk of loss than would a more traditional commercial and consumer loan portfolio. In traditional loan products, the primary risk is that a borrower will fail to repay the loan. However, when a borrower fails to repay an IPF loan, typically the insurance policy is canceled and the unearned premium is paid to the lender. Significant risks posed by IPF loans normally not present in traditional loans include the risk that an insurance company will become insolvent or otherwise unable to meet its obligations, or that someone will obtain IPF loans for fictitious policies where the Company does not have recourse to an insurance company for insurance premiums. See "Business--Insurance Premium Financing", "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Nonperforming Assets," and "Legal Proceedings." Losses or other difficulties encountered by any one insurance company, or fraudulent activity by an insurance company or agent, could have a material adverse effect on the Company. In addition, financial difficulties or regulatory or structural changes affecting the insurance industry generally may have a material adverse effect on the Company. The Company extends IPF loans with an average maturity of nine months. Most of these loans are repaid in monthly installments. Most of the IPF loans are generated through independent insurance agents, who are not obligated to refer business to the Company. If the Company is unable to generate new IPF loans to replace those being repaid, it will have to originate other types of loans or make other investments, some or all of which may not be as profitable for the Company. As the Company expands through acquisitions such as TexStar, the Company must increase the aggregate amount of IPF loans originated on a continuous basis in order to maintain its current net interest margin. See "Management's Discussion and Analysis of Financial Condition and Results of Operations", and "Business--Insurance Premium Financing". MEDICAL CLAIMS FACTORING. As of September 30, 1997, the Company had approximately $4.3 million of medical claims receivables outstanding 120 days or more from the date of funding by the Company, or 41% of its total medical claims receivables. At December 31, 1996 the Company had approximately $1.1 million of medical claims receivables, 19% of total medical claims receivables, outstanding 120 days or more. It has been the Company's experience that, historically, approximately 80% of its medical claims receivables were collected within 60 to 120 days. Therefore, approximately 20% of such receivables would remain outstanding after 120 days. The Company believes that the increase in the proportion of medical claims receivables outstanding after 120 days resulted primarily because the Company did not increase the staffing for collections commensurate with the growth in medical claims receivables. While the Company believes that substantially all of these claims ultimately will be collected from insurance companies or the federal government, this development represents a significant increase, from December 31, 1996, in the amount of medical claims receivables outstanding over 120 days, and there can be no assurance of ultimate collectibility. As with IPF loans, losses or difficulties encountered by any one medical claims payor, or fraudulent activity by any one medical claims payor or medical services provider, could have a material adverse effect on the Company. In addition, financial difficulties or regulatory or structural changes affecting medical services providers or medical claims payors generally may have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Nonperforming Assets". POTENTIAL NEGATIVE IMPACT FROM THE ACQUISITION OF TEXSTAR. As a result of the acquisition of TexStar, the Company's asset size will increase from $176.9 million at September 30, 1997 to $253.5 million on a pro forma basis. The Company's loan to deposit ratio will decrease from 73.1% at September 30, 1997 to 65.9% on a pro forma basis. The Company anticipates that the acquisition of TexStar will negatively impact the Company's net interest margin, return on assets and return on shareholder equity in the near term. The acquisition may also negatively impact earnings per share in the near term. The future prospects of the Company will depend, in significant part, on a number of factors, including, without limitation, the Company's ability to integrate TexStar; its ability to compete effectively in the greater San Antonio metropolitan market area; its success in retaining earning assets, including loans, acquired with TexStar; and its ability to generate new earning assets with attractive yields. No assurance can be given that the Company will be able to accomplish any of the foregoing. No assurance can be given that the Company will be able to achieve results in the future similar to those achieved in the past or that the Company will be able to manage effectively the growth resulting from the acquisition of TexStar. The officers and directors of TexStar will not be subject to non-competition agreements and may compete against the Company. See "The TexStar National Bank Acquisition". FUTURE GROWTH. Fueled by acquisitions, the total assets of the Company have increased from $31.0 million at December 31, 1992, to $176.9 million at September 30, 1997. There can be no assurance that the Company will grow as rapidly in the future as it has in the past. The Company may decide that it will not pursue further acquisitions, or the Company may not be able to locate and complete favorable acquisition opportunities in the future. In recent years, the aggregate number of community banks in Texas has decreased, primarily through mergers and acquisitions, and the competition for acquisitions has increased. If the Company does not make acquisitions in the future, it may not be able to sustain its historical growth rate. RELIANCE ON KEY PERSONNEL. The Company is dependent upon its executive officers and key employees. Specifically, the Company considers the services of C. Jack Bean, G. M. Heinzelmann, III, Bobby W. Hackler, and B. J. Curley to be important to the success of the Company. The unexpected loss of the services of any of these individuals could have a detrimental effect on the Company. Although the Company has entered into agreements with these individuals designed to provide incentives to remain in the Company's employ, the Company has not requested non-competition agreements from these individuals. The Company has entered into Change in Control Agreements with Messers. Heinzelmann, Hackler and Curley, and is negotiating a new agreement with Mr. Bean, under which each will receive certain benefits if their employment is terminated other than for cause, or constructively terminated, following a change in control of the Company. See "Management". POSSIBLE MARKET VOLATILITY. A public trading market having the desired characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of willing buyers and sellers of Common Stock at any given time, which presence is dependent upon the individual decisions of investors and general economic and market conditions over which the Company has no control. See "Market Price and Dividend Policy". The stock market has from time to time experienced extreme price and volume volatility. These market fluctuations may be unrelated to the operating performance of particular companies whose shares are traded and may adversely affect the market price of the Common Stock. In addition, during periods of extreme market volatility, investors may be unable to obtain prompt execution of buy or sell orders in the Common Stock. INTEREST RATE RISK. The Company's earnings depend to a substantial extent on "rate differentials", i.e., the differences between the income the Company receives from loans, securities and other earning assets, and the interest expense it pays to obtain deposits and other liabilities. These rates are highly sensitive to many factors which are beyond the control of the Company, including general economic conditions and the policies of various governmental and regulatory authorities. The Company has attempted to structure its asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates. However, there can be no assurance that the Company will be able to manage interest rate risk so as to avoid significant adverse affects in net interest income. From time to time, maturities of assets and liabilities are not balanced, and a rapid increase or decrease in interest rates could have an adverse effect on the net interest margin and results of operations of the Company. The nature, timing and effect of any future changes in federal monetary and fiscal policies on the Company and its results of operations are not predictable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Interest Rate Sensitivity Managment". REGULATION AND SUPERVISION. The Company and the Bank are subject to extensive federal and state regulation and supervision, which is intended primarily for the protection of insured depositors and consumers. In addition, the Company and the Bank are subject to changes in federal and state law, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot be predicted, but could adversely affect the business and operations of the Company and the Bank. See "Regulation and Supervision". NO DIVIDENDS. The Company has not previously paid any cash dividends on its Common Stock. The Company currently intends to retain earnings to support future growth, rather than using earnings to pay dividends. The payment of any cash dividends by the Company in the future will depend to a large extent on the receipt of dividends from the Bank. The ability of the Bank to pay dividends is dependent upon the Bank's earnings and financial condition. The payment of cash dividends by the Bank to the Company and by the Company to its shareholders are both subject to certain statutory and regulatory restrictions. See "Market Price and Dividend Policy" and "Regulation and Supervision". COMPETITION. There is significant competition among banks and bank holding companies, many of which have far greater assets and resources than the Company, in the areas in which the Company operates. The Company also encounters intense competition in its commercial banking business from savings and loan associations, credit unions, factors, insurance companies, commercial and captive finance companies, and other types of financial institutions, many of which are larger in terms of capital, resources and personnel than the Company. The casualty IPF business of the Company is also very competitive. Large insurance companies offer their own financing plans, and other independent premium finance companies and other financial institutions offer IPF loans. The Company believes that such competition will increase in the future. In addition, the manner in which and the means by which financial services are delivered to customers have changed significantly in the past and can be expected to continue to change in the future. It is not possible to predict the manner in which existing technology, and changes in existing technology, will affect the Company. Changes in technology are likely to require additional capital investments to remain competitive. Although the Company has invested in new technology in the past, there can be no assurance that the Company will have sufficient financial resources or access to the proprietary technology which might be necessary to remain competitive in the future. See "Business--Competition". NOTE REGARDING FORWARD-LOOKING STATEMENTS In this prospectus, all statements other than statements of historical fact regarding the Company's financial condition, results of operations, business strategy and future acquisitions or operations are "forward-looking statements". When used in this Prospectus, words such as "believes", "anticipates", "intends", "expects", "should", and words of similar import identify a forward-looking statement. Such forward-looking statements may involve numerous assumptions about known and unknown trends, uncertainties, risks, economic conditions and other factors which may ultimately prove to be inaccurate. Certain of these factors are discussed in more detail elsewhere in this prospectus, including without limitation under "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", and "Business". These factors include the Company's ability to successfully complete the TexStar acquisition, and to redeploy excess liquidity, as well as the Company's ability to continue to make future acquisitions. Actual results may differ materially from any future results expressed or implied by such forward-looking statements. Prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update or to publicly revise any of the forward-looking statements contained herein to reflect future events or developments. USE OF PROCEEDS The Company has entered into an agreement to acquire TexStar. In connection with the acquisition, the shareholders of TexStar will receive cash for their shares in that bank. The Company intends to use the net proceeds from the sale of Common Stock to finance this acquisition. However, the Offering is not contingent upon completion of the acquisition. Any remaining proceeds will be used by the Company for general corporate purposes. See "The TexStar National Bank Acquisition". CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of the Company as of September 30, 1997, and the pro forma capitalization adjusted to reflect (i) the sale by the Company of 1,500,000 shares of the Common Stock offered hereby at an assumed offering price of $6.75 per share, net of underwriting commissions and other expenses; (ii) the consummation of the acquisition of TexStar; and (iii) the application of net proceeds as described under "Use of Proceeds". <TABLE> <CAPTION> SEPTEMBER 30, 1997 ------------------------ ACTUAL PRO FORMA ----------- ----------- <S> <C> <C> Shareholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized none issued at September 30, 1997........................................... $ -- $ -- Common stock, $.01 par value, 20,000,000 shares authorized, Issued--5,786,171 shares, (7,251,882 as adjusted)........................ 57,862 72,862 Additional paid-in capital...................... 16,850,067 25,566,317 Retained earnings............................... 3,982,998 3,967,998 Stock rights issuable(1)........................ 57,862 72,862 Treasury stock, 34,289 shares at September 30, 1997 carried at cost........................... (172,828) (172,828) Unrealized gain on available-for-sale securities, net of tax....................................... 30,397 30,397 ----------- ----------- Total shareholders' equity.................... $20,806,358 $29,537,608 =========== =========== </TABLE> - -------- (1) To reflect rights issuable under the shareholder rights agreement adopted by the Company in June 1997. See "Description of Securities--Shareholders' Rights Agreement." MARKET PRICE AND DIVIDEND POLICY MARKET PRICE Since January 10, 1995 the Company's Common Stock has been traded on the Primary List of the AMEX under the symbol "SRY". From February 23, 1994 through January 9, 1995 the Company's Common Stock was traded on the AMEX Emerging Company Marketplace under the symbol "SRY.EC". For the nine months ended September 30, 1997, the Company's Common Stock ranged from $4.13 to $6.50. For the year ended December 31, 1996, the Company's Common Stock ranged from $3.25 to $4.94. The following table sets forth, for the periods indicated, the high and low sale price per share of the Company's Common Stock as reported on the AMEX Primary List for fiscal years ended 1995 and 1996 and through November 30, 1997. <TABLE> <CAPTION> HIGH LOW ----- ----- <S> <C> <C> 1995 FISCAL YEAR: First quarter.................................................... $4.38 $3.06 Second quarter................................................... 6.75 3.19 Third quarter.................................................... 5.13 3.50 Fourth quarter................................................... 4.50 3.75 1996 FISCAL YEAR: First quarter.................................................... $4.50 $3.25 Second quarter................................................... 4.94 3.63 Third quarter.................................................... 4.94 4.00 Fourth quarter................................................... 4.88 4.00 1997 FISCAL YEAR: First quarter.................................................... $5.75 $4.13 Second quarter................................................... 5.63 5.00 Third quarter.................................................... 6.50 5.13 Fourth quarter (through November 30)............................. 7.25 6.00 </TABLE> DIVIDEND POLICY THE COMPANY. The Company has not paid cash dividends in the past and does not intend to pay dividends for the foreseeable future. The Company intends to retain any future earnings for use in the business of the Company. The payment of any dividends in the future will be made at the discretion of the Board of Directors of the Company and will depend upon the operating results and financial condition of the Company and the Bank, their capital requirements, contractual agreements, general business conditions and other factors. The Company's principal source of funds to pay dividends in the future, if any, on the Common Stock will be cash dividends the Company receives from the Bank. See "Regulation and Supervision" for a discussion of regulatory constraints on the payment of dividends by national banks and bank holding companies generally. THE BANK. The Bank is subject to various restrictions imposed by the National Bank Act relating to the declaration and payment of dividends. The board of directors of a national banking association may, subject to the following limitations, declare a quarterly, semiannual or annual dividend of as much of its net profits as it may judge expedient. The payment of dividends is subject to the provisions of 12 U.S.C. 60, which provides that no dividends may be declared or paid without the approval of the Office of the Comptroller of the Currency ("OCC") if the total of all dividends, including the proposed dividend, in any calendar year exceeds the total of the bank's net profits for that year combined with its retained net profits of the preceding two years. Under the provisions of 12 U.S.C. 56 no dividends may ever be paid in an amount greater than the bank's net profits. As of September 30, 1997, approximately $3.5 million was available for payment of dividends by the Bank to the Company. The OCC also has authority to prohibit a national bank from engaging in what in the OCC's opinion constitutes an unsafe or unsound practice in conducting business, including the payment of a dividend. See "Regulation and Supervision". THE TEXSTAR NATIONAL BANK ACQUISITION In recent years, the Company has successfully pursued a strategy of growth through acquisitions, and has profitably reinvested acquired assets and liabilities. The acquisition of TexStar complements the Company's business strategy in that TexStar is a community bank located in a growth area, with excess liquidity which can be used to fund the Company's specialized lending activities. BUSINESS OF TEXSTAR At September 30, 1997, TexStar had $73.5 million in total assets, $67.9 million in deposits and $5.6 million in shareholders' equity. TexStar is a community bank which offers interest-bearing and noninterest-bearing depository accounts, and makes real estate, commercial and consumer loans. At September 30, 1997, TexStar's loan portfolio consisted of $13.9 million of real estate loans (42.8% of the gross loan portfolio), $14.5 million of commercial loans (44.6% of the gross loan portfolio), and $4.1 million of installment loans (12.6% of the gross loan portfolio). At September 30, 1997, TexStar's total nonaccrual loans were $202,000 (0.6% of the gross loan portfolio). The allowance for possible loan losses was $473,457, or 234.2% of total nonaccruing loans, and 1.4% of the gross loan portfolio. Other real estate owned by TexStar was $475,374 at September 30, 1997. TexStar reported net income after taxes of $547,289 for 1996, and $394,682 for the nine months ended September 30, 1997. See the financial statements of TexStar included in this prospectus. At September 30, 1997, TexStar's loan-to-deposit ratio was 48.8%. The Company intends to use the excess liquidity acquired with TexStar to fund additional IPF loans and medical claims receivables factoring. TexStar is headquartered in Universal City, which is located in the growth corridor northeast of San Antonio, Texas. San Antonio is the eighth largest Standard Metropolitan Statistical Area in the United States. TexStar has four branch locations in Converse, New Braunfels, San Antonio, and Schertz. As of 1997, Bexar County, where San Antonio and Universal City are located, had an estimated population of 1,333,744. Bexar County is projected to have a population of 1,429,374 by 2002 or an 8% increase. In 1997, estimated average household income for Bexar County was $48,317, the estimated median household income was $33,439, and the estimated per capita income was $17,359. The median age was approximately 32 years. Over 44,000 businesses in Bexar county currently employ approximately 638,000 people. Although the closing of Kelly Air Force base might have a negative impact on San Antonio, other events, such as the relocation of the corporate headquarters of Southwestern Bell to San Antonio, should have a positive impact. Management of TexStar considers the economy in the immediate area surrounding TexStar stable. The largest employer in the area, Randolph Air Force Base, continues to add jobs and missions despite the downsizing of the military. It continues to serve as the headquarters for Air Education and Training Command. TexStar is a Statewide Preferred Lender under the government guaranteed United States Small Business Administration ("SBA") lending program. Under this program, TexStar originates and funds SBA loans qualifying for guarantees from the United States Small Business Administration. These guarantees range from 75% to 90% of principal and up to 120 days of accrued interest. In addition, in the event of a default and liquidation of one of these loans the SBA pays its prorata share of the liquidation costs. The SBA guaranteed portion of these loans is generally sold into the secondary market with servicing retained. The guaranteed portion is sold for a premium (approximately 7% to 10% of the SBA guaranteed portion) with a servicing fee of at least 1% of the guaranteed portion retained. At September 30, 1997, TexStar had originated $7,046,510 in SBA loans with the $5,276,514 SBA guaranteed portion sold in the secondary market. The remaining $1,768,996 in unguaranteed portion of these loans remains in TexStar's loan portfolio. TexStar has been making SBA loans for approximately 4 years and has not experienced a default and liquidation regarding any of these loans. The Company may expand the generation of SBA loans because of TexStar's Statewide Preferred Lending Status. For example, the Company could establish additional loan production offices staffed by lenders that are specially trained in SBA loan production. THE REORGANIZATION AGREEMENT The Company and the Bank have entered into a reorganization agreement dated October 10, 1997 with TexStar and certain shareholders (the "TexStar Shareholders") of TexStar (the "Reorganization Agreement") and a related merger agreement between the Company, the Bank and TexStar (the "Merger Agreement"). Under the Merger Agreement, TexStar will be merged into the Bank (the "Merger"), and the shareholders of TexStar will receive cash in the aggregate amount of (i) $9,500,000 plus (ii) a performance payment equal to 50% of the net earnings (as defined in the Merger Agreement) of TexStar in excess of $100,000 for the period from September 1, 1997 to the Closing Date. In addition, the parties have agreed that TexStar may pay a $100,000 bonus to its president upon consummation of the transaction. The shareholders of TexStar, other than shareholders who dissent from the Merger, will collectively reimburse the Company for an agent's fee payable upon consummation of the Merger. If the acquisition had been completed on September 30, 1997, the purchase price paid to the shareholders of TexStar would have been approximately $9.5 million. The obligations of the parties to complete the acquisition are subject to certain conditions, including the conditions that (i) all approvals of any regulatory authority having jurisdiction shall have been received and all applicable statutory waiting periods shall have expired, and (ii) at the closing date, no litigation or proceedings shall be pending or threatened to restrain or prohibit or obtain damages regarding the acquisition or as a result of which, in the reasonable judgment of the Company or TexStar, the parties could be deprived of any of the material benefits contemplated under the Reorganization Agreement. In addition, the Company is not obligated to complete the acquisition unless certain conditions set out in the Reorganization Agreement have been satisfied or waived by the Company, including that (i) the shareholders of TexStar shall have approved the transactions contemplated under the Reorganization Agreement; (ii) TexStar, in the opinion of the Company, shall not have suffered any material adverse change in its financial condition, business, operations, prospects, properties or assets; (iii) holders of no more than 12% of the outstanding shares of TexStar shall have dissented from the merger of TexStar and the Bank; (iv) the Company shall be satisfied with the results of its due diligence review; (v) TexStar and the TexStar Shareholders shall have complied with and performed their covenants in the Reorganization Agreement; (vi) each representation or warranty of TexStar shall be accurate; and (vii) the Company shall have sufficient financial resources available, in its sole opinion, to consummate the acquisition. TexStar is not obligated to complete the transaction unless certain conditions set out in the Reorganization Agreement are satisfied or waived, including the condition that the Company shall have approved the Merger. The TexStar Shareholders have agreed that they shall be responsible for filing all tax returns for TexStar for all periods ending prior to the Merger. In addition, the TexStar Shareholders have agreed that they will not make any claim against the Bank for indemnification for actions taken as a director or officer of TexStar. TexStar and the TexStar Shareholders have agreed to establish an escrow account in the amount of $400,000, to indemnify the Company, the Bank and their respective officers, directors, employees, agents, successors and assigns against any claims connected with or arising out of a breach of warranty or a misrepresentation or a breach of covenant by TexStar under certain provisions of the Reorganization Agreement. Indemnification of such parties against such claims is limited to the escrowed $400,000, which will be paid to the TexStar shareholders establishing the escrow if not used to defend against or satisfy indemnified claims. TexStar had 575,000 shares of common stock authorized, and 485,000 shares issued and outstanding, as of August 31, 1997. The TexStar Shareholders who individually and as a group approved and executed the Reorganization Agreement are the record and beneficial owners of approximately 74% of the outstanding common stock of TexStar. If the Company elects to terminate the Reorganization Agreement after December 9, 1997 because, in its opinion, it does not have sufficient financial resources available to complete the acquisition or it is not satisfied with the results of the due diligence review of TexStar, the Company is obligated to pay TexStar a break-up fee of $25,000. On December 12, 1997, the OCC approved the application to merge TexStar into the Bank, contingent upon the Company raising at least $6,000,000 in additional capital. The meeting of the shareholders of TexStar to consider and vote upon the Reorganization Agreement will be held on January 21, 1998. The closing date of the acquisition will be selected by mutual agreement of the parties to the Reorganization Agreement following the satisfaction of all conditions to closing. The Company anticipates that the closing will take place following the closing of the Offering and prior to March 31, 1998. PRO FORMA FINANCIAL STATEMENTS The following pro forma financial information sets forth the condensed balance sheets at September 30, 1997 and the condensed income statements for the nine months ended September 30, 1997 and for the year ended December 31, 1996 for each of the Company, consolidated, and TexStar, the adjustments reflecting the proposed acquisition of TexStar by the Company and the completion of the Offering, and the pro forma combined information. The acquisition will be accounted for as a purchase transaction. The information with respect to the Company and TexStar as of September 30, 1997 and the pro forma information are unaudited. The pro forma balance sheet assumes that the acquisition and the Offering were consummated on September 30, 1997. The pro forma income statements assume that the acquisition and the Offering were consummated on January 1, 1997, regarding the pro forma income information for the nine months ended September 30, 1997, and on January 1, 1996, regarding the pro forma information for the year ended December 31, 1996. The pro forma financial information should be read in conjunction with the financial statements and footnotes thereto appearing elsewhere in this prospectus. The pro forma combined balance sheet and statement of income are not necessarily indicative of the combined financial position at consummation or the results of operations following consummation of the acquisition and the offering. [THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.] PRO FORMA CONDENSED BALANCE SHEET SEPTEMBER 30, 1997 (UNAUDITED) <TABLE> <CAPTION> PRO FORMA ADJUSTMENTS -------------------------- PRO FORMA COMPANY TEXSTAR DEBITS CREDITS COMBINED ------------ ----------- ----------- ---------- ------------ <S> <C> <C> <C> <C> <C> ASSETS Cash and due from banks.................. $ 6,671,815 $ 3,787,753 8,731,250 (1) 9,500,000 (3) $ 9,690,818 Federal funds sold...... 11,485,000 11,485,000 ------------ ----------- ----------- ---------- ------------ Total cash and cash equivalents........... 18,156,815 3,787,753 8,731,250 9,500,000 21,175,818 Interest bearing deposits with banks.... 190,000 190,000 Securities: Available-for-sale..... 14,369,508 22,541,598 36,911,106 Held-to-maturity....... 18,376,112 10,151,658 155,862 (2) 28,371,908 ------------ ----------- ----------- ---------- ------------ Total securities..... 32,745,620 32,693,256 155,862 65,283,014 Loans Total loans, net of unearned discount..... 114,390,600 32,551,204 147,225,482 Allowance for credit losses................ (1,366,662) (473,457) (1,840,119) ------------ ----------- ----------- ---------- ------------ Net loans............ 113,023,938 32,077,747 145,385,363 Premises and equipment, net.................... 3,777,650 2,745,843 621,500 (2) 7,144,993 Accrued interest receivable............. 855,707 613,357 1,469,064 Other real estate and repossessed assets..... 130,992 475,374 606,366 Other assets............ 1,738,969 476,721 2,215,690 Intangibles............. 5,990,140 585,452 3,469,321 (2) 10,044,913 ------------ ----------- ----------- ---------- ------------ Total assets........... $176,893,509 $73,455,503 $12,822,071 $9,655,862 $253,515,221 ============ =========== =========== ========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits............... $154,999,319 $65,681,173 $220,680,492 Other liabilities...... 1,087,832 2,209,289 3,297,121 ------------ ----------- ----------- ---------- ------------ Total liabilities.... 156,087,151 67,890,462 223,977,613 Shareholders' equity: Common stock........... 57,862 2,425,000 2,425,000 (3) 15,000 (1) 72,862 Additional paid-in capital............... 16,850,067 2,357,616 2,357,616 (3) 8,716,250 (1) 25,566,317 Retained earnings...... 3,982,998 829,620 829,620 (3) (15,000)(1) 3,967,998 Stock rights issuable.............. 57,862 15,000 (1) 72,862 Treasury stock......... (172,828) (172,828) Unrealized gain (loss) on available-for-sale securities............ 30,397 (47,195) (47,195)(3) 30,397 ------------ ----------- ----------- ---------- ------------ Total shareholders' equity.............. 20,806,358 5,565,041 5,565,041 8,731,250 29,537,608 ------------ ----------- ----------- ---------- ------------ Total liabilities and stockholders' equity................ $176,893,509 $73,455,503 $ 5,565,041 $8,731,250 $253,515,221 ============ =========== =========== ========== ============ </TABLE> - -------- (1) This adjustment represents the sale of 1,500,000 shares of Common Stock with a par value of $0.01 at a $6.75 per share public offering price, less $685,000 in estimated offering expenses and $656,250 in underwriting discounts and commissions, with net proceeds to the Company of $8,731,250. (2) This adjustment represents the purchase price adjustments to adjust the assets and liabilities of TexStar National Bank to fair value upon the merger and results in recording of $3,469,321 in intangibles. (3) This adjustment represents the purchase of TexStar and the elimination of the capital of TexStar. PRO FORMA CONDENSED STATEMENT OF NET INCOME NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) <TABLE> <CAPTION> PRO FORMA ADJUSTMENTS --------------------- PRO FORMA COMPANY TEXSTAR DEBITS CREDITS COMBINED ---------- ---------- ---------- ----------- ---------- <S> <C> <C> <C> <C> <C> Interest income: Interest and fees on loans................ $9,872,455 $2,605,916 12,478,371 Interest on securi- ties................. 1,811,503 1,196,177 3,007,680 Interest on federal funds sold........... 323,455 72,298 395,753 ---------- ---------- ---------- Total interest in- come................. 12,007,413 3,874,391 15,881,804 Interest expense: Interest on deposits.. 4,290,054 1,835,451 6,125,505 Interest on other borrowings........... ---------- ---------- ---------- Total interest ex- pense................ 4,290,054 1,835,451 6,125,505 Net interest income..... 7,717,359 2,038,940 9,756,299 Provision for credit losses................. 295,000 97,000 392,000 Noninterest income...... 1,764,705 424,507 2,189,212 Noninterest expense: Salaries and employee benefits............. 3,392,296 890,623 4,282,919 Occupancy and equipment............ 1,123,513 292,065 31,050(1) 1,446,628 General and adminis- trative.............. 2,265,249 646,461 173,466(2) 175,820(3) 2,909,356 ---------- ---------- ---------- ---------- ---------- Total noninterest ex- pense................ 6,781,058 1,829,149 204,516 175,820 8,638,903 Income before federal income taxes........... 2,406,006 537,298 204,516 175,820 2,914,608 Federal income taxes.... 874,917 142,616 52,117(4) 1,069,650 Net income............ $1,531,089 $ 394,682 256,633 175,820 $1,844,958 ========== ========== ========== ========== ========== Net income per share: Net income per share.. $ 0.27 $ 0.25 Average shares out- standing............. 5,751,212 7,251,212 </TABLE> - -------- (1) This adjustment represents additional depreciation on the acquired buildings and equipment. (2) This adjustment represents the amortization of $3,469,321 over a blended 15 years. (3) This adjustment represents the savings anticipated to be realized in connection with the acquisition. These adjustments are a direct result of the elimination of director and professional fees which will not continue after the acquisition. (4) This adjustment represents the tax effect of the adjustments, except for the amortization of intangibles which is not deductible for tax purposes. PRO FORMA CONDENSED STATEMENT OF NET INCOME YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) <TABLE> <CAPTION> PRO FORMA ADJUSTMENTS --------------------- PRO FORMA COMPANY TEXSTAR DEBITS CREDITS COMBINED ----------- ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> <C> Interest income: Interest and fees on loans................ $10,779,721 $3,201,824 $13,981,545 Interest on securities........... 2,532,023 1,368,484 3,900,507 Interest on federal funds sold........... 1,078,618 49,927 1,128,545 ----------- ---------- ----------- Total interest income............... 14,390,362 4,620,235 19,010,597 Interest expense: Interest on deposits.. 5,361,689 2,285,831 7,647,520 Interest on other borrowings ----------- ---------- ----------- Total interest expense.............. 5,361,689 2,285,831 7,647,520 Net interest income..... 9,028,673 2,334,404 11,363,077 Provision for credit losses................. 135,000 215,000 350,000 Noninterest income...... 1,877,454 560,645 2,438,099 Noninterest expense: Salaries and employee benefits............. 4,244,874 1,001,234 5,246,108 Occupancy and equipment............ 1,244,551 278,642 41,433(1) 1,564,626 General and administrative....... 2,645,587 731,878 231,288(2) 196,866(3) 3,411,887 ----------- ---------- ---------- ---------- ----------- Total noninterest expense.............. 8,135,012 2,011,754 272,721 196,866 10,222,621 Income before federal income taxes........... 2,636,115 668,295 272,721 196,866 3,228,555 Federal income taxes.... 938,128 121,006 55,956(4) 1,115,090 Net income............ $ 1,697,987 $ 547,289 328,677 196,866 $ 2,113,465 =========== ========== ========== ========== =========== Net income per share: Net income per share.. $ 0.32 $ 0.31 Average shares outstanding.......... 5,389,366 6,889,366 </TABLE> - -------- (1) This adjustment represents additional depreciation on the acquired buildings and equipment. (2) This adjustment represents the amortization of goodwill of $3,469,321 over 15 years. (3) This adjustment represents the savings anticipated to be realized in connection with the acquisition. These adjustments are a direct result of the elimination of director and professional fees which will not continue after the acquisition. (4) This adjustment represents the tax effect of the adjustments, except for the amortization of intangibles which is not deductible for tax purposes.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, or the context otherwise requires, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) reflects the two-for-three stock split of the Common Stock to be effected on March , 1997 and (iii) assumes the conversion in full of the Company's outstanding Preferred Stock into shares of Common Stock immediately prior to the consummation of this offering. Voicetek Corporation ("Voicetek" or the "Company") develops, markets and supports interactive communications systems. The Company's products enable telecommunication service providers ("Telcos") to rapidly deploy value added services and commercial organizations to extend the automation of information access, improve service, lower operating costs and differentiate their service offerings to their customers. The Company's Generations(R) software is a scalable, client server platform which is open and fault resilient and provides customers, employees and business partners with access to information, products and services by using a variety of methods, including telephone, fax, electronic mail, paging and Web browsers. Generations permits rapid development and deployment of interactive communications applications for use in wireless and wireline environments, Advanced Intelligent Networks ("AIN") and corporate enterprise and call center environments. The Company integrates Generations with its VTK family of telephony servers, or third-party servers, to support medium to large-scale system deployments. Voicetek also provides consulting, training and maintenance services for application development and on-going support of the Company's products. Interactive communications systems are increasingly being employed by organizations to provide broad, convenient and efficient access to their enterprise information while helping to differentiate their products and services and reduce costs. At the same time, Telcos are facing a more competitive and dynamic marketplace. New interactive communications systems integrated with the AIN have given Telcos the ability to deploy new product and service offerings which leverage their installed customer and network base. To effectively provide automated access to an organization's broad information infrastructure and maximize revenue generating potential, interactive communications systems must (i) be scalable to support large volumes of inquiries (both voice and data), (ii) be open to permit integration with a wide variety of telephony and computing technologies, (iii) employ a wide range of access methods and (iv) be flexible to adapt to the needs of the enterprise. Voicetek employs a strategy of leveraged selling primarily through original equipment manufacturers ("OEMs") (e.g., Open Development Corporation and Microlog Corporation), telephone switch manufacturers (e.g., Rockwell International), computer system vendors (e.g., Digital Equipment Corporation), selected systems integrators and value added resellers ("VARs") (e.g., Andersen Consulting and Logica) as well as direct selling to large organizations. Representative applications include automated directory assistance, voice dialing, personal number service, bank by phone, discount stock trading, stock quotes, account inquiry order fulfillment, fax-on-demand, product information, scheduling, labor reporting, service ordering and dispatch. Voicetek was founded in 1981. The Company's address is 19 Alpha Road, Chelmsford, Massachusetts 01824 and its telephone number is (508) 250-9393. THE OFFERING <TABLE> <S> <C> Common Stock offered by the Company..................... 2,000,000 shares Common Stock offered by the Selling Stockholders........ 500,000 shares Common Stock to be outstanding after the offering....... 7,028,885 shares(1) Use of proceeds......................................... To repay an aggregate of approxi- mately $3.1 million of senior indebtedness and for working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.................. VCTK </TABLE> SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ----------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total revenues................................... $ 3,285 $ 4,769 $10,056 $15,721 $22,101 Income (loss) from operations.................... (1,983) (1,574) 886 1,301 922 Net income (loss)................................ (1,997) (1,588) 854 2,392 4,063 Pro forma net income (loss) per share(2)......... $ 0.72 Pro forma shares used in per share calculation... 5,680 </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1996 ---------------------------- ACTUAL AS ADJUSTED(2)(3) ------ ----------------- <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents.......................................... $ -- $ 16,618 Working capital.................................................... 4,596 24,070 Total assets....................................................... 16,015 32,633 Redeemable convertible preferred stock............................. 11,297 -- Total stockholders' equity (deficit)............................... (3,126) 27,881 </TABLE> - --------------- (1) Excludes (i) 1,091,034 shares of Common Stock reserved for issuance under the Company's 1992 Equity Incentive Plan (of which options to purchase 721,109 shares of Common Stock were outstanding and options to purchase 459,631 shares of Common Stock were exercisable at December 31, 1996); (ii) 333,333 shares of Common Stock reserved for issuance under the Company's 1996 Stock Option Plan (none of which was been granted at December 31, 1996); (iii) 60,000 shares of Common Stock reserved for issuance under the Company's 1996 Stock Option Plan for Non-Employee Directors and Clerk (of which options to purchase 38,666 shares of Common Stock have been granted, none of which was exercisable at December 31, 1996); and (iv) 166,666 shares of Common Stock reserved for issuance under the Company's 1997 Employee Stock Purchase Plan. Includes 1,125 shares which were acquired upon the exercise of options during January 1997. See "Management--Stock Option Plans." (2) Gives effect to the conversion of all outstanding shares of Preferred Stock into an aggregate of 4,576,844 shares of Common Stock upon the consummation of this offering. (3) Adjusted to give effect to the issuance and sale of the 2,000,000 shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $11.00 per share, less the underwriting discount and estimated offering expenses payable by the Company, and the application of the net proceeds therefrom. See "Use of Proceeds."

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; (II) GIVES EFFECT TO A THREE-FOR-FOUR REVERSE STOCK SPLIT WITH RESPECT TO THE COMPANY'S COMMON STOCK, PAR VALUE $.0013 (THE "COMMON STOCK"), EFFECTED IN 1996; AND (III) GIVES EFFECT TO THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S PREFERRED STOCK, PAR VALUE $.001 PER SHARE (THE "PREFERRED STOCK"), INTO AN AGGREGATE OF 4,259,878 SHARES OF COMMON STOCK. SEE "CAPITALIZATION," "DESCRIPTION OF CAPITAL STOCK" AND "NOTES TO FINANCIAL STATEMENTS." INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THE COMPANY Progenics Pharmaceuticals, Inc. ("Progenics" or the "Company") is a biopharmaceutical company focusing on the development and commercialization of innovative products for the treatment and prevention of cancer and viral diseases. The Company applies its immunology expertise to develop biopharmaceuticals that induce an immune response or that mimic natural immunity in order to fight cancers, such as malignant melanoma, and viral diseases, such as human immunodeficiency virus ("HIV") infection. Progenics' most advanced product candidate, GMK, is a therapeutic vaccine that is currently undergoing two pivotal Phase III clinical trials for the treatment of melanoma, a deadly form of skin cancer. Progenics' second vaccine product candidate, MGV, is being developed for the treatment of various cancers and commenced Phase I/II clinical trials in September 1996. Based on its participation in the discoveries of two major receptors for HIV, the Company is engaged in research and development of therapeutic products designed to block entry of HIV into human immune system cells. Progenics commenced Phase I/II clinical trials of one of these product candidates, PRO 542, in September 1997 and plans to initiate Phase I/II clinical trials of another product candidate, PRO 367, in the first half of 1998. The Company has entered into a collaboration with Bristol-Myers Squibb Company ("BMS") to develop and commercialize GMK and MGV. CANCER THERAPEUTICS The Company's GMK and MGV cancer therapeutics are based on proprietary ganglioside conjugate vaccine technology designed to stimulate the immune system to destroy cancer cells. This technology is exclusively licensed by the Company from Memorial Sloan-Kettering Cancer Center ("Sloan-Kettering"). GMK is designed to prevent recurrence of melanoma in patients who are at risk of relapse after surgery. GMK is composed of a ganglioside antigen which is abundant in melanoma cells, conjugated to an immunogenic carrier protein and combined with an adjuvant (an immunological stimulator). In August 1996, the Company commenced the first of three pivotal, randomized, multicenter Phase III clinical trials of GMK. This trial is being conducted in the United States by cooperative cancer research groups supported by the National Cancer Institute ("NCI"). The two additional Phase III clinical trials of GMK will be conducted in a number of countries outside of the United States. One of these trials commenced enrollment of patients in June 1997. The other is expected to commence in the first half of 1998 and will be conducted in Europe by the European Organization for Research and Treatment of Cancer ("EORTC"). MGV is being developed to treat a wide range of cancers, including colorectal cancer, lymphoma, small cell lung cancer, sarcoma, gastric cancer, neuroblastoma and melanoma. MGV incorporates two ganglioside antigens that are abundant in these and other types of cancer cells. In September 1996, MGV entered Phase I/II clinical trials at Sloan-Kettering. In July 1997, the Company and BMS entered into a development and license agreement under which Progenics granted BMS an exclusive worldwide license to GMK and MGV. BMS made related cash payments to the Company of approximately $13.3 million and is obligated to make future payments of up to $61.5 million upon the achievement of specified milestones. In addition, BMS is required to fund continued clinical development of GMK and MGV and to pay royalties on any product sales. HIV THERAPEUTICS There is considerable need for the development of new HIV therapeutics that address the major problems of viral resistance and drug toxicity that are inherent in currently approved drugs, which target certain enzymes necessary for viral infection and replication. In contrast, the Company's HIV therapeutic programs are based on the CD4 receptor and recently discovered co-receptors, CCR5 and CXCR4, to which binding is necessary for attachment, fusion and entry of the virus into the cell. Progenics applies its universal antiviral binding agent ("UnAB") technology to produce antibody-like molecules designed to neutralize or destroy HIV or HIV-infected cells. This program and the Company's HIV attachment screening program are based on the CD4 receptor. The Company's HIV co-receptor/fusion program is based on CCR5 and CXCR4. Progenics' PRO 542 and PRO 367 product candidates utilize the Company's proprietary UnAB technology. Progenics is developing PRO 542 to selectively target HIV and prevent it from infecting healthy cells by binding to the sites on the virus that are required for entry into the cell. PRO 542 is being developed as an immunotherapy to treat HIV-positive individuals and has been shown IN VITRO to neutralize a wide range of HIV clinical strains. The Company initiated Phase I/II clinical trials of PRO 542 in September 1997. Progenics is developing PRO 367 as a therapeutic agent designed to kill HIV-infected cells. PRO 367 consists of a UnAB molecule linked to a therapeutic radioisotope and is designed to bind to and destroy HIV-infected cells by delivering a lethal dose of radiation. The Company plans to begin Phase I/II clinical trials of PRO 367 in the first half of 1998. In June 1996, the Company's scientists in collaboration with researchers at the Aaron Diamond AIDS Research Center ("ADARC") described in an article published in NATURE the discovery of CCR5, a co-receptor for HIV that mediates fusion of HIV with the cell membrane. The Company is using its proprietary ProSys assays in a program to discover compounds that specifically inhibit the interaction of HIV with HIV co-receptors, including CCR5 and CXCR4, thereby blocking viral fusion and entry. In addition, the Company is using its proprietary HIV attachment assay in a research program to identify small-molecule compounds that inhibit attachment of the virus to the CD4 receptor. THE OFFERING <TABLE> <S> <C> Common Stock offered by the Company.......... 2,000,000 shares Common Stock to be outstanding after the offering................................... 8,701,553 shares (1) Use of proceeds.............................. To fund research and development, in-licensing of technology and clinical trials and for working capital and general corporate purposes. Proposed Nasdaq National Market symbol....... PGNX Risk factors................................. This offering involves a high degree of risk. See "Risk Factors." </TABLE> - ------------------------ (1) Based on the number of shares outstanding at September 30, 1997. Excludes as of such date 2,700,460 shares of Common Stock reserved for issuance pursuant to outstanding options under the Company's stock option plans and pursuant to outstanding warrants at a weighted average exercise price $4.68 per share. See "Capitalization" and "Description of Capital Stock." SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues: Research grants................................................... $ 504 $ 725 $ 521 $ 268 $ 489 Product sales..................................................... 52 50 98 67 50 Interest income................................................... 108 46 106 91 109 Collaboration revenue............................................. 13,276 --------- --------- --------- --------- --------- Total revenues.................................................. 664 821 725 426 13,924 --------- --------- --------- --------- --------- Expenses: Research and development.......................................... 2,859 3,852 3,700 2,654 5,966 General and administrative........................................ 878 1,094 2,808 984 1,336 Interest expense.................................................. 50 87 51 40 303 Depreciation and amortization..................................... 289 291 309 230 238 --------- --------- --------- --------- --------- Total expenses.................................................. 4,076 5,324 6,868 3,908 7,843 --------- --------- --------- --------- --------- Operating (loss) income......................................... (3,412) (4,503) (6,143) (3,482) 6,081 Income taxes........................................................ 151 --------- --------- --------- --------- --------- Net (loss) income............................................... ($ 3,412) ($ 4,503) ($ 6,143) ($ 3,482) $ 5,930 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Pro forma net (loss) income per common share(1)..................... ($0.85) $0.76 --------- --------- --------- --------- Pro forma weighted average common shares outstanding(1)............. 7,207 7,803 --------- --------- --------- --------- </TABLE> <TABLE> <CAPTION> SEPTEMBER 30, 1997 ------------------------- ACTUAL AS ADJUSTED(2) --------- -------------- <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents............................................................... $ 7,720 $ 21,850 Working capital......................................................................... 7,016 21,146 Total assets............................................................................ 8,511 22,641 Capital lease obligations and deferred lease liability, long-term portion.......................................................... 106 106 Total stockholders' equity.............................................................. 7,595 21,725 </TABLE> - ------------------------ (1) See Note 2 to the Company's Financial Statements for information concerning computation of the pro forma per share data. (2) As adjusted to reflect (i) the conversion of all outstanding shares of the Company's Preferred Stock into an aggregate of 4,259,878 shares of Common Stock pursuant to their terms and (ii) the sale of the 2,000,000 shares of Common Stock offered by the Company hereby, assuming an initial public offering price of $8.00 per share, and the receipt of the net proceeds therefrom after deducting the underwriting discount and estimated offering expenses. See "Use of Proceeds," "Description of Capital Stock" and the Company's Financial Statements.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and combined financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Except as otherwise specified herein, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY Radiant Systems, Inc. ("Radiant" or the "Company") provides enterprise-wide technology solutions to selected vertical markets within the retail industry. The Company offers fully integrated retail automation solutions including point of sale ("POS") systems, consumer-activated ordering systems, back office management systems and headquarters-based management systems. The Company's products enable retailers to interact electronically with consumers, capture data at the point of sale, manage site operations and logistics and communicate electronically with their sites, vendors and credit networks. In addition, the Company offers systems planning, design and implementation services that tailor the automation solution to each retailer's specifications. The Company believes that its site solutions are easy to implement, typically requiring less than a week to install and a few hours to train individual users. Radiant is currently a leading provider of integrated retail automation solutions to the convenience store market and has a growing presence in the restaurant and entertainment markets through its Radiant Hospitality Systems and PrysmTech divisions, respectively. Since these markets require many of the same product features and functionality, the Company believes it can leverage its existing technology across these markets with limited incremental product development efforts. The Company's objective is to be the leading worldwide provider of enterprise-wide technology solutions to the vertical markets it serves. In the convenience store market, the Company offers a fully integrated retail automation solution, including the site-based Compu-Touch product, an integrated point of sale and back office solution; OrderPoint, a consumer- activated ordering system with multimedia capabilities; and Core-Tech, a headquarters-based, enterprise-wide management system. In the restaurant market, the Company has recently expanded its presence through the acquisitions of Restaurant Management and Control Systems, Inc. ("ReMACS") and RSI Merger Corporation d/b/a Twenty/20 Visual Systems ("Twenty/20"). The Company is developing a new suite of products for this market, combining acquired technology with its core technologies and its recently introduced MediaClient platform. The MediaClient platform allows multiple multimedia software applications to operate on separate terminals simultaneously, all driven by a single PC. In the entertainment market, the Company provides an integrated site-based solution including BoxMan, a box-office POS system; ConcMan, a concession stand POS system; OrderPoint, a consumer-activated ticket and concession management and ordering system; and OfficeMan, a back office solution. Radiant expects to introduce its headquarters-based Core-Tech enterprise-wide management system to the entertainment market in the second half of 1997. As of June 1, 1997, the Company's products have been installed in or licensed for over 10,000 sites and the Company had over 50 customers in its various vertical markets, including Amoco Oil Company, Boston Market, Conoco, Inc., Dillon Companies, Inc., Emro Marketing Company (Speedway/Starvin' Marvin), Loews Theatre Management Corporation, Regal Cinemas, Sheetz, Inc., Sizzler International, Inc., Ultramar Diamond Shamrock Corporation, and Wawa, Inc. The Company originally was organized under the laws of the state of New York on August 1, 1985, and subsequently reincorporated under the laws of the state of Georgia on October 27, 1995. The reincorporation was effected through a merger of the New York corporation with and into the Georgia corporation. The name of the Company was changed to Radiant Systems, Inc. from Softsense Computer Products, Inc. on November 13, 1996. The Company's principal executive offices are located at 1000 Alderman Drive, Alpharetta, Georgia 30202, and its telephone number is (770) 772-3000. RECENT DEVELOPMENTS In May 1997, the Company closed the acquisitions of ReMACS, based in Pleasanton, California and Twenty/20, based in Dallas, Texas. ReMACS is a leading provider of back office management systems to the restaurant industry with over 8,000 installed or licensed sites. Twenty/20 is a provider of POS and table management systems for full-service restaurants. The Company has combined these two entities with its existing restaurant operations to form the Radiant Hospitality Systems division, which will focus on providing an integrated solution to the restaurant industry.

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+PROSPECTUS SUMMARY This Summary is qualified in its entirety by the more detailed information and financial statements contained elsewhere in this Prospectus. All capitalized terms used and not defined herein have the respective meanings assigned to them elsewhere in this Prospectus. Unless the context otherwise requires, the terms "JPS" and the "Company," as used in this Prospectus mean JPS Textile Group, Inc., and JPS Textile Group, Inc., together with its subsidiaries, respectively. THE COMPANY The Company is one of the largest domestic manufacturers of textile and textile-related products for the apparel, industrial and home fashion markets. The Company conducts its operations from ten manufacturing plants in five states and employs approximately 3,700 people. Apparel Fabrics and Products. The Company is a leading manufacturer of greige goods (unfinished woven fabrics) and yarn. The Company's products are used in the manufacture of a broad range of consumer apparel products including blouses, dresses, sportswear and undergarments. Industrial Fabrics and Products. The Company manufactures products used by the building construction industry and a broad range of woven fabrics with specialty applications. Principal construction products include single-ply membrane roofing and fiberglass reinforcement fabrics. In addition, the Company produces membranes for use primarily in environmental containment systems and specialty urethane products for use in the manufacture of various products such as athletic shoes, "bulletproof" glass, disposable intravenous bags, seamless welded drive belts and tubing. Other fabrics produced in this segment are used in the manufacture of such products as flame retardant clothing, filtration products, tarpaulins, awnings, athletic tapes, printed circuit boards and advanced composites. Home Fashion Textiles. The Company produces a variety of unfinished woven fabrics and yarns for use in the manufacture of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics. In April 1991, JPS restructured its indebtedness pursuant to a confirmed plan of reorganization under chapter 11 of the Bankruptcy Code. Since the 1991 restructuring, the Company has adopted and implemented various strategies aimed at improving and realizing value in its operating subsidiaries. These strategies have included, among other things, the exit, through asset sales or otherwise, of certain unprofitable product lines. See "THE COMPANY--Disposition of Assets; Plant Closing." During the years following the 1991 restructuring and as a result of the continued downturn in the apparel fabrics market and various other factors, JPS determined that it would be unable to meet certain debt obligations on its public bonds that would come due commencing in June 1997. Accordingly, in 1996, JPS and JPS Capital commenced negotiations with an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented holders that beneficially owned, approximately 60% of JPS's outstanding public debt securities (the "Old Debt Securities"). On May 15, 1997, the parties reached an agreement in principle on the terms of a restructuring of these obligations to be accomplished pursuant to the Plan of Reorganization proposed by JPS and JPS Capital. On June 26, 1997, JPS and JPS Capital commenced a solicitation of votes on the Plan of Reorganization by holders of impaired claims and impaired equity interests entitled to vote thereon. The Plan of Reorganization was overwhelmingly accepted by each class that voted and a voluntary chapter 11 case was commenced by JPS on August 1, 1997 in the Bankruptcy Court. The Plan of Reorganization was confirmed by the Bankruptcy Court pursuant to an order entered on September 9, 1997, and the Plan of Reorganization which, among other things, resulted in the issuance of the Common Stock, became effective on October 9, 1997. See "THE COMPANY--The 1997 Restructuring." THE OFFERING COMMON STOCK OFFERED FOR RESALE................... 10,000,000 shares. See "DESCRIPTION OF THE COMMON STOCK." COMMON STOCK OUTSTANDING ON THE CONSUMMATION DATE OF THE PLAN OF REORGANIZATION...... 10,000,000 shares. NASDAQ SYMBOL FOR COMMON STOCK............... Application has been made for inclusion of the Com- mon Stock in the Nasdaq National Market under the trading symbol "JPST". USE OF PROCEEDS........... All shares of Common Stock being offered for resale hereby are being so offered for the accounts of the Selling Stockholders. JPS will not receive any pro- ceeds from the sale of the Common Stock hereby. RISK FACTORS Purchasers of the Common Stock offered hereby should carefully consider the factors set forth under "RISK FACTORS" as well as the other information set forth in this Prospectus.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus (i) assumes that the over-allotment options granted to the U.S. Underwriters and the International Underwriters will not be exercised and (ii) treats the shares of Common Stock underlying the Warrants (as defined herein) in the manner described under the caption "Certain Relationships and Related Party Transactions--The Redemption" including the assumption of an initial public offering price of $36 per share of Common Stock. Unless the context otherwise indicates, the term "Company" refers to Essex International Inc. ("Essex International") and its consolidated subsidiaries, including its wholly owned subsidiary, Essex Group, Inc. ("Essex"), and their respective predecessors. Unless otherwise indicated all shareholdings are as of June 30, 1997. The term "Common Stock" refers to the common stock, par value $0.01 per share, of Essex International. THE COMPANY The Company is a leading North American developer, manufacturer and distributor of copper electrical wire and cable products. Founded in 1930, the Company serves over 11,000 worldwide customers in a wide range of industrial markets from its 28 manufacturing facilities and 38 service centers located throughout the United States and Canada. Since 1993, the Company has significantly strengthened its market positions through expanded sales efforts and acquisitions, and has improved its manufacturing capacity and production efficiencies through capital expenditure and productivity improvement programs. As a result of these efforts, from 1993 to 1996, the Company's net sales volume grew at a compound annual growth rate ("CAGR") of approximately 8%, generating $1.3 billion net sales in 1996, while its earnings before interest, taxes, depreciation and amortization ("EBITDA") grew at a CAGR of 22%, from $77 million in 1993 to $140 million in 1996, and its net income improved from a $14.2 million loss in 1993 to a profit of $36.3 million in 1996. This growth has continued in the first half of 1997 with EBITDA for the period of $108.8 million, up 75% from the first half of 1996, while net income in the first half of 1997 was $42.7 million, an increase of over 200% from the same period in 1996. (With respect to EBITDA, see footnote (h) in "Selected Consolidated Financial and Operating Data".) The Company organizes its operating activities into the following principal areas: MAGNET WIRE PRODUCTS (25% of net sales for the six months ended June 30, 1997)--The Company's magnet wire products are used in a wide variety of motors, coils, relays, generators, solenoids and transformers by the electrical equipment and electronics industries. Annual industry data since 1991 has shown that the Company's magnet wire products have had the highest quality in the industry (as measured by customer returns). As a result of significantly increasing its sales volumes of magnet wire products in recent years while focusing on higher value-added products and controlling costs, the gross margins of the Company's magnet wire business have increased substantially. BUILDING WIRE AND CABLE PRODUCTS (45% of net sales for the six months ended June 30, 1997)--The Company produces a wide range of copper building wire products for the commercial, industrial and residential markets. These products are marketed primarily to electrical distributors throughout the United States and Canada for ultimate use by electrical contractors and "do-it-yourself" consumers. Approximately two-thirds of the Company's net sales of these products is attributable to remodeling and repair activity and the balance to new nonresidential and residential construction. COMMUNICATIONS WIRE AND CABLE PRODUCTS (10% of net sales for the six months ended June 30, 1997)--The Company's communications wire products consist of outside plant ("OSP") voice communication copper wire and cable products for the "local loop" segment of the telecommunication system and high bandwidth data communication copper wire and cable products for local area networks ("LANs"), Internet connectivity and other premise applications. Copper-based wire is the most widely used medium for voice and data transmission in the local loop and in homes and offices, due in part to its significant installed base, lower installation cost and ease of repair. OTHER PRODUCTS AND ACTIVITIES (20% of net sales for the six months ended June 30, 1997)--The Company manufactures and markets a wide range of industrial and automotive electrical wire products and maintains a distribution business for the sale and distribution of its magnet wire and related third-party- manufactured products. Industrial wire and cable products (8% of net sales for the six months ended June 30, 1997) consist of appliance wire, motor lead wire, submersible pump cable, power cable, flexible cord, power supply cords, welding cable and recreational vehicle wire. The Company produces automotive wire and cable products (5% of net sales for the six months ended June 30, 1997) for sale to suppliers of automotive original equipment. Such products include primary wire for use in engine and body harnesses, ignition wire and battery cable. The Company's distribution business provides a sales channel to both small manufacturers of original equipment and motor repair shops for some of the Company's magnet wire and other wire and insulation products, as well as complementary third-party-manufactured products. During the first half of 1997, third-party products constituted 7% of net sales, while 19% of the Company's magnet wire products were sold through this sales channel. STRATEGY The Company has established a strategy that is designed to capitalize on its competitive strengths and position it to pursue opportunities for future growth. The tenets of this strategy are: . CAPITALIZE ON SIZE AND SCOPE OF OPERATIONS--The Company believes that it is one of the largest (based on net sales) electrical wire and cable producers in the United States and has one of the most diverse product lines. The Company believes that the size and scope of its operations provide it with efficiencies in manufacturing, purchasing and distribution and with the resources necessary to meet the increasing technological demands of the market. The Company intends to enhance these competitive advantages by continuing to expand its operations through internal growth and acquisitions. The electrical copper wire and cable industry in North America has undergone significant consolidation in the past ten years as a result of increased demand for product quality and lower cost products that in turn has necessitated substantial capital spending and development of sophisticated technical capabilities by market participants. . ENHANCE STRONG MARKET POSITIONS--The Company is focusing on improving its leading or significant market positions in North America for its major product categories and capitalizing on the advantages of its size. The Company believes that it is one of two leading producers in each of the magnet wire and building wire markets based on net sales. Recent acquisitions in magnet wire distribution, building wire and industrial wire have enhanced the Company's market positions in these businesses. The Company intends to maintain and enhance its market positions through internal growth and continued participation in future industry consolidation. . MAINTAIN LEADERSHIP IN QUALITY AND PRODUCTIVITY--The Company employs advanced technologies in manufacturing processes and product development and intends to continue investing in manufacturing equipment and facilities, engineering, research and development, and to expand its continuous improvement programs in order to maintain its leadership in quality and productivity. The Company believes that its wire and cable products, which have earned numerous customer quality awards, are among the highest in quality in the industry. Since 1992, the Company has invested approximately $154 million in capital programs and has expanded its continuous improvement programs in order to improve the quality of its products and increase the cost efficiency and capacity of its production facilities. The Company also has lowered cost levels by pursuing a high level of vertical integration through internal production of its principal raw materials. In 1996, the Company produced over 85% of its copper rod, magnet wire enamel and rubber insulation materials and 70% of its PVC insulation requirements. As a result, the Company believes that it is among the lowest cost domestic producers in each of its business lines. A key productivity measure, annual copper equivalent pounds shipped per employee, increased by 27% from 1991 to 1996. . CAPITALIZE ON INDUSTRY GROWTH OPPORTUNITIES--The Company believes that, as consumers continue to adapt to technological advances in both the home and the workplace, the technical specifications of the "smart" home and office will generate increased demand for certain electrical wire and cable products. The Company believes that it is well positioned to capitalize on this growth due to its significant market positions, strong name recognition and size. Growth in the magnet wire business is expected to be driven by increasing demand for devices containing electric motors in the home and in automobiles, along with continuing consumer and government pressure for higher energy efficiency from these devices (energy-efficient motors utilize materially more magnet wire per unit than do their traditional counterparts). Growth in the building wire business is expected to come primarily from increasing repair and remodeling activity, as well as from new commercial, industrial and residential construction. Both new construction and remodeling activity is being affected by the increased number of circuits and amperage handling capacity needed to support the increasing demand for electrical services. The Company believes that its communications wire and cable business will benefit from the increasing number of outside telephone lines into and inside homes and offices and the increasing quality demands placed on these lines to facilitate escalating data transmission from the growing demand for high bandwidth data communication copper wire and cable for LANs, Internet connectivity and other premise applications. In the automotive business, the Company believes that the increasing production of cars and trucks with motorized or electrical options will translate into increased demand for higher quality, thinner-gauge wire products to take advantage of their lighter weights and greater efficiency. . PURSUE ACQUISITION OPPORTUNITIES--Consistent with its historical emphasis on vertical integration, breadth of product line and technological innovation, the Company continuously evaluates opportunities to benefit further from its manufacturing, purchasing and distribution capabilities, expand its customer base, reduce costs and enter new markets through acquisitions, investments, joint ventures and other strategic alliances. Since a major recapitalization in 1995 (the "1995 Refinancing"), which provided the Company with substantial financial and operating flexibility, the Company has acquired three major businesses: the distribution business of Avnet Inc. in October 1995 ("Brownell"); the Canadian building wire business of BICC Phillips, Inc. in March 1996 ("BICC Canada"); and the building and industrial wire businesses of Triangle Wire & Cable, Inc. ("Triangle") in October 1996. The Company believes that each of these businesses provides operating synergy that complements the Company's existing manufacturing, distribution and administrative capabilities, and each has met or exceeded financial and operating expectations since its respective acquisition date. In addition, in May 1995, the Company entered into a joint venture in India with Finolex Cable LTD for the development and production of copper rod and other wire products for the domestic Indian market and recently established a joint venture with Raychem Corp. for the production and sale of high performance wire products for the automotive industry. The Company is currently evaluating several acquisition opportunities consistent with its business strategy, although it has not reached agreement with any third parties at this time. . EXPAND INTERNATIONAL BUSINESS--Historically, the Company's production and distribution emphasis has focused on North America, primarily the U.S. market. Management anticipates that while the Company will remain focused on the U.S. market, it expects to increase efforts to expand its customer base in Canada and Mexico, where the Company believes demand for electrical wire and cable products will grow significantly over the next few years. Management also expects to increase efforts to expand its customer base in Europe and to establish a preliminary presence in certain developing economies, particularly in locations that have been targeted by the Company's customers for their own expansion. MANAGEMENT AND COMPANY HISTORY The Company's senior management team, including its business unit managers, possesses a high level of experience in the wire and cable industry. The eight most senior officers average 21 years of related industry experience, with an average of over 17 years with the Company. The equity interest of management of the Company (approximately 9.7% on a fully diluted basis) helps ensure that the interests of management are aligned with those of the Company's other stockholders. The Company was acquired (the "Acquisition") in a merger in October 1992 by certain of its existing stockholders. On May 1, 1997, the Company completed an initial public offering (the "IPO") of 6,546,700 shares of Common Stock, including 3,546,700 shares sold by certain stockholders. The net proceeds to the Company from the IPO were $46.0 million, which were used to reduce outstanding debt of the Company. Bessemer Holdings, L.P. ("BHLP") and an affiliated investment partnership (BHLP and such affiliated investment partnership are collectively referred to herein as the "BH Group") currently own 36.1% (on a fully diluted basis) of the Company. None of the Company, its executive officers or directors, or BH Group intends to sell any shares in the Offerings. The Company's principal executive offices are located at 1601 Wall Street, Fort Wayne, Indiana 46802, telephone (219) 461-4000. THE OFFERINGS (a) <TABLE> <S> <C> Shares of Common Stock offered by the Selling Stockholders(b)........ 4,175,000 shares U.S. Offering.......... 3,340,000 shares International Offer- ing................... 835,000 shares Total Common Stock to be outstanding after the Offerings(c)........... 29,438,906 shares Use of Proceeds......... The Company will not receive any of the proceeds from the sale of the shares. See "Use of Proceeds". New York Stock Exchange Symbol................. "SXC" </TABLE> - -------- (a) The offering of 3,340,000 shares of Common Stock initially being offered in the United States (the "U.S. Offering") and the concurrent offering of 835,000 shares of Common Stock initially being offered outside the United States (the "International Offering") are collectively referred to as the "Offerings". The underwriters for the U.S. Offering (the "U.S. Underwriters") and the underwriters for the International Offering (the "International Underwriters") are collectively referred to as the "Underwriters". (b) Includes 286,995 shares of Common Stock to be received upon the redemption of 341,155 warrants ("Warrants") to purchase shares of Common Stock. See "Certain Relationships and Related Party Transactions--The Redemption". If the Underwriters' over-allotment options are exercised in full, certain of the Selling Stockholders will offer and sell an additional 625,989 shares of Common Stock. (c) Does not include 2,987,421.5 shares of Common Stock issuable pursuant to options outstanding as of June 30, 1997. See "Management--Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values".

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION (INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, THE INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES (I) THE CONSUMMATION OF A MERGER (THE "MERGER"), APPROVED BY STOCKHOLDERS ON MARCH 19, 1997, PURSUANT TO WHICH THE COMPANY WILL REINCORPORATE IN DELAWARE AND CHANGE ITS NAME TO "NATIONS FLOORING, INC.", (II) THE EFFECT OF A ONE-FOR-FOUR REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS (WHICH SPLIT IS BEING EFFECTED PURSUANT TO THE TERMS OF THE AGREEMENT RELATING TO THE MERGER AND WILL HAVE THE EFFECT THAT EACH HOLDER OF ONE SHARE OF COMMON STOCK OF THE COMPANY'S PREDECESSOR WILL OWN IN PLACE THEREOF ONE-FOURTH ( 1/4) OF A SHARE OF COMMON STOCK OF THE COMPANY) AND (III) THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED. REFERENCES TO THE COMPANY HEREIN SHALL MEAN THE COMPANY, INCLUDING THE OPERATIONS OF NATIONS FLOORING, INC. AND ITS CONSOLIDATED SUBSIDIARIES, AND THE OPERATIONS OF THEIR PREDECESSORS, EXCEPT TO THE EXTENT THAT THE CONTEXT REQUIRES OTHERWISE. THE COMPANY BUSINESS Nations Flooring, Inc. (the "Company") is engaged in the business of selling and installing floor coverings and selling wall coverings, window treatments and certain related products, primarily for the residential housing market. Currently, the Company is engaged in business in Las Vegas, Nevada, where its sales of $40.3 million, $42.4 million and $9.2 million in 1995, 1996 and the three months ended March 31, 1997, respectively, have made it the largest seller and installer of floor coverings in such market. The Company believes that its sales represent approximately 63% of the new homes sold in the Las Vegas new home market and are approximately 3.5 times those of its nearest competitor, based on 1995 construction data, the latest such information available. From its three facilities in Las Vegas, the Company sells approximately 72% of its products to the new home market to or through new homebuilders through its New Housing Division and approximately 28% of its products to the retail replacement market directly to individual homeowners through its Replacement Sales Division. New Housing Division sales are effected primarily to or through new home builders who offer purchasers a wide selection of basic grade floor coverings as part of the unit cost. Customers then visit the Company's new home design center and, with the assistance of one of the Company's design consultants, choose possible upgrades on floor coverings, in addition to purchasing wall coverings, window treatments and related products. The Company believes that its new retail design center located in Las Vegas will also enable it to continue to broaden its product lines and expand the sales of its Replacement Sales Division. The Company has also recently established a Commercial Division, which is its first entry into the commercial market, including multi-family, office, retail store and small hotel projects. The Company believes that the retail floor covering industry is highly fragmented, with no single floor covering retailer, including national and large regional chains, accounting for more than ten percent of the total market. Most floor covering retailers operate a single store generating less than $1 million in annual sales. The Company believes that small independent floor covering retailers face competitive disadvantages resulting from limited purchasing power, ineffective inventory control and inadequate resources for sales, marketing and store management. Accordingly, the Company believes that significant opportunities exist for floor covering retailers that can achieve cost advantages and operating efficiencies through selective acquisitions and internal growth. To take advantage of these opportunities the Company is pursuing a strategy of acquiring existing floor covering businesses that are dominant competitors in their regions and developing new stores in markets experiencing significant growth in population and homebuilding that do not have a dominant floor covering retailer. The Company is reviewing various markets throughout the United States to determine their desirability for expansion. The Company is also in the process of negotiating with acquisition candidates in some of those markets and has recently entered into a non-binding letter of intent to acquire the assets of Nonn's Flooring, Inc., a floor covering retailer with two stores located in the Madison, Wisconsin area. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company also anticipates opening two new "big-box" facilities in Phoenix, Arizona in 1997 and is actively exploring the possibility of developing additional stores in other sites in the southwestern United States where the Company can build on its relationships with regional homebuilders. The planned "big-box" facilities will have between 40,000 and 60,000 square feet per facility and will focus on retail sales of all product lines in a warehouse-type setting, as well as having a dedicated design center area. The Company believes that the "big-box" format will enable it to quickly capture a significant market share by offering customers a pleasant shopping environment in which to fulfill all of their floor and wall covering and related needs on a cash-and-carry or next-day installed basis. However, there can be no assurance as to the viability of this approach. The Company intends to increase its business in Las Vegas through continued advertising and marketing efforts, and recently opened a new retail facility and a new home design center in other areas of Las Vegas. The Company's main facility is located centrally, and the additional retail branch is located in an area of Las Vegas with a large concentration of mature homes. Additional retail centers in similar areas are being contemplated. The Company intends to actively seek to increase its retail replacement sales through increased consumer advertising, enhanced marketing, the opening of one or more new retail locations and the addition of new products. See "Business--Strategy." ORGANIZATIONAL HISTORY The Company was organized under the laws of Delaware on December 26, 1996 as a wholly-owned subsidiary of Ragar Corp., which was organized under the laws of the State of New York on July 19, 1988. Prior to the date of this Prospectus, Ragar Corp. will merge into the Company, which was organized solely for the purpose of effecting the Merger. The directors and executive officers of the Company are the directors and executive officers of Ragar Corp. before the Merger. Ragar Corp. had no substantial operations prior to the acquisition of Carpet Barn Holdings, Inc. ("CBH"). On June 2, 1995, Ragar Corp. acquired all of the common stock of CBH in exchange (the "Exchange") for the issuance to the holders of common stock of CBH of an aggregate of 3,304,437 shares of Ragar common stock, pursuant to an Agreement and Plan of Exchange, dated as of June 1, 1995 (the "Exchange Agreement"), among Ragar Corp., CBH and the CBH stockholders. The Company's only substantial operation, CBH and its wholly-owned subsidiary, Carpet Barn, Inc. ("CBI"), a Delaware corporation organized on January 9, 1995, were formed for the purpose of acquiring the assets and operations of Carpet Barn, Inc., a Nevada corporation ("Carpet Barn" or the "Predecessor Business"), a retail carpet sales and installation business located in Las Vegas, Nevada. Concurrently with completing the Exchange, the Company completed the acquisition (the "Acquisition") of substantially all of the assets of Carpet Barn pursuant to that certain Asset Purchase Agreement, dated as of June 1, 1995 (the "Purchase Agreement"), between CBI and Carpet Barn. The Company's principal executive offices are located at 100 Maiden Lane, New York, New York 10038 and its telephone number is (212) 898-8888. THE OFFERING <TABLE> <S> <C> Common Stock offered................ 2,000,000 shares Common Stock to be outstanding after the Offering(1)................... 5,662,397 shares Use of Proceeds..................... The Company intends to apply the net proceeds received by it in the Offering for the partial repayment of the Company's bank indebtedness, to redeem a portion of the outstanding preferred stock issued by CBH, to repay amounts advanced by Branin Investments, Inc., an affiliate of the Company, and for general corporate and working capital requirements. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Certain Transactions." Risk Factors........................ The Common Stock offered hereby is speculative and involves a high degree of risk, including such factors as the Company's capital requirements for its growth strategy, leverage, dependence on certain suppliers and manufacturers, dependence on customers, lack of geographical diversity, competition and other factors. See "Risk Factors." Proposed American Stock Exchange Symbol............................ "NFI" </TABLE> - ------------------------ (1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance upon the exercise of employee stock options, of which 595,000 shares are subject to options to be granted at the Offering Price upon completion of the Offering, under the Company's 1997 Stock Option Plan (the "Option Plan") and (ii) 200,000 shares of Common Stock issuable upon the exercise of the Underwriters' Warrants. See "Management--1997 Stock Option Plan" and "Underwriting." THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INCLUDE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL OPERATIONS MAY DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The summary financial information presented below has been derived from the financial statements of the Company and the Predecessor Business. This information should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this Prospectus. The results of operations of the Company are not comparable to those of the Predecessor Business, due primarily to the amortization of intangible assets and interest expense on the debt incurred in connection with the Acquisition. In addition, certain information below is not shown for the Predecessor Business where such information would not present a meaningful comparison. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." <TABLE> <CAPTION> NATIONS FLOORING, INC. PREDECESSOR BUSINESS ---------------------------------------------------------- -------------------------------------------- PERIOD PRO FORMA PERIOD ENDED FOR YEAR THREE MONTHS YEAR ENDED DECEMBER 31, ENDED DECEMBER ENDED YEAR ENDED ENDED MARCH 31, --------------------------------- JUNE 1, 31, DECEMBER DECEMBER --------------------- 1992 1993 1994 1995(1) 1995(2) 31, 1995(3) 31, 1996 1996 1997 ----------- --------- --------- --------- --------- ----------- ----------- ---------- --------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net sales................. $ 28,994 $ 34,530 $ 42,507 $ 16,363 $ 23,980 $ 40,343 $ 42,414 $ 9,765 9,209 Gross margin.............. 8,167 9,598 10,841 5,018 6,017 11,035 11,092 2,680 2,375 Income from operations.... 1,375 1,096 5,548 3,229 2,103 5,356 2,367 799 413 Dividends to preferred stockholders of subsidiary.............. 203 339 538 124 140 Net income (loss)......... 925 1,114 4,888 3,737 280 1,647 53 130 (131) Net income (loss) per common share(4)......... 0.08 0.45 0.01 0.04 (0.03) Supplemental net income per common share(5)..... 0.15 0.47 0.22 0.08 0.04 Weighted average common shares outstanding(4)... 3,645,791 3,639,732 3,773,097 3,659,541 3,773,097 Pro forma income tax effect(6)............... 315 379 1,662 1,271 Pro forma net income after taxes(6)................ 610 735 3,226 2,466 </TABLE> <TABLE> <CAPTION> ACTUAL ------------------------ DECEMBER 31, ------------------------ 1995 1996 ------------ ---------- <S> <C> <C> BALANCE SHEET DATA: Working capital (deficit)........................................................................... $ (3,757) $ (10,748) Total assets........................................................................................ 24,326 23,144 Long-term debt and capital lease obligations, less current maturities............................... 8,812 111 Stockholders' equity................................................................................ 3,969 4,194 <CAPTION> AS ADJUSTED(7) -------------- MARCH 31, 1997 -------------------------- <S> <C> <C> (UNAUDITED) BALANCE SHEET DATA: Working capital (deficit)........................................................................... $ (10,554) $ (1,114) Total assets........................................................................................ 22,415 22,947 Long-term debt and capital lease obligations, less current maturities............................... 103 103 Stockholders' equity................................................................................ 4,063 15,995 </TABLE> - ------------------------ (1) Information is presented for the Predecessor Business for the period from January 1, 1995 through June 1, 1995, the date of the Acquisition, which was accounted for as a reverse acquisition of the Company by CBH. (2) Information is presented for the Company for the period from June 2, 1995 through December 31, 1995, due to the Acquisition. (3) Gives effect to the Acquisition and the Financing (as defined herein) as if such transactions had occurred on January 1, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and the Financial Statements. (4) The weighted average common shares outstanding and net income per common share for the Predecessor Business are not presented as they are not comparable to those of the Company. (5) Supplemental net income per common share has been calculated using the number of shares used to calculate net income per common share, plus 1,262,810 shares which would be required to be issued to repay $7,640,000 of the indebtedness outstanding with First Source Financial, LLP, plus 522,314 shares which would be required to be issued to redeem $3,160,000 of preferred stock issued by CBH. In calculating supplemental net income per common share, net income has been adjusted to eliminate (i) the after-tax effects of the interest expense on the indebtedness to be repaid, and (ii) the charge against net income for the dividends on the CBH preferred stock to be redeemed. See "Use of Proceeds" and Note 1 of the Notes to the Financial Statements. (6) The Predecessor Business was taxed as an S corporation under Subchapter S of the Internal Revenue Code of 1986, as amended, (the "Code") so that in lieu of payment of income taxes at the corporate level the stockholders individually reported their pro rata share of the Predecessor Business' items of income, deduction, loss and credit. Pro forma income tax has been computed at an assumed rate of 34%. (7) Gives effect to the net proceeds of the Offering at the assumed Offering Price of $7.00 per share and the redemption of the remaining shares of CBH preferred stock, owned by Facundo Barcardi, a director of the Company, in exchange for shares of preferred stock of the Company. See "Use of Proceeds."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted herein, all information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment option. The Company ITDS is a leading provider of comprehensive transactional billing and management information solutions to providers of wireless, long distance and satellite telecommunications services. The Company uses its robust and flexible proprietary software technology to develop billing solutions which address customer requirements as they evolve, regardless of market segment, geographic area or mix of network features or billing options. The Company typically provides its services to customers under exclusive contracts with terms ranging from three to four years, and customers are billed monthly on a per-subscriber basis. As a result, substantially all of the Company's revenue is recurring in nature, and increases as a provider's subscriber base grows. In recent years, the telecommunications services industry has experienced rapid growth and dramatic change. Over the past decade, the number of cellular subscribers has increased 54% on a compound annual basis. Deregulation and the introduction of new technologies, such as personal communication services (PCS) and satellite communications, have spurred the introduction of new entrants and increased competitive pressures across the telecommunications services market. Markets that were once rigidly segmented by service within defined geographic areas are converging into a single telecommunications market, which includes both traditional service providers and a variety of new participants. Because of these competitive pressures and the proliferation of service features and pricing options within the telecommunications services industry, the billing function is continuing to evolve from primarily a service support function to a marketing and revenue enhancement device used to differentiate the increasingly fungible services offered by providers. Service providers need billing and management information solutions which (i) enable them to differentiate themselves quickly and efficiently in a crowded market; (ii) integrate seamlessly with their corporate management information services; and (iii) offer flexibility and reliability as critical components of subscriber relations, communication and retention. Driven by the requirements of the telecommunications services market, the Company's revenues have increased rapidly in recent years from approximately $3.1 million in 1993 to $6.3 million, $10.8 million and $16.7 million in 1994, 1995 and 1996, respectively. For the year ended December 31, 1996, recurring revenues accounted for over 92.1% of total revenues, and 82.7% of the Company's revenue was generated by companies which have been customers for at least one year. The Company's advanced ITDS 10X system forms the foundation for its integrated suite of applications that provide not only subscriber billing and service support, but also the means to automate subscriber activation, remittance processing, collections, data retrieval and reporting, electronic funds transfer, credit management, inventory management and data archiving. The Company's software and services allow its customers to develop and support innovative rate and feature offerings without the delay and cost associated with reconfiguring their billing and information system; to identify and respond to subscriber demands through analysis of billing and subscriber databases; to reduce costs with accurate and timely receivables information; and to manage the subscriber relationship in a comprehensive and cost-effective manner. The Company's solutions are implemented for its customers by dedicated teams with expertise in meeting the transactional billing requirements of telecommunications services providers. The Company's software is installed at a customer site to interface directly with the customer's systems and generate relevant billing and other data, as well as to support a wide range of transactional billing and subscriber management functions. The Company processes billing information generated through the use of its software systems, eliminating the need for customers to maintain their own "back-office" data processing operations. Since the Company's initial public offering in October 1996 (the "Initial Public Offering"), the Company has relocated and consolidated its corporate headquarters; introduced the next release of the ITDS 10X system; hired 13 additional employees, increasing its sales and marketing team and adding a key member of management; increased sales to larger service providers; and expanded its subscriber base. The Company intends to leverage its established technology and customer base (i) to expand sales to wireless telecommunications providers, including larger service providers and providers of such emerging services as PCS and satellite; (ii) to offer a complete transactional billing solution to providers in other segments of the telecommunications services market, such as wireline and data, internet and other enhanced services, as well as new entrants, such as utilities and cable companies; and (iii) to expand internationally, where providers face the same need for comprehensive solutions as those in the U.S. The Company intends to meet these objectives by drawing on the expertise of its existing organization, as well as by expanding its sales and marketing organization and developing strategic relationships with equipment vendors and other key industry participants. The Company believes that these efforts, coupled with the capabilities of its existing software and the introduction of new system enhancements, will permit significant continued growth in its target marketplaces. The Company was incorporated as a Connecticut corporation in June 1990 and was reincorporated in Delaware in September 1996. The Company's principal executive office is located at 225 High Ridge Road, Stamford, Connecticut 06905, and its telephone number is (203) 329-3300. ITDS 10X, SwitchLink, CreditLink and PayScan are trademarks of ITDS. All other trademarks or trade names referred to in this Prospectus are the property of their respective owners. Risk Factors For a discussion of considerations relevant to an investment in the Common Stock, see "Risk Factors." The Offering Common Stock offered by the Company 500,000 shares Common Stock offered by the Selling 1,600,000 shares Stockholders Common Stock to be outstanding 8,936,941 shares (1) after this offering Use of proceeds by the Company For working capital and other general corporate purposes, including the payment of expenses related to this offering. See "Use of Proceeds." Nasdaq National Market symbol ITDS - ------------- (1) Includes the number of shares outstanding as of February 25, 1997. Excludes 389,563 shares of Common Stock issuable upon the exercise of outstanding options as of February 25, 1997, and an additional 610,000 and 200,000 shares of Common Stock reserved for issuance under the Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan, respectively. See "Management--1996 Stock Incentive Plan" and "--1996 Employee Stock Purchase Plan." Summary Financial Information Year Ended December 31, ----------------------------- 1994 1995 1996 ---------- -------- -------- (in thousands, except per share data) Statements of Operations Data: Revenue $6,324 $10,821 $16,689 Operating income 1,106 1,608 2,714 Income before extraordinary item (1) 708 826 1,502 Per common share data (2): Pro forma income before extraordinary item .13 .23 Extraordinary loss (.03) -- -------- -------- Pro forma net income $ .10 $ .23 ======== ======== Shares used in determining pro forma net income per share 6,194 6,593 ======== ======== As of December 31, 1996 -------------------------- Actual As Adjusted (3) -------- ---------------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments $ 4,487 $13,803 Securities available for sale at estimated market value 25,023 25,023 Working capital 31,639 40,956 Total assets 38,398 47,714 Long-term capital lease obligations 878 878 Stockholders' equity 34,717 44,034 - ------------- (1) In 1995, the Company experienced an extraordinary loss of $223,696 (net of $158,038 tax benefit) in connection with the refinancing of long-term debt. (2) Computed on the basis described in Note 1 of the Notes to Financial Statements. (3) Adjusted to give effect to the sale by the Company of 500,000 shares of Common Stock offered hereby at an assumed offering price of $20-1/2 (after deducting the underwriting discount and commission and estimated offering expenses) and the application of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization."

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+SUMMARY This Summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus. Certain capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto elsewhere in this Prospectus. See the Glossary of Terms for the location herein of certain capitalized terms. Trust..................... Fleetwood Credit 1997-B Grantor Trust. Seller.................... Fleetwood Credit Receivables Corp. (the "Seller"), a wholly owned, limited purpose subsidiary of Fleetwood Credit Corp. Servicer.................. Fleetwood Credit Corp. ("Fleetwood Credit" or, in its capacity as Servicer, the "Servicer"), a wholly owned subsidiary of Associates First Capital Corporation. See "The Servicer." Securities Offered........ The Fleetwood Credit 1997-B Grantor Trust Asset Backed Certificates (the "Certificates") will consist of one class of senior certificates (the "Class A Certificates") and one class of subordinated certificates (the "Class B Certificates"). Each Certificate will represent a fractional undivided interest in the Trust. The property of the Trust will consist primarily of a pool of simple interest retail installment sale contracts (the "Initial Receivables") secured by the new and used recreational vehicles financed thereby (the "Initial Financed Vehicles"), certain monies due under the Initial Receivables on and after September 1, 1997 (the "Initial Cutoff Date"), security interests in the Initial Financed Vehicles, an interest bearing account initially established with the Trustee (the "Certificate Account") and the proceeds thereof, proceeds from claims under certain insurance policies in respect of individual Initial Financed Vehicles or the related Obligors, and certain rights under the Pooling and Servicing Agreement to be dated as of September 1, 1997 (the "Agreement"), among the Seller, the Servicer and The Chase Manhattan Bank, as trustee (the "Trustee") and amounts on deposit in a trust account established for the benefit of the Certificateholders (the "Pre-Funding Account"). From time to time on or before November 17, 1997, additional simple interest retail installment sale contracts (the "Subsequent Receivables" and, together with the Initial Receivables, the "Receivables") secured by the new and used recreational vehicles financed thereby (the "Subsequent Financed Vehicles" and, together with the Initial Financed Vehicles, the "Financed Vehicles"), certain monies due under the Subsequent Receivables after the related Subsequent Cutoff Dates, security interests in the related Subsequent Financed Vehicles and proceeds from claims under certain insurance policies in respect of individual Subsequent Financed Vehicles or the related Obligors will be purchased by the Trust from the Seller from monies on deposit in the Pre-Funding Account. See "Property of the Trust." The Class A Certificates will evidence in the aggregate an undivided ownership interest (the "Class A Percentage") of 96.5% of the Trust (initially representing $337,750,000) and the Class B Certificates will evidence in the aggregate an undivided ownership interest (the "Class B Percentage") of 3.5% of the Trust (initially representing $12,250,000). The Class B Certificates will be subordinated to the Class A Certificates to the limited extent described herein. The Certificates will be issued pursuant to the Agreement in denominations of $1,000 and integral multiples thereof. Registration of the Certificates............ Each Class of Certificates will initially be represented by one or more certificates registered in the name of Cede & Co. ("Cede"), as the nominee of The Depository Trust Company ("DTC"). No person acquiring an interest in the Class A Certificates (each, a "Class A Certificate Owner") or the Class B Certificates (each, a "Class B Certificate Owner" and, together with the Class A Certificate Owners, the "Certificate Owners") will be entitled to receive a definitive certificate representing such person's interest, except in the event that Definitive Certificates of the related Class are issued under the limited circumstances described herein. Unless and until Certificates of a Class are issued in definitive form, all references herein to distributions, notices, reports and statements to and to actions by and effects upon the related Certificateholders will refer to the same actions and effects with respect to DTC or Cede, as the case may be, for the benefit of the related Certificate Owners in accordance with DTC procedures. See "The Certificates -- General," "-- Book-Entry Registration" and "-- Definitive Certificates." Class A Pass-Through Rate...................... % per annum, calculated on the basis of a 360-day year consisting of twelve 30-day months (the "Class A Pass-Through Rate"), payable monthly. Class B Pass-Through Rate...................... % per annum, calculated on the basis of a 360-day year consisting of twelve 30-day months (the "Class B Pass-Through Rate"), payable monthly. The Receivables........... The Receivables arise from simple interest retail installment sale contracts originated by dealers in new and used recreational vehicles (the "Dealers") which are purchased by Fleetwood Credit. All of the Receivables will be selected from the contracts owned by Fleetwood Credit based upon the criteria described under "The Receivables" and "The Certificates -- Sale and Assignment of the Receivables." On or before the date of initial issuance of the Certificates (the "Closing Date"), Fleetwood Credit will sell the Initial Receivables to the Seller pursuant to a receivables purchase agreement to be dated as of September 1, 1997 (the "Receivables Purchase Agreement"), between the Seller and Fleetwood Credit. The Seller, in turn, will sell the Initial Receivables to the Trust pursuant to the Agreement. As of the Initial Cutoff Date, the Initial Receivables had an aggregate principal balance of $311,845,802.40, a weighted average annual percentage rate (the "APR") of 9.69%, a weighted average original maturity of 154.53 months and a weighted average remaining maturity of 148.86 months. From time to time during the Funding Period, pursuant to the Receivables Purchase Agreement, Fleetwood Credit will be obligated to sell, and the Seller will be obligated to purchase, Subsequent Receivables at a purchase price equal to the aggregate principal amount thereof as of a date in the related month of transfer designated by Fleetwood Credit and the Seller (each, a "Subsequent Cutoff Date"). Pursuant to the Agreement and one or more transfer agreements (each, a "Transfer Agreement") among the Seller, the Servicer and the Trustee, and subject to the satisfaction of certain conditions described herein, the Seller will in turn sell the Subsequent Receivables to the Trust at a purchase price equal to the amount paid by the Seller to Fleetwood Credit for such Subsequent Receivables, which purchase price shall be paid from monies on deposit in the Pre-Funding Account. The aggregate principal balance of the Subsequent Receivables to be conveyed to the Trust during the Funding Period will not exceed $38,154,197.60 (i.e., 10.9% of the sum of the Original Class A Certificate Balance and the Original Class B Certificate Balance). Subsequent Receivables will be transferred from Fleetwood Credit to the Seller and from the Seller to the Trust on the Business Day specified by Fleetwood Credit and the Seller during the month in which the related Subsequent Cutoff Date occurs (each, a "Subsequent Transfer Date"). The Pre-Funding Account... The Pre-Funding Account will be established by Fleetwood Credit, maintained as a trust account with the Trustee and is designed solely to hold funds to be applied by the Trustee during the Funding Period to pay to the Seller the purchase price for Subsequent Receivables. Monies on deposit in the Pre-Funding Account will not be available to cover losses on or in respect of the Receivables. The Pre-Funding Account will be created with an initial deposit by the Seller of $38,154,197.60 (the "Pre-Funded Amount"). The "Funding Period" will be the period from the Closing Date until the earliest to occur of (i) the date on which the remaining Pre-Funded Amount is less than $100,000, (ii) the date on which an Event of Default occurs or (iii) the close of business on the November 17, 1997 Distribution Date. During the Funding Period, on one or more Subsequent Transfer Dates, the Trustee will use the Pre-Funded Amount to purchase Subsequent Receivables from the Seller. The Seller expects that the Pre-Funded Amount will be reduced to less than $100,000 by the November 17, 1997 Distribution Date, although no assurances can be given in this regard. Any portion of the Pre-Funded Amount remaining on deposit in the Pre-Funding Account at the end of the Funding Period will be payable as principal to Certificateholders in accordance with their respective Class Percentages. See "The Certificates -- General" and "-- The Pre-Funding Account; Mandatory Prepayment of the Certificates." Interest.................. On each Distribution Date, the Trustee will distribute (i) to holders of the Class A Certificates (the "Class A Certificateholders") of record as of the day immediately preceding such Distribution Date or, if Definitive Certificates are issued, the last day of the immediately preceding calendar month (each such date, a "Record Date"), interest in an amount equal to one-twelfth of the product of the Class A Pass-Through Rate, calculated on the basis of a 360-day year consisting of twelve 30-day months, and the Class A Certificate Balance as of the immediately preceding Distribution Date (after giving effect to distributions of principal made on such immediately preceding Distribution Date), and (ii) to holders of the Class B Certificates (the "Class B Certificateholders" and, together with the Class A Certificateholders, the "Certificateholders") of record as of the related Record Date, interest in an amount equal to one-twelfth of the product of the Class B Pass-Through Rate, calculated on the basis of a 360-day year consisting of twelve 30-day months, and the Class B Certificate Balance as of the immediately preceding Distribution Date (after giving effect to distributions of principal made on such immediately preceding Distribution Date). In the case of the first Distribution Date, the Trustee will distribute to Certificateholders of record as of the related Record Date interest in an amount equal to (a) the product of (i) the Class A Pass-Through Rate or Class B Pass-Through Rate, as the case may be, (ii) the Original Class A Certificate Balance or Original Class B Certificate Balance, as the case may be, and (iii) the number of days from and including the Closing Date to but excluding such Distribution Date, (b) divided by 360. The rights of the Class B Certificateholders to receive distributions of interest, to the extent of collections on or in respect of the Receivables allocable to interest and certain available amounts on deposit in the Reserve Fund, will be subordinated to the rights of Class A Certificateholders to receive distributions of interest, but will not be subordinated to the rights of Class A Certificateholders to receive distributions of principal, as described herein. The "Class A Certificate Balance" will initially equal $337,750,000.00 (the "Original Class A Certificate Balance") and on any Distribution Date will equal the Original Class A Certificate Balance, reduced by all distributions actually made on or prior to such Distribution Date to Class A Certificateholders. The "Class B Certificate Balance" will initially equal $12,250,000.00 (the "Original Class B Certificate Balance") and on any Distribution Date will equal the Original Class B Certificate Balance, reduced by (i) all distributions actually made on or prior to such Distribution Date to Class B Certificateholders and (ii) Realized Losses allocable to the Class B Certificates. See "The Certificates -- Distributions on the Certificates." Principal................. On each Distribution Date, the Trustee will distribute pro rata (i) to Class A Certificateholders of record as of the related Record Date an amount equal to the Class A Percentage of all payments received by the Servicer during the immediately preceding calendar month (each, a "Collection Period") allocable to principal on or in respect of the Receivables and (ii) to Class B Certificateholders of record as of the related Record Date an amount equal to the Class B Percentage of all payments received by the Servicer during the related Collection Period allocable to principal on or in respect of the Receivables. The rights of the Class B Certificateholders to receive distributions of principal will be subordinated to the rights of the Class A Certificateholders to receive distributions of interest and principal to the limited extent described herein. Distribution Dates........ The 15th day of each month (or, if such day is not a Business Day, the next succeeding Business Day), beginning October 15, 1997. The final scheduled Distribution Date (the "Final Scheduled Distribution Date") will be the May 15, 2013 Distribution Date. Mandatory Prepayment...... The Certificates will be prepaid in part on the Distribution Date immediately succeeding the date on which the Funding Period ends (or on the Distribution Date on which the Funding Period ends if the Funding Period ends on a Distribution Date) in the event that any portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account after giving effect to the acquisition by the Seller and sale to the Trust of all Subsequent Receivables, including any such acquisition and conveyance on the date on which the Funding Period ends (a "Mandatory Prepayment"). The amount to be distributed to Certificateholders of either Class in connection with any Mandatory Prepayment will equal the Class A Percentage or the Class B Percentage, as the case may be, multiplied by the remaining Pre-Funded Amount. See "The Certificates -- The Pre-Funding Account; Mandatory Prepayment of the Certificates." Subordination of the Class B Certificates; Reserve Fund............ The rights of the Class B Certificateholders to receive distributions with respect to the Receivables will be subordinated to the rights of the Class A Certificateholders to the limited extent described herein. This subordination is intended to enhance the likelihood of timely receipt by Class A Certificateholders of the full amount of interest and principal required to be paid to them, and to afford such Class A Certificateholders limited protection against losses in respect of the Receivables. No distribution will be made to the Class B Certificateholders on any Distribution Date in respect of (i) interest until the full amount of interest on the Class A Certificates payable on such Distribution Date has been distributed to the Class A Certificateholders and (ii) principal until the full amount of interest on and principal of the Class A Certificates payable on such Distribution Date has been distributed to the Class A Certificateholders. Distributions of interest on the Class B Certificates, to the extent of collections on or in respect of the Receivables allocable to interest and certain available amounts on deposit in the Reserve Fund, will not be subordinated to the payment of principal on the Class A Certificates. The protection afforded to the Class A Certificateholders by the subordination feature described above will be effected both by the preferential right of the Class A Certificateholders to receive, to the extent described herein, current distributions from collections on or in respect of the Receivables and by the establishment of a segregated trust account held by the Trustee for the benefit of the Certificateholders (the "Reserve Fund"). The Reserve Fund will not be part of the Trust. The Reserve Fund will be funded by the Seller on the Closing Date in an amount equal to $2,625,000 plus an amount attributable to the maximum aggregate Negative Carry Amount. Thereafter, on each Distribution Date all Excess Amounts, if any, will be deposited from time to time in the Reserve Fund to the extent necessary to maintain the Reserve Fund at an amount to be specified in the Agreement (the "Specified Reserve Fund Balance"). "Excess Amounts" in respect of a Distribution Date will be all interest collections on or in respect of the Receivables on deposit in the Certificate Account in respect of such Distribution Date, after the Servicer has been reimbursed for any outstanding Advances and has been paid the Servicing Fee (including any unpaid Servicing Fees with respect to one or more prior Collection Periods) and after giving effect to all distributions of interest and principal required to be made to the Class A and Class B Certificateholders on such Distribution Date. The Specified Reserve Fund Balance for the first Distribution Date will be $2,625,000 plus an amount attributable to the maximum aggregate Negative Carry Amount and on any Distribution Date thereafter will be calculated as described under "The Certificates -- Subordination of the Class B Certificates; Reserve Fund." On each Distribution Date, funds will be withdrawn from the Reserve Fund for distribution, first, to Class A Certificateholders to the extent of shortfalls in the amounts available to make required distributions of interest on the Class A Certificates, second, to Class B Certificateholders to the extent of shortfalls in the amounts available to make required distributions of interest on the Class B Certificates, third, to Class A Certificateholders to the extent of shortfalls in the amounts available to make required distributions of principal on the Class A Certificates and fourth, to Class B Certificateholders to the extent of shortfalls in the amounts available to make required distributions of principal on the Class B Certificates. In addition, on each Distribution Date relating to the Funding Period, the Negative Carry Amount, if any, will be withdrawn from the Reserve Fund and deposited into the Certificate Account. On each Distribution Date, after giving effect to all distributions made on such Distribution Date, any amounts in the Reserve Fund in excess of the Specified Reserve Fund Balance will be distributed to the Seller and upon such distribution the Certificateholders will have no further rights in, or claims to, such amounts. Notwithstanding the foregoing, during the Funding Period, all Excess Amounts will be deposited into the Reserve Fund and will not be paid to the Seller until the Distribution Date immediately succeeding the date on which the Funding Period ends (or on the Distribution Date on which the Funding Period ends if the Funding Period ends on a Distribution Date). See "The Certificates -- Subordination of the Class B Certificates; Reserve Fund." Advances.................. On the Business Day immediately preceding each Distribution Date, the Servicer will advance, in respect of each Receivable, an amount equal to all interest at the related APR which accrued in respect of such Receivable from the last day upon which a payment was made on such Receivable through the last day of the related Collection Period. The Servicer will be required to make an Advance only to the extent it determines, in its reasonable judgment, such Advance will be recoverable from future payments and collections on or in respect of the Receivables or otherwise. See "The Certificates -- Certain Payments by the Servicer." Servicing Fee............. The Servicer will receive a monthly fee, payable on each Distribution Date, equal to one-twelfth of the product of 1.0% (the "Servicing Fee Rate") and the Pool Balance as of the first day of the related Collection Period. The Servicer will be entitled to receive additional servicing compensation in the form of certain late fees, prepayment charges and other administrative fees or similar charges. See "The Certificates -- Servicing Compensation." Termination............... The Seller and the Servicer, or any successor to the Servicer, will each have the option to purchase from the Trust all Receivables then outstanding and all other property in the Trust on any Distribution Date following the last day of a Collection Period as of which the Pool Balance is less than 10% of the sum of the Pool Balance as of the Initial Cutoff Date (the "Original Pool Balance") and the aggregate principal balance of all Subsequent Receivables conveyed to the Trust as of the related Subsequent Cutoff Dates at a purchase price determined as described under "The Certificates -- Termination." If neither the Seller nor the Servicer exercises its optional termination right within 90 days after the last day of the Collection Period as of which such right can first be exercised, the Trustee shall solicit bids for the purchase of all Receivables remaining in the Trust. In the event that satisfactory bids are received as described in "The Certificates -- Termination," the sale proceeds will be distributed to Certificateholders on the second Distribution Date succeeding the last day of such Collection Period. If satisfactory bids are not received, the Trustee shall decline to sell the Receivables and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Receivables. See "The Certificates -- Termination." Ratings................... It is a condition to the issuance of the Certificates that the Class A Certificates be rated Aaa by Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Services ("Standard & Poor's" and, together with Moody's, the "Rating Agencies") and the Class B Certificates be rated Baa2 by Moody's and A by Standard & Poor's. The ratings of each Class of Certificates will be based primarily on the value of the Initial Receivables, the Pre-Funding Account, the terms of the Certificates and the Reserve Fund. The foregoing ratings do not address the likelihood that the Certificates will be retired following the sale of the Receivables by the Trustee as described above under "Termination." There is no assurance that any rating will not be lowered or withdrawn by the assigning Rating Agency if, in its judgment, circumstances so warrant. In the event that the rating initially assigned to the Class A Certificates or the Class B Certificates is subsequently lowered or withdrawn for any reason, no person or entity will be obligated to provide any additional credit enhancement with respect to such Certificates. There can be no assurance whether any other rating agency will rate the Class A Certificates or the Class B Certificates, or if one does, what rating would be assigned by any such other rating agency. A security rating is not a recommendation to buy, sell or hold securities. Tax Status................ In the opinion of special federal tax counsel to the Seller, the Trust will be classified as a grantor trust for federal income tax purposes and not as an association taxable as a corporation. For federal income tax purposes, the Certificateholders will be considered to own interests in stripped bonds and stripped coupons. See "Certain Federal Income Tax Consequences." Certificateholders should consult their own tax advisors as to the proper treatment of original issue discount with respect to the Receivables and the application of the stripped bond rules. ERISA Considerations...... Subject to the conditions described herein, the Class A Certificates may be purchased by employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). SINCE THE CLASS B CERTIFICATES WILL BE SUBORDINATED TO THE CLASS A CERTIFICATES, EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA WILL NOT BE ELIGIBLE TO PURCHASE CLASS B CERTIFICATES. Any benefit plan fiduciary considering purchase of the Certificates should, among other things, consult with its counsel in determining whether all required conditions have been satisfied. See "ERISA Considerations."

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+PROSPECTUS SUMMARY The statements in this Prospectus that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors, including the factors described under "Risk Factors" and the other risks described in this Prospectus. The following summary is qualified in its entirety by the more detailed information and the Financial Statements and Notes thereto appearing elsewhere in this Prospectus, including information under "Risk Factors." The Company Neose Technologies, Inc. ("Neose" or the "Company") is focused on the enzymatic synthesis of complex carbohydrates (oligosaccharides), and the discovery and development of complex carbohydrates for nutritional and pharmaceutical uses. Complex carbohydrates serve as attachment sites for many pathogens that cause infectious diseases. Present on all cells, these compounds also play a critical role in the immune response. Because oligosaccharides are difficult and expensive to produce, their commercial development has been significantly limited despite the role they play in human diseases. The Company believes that its proprietary Multi-Transferase Reaction ("MTR") technology enables, for the first time, the rapid and cost-efficient production of naturally-occurring oligosaccharides. The Company, with Abbott Laboratories ("Abbott"), a leading provider of infant formula in the United States, is applying its MTR technology to the development of breast milk oligosaccharides as additives to infant formula. Breast milk oligosaccharides are believed to play an important anti-infective role in infants. In its therapeutic development programs, the Company is using its technology to develop complex carbohydrates as pharmaceuticals to treat various bacterial infections, such as gastrointestinal and pediatric ear infections, and to prevent xenotransplant rejection. All human cell surfaces have complex carbohydrates that serve as specific binding sites for other molecules and cells, including pathogens such as bacteria, viruses, and other infectious microorganisms. In addition, soluble oligosaccharides (oligosaccharides not bound to cells) produced by the body are found in many body fluids. These soluble complex carbohydrates are identical to the complex carbohydrates on cell surfaces, and are believed to serve as decoys that bind to pathogens, preventing the pathogens from binding to cells and causing disease. The Company believes that naturally-occurring oligosaccharides can be developed into anti-infective pharmaceutical and healthcare products that are less likely to cause adverse side-effects, and less likely to result in resistant strains of infectious agents, than synthetic drugs or traditional antibiotics. Difficulties in producing oligosaccharides efficiently and in sufficient quantities have significantly limited their development and commercialization as pharmaceutical or healthcare products. Neose's proprietary MTR technology utilizes enzymes as part of a molecular assembly line to synthesize a wide variety of oligosaccharides. These enzymes, or glycosyltransferases, are catalysts that join monosaccharides together in highly specific ways. Neose has developed various methods to obtain the glycosyltransferases necessary to manufacture many naturally-occurring oligosaccharides. Utilizing its proprietary MTR technology, the Company believes it can produce these naturally-occurring complex carbohydrates in commercial quantities on a cost-effective basis. These compounds can then be used as lead compounds for pharmaceutical development and for other healthcare applications. Neose is applying its proprietary technologies to develop the following products: Nutritional Additives. Breast milk contains more than two dozen soluble oligosaccharides that are believed to play an important anti-infective role in infants by preventing the attachment of certain bacteria to gastrointestinal, respiratory, and urinary tract cells. The Company has entered into a strategic alliance with Abbott for the commercialization of breast milk oligosaccharides for nutritional applications. Abbott, through its Similac(R) and Isomil(R) products, is a leading provider of infant formula in the United States. The Company's first oligosaccharide, NE-1340, is being developed as an additive to Abbott's infant formula products. The Company believes that the development and commercialization of this additive may occur more rapidly than pharmaceutical product development. Pharmaceuticals. In its pharmaceutical discovery and development efforts, the Company is targeting diseases or indications that are mediated by complex carbohydrates located on cell surfaces, and that affect large patient populations. The Company is currently developing pharmaceutical products for the following indications: o Gastritis and Peptic Ulcers. The Company is developing NE-0080, a naturally-occurring human gastrointestinal oligosaccharide, to treat gastritis and peptic ulcers caused by Helicobacter pylori ("H. pylori") infections. An estimated four million people suffer from active peptic ulcers each year in the United States, and approximately 500,000 new cases are diagnosed annually. The Company completed Phase IA and Phase IB clinical trials involving 24 healthy subjects in an ascending single dose study and 32 subjects with asymptomatic H. pylori infections in a 10-day repeat dose study, respectively. The results of these studies indicated that NE-0080 was well-tolerated and did not cause any adverse side-effects. A Phase IC study, involving a 28-day repeat dose study in 11 subjects with asymptomatic H. pylori infections, was completed in November 1996. Although the study was designed primarily to test safety, the Company also used the non-invasive, urea breath test ("UBT") to measure H. pylori loads in the subjects over an eight-week period. NE-0080 caused a statistically significant decrement in UBT values. The Company plans to initiate Phase II studies on NE-0080 in early 1997. Neose also is developing NE-1327, a polyvalent configuration of NE-0080 that is significantly more effective than the natural monovalent molecule in inhibiting in vitro binding of H. pylori bacteria to human stomach cells. o Pediatric Ear Infections. Neose is developing NE-1530, a naturally-occurring human airway oligosaccharide, for the treatment of pediatric ear infections. Middle ear infections, one of the most frequent reasons for pediatrician visits, cause an estimated 30 million office visits and prescriptions each year. Preclinical studies using animal models have indicated that NE-1530 inhibits and reversesthe attachment of bacteria that cause ear infections and other respiratory diseases. Neose is currently conducting additional preclinical studies and plans to file in late 1997 an investigational new drug ("IND") application for the treatment of pediatric ear infections. Most bacteria involved in pediatric ear infections also cause acute infections associated with chronic bronchitis and pneumonia. Although the Company has chosen initially to develop NE-1530 to treat pediatric ear infections, the Company also may develop this compound in the future for such other indications. o Xenotransplant Rejection. An estimated 20,000 human organ transplants were performed in the United States in 1995 and many times that number of patients are believed to die each year due to the lack of available human organs. At the end of 1995, the waiting list for humans awaiting human organs was approximately 44,000, and that list has grown significantly each year. Although substantial resources have been committed to develop animal organs for human transplants, hyperacute rejection ("HAR"), in which the transplanted organ is rejected within minutes of transplantation, remains one of the most critical obstacles to xenotransplantation. HAR results from an antibody-mediated response against an oligosaccharide found on the cell surface of most mammals but absent in humans. The Company is developing NE-0501 to neutralize, or to remove, the human antibodies against the mammalian oligosaccharide. During 1996, the Company conducted preclinical studies in which unmodified pig hearts were grafted into two baboons receiving NE-0501 intravenously to neutralize the target antibodies. These studies demonstrated that NE-0501, while present in the bloodstream in adequate concentrations, allows the in vivo survival of the transplanted organ and neutralizes the antibodies that initiate HAR. The Company is collaborating with other companies that are pursuing xenotransplantation with several different approaches, including transgenic modification of pig organs, and chimeric tolerization of donor organs. The Company believes that the use of oligosaccharides may be an important part of the therapies that will ultimately be utilized in the possible commercialization of xenotransplantation in the future. Neose seeks to complement its internal research and development resources through collaborations with corporate partners and research institutions. Under Neose's strategic alliance with Abbott, Abbott has invested $6.0 million in the Company and has paid the Company $5.2 million in contract payments, license fees, and milestone payments, and has agreed to pay further milestone payments and ongoing fees upon the successful commercialization of an infant formula product that includes the Company's compound. In September 1995, Neose entered into an exclusive research collaboration with Bracco Research USA Inc. ("Bracco"), a world leader in diagnostic imaging products and formerly the diagnostics division of Bristol-Myers Squibb Company, to test the effectiveness of oligosaccharides for in vivo imaging purposes. The Company's objective is to be the leader in the discovery, development, and manufacture of complex carbohydrates for a wide range of nutritional and healthcare applications. The key elements of the Company's strategy include: (i) continuing development of nutritional additives; (ii) leveraging its core technology to discover and develop pharmaceutical products to treat carbohydrate-mediated diseases; (iii) establishing strategic alliances and research and development collaborations; (iv) continuing to develop its manufacturing capabilities; and (v) pursuing additional applications of its core technology. The Company was incorporated in New York in January 1989, commenced operations in 1990 and was reincorporated in Delaware in June 1991 under the name Neose Pharmaceuticals, Inc. In April 1995, the Company changed its name to Neose Technologies, Inc. The Company completed its initial public offering of 2,587,500 shares of Common Stock in February 1996, raising net proceeds of $29.1 million. The Company's executive offices are located at 102 Witmer Road, Horsham, Pennsylvania 19044, and its telephone number is (215) 441-5890. The Offering <TABLE> <CAPTION> <S> <C> Common Stock offered................................................................... 1,250,000 shares Common Stock to be outstanding after the offering...................................... 9,468,607 shares (1) Use of proceeds........................................................................ Research and development activities, capital expenditures, working capital, and general corporate purposes, including possible acquisitions. See "Use of Proceeds." Nasdaq National Market Symbol.......................................................... NTEC </TABLE> Summary Financial Information (in thousands, except per share data) <TABLE> <CAPTION> Period Period from from Nine Months inception inception Ended (January 17, (January 17, Year Ended December 31, September 30, 1989) to 1989) to ---------------------------------------- ------------- December 31, September 30, 1991 1992 1993 1994 1995 1995 1996 1995 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Revenues from collaborative agreements...................... $ -- $ -- $ 2,600 $ 48 $ 1,199 $ 876 $ 1,006 $ 3,846 $ 4,852 Research and development expenses........................ 1,055 1,941 3,399 5,004 4,733 3,426 4,900 16,476 21,376 General and administrative expenses........................ 703 1,324 1,577 1,319 1,665 1,172 1,788 6,689 8,477 Interest income (expense), net..... (107) (90) (47) 63 132 73 1,082 (63) 1,019 Net loss........................... (1,865) (3,355) (2,423) (6,212) (5,067) (3,649) (4,600) (19,382) (23,982) Pro forma net loss per share (2)... $ (1.06) $ (0.60) Shares used in computing pro forma net loss per share (2).......... 4,761 7,728 </TABLE> <TABLE> <CAPTION> As of September 30, 1996 ------------------------------- Actual As Adjusted(3) -------- -------------- <S> <C> <C> Balance Sheet Data: Cash and cash equivalents............................. $ 35,717 $56,638 Total assets.......................................... 39,032 59,953 Long-term debt (4).................................... 683 683 Deficit accumulated during the development stage...... (23,982) (23,982) Total stockholders' equity............................ 36,512 57,433 </TABLE> - ------------ (1) Does not include, as of January 6, 1997, (i) 147,690 shares of Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price per share of $11.18, (ii) 1,199,643 shares of Common Stock issuable upon exercise of outstanding options at a weighted average exercise price of $10.04 per share, (iii) 260,729 shares of Common Stock reserved for future option grants under the Company's stock option plans, and (iv) 94,369 shares of Common Stock reserved for issuance pursuant to the Company's employee stock purchase plan. See "Management -- 1995 Stock Option/Stock Issuance Plan," "Management -- Employee Stock Purchase Plan," "Description of Capital Stock," and Note 7 of Notes to Financial Statements. (2) See Note 2 of Notes to Financial Statements. (3) Adjusted to give effect to the sale of the Common Stock offered hereby (at an assumed public offering price of $18.00 per share) and the receipt of the estimated net proceeds therefrom. See "Use of Proceeds." (4) The "As Adjusted" amount does not include the long-term debt financing contemplated in connection with the Company's planned purchase of its facility and Good Manufacturing Practices manufacturing expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, and the Company's Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. THE COMPANY Synon Corporation ("Synon" or the "Company") is a leading provider of enterprise software application development tools and related professional services designed to enable organizations to rapidly design and deploy mission-critical software applications. Over the last 14 years the Company has established the leading market position for International Business Machines Corporation ("IBM") AS/400 software development tools, having sold approximately 6,000 licenses to customers located in approximately 80 countries. In late 1994, the Company introduced Obsydian, a multi-platform software application development tool designed to expand the Company's presence in the AS/400 market. In order to capitalize on the growth of the Microsoft Corporation ("Microsoft") Enterprise Windows NT computing environment, in March 1997, the Company released the Obsydian for Windows NT Back Office Generator (the "Windows NT generator"). Obsydian is an integrated business-oriented software development tool that provides customers with the ability to rapidly develop, deploy and enhance sophisticated software applications across multiple computing platforms. Obsydian's technology employs a practical model-based approach to software design that uses large reusable business objects ("patterns") to reduce application development lead times. The Obsydian product line includes multiple code generators that allow developers to deploy applications across different computing environments, including AS/400, Windows NT and UNIX. The Company is currently developing a generator with Java capability. The Company currently sells application development tools primarily in two distinct markets: the IBM AS/400 market and the emerging Windows NT market. According to June 1997 research estimates of International Data Corporation, there were approximately 63,450 new AS/400 systems and 15,650 AS/400 model upgrades sold in 1996 worldwide, representing an aggregate growth of approximately 12.8% over 1995, bringing the installed base to approximately 372,000 systems at December 31, 1996. Company management estimates that approximately half of the new AS/400 systems sold in 1996 include language compilers which the Company considers potential customer sites. Dataquest has estimated that the Windows NT-based application server computer systems market will grow at a compound annual growth rate of 42% per year through 2000 and is expected to reach approximately five million systems by 1999. The Company believes that both of these markets represent significant opportunities for its software development products and services. To date, the Company has derived substantially all of its revenue from application development tools and services for the AS/400 market, but believes that an increasing percentage of its revenue will come from tools and services for the Windows NT market. The Company intends to leverage its expertise and reputation in AS/400 software development tools to establish Obsydian as the leading multi-platform application development tool for diverse computing environments. The Company's major strategies are to: (i) capitalize on its significant customer base and established market position; (ii) repeat its success in the AS/400 market in the emerging Windows NT market; (iii) capitalize on its established development and marketing relationships with IBM and Microsoft; (iv) build upon the Company's existing technological leadership; (v) facilitate customers' adoption and use of Synon's technology through a range of professional services; and (vi) leverage its existing worldwide presence. The Company sells its products and services through its direct sales forces in North America, the United Kingdom, France, Italy and Australia and through a network of distributors in Europe, Asia and Latin America. The Company was organized under the laws of the United Kingdom in 1983 and reorganized in Delaware in 1990. Unless the context otherwise requires, references in this Prospectus to "Synon" or the "Company," relate to Synon Corporation, a Delaware corporation, its predecessor Synon Limited, organized under the laws of the United Kingdom, and its wholly-owned subsidiaries. The Company's principal executive offices are located at 1100 Larkspur Landing Circle, Larkspur, California 94939 and its telephone number at that address is (415) 461-5000. THE OFFERING <TABLE> <S> <C> Common Stock offered by the Company..................... shares Common Stock offered by certain Selling Stockholders.... shares ----------------- Total Common Stock offered.............................. shares Common Stock to be outstanding after the Offering....... shares(1) Use of proceeds......................................... For working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.................. SYNO </TABLE> - --------------- (1) Based on shares outstanding as of March 31, 1997. Excludes an aggregate of 1,366,730 shares of Common Stock issuable upon exercise of options outstanding at March 31, 1997 under the Company's 1990 Stock Option Plan at a weighted average exercise price of $3.16 per share. See "Management -- Stock Plans," "Description of Capital Stock" and Note 11 of Notes to Consolidated Financial Statements. Also excludes (i) 6,000 shares issuable upon exercise of options granted after March 31, 1997 under the 1990 Stock Option Plan and (ii) an aggregate of shares reserved as of , 1997 for future issuance under the 1990 Stock Option Plan, Executive Share Option Scheme, 1997 Incentive Stock Plan, 1997 Director Option Plan and 1997 Employee Stock Purchase Plan. See Note 11 to Consolidated Financial Statements. SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ------------------------------------------------ ----------------- 1992 1993 1994 1995 1996 1996 1997 -------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total revenues.............................. $ 51,345 $60,902 $65,380 $70,782 $76,131 $17,016 $18,472 Operating income (loss)..................... (10,987) 1,867 1,801 869 1,728 (718) 303 Net income (loss)........................... (10,682) 1,151 1,314 714 1,139 (559) 61 Net income (loss) per share................. $ (3.00) $ 0.15 $ 0.17 $ 0.09 $ 0.14 $ (0.15) $ 0.01 Weighted average shares outstanding......... 3,563 7,608 7,772 7,862 7,878 3,626 8,226 </TABLE> <TABLE> <CAPTION> MARCH 31, 1997 ------------------------------------ PRO FORMA AS DECEMBER 31, 1996 ACTUAL PRO FORMA ADJUSTED(1) ----------------- ------- --------- -------------- <S> <C> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents............................. $ 1,080 $ 2,473 $ 2,473 Working capital (deficit)............................. (1,263) (1,504) $(1,504) Total assets.......................................... 36,909 35,063 $35,063 Capital lease obligations, net of current portion..... 352 283 283 Stockholders' equity.................................. 4,526 4,748 9,748 </TABLE> - --------------- (1) Adjusted to give effect to the estimated net proceeds of this Offering based on an assumed initial public offering price of $ per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds."

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+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 DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS". THE COMPANY InfoNow Corporation ("InfoNow" or the "Company") develops and markets products and services that are designed to deliver customer service information over the Internet. The Company's principal service is FindNow-SM-, an Internet- based locator and mapping service the Company markets to large consumer-oriented businesses. The Company's customers ("Clients") contract with the Company to incorporate FindNow-SM- into the Client's World Wide Web ("Web") site. A company using the FindNow-SM- service as part of its Web site can provide customized location and mapping information about its products and services to its customers via Web sites on the Internet. The Company also provides business presentation and Web site development services through its subsidiary, Cimarron International, Inc. ("Cimarron"). FindNow-SM- utilizes advanced GIS (geographical information system) technologies developed in partnership with Environmental Systems Research Institute, Inc., the world's largest GIS company. FindNow-SM- is fully customized to seamlessly and transparently integrate into each Client's existing Internet site and provide "hotlinks" to more information on services, products and pricing. InfoNow's primary objective is to be a leading provider of solutions and services to deliver customer service information via the Internet by establishing a leading position in the emerging market for Internet-based locator services. The Company was incorporated under the laws of the State of Delaware on October 29, 1990, and for the first five years of existence was focused on the sale of software through the use of encrypted CD-ROM technology. Sales of software using these methods were never sufficient to cover the Company's cost of operations, and in 1995 the Company embarked upon an acquisition strategy focused on companies that would allow the Company to shift its strategy away from its previous business and focus on opportunities related to the Internet. The Company made two business acquisitions as a result of its new business strategy. In May 1995, the Company acquired Cimarron, a leading provider of interactive multimedia and business presentation services in the Rocky Mountain region. On August 23, 1995, the Company acquired Navigist, Inc. ("Navigist"), a provider of Internet software development services, consulting and support services for computer networks, and Internet site services. In 1995, the Company ceased selling software using encrypted CD-ROM technology. In 1996, the Company formed a third business group, Internet Products, to focus on executing the Company's strategy to develop Internet-based customer service software, products and services, and introduced FindNow-SM-in July 1996. The Company sold Navigist on December 13, 1996. THE OFFERING Common Stock offered by the Selling Stockholders . . . . . 4,512,683 shares Common Stock offered by the Company. . . . . . . . . . . . None Common Stock to be outstanding after the offering(1) . . . 5,515,872 shares Trading symbols NASD Electronic Bulletin Board. . . . . . . . . . . . . "INOW" Vancouver Stock Exchange. . . . . . . . . . . . . . . . "INO.U" - --------------- (1) Excludes up to 2,991,555 shares of Common Stock issuable upon exercise of outstanding warrants and options. 1,652,382 shares of Common Stock underlying such warrants are registered for resale pursuant to the registration statement of which this Prospectus is a part. SUMMARY FINANCIAL INFORMATION <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Sales. . . . . . . . . . . . . . . . . . . . . $ 2,206,528 $ 1,427,163 $ 826,089 $ 977,407 $ 407,464 Operating expenses . . . . . . . . . . . . . . 5,263,418 3,090,667 3,475,404 6,098,240 4,729,184 Net loss before extraordinary item . . . . . . (3,092,141) (1,781,821) (2,658,520) (5,136,205) (4,468,728) Net loss . . . . . . . . . . . . . . . . . . . (3,092,141) (1,647,698) (2,658,520) (5,136,205) (4,468,728) Net loss per common share before extraordinary item (1). . . . . . . . . . . . (.86) (.99) (10.95) (28.57) (33.39) Net loss per share (1) . . . . . . . . . . . . (.86) (.92) (10.95) (28.57) (33.39) Weighted average common shares outstanding(1). 3,587,128 1,794,925 242,773 179,766 133,832 </TABLE> <TABLE> <CAPTION> DECEMBER 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Working capital (deficit). . . . . . . . . . . $1,284,009 $ 155,815 $(762,797) $1,027,309 $ (1,456) Total assets . . . . . . . . . . . . . . . . . 4,290,137 4,215,894 285,415 2,243,947 1,324,196 Total liabilities. . . . . . . . . . . . . . . 1,118,099 792,172 963,828 594,081 761,837 Long term debt . . . . . . . . . . . . . . . . 91,803 186,479 143,333 -- -- Stockholder's equity (deficit) . . . . . . . . 3,172,038 3,423,722 (678,413) 1,649,866 562,359 </TABLE> - --------------- (1) All per share amounts above have been restated on a retroactive basis to reflect the 1 for 25 reverse stock split approved by the shareholders of the Company in February 1995. See Note 1 to the Consolidated Financial Statements regarding the calculation of share and net income (loss) per share data.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in "Risk Factors." Unless otherwise indicated, all information in this Prospectus assumes no exercise of the over-allotment option granted to the Underwriters. See the "Glossary" beginning on page 47 of this Prospectus for the definitions of certain terms used herein. THE COMPANY Enamelon, Inc. is focused on developing and marketing over-the-counter oral care products that stop cavities before they begin. The Company's products are based on proprietary formulations and technologies that have been shown in animal and in vitro studies to enhance remineralization of tooth enamel and to prevent early stage tooth decay. Enamelon(TM) anticavity fluoride toothpaste contains the active ingredient sodium fluoride, plus calcium and phosphate ions, to enhance the remineralization of tooth enamel. The Company has launched its initial product, Enamelon(TM) all-family toothpaste, into markets comprising approximately 5% of United States households and expects to begin its national introduction in the first half of 1998. The Company is also consumer testing an adult toothpaste for sensitive teeth and expects to begin the national introduction of that product in late 1998. On a daily basis, teeth lose small amounts of calcium and phosphate, the major structural ingredients of tooth enamel. This demineralization process is caused by plaque acids produced during the bacterial breakdown of sugars in the mouth. If the demineralization process is not balanced by remineralization, demineralization will eventually destroy the mineral structure of the teeth and result in cavities, which must be repaired by a dentist. Saliva contains low levels of calcium and phosphate ions to naturally combat demineralization. The presence of fluoride in the saliva is known to facilitate the remineralization process. However, even with the addition of fluoride, remineralization is limited by the small amounts of calcium and phosphate ions normally present in saliva. Enamelon(TM) toothpaste simultaneously supplies the active ingredient sodium fluoride and high concentrations of ions of the inactive ingredients calcium and phosphate in soluble form during brushing to enhance the remineralization process. The Company's in vitro studies have demonstrated that Enamelon(TM) toothpaste enhances remineralization by increasing levels of fluoride uptake and that it strengthens and hardens the tooth structure. This makes the tooth less soluble and more resistant to attacks by acids from decay-causing bacteria. Based on the Company's studies, it believes that with each application of Enamelon(TM) toothpaste, teeth will become stronger and more resistant to decay. The Company currently is conducting intra-oral and small-scale human clinical studies required by government regulation to support additional advertising claims. The Company believes that human clinical studies will show that its toothpaste enhances the tooth remineralization process to a greater degree than currently available products, which the Company believes will represent one of the most significant advances in personal dental care since the introduction of mass- marketed fluoride dental products in the early 1960's. In March 1997, the Company initiated marketing activities by entering two Behavior Scan(R) markets and is presently selling Enamelon(TM) toothpaste in markets comprising approximately 5% of all United States households. The Company's marketing strategy targets both consumers and dental professionals. The Company believes that, in the markets it has entered, it has had considerable success in obtaining retail distribution and has exceeded its initial goals by obtaining more than 70% retail distribution on an all- commodity basis. The worldwide toothpaste market is estimated to exceed $5.0 billion in annual retail sales. Annual toothpaste sales in the United States are expected to be $1.8 billion in 1997 and are projected to reach $2.0 billion by the year 2000. Over the last five years, the toothpaste market has become segmented as new, premium-priced products offering benefits such as tartar control or whitening or containing ingredients such as baking soda have steadily attracted consumers away from older, mature products. The Company holds licenses from the American Dental Association Health Foundation (the "ADAHF") to use patented technologies (the "ADAHF Patented Technology") relating to a method for oral use of various amorphous calcium phosphate compounds that enhance the natural activity of fluoride to prevent tooth decay. The ADAHF has granted the Company (i) exclusive United States and foreign licenses to develop, manufacture and market toothpaste and chewing gum and other food and confectionery products using the ADAHF Patented Technology and (ii) a non-exclusive international license covering products not covered by the Company's exclusive licenses (including oral spray, mouth rinse and professional gel products) using the ADAHF Patented Technology. The Company's international license is co-extensive with a non-exclusive international license granted to SmithKline Beecham Corp. ("SmithKline"), which also obtained from the ADAHF an exclusive United States license covering products not covered by the Company's exclusive licenses. The Company itself has developed both patented and proprietary technologies relating to the prevention of tooth decay before it begins (the "Enamelon Proprietary Technology"). It has received five United States patents for methods and materials that supply soluble calcium and phosphate salts to teeth to enhance remineralization and one patent for its dual chamber toothpaste tube, which is used to dispense Enamelon(TM) toothpaste. In addition, the Company has 11 patent applications with respect to certain Enamelon Proprietary Technology pending in the United States and 10 patent applications pending in foreign jurisdictions. The Company's objective is to become a leading marketer of a variety of oral care and chewing gum and other food and confectionery products based on the ADAHF Patented Technology and/or the Enamelon Proprietary Technology (together, the "Enamelon Technologies"). The Company's strategic plan for accomplishing this objective is to (i) market its toothpaste products with sodium fluoride as the sole active ingredient in compliance with Food and Drug Administration requirements, (ii) conduct further testing to establish additional advertising and marketing claims, (iii) collaborate with corporate partners in certain product areas and international markets and (iv) capitalize on additional commercial applications of the Enamelon Technologies. The Company was incorporated in Delaware in June 1992. In October 1996, the Company completed its initial public offering. The Company's executive offices are located at 15 Kimball Avenue, Yonkers, New York, 10704, and its telephone number is (914) 237-1308. THE OFFERING <TABLE> <C> <S> Common Stock offered by the Company............................ 1,500,000 shares Common Stock offered by the Selling Stockholders....................... 500,000 shares Common Stock to be outstanding after the Offering....................... 9,601,386 shares(1) Use of Proceeds..................... To fund the national introduction of the Company's toothpaste products; to fund research and development; to purchase manufacturing equipment; and for working capital and other general corporate purposes, which may include acquisitions. See "Use of Proceeds." Nasdaq National Market Symbol....... ENML </TABLE> - -------- (1) Excludes an aggregate of 3,135,949 shares of Common Stock consisting of (i) 1,464,625 shares of Common Stock reserved for issuance upon the exercise of options granted or available for grant under the Company's 1993 Stock Option Plan, (ii) 750,000 shares of Common Stock reserved for issuance upon the exercise of options available for grant under the Company's 1997 Stock Option Plan and (iii) 921,324 shares of Common Stock reserved for issuance upon exercise of outstanding warrants. SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------- ---------------- 1994 1995 1996 1996 1997 ------- -------- -------- ------- ------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total expenses.............. $ 536 $ 1,081 $ 3,120 $ 1,085 $ 4,810(1) Other charges (income)...... 263 (20) (195) (68) (241) ------ -------- -------- ------- ------- Net loss.................... $ (799) $ (1,061) $ (2,925) $(1,017) $(4,569) ====== ======== ======== ======= ======= Net loss per share.......... -- (2) $ (0.20) $ (0.52) $ (0.19) $ (0.66) Weighted average common shares outstanding......... -- (2) 5,234 5,637 5,443 6,942 </TABLE> <TABLE> <CAPTION> AT JUNE 30, 1997 AT DECEMBER 31, ----------------------- 1996 ACTUAL AS ADJUSTED (3) --------------- ------- --------------- <S> <C> <C> <C> SELECTED BALANCE SHEET DATA: Cash and cash equivalents............... $11,390 $20,058 $41,736 Total assets............................ 12,392 22,565 44,243 Total liabilities....................... 1,093 2,550 2,850 Total stockholders' equity.............. 11,298 20,015 41,393 </TABLE> - -------- (1) Total expenses for the six months ended June 30, 1997 have been offset by approximately $346,000 of revenues from sales of Enamelon(TM) toothpaste in test markets. (2) Earnings per share are not presented for prior periods since the Company does not believe historical earnings per share are meaningful as a result of changes in the Company's capital structure following the completion of its initial public offering in October 1996. (3) As adjusted to give effect to the sale by the Company of 1,500,000 shares of Common Stock offered hereby at an assumed offering price of $15.375 per share (the last reported sales price of the Common Stock on the Nasdaq National Market on September 16, 1997), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

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+PROSPECTUS SUMMARY THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK FACTORS" AND ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. PRIOR TO THE CONSUMMATION OF THE OFFERING, THE COMPANY WILL AMEND AND RESTATE ITS CERTIFICATE OF INCORPORATION AND EFFECT A RECAPITALIZATION (THE "RECAPITALIZATION") PURSUANT TO WHICH (I) EACH SHARE OF COMMON STOCK OF THE COMPANY OUTSTANDING IMMEDIATELY PRIOR TO THE RECAPITALIZATION WILL BE CONVERTED INTO ONE SHARE OF CLASS A COMMON STOCK; (II) THE MORGAN STANLEY STOCKHOLDERS WILL CONVERT CERTAIN OF THEIR SHARES OF CLASS A COMMON STOCK INTO CLASS B COMMON STOCK; AND (III) EACH SHARE OF COMMON STOCK OUTSTANDING WILL BE SPLIT INTO 706 SHARES. SEE "DESCRIPTION OF CAPITAL STOCK -- GENERAL." UNLESS OTHERWISE INDICATED: (I) "COMPANY" MEANS ARM FINANCIAL GROUP, INC. AND, WHERE APPROPRIATE, ITS SUBSIDIARIES; (II) "CLASS A COMMON STOCK" MEANS THE CLASS A CONVERTIBLE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE COMPANY, "CLASS B COMMON STOCK" MEANS THE CLASS B CONVERTIBLE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE COMPANY AND "COMMON STOCK" MEANS, COLLECTIVELY, THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK; (III) "OFFERING" MEANS THE OFFERING OF 8,000,000 SHARES OF CLASS A COMMON STOCK IN THE UNDERWRITTEN PUBLIC OFFERING TO WHICH THIS PROSPECTUS RELATES; AND (IV) ALL SHARE AND PER SHARE INFORMATION ASSUMES THAT THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND, EXCEPT WITH RESPECT TO THE FINANCIAL STATEMENTS OF THE COMPANY BEGINNING ON PAGE F-1 OF THIS PROSPECTUS, HAS BEEN ADJUSTED TO GIVE EFFECT TO THE RECAPITALIZATION. IN CERTAIN CIRCUMSTANCES, THE SHARES OF CLASS A COMMON STOCK ARE CONVERTIBLE INTO AN EQUAL NUMBER OF SHARES OF CLASS B COMMON STOCK AND VICE VERSA BY THE MORGAN STANLEY STOCKHOLDERS. SEE "DESCRIPTION OF CAPITAL STOCK." SEE "GLOSSARY OF SELECTED INSURANCE TERMS" FOR THE DEFINITIONS OF CERTAIN TERMS USED HEREIN. UNLESS OTHERWISE INDICATED, FINANCIAL INFORMATION AND OPERATING STATISTICS APPLICABLE TO THE COMPANY SET FORTH IN THIS PROSPECTUS ARE BASED ON UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") AND NOT STATUTORY ACCOUNTING PRACTICES. THE COMPANY ARM Financial Group, Inc. specializes in the asset accumulation business, providing retail and institutional customers with products and services designed to serve the growing long-term savings and retirement markets. The Company's earnings are derived from investment spread (the difference between income earned on investments and interest credited on customer deposits) and fee income. The Company's retail products include a variety of fixed, indexed and variable annuities and face-amount certificates sold through a broad spectrum of distribution channels including stockbrokers, independent agents, independent broker-dealers and financial institutions. The Company offers guaranteed investment contracts ("GICs") to its institutional clients and markets its institutional products and services to bank trust departments, plan sponsors, cash management funds, other institutional funds and insurance companies directly as well as through investment consultants. The Company was established in July 1993 and completed its first acquisition in November 1993. The Company's assets under management have grown from $2.3 billion as of November 26, 1993 to $5.1 billion as of March 31, 1997 (after giving effect to the pending sale of its investment adviser subsidiary, ARM Capital Advisors (as defined herein), see "Business -- History"). The Company attributes this growth to internally generated sales, new product offerings and opportunistic acquisitions. Operating earnings (net income applicable to common shareholders, excluding, net of tax, realized investment gains and losses and non-recurring charges) have grown from $2.4 million in 1994 to $4.5 million in 1995 and $22.6 million in 1996. Operating earnings for the three months ended March 31, 1997 were $6.4 million. The Company expects to benefit from demographic trends and a growing demand for retirement savings. As the U.S. population has aged, demand for retirement savings has accelerated. According to U.S. Census Bureau information, approximately 30% of today's population was born during the Baby Boom (1946 to 1964). By the time the Baby Boom generation begins to reach age 65 in 2011, the population between the ages of 45 and 64 -- the peak period for asset accumulation -- is projected to increase by approximately 45% to 79 million. The Company also expects to benefit from anticipated higher consumer savings due to concerns about an overburdened social security system, extended life spans, corporate restructuring and downsizing, and volatile financial markets. Among the products expected to benefit are tax-advantaged annuities. Annual industry sales of individual annuity products increased from $65.1 billion in 1990 to $111.4 billion in 1996, with projected growth of at least 9% per year for the next few years, according to an industry study conducted by LIMRA. STRATEGY The Company's strategy is focused on the following: DEVELOPING AND MARKETING A BROAD ARRAY OF CUSTOMIZED PRODUCTS. The Company believes that long-term success in the asset accumulation industry will depend upon the Company's ability to adapt to rapidly changing consumer preferences in fluctuating interest rate and equity market environments. The Company continually redesigns existing products with enhanced features and continues to develop and sell new and innovative products in the marketplace with a particular focus on minimizing its dependence on any one product and meeting a variety of needs for consumers and distribution channels. The Company works closely with its distributors to develop products that are customized to suit their customers' particular needs. The Company was one of the first to recognize the market opportunity for equity-indexed annuities and in 1996 introduced OMNI, the Company's equity-indexed annuity product. Following initial sales in 1996, the Company expects to introduce a second generation product with enhanced features in mid-1997. In the institutional market, the Company offers a short-term floating rate GIC designed to meet the market demand for products with attractive current yields and access to liquidity. In 1997, the Company anticipates introducing products for the synthetic GIC marketplace that will provide institutional clients with either absolute or relative investment performance guarantees. CAPTURING A GROWING SHARE OF SALES IN RETAIL DISTRIBUTION CHANNELS. Over the past few years, the Company has built the infrastructure necessary to support increased growth in the retail market. The Company believes that it can distinguish itself by strengthening its relationships with individual distributors, often referred to as producers. To accomplish this objective, the Company seeks to (i) provide superior service to producers through an expanded and dedicated producer services unit, (ii) enhance the Company's technological platform to permit superior and immediate access for producers to the Company's administrative systems for transacting business, (iii) heighten producers' awareness of its products and insurance affiliates through focused advertisements in industry publications and selective promotional programs and (iv) quickly develop innovative products with new features and services which are responsive to market needs. For example, as a means to strengthen its relationships with distributors, the Company is in the process of implementing a program whereby certain distributors will have the capability to access remotely the Company's systems and transact business with the Company on-line. The Company also seeks to increase its retail market share by expanding and diversifying its retail distribution channels. For example, in 1996 the Company began offering variable annuities through banks and thrifts. Additionally, the Company recognizes the importance of building and maintaining a strong capital base. Partly as a result of the Company's strengthened financial condition, A.M. Best Company, Inc. ("A.M. Best") raised the claims-paying ability rating of the Company's insurance subsidiaries from "A-(Excellent)" to "A(Excellent)" in 1995. A further upgrade could help the Company expand its penetration of existing distribution channels. ENHANCING EFFECTIVE USE OF TECHNOLOGY. The Company continues to invest in technology designed to enhance the service it provides to producers and customers, increase the efficiency of its operations and allow administration of innovative and complex products. The Company's technology also allows it to respond quickly to customer needs for new products by reducing product development time. In addition, to supplement traditional inquiry and transaction processing methods, the Company's client/server network can provide producers, customers and employees with services and information easily accessible through Internet, voice response and wide-area network ("WAN") technology. MINIMIZING FIXED COST STRUCTURE. The Company attempts to minimize fixed distribution costs by marketing its products through fiduciaries and other third parties. Unlike many of its competitors, the Company does not maintain its own field sales force, and distributors are primarily paid based on production. As a consequence of its low fixed distribution costs, the Company has greater flexibility to shift the mix of its sales and distribution channels in order to respond to changes in market demand. In addition, the Company believes that its administrative cost structure has benefited from economies of scale achieved as a result of its strategic acquisitions. The relocation of the Company's main processing center in Worthington, Ohio to the Company's headquarters in Louisville, Kentucky during 1997 is expected to provide further consolidation benefits, in addition to enhancing customer and producer service. The Company will continue to evaluate whether certain non-strategic systems and administrative functions should be outsourced to third-party providers. IMPLEMENTING AN ADVANCED AND INTEGRATED RISK MANAGEMENT PROCESS. The Company designs its products and manages its capital to achieve a superior return on common equity. The Company's return on average common equity (based on operating earnings and equity before unrealized gains and losses) improved to 19% in 1996 from 6% in 1995, and in the first quarter of 1997 was 20% on an annualized basis. Using its experience in offering investment guarantees in the insurance market sector, the Company employs a highly analytical and disciplined asset/liability risk management approach to develop new products and monitor its investment portfolios and liabilities. The Company does not view asset/liability management as a discrete function to be performed by a separate committee. Instead, asset/liability management permeates every aspect of the Company's operations. Beginning with product design and continuing through the product sale and eventual payout, professionals in each functional area (such as marketing, actuarial, investments, legal, finance and administration) work jointly with a common set of risk/return characteristics to achieve the Company's overall liquidity and profit objectives (rather than the specific objectives of any particular functional area). The Company implements this process with the analytical risk and capital management skills and experience of its management team, supported with sophisticated computer software, and an emphasis on investment securities whose cash flows can be modeled extensively against liability cash flows under different interest rate scenarios. Risk components that cannot be appropriately modeled are typically hedged or outsourced. The Company's investment portfolios are currently being managed by ARM Capital Advisors (see "Business -- History"); however, the Company may use additional unaffiliated investment management firms to supplement the services of ARM Capital Advisors in the future. Importantly, the Company has and will continue to monitor the investment practices of these firms to ensure that the Company's prescribed guidelines are followed. CONTINUING SUCCESSFUL ACQUISITION RECORD. The Company's first acquisition occurred in 1993 with the acquisition of Integrity Life Insurance Company ("Integrity") and National Integrity Life Insurance Company ("National Integrity") (collectively, the "Integrity Companies"). In 1995, the Company acquired the assets and business operations of SBM Company ("SBM"). By acquiring SBM, the Company met its objectives of growing and diversifying its product offerings and distribution channels and achieving further economies of scale. The Company increased the investment yields of the SBM portfolio while improving its associated risk profile through a restructuring of the investment portfolio, reduced expenses by merging back-office operations into the Company's existing operations and expanded the Company's distribution channels. The Company continues to seek opportunities to purchase interests in blocks of annuity business, other financial service companies and distributors and to enter into marketing partnerships and reinsurance ventures with other insurance companies, all with the goal of achieving greater profitability through growth in market share and further economies of scale. MAINTAINING FOCUS ON COMPANY PROFITABILITY. The Company's focus on profitability is supported by an integrated team approach to developing products and operating the Company's business. The Company's compensation system and the equity investments of certain of its employees further reinforce the Company's focus on the objective of profitability. Employees at all levels of the Company are eligible to receive bonuses based on profitability. As of March 31, 1997, executive officers, other employees and directors of the Company controlled, directly or indirectly, 9% of the Company's outstanding common stock. The Company conducts its different businesses through the following subsidiaries: - INTEGRITY -- provides retail, fixed, indexed and variable annuities and institutional GICs; - NATIONAL INTEGRITY -- provides retail, fixed and variable annuities and institutional GICs, primarily in New York (wholly owned subsidiary of Integrity); - SBM CERTIFICATE COMPANY -- offers face-amount certificates which guarantee a fixed rate of return to investors at a future date. Face-amount certificates are similar to bank-issued certificates of deposit but are regulated by the Investment Company Act of 1940, as amended (the "Investment Company Act") and are not subject to Federal Deposit Insurance Corporation ("FDIC") protection; - ARM SECURITIES CORPORATION ("ARM SECURITIES") (FORMERLY KNOWN AS SBM FINANCIAL SERVICES, INC.) -- this broker-dealer supports the Company's retail annuity operations and the Company's sales of independent third-party mutual funds; and - ARM TRANSFER AGENCY, INC. ("ARM TRANSFER AGENCY") -- provides transfer agent services as needed to support the Company's retail business operations. In addition, ARM Capital Advisors, which will remain a 20% owned affiliate after the pending sale (see "Business -- History"), offers fixed income asset management services to third-party institutional clients (currently consisting primarily of defined benefit pension plans). THE OFFERING <TABLE> <S> <C> Class A Common Stock Offered by the Company: U.S. Offering................. 4,600,000 Shares International Offering........ 1,150,000 Shares Total....................... 5,750,000 Shares Class A Common Stock Offered by the Morgan Stanley Stockholders: U.S. Offering................. 1,800,000 Shares(1) International Offering........ 450,000 Shares Total....................... 2,250,000 Shares(1) Total Offering.................. 8,000,000 Shares(1) Common Stock to be outstanding following the Offering.......... 23,255,971 shares(2)(3) Use of Proceeds................. The net proceeds of the Offering to the Company are intended to be used to strengthen the Company's existing capital base, to enhance the Company's retail market presence, to consolidate operating locations and for other corporate purposes, which may include acquisitions. See "Use of Proceeds." Proposed American Stock Exchange Symbol.......................... "ARM" Dividend Policy................. The Company currently intends to pay regular quarterly cash dividends of $.02 per share on its Common Stock subject to declaration by the Company's Board of Directors. See "Dividend Policy." </TABLE> - ------------------------ (1) Does not include up to an aggregate of 1,200,000 shares of Class A Common Stock that may be sold by the Morgan Stanley Stockholders pursuant to the U.S. Underwriters' over-allotment option. See "Underwriters." (2) As used herein, "Common Stock" collectively refers to the Class A Common Stock and the Class B Common Stock. See "Description of Capital Stock." (3) Excludes 2,428,640 shares of Common Stock issuable upon exercise of outstanding options. See "Management." SUMMARY HISTORICAL FINANCIAL INFORMATION <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, -------------------- ------------------------------- 1997 1996 1996 1995(1) 1994 --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Investment income..................................... $ 69,700 $ 55,353 $ 250,031 $ 196,024 $ 149,142 Interest credited on customer deposits................ (51,325) (41,198) (182,161) (146,867) (116,463) --------- --------- --------- --------- --------- Net investment spread............................. 18,375 14,155 67,870 49,157 32,679 Fee income: Variable annuity fees............................... 3,239 2,362 10,786 7,238 4,291 Asset management fees............................... 1,884 1,515 5,780 3,161 -- Other fee income.................................... 397 271 1,267 949 4,100 --------- --------- --------- --------- --------- Total fee income.................................. 5,520 4,148 17,833 11,348 8,391 Other income and expenses: Surrender charges................................... 882 1,570 5,024 3,339 2,356 Operating expenses.................................. (8,156) (6,983) (31,055) (22,957) (21,484) Commissions, net of deferrals....................... (638) (544) (2,372) (1,557) (2,551) Interest expense on debt............................ (686) (787) (3,146) (3,461) (3,136) Amortization: Deferred policy acquisition costs................. (2,175) (1,687) (6,835) (2,932) (1,296) Value of insurance in force....................... (2,241) (2,057) (7,320) (7,104) (3,830) Acquisition-related deferred charges.............. (126) (500) (1,503) (9,920) (2,163) Goodwill.......................................... (122) (122) (488) (358) -- Non-recurring charges............................... (1,445) -- (5,004) -- -- Other, net.......................................... (995) (732) (5,366) (687) 4,972 --------- --------- --------- --------- --------- Total other income and expenses................... (15,702) (11,842) (58,065) (45,637) (27,132) Realized investment gains (losses).................... 2,231 (403) 907 4,048 (36,727) --------- --------- --------- --------- --------- Income (loss) before federal income taxes............. 10,424 6,058 28,545 18,916 (22,789) Federal income tax benefit (expense).................. (2,814) (1,573) (5,167) (7,026) 6,018 --------- --------- --------- --------- --------- Net income (loss)..................................... 7,610 4,485 23,378 11,890 (16,771) Dividends on preferred stock.......................... (1,188) (1,188) (4,750) (4,750) (4,750) --------- --------- --------- --------- --------- Net income (loss) applicable to common shareholders... $ 6,422 $ 3,297 $ 18,628 $ 7,140 $ (21,521) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per common share (2)................ $ .37 $ .19 $ 1.06 $ .49 $ (2.03) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Average common shares outstanding (2)................. 17,506 17,489 17,498 14,614 10,590 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- OTHER OPERATING DATA: Operating earnings (3)................................ $ 6,417 $ 3,559 $ 22,577 $ 4,509 $ 2,352 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Operating earnings per common share (2)............... $ .37 $ .20 $ 1.29 $ .31 $ .22 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- BALANCE SHEET AND OTHER DATA (AT END OF PERIOD): Total cash and investments ........................... $3,499,000 $2,999,621 $3,347,477 $2,798,027 $1,782,501 Assets held in separate accounts...................... 1,201,621 867,732 1,135,048 809,927 506,270 Total assets.......................................... 4,943,221 4,084,022 4,701,664 3,793,580 2,447,888 Long-term debt........................................ 38,000 40,000 40,000 40,000 40,000 Total liabilities..................................... 4,785,247 3,930,046 4,519,722 3,605,589 2,462,021 Shareholders' equity: Carrying amount..................................... 157,974 153,976 181,942 187,991 (14,133) Excluding the effects of SFAS No. 115 (4)........... 184,695 162,789 178,273 159,461 90,816 Fair value (5)...................................... 225,177 194,770 224,276 187,721 115,192 </TABLE> - ------------------------ (1) Effective May 31, 1995, the Company acquired substantially all of the assets and business operations of SBM. (2) For all periods presented, includes the effects of a 706-for-1 stock split to be consummated in conjunction with the Offering. (3) "Operating earnings" is defined as net income applicable to common shareholders, excluding, net of tax, realized investment gains and losses and non-recurring charges. (4) Excludes from carrying amount shareholders' equity the net unrealized gains and losses on securities classified as available-for-sale, net of related amortization and taxes. (5) The methodologies used to estimate fair value are described in the notes to the consolidated financial statements contained elsewhere in this Prospectus.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Financial Statements and Notes thereto included elsewhere in this Prospectus. Except as otherwise noted, all information in this Prospectus (i) reflects the automatic conversion of all outstanding shares of Preferred Stock of the Company into an aggregate of 7,954,320 shares of Common Stock upon the consummation of this offering and (ii) assumes no exercise of the Underwriters' over-allotment option. See "Description of Capital Stock" and "Underwriting." THE COMPANY The Company designs, develops and markets proprietary radio frequency integrated circuits ("RFICs") for wireless communications applications such as cellular and PCS, cordless telephony, wireless LANs, wireless local loop, industrial radios, wireless security and remote meter reading. The Company offers a broad array of products, including amplifiers, mixers and modulators/demodulators, that represent a substantial majority of the RFICs required in wireless subscriber equipment. The Company designs products using three distinct process technologies: GaAs HBT, GaAs MESFET and silicon bipolar transistor. The Company believes that for certain applications, GaAs HBT devices offer advantages in terms of linearity, efficiency, reduced system complexity and size. The wireless communications industry has grown rapidly over the past decade as cellular, PCS, paging and other wireless communications services have become widely available and increasingly affordable. As wireless usage has grown, wireless service providers have continued to improve the quality and functionality of their services and have sought to offer greater bandwidth for increased capacity. Capacity and functionality have been addressed by the allocation of less congested frequency bands and by the wireless industry's movement from analog to digital signal modulation standards. These digital standards place a premium on linear power amplification, which can translate into higher quality signals. The wireless markets are characterized by a proliferation of analog and digital signal modulation standards including AMPS, TACS, TDMA, CDMA and hybrid standards. The equipment designed for each standard generally requires unique RF and baseband integrated circuit solutions which must be designed to meet the demands of subscriber equipment users for greater functionality, smaller and lighter equipment, longer battery life and better security, all at reduced costs. As a result, many OEMs have relied increasingly on third party, value- added technology providers that have the component and systems level expertise to design, and the production capacity to supply, these solutions. The Company believes this trend has been particularly evident in the RF segment due to the scarcity of RFIC engineers and the design complexity of RF technology. TRW Inc. ("TRW"), which is the Company's largest shareholder and will beneficially own 30.1% of the Common Stock of the Company after the consummation of this offering, is currently manufacturing all of the Company's GaAs HBT products using TRW's proprietary technologies and has granted the Company a license to use its GaAs HBT process to design products for commercial wireless applications. Through its relationship with TRW, the Company has become a leading commercial supplier of GaAs HBT RFICs based on sales. The Company's GaAs HBT power amplifiers and small signal devices have been designed into advanced subscriber equipment manufactured by leading OEMs such as QUALCOMM, Nokia, Hyundai, Samsung, Motorola and LG. The Company also offers GaAs MESFET and silicon components through a delivery strategy called Optimum Technology Matching(R) to complement its GaAs HBT products. Optimum Technology Matching(R) allows the Company to offer RFIC solutions, on a component by component basis, that best fulfill each OEM's performance, cost and time-to-market requirements. The Company's strategy is to focus on wireless markets by offering a broad range of standard and custom-designed RFICs in order to position itself as a "one-stop" solution for its customers' RFIC needs. To meet demand for the Company's GaAs HBT products, TRW is expanding its GaAs manufacturing facility and the Company is constructing an approximately 50,000 square foot fabrication facility. The Company believes that operating its own GaAs HBT wafer fabrication facility will improve its ability to respond to customer demand for GaAs HBT products and will provide it with greater opportunities to enhance product and process quality and reliability. The Company was incorporated as a North Carolina corporation in 1991. The Company's principal executive offices are located at 7625 Thorndike Road, Greensboro, North Carolina, 27409-9421, and its telephone number is (910) 664-1233. THE OFFERING Common Stock offered by the Company............. 3,000,000 shares Common Stock offered by the Selling Shareholders.................................... 37,000 shares Common Stock to be outstanding after the offering........................................ 14,240,330 shares(1) Use of proceeds................................. To finance a portion of the construction of a new wafer fabrication facility, to repay certain indebtedness and for working capital and other general corporate purposes. See "Use of Proceeds." Nasdaq National Market symbol................... RFMD SUMMARY FINANCIAL DATA(2) (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> YEAR ENDED MARCH 31, --------------------------- 1995 1996 1997 ------- ------- ------- <S> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues.................................................... $ 1,688 $ 9,515 $28,802 (Loss) income from operations............................... (4,163) (5,244) 1,647 Net (loss) income........................................... (4,122) (5,188) 1,652 Pro forma net (loss) income per share(3).................... $ (0.47) $ (0.48) $ 0.14 Pro forma weighted average shares outstanding(3)............ 8,734 10,861 12,049 </TABLE> <TABLE> <CAPTION> MARCH 31, 1997 ----------------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(4) -------- ------------ -------------- <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents............................... $ 2,330 $ 2,330 $19,565 Working capital......................................... 7,313 7,313 25,076 Cash restricted for capital additions................... 12,358 12,358 27,358 Total assets............................................ 36,265 36,265 68,500 Long-term debt.......................................... 10,829 10,829 10,712 Shareholders' (deficiency) equity....................... (9,472) 18,785 51,665 </TABLE> - --------------- (1) Excludes (i) 1,111,111 shares of Common Stock issuable upon the conversion of an outstanding convertible note in the principal amount of $10 million held by TRW (the "TRW Convertible Note") at a price of $9.00 per share, (ii) 1,031,336 shares of Common Stock issuable upon exercise of options outstanding at March 31, 1997 at a weighted average price of $2.09 per share, (iii) 1,000,000 shares of Common Stock issuable upon exercise of an outstanding warrant held by TRW at a price of $10.00 per share if certain conditions are met (the "TRW Warrant") and (iv) 149,591 shares of Common Stock reserved for issuance pursuant to outstanding warrants that have been or may be issued by the Company in connection with certain financing transactions, which warrants are or will be exercisable at a weighted average price of approximately $6.48 per share (the "Lender Warrants"). See "Dilution," "Management -- Stock Option Plans," "Certain Transactions" and "Description of Capital Stock -- TRW Convertible Note and Warrants." (2) The Company uses a 52 or 53 week fiscal year ending on the Saturday closest to March 31 of each year. Each of the 1995, 1996 and 1997 fiscal years was a 52 week year. The Company's other fiscal quarters end on the Saturday closest to June 30, September 30 and December 31 of each year. For purposes of this Prospectus (including the Financial Statements and Notes thereto), each fiscal year is described as having ended on March 31 and each of the first three quarters of each fiscal year is described as having ended on June 30, September 30 and December 31. (3) Pro forma per share and balance sheet data give effect to the conversion of outstanding shares of Preferred Stock upon the consummation of this offering. (4) Pro forma as adjusted data give effect to the conversion of outstanding shares of Preferred Stock upon consummation of this offering and the sale by the Company of 3,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and estimated offering expenses payable by the Company and the application of net proceeds therefrom. See "Use of Proceeds."

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+PROSPECTUS SUMMARY The following discussion summarizes certain information contained in this Prospectus. It does not purport to be complete and is qualified in its entirety by reference to more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. All share and per share information contained in this Prospectus has been restated to reflect a one-for-six reverse split in the Common Stock, effective June 20, 1997. Prospective investors are cautioned that the statements in this Prospectus that are not descriptions of historical facts may be forward looking statements that are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those identified under "Risk Factors" and elsewhere in this Prospectus or in documents incorporated by reference in this Prospectus. The Company Trans Global Services, Inc. (the "Company"), is engaged in providing technical temporary staffing services. In performing such services, the Company addresses the current trend of major corporations in "downsizing" and "outsourcing" by providing engineers, designers and technical personnel on a temporary contract assignment basis pursuant to contracts with major corporations. The engagement may relate to a specific project or may cover an extended period based on the client's requirements. The Company seeks to offer its clients a cost-effective means of work force flexibility and the elimination of the inconvenience associated with the employment of temporary personnel, such as advertising, initial interviewing, fringe benefits and record keeping. Although the employees provided by the Company are on temporary contract assignment, they work with the client's permanent employees; however, they may receive different compensation and benefits than permanent employees. In providing its services, the Company engages the employees, pays the payroll and related costs, including FICA, worker's compensation and similar Federal and state mandated insurance and related payments. The Company charges its clients for services based upon the hourly payroll cost of the personnel. Each temporary employee submits to the Company a weekly time sheet with work hours approved by the client. The employee is paid on the basis of such hours, and the client is billed for those hours at agreed upon billing rates. The Company is a Delaware corporation which was incorporated in September 1993 under the name Concept Technologies Group, Inc. ("Concept"). The Company's executive offices are located at 1393 Veterans Memorial Highway, Hauppauge, New York 11788, telephone (516) 724-0006. -6- <PAGE> In May 1995, Concept acquired all of the issued and outstanding stock of Trans Global Services, Inc., a Delaware corporation now known as TGS Services Corp. ("TGS"), in exchange for a controlling interest in the Company. Such transaction is referred to as the "Trans Global Transaction." See "Certain Transactions -- The Trans Global Transaction." In March 1996, the Company changed its corporate name to Trans Global Services, Inc. Prior to May 1995, the Company's primary business was the operation, through its wholly-owned subsidiary, WWR Technology, Inc. ("WWR"), of the Klipsch professional loudspeaker business. As a result of the Trans Global Transaction, the Company's principal business became the provision of technical temporary staffing services. See "Certain Transactions -- The Trans Global Transaction." As of September 30, 1995, the Company sold the stock of WWR to an affiliated party. See "Certain Transactions -- Sale of WWR." TGS is a Delaware corporation which was incorporated in January 1995 to hold the stock of its two subsidiaries, Avionics Research Holdings, Inc. ("Holdings") and Resource Management International, Inc. ("RMI"). Prior to January 1995, the stock of Holdings and RMI was held by SIS Capital Corp. ("SISC"), which is a wholly-owned subsidiary of Consolidated Technology Group Ltd. ("Consolidated"). Consolidated is a public company whose businesses include, in addition to the Company, the management and operation of magnetic resonance imaging centers, the manufacture and sale of electro-mechanical and electro-optical products, a range of telecommunications services and computerized health information systems and related services which are offered to health care providers. Holdings was formed to acquire the stock of two related companies, Avionics Research Corporation of New York and Avionics Research Corp. of Florida (collectively, "Avionics") in December 1993. RMI was formed in 1994 to acquire assets of Job Shop Technical Services, Inc. ("Job Shop") in November 1994. RMI conducts business under the name The RMI Group. Avionics has been engaged in the contract engineering business since its organization in 1954, and RMI commenced such business in November 1994, with the acquisition of assets from Job Shop. References to the Company refer to the Company and TGS and its subsidiaries, unless the context indicates otherwise. References to Concept relate to the Company prior to the consummation of the Trans Global Transaction in May 1995. At August 31, 1997, SISC was the owner of approximately 40.1% of the Company's outstanding Common Stock. Mr. Lewis S. Schiller, chairman of the board and chief executive officer of the Company, is also chairman of the board and chief executive officer of Consolidated, SISC and Netsmart Technologies, Inc. ("Netsmart"), which is a public corporation controlled by SISC. He is also chairman or the board of other subsidiaries of Consolidated. Mr. Schiller and SISC together owned approximately 44.2% of the Company's outstanding Common Stock, and Mr. Schiller held warrants and options which, if exercised, would result in the ownership by SISC and Mr. Schiller of an aggregate of approximately 46.8% of the Company's Common Stock. The Trinity Group, Inc. ("Trinity"), a wholly-owned subsidiary of Consolidated, has an agreement with the Company pursuant to which the Company pays Trinity fees of $10,000 per month through March 2000. Such fee will increase to $15,000 per month upon completion of this Offering. Mr. Norman J. Hoskin, a director of the Company, is a director of Consolidated, Netsmart and certain subsidiaries of Consolidated. Mr. E. Gerald Kay, a director of the Company, is a director of certain subsidiaries of Consolidated. See "Management -- Directors and Executive Officers." -7- <PAGE> The Offering Securities Offered: 1,000,000 Units at $ per Unit. Each Unit consists of one share of Common Stock and one Series E Redeemable Common Stock Purchase Warrant (the "Warrants"). The shares of Common Stock and Warrants comprising the Units are separately transferrable commencing three months from the date of this Prospectus or earlier with the consent of the Company and the Underwriter. Description of Warrants: Exercise of Warrants The Warrants are exercisable commencing one year from the date of this Prospectus or earlier with the consent of the Underwriter. Subject to redemption by the Company, the Warrants may be exercised at any time during the two-year period commencing one year from the date of this Prospectus at an exercise price of $6.00 per share, subject to adjustment. Redemption of Warrants The Warrants are redeemable by the Company commencing one year from the date of this Prospectus, or earlier with the consent of the Underwriter, at $.01 per Warrant, on not more than 60 nor less than 30 days written notice, provided that the average closing bid price of the Common Stock is at least $10.00 per share, subject to adjustment, for a period of ten consecutive trading days ending not earlier than five trading days prior to the date the Warrants are called for redemption. The consent of the Underwriter cannot be granted with respect to a redemption prior to the date the Warrants may be exercised. Use of Proceeds: The net proceeds of this Offering will be used to pay outstanding loans and obligations and for working capital and other corporate purposes. See "Use of Proceeds." Risk Factors: Purchase of the Units involves a high degree of risk and should be considered only by investors who can afford to sustain a loss of their entire investment. See "Risk Factors." Nasdaq Symbols: Common Stock TGSI Units TGSIU(Proposed) Warrants TGSIW(Proposed) Securities1 Outstanding: At the date of this Prospectus: 3,819,721 shares of Common Stock2 As Adjusted4: 4,819,721 shares of Common Stock2 1,000,000 Warrants3 -8- <PAGE> 1 Does not include privately held warrants to purchase an aggregate of 913,354 shares of Common Stock at exercise prices ranging from $7.50 per share to $50.70 per share (collectively, the "Other Warrants"). 2 Does not include a maximum of 465,388 shares of Common Stock which may be issued pursuant to the Company's stock option plans, of which stock options to purchase 245,316 shares are outstanding, and 913,354 shares of Common Stock issuable upon exercise of the Other Warrants, or any shares of Common Stock issuable upon exercise of the Warrants or Underwriter's over-allotment option. -9- <PAGE> Summary Financial Information (In thousands, except per share amounts) Statement of Operations Data1: <TABLE> <S> <C> <C> <C> <C> <C> Six Months Ended June 30, Year Ended December 31, 1997 1996 1996 1995 1994 Revenue $38,890 $28,468 $62,594 $63,152 $25,287 Gross profit 3,021 2,293 5,158 3,995 1,583 Net income (loss) from continuing operations 158 (569) (681) (4,413) (411) Net income (loss) 158 (569) (681) (4,696) (411) Net income (loss) per share of Common Stock .04 (.49) (.27) (8.88) (4.11) Weighted average number of shares of Common Stock outstanding 3,819 1,169 2,530 528 100 </TABLE> Balance Sheet Data: <TABLE> <S> <C> <C> <C> <C> June 30, 1997 December 31, As Adjusted2 Actual 1996 1995 Working capital (deficiency) $ 2,294 $ (599) $ (755) $ (2,401) Total assets 15,666 14,202 13,100 12,763 Total liabilities 5,656 7,139 6,274 8,511 Accumulated deficit (5,639) (5,629) (5,788) (5,106) Stockholders' equity 10,024 7,064 6,826 4,252 Net tangible book value per share of Common Stock3 1.35 .85 .77 (3.07) </TABLE> 1 Statement of operations data includes the operations of RMI commencing November 22, 1994. 2 As adjusted to reflect the receipt by the Company of the net proceeds from the sale of the 1,000,000 Units offered hereby, at an assumed offering price of $4.00 per unit, and the use of a portion of the proceeds of this Offering to pay certain debt. See "Use of Proceeds" and "Capitalization." 3 The net tangible book value per share of Common Stock at December 31, 1995 reflects a liquidation preference of $1,700 relating to one series of Preferred Stock. No Preferred Stock was outstanding on June 30, 1997 or December 31, 1996. -10- <PAGE>

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+SUMMARY The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. A number of the matters and subject areas discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this Prospectus are not limited to historical or current facts and deal with potential future circumstances and developments. Prospective investors are cautioned that such forward-looking statements, which may be identified by words such as "anticipate," "believe," "expect," "estimate," "intend," "plan," and similar expressions, are only predictions and that actual events or results may differ materially. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. References to fiscal years of the Company are to the twelve month period ended March 31 of the applicable year. THE COMPANY Piercing Pagoda is the largest retailer of gold jewelry through kiosk stores in the United States. At May 7, 1997, the Company operated 734 stores in 43 states and Puerto Rico, including 710 kiosk stores and 24 in-line stores. The Company offers an extensive selection of popular-priced 14 karat and 10 karat gold chains, bracelets, earrings, charms and rings, as well as a selection of silver jewelry, all in basic styles at everyday low prices. The Company's stores are generally located in high traffic concourses of regional shopping malls and are primarily operated under the names Piercing Pagoda, Plumb Gold and Silver & Gold Connection. The Company's kiosk stores average approximately 165 square feet in size, typically carry approximately 3,300 stock keeping units ("SKUs"), require a low initial investment, can be opened quickly and are easily accessible and visible within malls. During fiscal 1997, the average price of a jewelry item sold by the Company was approximately $24, and average comparable store net sales per square foot were $1,848. The Company's freestanding kiosk stores provide an easy-to-shop environment for both destination customers and impulse shoppers. Merchandise is prominently displayed with clearly visible price tags on specially designed pads in glass showcases that facilitate browsing and comparison shopping, and maximize the number of items shown. The Company maintains everyday low prices in its stores and its goal is to be the value leader in the popular-priced gold jewelry business in the markets that it serves. Additionally, the Company emphasizes customer service and offers complimentary ear piercing with the purchase of earrings, provides a lifetime guarantee for its merchandise and maintains a "buy-five-get-one-free" jewelry club. The Company is also committed to maintaining sophisticated management information systems. The Company believes that these operating strategies, along with its low price points and focused merchandise selection, enhance the Company's ability to generate a significant level of repeat business and to attract new customers, and differentiate it from other mall-based jewelry retailers. The Company's net sales have grown at a 29.9% compound annual rate from $58.7 million in fiscal 1993 to $166.9 million in fiscal 1997 and average net sales per comparable store have grown at a 9.9% compound annual rate from $208,000 in fiscal 1993 to $303,000 in fiscal 1997. The Company operated 734 stores at May 7, 1997, a 43% increase from the 513 open at March 31, 1996. This increase was achieved through the acquisition of 141 stores and the opening of 80 net new stores. In January 1997 and April 1997, the Company solidified its position as the largest operator of gold jewelry kiosk stores by acquiring 93 and 43 kiosk stores, respectively, from the companies that had been the second and third largest gold jewelry kiosk operators. The Company intends to focus in fiscal 1998 on the assimilation of these recently acquired stores, as well as on increasing the productivity of the newly opened stores. The Company plans to open approximately 60 to 70 new stores in fiscal 1998 and approximately 70 to 90 new stores in fiscal 1999 (excluding any acquisitions), and to close an aggregate of approximately 20 stores during that two-year period. The Company was organized under the laws of the State of Delaware in 1973 and succeeded to the business of a Pennsylvania corporation formed in 1970. The Company's principal executive offices are located at 3910 Adler Place, Bethlehem, Pennsylvania 18017. Its telephone number is (610) 691-0437. THE OFFERING <TABLE> <S> <C> Common Stock Offered by the Company.......... 650,000 shares Common Stock Offered by the Selling Stockholders............................... 900,000 shares Common Stock Outstanding after the Offering.. 5,927,094 shares (1) Use of Proceeds.............................. To repay certain indebtedness. See "Use of Proceeds." Nasdaq National Market Symbol................ PGDA </TABLE> - ------------ (1) Excludes 395,150 shares of Common Stock issuable upon exercise of outstanding options, 150,550 of which are currently exercisable. See "Management -- 1994 Stock Option Plan." SUMMARY FINANCIAL AND OPERATING DATA (In thousands, except per share and selected operating data) <TABLE> <CAPTION> FISCAL YEAR ENDED MARCH 31, ---------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> INCOME STATEMENT DATA: Net sales................................................... $ 58,725 $ 68,922 $ 86,076 $121,581 $166,885 Gross profit(1)............................................. 26,959 30,961 38,007 54,141 74,577 Selling, general and administrative expenses (including depreciation on kiosks)................................... 22,706 25,122 30,007 43,887 60,845 Income from operations...................................... 4,253 5,449 8,000 10,254 13,732 Net income(2)............................................... 2,871 4,234 3,528 5,677 7,538 Earnings per share.......................................... $ 1.07 $ 1.40 Weighted average shares outstanding......................... 5,325 5,389 PRO FORMA DATA: Pro forma net income(2)..................................... 2,624 4,156 Pro forma net income per share(2)(3)........................ $ 0.67 $ 0.91 Pro forma weighted average shares outstanding(3)............ 3,895 4,558 SELECTED OPERATING DATA: Number of stores at beginning of period..................... 285 279 295 366 513 Stores added (net of closures and sales).................... (6) 16 71 147 169 -------- -------- -------- -------- -------- Stores at end of period..................................... 279 295 366 513 682 ========= ========= ========= ========= ========= Average jewelry units sold per comparable store (rounded)(4).............................................. 8,300 9,500 10,800 11,600 12,000 Average net sales per comparable store(5)................... $208,000 $240,000 $266,000 $295,000 $303,000 Average comparable store net sales per square foot(6)....... $ 1,333 $ 1,544 $ 1,652 $ 1,821 $ 1,848 Average comparable store square footage(6).................. 153 153 161 162 164 Percentage increase in comparable store net sales(7)........ 14.2% 13.8% 9.8% 12.4% 7.6% </TABLE> <TABLE> <CAPTION> MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED(8) ------- -------------- <S> <C> <C> BALANCE SHEET DATA: Working capital...................................................................... $40,649 $ 40,649 Inventory............................................................................ 43,109 43,109 Total assets......................................................................... 79,741 79,741 Total long-term debt................................................................. 26,924 10,587 Stockholders' equity................................................................. 37,522 53,859 </TABLE> - ------------ (1) Gross profit excludes depreciation on kiosks. Depreciation on kiosks is included in selling, general and administrative expenses. See Note 1 of Notes to Consolidated Financial Statements. (2) Prior to the initial public offering of the Company's Common Stock in October 1994, the Company was an "S" corporation for federal and certain state income tax purposes and, accordingly, was subject to only limited corporate income taxes. All pro forma information has been computed as if the Company were subject to federal and applicable state corporate income taxes for all periods presented, based upon the tax laws in effect during the respective periods, in accordance with Financial Accounting Standards Board Statement No. 109, which the Company adopted in 1994. Income tax expense in fiscal 1995 includes certain amounts relating to the Company's conversion from an "S" corporation to a "C" corporation. See Notes to Consolidated Financial Statements. In fiscal 1996 and fiscal 1997, the Company was taxed as a "C" corporation in all jurisdictions. (3) Pro forma net income per share has been computed by dividing pro forma net income by the weighted average number of common shares and common share equivalents outstanding during fiscal 1994 and fiscal 1995, as adjusted to give effect at all times to the sale or other issuance of shares during March and June of fiscal 1994. See Note 1 of Notes to Consolidated Financial Statements. (4) Fiscal 1995, fiscal 1996 and fiscal 1997 reflect average jewelry units sold per comparable store based on 260, 283 and 355 comparable stores, respectively, which represent the number of all stores open at the end of such fiscal year which were also open as of the beginning of the preceding year. Average jewelry units sold per store in fiscal 1993 and fiscal 1994 is calculated by dividing the total jewelry units sold by all of the Company's stores during the period by the average of the total beginning and ending number of stores and is rounded to the nearest hundred. Due to the significant number of new store openings in the last three fiscal years, the Company believes comparable store data is a more meaningful measure of the growth in unit sales at its stores than total store data. (5) Average net sales per comparable store is calculated based on the net sales of all stores open as of the beginning of the preceding fiscal year divided by the number of such stores. (6) Fiscal 1995, fiscal 1996 and fiscal 1997 reflect average net sales per square foot for comparable stores (those stores open at the end of the respective fiscal year which were also open as of the beginning of the preceding fiscal year) based on the approximate average square footage per comparable store of 161, 162 and 164 square feet, respectively. Average net sales per square foot in fiscal 1993 and fiscal 1994 is based on the average net sales per store divided by 153, the approximate average square footage for all stores during both periods. Average net sales per store in fiscal 1993 and fiscal 1994 is based on net sales, less wholesale sales, divided by the average of the total beginning and ending number of stores per period. Due to the significant number of new store openings in the latest three fiscal years, the Company believes comparable store data is a more meaningful measure of the growth in sales per square foot at its stores than total store data. (7) Comparable store net sales data are calculated based on the change in net sales of all stores open as of the beginning of the preceding fiscal year. (8) As adjusted to reflect the receipt of the estimated net proceeds from the issuance and sale of the 650,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $27.125 per share and the application of the net proceeds therefrom as described under "Use of Proceeds."

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+PROSPECTUS SUMMARY The following summary information is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the Financial Statements and related notes thereto, appearing elsewhere in this Prospectus. As used herein, references to "CT" or the "Company" are to Central Tractor Farm & Country, Inc. and its subsidiaries. The mailing address and telephone number of the Company's principal executive offices are 3915 Delaware Avenue, Des Moines, Iowa 50316-0330 and (515) 266-3101, respectively. References to "Big Bear" are to Big Bear Farm Stores, Inc. Unless otherwise stated herein, the pro forma information contained in this Prospectus gives effect to (i) the acquisition of 31 retail stores and certain net operating assets of Big Bear; (ii) the acquisition of the Company by JWC Acquisition I, Inc. ("JWCAC"), an indirect subsidiary of J.W. Childs Equity Partners, L.P. ("Childs"), and the subsequent merger of the Company and JWCAC, with the Company as surviving corporation; and (iii) the Offering and the application of the estimated net proceeds therefrom, as if these events had occurred on October 29, 1995. References to "fiscal year" are to the Company's fiscal year, which ends on the Saturday closest to October 31 in each year. THE COMPANY Central Tractor Farm & Country, Inc. is one of the largest agricultural specialty retailers in the United States. As of December 31, 1996, the Company operated 112 retail stores in 16 states in the Northeast and Midwest, primarily under the "CT Farm & Country" name. CT specializes in meeting the farming, gardening and related needs of rural consumers, especially part-time and full-time farmers, hobby gardeners, skilled tradespersons and "do-it-yourself" customers. Pro forma for the fiscal year ended November 2, 1996, the Company generated sales of $307.8 million, EBITDA of $21.2 million and net income of $1.2 million. CT was founded in 1935 and has established itself as a leader in the agricultural specialty market, having strong name recognition and a loyal customer base. The Company obtained this position by (i) offering a full range of agricultural and related products not typically found in general merchandise retailers and home centers, (ii) merchandising high quality "CT" branded products at competitive prices and (iii) providing superior in-store service to its customers. The Company's stores offer a wide selection of agricultural products such as tractor parts and accessories, specialty hardware, lawn and garden items, rural automotive products, workwear, pet supplies and general consumer products. Management believes that products accounting for approximately 60% of CT's net sales cannot be found at general merchandise retailers and home centers. In addition, CT offers a high level of customer service, ranging from answering technical questions about products to special ordering of hard to find items. The Company believes that this merchandising and service strategy is a significant competitive advantage, enabling CT to differentiate itself from other retailers and generate attractive gross margins. The Company has also established national visibility for its products and services through its catalog operation, which has an annual circulation of approximately 550,000. The Company's stores are located primarily in rural communities with populations in each trading area ranging from 30,000 to 100,000 people (the Company considers a trading area to be the 30-mile radius around a store). While CT adjusts its store size and product mix to match the demographics of each trading area, the stores generally contain from 10,000 to 25,000 square feet of indoor selling space and carry approximately 18,000 to 24,000 stock keeping units ("SKUs"). The average sales for the Company's stores open for the full 1996 fiscal year were $3.9 million. The Company's average customer transaction in fiscal 1996 was approximately $27, reflecting the high frequency of customer purchases and the replacement nature of CT's product line. In 1992, the Company hired its current CEO, establishing a senior management team with considerable retail experience. Management has since initiated programs designed to increase sales and profitability, enhance customer service and improve the efficiency of CT's operations. Further, the Company initiated an aggressive expansion plan, opening 32 new stores (net of three stores closed) and acquiring 33 stores since the beginning of fiscal 1993. - ------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE. SUBJECT TO COMPLETION, DATED MARCH 18, 1997 PRELIMINARY PROSPECTUS $100,000,000 CENTRAL TRACTOR FARM & COUNTRY, INC. % SENIOR NOTES DUE 2007 [CT FARM & COUNTRY LOGO] ------------------------ The % Senior Notes due 2007 (the "Senior Notes") are being offered (the "Offering") by Central Tractor Farm & Country, Inc., a Delaware corporation ("CT" or the "Company"). The net proceeds of the Offering, together with the net proceeds of the other financing described herein, will be used to finance the acquisition (the "Acquisition") of the Company by JWC Acquisition I, Inc. ("JWCAC"), an indirect subsidiary of J.W. Childs Equity Partners, L.P. The Acquisition will be consummated pursuant to a merger agreement providing for the merger (the "Merger") of the Company and JWCAC, with the Company surviving such Merger. The consummation of the Offering, the Acquisition and the financing thereof are conditioned upon each other. The Senior Notes mature on , 2007, unless previously redeemed. Interest on the Senior Notes is payable semiannually on and , commencing , 1997. The Senior Notes will be redeemable at the option of the Company, in whole or in part, on or after , 2002, at the redemption prices set forth herein, plus accrued and unpaid interest thereon, to the redemption date. Notwithstanding the foregoing, at any time on or before, , 2000, the Company may redeem up to 35% of the original aggregate principal amount of the Senior Notes with the net cash proceeds of a Public Equity Offering (as defined herein) at a redemption price equal to % of the principal amount thereof, plus accrued and unpaid interest thereon, to the redemption date. Upon a Change of Control (as defined herein), the Company (i) will be required to make an offer to repurchase all outstanding Senior Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of repurchase and (ii) prior to , 2002, will have the option to redeem the Senior Notes, in whole or in part, at a redemption price equal to the outstanding principal amount thereof, plus accrued and unpaid interest thereon to the redemption date plus the Applicable Premium (as defined herein). The Senior Notes will be general unsecured obligations of the Company and will rank senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment to all unsubordinated indebtedness of the Company, including indebtedness under the New Credit Facility (as defined herein). Upon consummation of the Acquisition, the Company will have no subsidiaries. However, the obligations of the Company under the New Credit Facility will be secured by substantially all of the assets of the Company and any of its future subsidiaries, and accordingly, such indebtedness will effectively rank senior to the Senior Notes to the extent of such assets. The Senior Notes will be unconditionally guaranteed (the "Subsidiary Guarantees") on a joint and several basis by each of the Company's future subsidiaries (the "Guarantors"), subject to certain exceptions. The Subsidiary Guarantees will rank senior to all existing and future subordinated indebtedness of the Guarantors and pari passu with all other unsubordinated indebtedness of the Guarantors, including the guarantees of indebtedness under the New Credit Facility. As of February 1, 1997, on a pro forma basis after giving effect to the Acquisition, including the Offering and the application of the proceeds therefrom, the Company would have had $26.5 million of secured indebtedness which would have effectively ranked senior to the Senior Notes, current liabilities aggregating $40.1 million which would have effectively ranked pari passu with the Senior Notes and no indebtedness or other obligations ranking junior to the Senior Notes. The Senior Notes will be represented by a Global Certificate registered in the name of the nominee of The Depository Trust Company, which will act as the Depositary (the "Depositary"). Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary and its participants. Except as described herein, Senior Notes in definitive form will not be issued. See "Description of Senior Notes -- Book-Entry, Delivery and Form." There is no existing market for the Senior Notes, and the Company does not intend to apply to list the Senior Notes on any securities exchange. See "Risk Factors -- Absence of Public Market." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR NOTES. ------------------------ 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. <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNTS(2) COMPANY(3) - -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Per Senior Note...................................... % % % Total................................................ $100,000,000 $ $ - -------------------------------------------------------------------------------------------------------- </TABLE> (1) Plus accrued interest, if any, from , 1997. (2) The Company has agreed to indemnify the Underwriter (as defined herein) against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company, estimated at $ . The Senior Notes are being offered, subject to prior sale, by the Underwriter when, as and if issued to and accepted by the Underwriter, and subject to various prior conditions. The Underwriter reserves the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Global Note will be made on or about , 1997 in book-entry form through the facilities of the Depositary, against payment therefor. NATIONSBANC CAPITAL MARKETS, INC. The date of this Prospectus is , 1997. - -------------------------------------------------------------------------------- In May 1996, the Company acquired 31 retail stores and certain net operating assets from Big Bear, a privately owned agricultural specialty retailer, for $5.7 million. Management believes that it will significantly improve sales and EBITDA in the acquired stores by converting them to the CT format. Further, these stores were added to CT's operations without a substantial increase in corporate selling, general and administrative or distribution expenses. As of December 31, 1996, 14 locations have been converted to the CT format at an approximate cost of $3.3 million (including inventory); the 17 remaining locations will be converted by the Spring of 1997 at an estimated cost of $3.0 million. With locations in Iowa, Minnesota, Missouri and Wisconsin, the Big Bear stores provide additional geographic diversity to CT's Northeastern focus. BUSINESS STRATEGY CT seeks to continue to increase its revenues and cash flows by capitalizing on the programs it has implemented and by growing its store count. Key elements of the Company's strategy include: (i) focused merchandising and service; (ii) improved inventory management; (iii) Big Bear integration; (iv) new store openings; and (v) selective acquisitions. - - Focused Merchandising and Service: Since 1992, the Company has aggressively expanded its in-store product offerings, increasing the range of agricultural specialty products offered and reducing the number of products typically carried by general merchandise retailers. Management also plans to expand the breadth of the Company's profitable "CT" branded product line. In addition, CT offers a high level of specialized customer service. This merchandising and service strategy differentiates the Company from general merchandise retailers and home centers, enabling it to achieve attractive gross margins (29.3% in fiscal 1996). This strategy also allows the Company to locate stores near general merchandise retailers and home centers to capitalize on their retail traffic. - - Improved Inventory Management: In June 1996, the Company implemented a program to reduce inventory levels in each store and more efficiently utilize the Company's inventory replenishment system. As a result, comparable store inventory was reduced by 7.7% during fiscal 1996. Despite lower in-store inventory levels, comparable store sales grew by approximately 1.0% in fiscal 1996. Management believes CT can reduce in-store inventory levels by an additional 10% without adversely affecting revenues and margins. Further, management believes that there are additional opportunities to improve the Company's in-stock inventory position by more accurately matching inventory levels to expected rates of sales. - - Big Bear Integration: The acquired Big Bear stores averaged $0.8 million in sales for the twelve months prior to CT's acquisition. In contrast, CT's comparable Midwestern stores open for the full 1996 fiscal year averaged $2.2 million in sales, with a greater emphasis on agricultural and related product sales. Management believes that by converting the Big Bear stores into the CT store format, and by employing better merchandising and inventory management strategies, the Company will significantly increase the operating performance and cash flow at the acquired stores. The impact on sales is already being demonstrated in the recently converted stores. Within two weeks of their acquisition, all 31 Big Bear stores were operating on CT's point-of-sale ("POS") and central management information systems. Management expects to continue to leverage its existing distribution and corporate administration capabilities by consolidating the Big Bear stores into CT's operations without a substantial increase in expenses. - - New Store Openings: CT increased its store count from 47 at the beginning of fiscal 1993 to 112 as of December 31, 1996. Of the new stores, 32 were opened (net of three closed) and 33 were acquired by the Company. CT plans to open 31 stores in the next three years (including one additional store in fiscal 1997). CT stores typically generate positive cash flow in their first full year of operation. With two exceptions, all 66 stores which the Company operated for the full 1996 fiscal year generate positive cash flow at the store level. The Company believes that its existing infrastructure will accommodate its planned expansion through fiscal 1999 without substantially increasing its distribution and corporate-level expenses. - - Selective Acquisitions: The agricultural specialty retail market is highly fragmented, with no retailer holding a dominant national position. Management estimates this market to be approximately $6.0 billion. Management believes that there are opportunities to further diversify CT's operations, achieve additional - -------------------------------------------------------------------------------- [PHOTOGRAPHS OF SELECTED CT STORE SELLING AREAS] - ------------------------------------------------------------------------------- operating efficiencies and increase purchasing power by acquiring single store locations, small chains and larger regional chains. From time to time the Company has had discussions with several agricultural specialty retailers. There are no current agreements with respect to any such acquisition and there can be no assurance that any such acquisition will be consummated in the future. THE ACQUISITION The Offering is being conducted in connection with the acquisition of the Company by JWCAC, an indirect subsidiary of Childs. Childs is a $462.6 million institutional private equity fund managed by J.W. Childs Associates, L.P. ("Associates"), a Boston-based private investment firm. Childs acquires equity positions primarily in established small and middle-market growth companies through friendly, management-led acquisitions and recapitalizations. On November 27, 1996, JWCAC and Childs entered into agreements (the "Securities Purchase Agreements") with certain affiliates of Butler Capital Corporation (collectively, "BCC") and with certain members of CT's management (the "Management Shareholders") pursuant to which JWCAC agreed to purchase at a price of $14.00 per share 100% of BCC's shares and approximately 36.4% of the Management Shareholders' shares, representing approximately 64.0% and 1.4% of the Company's outstanding common stock, respectively (collectively, the "Securities Purchases"). JWCAC, its parent corporation CT Holding, Inc. ("Holding") and Childs concurrently entered into an agreement and plan of merger (the "Merger Agreement") with the Company, pursuant to which JWCAC will be merged with and into the Company (the "Merger") for merger consideration of $14.25 per share (the "Merger Consideration"). Certain additional members of management have subsequently agreed to exchange their equity securities in the Company (valued on the basis of $14.00 per common share) for equity securities of Holding and, in some cases, cash in connection with the consummation of the Merger. The Merger and this Offering will be consummated simultaneously and are each conditioned upon the consummation of the other. As of January 2, 1997, JWCAC had consummated the Securities Purchases and paid related expenses utilizing (i) $65.4 million of cash equity contributed to JWCAC by Holding and (ii) $35.1 million of borrowings under an interim margin loan facility (the "Margin Loan Facility") with NationsBank, N.A. ("NationsBank"), as Administrative Agent, and Fleet National Bank ("Fleet"), as Co-Agent. Holding funded its equity contribution by issuing $10.0 million of preferred stock (the "Preferred Stock") and $55.4 million of common stock, of which $60.3 million was purchased by Childs and its affiliates and $5.0 million was purchased by affiliates of Fleet. In connection with the Securities Purchases, the Company entered into a new term loan (the "New Term Loan") and a new revolving credit facility (the "New Revolving Credit Facility") with Fleet, as Administrative Agent, and NationsBank, as Co-Agent (collectively, the "New Credit Facility") and used a portion of such facility to refinance existing debt of the Company, including a $16.0 million convertible note held by BCC. See "Description of New Credit Facility." In connection with the Merger, (i) the Company will become the wholly owned subsidiary of Holding, (ii) the Management Shareholders will exchange $4.0 million in cash, notes and equity securities of the Company for equity securities of Holding and (iii) the shareholders of the Company (other than JWCAC, persons who perfect dissenters' appraisal rights and the Management Shareholders) will receive the Merger Consideration. The proceeds of the Offering will be used to pay the Merger Consideration, repay the Margin Loan Facility, pay down a portion of the New Revolving Credit Facility and pay related fees and expenses. See "Use of Proceeds." Upon consummation of the Merger, the Company will have been capitalized with $69.2 million of equity (the "Equity Investment") and $107.7 million of long-term debt (excluding $1.8 million of current maturities). On a fully diluted basis, immediately after giving effect to the Merger, Holding will be owned approximately 85% by Childs and its affiliates, approximately 7% by affiliates of Fleet and approximately 8% by current members of the Company's management. Childs and the Fleet affiliates presently expect to sell their respective interests in the Preferred Stock to other investors shortly after consummation of the Merger. The Securities Purchases, the Merger and the related financing transactions are collectively referred to herein as the "Acquisition." - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- RECENT RESULTS For the three months ending February 1, 1997, the Company's net sales were $71.5 million, an increase of $1.5 million, or 2.2%, as compared to the three months ending January 27, 1996. This increase was primarily attributable to the addition of new stores and the acquisition of the Big Bear stores (each of which occurred during the 1996 fiscal year), offset by a decline in comparable store sales. Revenue for the six Big Bear stores that were converted to the CT format at the beginning of fiscal 1997 increased significantly during the three months ending February 1, 1997 as compared to the same period for the prior fiscal year. Net income for the first quarter of fiscal 1997 was $1.1 million, a decrease of 10.9% as compared to $1.3 million for the first quarter of fiscal 1996. For the three months ending February 1, 1997 versus the same period for the prior fiscal year, the Company's EBITDA grew from $3.5 million to $3.7 million, an increase of 5.0%. Comparable store sales, which exclude the recently acquired Big Bear stores, declined by 11.9% versus the same period for the prior fiscal year. Based upon its analysis of sales by product line, management believes that the decrease in comparable store sales was primarily attributable to mild Northeastern winter weather conditions, where CT operated approximately two-thirds of its comparable stores, compared to the previous fiscal year and the elimination of two promotional events run during the first quarter of fiscal 1996. The majority of the Company's sales occur in the second and third quarters of its fiscal year, and management does not believe that comparable store sales for the three months ending February 1, 1997 are necessarily indicative of results for the entire 1997 fiscal year. In the preparation of the unaudited financial data for the three-month periods, all adjustments (consisting of normal recurring accruals) have been made which are, in the opinion of management, necessary for the fair and consistent presentation of such financial data. For a further discussion of the Company's results of operations for the three months ended February 1, 1997, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- First Quarter of Fiscal 1997 Compared to First Quarter of Fiscal 1996." - ------------------------------------------------------------------------------- [THIS PAGE INTENTIONALLY LEFT BLANK] - -------------------------------------------------------------------------------- THE OFFERING Securities Offered......... $100,000,000 aggregate principal amount of % Senior Notes due 2007 of the Company (the "Senior Notes"). Maturity Date.............. , 2007. Interest Payment Dates..... and , commencing , 1997. Ranking.................... The Senior Notes will be general unsecured obligations of the Company, senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all other existing and future unsubordinated indebtedness of the Company, including indebtedness under the New Credit Facility. However, the obligations of the Company under the New Credit Facility will be secured by substantially all of the assets of the Company and its future subsidiaries, and the Indenture for the Senior Notes (the "Indenture") restricts, but does not prohibit, the Company from incurring additional secured indebtedness. Accordingly, such secured indebtedness will effectively rank senior to the Senior Notes to the extent of such assets. As of February 1, 1997, on a pro forma basis after giving effect to the Acquisition, including the Offering and the application of the net proceeds therefrom, the Company would have had $26.5 million of secured indebtedness which would have effectively ranked senior to the Senior Notes. Optional Redemption........ On or after , 2002, the Company may redeem the Senior Notes, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. Notwithstanding the foregoing, at any time on or before , 2000, the Company may redeem up to 35% of the original aggregate principal amount of the Senior Notes with the net cash proceeds of a Public Equity Offering (as defined herein) at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption provided that at least 65% of the original aggregate principal amount of Senior Notes originally issued remain outstanding immediately after redemption. Guarantees................. Upon consummation of the Offering, the Company will have no subsidiaries. However, the Senior Notes will be unconditionally guaranteed on a joint and several basis (the "Subsidiary Guarantees") by any future subsidiaries of the Company, subject to certain exceptions (collectively, the "Guarantors"). The Subsidiary Guarantees will rank senior to all existing and future subordinated indebtedness of the Guarantors and pari passu with all other unsubordinated indebtedness of the Guarantors, including the guarantees of indebtedness under the New Credit Facility. Any Guarantor's obligations under the New Credit Facility, however, will be secured by a lien on substantially all of the assets of such Guarantor, and the Indenture restricts, but does not prohibit, the Guarantors from incurring additional secured indebtedness. Accordingly, such secured indebtedness will rank prior to the Subsidiary Guarantees with respect to such assets. Change of Control.......... Upon a Change of Control (as defined herein), the Company (i) will be required to make an offer to repurchase all outstanding Senior Notes at 101% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of repurchase and (ii) prior to , - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2002 will have the option to redeem the Senior Notes, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus the Applicable Premium (as defined herein). There can be no assurance that sufficient funds will be available to the Company at the time of any Change of Control to make any required repurchases of Senior Notes. See "Risk Factors -- Potential Inability to Fund Change of Control Offer," "Description of Senior Notes -- Repurchase at the Option of Holders -- Change of Control" and "-- Optional Redemption upon Change of Control." Covenants.................. The Indenture will restrict, among other things, the Company's and its future subsidiaries' ability to incur additional indebtedness, pay dividends or make certain other restricted payments, incur liens, engage in any sale and leaseback transaction, sell stock of subsidiaries, apply net proceeds from certain asset sales, merge or consolidate with any other person, sell, assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company or enter into certain transactions with affiliates. Use of Proceeds............ The proceeds of the Offering will be used to repay borrowings under the Margin Loan Facility, pay the Merger Consideration, temporarily repay a portion of the New Revolving Credit Facility and pay fees and expenses of the Offering and Acquisition. See "Use of Proceeds."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including the notes thereto) and pro forma financial information appearing elsewhere in this Prospectus. The closing of this Common Stock Offering is conditioned on (i) the concurrent consummation of the mergers (collectively, the "Merger") of American International Airways, Inc. ("AIA"), American International Travel, Inc. ("AIT"), Flight One Logistics, Inc. ("FOL"), Kalitta Flying Service, Inc. ("KFS") and O.K. Turbines, Inc. ("OK") (collectively, the "Kalitta Companies") with and into separate subsidiaries of Kitty Hawk pursuant to the Merger Agreement (as defined), (ii) the concurrent consummation of the Note Offering and (iii) entering into the New Credit Facility (as defined) and the Term Loan (as defined). This Common Stock Offering, the Merger and the Note Offering are referred to herein collectively as the "Transactions". Unless otherwise indicated or the context otherwise requires, references in this Prospectus to (i) "Kitty Hawk" refer to Kitty Hawk, Inc. and its consolidated subsidiaries prior to giving effect to the consummation of the Transactions, (ii) the "Company" refer to Kitty Hawk and the Kalitta Companies on a combined basis after giving effect to the consummation of the Transactions, including the combination of the businesses conducted by Kitty Hawk and the Kalitta Companies prior to the Merger and (iii) "Refinancings" refer to the refinancing of all but approximately $10 million of the currently outstanding indebtedness of Kitty Hawk and the Kalitta Companies with a portion of the net proceeds of this Common Stock Offering, the Note Offering and the Term Loan. THE COMPANY BUSINESS The Company is a leading U.S. and international air freight carrier and a leading provider of air freight charter logistics services in the U.S. The Company also provides airframe and engine maintenance services for third parties as well as for its own fleet. On a pro forma basis, after giving effect to the Merger, the Company's total revenues for the twelve months ended December 31, 1996 and the nine months ended September 30, 1997 were $552 million and $422 million, respectively. Air Freight Carrier Services. The Company is a leading provider of scheduled and charter air freight carrier services. The Company's scheduled air freight operations include an overnight freight service operating within a network of 47 North American cities and a service between Los Angeles, the Hawaiian Islands and several Pacific Rim countries. The Company's charter air freight operations include (i) contractual charters under which the Company generally supplies aircraft, crew, maintenance and insurance ("ACMI") and (ii) on-demand charters. The Company also provides air passenger charter services on a contractual and on-demand basis. Air Freight Logistics Services. The Company is a leading provider of same-day air freight charter logistics services in the U.S. The Company arranges the delivery of time sensitive freight using aircraft of third party air freight carriers as well as its own fleet. During 1996 the air logistics business managed over 14,000 on-demand flights. Aircraft Maintenance Services. The Company is one of the few dedicated air freight carriers in the world that provides comprehensive aircraft maintenance services, including airframe repair and engine overhaul (with the exception of certain aircraft engine components), to other aircraft operators as well as for its own fleet. This capability allows the Company to reduce its overall maintenance costs, including reduced aircraft downtime. The Company has major maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas. FLEET The Company operates a fleet of 119 aircraft, including (i) four Boeing 747s, six Lockheed L-1011s, 19 Douglas DC-8s, 31 Boeing 727s and five Douglas DC-9-15Fs for its air freight carrier business, (ii) two Boeing 747s and two Lockheed L-1011s for its air passenger charter business and (iii) 50 small jet and prop aircraft (which include primarily Lear jets, Beechcraft and Convairs) in air freight and/or air passenger charter service. AIR FREIGHT MARKET According to the Boeing Report, the world air cargo market grew at an average rate of more than 8% per year from 1970 to 1995 as measured in revenue ton kilometers, more than 2.5 times the growth rate of world Gross Domestic Product. Also, according to the Boeing Report, the world air freight market is expected to grow at 6.7% annually through 2015. Management believes this projected growth in the world air freight market will be fueled by many factors, including economic growth, relaxation of international trade barriers, increasingly time-sensitive product delivery schedules, increased use of "just-in-time" inventory management systems and increasing levels of Internet commerce. In addition, according to the Boeing Report, there is a trend towards shipping freight in dedicated freighter aircraft rather than in cargo space of passenger aircraft. COMPETITIVE STRENGTHS The Company believes that the following factors are competitive strengths and promote strong relationships with its diversified customer base. - Established Market Position. The Company, including its predecessors, has provided air freight carrier services for more than 30 years. The Company's extensive fleet and the diversity of its air freight carrier services (scheduled, contract charters and on-demand charters) have enabled it to become a leading U.S. and international air freight carrier. The Company has a diversified customer base, including (i) freight forwarders such as Burlington Air Express, Eagle USA and Emery Worldwide Airlines, (ii) U.S. government agencies such as the U.S. Postal Service and the U.S. Military and (iii) businesses such as General Motors and Boeing. - Attractive Fleet Characteristics. The Company believes that it has been successful in purchasing and modifying aircraft for its own fleet at favorable costs. The aircraft in the Company's fleet range from Boeing 747s to prop aircraft, enabling the Company to provide its customers with the aircraft type best suited to their particular transportation needs. The size and diversity of its fleet also allows the Company to deploy aircraft among its three air freight carrier service lines in a manner which improves fleet utilization. - Broad Service Capabilities. The Company believes that its air freight carrier services are attractive to its customers for several reasons, including (i) its history of providing reliable service, (ii) its ability to provide time-definite air transportation of almost any type or size of freight to most destinations worldwide upon short notice, (iii) its ability to manage critical freight shipments in North America from pick-up through delivery and (iv) its ability to provide its customers with real time updates of aircraft location and progress. In addition, the Company is able to coordinate its domestic and international scheduled services to offer customers reliable freight delivery service to and from North America and the Pacific Rim and Central and South America. The Company's capabilities are enhanced by its management information systems which enable the Company to continually monitor its flight operations, thereby facilitating aircraft and flight crew scheduling. RATIONALE FOR THE MERGER The combination of Kitty Hawk and the Kalitta Companies pursuant to the Merger makes the Company one of the leading U.S. and international air freight carriers as well as a leading provider of air freight charter logistics services in the U.S. The Merger also permits the Company to achieve a number of strategic and financial objectives, including: - Increased Utilization of On-Demand Aircraft. Prior to the Merger, less than 10% of the on-demand charters arranged by Kitty Hawk were flown on Kitty Hawk's aircraft. With the addition of the Kalitta Companies' aircraft, the Company will direct a larger percentage of its on-demand charters to its own aircraft, rather than to third parties. Because on-demand charters flown on the Company's aircraft generate a higher gross margin than charters subcontracted to third parties, the Company believes this strategy will improve its profitability over time. - Opportunities for Cost Savings. The Company believes the Merger will permit it to achieve annual cost savings by enabling it to increase the Kalitta Companies' crew utilization, reduce Kitty Hawk's reliance on third party maintenance, reduce parts inventory and consolidate duplicative airport support bases as well as through other economies of scale, including lower aircraft insurance premiums. - Integration of Fleet Operations. The Company believes the Merger will permit it to integrate the Kalitta Companies' scheduled air freight operations with Kitty Hawk's air freight carrier services, resulting in expanded customer services and increased revenues. The combined fleet should also enhance operating efficiencies by better matching aircraft size and operating capabilities with route systems and customer needs. Finally, the Company believes the resultant combination of services and fleet capabilities will provide new domestic and international marketing opportunities. GROWTH STRATEGIES The Company's revenue has grown significantly over the last several years and the Company believes it can continue to increase revenues through the following opportunities: - Expansion of ACMI Charter Business. The Company believes there are, and will continue to be, opportunities to obtain ACMI contracts with international air carriers due to the projected shortage of wide-body aircraft needed to service those carrier's markets. The Company plans to focus its expansion efforts in the European, South American and Asia/Pacific markets and to connect route systems in those markets with its scheduled North American route systems. The Company recently acquired one used Boeing 747 which it is currently converting to freighter configuration and has an option to acquire two additional used Boeing 747s (the "Optioned Boeing 747s") which it expects to convert to freighter configuration in 1998. - Expansion of On-Demand Charter Business. The Company believes there are significant opportunities to grow its on-demand charter business because of continuing demand for expedited air freight services, especially in the case of "just-in-time" inventory systems and other time sensitive shipments. In addition to improving the utilization of the Kalitta Companies' aircraft, the Company anticipates purchasing additional aircraft to capitalize on this expected growth. - Expansion of Third Party Maintenance Services. The Company is one of the few dedicated air freight carriers in the world capable of maintaining and repairing aircraft which range in size from Boeing 747s to prop aircraft. Although the Company currently provides aircraft maintenance services to several customers, including Lufthansa, the Company intends to significantly increase marketing of its third party maintenance services. In particular, the Company intends to focus on marketing jet engine overhauls and maintenance, for which management believes there is a trend toward a limited number of service providers. - Expansion of Scheduled Freight Business. Because of the growth in the amount of freight shipped through its scheduled overnight freight hub in Terre Haute, Indiana, the Company anticipates moving its hub from Terre Haute to a new facility in Fort Wayne, Indiana in the spring of 1999. This new facility is expected to have nearly twice the sorting capacity of the Terre Haute, Indiana facility. In addition, the new facility is designed to improve productivity by reducing the time to load and unload aircraft and by decreasing sorting times. - Strategic Acquisitions. The Company will, from time to time, pursue acquisitions that enable it to (i) acquire complementary aircraft at favorable costs, (ii) expand its operations in selected geographic areas or (iii) achieve other strategic or operational benefits. RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES The Kalitta Companies posted net losses in 1996 and for the first nine months of 1997. In addition, for the first six months of 1997, the Kalitta Companies sustained a negative gross profit of $7.5 million. The Kalitta Companies' management believes that the recent negative financial performance can be attributed to a number of factors, including (i) the incurrence of abnormally high engine overhaul expenses due to Federal Aviation Administration Airworthiness Directives ("Directives"), (ii) the loss of revenue resulting from the effective grounding of two Boeing 747s in January 1996 due to a series of Directives, (iii) the incurrence principally in 1997 of start-up costs associated with establishing the Kalitta Companies' wide-body passenger charter business, (iv) the incurrence of costs to add and maintain flight crews in anticipation of increased air freight carrier business which has not yet materialized in part due to delays in acquiring aircraft and (v) lower revenues from the U.S. Military which the Company believes will be mitigated if the Company becomes eligible to operate passenger charters for the U.S. Military in December 1997, as expected. Kitty Hawk has taken these factors into account in evaluating the merits of the Merger and the Kalitta Companies' future financial performance. Kitty Hawk has also considered that the Kalitta Companies' management focused primarily on growing revenues and fleet size, rather than on profitability. After the Merger, the Company's management will focus on meeting profit objectives in day-to-day operations and believes the Kalitta Companies' recent financial performance can be substantially improved following the Merger, although there can be no assurance in this regard. See "The Merger -- Recent Financial Performance of the Kalitta Companies and the Merger Rationale." NEW CREDIT FACILITY AND TERM LOAN Concurrently with the consummation of the Transactions, the Company will enter into a new $100 million senior secured revolving credit facility (the "New Credit Facility") and a new $45.9 million term loan (the "Term Loan") with Wells Fargo Bank (Texas), National Association ("WFB"), individually and as agent for other lenders. The New Credit Facility and Term Loan will be secured by accounts receivable, all inventory (including rotables), intangibles and contract rights, cash and 16 Boeing 727 aircraft and related engines acquired by Kitty Hawk from the Kalitta Companies in September 1997. THE OFFERING Common Stock offered: Total Common Stock offered......... 4,100,000 shares By the Company................ 3,000,000 shares By the Selling Stockholders... 1,100,000 shares Common Stock to be outstanding after the offering................. 17,550,957 shares(1)(2) Concurrent Transactions............ Concurrently with the Common Stock Offering, the Company is conducting the Note Offering under Rule 144A of the Securities Act, consummating the Merger and entering into the New Credit Facility. The Common Stock Offering will be closed concurrently with and is conditioned upon, the consummation of the Note Offering and the Merger and entering into the New Credit Facility. See "Description of Certain Indebtedness." Use of proceeds.................... For (i) the repayment or refinancing of substantially all of the indebtedness of Kitty Hawk and the Kalitta Companies, (ii) the acquisition and conversion to freighter configuration of the Optioned Boeing 747s, (iii) the payment of $20 million in cash pursuant to the Merger Agreement, (iv) working capital purposes and (v) the payment of approximately $2.2 million in miscellaneous expenses. See "Use of Proceeds" and "Description of Certain Indebtedness." Nasdaq National Market Symbol...... KTTY - --------------- (1) Does not include (i) 300,000 shares of Common Stock available for issuance under the Company's Amended and Restated Omnibus Securities Plan, (ii) 198,193 shares of Common Stock available for issuance under the Company's Amended and Restated Annual Incentive Compensation Plan and (iii) 100,000 shares of Common Stock available for issuance under the Company's Amended and Restated Employee Stock Purchase Plan. See "Management -- Employee Compensation Plans and Arrangements." (2) Includes the issuance of 4,099,150 shares of Common Stock pursuant to the Merger Agreement. See "The Merger."

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO "PROGENITOR" REFER TO PROGENITOR, INC. PRIOR TO THE COMPLETION OF THE MERGER OF A WHOLLY-OWNED SUBSIDIARY OF PROGENITOR WITH AND INTO MERCATOR GENETICS, INC. ("MERCATOR") WITH MERCATOR AS THE SURVIVING ENTITY (THE "ACQUISITION"). REFERENCES HEREIN TO "MERCATOR" REFER TO MERCATOR PRIOR TO THE ACQUISITION. REFERENCES TO THE "COMPANY" REFER TO PROGENITOR AFTER THE ACQUISITION AND INCLUDE THE COMBINED OPERATIONS OF PROGENITOR AND MERCATOR. THE CLOSING OF THE OFFERING IS CONTINGENT UPON THE CLOSING OF THE ACQUISITION. SEE "BUSINESS--OVERVIEW" AND "--MERCATOR ACQUISITION." CERTAIN OF THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS, WHEN MADE IN CONNECTION WITH AN INITIAL PUBLIC OFFERING, ARE NOT COVERED BY THE SAFE HARBORS PROVIDED IN SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS." THE COMPANY Progenitor is engaged in the discovery and functional characterization of genes to identify targets for the development of new pharmaceuticals. The Company's initial focus is on the identification of genes important in blood and immune cell development, blood vessel development, bone formation, cancer, asthma and schizophrenia. Using its core developmental biology approach and an array of genomics technologies, Progenitor has identified several potential therapeutic targets, and intends to accelerate its discovery of potential targets by accessing complementary gene discovery and characterization technologies. Consistent with this strategy, Progenitor will complete the acquisition of Mercator concurrently with the closing of the Offering. Through the Acquisition, Progenitor gains a complementary gene discovery approach, disease genetics, established discovery programs and worldwide rights to two genes. The Company intends to use its integrated genomics system to provide its partners with in-depth functional information in support of each therapeutic target. Such well-characterized targets may have the potential to expedite product development and to reduce development costs. Using its developmental biology approach, the Company has identified the B219 leptin receptor gene, for which it has received one issued U.S. patent and one notice of allowance from the United States Patent and Trademark Office ("USPTO"). The B219 leptin receptor may have therapeutic applications in obesity, diabetes and certain blood and immune cell disorders. The Company also has discovered a red blood cell growth factor activity that may have therapeutic applications in cancer, anemias and other diseases. In addition, the Company has discovered, with its collaborators, a gene that the Company believes may play a role in blood vessel development and bone formation, and may be useful for the development of new therapies for cancer and osteoporosis. Using its disease genetics approach, the Company has identified a gene associated with iron overload, one of the most common genetic disorders. The Company has received two notices of allowance from the USPTO for two patent applications relating to certain diagnostic markers for this condition. The Company also has received a notice of allowance from the USPTO for a patent application relating to certain genetic mutations within the gene associated with this condition. In addition, the Company has exclusive worldwide rights to the EPM1 epilepsy gene, which also was discovered using this disease genetics approach. The Company intends to enter into partnerships with biopharmaceutical firms to support gene discovery programs in specific disease areas and, in parallel, to develop certain gene discoveries to a later stage internally before partnering. The Company has entered into a license agreement with Amgen Inc. ("Amgen") relating to certain aspects of the Company's leptin receptor technology, while retaining certain rights, including rights to small molecule screening and cell sorting, for development with potential partners. In connection with this license agreement, Amgen has agreed to purchase directly from the Company $5.5 million of Common Stock at a price equal to the Unit Shares IPO Price concurrently with the closing of the Offering. The Company is collaborating with Novo Nordisk A/S ("Novo Nordisk") in the isolation, development and commercialization of the Company's red blood cell growth factor activity. Under these agreements, the Company is entitled to receive milestone and royalty payments in connection with the development and commercialization of any products. Developmental biology is the study of the genetic events that control cell growth and differentiation. Because genes responsible for growth and differentiation are expressed at higher levels in developing systems, the Company believes that developing cells and tissues provide a rich and largely unexploited resource for the discovery and characterization of genes with fundamental biological roles. These genes may have significance in the treatment of diseases characterized by abnormal cell growth and differentiation, such as cancer, blood and immune system disorders and osteoporosis. The Company believes that its expertise in manipulating and analyzing developing cells and tissues may allow it to isolate and characterize the function of these genes. The Company's disease genetics approach incorporates enhanced positional cloning techniques for the discovery of genes associated with complex diseases, and facilitates evaluation of genes discovered using developmental biology. Moreover, the Company's disease genetics approach can identify genes directly associated with a specific disease that can be functionally characterized using developmental biology. Progenitor was incorporated in Delaware in February 1992 as a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc. ("Interneuron"), and commenced operations in May 1992. Following the Offering, Interneuron would own beneficially approximately 33% of the Company's Common Stock (approximately 32% if the Underwriters' over-allotment option is exercised in full). Interneuron has expressed an interest in purchasing up to $3.0 million of Units in the Offering at the initial public offering price (400,000 Units, assuming an initial public offering price of $7.50 per Unit). To the extent that Interneuron purchases all of such Units, Interneuron would beneficially own approximately 37% of the Company's Common Stock after the Offering (approximately 36% if the Underwriter's overallotment option is exercised in full). The Company's executive offices are located at 1507 Chambers Road, Columbus, Ohio 43212, and its telephone number is (614) 488-6688. See "Certain Transactions--Relationship with Interneuron." THE OFFERING <TABLE> <S> <C> Securities offered......................................... 2,750,000 Units, each consisting of one share of Common Stock and one Warrant to purchase one share of Common Stock. The Common Stock and Warrants will be separately tradeable immediately following the Offering. See "Description of Securities." Common Stock to be outstanding after the Offering.......... 12,772,920 shares (1)(2) Use of proceeds............................................ For research and development, expansion of facilities and acquisition of equipment, expenses relating to the Acquisition and the Offering and working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbols.................... Common Stock--PGEN Warrants--PGENW </TABLE> - ------------------------------ (1) Based on shares outstanding as of June 20, 1997. Includes: (i) 3,216,530 shares of Common Stock to be issued to Mercator stockholders in the Acquisition (assuming Final Acquisition Consideration (as defined below) of $22.0 million for Mercator) upon the closing of the Offering; (ii) 956,522 shares of Common Stock to be sold by the Company to Amgen for $4.5 million in cash and a $1.0 million promissory note pursuant to a stock purchase agreement dated as of December 31, 1996 (the "Amgen Purchase Agreement"), concurrently with the closing of the Offering; (iii) 25,000 shares of Common Stock to be purchased by The Ohio University Foundation at a price of $2.88 per share, pursuant to a stock purchase right; and (iv) 63,406 shares of Common Stock to be issued to The Ohio University Foundation pursuant to an anti-dilution adjustment in connection with the Offering. The number of shares of Common Stock to be issued (i) in the Acquisition, (ii) to Amgen and (iii) to The Ohio University Foundation will depend upon a variety of factors, including the initial public offering price of the Units and the Unit Shares IPO Price. See "Capitalization," "Business--Corporate Agreements," "--Mercator Acquisition," "Certain Transactions" and "Description of Securities." (2) Excludes: (i) 2,750,000 shares of Common Stock issuable upon exercise of the Warrants; (ii) 3,408,888 shares of Common Stock reserved or to be reserved for grants or awards under the Company's 1992 Stock Option Plan, 1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan, of which (a) options to purchase 695,463 shares of Common Stock were outstanding as of June 20, 1997 under such stock plans, with a weighted average exercise price of $5.13 per share, and (b) options to purchase 947,729 shares of Common Stock are to be granted under the 1996 Stock Incentive Plan upon the closing of the Offering, with an exercise price equal to the Unit Shares IPO Price; (iii) 556,520 shares of Common Stock issuable upon exercise of replacement options to be issued to stockholders of Mercator under the 1997 Stock Option Plan in connection with the Acquisition (the "Replacement Options"), with a weighted average exercise price of $0.89 per share; (iv) 67,804 shares of Common Stock issuable upon exercise of warrants outstanding as of June 20, 1997, with an exercise price of $3.54 per share; and (v) 53,037 shares of Common Stock issuable upon exercise of outstanding Mercator warrants, which will be converted into warrants to purchase Common Stock in connection with the Acquisition (the "Mercator Warrants"), with a weighted average exercise price of $3.15 per share. See "Capitalization," "--Mercator Acquisition," "Management--Stock Plans," "Certain Transactions" and "Description of Securities." SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA) <TABLE> <CAPTION> PRO FORMA AS ADJUSTED(1) HISTORICAL ---------------------------- -------------------------------------------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEARS ENDED SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, ---------------------------------- ---------------------- ------------- ------------ 1994 1995 1996 1996 1997 1996 1997 ---------- ---------- ---------- ---------- ---------- ------------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> PROGENITOR STATEMENT OF OPERATIONS DATA: Revenues.......................... $ -- $ 2,821 $ 1,332 $ 912 $ 859 $ 1,832 $ 984 Expenses: Research and development........ 4,113 4,228 3,873 1,706 2,150 10,287 5,764 General and administrative...... 1,275 1,116 2,765(2) 691 1,226 4,358 2,028 Interest, net................... 648 352 178 56 287 124 95 ---------- ---------- ---------- ---------- ---------- ------------- ------------ Total expenses................ 6,036 5,696 6,816 2,453 3,663 14,769 7,887 ---------- ---------- ---------- ---------- ---------- ------------- ------------ Net loss.......................... $ (6,036) $ (2,875) $ (5,484) $ (1,541) $ (2,804) $ (12,937) $ (6,903) ---------- ---------- ---------- ---------- ---------- ------------- ------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ Net loss per share................ $ (0.94) $ (0.48) $ (0.98) $ (0.52) ---------- ---------- ------------- ------------ ---------- ---------- ------------- ------------ </TABLE> <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> Shares used in computing net loss per share................................ 5,819,037 5,874,819 13,262,733 13,318,514 ---------- ---------- ------------- ------------ ---------- ---------- ------------- ------------ </TABLE> <TABLE> <CAPTION> AS OF MARCH 31, 1997 ---------------------------------------------- PRO FORMA PROGENITOR FOR ACQUISITION PRO FORMA AS ACTUAL AND CONVERSIONS(3) ADJUSTED(4) ---------- ------------------ ------------ <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents........................................................ $ 8 $ 132 $ 22,385 Working capital.................................................................. (3,032) (4,668) 17,258 Total assets..................................................................... 4,111 3,402 24,944 Long-term obligations............................................................ 8,763 966 966 Deficit accumulated during development stage..................................... (22,962) (60,071) (60,398) Total stockholders' equity (deficit)............................................. (7,964) (2,701) 18,514 </TABLE> - ------------------------------ (1) Pro forma as adjusted as if the Acquisition, the equity conversions described in footnote (3) below, and the Offering and the other issuances described in footnote (4) below occurred as of October 1, 1995. (2) Includes $974,000 for costs expensed in accordance with accounting requirements related to the initial filing of the Registration Statement with the Securities and Exchange Commission on June 6, 1996. (3) Pro forma as if the following had occurred on March 31, 1997: (i) the Acquisition; (ii) the automatic conversion of all outstanding shares of Progenitor's Series A and Series B Preferred Stock into an aggregate of 2,874,245 shares of Common Stock upon the closing of the Offering; (iii) the forgiveness of a convertible debenture and a promissory note held by Interneuron (with an aggregate outstanding balance of $7.1 million as of March 31, 1997) upon the closing of the Offering; (iv) the forgiveness of the Interneuron Bridge Loan (as defined below) (with an outstanding balance of $1.3 million as of March 31, 1997) upon the closing of the Offering; and (v) the issuance of 63,406 shares of Common Stock to The Ohio University Foundation pursuant to an anti-dilution adjustment in connection with the Offering. See "Capitalization," "Business--Corporate Agreements," "Certain Transactions" and "Description of Securities." (4) Pro forma as adjusted for the Offering to give effect to: (i) the issuance and sale of the 2,750,000 Units offered hereby (after deducting estimated underwriting discounts and commissions and the estimated expenses of the Offering payable by the Company) and the receipt and application of the estimated net proceeds therefrom; (ii) the sale of 956,522 shares of Common Stock to Amgen for $4.5 million in cash and a $1.0 million promissory note, concurrently with the closing of the Offering; and (iii) the sale of 25,000 shares of Common Stock to The Ohio University Foundation at a price of $2.88 per share, pursuant to a stock purchase right, concurrently with the closing of the Offering. See "Use of Proceeds," "Capitalization," "Business-- Corporate Agreements," "Certain Transactions" and "Description of Securities." ------------------------------ EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS, INCLUDING FINANCIAL INFORMATION, SHARE AND PER SHARE DATA: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR OF THE WARRANTS; (II) ASSUMES THE CLOSING OF THE OFFERING OCCURRED AS OF JUNE 20, 1997 WITH AN INITIAL PUBLIC OFFERING PRICE OF $7.50 PER UNIT, AND A UNIT SHARES IPO PRICE OF $5.75 PER SHARE; (III) REFLECTS THE CONSUMMATION OF A 1-FOR-2 REVERSE STOCK SPLIT; AND (IV) REFLECTS THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF PROGENITOR'S SERIES A AND SERIES B PREFERRED STOCK INTO AN AGGREGATE OF 2,874,245 SHARES OF COMMON STOCK UPON THE CLOSING OF THE OFFERING. THE NUMBERS OF SHARES OF COMMON STOCK TO BE ISSUED UPON CONVERSION OF PROGENITOR'S SERIES A AND SERIES B PREFERRED STOCK WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE DATE OF THE CLOSING OF THE OFFERING, THE INITIAL PUBLIC OFFERING PRICE PER UNIT AND THE UNIT SHARES IPO PRICE. SEE "CAPITALIZATION," "BUSINESS-- CORPORATE AGREEMENTS," "--MERCATOR ACQUISITION," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES" AND "UNDERWRITING."

parsed_sections/prospectus_summary/1997/CIK0000946747_sdw_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this Prospectus. Unless the context otherwise requires, "Holdings" or the "Company" refers to SDW Holdings Corporation, and "S.D. Warren" or "Warren" refers to S.D. Warren Company, a direct subsidiary of Holdings in which Holdings owns all the common stock. All references to shipments refer to U.S. domestic shipments of paper and the term "tons" refers to short tons, in each case, unless otherwise noted. All references to fiscal years in this Prospectus referring to S.D. Warren's fiscal years prior to the Acquisition (as defined), refer to fiscal years ending on the last Saturday in December. Effective December 20, 1994, S.D. Warren changed its fiscal year to fiscal years ending on the Wednesday closest to September 30 until otherwise determined by the Company's Board of Directors. HOLDINGS AND S.D. WARREN Holdings owns all of the outstanding common stock of S.D. Warren. Holdings is a holding company with no material assets other than its investment in Warren. All of the operations of Holdings (other than the management of its investment in Warren and the provision of certain corporate services to Warren) are currently conducted through Warren. The Company manufactures printing, publishing and specialty papers and has pulp and timberland operations vertically integrated with some of its manufacturing facilities. The Company is the largest producer of coated free paper (free of groundwood pulp) in the United States. The Company currently operates four paper mills with total annual production capacity of approximately 1.5 million tons of paper. The Company also owns a sheeting and distribution facility in Allentown, Pennsylvania, with annual sheeting capacity of approximately 90,000 tons, and owns approximately 911,000 acres of timberlands in the State of Maine. S.D. Warren is widely recognized for its product quality and technological innovation in the development and manufacture of coated free paper, which has allowed Warren to sustain the franchise value of its name-brand products such as Somerset (R), Lustro (R), Warrenflo (R) and Patina (R). S.D. Warren has strong customer relationships and a distribution network for coated paper which includes over 288 merchant distributing locations. For the three months ended January 1, 1997, S.D. Warren's sales of domestic paper products consisted of coated paper (69.3%), uncoated paper (12.4%), specialty paper (11.9%) and technical and other paper products (6.4%). For the year ended October 2, 1996, S.D. Warren's sales of domestic paper products consisted of coated paper (72.2%), uncoated paper (12.7%), specialty paper (11.5%) and technical and other paper products (3.6%). Coated paper is used in corporate communications, advertising, brochures, magazine covers and upscale magazines, catalogues, direct mail promotions and educational text books. Uncoated paper is used by commercial printers, quick printers, large in-house copy/printing end-users and small business and home applications. Specialty and technical papers are used in business form printing, coated fabric converters, pressure-sensitive laminators, label printers and other niche market applications. As of the date of this Prospectus, Sappi Limited ("Sappi") indirectly owns 75.07%, DLJ Merchant Banking Partners, L.P. and certain of its affiliates ("DLJMB") as well as Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC") own 18.45% and UBS Capital LLC ("UBSC") owns 3.92%, respectively, of the common equity of Holdings on a fully diluted basis. Sappi, DLJMB and UBSC are collectively referred to herein as the "Investor Group". Holdings' principal executive offices are located at 2700 Westchester Avenue, Purchase, NY 10577. The telephone number is (914) 696-0021. On November 27, 1996, Sappi agreed to acquire (the "Minority Acquisition"), subject to certain customary conditions, the minority common equity interests in Holdings held by DLJ Merchant Banking Partners, L.P.; DLJ International Partners, C.V.; DLJ Offshore Partners, C.V.; DLJ Merchant Banking Funding, Inc.; DLJ First ESC L.L.C.; and UBS Capital L.L.C. (the "Sellers"). Collectively, the Sellers own approximately 22% of the common equity of Holdings on a fully-diluted basis. Under the terms of the agreement, Sappi has agreed to purchase the Sellers' interests at a price of $138.0 million, or $17.25 per share of common stock within 180 days of the date of execution of the agreement. Following the Minority Acquisition, Sappi will own over 97% of the common equity of Holdings on a fully- diluted basis. Sappi has agreed to use reasonable efforts to acquire the remaining common equity interests in Holdings within 120 days of the closing of the Minority Acquisition. In connection with the Minority Acquisition, Sappi and the Sellers have agreed to terminate a Shareholders Agreement. See "Risk Factors--Control by Sappi" and "-- Restrictions on Corporate Actions of Holdings and S.D. Warren" and "Certain Relationships and Related Transactions--Shareholders Agreement."

parsed_sections/prospectus_summary/1997/CIK0000946840_viropharma_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed infor- mation and financial statements and notes thereto appearing elsewhere in this Prospectus. Unless the context requires otherwise, the "Company" refers to ViroPharma Incorporated, a Delaware corporation. This Prospectus contains for- ward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in forward- looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors." Except as otherwise noted, all information contained in this Prospectus assumes no exer- cise of the Underwriters' over-allotment option. THE COMPANY ViroPharma Incorporated ("ViroPharma" or the "Company") is a development stage company engaged in the discovery and development of proprietary antiviral phar- maceuticals for the treatment of diseases caused by RNA viruses. The Company has focused its current drug development and discovery activities on a number of RNA virus diseases, including viral meningitis, enterovirus respiratory dis- ease ("summer flu"), hand-foot-and-mouth disease, the common cold, influenza, hepatitis C and viral pneumonia. Each year, a major portion of the world's pop- ulation is afflicted by at least one of these diseases, for which antiviral therapies are currently either inadequate or unavailable. ViroPharma's most advanced product candidate, pleconaril, is currently being developed for the treatment of four RNA virus diseases. Initial preclinical studies indicated that pleconaril is a potent, broad-spectrum, orally-active inhibitor of several RNA viruses. In June 1996, ViroPharma completed a Phase IIa challenge study in "summer flu" with pleconaril, in which all evaluated disease measures were significantly reduced in treated subjects. In June 1997, ViroPharma completed a Phase IIb clinical trial for viral meningitis which dem- onstrated that pleconaril significantly reduced disease duration, the trial's primary endpoint. No serious adverse events attributable to pleconaril have been observed in the 139 participants in the clinical trials conducted by the Company to date. ViroPharma has commenced additional Phase II clinical trials for viral meningi- tis, one in adolescents/adults and one in pediatric patients, and for "summer flu". ViroPharma initiated a Phase II clinical trial of pleconaril for hand- foot-and-mouth disease in March 1997 and anticipates initiating a Phase II clinical trial for the common cold in asthmatics in late 1997. ViroPharma has additional compounds in research and preclinical stages of development for the treatment of influenza, hepatitis C, and viral pneumonia. ViroPharma believes its drug discovery and development technologies and expertise have potential applicability to a broad range of diseases caused by RNA viruses. RNA viruses are responsible for the majority of human viral dis- eases, causing illnesses ranging from acute and chronic ailments to fatal infections. RNA viruses continue to emerge, spreading from rural and developing regions of the world to urbanized centers. Despite efforts by the scientific and medical communities to develop vaccines and pharmaceuticals to prevent and treat certain of these diseases, medicines are currently inadequate or are not available for the majority of RNA virus diseases. The Company believes the sig- nificance and prevalence of RNA virus diseases, and the limited availability and effectiveness of current antiviral pharmaceuticals, has created a compel- ling need for new pharmaceuticals to treat these diseases. ViroPharma, based on its experienced RNA virologists and its focus on RNA viral diseases, believes it is a leader in RNA virology and RNA antiviral drug dis- covery and development. The Company has focused its drug discovery and develop- ment efforts on identifying and advancing inhibitors of the process of viral RNA uncoating and replication. The Company believes that this process repre- sents an attractive target for therapeutic intervention in disease caused by RNA viruses. For RNA viruses to cause disease, they must replicate. Therefore, inhibiting RNA virus replication can prevent, limit or stop disease. The viral activities involved in this replication process are unique to RNA viruses, yet universal among all RNA viruses. Therefore, technologies used for the develop- ment of inhibitors of this process have potential applicability to a broad range of diseases caused by RNA viruses. ViroPharma has discovered and charac- terized RNA uncoating and replication activities, identified critical molecular targets, developed novel high throughput screening assays and discovered and optimized proprietary small molecule compounds identified by screening chemical libraries, including the Company's specialized library. The Company believes that it is the first company to utilize these technologies in combination to develop antiviral pharmaceutical products. The Company's objective is to become the leading discoverer, developer and mar- keter of proprietary antiviral pharmaceuticals for RNA virus diseases through the implementation of the following strategies: (1) focusing on RNA virus dis- eases to capitalize on the significant market opportunity that they present, (2) broadly applying its technological expertise in RNA virology to establish a substantial product pipeline, (3) conducting parallel drug assessments to accelerate, and enhance the efficiency of, drug discovery and development, (4) pursuing disease indications which allow for rapid demonstration of efficacy to expedite product development and (5) pursuing strategic relationships by leveraging its leadership position in RNA virology to enhance its drug dis- covery capabilities and licensing opportunities and to facilitate the commer- cialization of its products. The Company has entered into an agreement with respect to patents held by Sanofi S.A. ("Sanofi") to secure the exclusive development and marketing rights for pleconaril in the United States and Canada for use in a broad class of disease indications. Pleconaril was discovered at Sanofi by scientists who are now with ViroPharma. The Company has also entered into a collaborative drug discovery and development agreement with Boehringer Ingelheim Pharmaceuticals, Inc. ("Boehringer Ingelheim") for one hepatitis C target identified by ViroPharma. In addition, the Company is collaborating with other pharmaceutical and technology companies, as well as academic institu- tions, to access enabling technologies and compound libraries as they pertain to the treatment of RNA virus diseases. The Company is a development stage company which was incorporated in Delaware on September 16, 1994 and commenced operations on December 5, 1994. The Company's executive offices and research facility are located at 76 Great Valley Parkway, Malvern, Pennsylvania 19355. Its telephone number is (610) 651- 0200 and the Internet e-mail address is vp@viropharma.com. ViroPharma also has a home page on the World Wide Web. RECENT DEVELOPMENTS In June 1997, the Company completed a preliminary evaluation of data from its Phase IIb clinical trial with the oral liquid formulation of pleconaril for the treatment of viral meningitis. The Company's preliminary evaluation demon- strated that pleconaril treatment resulted in a statistically significant shortening of disease duration (58% reduction), the primary endpoint of the study. This primary endpoint evaluates the time required for disease severity (as measured by a multidimensional score, comprised of headache, nausea/vomiting, photophobia, stiff neck, fever and myalgia) to be reduced to a predetermined level indicating wellness. Statistical significance also was observed in the secondary endpoints of time to complete absence of headache (64% reduction), duration of analgesic use (54% reduction) and total analgesic use (48% reduction). Clinically meaningful trends were observed in two addi- tional secondary endpoints, while no adverse trends were observed in the three remaining secondary endpoints. The trial results were based on a 39 patient, multinational, double-blind, placebo-controlled study. In June 1997, the Com- pany initiated two additional Phase II clinical trials with pleconaril in the United States and Canada for viral meningitis, one in adolescents/adults and one in pediatric patients. THE OFFERING <TABLE> <S> <C> COMMON STOCK OFFERED......................... 2,000,000 shares COMMON STOCK OUTSTANDING AFTER THE OFFERING.. 11,148,911 shares(1) USE OF PROCEEDS.............................. For the further development of pleconaril, including clinical trials and certain pre- marketing activities, ongoing research and development programs and general corporate purposes, which may include capital equipment expenditures. NASDAQ NATIONAL MARKET SYMBOL................ VPHM </TABLE> (1) Excludes 707,037 shares issuable upon exercise of options outstanding as of July 1, 1997 at a weighted average exercise price of $4.07 per share and (ii) shares issuable upon exercise of warrants to purchase 21,675 shares of Common Stock at an exercise price of $2.94 per share. Includes 357,000 unvested shares of Common Stock purchased by certain founders and a director of the Company and 71,795 shares issued in connection with the exercise of certain warrants. See "Management--Executive Compensation," "Management--Stock Options," "Certain Transactions--Transactions with Founders" and "--Right Grant and Exercise," "Description of Capital Stock--Warrants" and Note 11 of Notes to Financial Statements. SUMMARY FINANCIAL INFORMATION <TABLE> <CAPTION> ---------------------------------------------------------------- PERIOD FROM DECEMBER 5, 1994 (INCEPTION) THREE MONTHS ENDED THROUGH YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ------------------------ ------------------------ 1994 1995 1996 1996 1997 ------------ ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA License fee............. $ -- $ -- $ 1,000,000 $ -- $ -- Milestone revenue....... -- -- -- -- 750,000 Grant revenue........... -- 90,813 436,081 -- -- ------------ ----------- ----------- ----------- ----------- Total revenues.......... -- 90,813 1,436,081 -- 750,000 ------------ ----------- ----------- ----------- ----------- Operating expenses: Research and development.......... 75,779 2,930,106 6,694,703 1,415,429 1,908,252 General and administrative....... 243,318 1,091,299 1,421,524 220,173 764,569 ------------ ----------- ----------- ----------- ----------- Total operating expenses............... 319,097 4,021,405 8,116,227 1,635,602 2,672,821 ------------ ----------- ----------- ----------- ----------- Interest income, net.... -- 75,730 285,142 55,824 191,407 ------------ ----------- ----------- ----------- ----------- Net loss................ $ (319,097) $(3,854,862) $(6,395,004) $(1,579,778) $(1,731,414) ============ =========== =========== =========== =========== Pro forma net loss per share(1)............... $ (0.98) $ (0.93) $ (0.32) $ (0.19) Shares used in computing pro forma net loss per share(1)........... 3,931,743 6,839,674 4,933,093 9,076,986 </TABLE> <TABLE> <CAPTION> -------------------------- AT MARCH 31, 1997 ACTUAL AS ADJUSTED(2) ----------- -------------- (UNAUDITED) <S> <C> <C> BALANCE SHEET DATA Cash, cash equivalents and investments.............. $21,743,998 $52,463,998 Working capital..................................... 18,277,315 48,997,315 Total assets........................................ 22,940,505 53,660,505 Loan Payable and Capital Leases--non-current........ 583,312 583,312 Total stockholders' equity.......................... 18,970,466 46,690,466 </TABLE> - ------- (1) See Note 2 of Notes to Financial Statements. (2) Reflects the sale of 2,000,000 shares of Common Stock offered by the Com- pany (at an assumed public offering price of $16.50 per share) and the applica- tion of net proceeds therefrom. See "Use of Proceeds."

parsed_sections/prospectus_summary/1997/CIK0000948847_household_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary of certain pertinent information is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus. Reference is made to the Index of Defined Terms for the location of the definitions of certain capitalized terms. ISSUER........................... The Household Consumer Loan Trust 1997-2 (the "Issuer"), a Delaware business trust to be formed by the Seller and the Owner Trustee pursuant to the Trust Agreement (the "Trust Agreement"). SECURITIES ISSUED BY THE ISSUER........................... The Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class B Notes and the Certificates. The Notes will be issued pursuant to the Indenture and will be secured by the Trust Assets (as defined below). Pursuant to the terms of the Indenture, the Class B Notes will be subordinate to the Class A Notes, the Class A-3 Notes will be subordinate to the Class A-2 and Class A-1 Notes and the Class A-2 Notes will be subordinate to the Class A-1 Notes. The Certificates will be issued by the Issuer pursuant to the Trust Agreement. The Certificates will be subordinate to the Notes pursuant to the terms of the Indenture. The Notes represent obligations solely of the Issuer and do not represent interests in or obligations of the Seller, the Servicer, the Deposit Trustee, the Owner Trustee, the Indenture Trustee or any affiliate thereof, except to the extent described herein. None of the Notes, the Series 1997-2 Participation or the Credit Lines are insured or guaranteed by any governmental agency or instrumentality. Only the Class A Notes are offered hereby. A. THE CLASS A-1 NOTES......... $912,000,000 Consumer Loan Asset Backed Notes, Series 1997-2 (the "Class A-1 Notes"). THE CLASS A-2 NOTES......... $48,000,000 Consumer Loan Asset Backed Notes, Series 1997-2 (the "Class A-2 Notes"). THE CLASS A-3 NOTES......... $90,000,000 Consumer Loan Asset Backed Notes, Series 1997-2 (the "Class A-3 Notes"). Collectively, the Class A-1 Notes, Class A-2 Notes and the Class A-3 Notes are referred to herein as the "Class A Notes". The Class A Notes will be issued pursuant to the Indenture (the "Indenture") between the Issuer and The Bank of New York, as indenture trustee (the "Indenture Trustee"). B. THE CLASS B NOTES........... $57,000,000 Consumer Loan Asset Backed Notes, Series 1997-2 (the "Class B Notes"). The Class B Notes will be issued pursuant to the Indenture and are not offered hereby. C. THE CERTIFICATES............ $42,000,000 Consumer Loan Asset Backed Certificates, Series 1997-2 (the "Certificates"). The Certificates will be issued pursuant to the Trust Agreement and are not offered hereby. The Certificates will represent fractional undivided beneficial interests in the Issuer. TRUST ASSETS..................... The "Trust Assets" include (i) a participation interest (the "Series 1997-2 Participation") in (x) the Receivables arising under the Credit Lines and the proceeds thereof, and (y) the preferred stock of the Seller held by the Deposit Trustee (the "Preferred Stock") and (ii) monies on deposit in certain accounts of the Issuer for the benefit of Securityholders. In addition to the Trust Assets, as described herein, payments to Noteholders will be supported by the Overcollateralization Amount, the subordination of certain classes of Notes to other classes of Notes and by the subordination of the Certificates to the Notes. See "Description of the Deposit Trust" herein for a description of the Preferred Stock of the Seller held by the Deposit Trust. SELLER........................... Household Consumer Loan Corporation is a corporation organized under the laws of the State of Nevada and is a wholly-owned special purpose subsidiary of Household Finance Corporation ("HFC"). The Seller purchases Receivables from the Subservicers (as defined below). The Seller then sells the Receivables and all rights with respect thereto to the Deposit Trust. See "Description of the Deposit Trust -- Assignment of Receivables" herein. DEPOSIT TRUST.................... Household Consumer Loan Deposit Trust I (the "Deposit Trust") is a common law trust. Texas Commerce Bank National Association acts as trustee for the Deposit Trust. The Deposit Trust previously issued participation interests in the pool of Receivables in connection with the issuance of other series of asset-backed securities. It is expected that the Deposit Trust will issue additional participation interests from time to time (each participation interest, a "Series Participation Interest"). Each Series Participation Interest will be issued in connection with the issuance of a series of securities (each, a "Series"). See "Annex II: Prior Issuance of Series Participation Interests" for a summary of the Series Participation Interests previously issued by the Deposit Trust. A participation interest was also issued to the Seller (the "Seller's Interest") which at any point in time represents the entire undivided beneficial interest in the Deposit Trust not represented by the outstanding Series Participation Interests. The Series 1997-2 Participation will be the only Series Participation Interest held by the Issuer. SERVICER......................... HFC, a subsidiary of Household International, Inc., is the servicer of the Credit Lines pursuant to the Pooling and Servicing Agreement dated as of September 1, 1995 (the "Pooling and Servicing Agreement") among the Seller, the Deposit Trustee and the Servicer. Each Credit Line is subserviced by the appropriate Subservicer (as defined below) on behalf of HFC as Servicer. SUBSERVICERS..................... Household Realty Corporation, Household Finance Corporation of California, Household Finance Corporation II, Household Finance Corporation III, Household Finance Industrial Loan Company, Household Finance Realty Corporation of New York, Household Financial Center Inc., Household Finance Corporation of Alabama, Household Finance Corporation of Nevada, Household Finance Realty Corporation of Nevada, Household Industrial Loan Company of Kentucky, Household Finance Industrial Loan Company of Iowa, Household Finance Consumer Discount Company, Household Industrial Finance Company and Mortgage One Corporation (collectively, the "Subservicers" and each individually, a "Subservicer"), are wholly-owned subsidiaries of HFC, licensed to make and service consumer loans in the states in which the Credit Lines were originated. The Subservicers originated the Credit Lines or purchased them from third parties. ADMINISTRATOR.................... HFC is the Administrator pursuant to an Administration Agreement to be dated as of November 1, 1997 (the "Administration Agreement") among HFC, the Seller, the Issuer and the Owner Trustee. Pursuant to the Administration Agreement, HFC will perform certain duties of the Issuer, the Owner Trustee and the Seller under the Indenture and the Trust Agreement. See "Description of the Securities -- Administration Agreement" herein. THE CREDIT LINES................. The Credit Lines which generate the Receivables held by the Deposit Trust consist of a portion of the total pool of revolving consumer credit lines originated or purchased by the Subservicers (and any other consumer lending affiliates of HFC that become Subservicers) from time to time (the "Portfolio"). The Credit Lines are designated to the Deposit Trust and are required to satisfy the criteria set forth in the Pooling and Servicing Agreement for Eligible Credit Lines (as defined herein). The Receivables arising under each Credit Line, whether existing on the applicable Cut-Off Date (as defined herein) for such Receivables or thereafter generated have been or will be sold by the Subservicers to the Seller, which has sold or will sell such Receivables to the Deposit Trust. The Credit Lines are not being sold or transferred to the Seller or to the Deposit Trust and will continue to be held and administered by the Subservicers. See "Risk Factors -- Change in Loan Terms and Finance Charges", "Description of the Deposit Trust -- Assignment of Receivables", "Description of the Receivables Purchase Agreement -- Sale of Receivables" herein. The Seller entered into a receivables purchase agreement dated as of September 1, 1995 (the "Initial Cut-Off Date"), with certain of the Subservicers and as of August 1, 1997 entered into an amendment to such agreement pursuant to which an additional wholly-owned subsidiary of HFC may sell Receivables to the Seller (as amended, the "Receivables Purchase Agreement"). The Seller may enter into further amendments or other similar agreements with affiliates of HFC from time to time. On September 28, 1995 (the "Initial Issuance Date"), pursuant to the Receivables Purchase Agreement, Subservicers sold to the Seller all of their respective rights, title and interest in the Receivables existing under the Credit Lines designated to the Deposit Trust as of the Initial Cut-Off Date (the "Initial Credit Lines", and such Receivables outstanding under the Initial Credit Lines as of the Initial Cut-Off Date, the "Initial Receivables"). Each Subservicer has sold and will continue to sell to the Seller all of its right, title and interest in new Principal Receivables and Finance Charge and Administrative Receivables arising under the Initial Credit Lines from time to time. Pursuant to the Pooling and Servicing Agreement, all Receivables which arise under the Credit Lines will be purchased by the Seller from the Subservicers and will be sold to the Deposit Trust. Subject to certain limitations and conditions, the Seller expects to continue to add Receivables to the Deposit Trust from time to time. To do so, the Seller may designate additional Credit Lines, the Receivables of which will be purchased from a Subservicer and assigned by the Seller to the Deposit Trust. Such additional Credit Lines may include New Credit Lines and Additional Credit Lines (each, as defined herein). Since the Initial Cut-Off Date, the Seller has conveyed to the Deposit Trust the Receivables arising in certain Additional Credit Lines in accordance with the provisions of the Pooling and Servicing Agreement. All Receivables arising under Credit Lines designated to the Deposit Trust, whether existing at the time such Credit Lines are designated, or subsequently generated, will be conveyed to the Deposit Trust. The Seller will also have the right, in certain circumstances, to remove certain Credit Lines and the Receivables arising thereunder from the Deposit Trust, in which case, no further interest in Receivables arising under such Credit Lines will be transferred to the Deposit Trust (the "Removed Credit Lines"). See "Description of the Deposit Trust -- Additions of Credit Lines" and "-- Removal of Deposit Trust Assets". THE RECEIVABLES.................. The Receivables include (a) all periodic finance charges, and other amounts as described in the Series 1997-2 Supplement (as defined herein) (as increased by any Principal Discount) (the "Finance Charge Receivables"), (b) all administrative fees and late charges and all other fees or charges billed to obligors on the Credit Lines (the "Administrative Receivables" and together with the Finance Charge Receivables, the "Finance Charge and Administrative Receivables") and (c) all amounts owed by obligors under the Credit Line Agreements (as defined herein) and other amounts in respect of principal as described in the Series 1997-2 Supplement (as decreased by any Principal Discount) (the "Principal Receivables"). Recoveries (as defined below) attributed to Defaulted Credit Lines (as defined below) will be treated as collections of Finance Charge Receivables. Finance Charge and Administrative Receivables and Principal Receivables will be allocated to the Series 1997-2 Participation in accordance with the applicable Allocation Percentage (as defined herein) for the related Collection Period. Finance charges are assessed on Principal Receivables and on certain of the Finance Charge Receivables at rates determined by the Subservicers with respect to the respective Credit Lines generated by each such party. As of the close of business on September 30, 1997 (the "Series 1997-2 Cut-Off Date"), the interest rates on the Receivables ranged from 0.00% to 36.00% with a weighted average interest rate (by principal balance) of 19.46%. As of the Series 1997-2 Cut-Off Date, the average principal balance of the Credit Lines designated to the Deposit Trust was $6,131.23. Pursuant to the option to discount receivables contained in the Pooling and Servicing Agreement (see "Description of the Deposit Trust -- Discount Option"), the Seller has the option to designate or redesignate a fixed percentage of each Principal Receivable assigned to the Deposit Trust as a finance charge receivable (the "Principal Discount"). As of the date of this Prospectus, the Seller has not elected to exercise such option with respect to the Receivables; however, it may do so at any time in the future. In the event of such election, such percentage designated by the Seller is the "Discount Percentage." The Discount Percentage may be designated by the Seller at any time, and once designated, may be increased, decreased or withdrawn by the Seller. The Principal Discount may apply to Principal Receivables assigned to the Deposit Trust prior to, on or after the date the Seller makes such designation or redesignation. When the Discount Option has been elected, the Discount Percentage of Principal Receivables will instead be treated as Finance Charge and Administrative Receivables, and the Discount Percentage of all collections of Receivables that would otherwise be Principal Receivables will be applied as collections of Finance Charge and Administrative Receivables. The applicable Allocation Percentage of such discounted amount treated as Finance Charge and Administrative Receivables will be available to make distributions of the Participation Pass-Through Rate and Defaulted Amounts allocated to the Series 1997-2 Participation. See "Risk Factors -- Discounted Principal Receivables" herein. If such election is made, as described in this Prospectus, all references herein to Principal Receivables or Finance Charge Receivables, or collections with respect thereto, are deemed in the case of Receivables assigned to the Deposit Trust to refer to such Receivables, or collections with respect thereto, as defined above, after application of the Principal Discount. In such event, references in this Prospectus to Principal Receivables or Finance Charge Receivables, or collections with respect thereto, are deemed in the case of Receivables assigned to the Deposit Trust prior to such election to refer to such Receivables, or collections with respect thereto, without application of a Discount Percentage. All historical and current data herein regarding credit lines and receivables is presented without adjustment for a Principal Discount. The amount of Receivables will fluctuate from day to day as new Receivables are generated and sold by the Subservicers to the Seller and then by the Seller to the Deposit Trust, and as existing Receivables are collected, charged-off as uncollectible or otherwise adjusted. The amount represented by the Series 1997-2 Participation will not increase as a result of additional Principal Receivables being generated under any designated Credit Line ("Additional Balances"). Additional Balances and Receivables attributable to Aggregate Additional Credit Lines exceeding the amount of reinvested collections for the Series 1997-2 Participation and all other Series Participation Interests will be reflected in the principal balance of the Seller's Interest. However, the principal balance of the Series 1997-2 Participation will be adjusted to reflect payments made on the Series 1997-2 Participation. The aggregate amount of Receivables in the Deposit Trust on the Series 1997-2 Cut-Off Date was $4,278,341,258.64 of which $4,127,807,129.41 were Principal Receivables and $150,534,129.23 were Finance Charge and Administrative Receivables. With respect to any date, the "Pool Balance" will be equal to the aggregate of the Principal Balances of all Credit Lines as of such date. The "Principal Balance" of a Credit Line on any day is equal to its principal balance on the date the Credit Line is designated to the Deposit Trust (each such date, a "Cut-Off Date"), plus (i) any Additional Balance in respect of such Credit Line, minus (ii) all Principal Collections credited against the Principal Balance prior to such day, minus (iii) all related Defaulted Amounts, and plus or minus (iv) any correcting adjustments. Notwithstanding the above, the Principal Balance of Receivables for a Defaulted Credit Line shall be zero. With respect to any Distribution Date, a "Defaulted Credit Line" is a defaulted Credit Line as to which the Servicer has charged off all of the related Principal Balance during the related Collection Period. A "Defaulted Amount" is the amount equal to the Principal Balance of a Defaulted Credit Line that the Servicer has charged off on its servicing records in such Collection Period. SERIES 1997-2 PARTICIPATION...... Pursuant to the Series 1997-2 Supplement, the Seller will convey the Series 1997-2 Participation to the Issuer. The Series 1997-2 Participation shall initially be $1,200,000,000 (the "Initial Series 1997-2 Participation Invested Amount"). Thereafter, the "Series 1997-2 Participation Invested Amount" with respect to any date will be an amount equal to the Initial Series 1997-2 Participation Invested Amount minus the sum of the Series 1997-2 Participation Principal Distribution Amount (as defined herein) paid for all Distribution Dates and the Defaulted Amounts allocated to the Series 1997-2 Participation during the related and all prior Collection Periods that have not been included in the Series 1997-2 Participation Principal Distribution Amount on the current or any prior Distribution Date. The Series 1997-2 Participation will be entitled to receive a percentage of the Interest Collections (which shall include Recoveries), Principal Collections or Net Principal Collections (as defined below) and Defaulted Amounts received or incurred during each Collection Period. With respect to any Collection Period prior to the occurrence of an Amortization Event, Interest Collections and Defaulted Amounts allocated to the Series 1997-2 Participation will be based upon the Floating Allocation Percentage. With respect to any Collection Period during an Early Amortization Period, Interest Collections will be allocated to the Series 1997-2 Participation based upon the Fixed Allocation Percentage. However, Defaulted Amounts allocated to the Series 1997-2 Participation with respect to any Collection Period after an Amortization Event shall continue to be made based upon the Floating Allocation Percentage. Interest Collections with respect to any Collection Period will be distributable to the Issuer as holder of the Series 1997-2 Participation as described under "Remittance on the Series 1997-2 Participation." Allocated Interest Collections not so distributed will be distributable to the Seller. With respect to any Collection Period prior to the Accelerated Amortization Date or the commencement of an Early Amortization Period, Principal Collections will be allocated to the Series 1997-2 Participation based upon the greater of: (i) the Floating Allocation Percentage of Net Principal Collections (as defined below) or (ii) the Minimum Principal Amount. With respect to any Collection Period after the Accelerated Amortization Date or during the Early Amortization Period, the Series 1997-2 Participation will be entitled to Principal Collections based upon the Fixed Allocation Percentage. For any Distribution Date, the Fixed Allocation Percentage applicable to Principal Collections may be different than the Fixed Allocation Percentage applicable to Interest Collections if an Amortization Event occurs after the Accelerated Amortization Date. "Net Principal Collections" will equal the excess, if any, of Principal Collections for the related Collection Period, minus Additional Balances sold to the Deposit Trust during any Collection Period. If there is no excess, Net Principal Collections will equal zero. The Floating Allocation Percentage and the Fixed Allocation Percentage are defined herein under "Description of the Deposit Trust -- Allocations and Collections". The Minimum Principal Amount is defined herein under "Description of the Deposit Trust -- Distributions on the Series 1997-2 Participation". COLLECTIONS...................... All collections on the Receivables will be allocated by the Servicer as payments on Credit Lines in accordance with the terms of the Credit Line Agreements. See "Description of the Deposit Trust -- Allocations and Collections" herein. As to any Payment Date, "Interest Collections" will be equal to the sum of (i) the amounts collected during the related Collection Period in respect of Finance Charge and Administrative Receivables, including Recoveries and (ii) the interest portion of the Transfer Price (as defined herein) received in the event the Series 1997-2 Participation is reassigned to the Seller, reduced, if HFC is no longer the Servicer, by the Servicing Fee for such Collection Period. As to any Payment Date, "Principal Collections" will be equal to the sum of (i) the amounts collected during the related Collection Period in respect of Principal Receivables (other than the principal portion of any Recoveries), and (ii) the principal portion of the price received for any repurchased Receivable and the Transfer Price. As to any Payment Date, the "Collection Period" is the calendar month preceding the month of such Payment Date. On the Business Day prior to each Payment Date, the Servicer will deposit the remittances to be made on the Series 1997-2 Participation for such Payment Date into an account (the "Collection Account") established and maintained by the Deposit Trustee under the Pooling and Servicing Agreement. ACCELERATED AMORTIZATION DATE.... The "Accelerated Amortization Date" is October 31, 2002. EARLY AMORTIZATION PERIOD........ An Early Amortization Period will begin with the first day of the Collection Period in which an Amortization Event has occurred and will continue until the unpaid principal balance of the Series 1997-2 Participation is zero. "Amortization Events" will include, but are not limited to: (a) failure of the Seller to observe certain covenants; (b) certain breaches of representations and warranties; (c) the occurrence of certain events of bankruptcy, insolvency or receivership related to the Seller or the Servicer; (d) the Deposit Trust or the Issuer becomes an investment company under the Investment Company Act of 1940; (e) a Servicer Default occurs under the Pooling and Servicing Agreement; (f) the percentage (averaged over any three consecutive months) obtained by dividing i) the Overcollateralization Amount by ii) the outstanding unpaid principal balance of the Series 1997-2 Participation, is reduced below 4.25%; and (g) the portion of the Seller's Trust Amount owned by Household Consumer Loan Corporation is reduced below 1.01% of the aggregate invested amounts or certificate principal balances, as specified in each Series Supplement to the Pooling and Servicing Agreement for all outstanding Series Participation Interests. See "Description of the Securities -- Early Amortization Period." REMITTANCE ON THE SERIES 1997-2 PARTICIPATION.................. On each Distribution Date the Deposit Trust will make the following remittances to the Indenture Trustee in respect of collections during the preceding Collection Period: INTEREST.................... An amount will be remitted to the Indenture Trustee on behalf of the Issuer from the applicable Allocation Percentage of Interest Collections for the preceding Collection Period equal to the amount accrued at the Participation Pass-Through Rate on the unpaid principal balance of the Series 1997-2 Participation. The "Participation Pass-Through Rate" for each Distribution Date is a per annum rate equal to Prime Rate (as defined herein), less 1.50%, subject to a minimum rate equal to a per annum rate which will result in an amount sufficient to pay the full amount of interest due on the Notes and to make a full distribution on the Certificates at the Certificate Rate, plus one-twelfth of the Series 1997-2 Participation Invested Amount, multiplied for each Distribution Date occurring prior to December 1998, by 1.50%, and for each Distribution Date occurring in December 1998 or thereafter, by 0.25% (the "Series 1997-2 Participation Interest Distribution Amount"). PRINCIPAL................... An amount will be remitted to the Indenture Trustee on behalf of the Issuer equal to the sum of the applicable Allocation Percentage of Principal Collections, or during any Collection Period prior to the Accelerated Amortization Date or commencement of an Early Amortization Period, equal to the sum of (a) the greater of: (i) the Floating Allocation Percentage of Net Principal Collections or (ii) the Minimum Principal Amount, as defined herein, and (b) to the extent of the applicable Allocation Percentage of Interest Collections remaining after providing for the distribution of the Participation Pass-Through Rate on the Series 1997-2 Participation, Defaulted Amounts and the amount of any Defaulted Amounts previously allocated to the Series 1997-2 Participation that have not been included in the Series 1997-2 Principal Distribution Amount on any prior Distribution Date (the "Series 1997-2 Participation Principal Distribution Amount"). SECURITIES INTEREST.............. Interest on each class of Notes will be payable monthly on the fifteenth day of each month or, if such day is not a Business Day (as defined herein), on the next succeeding Business Day (each, a "Payment Date"), commencing in December 1997, in an amount equal to interest accrued during the related Interest Period (as defined below) at the applicable Note Rate on the Security Balance for the related class of Notes. The applicable "Note Rate" for an Interest Period will be the per annum rate equal to the sum of (a) the London interbank offered rate for one-month United States dollar deposits ("LIBOR"), determined as specified herein, as of the second LIBOR Business Day (as defined herein) prior to the first day of such Interest Period (or as of two LIBOR Business Days prior to the Closing Date, in the case of the first Interest Period) and (b) 0. % per annum with respect to the Class A-1 Notes, 0. % per annum with respect to the Class A-2 Notes, 0. % per annum with respect to the Class A-3 Notes and a rate specified in the Indenture not to exceed % per annum in respect of the Class B Notes. The Note Rate for each class is subject to a maximum rate as described under "Description of the Securities -- Distributions on the Securities" herein. Interest on the Notes in respect of any Payment Date will accrue from (and including) the preceding Payment Date (or in the case of the first Payment Date, from the date of the initial issuance of the Notes (the "Closing Date")) through (and including) the day preceding such Payment Date (each such period, an "Interest Period") on the basis of a 360-day year and the actual number of days in such Interest Period. See "Description of the Securities -- Distributions on the Securities". Interest for any Payment Date due but not paid on such Payment Date shall bear interest, to the extent permitted by applicable law, at the related Note Rate until paid. Failure to pay interest in full on any Payment Date after expiration of the applicable grace period is an Event of Default under the Indenture. Distributions on Certificates will be payable monthly on each Payment Date, commencing in December 1997, at the Certificate Rate on the Security Balance of the Certificates for the related Interest Period. The "Certificate Rate" will generally equal the sum of (a) LIBOR (calculated in the manner described above for the Class A and Class B Notes for such Interest Period) and (b) the rate specified in the Trust Agreement not to exceed % per annum, subject to certain limitations as described herein under "Description of the Securities -- Distributions on the Securities." The Certificate Rate will accrue on any amounts distributable in payment of the Certificate Rate, but not paid on any monthly Payment Date. SECURITIES PRINCIPAL............. On each Payment Date, to the extent funds are available therefor, other than the Payment Date in November 2007 (the "Final Payment Date"), principal payments will be due and payable on the Notes and distributions will be due on the Certificates in respective amounts described below under "Allocation of Remittances on the Series 1997-2 Participation". On the Final Payment Date, principal will be due and payable on the Notes in an amount equal to the Security Balance thereof on such Payment Date. In addition, on any Payment Date, to the extent of funds available therefor, Noteholders will also be entitled to receive principal payments in respect of the Accelerated Principal Payment Amount as described in this Prospectus Summary under "Allocation of Remittances on the Series 1997-2 Participation". In no event will principal payments on the Notes on any Payment Date exceed the Security Balance thereof on such date. ALLOCATION OF REMITTANCES ON THE SERIES 1997-2 PARTICIPATION...... The majority of the defined terms used in this Allocation of Remittances on the Series 1997-2 Participation are defined beginning on page 64 under "Description of the Securities -- Distributions on the Securities -- Allocations of Remittances on the Series 1997-2 Participation". Except as provided below, on each Payment Date other than a Payment Date occurring after an Event of Default, remittances on the Series 1997-2 Participation will be allocated in the following order of priority: (i) sequentially, as payment for the amount of interest due on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class B Notes; (ii) except as otherwise specified below, to the Certificates on behalf of the Issuer, as payment of the amount distributable in respect of the Certificate Rate on the Security Balance of the Certificates and previously unpaid; (iii) sequentially, up to the Optimum Monthly Principal: (a) to the Class A-1 Notes until the Security Balance of the Class A-1 Notes equals the Class A-1 Targeted Principal Balance, (b) to the Class A-2 Notes until the Security Balance of the Class A-2 Notes equals the Class A-2 Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class A-2 Notes is not reduced below the Minimum Security Balance for the Class A-2 Notes, (c) to the Class A-3 Notes until the Security Balance of the Class A-3 Notes equals the Class A-3 Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class A-3 Notes is not reduced below the Minimum Security Balance for the Class A-3 Notes, and (d) to the Class B Notes until the Security Balance of the Class B Notes equals the Class B Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class B Notes is not reduced below the Minimum Security Balance for the Class B Notes; (iv) to the Certificates, up to the remaining Optimum Monthly Principal until the Security Balance of the Certificates equals the Certificate Targeted Balance, to the extent the Adjusted Security Balance of the Certificates is not reduced below $14,000,000; (v) to the Seller, in reduction of the Overcollateralization Amount, up to the remaining Optimum Monthly Principal provided the Overcollateralization Amount is not less than $17,000,000; (vi) as principal on the Notes, sequentially, up to the Accelerated Principal Payment Amount for such Payment Date: (a) to the Class A-1 Notes until the Security Balance of the Class A-1 Notes equals the Class A-1 Targeted Principal Balance, (b) to the Class A-2 Notes until the Security Balance of the Class A-2 Notes equals the Class A-2 Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class A-2 Notes is not reduced below the Minimum Security Balance for the Class A-2 Notes, (c) to the Class A-3 Notes until the Security Balance of the Class A-3 Notes equals the Class A-3 Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class A-3 Notes is not reduced below the Minimum Security Balance for the Class A-3 Notes, (d) to the Class B Notes until the Security Balance of the Class B Notes equals the Class B Targeted Principal Balance, to the extent the Adjusted Security Balance of the Class B Notes is not reduced below the Minimum Security Balance for the Class B Notes, (e) to the Class A-1 Notes until the Security Balance of the Class A-1 Notes equals zero, (f) to the Class A-2 Notes until the Security Balance of the Class A-2 Notes equals zero, (g) to the Class A-3 Notes until the Security Balance of the Class A-3 Notes equals zero, and (h) to the Class B Notes until the Security Balance of the Class B Notes equals zero; (vii) as principal on the Notes, sequentially, up to the remaining Optimum Monthly Principal for such Payment Date: (a) to the Class A-1 Notes until the Security Balance of the Class A-1 Notes equals zero, (b) to the Class A-2 Notes until the Security Balance of the Class A-2 Notes equals zero, (c) to the Class A-3 Notes until the Security Balance of the Class A-3 Notes equals zero, and (d) to the Class B Notes until the Security Balance of the Class B Notes equals zero; (viii) to the Certificates, up to the remaining Optimum Monthly Principal until the Security Balance of the Certificates equals the Certificate Minimum Balance, or if the Series 1997-2 Participation Invested Amount is zero, then to the Certificates until the Security Balance of the Certificates equals zero; (ix) to the Seller in reduction of the Overcollateralization Amount to an amount not less than zero, the remaining Optimum Monthly Principal; and (x) any remaining amounts to the Seller. In the event (a) immediately prior to a Distribution Date the Series 1997-2 Participation Invested Amount is less than the aggregate Security Balance of the Class A and Class B Notes immediately prior to the related Payment Date, or (b) the remittances on the Series 1997-2 Participation for a Payment Date is less than the aggregate amount to be paid pursuant to clauses (i) and (ii) above, the amount to be paid pursuant to clause (ii) above will be paid only after payments are made on the Notes pursuant to clause (iii). OVERCOLLATERALIZATION AMOUNT..... As of the Closing Date, the Overcollateralization Amount is equal to $51,000,000 (the "Initial Overcollateralization Amount") or 4.25% (the "Initial Overcollateralization Percentage") of the Initial Series 1997-2 Participation Invested Amount. For each Payment Date, the "Overcollateralization Amount" equals the amount by which the Series 1997-2 Participation Invested Amount exceeds the aggregate Security Balance of the Series 1997-2 Securities, in each case after giving effect to distributions on such Payment Date. For each Payment Date, the "Accelerated Principal Payment Amount" is equal to the lesser of (i) the amount by which the remittance on the Series 1997-2 Participation exceeds the sum of (a) the amount to be distributed on the Notes with respect to interest and the Certificates with respect to the Certificate Rate on such Payment Date and (b) the Optimum Monthly Principal for such Payment Date and (ii) one-twelfth of the Series 1997-2 Participation Invested Amount, multiplied for each Payment Date occurring prior to December 1998, by 1.50%, and for each Payment Date occurring in December 1998 or thereafter, by 0.25%. The distribution of Accelerated Principal Payment Amounts, if any, to Noteholders will increase the Overcollateralization Amount. The Overcollateralization Amount will be available to absorb any Defaulted Amounts that are allocated to Noteholders and not covered by distributions on the Series 1997-2 Securities. See "Description of the Securities -- Distributions on the Securities -- Overcollateralization Amount" herein. ISSUANCE OF ADDITIONAL SERIES.... Five Series were previously issued through the sale of Series Participation Interests in the Receivables of the Deposit Trust. See "Annex II: Prior Issuance of Series Participation Interests" for a summary of the Series Participation Interests previously issued by the Deposit Trust. Additional Series are expected to be issued from time to time through the sale of additional Series Participation Interests to new issuers. It is anticipated that the securities of other Series will have expected final payment dates, rapid amortization dates, amortization periods, non-amortization periods, accelerated amortization periods and periods during which the principal amount of such securities is accumulated in a principal funding account or paid to holders of such securities which differ from those for the Series 1997-2 Securities. Accordingly, each Series may have entirely different methods for calculating the amount and timing of principal and interest distributions to securityholders and Series Enhancements (as defined below) and may utilize other methods for determining the portion of collections allocable to such securityholders and Series Enhancements. See "Deposit Trust Risk Factors." "Series Enhancement" means any letter of credit, surety bond, subordinated interest in the trust assets, collateral invested amount, collateral account, spread account, guaranteed rate agreement, maturity liquidity facility, tax protection agreement, interest rate swap agreement, interest rate cap agreement or other similar arrangement for the benefit of holders of interests in a Series. DENOMINATIONS.................... The Notes will be issued in the aggregate principal amounts set forth on the cover page hereof, in fully registered denominations of $100,000 and integral multiples of $1,000 in excess thereof. REGISTRATION OF NOTES............ The Notes will initially be issued in book-entry form. Persons acquiring beneficial ownership interests in the Notes ("Note Owners") may elect to hold their Notes through DTC, in the United States, or Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear"), in Europe. Transfers within DTC, Cedel or Euroclear, as the case may be, will be in accordance with the usual rules and operating procedures of the relevant system. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and counterparties holding directly or indirectly through Cedel or Euroclear, on the other, will be effected in DTC through Citibank, N.A. or The Chase Manhattan Bank, the relevant depositaries (collectively, the "Depositaries") of Cedel or Euroclear, respectively, and each a participating member of DTC. So long as the Notes are in book-entry form, such Notes will be evidenced by one or more Notes registered in the name of CEDE & Co., the nominee of DTC. The interests of the Note Owners will be represented by book-entries on the records of DTC and participating members thereof. Notes will be available in definitive form only under the limited circumstances described herein. All references in this Prospectus to "Holders" or "Noteholders" shall be deemed, unless the context clearly requires otherwise, to refer to CEDE & Co., as nominee of DTC. See "Risk Factors" and "Description of the Securities -- Registration of Notes" herein. RECORD DATE...................... The last day preceding a Payment Date, or if the Notes are no longer book-entry securities, the last day of a month preceding a Payment Date. SERVICING........................ The Servicer will be responsible for servicing and managing the Credit Lines and making collections on the Receivables. Each Credit Line will be subserviced by the appropriate Subservicer on behalf of HFC, as Servicer. The Servicer will cause Interest Collections and Principal Collections to be deposited into the Collection Account, except as described herein. On the fifth Business Day prior to any Payment Date (the "Determination Date"), the Servicer will calculate, and instruct the Deposit Trust, the Issuer and the Indenture Trustee regarding the amounts to be paid to the Noteholders with respect to the related Collection Period. See "Description of the Securities -- Distributions on the Securities." As long as HFC is the Servicer it will receive, or be entitled to retain on behalf of itself and the Subservicers, a portion of the Interest Collections remaining after distribution of the Series 1997-2 Participation Interest Distribution Amount and the Series 1997-2 Participation Principal Distribution Amount a monthly servicing fee (the "Servicing Fee") attributable to the Series 1997-2 Participation in the amount of 2.00% per annum of the Series 1997-2 Participation Invested Amount as of the end of the related Collection Period. See "Description of the Deposit Trust -- Servicing Compensation and Payment of Expenses." In certain limited circumstances, the Servicer may resign or be removed under the Pooling and Servicing Agreement, in which event either the Deposit Trustee or, so long as it meets certain eligibility standards as set forth in the Pooling and Servicing Agreement, a third-party servicer will be appointed as a successor Servicer. In such event, the Servicing Fee will be paid to the successor Servicer from Interest Collections prior to any distributions on the Series 1997-2 Participation. See "Description of the Deposit Trust -- Certain Matters Regarding the Servicer and the Seller." If the Servicer fails to comply with certain representations, warranties or covenants with respect to any Credit Line and such noncompliance is not cured within a specified period and has a material adverse effect on the Noteholders, or if certain events of insolvency occur with respect to the Servicer, the Deposit Trustee may appoint a successor Servicer. See "Description of the Deposit Trust -- Assignment of Receivables." FINAL PAYMENT OF PRINCIPAL; TERMINATION...................... The Notes will mature on the earlier of the date the Notes are paid in full or on the Payment Date occurring in November 2007. In addition, the Issuer of the Notes will pay the Notes in full upon the exercise by the Seller of its option to purchase the Series 1997-2 Participation after the aggregate Security Balance of the Series 1997-2 Securities is reduced to an amount less than or equal to $114,900,000 (10% of the initial aggregate Security Balance of the Series 1997-2 Securities). See "Description of the Securities -- Maturity."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Prospectus. THE COMPANY TriTeal Corporation develops, markets and supports open systems-based, mission-critical desktop system software and integrated applications that enable multi-platform deployment of client/server applications throughout an enterprise. TriTeal recently introduced its Java-based SoftNC technology, a thin-client, platform-independent solution designed to allow simultaneous access to Java and legacy applications. The Company's objective is to establish its desktop system software as the de facto standard operating environment in the enterprise client/server market and to deliver follow-on applications to its installed base of customers. To date, the Company has established an installed base of over 100,000 seats of the TriTeal Enterprise Desktop ("TED") family of products (including predecessor products) to customers in a variety of targeted vertical markets, including financial services, government, telecommunications, oil and gas and manufacturing. Representative licensees of the Company's products include AT&T, Mobil Oil, Morgan Stanley & Co., Motorola and the U.S. Department of Defense. In the mid-1980s, the development of powerful and cost-effective servers, workstations and other client/server technologies increasingly led many large organizations to adopt these technologies for deployment of new, mission-critical software applications. Client/server solutions were typically developed and deployed on proprietary platforms (hardware, operating system and desktop software) to solve specific business problems. As a result, large enterprises typically deployed a variety of proprietary platforms, network architectures and applications that were not compatible, easily networked or interoperable. According to Sentry Market Research, the average number of operating systems supported in the client/server environment increased from four systems in 1991 to 10 systems in 1995 and a projected 12 systems by the end of 1996. In addition, the rapid adoption of Internet/intranet technologies has increased the fragmentation of the operating environment. The fragmentation among computing technologies presents the enterprise with a number of challenges, including (i) higher systems administration, training, development and support costs associated with maintaining multiple proprietary systems; (ii) difficulty in accessing data and applications residing on multiple disparate platforms; and (iii) lack of flexibility in adopting advanced new technologies while protecting significant investments in legacy systems. The Company's flagship product, TED, is designed to solve many of the problems resulting from this client/server platform fragmentation within the enterprise. TED allows individual users, system administrators and developers to easily access applications, data and network resources across most leading platforms used in the enterprise client/server market. In addition, TED provides a common, intuitive operating environment that "looks and feels" the same on every platform on which it operates. This interoperability and consistency allows the enterprise customer to reduce systems administration, training, development and support costs, thereby enabling increased operating efficiency and productivity throughout the enterprise. To further increase functionality, TriTeal has developed follow-on products, such as TEDSECURE and NTED, that are either sold separately or bundled with the current release of TED. The Company's SoftNC technology is designed to operate on any hardware device that includes a Java Virtual Machine ("JVM"), enabling the use of Java applications without the need for a browser. SoftNC technology is designed to allow users to operate Java applications simultaneously with existing legacy mainframe, client/server and Windows applications. The Company is currently developing products for network computers, PCs and workstations based on its SoftNC technology. The Company has entered into strategic relationships to facilitate the development, marketing, distribution and support of its TED family of products. The Company utilizes channel organizations such as original equipment manufacturers ("OEMs"), value-added resellers ("VARs") and system integrators to create demand and deliver TED products and services to its customers. In addition, the Company has licensed certain of its desktop and Internet technologies to a number of companies including AT&T, Hewlett-Packard, IBM, Network Computing Devices, Novell, The Santa Cruz Operation ("SCO"), Siemens Nixdorf Informationssystemse AG and Tektronix. The Company was incorporated in California in January 1993 and reincorporated in Delaware in August 1996. The Company's principal executive offices are located at 2011 Palomar Airport Road, Carlsbad, California 92009, and its telephone number is (619) 930-2077. Unless the context otherwise requires, the terms "TriTeal" and the "Company" refer to TriTeal Corporation, a Delaware corporation, its subsidiary, and the Delaware corporation's predecessor. THE OFFERING <TABLE> <S> <C> Common Stock Offered by the Company................. 1,350,000 shares Common Stock Offered by the Selling Stockholders.... 850,000 shares ------------------ Total Offering...................................... 2,200,000 shares Common Stock to be Outstanding after the Offering... 10,641,717 shares(1) Use of Proceeds..................................... For general corporate purposes, including working capital and capital expenditures Nasdaq National Market Symbol....................... TEAL </TABLE> SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> NINE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, ----------------------------- ------------------- 1994 1995 1996 1995 1996 ------ ------ ------- ------- ------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net revenues............................... $ 433 $4,110 $ 8,221 $ 4,402 $11,112 Gross profit............................... 238 2,941 6,049 3,174 8,777 Net income (loss).......................... 75 116 (4,842) (4,197) (980) Net income (loss) per share(2)............. $ 0.01 $ 0.02 $ (0.72) $ (0.63) $ (0.12) Shares used in computing net income (loss) per share(2)............................. 6,463 6,503 6,712 6,712 7,966 </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1996 -------------------------- ACTUAL AS ADJUSTED(3) ------- -------------- <S> <C> <C> BALANCE SHEET DATA: Cash, cash equivalents and short-term investments................... $21,939 $ 45,140 Working capital..................................................... 22,941 46,142 Total assets........................................................ 30,156 53,357 Long-term debt...................................................... -- -- Total stockholders' equity.......................................... 24,360 47,561 </TABLE> - --------------- (1) Based on the number of shares of Common Stock outstanding as of December 31, 1996. Excludes, as of December 31, 1996, 1,592,524 shares of Common Stock subject to outstanding options. See "Management" and "Description of Capital Stock." (2) For an explanation of the determination of the number of shares used in computing net income (loss) per share, see Note 1 of Notes to Consolidated Financial Statements. (3) As adjusted to give effect to the sale by the Company of 1,350,000 shares of Common Stock, at an assumed public offering price of $18.50 per share, and the application of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements of the Company and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information set forth herein assumes no exercise of the Underwriters' over-allotment option. See "Underwriting." References in this Prospectus to the "Company" mean the Company, its predecessors, and its and their subsidiaries, unless the context otherwise requires. THE COMPANY The Company is a franchisor of quick service restaurants that feature made-to-order sandwiches with distinctive bread that is baked daily at each location. The Schlotzsky's system currently includes six Company-owned stores and over 600 franchised stores located in 38 states, the District of Columbia and 13 foreign countries. System-wide sales were approximately $142.5 million for 1995, $202.4 million for 1996 and $128.0 million for the first six months of 1997. Average unit volumes were $368,000 in 1995, $410,000 in 1996, $199,000 for the first six months of 1996 and $221,000 for the first six months of 1997. From January 1, 1995 to June 30, 1997, the number of stores increased from 353 to 612. Schlotzsky's stores feature sandwiches made with unique Baked Fresh Daily(TM) buns. The Schlotzsky's Original sandwich was introduced in 1971 and continues to be the most popular menu item at Schlotzsky's stores. In 1991, the Company adopted the Schlotzsky's Deli restaurant concept by significantly expanding its menu and adding the word "Deli" to its name. The Schlotzsky's Deli menu offers 15 sandwiches on four types of bread, sourdough crust pizzas, salads, soups, chips and other side items, fresh baked cookies and other desserts, and beverages. At most locations, sandwiches range in price from $2.50 to $4.75 ($7.00 for an oversized Original) and eight inch gourmet pizzas are priced between $3.50 and $4.50. The Company's objective is to become the leader in the specialty sandwich segment of the quick service restaurant industry in the United States. In 1991, with the introduction of the Schlotzsky's Deli restaurant concept, the Company began implementing a strategy to achieve this objective. The key elements of this strategy are to: - Offer an expanded menu of consistent, high quality foods featuring the Company's proprietary bread recipes, complemented by excellent customer service; - Expand the turnkey real estate development program to develop new stores in high visibility, free-standing locations; - Utilize area developers to decentralize franchisee recruiting and support; - Develop a strong network of motivated owner-operator franchisees; and - Increase awareness of the Schlotzsky's brand through enhanced marketing and private label products. The Company believes that the introduction of the Schlotzsky's Deli restaurant concept and the turnkey development program ("Turnkey Program") have enhanced store revenue and that the area developer program has increased the Company's operating efficiencies. Recently, the Company revised its strategy to include the acquisition and development of a limited number of Company-owned stores, principally for concept development. The Company has 40 area developers trained to assist the Company in achieving its expansion goals in the United States. Area developers are independent contractors who have purchased from the Company the exclusive rights to develop designated geographic markets covering most of the television markets in the United States. Area developers are not required to own or operate stores, although many do so pursuant to separate franchise agreements with the Company. Area developers fulfill the role usually performed by area or district managers of other restaurant chains by: recruiting and qualifying prospective franchisees; assisting franchisees in site selection, training, financing, building and opening stores; providing ongoing operational support; monitoring product and service quality; and coordinating local advertising activities. By utilizing its area developer network, the Company believes it can effectively support a growing number of franchised stores while controlling its overhead costs. Because they receive a portion of the franchise fees and royalties from each store developed in their territories as compensation, area developers are highly motivated to develop their markets and monitor operating performance. Franchisees, with assistance from area developers, typically spend several months selecting sites and financing and constructing their stores. In selected markets, the Company is assisting area developers by identifying and acquiring store sites, arranging for financing, and constructing or renovating stores, so that franchisees recruited by area developers can be offered "turnkey" locations. The Turnkey Program was initiated in late 1994 for the purposes of developing high visibility sites and accelerating the development of selected markets. As of June 30, 1997, the Company had developed 34 properties under the Turnkey Program, 30 of which were sold, two of which became Company-owned stores and two of which were being marketed by the Company. Forty-seven properties were in various stages of development as of June 30, 1997. The Company intends to expand this program in the future and plans to use a significant portion of the proceeds from this offering to fund the Turnkey Program. The first Schlotzsky's restaurant was opened in Austin, Texas in 1971. In 1981, John C. Wooley, the Chairman of the Board and the President, and Jeffrey J. Wooley, the Senior Vice President and General Counsel of the Company, acquired the predecessor of the Company. The Company's principal executive offices are located at 200 West Fourth Street, Austin, Texas 78701, and its telephone number is (512) 469-7500. THE OFFERING <TABLE> <S> <C> Common Stock Offered by the Company......................... 1,500,000 Shares Common Stock Offered by the Selling Shareholders............ 700,000 Shares Common Stock Outstanding after the Offering................. 7,060,361 Shares(1) Use of Proceeds............................................. To acquire and develop stores for resale under the Turnkey Program, to acquire and develop a limited number of Company-owned stores and to repay debt Nasdaq Symbol............................................... BUNZ </TABLE> - --------------- (1) Excludes an aggregate of 688,177 shares of Common Stock issuable upon the exercise of outstanding options and warrants. See "Management -- 1993 Amended and Restated Stock Option Plan," and "-- Directors Stock Option Plan," "Certain Transactions -- Transactions with Executive Officers and Directors" and "Principal and Selling Shareholders." SUMMARY OF CONSOLIDATED FINANCIAL AND STORE DATA (IN THOUSANDS, EXCEPT PER SHARE AND CERTAIN STORE DATA) <TABLE> <CAPTION> SIX MONTHS ENDED FISCAL YEARS ENDED DECEMBER 31, JUNE 30, --------------------------------- -------------------- 1994 1995 1996 1996 1997 --------- --------- --------- -------- -------- (UNAUDITED) <S> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues................................. $ 9,303 $ 12,852 $ 20,714 $ 8,991 $ 13,675 Income from operations......................... 2,347 2,623 4,510 1,785 3,131 Income before income taxes and extraordinary gain......................................... 2,372 2,612 5,097 2,152 3,327 Net income..................................... 1,485 1,633 3,195 1,343 2,050 Net income per share........................... 0.44 0.44 0.57 0.24 0.36 STORE DATA (UNAUDITED): System-wide sales(1)........................... $ 97,685 $142,500 $202,400 $ 91,392 $127,955 Change in same store sales(2).................. 6.5% 1.7% 3.3% 2.8% 2.8% Average annual store sales(3).................. $317,000 $368,000 $410,000 $199,000(4) $221,000(4) Weighted average weekly store sales(3)......... $ 6,276 $ 7,086 $ 7,867 $ 7,671 $ 8,487 Change in average weekly store sales(5)........ 13.9% 12.9% 11.0% 13.3% 10.6% Number of stores opened during period.......... 85 120 135 61 50 Number of stores closed during period.......... 9 10 25 8 11 Number of stores in operation at end of period....................................... 353 463 573 516 612 </TABLE> <TABLE> <CAPTION> AS OF JUNE 30, 1997 ------------------------ ACTUAL AS ADJUSTED(6) ------- -------------- <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Working capital........................................... $11,942 $35,902 Total assets.............................................. 42,251 66,155 Long-term debt, less current maturities................... 3,646 2,135 Stockholders' equity...................................... 34,473 59,942 </TABLE> - --------------- (1) Includes sales for all stores, as reported by franchisees or derived by the Company from other data reported by franchisees. (2) Percentage change in same store sales. Same stores are stores which were open during the entire period indicated and for at least 18 months as of the end of the corresponding prior period. (3) In actual dollars (rounded in the case of average annual store sales). (4) Reflects average six month store sales. (5) Percentage change in weighted average weekly store sales from previous fiscal year or period. (6) Adjusted to give effect to the sale by the Company of 1,500,000 shares of Common Stock in this offering at an assumed offering price of $18.25 and the application of the net proceeds therefrom.

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+PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including "Risk Factors" and the Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise noted or as the context otherwise requires, all information in this Prospectus (i) gives effect to the conversion of all outstanding shares of Preferred Stock into shares of Common Stock that occurred automatically immediately prior to the closing of the Public Offering, (ii) gives effect to the reincorporation of the Company from Florida to Delaware prior to the closing of the Public Offering, (iii) gives effect to a one-for-15 reverse split of the Company's Common Stock and Preferred Stock and the conversion of all shares of Class B Common Stock into shares of Common Stock, which occurred prior to the closing of the Public Offering, and (iv) gives effect to the exercise of the underwriters' over-allotment option to purchase 645,000 shares of Common Stock. See "Description of Capital Stock." In addition, all share numbers herein assume that no stockholder receiving the Rescission Offer exercises its right to rescind. Certain terms used in this Prospectus are defined in the Glossary of Terms beginning on page G-1. THE COMPANY Concentric provides tailored, value-added Internet Protocol ("IP") based network services for businesses and consumers. To provide these services, the Company utilizes its low/fixed latency, high-throughput network, employing its advanced network architecture and the Internet. Concentric's service offerings for enterprises include virtual private networks ("VPNs"), dedicated access facilities ("DAFs") and Web hosting services. These services enable enterprises to take advantage of standard Internet tools such as browsers and high- performance servers for customized data communications within an enterprise and between an enterprise and its suppliers, partners and customers. These services combine the cost advantages, nationwide access and standard protocols of public networks with the customization, high performance, reliability and security of private networks. Among the current enterprise customers are Acer America Corporation, Inc., Intuit, Inc., Total Entertainment Network, WebTV Networks, Inc. and Ziff-Davis Publishing Co. Concentric's service offerings for consumers and small office/home office customers include local Internet dial-up access, Web hosting services and online multiplayer gaming. Industry analysts expect the market size for both value-added IP data networking services and Internet access to grow rapidly as businesses and consumers increase their use of the Internet, intranets and privately managed IP networks. The total market for these services is projected to grow from $1.2 billion in 1996 to approximately $22.7 billion in the year 2000, with approximately $10.4 billion in the enterprise market segment and $12.3 billion in the consumer market segment. The Concentric network employs an advanced, geographically dispersed ATM and frame relay backbone, SuperPOPs in 14 major metropolitan areas and 134 secondary and tertiary POPs in other cities, allowing dial-up network access in the U.S. and Canada. In addition, the Company can provide analog dial-up, frame relay, fractional T-1, T-1 and DS3 access to the network. The Concentric network is engineered and managed to provide superior quality of service, balancing several key performance criteria. The Company provides guaranteed levels of service for DAFs to enterprise customers, and targets performance benchmarks for connection success rates, latency levels and throughput for all of its service offerings. Concentric also believes that a major advantage of its network architecture is its ability to perform adaptive call processing ("ACP"), which is designed to enable the tuning of network parameters and traffic routing to meet the latency, throughput, security, and reliability requirements of a specific customer or application on a call-by-call basis. Concentric is currently deploying the ACP technology in its network and is planning to commercially introduce these capabilities during the first half of 1998. In addition to strong network performance capabilities, the Company believes that several factors distinguish its ability to provide value-added network services. These factors include: (i) excellent service quality; (ii) rapid development time and flexibility in meeting custom applications requirements; (iii) responsive customer support and effective account management, available 24 hours per day, seven days per week through the Company's 146 customer service personnel; and (iv) the Company's technical expertise in devising cost- effective network solutions for customers. INSTRUCTIONS 1. General. This Form of Election should be properly filled in, dated and signed, and should be delivered to the Company at the address set forth on the first page of this Form of Election. The method of delivery to the Company is at the option and risk of the Holder, but if sent by mail, registered mail, return receipt requested, is suggested. An addressed envelope is enclosed for your convenience. 2. Time in Which to Elect. To be effective, a Form of Election must be received by the Company no later than thirty days after receipt of the Offer (the "Expiration Date"). A Form of Election returned to the Company after October , 1997 must be accompanied by evidence that the person submitting such Form of Election submitted the Form of Election within 30 days after receipt of the Offer. 3. Signatures. The signature (or signatures), on the Form of Election should correspond exactly with the name as written on the face of the share certificate(s), unless the shares have been assigned by the registered holder, in which event the Form of Election should be signed in exactly the same form as the name of the last transferee indicated on the transfers attached to or endorsed on the certificates. If the Form of Election is signed by a trustee, executor, administrator, guardian, officer of a corporation, attorney-in-fact or any other representative or fiduciary, the person signing must give such person's full title in such capacity and appropriate evidence of authority to act in such capacity must be forwarded herewith. All signatures should be accompanied by a guarantee executed by appropriate officers of a federally or state charted bank or member firm of the New York Stock Exchange. 4. Miscellaneous. In the case of acceptances of the Offer, the Company will begin mailing and delivering checks in reimbursement for consideration paid for the shares within five business days after the Expiration Date. All questions with respect to this Form of Election and the Offer (including questions relating to the timeliness or effectiveness of any election) will be determined by the Company, which determination shall be final and binding. All questions should be directed to Michael F. Anthofer, Senior Vice President and Chief Financial Officer, Concentric Network Corporation, 10590 North Tantau Avenue, Cupertino, California 95014; telephone (408) 342-2800. The Company's objective is to become the leading provider of value-added IP- based network services worldwide. In order to achieve its goal, the Company is implementing business strategies which capitalize on a number of opportunities in the marketplace and a large and growing IP network access market. Key strategies include: (i) rapidly providing cost-effective, tailored network solutions; (ii) optimizing network utilization; (iii) employing leveraged marketing through strategic partners; (iv) offering next generation network services; and (v) deploying network services internationally. The Company aggressively pursues strategic alliances with a variety of companies. Key partners currently include Bay Networks, Inc., Microsoft Corporation, Netscape Communications, Inc. ("Netscape"), Williams Communications Group, Inc., PictureTel Corporation, Racal-Datacom, Inc. and TMI Telemedia International, Ltd., a subsidiary of Telecom Italia, SpA ("TMI"). The Company is continuing to expand its value-added services, and plans to introduce RemoteLink, a remote access service designed to help businesses reduce the high costs of telecommunications charges and user support associated with building, deploying and maintaining their own remote access WAN, in mid- 1997. In addition, Concentric is in early stage trials for videoconferencing services and IP-based telephony services. The Company is also working with TMI to establish an international network based on the Company's network technology and expertise and TMI's global telecommunications infrastructure. The Company was incorporated in Florida in 1991 under the name Engineered Video Concepts, Inc., changed its name to Concentric Research Corporation in 1992 and commenced network operations in 1994. In 1995, the Company changed its name to Concentric Network Corporation. Unless the context otherwise requires, "Concentric" and the "Company" refer to Concentric Network Corporation. The address of the Company's principal executive offices is 10590 N. Tantau Avenue, Cupertino, CA 95014, and its telephone number at that address is (408) 342- 2800. Concentric Network Corporation, The Concentric Network, Concentric RemoteLink, ConcentricView, ConcentricHost, FlexChannel, FullChannel, Powered by Concentric Network, and PremierConnect are among the trademarks of the Company. This Prospectus contains other product names, trade names and trademarks of the Company and of other organizations. THE RESCISSION OFFER <TABLE> <C> <S> Common Stock subject to Rescission Offer.. 105,828 shares Common Stock outstanding.................. 14,012,711 shares(1) Nasdaq National Market Symbol............. CNCX </TABLE> - -------- (1) Gives effect of the sale by the Company of 4,945,000 shares of Common Stock in the Public Offering which includes the exercise of the underwriters' over-allotment option in connection therewith, includes 1,499,236 shares issued to certain strategic investors concurrent with the closing of the Public Offering (at an initial public offering price of $12.00 per share) and excludes 151,789 shares repurchased by the Company from certain Stockholders who are not officers, directors or affiliates of the Company at the per share Price to Public. Excludes approximately 3,472,290 shares issuable upon exercise of options and warrants outstanding at July 31, 1997 at a weighted average exercise price of $10.14 per share. Does not reflect any shares which may be repurchased pursuant to the Rescission Offer. PUBLIC OFFERING On August 1, 1997, the Company made an initial public offering at $12.00 per share of 4,300,000 shares of Common Stock and the underwriters subsequently exercised their over-allotment option to purchase an additional 645,000 shares of Common Stock. The Company's Common Stock is traded on The Nasdaq National Market under the symbol "CNCX." On September , 1997, the closing bid and ask price of the Common Stock as quoted on The Nasdaq National Market were $ and $ , respectively. These quotations represented prices between dealers, do not include retail mark-ups, mark-downs or commissions and may not represent actual transactions. DIRECT PLACEMENTS Williams Communications Group, Inc. and Bay Networks, Inc. purchased from the Company, in a private placement (the "Direct Placements") that occurred concurrently with the closing of the Public Offering, 1,499,236 shares of Common Stock with an aggregate purchase price of approximately $18.0 million (including approximately $3.0 million in cancellation of indebtedness). See "Certain Transactions--Williams Transaction." SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> PERIOD FROM MAY 1, 1991 SIX MONTHS ENDED (INCEPTION) YEAR ENDED DECEMBER 31, JUNE 30, THROUGH ------------------------------------ ------------------ DEC. 31, 1992 1993 1994 1995 1996 1996 1997 ------------- ------- ------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenue................. $ -- $ 23 $ 442 $ 2,483 $ 15,648 $ 4,022 $ 19,968 Cost of revenue......... -- 130 2,891 16,168 47,945 19,038 30,657 Network equipment write- off(1) ................ -- -- -- -- 8,321 -- -- Total operating expenses............... 28 1,114 1,784 7,602 22,503 9,671 15,442 ----- ------- ------- -------- -------- -------- -------- Loss from operations.... (28) (1,221) (4,233) (21,287) (63,121) (24,687) (26,131) Net loss................ $ (28) $(1,245) $(4,290) $(22,008) $(66,381) $(25,800) $(27,585) ===== ======= ======= ======== ======== ======== ======== Pro forma net loss per share(2)............... $ (11.88) $ (3.64) ======== ======== Weighted average shares used in computing pro forma net loss per share(2)............... 5,590 7,582 ======== ======== </TABLE> <TABLE> <CAPTION> JUNE 30, 1997 ------------------------ PRO FORMA ACTUAL AS ADJUSTED(3) -------- -------------- <S> <C> <C> BALANCE SHEET DATA: Working capital (deficit)............................ $(36,625) $ 34,184 Property and equipment, net.......................... 58,556 58,556 Total assets......................................... 76,367 144,176 Long-term debt and capital lease obligations, less current portion..................................... 38,734 38,734 Accumulated deficit.................................. (121,537) (122,276) Stockholders' equity (deficit)....................... (14,329) 56,480 </TABLE> <TABLE> <CAPTION> THREE MONTHS ENDED -------------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1996 1996 1996 1997 1997 -------- --------- -------- --------- -------- <S> <C> <C> <C> <C> <C> QUARTERLY STATEMENT OF OPERATIONS DATA: Revenue................... $ 2,489 $ 4,193 $ 7,433 $ 9,154 $ 10,814 Cost of revenue........... 11,782 11,913 16,994 15,744 14,913 Network equipment write- off(1)................... -- -- 8,321 -- -- Total operating expenses.. 5,475 5,464 7,368 7,021 8,421 -------- -------- -------- -------- -------- Loss from operations...... (14,768) (13,184) (25,250) (13,611) (12,520) Net loss.................. $(15,420) $(14,473) $(26,108) $(14,681) $(12,904) ======== ======== ======== ======== ======== </TABLE> - -------- (1) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 of Notes to Financial Statements. (2) The pro forma net loss per share computation gives retroactive effect to the conversion of the outstanding Preferred Stock into Common Stock upon the closing of the offering. See Note 1 of Notes to Financial Statements for an explanation of the calculation of pro forma net loss per share. (3) Adjusted (i) to reflect the receipt by the Company of the aggregate net proceeds of approximately $71.5 million after deducting underwriting discounts and offering expenses (including approximately $3.0 million in cancellation of indebtedness and the related write-off of approximately $739,000 in unamortized debt discount costs) from the sale of 4,945,000 shares of Common Stock which includes the exercise of the underwriters' over-allotment option in connection therewith and 1,499,236 shares of Common Stock sold in the Direct Placement at an initial public offering price of $12.00 per share, and (ii) to exclude the repurchase of 151,789 shares repurchased by the Company from certain stockholders who are not officers, directors or affiliates of the Company at $12.00 per share. See "Direct Placements," "Certain Transactions" and Note 10 of Notes to Financial Statements.

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+SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and notes thereto appearing elsewhere in this Prospectus. Prospective investors should consider carefully the information discussed under "Risk Factors" and elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. The "as adjusted" and other proforma financial information contained in this Prospectus under "Summary", "Dilution", "Capitalization" and "Use of Proceeds" assumes the completion of the offering of the Common Shares made hereby at an assumed public offering price of Cdn. $7.10 per Common Share. This assumed price represents the closing price of the Company's Common Shares as reported on The Toronto Stock Exchange on October 9, 1997, and is not indicative of the actual offering price of the Common Shares to be determined by the Company and the Underwriters. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO "$" OR "DOLLARS" REFER TO UNITED STATES DOLLARS. ALL REFERENCES TO "CDN. $" REFER TO CANADIAN DOLLARS. THE COMPANY Salix Holdings, Ltd. ("Salix" or the "Company") identifies and in-licenses gastrointestinal products that have near-term commercial potential and applies its product development expertise to accelerate the commercialization of these products. The Company's business strategy is to select and in-license gastrointestinal products that have the potential for rapid regulatory approval. By in-licensing drugs with late-stage clinical data and developing these drugs for diseases that are in need of new pharmaceutical treatments, the Company believes that it can significantly reduce the risk, time and investment normally associated with the development and commercialization of pharmaceutical products. The Company's first product, Colazide, recently was approved for marketing in the United Kingdom for the treatment of acute ulcerative colitis. The Company currently expects that commercial launch of Colazide in the United Kingdom will occur in October 1997 and, subject to regulatory approvals, that Colazide will become commercially available in other countries in Europe in 1998. In addition, the Company's New Drug Application ("NDA") for Colazide for the same indication was recently accepted for filing by the United States Food and Drug Administration ("FDA"). The NDA is subject to a detailed substantive review by the FDA. See "Business--Government Regulation." The Company has also in-licensed a second product, rifaximin, and intends to pursue regulatory approvals for the drug in the treatment of two initial indications, hepatic encephalopathy and antibiotic associated colitis. The Company presently expects to submit an application to the FDA in the fourth quarter of 1997 seeking Orphan Drug Status for rifaximin in the treatment of hepatic encephalopathy. If the Company's application is approved, rifaximin could receive priority review from the FDA following completion of clinical trials for the drug and filing of an NDA for marketing approval. It is not currently expected that the Company will be in a position to file an NDA for rifaximin prior to mid-1998. In the course of its transition to a commercial stage company, the Company has leveraged its resources by establishing strategic alliances with companies that have significant resources in clinical monitoring and manufacturing. In anticipation of the commercial release of Colazide in the United Kingdom in October 1997, the Company has entered into manufacturing arrangements with Courtaulds Chemicals (Holdings) Limited ("Courtaulds") and Anabolic, Inc. ("Anabolic"), each of which is a commercially established pharmaceutical manufacturer. The Company's arrangement with Courtaulds is pursuant to a manufacturing agreement whereas the arrangement with Anabolic is on a purchase-order basis. Colazide will be distributed in all markets except certain countries in southern Europe and Asia by Astra AB ("Astra"), a Swedish international pharmaceutical company, under a distribution agreement that provides Astra with exclusive distribution rights, and in Italy, Spain, Portugal, and Greece by a division of Menarini Pharmaceutical Industries s.r.l. ("Menarini"), an Italian manufacturer and distributor of pharmaceutical products. The Company's distribution arrangements with Astra and Menarini have provided the Company with funding necessary to complete the late-stage development of Colazide, in- license other gastrointestinal products and help establish the Company as a viable gastrointestinal pharmaceutical company. The Company expects to market and sell rifaximin and other future products in-licensed and commercialized by the Company through a small, specialized direct sales force to be established by Salix. The Company believes that a direct sales model will reflect higher operating margins than the distribution partner model that the Company will use in connection with sales of Colazide. The Company was incorporated in the British Virgin Islands in December 1993. Prior to December 1993, the business of the Company was conducted by Salix Pharmaceuticals, Inc., a California corporation ("Salix Pharmaceuticals"), which was incorporated in California in 1989, and Glycyx Pharmaceuticals, Ltd., a Bermuda corporation ("Glycyx"), each of which is now a subsidiary of Salix Holdings, Ltd. Unless the context otherwise requires, references in this Prospectus to "Salix" and the "Company" refer to Salix Holdings, Ltd., a corporation organized under the laws of the British Virgin Islands, and its wholly owned subsidiaries, Salix Pharmaceuticals and Glycyx. The Company's executive offices are located at 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303, and its telephone number at that address is (650) 856-1550. THE OFFERING <TABLE> <S> <C> Securities Offered...... 3,000,000 Common Shares of the Company Common Shares Outstanding after the Offering............... 10,118,173 Common Shares(/1/) Toronto Stock Exchange Symbol................. SLX(/2/) Use of Proceeds......... The net proceeds to the Company from the sale of the 3,000,000 Common Shares offered hereby are estimated to be approximately Cdn. $18,712,550 (approximately Cdn. $21,699,875 if the Underwriters' over-allotment option is exercised in full) at an assumed public offering price of Cdn. $7.10 per Common Share, which is not indicative of the actual offering price, and after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. Of the offering proceeds, the Company expects to apply approximately Cdn. $4,000,000 (U.S. $2,909,514) toward the commercialization of Colazide in the United Kingdom and obtaining regulatory approval in the United States, approximately Cdn. $11,712,550 (U.S. $8,519,457) toward the Company's other product development and clinical programs, and approximately Cdn. $3,000,000 (U.S. $2,182,136) for other working capital and general corporate purposes. The Company's allocation of offering proceeds to other product development and clinical programs will be increased by the amount of any net proceeds resulting from the exercise of the Underwriters' over- allotment option. There can be no assurance that the actual allocation of the offering proceeds will not differ materially from their currently anticipated use. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". </TABLE> - -------- (1) Based on Common Shares outstanding as of June 30, 1997. Excludes (i) 713,500 Common Shares issuable upon exercise of options outstanding as of June 30, 1997 under the Company's 1994 Stock Plan (the "1994 Plan") and the 1996 Stock Option Plan (the "1996 Plan" and together with the 1994 Plan, the "Stock Plans") at a weighted average exercise price of $3.72 per Common Share, (ii) 303,362 Common Shares reserved for issuance under future option grants as of June 30, 1997 under the Stock Plans, and (iii) 602,331 Common Shares issuable upon exercise of outstanding warrants as of June 30, 1997 at an exercise price of $3.00 per Common Share. See "Management--Stock Plans", "Description of Share Capital" and Notes 8 and 10 of Notes to Consolidated Financial Statements. (2) The Company's Common Shares currently trade on The Toronto Stock Exchange under the symbol "SLX.s" and carry a legend reflecting the Company's reliance, in connection with its initial public offering in Canada in May 1996, on the exemption from the registration requirements of the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), set forth in Regulation S thereunder. It is the Company's current intention to authorize the removal on May 28, 1998 of the Regulation S legend from all shares currently bearing such legend. Shareholders may request that the Company remove such legend in connection with resales prior to May 28, 1998, subject to the shareholder's ability to establish, to the satisfaction of the Company and its legal counsel, that the requirements of the U.S. Securities Act have been satisfied. After May 28, 1998, all Common Shares that are then freely tradeable on The Toronto Stock Exchange will trade under the symbol "SLX". The Common Shares offered by the Company hereby will be registered under the U.S. Securities Act and will not, therefore, carry a legend. See "Shares Eligible for Future Sale". Risk Factors.. Investment in the Common Shares may be regarded as speculative due to the nature of the Company's business and the various stages of development of its new products. In particular, investors should consider that the Company has only one product approved for sale, such approval relates to the sale of the product only in the United Kingdom, and the product has not yet been launched commercially. The Company has incurred operating losses and cash flow deficiencies to date and does not expect to achieve profitability on an annual basis before 2000. The Company's products are subject to strict regulatory approval requirements. The proceeds from this offering may be inadequate to fund the development of the new products, and it is likely the Company will require additional funding in the future. The Company's success is dependent upon its relationships with certain strategic partners and third party manufacturers, as well as on its ability to adequately protect its intellectual property. The Company is subject to intense competition and faces risks arising from product liability. The Company is dependent on certain key personnel. Certain directors and executive officers and their respective affiliates own a significant portion of the Company's stock and may be able to effectively control the Company, even following consummation of this offering. Following consummation of this offering, a portion of the Common Shares will be subject to various restrictions arising from U.S. securities laws. Investors purchasing shares in this offering will incur immediate dilution. In addition, the Company's Common Shares could be subject to price volatility and have, to date, experienced limited trading volume. Non-Canadian investors may face a currency risk as a result of transactions involving the Common Shares. See "Risk Factors". SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------- ------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: License revenue......... $ -- $ -- $ 1,186 $ -- $ -- $ 1,000 $ 1,712 Revenue from collaborative agreements and other... 21 384 634 1,990 2,827 3,439 1,212 Loss from operations.... (2,575) (1,443) (2,569) (2,332) (1,497) (755) (1,023) Net loss................ (2,475) (1,571) (2,451) (2,420) (1,452) (714) (1,011) Net loss per share(/1/)............. $ (0.35) $ (0.41) $ (0.46) $ (0.77) $ (0.46) $ (0.23) $ (0.38) Shares used in computing net loss per share(/1/)............. 6,975 3,877 5,365 3,149 3,144 3,144 2,688 </TABLE> <TABLE> <CAPTION> JUNE 30, 1997 -------------------------- ACTUAL AS ADJUSTED(/2/) -------- ---------------- (UNAUDITED) <S> <C> <C> SELECTED CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................ $ 3,657 $17,268 Working capital...................................... 2,986 16,597 Total assets......................................... 4,250 17,861 Accumulated deficit.................................. (11,076) (11,076) Shareholders' equity................................. 3,181 16,792 </TABLE> - -------- (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of shares used in computing net loss per share. (2) Adjusted to give effect to the sale of 3,000,000 Common Shares offered by the Company hereby at an assumed public offering price of Cdn. $7.10 per Common Share (and an assumed exchange rate of Cdn. $1.3748 per U.S. $1.00) and the application of the estimated net proceeds therefrom after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. See "Use of Proceeds" and "Capitalization".

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SUBJECT TO, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) CONTAINED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN THE GLOSSARY FOLLOWING THIS SUMMARY OR SET FORTH ELSEWHERE IN THIS PROSPECTUS. POTENTIAL INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY IN ITS ENTIRETY. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE EFFECT OF A TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND WITH RESPECT TO ALL OF THE COMPANY'S OUTSTANDING COMMON STOCK ON SEPTEMBER 30, 1997. UNLESS OTHERWISE INDICATED, STOCK OWNERSHIP INFORMATION SHOWN AS A PERCENTAGE OF THE COMPANY'S OUTSTANDING CAPITAL STOCK ASSUMES THE CONVERSION OF ALL OUTSTANDING PREFERRED STOCK INTO SHARES OF COMMON STOCK AT THE APPLICABLE CONVERSION RATIO FOR EACH SERIES OF PREFERRED STOCK. Doctors Health, Inc., a Delaware corporation (the "Company") was incorporated in June of 1994 and commenced operations in February of 1995. The Company's executive offices are located at 10451 Mill Run Circle, 10th Floor, Owings Mills, Maryland 21117, telephone (410) 654-5800. The Company is a physician driven managed care and medical management company which operates in conjunction with a comprehensive health care network consisting of primary care physicians ("PCPs"), specialists, hospitals and other health care providers (the "Network"). As of December 1, 1997, the Network included approximately 9,500 physicians in Maryland, Washington, D.C. and Virginia, including approximately 1,700 PCPs, and 7,800 specialists (including obstetrician-gynecologists). The Company's primary focus is managing the delivery of quality health care services to Enrollees of health maintenance organizations and other prepaid health insurance plans (collectively, "Payors"). The Company coordinates the delivery of such services through a Network of health care providers pursuant to various contractual arrangements and develops medical care strategies to promote wellness, efficiency and patient satisfaction through medical care provided by these health care providers. The Network includes certain medical groups, physician networks, independent practice associations ("IPAs") and other health care providers that have affiliated with the Company through a variety of contractual relationships whereby such providers have designated the Company as their agent for the purpose of negotiating Global Capitation Contracts and other managed care contracts ("Doctors Health Providers"). The Company's Network also includes physician networks affiliated with certain Payors with which the Company has contracted to provide network management and health care services on a capitated basis ("Payor Providers"). The Network is designed to provide Payors with a single-source of well-managed health care providers and to give the Company access to, and increase its bargaining power for, managed care contracts. The Company seeks to deliver health care at a cost which is less than the revenues it receives under Global Capitation Contracts with Payors. The Global Capitation Contracts obligate the Company to provide primary care, specialist, hospital and other services to the Enrollees of the Payors' health plans ("Enrollees" or, in some cases, "capitated lives"). The Company emphasizes preventive medical care services to reduce instances of high-cost, acute care episodes and manages certain medical cases to ensure appropriate and efficient treatment. The Company arranges for the cost-effective delivery of health care services through managed care contracts with various health care providers. See "Business -- Strategy" and "Business -- Operations." As a managed care company, the Company negotiates and enters into Global Capitation Contracts with Payors. Under such contracts, Payors pay the Company a fixed amount per month based on the number of Enrollees who have selected a PCP in the Network and the Company provides for the health care needs of such Enrollees (to the extent covered by the Global Capitation Contract) through the Network. The Company pays or arranges for the payment by the Payor to the health care providers within the Network. As a medical management company, the Company coordinates the delivery of medical care by the various health care providers in the Network. Through a care management department consisting of physicians, nurses, social workers and other staff, the Company seeks to promote the wellness of patients, control costs, and maintain patient satisfaction. Such medical management services include case and disease management, utilization review and quality management services. The Company offers medical groups and independent physicians a variety of methods of affiliating with the Company. The Company may either acquire the medical practice assets or certain contracting rights for cash or for Securities, or by execution of a variety of IPA Agreements. In cases where the Company acquires assets of medical practices, the physicians selling such assets typically join a Core Medical Group and enter into certain long-term management agreements with the Core Medical Group and the Company ("PSO Agreements"). Pursuant to the PSO Agreements, the Company provides the Core Medical Groups with care management, managed care contracting and related business management services. Pursuant to the various IPA Agreements, physicians agree to conduct either all (in the case of exclusive IPAs) or some (in the case of non-exclusive IPAs) of their managed care contracting activity exclusively through the Company and to accept as patients any capitated patients referred to such physician pursuant to the Company's Global Capitation Contracts. The physicians retain their clinical autonomy.

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+SUMMARY The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus. COMPANY Sovereign Credit Finance I, Inc. (the "Company") has been formed for the purpose of purchasing, collecting and servicing retail installment sales contracts and notes secured by motor vehicles (the "Contracts"). Except as set forth under "Capitalization", it does not have, and does not expect to have in the future, any significant assets other than the Contracts and proceeds thereof. The Company's principal executive offices are located at 4015 Beltline Road, Building B, Dallas, Texas 75244 and its telephone number is (972) 960-5500. The Company is a newly organized, single purpose subsidiary of Sovereign Credit Holdings, Inc. Sovereign Credit Corporation ("Sovereign"), which serves as manager of the Company, is also a subsidiary of Sovereign Credit Holdings, Inc., and Sovereign Associates, Inc. ("SAI"), which provides purchasing and collecting services on behalf of the Company, is a subsidiary of Sovereign. See "The Company". NOTES 11% Notes due February 15, 2001 (the "Notes") to be issued subject to the terms of a trust indenture agreement (the "Indenture") between the Company and the Trustee. OFFERING Up to $20,000,000 in principal amount of the Notes. AMOUNT Investor funds will be held in escrow until subscriptions for a minimum amount of $500,000 in principal amount of the Notes have been received. INTEREST Each Note will bear interest at 11% per annum on its PAYMENTS TO outstanding principal, payable monthly on the 15th NOTEHOLDERS day of each month during the term of the Note (for interest accruing through the last day of the prior month) beginning with the second full calendar month following the calendar month in which the Note is issued (the "Payment Dates"). For example, if a Note is issued to an investor in January, 1997, such investor will receive the first interest payment on March 15, 1997, which will be for interest accruing through February 28, 1997. Interest will not accrue on the Notes, nor will the Notes be issued, until release of escrowed subscription funds to the Company, which will not occur until the minimum of $500,000 of the Notes is sold. Investors in this offering will receive an IRS Form 1099 following the end of each calendar year which will state the amount of interest on which to calculate income taxes. The record date for each payment of interest on the Notes is the close of business on the first day of the month of the Payment Date for that payment. At all times while the Notes remain outstanding, the monthly interest payments on the Notes must be fully satisfied before the collection proceeds from the Contracts may be used to purchase additional Contracts. EFFECTIVE The effective interest rates of the Notes will be YIELD 10.95%. This is lower than the stated interest rates of the Notes because each payment of interest will be paid 15 days after the end of the month during which it accrued, and because interest is computed on the basis of a 360-day year, comprised of twelve 30-day periods. PRINCIPAL Principal on the Notes will be repaid in six equal PAYMENTS installments commencing on September 15, 2000, and on each of the five Payment Dates thereafter. The Notes will mature on February 15, 2001, at which time all outstanding and accrued principal and interest will be finally due and payable. MATURITY February 15, 2001 ADDITIONAL In addition to the Notes, the Company intends to BORROWING pursue an additional lending source (the "Additional Lender") to borrow funds (the "Additional Borrowing") with which to purchase additional Contracts. The Additional Lender may be a bank or an institutional lender such as an insurance company. The Company anticipates that any borrowings from the Additional Lender will be secured by first priority security interests in all the Contracts owned by the Company. The Additional Borrowings will be utilized to purchase additional Contracts. As of the date of this Prospectus, the Company has not obtained a commitment for Additional Borrowing from an Additional Lender, and no assurance can be made that any Additional Borrowing will be obtained. The Notes are unsecured, and will be subject to any first priority security interests in the Company's Contracts that may be granted to any Additional Lender. Such first priority of the Additional Lender in the Contracts will result in the Noteholders being placed in a junior position with respect to the Contracts. Subject to the first priority of the Additional Lender, the Noteholders may look to any Contracts purchased from the proceeds of the Additional Borrowing, in addition to other Contracts purchased by the Company, as services of payment on the Notes. THE CONTRACTS The Contracts will consist of retail installment sales contracts and promissory notes. The Contracts will be secured by liens on used automobiles and light trucks (the "Financed Vehicles") and will be purchased by the Company, at a discount, using (i) the net proceeds from the sale of Notes, and (ii) possible Additional Borrowing from the Additional Lender and (iii) so long as no Event of Default exists, any remaining net collection proceeds from previously purchased Contracts. The Contracts will be purchased and serviced, on behalf of the Company, under the terms of a Master Contract Purchasing Agreement and a Servicing Agreement (collectively, the "Servicing Agreement") between the Company and SAI. The Contracts will be originated by automobile dealers ("Dealers"). The Company may also purchase Contracts which are lease agreements for Financed Vehicles. THE CONTRACT All proceeds from the Contracts will be paid PROCEEDS directly by the obligors on the Contracts ("Obligors"), or deposited by SAI, to a lockbox account maintained by SAI in the Company's name (the "Collections Account"). On at least a weekly basis, the Company is required to transfer all amounts in the Collections Account attributable to the Contracts to a commercial bank account maintained by the Company (the "Operating Account"). So long as no Event of Default exists and subject to the receipt by the Trustee of any required certificates, and subject further to any restrictions imposed by any Additional Lender, the Company will have the right to cause the funds contained in the Operating Account to be withdrawn or applied for the following purposes in the following priority: first, to the payment of any interest and principal due to any Additional Lender; second, to the payment of any interest due on the outstanding Notes on each Payment Date; third, to any amounts due the Trustee for its fees and expenses; fourth, except during an Event of Default, to the payment of any other allowed expenses ("Allowed Expenses"), as certified by the Company; fifth, to the deposit into the trust account established in the name of the Trustee (the "Trust Account") for payment of principal owing on the Notes on any Payment Date occurring on or after September 15, 2000; and, sixth, except during an Event of Default, to the purchase of additional eligible Contracts, as certified by the Company and SAI. Otherwise, the Company is prohibited from withdrawing any funds from the Operating Account. The Trustee will be provided regular reports by which the use of such funds may be monitored and will have the right to make any required transfers of funds. Allowed Expenses include servicing, trustee, bank, legal and accounting fees, taxes, repossession, repair and liquidation expenses, insurance premiums and vehicle warranty service contract charges. See "Description of the Notes--The Contract Proceeds and Operating Account". THE TRUST On or before each Payment Date, the Company will transfer ACCOUNT funds from the Operating Account to the Trust Account in an amount sufficient to pay all interest on the Notes due on such date. Commencing September 15, 2000 and on each of the five Payment Dates thereafter, the Company will transfer funds from the Operating Account to the Trust Account in an amount sufficient to pay the principal of the Notes due on such date. There is no schedule of minimum payments required to be made into the Trust Account. All transfers to the Trust Account will be subject to the priority rights of the Additional Lender, if any. PURCHASE OF The Company will purchase additional Contracts using CONTRACTS (i) the net proceeds from the sale of Notes, (ii) possible Additional Borrowings from the Additional Lender, and (iii) so long as no Event of Default exists, any remaining net collection proceeds from previously purchased Contracts, after deduction for payments of interest and Allowed Expenses. On a monthly basis, the Company and SAI will certify to the Trustee, among other things, that the Contracts satisfy certain purchasing criteria established by the Indenture and the Servicing Agreement. See "Purchase and Collection of Contracts--Contract Purchase Criteria". The Company's cost for each Contract will equal the purchase price payable to the motor vehicle dealer for the Contract. The Company must also pay a fee per purchased Contract equal to the lesser of $500, or 5% of the total amount of installments due under the Contract as of the date of purchase (the "Purchase Administration Fee") to SAI for its purchase administration services. Although direct purchases from dealers are expected to be the norm, the Company may also purchase Contracts that SAI or its affiliates has previously purchased. In order to determine the cost to the Company for each such Contract, SAI will first determine the original purchaser's initial internal rate of return on its investment in the Contract as of its purchase from the dealer, assuming that the Contract was paid in full in accordance with its scheduled installments. The cost to the Company will then be (i) an amount determined so that it will experience the same internal rate of return on its investment in the Contract, assuming that the Contract is paid in full in accordance with its scheduled installments, plus (ii) the Purchase Administration Fee paid by the original purchaser with respect to such Contract. Through application of the purchasing criteria, the Company will endeavor to purchase Contracts from dealers (i) at prices involving an initial payment to the dealer (A) of no more than 90% of principal plus accrued interest (pay-off balance) of such Contract at the time of purchase, and (B) limited to 140% of the average trade-in price (wholesale value) plus tax, title, license and warranty (or, in the case of certain popular models, 140% of the dealer's cost plus tax, title, license and warranty), (ii) having maturities that are less than the remaining useful lives of the Financed Vehicles, and (iii) under which down payments (in cash or trade-in vehicle) of at least approximately 10% of the dealer's cost (excluding sale preparation expenses) have been paid by the Obligors. In addition, SAI has established certain criteria with respect to Dealers from which Contracts will generally be purchased. SAI does not specifically limit the number of Contracts originated by any one Dealer that may be included in the Contracts inventory at any one time. The Company may purchase Contracts from dealers subject to the requirement that the selling dealer repurchase any Contract that becomes overdue for more than 60 days, although the terms of any such requirement for any particular dealer or group of Contracts purchased will be determined by SAI and such dealer. See "Purchase and Collection of Contracts". The average term remaining, and the average principal amount, for Contracts in SAI's servicing portfolio at September 30, 1996 is approximately 28 months and approximately $8,000, respectively. Contracts purchased on behalf of the Company may vary from these averages. REDEMPTION OF The Company may elect on any Payment Date to redeem NOTES the Notes in whole or in part, thus reducing the term of the Notes. The redemption price for the Notes is 100% of the outstanding principal amount of the Notes, together with accrued interest through the date of redemption, without any premium or penalty. In the event that prior to 180 days following the termination date of the offering the Company has been unable to invest the net proceeds from the sale of the Notes in suitable Contracts, the uninvested net proceeds at such date will be utilized for a mandatory partial redemption of the Notes within 45 days following such date. See "Description of the Notes-- Redemption". SERVICER Sovereign Associates, Inc. ("SAI"), a Texas corporation and a wholly-owned subsidiary of Sovereign, whose principal offices are located at 4015 Beltline Road, Building B, Dallas, Texas 75244. SAI is obligated pursuant to the Servicing Agreement, subject to the limitations set forth therein, to provide services for the purchasing and collecting of the Contracts on behalf of the Company, and to repurchase certain of the Contracts under certain circumstances. For its services with regards to the collection of the Contracts, SAI will be entitled to a monthly servicing fee of $20 for each Contract that is not assigned for repossession (the "Contract Servicing Fee") and a fee of $125 for each Financed Vehicle assigned for repossession. See "Purchase and Collection of Contracts". SAI provides purchasing and collecting services on behalf of a number of affiliated entities (the "Securitization Subsidiaries") which have issued notes to investors and used the net proceeds thereof to purchase consumer contracts and notes created by the retail sale and financing of used automobiles and light trucks. The average term remaining, and the average principal amount, for contracts in SAI's servicing portfolio at September 30, 1996 is approximately 28 months and approximately $8,000, respectively. SAI expects that (a) its repossession rate, over the life of the portfolio of all Contracts purchased on behalf of the Company through its services, will be in the range of 15% to 20% of such contracts, and (b) the average purchase price payable to motor vehicle dealers will be no more than 66% of the original total future installments payable under the Contracts. See "Information Regarding Contracts Purchased and Serviced by SAI". TRUSTEE Sterling Trust Company, Waco, Texas. ADMINISTRATOR Sovereign Credit Corporation ("Sovereign"), a Texas corporation and a wholly-owned subsidiary of Sovereign Credit Holdings, Inc., will administer and manage the ongoing operations of the Company. Sovereign will pay all general and administrative overhead expenses incurred by the Company, other than Allowed Expenses. Sovereign will also pay offering and organization expenses of the Company (other than commissions to broker-dealers) to the extent such expenses exceed 2% of the gross proceeds from the sale of the Notes. For such services, the Company will pay Sovereign a fee equal to 5.5% of the gross proceeds from the sale of the Notes (5.0% of the gross proceeds in excess of $9,000,000). See "Use of Proceeds". In addition, Sovereign will administer Noteholder payments, communications and relations. For such services, the Company will pay Sovereign a monthly fee equal to 1/12 of 0.5% of the outstanding principal amount of the Notes (the "Investor Administration Fee"), payable on or before the 15th day of each month. See "Management--Certain Relationships and Related Transactions". TAX STATUS The Notes will be taxable obligations under the Internal Revenue Code of 1986 as amended, and interest paid or accrued will be taxable to non-exempt holders of the Notes. Frederick C. Summers, III, a Professional Corporation, has delivered its opinion to the Company as to the tax status of the Notes. See "Certain Federal Income Tax Considerations". USE OF The Company will use at least 84.5% of the proceeds from the sale PROCEEDS of the Notes for the purchase of Contracts and no more than 15.5% of such proceeds for commissions, fees and expenses as stated in this Prospectus. See "Use of Proceeds".

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those described in the forward-looking statements. Investors should carefully consider the information under the heading "Risk Factors" in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. THE COMPANY CardioVascular Dynamics, Inc. ("CVD" or the "Company") designs, develops, manufactures and markets catheters used to treat certain vascular diseases. The Company's catheters are used in conjunction with angioplasty and other interventional procedures such as vascular stenting and drug delivery. The Company's proprietary Focus and Multiple Microporous Membrane ("M(3)") technologies enable physicians to deliver therapeutic radial force, stents, drugs or contrast media accurately and effectively to the treatment site, and also allow the perfusion of blood during an interventional procedure. The Company believes that the combination of these technologies on a multiple-purpose catheter enables physicians to effectively perform challenging interventional procedures, resulting in improved treatment outcomes and lower costs. The Company has eleven issued U.S. patents covering certain aspects of its catheter technologies. Cardiovascular disease, the leading cause of death in the United States, is caused principally by atherosclerosis. Atherosclerosis is a progressive and degenerative vascular disease in which cholesterol and other fatty materials are deposited on the walls of blood vessels, forming a build-up known as plaque. Treatments for atherosclerosis include drug therapy and open-heart bypass surgery. In addition, cardiologists are increasingly utilizing minimally invasive catheter-based treatments such as balloon angioplasty, atherectomy and laser angioplasty to treat atherosclerosis. Although catheter-based interventional therapies are generally successful in initially increasing blood flow, studies indicate that after a traditional coronary balloon angioplasty up to 50% of treated patients experience restenosis (generally defined as a 50% or greater reduction in the lumen, or interior, diameter of the treated vessel at the lesion site). In addition, studies show that 5% to 8% of elective coronary balloon angioplasty patients may experience acute reclosure of the treated vessel. Acute reclosure is an increase in the severity of the vessel closure accompanied by a reduction in blood flow within the vessel as a consequence of the intervention which occurs within 24 hours of the procedure. A study has also indicated that angioplasty of chronic total occlusions represents 10% to 20% of all coronary angioplasty procedures. A chronic total occlusion is a complete blockage of the vessel preventing blood flow beyond the lesion site. The Company believes that these challenges are inadequately addressed with existing, single function, uniform diameter angioplasty balloons. However, while the Company believes that its products address certain disadvantages of existing catheter technology, limitations remain in the use of balloon angioplasty to treat atherosclerosis. The Company's products may not be suitable for the treatment of all forms of atherosclerosis. For example, in many cases the existence of a total occlusion limits treatment options to bypass surgery. CVD has utilized its core proprietary technologies to develop catheters that provide clinical and cost benefits in the treatment of vascular diseases. The Company's catheters are designed to address three principal challenges facing cardiologists: restenosis of a treated vessel, chronic total occlusions and acute reclosure of a vessel during or soon after a procedure. The Company's patented Focus technology combines compliant and non-compliant balloon materials on a single catheter, creating an angioplasty balloon that has an adjustable, larger center diameter with fixed, smaller diameters at each end. These characteristics allow a single balloon to expand to multiple diameters, enabling the physician to perform interventional procedures in vessels of varying diameters and anatomical locations. The Company's proprietary M(3) technology combines multiple membranes of polymeric balloon material to form a single balloon that enables the accurate delivery of drugs or contrast agents to the lesion or thrombus site. The M(3) technology can also be utilized to provide perfusion of blood during an interventional procedure. The Company believes that the Focus and M(3) technologies may enable physicians to cost-effectively treat vascular diseases by reducing the cost of those procedures which require more than one catheter. THE MERGER On January 26, 1997, EndoSonics and Cardiometrics entered into an agreement which would result in the acquisition of Cardiometrics by EndoSonics through the merger (the "Merger") of River Acquisition Corporation ("Merger Sub"), a wholly-owned subsidiary of EndoSonics, with and into Cardiometrics. The Merger is subject to the terms and conditions of an Agreement and Plan of Reorganization, dated as of January 26, 1997, as subsequently amended (the "Reorganization Agreement"), among Endosonics, Merger Sub and Cardiometrics. In the Merger, Merger Sub will be merged with and into Cardiometrics; Cardiometrics will be the surviving corporation and will become a wholly-owned subsidiary of EndoSonics. Pursuant to the Merger, each outstanding share of the Common Stock of Cardiometrics ("Cardiometrics Common Stock") will be converted, without any action on the part of the holder thereof, into the right to receive the following (the "Merger Consideration"): (i) .35 shares of EndoSonics Common Stock; (ii) $3.00 in cash; and (iii) at least .1364 but no more than .19 shares of CVD Common Stock (adjusted as set forth in the following sentence, the "CVD Exchange Ratio"). If, based on the average closing prices of EndoSonics Common Stock and CVD Common Stock for the ten trading days immediately preceding (and including) the third trading day prior to the special meeting of Cardiometrics' stockholders to approve the Merger and using a CVD Exchange Ratio of .1364, the Merger Consideration would be less than $8.00, the CVD Exchange Ratio will be increased from .1364 such that the Merger Consideration shall equal $8.00, but in no event shall the CVD Exchange Ratio exceed .19. Each outstanding option to purchase shares of Cardiometrics Common Stock (a "Cardiometrics Option") will, pursuant to its terms, accelerate immediately prior to the consummation of the Merger and become fully exercisable for all the shares of Cardiometrics Common Stock at the time subject to that option. Upon the consummation of the Merger, each Cardiometrics Option and each outstanding warrant to purchase shares of Cardiometrics Common Stock (a "Cardiometrics Warrant") will be assumed in part by EndoSonics and converted into an option or warrant, as applicable, to purchase 0.35 shares of EndoSonics Common Stock for each share of Cardiometrics Common Stock subject to that option or warrant, as applicable, immediately prior to the Merger, and the exercise price per share payable under the assumed option or warrant, as applicable, will be appropriately adjusted to reflect such conversion ratio. The balance of each Cardiometrics Option and Cardiometrics Warrant will be converted into the right to receive a payment from EndoSonics, to be made in cash and shares of CVD Common Stock, equal in value to (i) the portion of the Merger Consideration paid in cash and shares of CVD Common Stock per outstanding share of Cardiometrics Common Stock multiplied by the number of shares of Cardiometrics Common Stock subject to the option or warrant, as applicable, immediately prior to the Merger, less (ii) the difference between the aggregate exercise price in effect for that option or warrant, as applicable, immediately prior to the Merger and the aggregate exercise price in effect for that option or warrant, as applicable, immediately after the partial assumption by EndoSonics. Cardiometrics stockholders will receive cash in lieu of fractional shares of EndoSonics Common Stock and CVD Common Stock.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and the related notes thereto appearing elsewhere in this Prospectus. Prospective investors should carefully consider the matters set forth under "Risk Factors" herein. Unless the context otherwise indicates, (i) the information in this Prospectus assumes no exercise of the Underwriters' over-allotment option and (ii) all share and per share data has been restated to reflect a 2.3231-for-one stock split in the form of a 132% stock dividend on all shares of capital stock outstanding on May 6, 1996 and a recapitalization of the Company's capital stock in July 1996. All references to "Phoenix" or the "Company" include Phoenix International Ltd., Inc. and its subsidiaries. THE COMPANY Phoenix International Ltd., Inc. ("Phoenix" or the "Company") is a leading provider of highly adaptable, enterprise-wide client/server application software to the financial services industry. The Company's primary market focus in the United States is on middle market financial institutions and internationally is on those retail-oriented institutions located within Africa, Asia-Pacific, Europe, Latin America/Caribbean and the Middle East that have up to 300 branches and/or one million accounts ("Tier 2 Banks"). Phoenix has combined (i) its management's extensive experience with banking and banking software systems, (ii) input from a consortium of financial institutions (the "U.S. Bank Partners") concerning bank operational and flexibility needs, and (iii) recent advances in client/server technology to design and develop an innovative new banking software system (the "Phoenix System"). The Phoenix System addresses many of the deficiencies of the mainframe and mid-range legacy computer systems on which most banks currently operate by allowing financial institutions to integrate data into a comprehensive management information network. Like legacy systems, the Phoenix System supports core areas of bank data processing, including system administration, account processing of loans and deposits, nightly processing, general ledger, budgeting, teller functions and holding company accounting. Unlike legacy systems, the Phoenix System is a fully integrated system that provides significant advantages in three critical areas: (i) customer relationship management; (ii) management decision support; and (iii) financial product development. In addition, the Phoenix System is flexible and scalable, it stores dates and performs calculations using codes written in four-digit years and it allows financial institutions to take advantage of emerging technologies through its open architecture technology and advanced software systems. As a result of the Company's recent acquisition of Hampton Resources Limited and its operating subsidiaries, Priority Solutions Limited and Priority Solutions International Limited (collectively, "Priority Solutions"), a New Zealand-based provider of banking software products, the Company also offers stand-alone trade finance and global payments software products as part of its international banking software applications. As of June 30, 1997, the Phoenix System supported the core processing needs of 33 institutions with approximately 157 branch locations worldwide. For the fiscal years ended December 31, 1995 and 1996 and for the three months ended March 31, 1997, the Company had total revenues of $5.0 million, $10.4 million and $3.7 million, and net income per share of $0.17, $0.59 and $0.24, respectively. The Company's Chairman of the Board and Chief Executive Officer, Bahram Yusefzadeh, has over 28 years of experience in the banking software industry. In addition, the Company's senior management team has over 135 years of experience in the retail banking and software industries and 45 years of trade finance and wholesale banking experience. In the 1970s, Mr. Yusefzadeh co-founded Nu-Comp Systems, Inc. and led the development of one of the first integrated legacy core banking systems, the Liberty Banking System, which at one time was used by over 260 banks. Mr. Yusefzadeh founded Phoenix for the purpose of developing and marketing a new generation of integrated banking software applications using client/server technology that would replace less flexible and technologically dated legacy systems. The Phoenix System's development was the result of a joint effort among the Company's management, Hewlett-Packard Company ("Hewlett- Packard") and the U.S. Bank Partners. In addition, the U.S. Bank Partners provided a substantial portion of the Company's initial capital and continues to contribute to the Company's strategic planning and product development. Since the 1970s, financial institutions have used legacy computer systems which were originally developed for large mainframe and mid-range computer environments. These legacy computer systems, which the Company believes currently account for roughly 85-90% of the installed base of core applications software systems used by the financial services industry, were designed to process transactions rather than to support management decision-making and did not interface with other applications across the enterprise. Today, the competitive landscape has changed dramatically and banks now compete directly with diversified non-bank financial service providers. In order to stay competitive, these institutions now face an increased need for detailed, easily accessible information about their institutions and customers in order to develop and market profitable products and services more effectively and to expand customer relationships. The Phoenix System allows financial institutions to integrate data into a comprehensive management information network that is readily accessible throughout the entire institution, flexible with shared information and easily interfaced. The Company designed the Phoenix System to be easy to use and simple to learn, which enables a financial institution to provide higher quality customer service with reduced operating and training costs. Phoenix believes that few financial institutions have fully realized the benefits offered by client/server technology and that the Phoenix System is well-positioned to meet the sophisticated demands of financial institutions. The Company's primary objective is to advance its position as a leading supplier of enterprise-wide client/server application software for the financial services industry worldwide by pursuing the following strategies: - Maintain Technology Leadership and Enhance Product Functionality. Phoenix intends to maintain its technology leadership position by continuing to integrate new technologies, add new applications, enhance existing applications and expand functionality to incorporate innovative products and enhancements to address the changing needs of it customers. From the Company's initial public offering in July 1996 through June 30, 1997, the Company developed two major releases of the Phoenix System, including Version 2.0 scheduled for release in the third quarter of 1997, which include numerous system enhancements; introduced and installed a version of the Phoenix System which operates in a Microsoft Windows NT environment (the "NT Version"); implemented an enterprise-wide integrated Intranet system for two client institutions; and installed a custom database-driven Internet web site in one client institution. - Expand Domestic Distribution. The Company plans to continue to expand its domestic distribution by increasing its direct sales and implementation forces in key geographic locations, by strengthening its current sales and marketing relationships with value added resellers ("VARs") and agents and by seeking additional strategic sales and marketing relationships particularly with organizations that will market the Phoenix System primarily to smaller financial institutions within specified territories. The Company also intends to form strategic relationships with several small to medium size service bureaus looking to replace their current legacy systems with open system alternatives. - Expand International Distribution. The Company plans to continue to expand its global distribution and market penetration by increasing its international direct sales and implementation forces, by enlarging its international offices, by opening additional sales and marketing offices in strategically located cities worldwide, by leveraging its strategic alliances with VARs and agents and by seeking additional strategic sales, marketing and distribution relationships. Phoenix designed its software to incorporate numerous international features, has acquired additional international capabilities and intends to continue to develop and/or acquire additional international functionality and to integrate new technologies. - Leverage Existing Customer Base. The Company intends to continue to leverage its implemented customer base by (i) maximizing recurring revenues from its customers, (ii) offering complementary products and services to existing customers and licensing additional subsidiaries of existing bank holding companies, (iii) obtaining favorable references from existing customers in the course of developing new customer relationships, and (iv) consulting with existing customers in the development of new products and product enhancements. - Broaden Primary Markets. The Phoenix System runs on a UNIX operating system platform and in a Microsoft Windows NT environment. The Company believes that the NT Version, which was completed in the first quarter of 1997, will be attractive to a wide group of institutions because of the lower overall costs related to operating in a Microsoft Windows NT environment. The Company believes that as Microsoft expands its marketing of the Windows NT product and enhances the capabilities of this product, more financial institutions, regardless of asset size, will choose to use the Windows NT operating system rather than the UNIX operating platform. The Company intends to take advantage of improvements made to both UNIX and NT operating systems to expand the processing capabilities and functionality of the Phoenix System to address the needs of financial institutions with larger asset sizes or more complex branch networks. - Pursue Complementary Acquisitions. Phoenix intends to pursue strategic acquisitions of providers of complementary technologies, products and services in order to more rapidly (i) optimize the package of software applications and solutions offered by the Company, (ii) expand the Company's customer base by converting the customers of the acquired companies to the Phoenix System, (iii) maximize existing channels of distribution and add new channels of distribution, and (iv) gain experienced personnel with specialized knowledge of the domestic and international financial services industries. Phoenix also intends to invest in companies with complementary technologies and products in order to enhance the functionality of the Phoenix System. See "Recent Developments," "Risk Factors -- Risks Associated with Acquisitions" and "Use of Proceeds." The Company was incorporated in Florida in January 1993. The Company's principal offices are located at 500 International Parkway, Heathrow, Florida 32746, and its telephone number is (407) 548-5100. The Company maintains a site on the Internet's World Wide Web. Information contained in the Company's web site shall not be deemed to be part of this Prospectus. THE OFFERING Common Stock offered by the Company............................. 1,254,000 shares Common Stock offered by the Selling Shareholders...................... 266,000 shares Common Stock to be outstanding after the Offering........................ 5,198,692 shares(1) Use of Proceeds..................... To fund product development; to expand sales and marketing resources; to pay certain license fees and increase its investment in a provider of complementary technologies; and for general corporate purposes, including the possible acquisition of complementary technologies, products and services and companies which provide these technologies, products and services. See "Use of Proceeds." Nasdaq National Market symbol....... PHXX - --------------- (1) Excludes 826,476 shares of Common Stock issuable upon exercise of stock options outstanding as of May 31, 1997 at exercise prices ranging from $4.30 to $21.13 per share. RISK FACTORS In addition to the other information contained in this Prospectus, prospective investors should consider carefully a number of factors that could affect the Company's operations and financial results. See "Risk Factors" beginning on page 9 for a discussion of such factors. This Prospectus contains statements which constitute forward-looking statements, including statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the use of the proceeds of the Offering, (ii) the Company's financing plans, (iii) trends affecting the Company's financial condition or results of operations, (iv) the Company's growth strategy and operating strategy, and (v) the declaration and payment of dividends. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate," and similar expressions used in this Prospectus that do not relate to historical facts are intended to identify forward-looking statements. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that may cause actual results to differ materially from those contemplated, projected, forecast, estimated or budgeted in such forward-looking statements include, among others, the following possibilities: (i) heightened competition, including specifically the intensification of price competition, the entry of new competitors, and new services by new and existing competitors; (ii) failure to identify, acquire or profitably manage additional businesses or successfully integrate acquired businesses, if any, into the Company without substantial costs, delays or other operational or financial problems; (iii) failure to obtain new customers or retain existing customers; (iv) inability to carry out marketing and sales plans; (v) loss of key executives; (vi) general economic and business conditions which are less favorable than expected; and (vii) unanticipated changes in industry trends. The information contained in this Prospectus, including without limitation the information set forth under the headings "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," identifies additional important factors that could cause such differences. SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA <TABLE> <CAPTION> FISCAL YEARS ENDED ELEVEN THREE MONTHS ENDED MARCH 31, ------------------------- MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, ---------------------------- 1994 1995 1995(1) 1996 1996 1997 ----------- ----------- ------------ ------------ ----------- -------------- <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues................... $ 30,000 $ 427,487 $5,023,711 $10,405,547 $ 1,781,330 $ 3,713,724 Operating expenses......... 1,048,560 3,341,085 4,318,946 7,907,662 1,514,370 2,602,114 ----------- ----------- ------------ ------------ ----------- -------------- Operating income......... (1,018,560) (2,913,598) 704,765 2,497,885 266,960 1,111,610 Interest income (expense), net...................... 3,603 7,244 109,755 204,317 27,566 69,399 Other income (expense), net...................... 1,815 75,989 (4,252) (2,242) -- -- ----------- ----------- ------------ ------------ ----------- -------------- Income (loss) before income taxes.................... (1,013,142) (2,830,365) 810,268 2,699,960 294,526 1,181,009 Income tax expense......... -- -- 255,999 481,666 153,000 167,713 ----------- ----------- ------------ ------------ ----------- -------------- Net income (loss)........ $(1,013,142) $(2,830,365) $ 554,269 $ 2,218,294 $ 141,526 $ 1,013,296 ============ ============ ============ ============ ============ ============== Net income (loss) per share(2)............... $ (0.51) $ (1.11) $ 0.17 $ 0.59 $ 0.04 $ 0.24 ============ ============ ============ ============ ============ ============== Weighted average shares outstanding(2)........... 1,971,573 2,560,151 3,235,532 3,760,680 3,298,444 4,286,640 OTHER DATA: Total product development expenditures(3).......... $ 621,373 $ 1,455,781 $1,788,172 $ 2,966,515 $ 612,346 $ 915,503 Number of installations(4)......... -- 2 12 27 14 29 Total personnel(5)......... 23 48 87 124 93 149 </TABLE> <TABLE> <CAPTION> AT MARCH 31, 1997 ---------------------------- ACTUAL AS ADJUSTED(6) ----------- -------------- <S> <C> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Working capital..................................................................... $ 6,539,885 $ 34,473,120 Total assets........................................................................ 13,764,384 41,697,619 Long-term liabilities(7)............................................................ 785,219 785,219 Total shareholders' equity.......................................................... 10,748,081 38,681,316 </TABLE> - --------------- (1) During 1995, the Company changed its fiscal year end from January 31 to December 31. Accordingly, the consolidated financial statements for the period ended December 31, 1995 include only eleven months of operations. (2) See Note 1 of Notes to Consolidated Financial Statements and Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements. (3) The total of capitalized software development costs and product development expenses for the period. (4) The total number of separately processed financial institutions or organizations using the Phoenix System to support daily operations at the end of the period. (5) The total number of personnel, including contract workers and part-time employees at the end of the period. (6) Adjusted to reflect the sale of 1,254,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $24.50 per share, and the application of the estimated net proceeds therefrom as described under "Use of Proceeds." (7) Long-term liabilities includes the long-term portion of capitalized lease obligations and deferred revenue.

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+PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including "Risk Factors," and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. The discussion in this Prospectus contains forward-looking statements. Future events anticipated in the forward-looking statements contained in this Prospectus are uncertain. Actual events, and the Company's actual results, may differ materially from those predicted, assumed or discussed in such forward-looking statements. Factors that may cause or contribute to such differences include those discussed in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements, wherever they appear in this Prospectus. THE COMPANY International Manufacturing Services, Inc. (together with its subsidiaries, the "Company") provides a broad range of advanced, integrated electronics manufacturing services ("EMS") to electronics original equipment manufacturers ("OEMs") primarily in the computer peripherals, data communications and telecommunications markets. The Company's services include product design, prototyping, printed circuit board ("PCB") assembly, final system assembly, materials procurement, inventory management, testing, packaging, distribution and depot repair. The Company combines its manufacturing experience and operational infrastructure in Asia with its design, prototype and manufacturing capabilities in the United States to provide cost-effective, flexible EMS solutions to its customers. The Company maintains its materials procurement operations in Hong Kong to be near low cost suppliers and conducts volume manufacturing operations in Thailand and China to access low cost labor, reduce overhead and take advantage of certain local tax benefits. According to Technology Forecasters, the worldwide market for electronics manufacturing services was $59 billion in 1996 and is expected to grow, at an annual rate of approximately 25% through the year 2001, to $178 billion. As OEMs have become aware of the long-term advantages of outsourcing, EMS providers have expanded the range of services offered and have become increasingly integral to OEMs' overall enterprise strategies. Today, OEMs rely upon EMS providers' advanced manufacturing capabilities and related services to obtain a number of benefits, including: lower product cost; shorter new product introduction cycles; more rapid time to market and time to volume production; reduced working capital and capital expenditures; and more flexible response to design changes and fluctuations in the availability of materials. Outsourcing also allows OEMs to focus resources on their core competencies, such as research and development and sales and marketing. A key component of the Company's strategy is to leverage its presence in low cost regions of Asia and its expertise in materials procurement and manufacturing to provide technologically advanced, flexible and cost-effective EMS solutions to OEMs' increasingly complex needs. In addition, the Company intends to diversify its revenue base by establishing strategic relationships with major and emerging OEMs in rapidly growing industry sectors, such as data communications and telecommunications, while expanding the range of manufacturing services it provides to its existing customer base. Further, by participating in the early stages of product design and leveraging its volume materials procurement capabilities, the Company seeks to increase manufacturing efficiency and accelerate its customers' time to market and time to volume production. The Company's electronics manufacturing services range from the assembly of PCBs and backplanes (interconnecting structures which hold, provide power to, and connect data signals among PCB assemblies in electronic systems) to subsystem and complete product assembly. The majority of these products include complex, high density surface-mount assemblies. PCB assembly activity primarily consists of the placement and attachment of electronic and mechanical components on printed circuit boards using both surface-mount and pin-through-hole technologies. The Company has recently added press-fit technology to its existing capabilities for the manufacturing of backplane assemblies. The Company also performs final assembly of customer products ("box-build") as well as a range of testing, logistics, distribution and depot repair services. The Company's major customers include Maxtor Corporation ("Maxtor"), Bay Networks, Inc., Asante Technologies, Inc., Polaroid Corporation and Symbios Logic, Inc. The Company has also recently initiated significant customer relationships with Advanced Fibre Communications and Polycom, Inc. The Company's Hong Kong operations, which commenced business in 1983, were acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other manufacturing operations and assets. International Manufacturing Services, Inc. was formed in November 1994 as a wholly-owned subsidiary of Maxtor. In June 1996, the Company was recapitalized as an independent company. In this regard, the Company redeemed approximately 76.5% of Maxtor's share ownership with a combination of $25.0 million cash, $20.0 million principal amount senior subordinated notes (including $4.3 million rolled over from a previously outstanding note payable) and a warrant for 300,000 shares of Class A Common Stock. The Company raised the cash portion of the redemption price by issuing a combination of common stock, preferred stock and $12.5 million principal amount junior subordinated notes to a group of investors. These redemption and financing transactions are collectively referred to in this prospectus as the "Recapitalization." See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Transactions" and "Description of Capital Stock." The Company's executive offices are located at 2071 Concourse Drive, San Jose, CA 95131, and its telephone number is (408) 953-1000. THE OFFERING <TABLE> <S> <C> Class A Common Stock offered....................... 5,000,000 shares Common Stock to be outstanding after the Offering......................................... 18,327,500 shares(1) Use of proceeds.................................... For repayment of related party indebtedness and bank borrowings, capital expenditures and general corporate purposes, including working capital Proposed Nasdaq National Market Symbol............. IMSX </TABLE> - --------------- (1) Based on 10,818,075 shares of Class A Common Stock and 2,509,425 shares of Class B Common Stock as of July 31, 1997, assuming conversion of all outstanding shares of preferred stock into Common Stock as a result of this Offering. Excludes (i) 2,895,000 shares issuable upon exercise of outstanding options as of July 31, 1997 granted under the Company's 1996 Stock Option Plan, (ii) 420,000 shares reserved for future issuance as of July 31, 1997 under the Company's 1996 Stock Option Plan, (iii) 250,000 shares reserved for future issuance under the Company's 1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock Purchase Plan, (iv) 1,750,000 shares reserved for future issuance under the Company's 1997 Stock Plan (of which options to purchase up to 1,027,500 shares are intended to be granted upon the effectiveness of this Offering at the initial public offering price), and (v) 225,000 shares reserved for future issuance under the Company's 1997 Director Option Plan (of which options to purchase 70,000 shares will be automatically granted upon the effectiveness of this Offering at the initial public offering price). See "Management -- Compensation Plans" and Note 14 of Notes to Consolidated Financial Statements. As used in this Prospectus, the "Company" refers to International Manufacturing Services, Inc. and its consolidated subsidiaries, unless context otherwise indicates. Except as otherwise indicated, the information contained in this Prospectus reflects a three-for-two stock split of the Common Stock and Preferred Stock effected in September 1997 and assumes (i) the conversion of all outstanding shares of the Company's Series A Preferred Stock and Series B Preferred Stock (the "Preferred Stock") into 3,490,575 shares of Class A Common Stock and 2,509,425 shares of Class B Common Stock, respectively, which will occur upon the consummation of this Offering, (ii) the Company will file an amended and restated certificate of incorporation concurrently with the closing of this Offering to eliminate the Company's currently existing series of Preferred Stock and authorize undesignated preferred stock, and (iii) no exercise of the Underwriters' over-allotment option. "Common Stock" as used herein refers collectively and without distinction to the Company's Class A Common Stock and Class B Common Stock. See "Capitalization," "Description of Capital Stock," "Underwriting" and Note 14 of Notes to Consolidated Financial Statements. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> FISCAL YEARS ENDED(1) THREE MONTHS ENDED --------------------------------------------------------- --------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31, 1993(2) 1994 1995 1996 1997(3) 1996(3) 1997 --------- --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues............................ $ -- $ 254 $ 3,089 $ 68,361 $ 80,546 $21,139 $34,500 Revenues from affiliates(4)......... 42,425 42,093 36,284 340,487 89,149 26,276 30,236 Total revenues.................... 42,425 42,347 39,373 408,848 169,695 47,415 64,736 Gross profit........................ 7,123 6,553 5,578 13,374 14,667 1,052 6,339 Income (loss) from operations....... 4,359 3,973 2,730 7,994 3,626 (3,652) 3,673 Net income (loss)................... 3,513 3,114 1,996 6,137 (599) (4,328) 2,081 Net income (loss) per share(5)...... $ (0.04) $ (0.27) $ 0.13 Shares used to compute net income (loss) per share(5)............... 16,108 16,108 16,108 SUPPLEMENTAL DATA: Supplemental net income (loss) per share(6).......................... $ 0.06 $ (0.23) $ 0.14 </TABLE> <TABLE> <CAPTION> AS OF JULY 31, 1997 ------------------------ ACTUAL AS ADJUSTED(7) ------- -------------- <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents...................................................... $ 1,813 $ 24,463 Working capital................................................................ 5,827 35,977 Total assets................................................................... 70,809 93,459 Current-portion of long-term debt and bank borrowings.......................... 7,580 80 Long-term debt................................................................. 12,635 12,635 Long-term debt due Maxtor...................................................... 20,000 -- Total stockholders' equity (deficit)........................................... (8,536) 41,614 </TABLE> - --------------- (1) Prior to fiscal 1997, the Company's fiscal year ended on the Saturday nearest to March 31. Commencing with fiscal 1997, the Company's fiscal year ends on the Saturday nearest to April 30. Prior to June 1996, the Company's operations were conducted through certain wholly-owned subsidiaries of Maxtor. (2) The consolidated statement of operations data for the fiscal year ended March 31, 1993 are derived from unaudited consolidated financial statements. (3) In the three months ended July 31, 1996, a $2.0 million inventory charge was taken for a customer's cancellation of orders. Portions of this reserve were subsequently reversed in the three months ended January 31, 1997 and April 30, 1997, because the customer purchased some of the inventory in question. In the three months ended July 31, 1996 and in fiscal 1997, the Company also recorded a restructuring charge of $3.0 million associated with the relocation of its Hong Kong manufacturing operations to China. (4) Revenues from affiliates include sales to Maxtor and other entities related to Maxtor through Maxtor's parent company, Hyundai Electronics America. See Note 12 of Notes to Consolidated Financial Statements. Sales to Maxtor were made on a consignment basis (where Maxtor procured all materials used to manufacture product and provided them to the Company at no charge) for years prior to fiscal 1996, on a turnkey basis (where the Company procured all materials used to manufacture product) for fiscal 1996, and on a partial turnkey basis (where some materials were procured by the Company and some materials were procured by Maxtor) for fiscal 1997 and the three months ended July 31, 1997. (5) For an explanation of the determination of net income (loss) per share and per share calculations, see Note 1 of Notes to Consolidated Financial Statements. (6) Represents earnings per share as if long-term debt due to Maxtor and bank borrowings had been retired at the beginning of the period or the date of issuance of the debt, if later, and assumes that an equivalent amount was financed through the sale of equity securities at the assumed price of this Offering (less underwriting discount and offering expenses). (7) Adjusted to reflect the sale by the Company of 5,000,000 shares of Class A Common Stock offered hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization."

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION HEREIN AND IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES TO THE "COMPANY" OR TO "ALLSTAR" REFER TO ALLSTAR SYSTEMS, INC., ITS PREDECESSORS AND SUBSIDIARIES. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE REINCORPORATION OF THE COMPANY AS A DELAWARE CORPORATION IN OCTOBER 1996 AND THE RESULTING 8.15-FOR-1 SHARE CONVERSION OF THE COMMON STOCK AND (II) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. SEE "BUSINESS -- HISTORY AND REINCORPORATION" AND "UNDERWRITING." A GLOSSARY OF NAMES AND CERTAIN TECHNICAL TERMS IS LOCATED AFTER THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS IN THIS PROSPECTUS BEGINNING AT PAGE G-1. THE COMPANY The Company is a growing regional provider of computer and telecommunications hardware and software products and related services. The Company primarily markets its products and services in Texas from two locations in the Houston and Dallas-Fort Worth metropolitan areas. The Company's customer base of approximately 3,400 accounts is comprised primarily of mid-sized companies and regional offices of larger companies in commercial, educational and governmental sectors. The Company positions itself to provide its customers with single-source solutions for both their computer and telecommunications needs by offering a broad range of products and services and by providing the expertise to support integrated computer and telecommunications applications. The Company's revenue is derived from sales of computer hardware and software ("Computer Products"), computer-related information technology services ("IT Services"), telecommunications equipment and services ("Telecom Systems") and the Company's proprietary computer/telephone integration software ("CTI Software"). The Company is an authorized reseller of computer products from Compaq, Hewlett-Packard, IBM, Microsoft, Novell and other leading manufacturers. Long-standing relationships with leading aggregators and wholesale distributors of computer hardware and software products enable the Company to provide its customers with competitive product pricing and ready product availability. IT Services include system design, installation, integration and support services. With respect to Telecom Systems, the Company markets, installs and services telecommunications equipment, including large PBX telephone systems from NEC and Mitel, and smaller "key systems," including products from Inter-Tel, Macrotel and NEC. In 1995, the Company introduced proprietary CTI Software products which facilitate computer and telephone integration ("CTI"), primarily for telemarketing, call center and other high volume calling applications. The Company believes that the trend toward CTI is likely to continue and that integrated voice, data and video communication will become more prevalent and affordable. The Company believes open architecture CTI standards and solutions will develop as they did in the computer industry. As the technology and management of telecommunications and computer systems converge over the next decade, the Company expects that customers will demand products and services which integrate telecommunications and computer technologies. For the year ended December 31, 1996, the Company's operating income increased 81.5% on a 32.1% increase in total revenue from the prior year. For the year ended December 31, 1995, the Company produced a 91.3% increase in operating income on a 42.2% increase in total revenue compared to 1994. The Company's growth has been particularly influenced by the expansion of its Computer Products and IT Services operations into the Dallas-Fort Worth market and the launch of its Telecom Systems business, which completed its first full year of operations in 1995. The Company's goal is to expand its regionally-based business as a provider of computer and telephone hardware and software products and related services. To achieve this objective, the Company intends to pursue several key strategies: EXPAND GEOGRAPHICALLY. The Company intends to open additional offices within Texas and in new regions to service existing customers and attract new customers. The Company plans to open two new offices within the next year, the first in Austin, Texas and the second in San Antonio, Texas. Upon opening an office in San Antonio, the Company will have branch offices in three of the ten largest metropolitan areas in the United States. INCREASE TELECOM SYSTEMS AND CTI SOFTWARE BUSINESSES. The Company began offering Telecom Systems in 1994 and CTI Software in 1995 to capitalize on the growing trend in CTI. The Company intends to (i) expand Telecom Systems operations to the Dallas-Fort Worth market during the third quarter of 1997, (ii) pursue acquisitions of regional telephone system resellers with established customer bases in targeted markets and (iii) increase the variety and capabilities of its CTI Software products through internal development and acquisitions of complementary software products. IMPLEMENT INTERNET-BASED NATIONAL MARKETING PROGRAM. The Company intends to implement a new method of marketing its Computer Products on a nationwide basis under the trade name "800 PC Deals." By accessing an Internet home page currently under development, the Company's sales representatives and customers will be able to obtain product pricing and availability data, enter or change orders and access customer account status information. The Company plans to employ experienced sales representatives in selected metropolitan markets who will be supported by the new Internet-based system and by a national sales support call center performing order entry and customer service functions. 800 PC Deals is anticipated to begin operation in the second half of 1997. The Company's executive offices are located at 6401 Southwest Freeway, Houston, Texas 77074 and its telephone number is (713) 795-2000. THE OFFERING Common Stock offered by the Company............................ 1,500,000 shares Common Stock offered by the Selling Stockholder........................ 267,500 shares Common Stock to be outstanding after this Offering...................... 4,175,000 shares(1) Use of proceeds by the Company....... To repay short-term borrowings, for working capital and for general corporate purposes. See "Use of Proceeds." Nasdaq National Market symbol........ ALLS - ------------ (1) Excludes (i) 417,500 shares of Common Stock reserved for issuance under the 1996 Incentive Stock Plan, of which options to purchase 100,000 shares of Common Stock will be granted upon closing of the Offering with exercise prices at or above the initial public offering price, none of which will be currently exercisable, (ii) restricted stock awards for 14,286 shares which will be granted upon closing of this Offering to certain key employees, none of which will be vested, (iii) 100,000 shares reserved for issuance under the 1996 Non-Employee Director Stock Option Plan, none of which are issued or outstanding and (iv) 176,750 shares of Common Stock issuable upon exercise of the Representatives' Warrants. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------- ------------------------ 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> OPERATING DATA: Total revenue........................ $ 64,076 $ 91,085 $ 120,359 $ 25,948 $ 26,593 Gross profit......................... 8,535 11,228 16,057 3,221 3,831 Operating income..................... 1,087 2,079 3,773 547 696 Income before provision for income taxes.............................. 323 861 2,590 250 407 Net income........................... 183 519 1,603 139 253 Net income per share................. $ 0.07 $ 0.19 $ 0.60 $ 0.05 $ 0.09 Weighted average shares outstanding........................ 2,554,808 2,675,000 2,675,000 2,675,000 2,675,000 </TABLE> AS OF MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED(1) --------- -------------- BALANCE SHEET DATA: Working capital...................... $ 2,534 $ 10,703 Total assets......................... 27,301 27,301 Short-term borrowings(2)............. 10,411 2,242 Long-term debt....................... -- -- Stockholders' equity................. 4,580 12,749 - ------------ (1) As adjusted gives effect to this Offering and the application of the net proceeds therefrom, assuming an initial public offering price of $6.50 per share. See "Use of Proceeds."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to, and should be read in conjunction with, the more detailed information and Financial Statements (including the Notes thereto) appearing elsewhere in this Prospectus. All financial statements set forth herein for the Company have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). THE COMPANY Dransfield China Paper Corporation (which, together with its subsidiaries, is referred to herein as the "Company") is a Hong Kong-based company with operations in Hong Kong, Macau, and the People's Republic of China ("PRC"). It was incorporated as an International Business Company under the laws of the British Virgin Islands (the "B.V.I.") on June 24, 1996. On February 26, 1997, it merged with Dransfield Paper Holdings Limited, another B.V.I. international business company, which had been incorporated on March 11, 1994, and had succeeded to, and expanded, the business of A Dransfield & Co., Ltd., conducted since 1975, of distributing in Hong Kong and Macau paper handkerchiefs under the brand name of "Tempo." The Tempo products were manufactured by Vereinigte Papierwerke, a Swiss company, which product rights were sold to Proctor & Gamble in 1995. Based on the Company's surveys and management estimates, Tempo's market share of paper handkerchiefs in Hong Kong and Macau was 46% when the Company ceased distribution of this product in June 1997 in anticipation of commencing distribution in July 1997 of its own manufactured and branded paper products - paper handkerchiefs, tissues, napkins and toilet rolls. In November 1994 the Company's predecessor, Dransfield Paper Holdings Limited, initiated a planned expansion of its business to become a vertically integrated, consumer hygienic paper manufacturing and distribution company. Four paper mills are planned to be built in China; two are under construction; one is partially operational. Some 96% of the equity of the Company is owned by Dransfield Holdings Limited, a Hong Kong-based Cayman Islands company listed on the Hong Kong Stock Exchange since April 1993. The Company's mailing address is 36-42 Pok Man Street, 1st and 2nd Floors, Mongkok, Kowloon, Hong Kong. Its direct dial telephone number (from the United States) is 011-852-2787-0838.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Prospective investors should consider carefully the information discussed under "Risk Factors." Except as set forth in the Consolidated Financial Statements and unless otherwise indicated, all information in the Prospectus (i) assumes no exercise of the Underwriters' over- allotment option, (ii) reflects the conversion of all outstanding shares of Series A Convertible Preferred Stock (the "Preferred Stock") into Common Stock effective upon consummation of the offering and (iii) gives effect to the Recapitalization (as defined in "Description of Capital Stock"). See "Underwriting" and "Description of Capital Stock." THE COMPANY Template Software, Inc. provides enterprise-wide software solutions to organizations that require large-scale, distributed computing systems through its reusable software templates, robust software development environment and staff of software development professionals. The Company believes that, by combining its reusable software templates, consisting of over one million lines of reusable object code, and its family of visual development tools, its clients can obtain solutions in less time and at lower cost than with traditional software development techniques. The Company's current templates can provide up to 90% of the code necessary for a complete, functioning application. The Company's solutions are targeted at large-scale, mission-critical applications, such as securities trading, telecommunications service management, aircraft maintenance scheduling, air traffic control and network monitoring systems. According to a recent industry study, more than $250 billion is currently spent each year in the United States on information technology application development. In an effort to gain a competitive advantage in today's global markets, many companies are automating business processes by employing flexible, open and distributed computing architectures, rather than relying on traditional centralized systems. These distributed computing environments typically consist of a mix of complex new and legacy hardware and software systems, which must be integrated to allow enterprise-wide business processes to function. Despite the increased complexity and sophistication required to meet these new distributed computing challenges, businesses are demanding faster development and deployment times, as well as lower prices, for information technology solutions. These businesses are also demanding solutions which are adaptable and proven to work in mission-critical operational settings. To address these needs, the Company has developed a family of broadly targeted foundation templates which are used to build custom, enterprise-wide, distributed applications. The Company's foundation templates provide up to 75% of the code required for a complete application. In addition, the Company has developed cross-industry templates, and is currently developing industry-specific templates, each of which is designed to be layered on top of the Company's foundation templates to provide even more pre-written code for specific business solutions. The Company's cross-industry templates provide an additional 10-30% of completed application code, and the Company believes its industry-specific templates will provide 5-15% more of such code. Using the Company's templates, distributed applications can be rapidly developed either by the Company's professional software developers, or by a client's staff. The Company believes that its family of proven, reusable templates gives it a competitive advantage by permitting its clients to obtain highly adaptable, mission-critical solutions, generally on a fixed-price basis and in six to twelve months. The Company's products are designed to eliminate low-level programming by providing platform-independent templates which can be developed into functioning applications by adding client-specific business process knowledge. The Company believes that this capability will ultimately result in systems being built by those who best understand the challenges of the business. In addition, the Company believes that the architecture upon which its products are based is highly adaptable to new and emerging technologies. For example, because the Company has incorporated Internet, internal corporate intranet ("Intranet") and World Wide Web ("Web") technologies into its products, business processes automated with the Company's solutions can be accessed from anywhere in the world by customers, suppliers and employees of an enterprise. The Company believes that the combination of Internet and Web accessibility, large-scale business process automation and integration inherent in the Company's products position it to exploit the extension of information technology to new markets, such as electronic commerce. The Company markets its solutions in North America and Europe through the Company's direct sales force, distributors, value added resellers and systems integrators, such as Electronic Data Systems Corporation ("EDS"), International Business Machines Corporation ("IBM"), Unisys Corporation, GTE Government Systems and Siemens Corporation. The Company's solutions have been successfully developed and deployed for over 300 clients including Northwest Airlines Corporation, First Data Resources, Inc. ("First Data"), United Parcel Service ("UPS"), United HealthCare Corporation and ENRON Corp. Recent Developments In November 1996, Alcatel Alsthom Compagnie Generale d'Electricite S.A. ("Alcatel") invested $8.0 million in the Company in the form of Preferred Stock at the equivalent of $16.00 per share of Common Stock. See "Certain Transactions." Alcatel is a worldwide supplier of high technology systems for the telecommunications, energy and transportation industries. In connection with this investment, the Company and Alcatel agreed to enter into a business relationship whereby Alcatel and the Company will design and develop solutions based on the Company's templates and Alcatel's expertise in the telecommunications, energy and transportation industries. Alcatel and the Company have already completed successful pilot projects. THE OFFERING <TABLE> <S> <C> Common Stock offered by: The Company................................................ 1,400,000 shares The Selling Shareholders................................... 700,000 shares Common Stock to be outstanding after this offering: Actual..................................................... 4,222,008 shares(1) Fully-diluted.............................................. 6,410,423 shares(2) Use of proceeds.............................................. For general corporate purposes, including working capital and future acquisitions. Proposed Nasdaq National Market symbol....................... TMPL </TABLE> SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> YEAR ENDED NOVEMBER 30, -------------------------------------------------------------- 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total revenue................................ $ 7,283 $ 5,953 $ 6,313 $ 7,091 $ 13,530 Income (loss) from operations................ (234) (793) (418) 671 1,700 Net income (loss)............................ (242) (527) (275) 327 1,045 Earnings (loss) per common share(3).......... $ (0.12) $ (0.17) $ (0.09) $ 0.07 $ 0.23 Weighted average number of common shares outstanding................................ 2,080,474 3,173,503 3,186,331 4,655,824 4,643,919 </TABLE> <TABLE> <CAPTION> NOVEMBER 30, 1996 ------------------------- ACTUAL AS ADJUSTED(4) ------- -------------- <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................................... $ 8,397 $ 28,629 Working capital............................................................. 9,009 29,241 Total assets................................................................ 13,985 34,217 Long-term debt, less current portion........................................ 357 357 Total shareholders' equity.................................................. 10,043 30,275 </TABLE> - --------------- (1) Includes 75,000 shares to be issued upon the exercise of options and sold in this offering by certain Selling Shareholders. See "Principal and Selling Shareholders." Excludes: (i) shares of Common Stock issuable upon the exercise of options to purchase an aggregate of 2,188,415 shares of Common Stock (the "Outstanding Options") outstanding as of December 31, 1996 (not including options to purchase 75,000 shares referred to above) at a weighted average exercise price of $3.13 per share; and (ii) 917,500 additional shares of Common Stock reserved for issuance pursuant to the Company's 1996 Equity Incentive Plan. (2) Includes Outstanding Options, but excludes the shares reserved for issuance under the Company's 1996 Equity Incentive Plan. (3) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing earnings (loss) per share. (4) Adjusted to reflect the sale of 1,400,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $16.00 per share, and assumes the conversion of all outstanding shares of Preferred Stock into Common Stock upon the consummation of this offering. See "Use of Proceeds" and "Capitalization."

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+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. THE COMPANY ONSALE is an electronic retailer pioneering a new sales format--the interactive online auction--designed to serve as an efficient and entertaining marketing channel for products that typically are unavailable through conventional distribution. The Company currently specializes in selling excess merchandise, such as refurbished and close-out products, over the World Wide Web (the "Web") to businesses, resellers and consumers. The Company sells a wide variety of such merchandise, including computers, peripherals, consumer electronics, housewares, power tools, sports and fitness equipment, and vacation packages. ONSALE's online auctions provide an exciting sales format that leverages the unique characteristics of the Web, such as interactivity and a sense of community. The Company's auction format enables customers to bid against one another in a freely competitive market liberated from the constraints of less flexible pricing that typically characterize traditional retailing. The Company believes that the customer enthusiasm generated by this format, the emergence of the Internet as an effective new sales medium and the Company's highly automated infrastructure combine to create a significant retailing opportunity. ONSALE has sold approximately $106 million of merchandise to more than 188,000 customer accounts from its first auction in May 1995 through September 30, 1997. For a discussion of how the Company recognizes revenue from these sales, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and Note 1 of Notes to Financial Statements. To date, the Company has auctioned over 771,000 merchandise units, of which over 201,000 were auctioned in the third quarter of 1997. Over 320,000 visitors to the Company's Web site have registered as bidders with the Company, with over 73,000 registering in the third quarter of 1997 alone. The Company believes the Internet is well suited for selling certain types of merchandise, particularly excess merchandise, because a large target market can be reached quickly and inexpensively. The disposal of excess merchandise represents a substantial burden on many vendors because such merchandise rapidly declines in value making it difficult to establish a market price. Vendors have an interest in accessing a distribution channel that enables them to dispose of significant quantities of merchandise quickly and at the best prices possible, without affecting their traditional sales channels. The Company's auction sales format leverages a chief advantage of the Internet--the ability to dynamically change merchandise mix, prices and visual presentations. In addition to prominently featured specials, the Company's Auction Supersite organizes items into targeted merchandise stores ("Supersites") which are further categorized by product type. ONSALE presently operates a Computer Products Supersite and a Consumer Electronics Supersite on which it continually posts merchandise descriptions and images. Currently, the Company auctions over 3,800 items each week. These items generally range in price from $25 to $3,000 and are sold in quantities of one to several hundred. Customers can bid 24 hours a day, 7 days a week. As customer bids are received, ONSALE's Web pages are instantly updated to display the current high bidders' initials, city and state, and an optional comment to personalize the bidding. The entire auction process, from the posting of the items for auction through notification of the winners, has been automated by the Company through internally developed proprietary software. In addition, the Company has developed proprietary software that automates product fulfillment functions, including billing, shipping and tracking. The Company's objective is to be one of the dominant retailers on the Internet. The Company intends to achieve its objective by increasing its brand recognition, attracting new and repeat customers, continuing to provide a compelling shopping experience, developing incremental revenue opportunities and building on its leading technology. In order to increase its brand recognition and attract new and repeat customers, the Company will focus significant management and financial resources on sales and marketing activities and partnership development efforts. The Company recently announced relationships with America Online, Computer Shopper NetBuyer, Excite and Netscape. In addition, ONSALE believes that relationships with merchandise vendors are critical to its long-term success. The Company employs a staff of buyers experienced in particular merchandise categories to build relationships with and purchase inventory from manufacturers and other vendors. The Company intends to hire additional merchandise buying staff and enhance its automated systems in order to expand and strengthen such relationships. ONSALE's merchandise has included brands such as AST, AT&T, Aiwa, Apple, Canon, Casio, Compaq, Dell, Fujitsu, Gateway, Hewlett-Packard, IBM, Intel, JVC, Kenwood, Krups, Lexmark, Magnavox, NEC, Packard Bell, Panasonic, Phillips, Sanyo, Seagate, Sharp, Toshiba, Uniden and Zenith.

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE INFORMATION HAS BEEN ADJUSTED TO GIVE EFFECT TO A 2.5 FOR 1 SPLIT OF THE COMMON STOCK (THE "STOCK SPLIT") EFFECTED IN THE FORM OF A STOCK DIVIDEND ISSUED TO SHAREHOLDERS OF RECORD AS OF NOVEMBER 20, 1996. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE COMPANY Southwest Bancorporation of Texas, Inc. (the "Company") is a bank holding company headquartered in Houston, Texas. As of December 31, 1996, the Company had assets of $1.0 billion, net loans of $595.5 million, total deposits of $833.6 million and total shareholders' equity of $54.6 million. Substantially all of the Company's revenue and income is derived from the operation of its bank subsidiary, Southwest Bank of Texas National Association, a national bank with seven full service banking facilities in the Houston area (the "Bank"). The Bank provides a full range of commercial and private banking services, including financial planning and investment management, to small and middle market businesses and individuals in the Houston metropolitan area. Based on total assets as of September 30, 1996, the Company is the largest independent bank holding company headquartered in the Houston metropolitan area. Walter E. Johnson joined the Bank in June 1989 as President and Chief Executive Officer and began to assemble the Company's current management team, utilizing his 30 years of Houston banking experience. An opportunity to develop a premier middle market franchise existed because many of the large established Texas banks had either failed or had been acquired by out of state banks and many super-community banks were suffering from severe asset quality problems. In addition, some of the large regional banks currently operating in Texas had not entered the market place at that time. As a result, the Company's assets have grown from $43.4 million at June 30, 1989 to $1.0 billion at December 31, 1996, without acquisitions or mergers. Management believes that its emphasis on local relationship banking, together with its conservative approach to lending and resultant strong asset quality, have assisted the Company toward its goal of becoming the preeminent middle market lender in the Houston area. High-quality personal service and responsiveness to customer needs using state-of-the-art technology have attracted numerous customers from larger regional banks. Through a team of seasoned managers with significant lending experience, the Company seeks to develop long-term relationships with middle market companies. These companies are typically privately-held with annual revenues ranging between $1 million and $250 million and loan requirements of $150,000 to $10 million. The Company also offers a full array of consumer lending and deposit products, including private banking services for high net worth individuals and families. The Company's business strategy is to (i) target middle market operating companies and private banking customers in the Houston area for loans, deposits, treasury management services, investment services and international services, (ii) explore selected opportunities to establish branches in areas that demographically complement the Company's existing and targeted customer base and (iii) pursue selected opportunities to acquire other financial institutions. The Houston metropolitan area offers significant growth opportunities for the Company. Houston ranked as the fourth largest city in the United States with an estimated population of approximately 3.8 million people in the Houston metropolitan area in 1995. [GRAPHIC OMITTED] Description of Graphic: Map of Houston metropolitan area showing branch locations of Southwest Bank of Texas N.A. THE OFFERING <TABLE> <CAPTION> <S> <C> Common Stock offered by the Company..... 1,150,000 shares Common Stock offered by the Selling Shareholders.......................... 184,753 shares Common Stock outstanding after the Offering.............................. 9,134,961 shares(1) Use of Proceeds......................... Approximately $7.5 million is expected to be used to redeem preferred stock issued by the Bank and the remainder will be used for general corporate purposes. See "Use of Proceeds." Risk Factors............................ See "Risk Factors" for a discussion of certain factors that should be considered by each prospective investor. The Nasdaq Stock Market's National Market Symbol......................... SWBT </TABLE> - ------------ (1) This number includes 250,000 shares to be issued to Walter E. Johnson upon his exercise of an outstanding stock option immediately prior to the closing of the Offering, but excludes 910,025 shares of Common Stock reserved for issuance upon the exercise of the remaining outstanding stock options granted under the Company's stock option plans. See "Management -- Employee Stock Option Plans." As of the date of this Prospectus, the Company had outstanding 7,734,961 shares of Common Stock. See "Capitalization."

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, financial statements and notes thereto appearing elsewhere in this Prospectus. The information in this Prospectus, unless otherwise indicated, (i) does not give effect to the exercise of the over-allotment option granted to the Underwriters, (ii) assumes an initial public offering price of $10 per share, (iii) assumes that the convertible subordinated note to be issued by the Company in the principal amount of $5.5 million prior to the closing date of this offering (the "Convertible Subordinated Note") is not converted, and (iv) is set forth to reflect the Reorganization described herein, which became effective on March 12, 1997, had already been completed. See "The Reorganization." Unless the context indicates otherwise, the term "Company" refers to Colonial Downs Holdings, Inc. ("Colonial Downs Holdings") and its wholly owned subsidiaries, Colonial Downs, L.P. ("Colonial LP") and Stansley Racing Corp. ("Stansley Racing"), collectively, or any of them. Certain of the matters discussed under the captions "Risk Factors," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business," and elsewhere in this Prospectus contain forward-looking statements and as such involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements speak only as of the date of this Prospectus. The Company The Company was organized to pursue opportunities for horse racing and pari-mutuel wagering in Virginia. The Company is the only entity that has been awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia and is currently the only entity eligible to apply for licenses to own and operate satellite wagering facilities ("SWFs") in Virginia. The Company plans to conduct thoroughbred and standardbred ("harness") horse racing at a racetrack that it is currently constructing in New Kent County, Virginia (the "Track"). The Company also intends to conduct pari-mutuel wagering at the Track and at its SWFs on races run at the Track and on races telecast from out-of-state tracks ("import simulcasting"). After it begins live racing at the Track, the Company will seek to increase its revenues by entering into agreements to simulcast races run at the Track to out-of-state racetracks, SWFs, casinos and other gaming facilities ("export simulcasting"). The Track is anticipated to open and begin live racing on or prior to September 1, 1997. The Track's initial racing season is expected to consist of 30 days of live thoroughbred racing and up to 50 days of live harness racing. The Company's goal is to establish the Track as one of the premier venues for thoroughbred horse racing in the East by attracting high quality horses and offering an appealing environment for racing participants and customers. The Company believes that its average purses will be competitive with those currently offered by most other tracks in the mid-Atlantic region that hold racing meets at the same time as the Company's scheduled meets, enabling the Track to attract high quality thoroughbred horses, trainers and jockeys to the Company's meets. The Track site consists of approximately 345 acres of land located approximately 25 miles east of Richmond, Virginia and approximately 25 miles west of Williamsburg, Virginia. When completed, the Track will include a dirt race track, a unique double-width turf track, a four-level grandstand and clubhouse, bleachers, six bars, a gift shop, two simulcast/TV amphitheaters, and over 95 wagering stations. The Track site is located in an area that Chesapeake Corporation and its subsidiaries plan to develop into a resort area. An 18-hole golf course adjacent to the Track site was opened in July 1996 by The Legends Golf Group, a golf course developer based in Hilton Head, South Carolina. Future development plans for the area include hotels, theaters, restaurants, additional golf courses, commercial offices and residential development. This development is planned to occur in four phases over the next twenty-five years. The first phase of development is in the areas adjacent to the Track site and the golf course and is expected to be completed over the next eight years. According to plans filed with New Kent County by the developer, 460 residential units and approximately 930,000 square feet of commercial space will be completed in the next three years. New Kent County residents have demonstrated support for this development, but the Company has no control over the extent and timing of the development or the grant of governmental approvals required for its completion as planned. Therefore, there can be no assurance that the development will be actively pursued or completed or if pursued, will be fully developed according to the plans filed with New Kent County. See "Business -- The Track and Track Facilities." - -------------------------------------------------------------------------------- 3 <PAGE> - -------------------------------------------------------------------------------- The Company currently holds licenses for three SWFs: a 15,000 square foot facility that opened in Chesapeake, Virginia in February 1996, a 19,700 square foot facility that opened in Richmond in December 1996 and a 13,500 square foot facility to be constructed in Hampton. Under current Virginia law, which allows a maximum of six SWFs in the state, the Company holds the right to seek licenses for up to three more SWFs. The Company plans to apply for licenses for additional SWFs as soon as desirable locations are selected, which the Company believes will be within 12 to 18 months after this offering closes. The Company intends to locate its additional SWFs near the population centers in northern and southeastern Virginia and on the southern border of Virginia, where the Company hopes to attract business from residents of the Chapel Hill-Raleigh-Durham area of North Carolina. The Company expects to apply for licenses in March 1997 for a fourth SWF in Brunswick County on the North Carolina border. The Company plans to seek an appropriate location in northern Virginia for one of its two remaining SWFs. In order to obtain licenses for the fifth and sixth SWFs in the areas desired by the Company, the Company will initiate referenda in potential localities in which the additional SWFs may be located. Five northern Virginia localities have in the past rejected such referenda. In the future, the Company may seek legislative changes to allow more than six SWFs in Virginia. There can be no assurance that the Company will be able to obtain licenses for any additional SWFs. Since it opened in February 1996, the Company's Chesapeake SWF has had average daily attendance of 500 customers, average daily wagers of $105,000, and pari-mutuel wagering of approximately $36,600,000 (based on eleven and one-half months of actual results). Since the Richmond SWF opened December 10, 1996, the facility has had average daily attendance of 785 customers, average daily wagers of $162,000, and pari-mutuel wagering of approximately $8,400,000 (based on 52 days of actual results). In the future, the Company plans to promote attendance and wagering business at the Track and its SWFs by introducing entertainment activities, including family fun days, premium give-away programs, contests and special events. See "Business -- Satellite Wagering Facilities." To provide experienced management for the Track and promote thoroughbred racing in Virginia and Maryland, the Company has entered into an agreement with Maryland-Virginia Racing Circuit, Inc., which is affiliated with the owners of the Pimlico and Laurel racetracks in Maryland (collectively, "Maryland Jockey Club"), to create a Virginia-Maryland thoroughbred racing circuit. Under this agreement (the "Management and Consulting Agreement"), the Maryland Jockey Club has agreed to seek permission to cease live racing during the Company's thoroughbred meets. While the Maryland thoroughbred tracks are not conducting live racing, the Company expects to attract the thoroughbred race horses that typically have run at the Maryland racetracks at that time. The Management and Consulting Agreement further provides that the Maryland Jockey Club will provide experienced personnel from Laurel Park and Pimlico Race Course to assist the Company in managing its live thoroughbred meet at the Track. The Company has agreed to pay the Maryland Jockey Club a management fee equal to two percent of all amounts wagered at the Company's facilities other than on live standardbred racing, which management fee will represent approximately 10% of the Company's revenues from wagering. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit."

parsed_sections/prospectus_summary/1997/CIK0001027699_first-new_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and combined financial statements, including the notes thereto, appearing elsewhere in this Prospectus. First New England Dental Centers, Inc. ("First Dental") is a dental practice management company. It manages dental facilities (each, a "Dental Facility" and collectively, the "Dental Facilities") at which it provides office space, equipment, non-clinical support personnel, information systems and management services to general dentists and specialists. By law, First Dental does not employ any dentists to practice dentistry nor does it otherwise control the practice of dentistry. First Dental has entered into a Management Agreement (the "Management Agreement") with a dental professional corporation (the "P.C.", and together with other affiliated professional corporations and associations, the "affiliated P.C.s"), pursuant to which dentists employed by the P.C. practice dentistry at the Dental Facilities. Concurrently with this Offering, First Dental will acquire DentalCare Partners, Inc. ("DCP") which manages 17 Dental Facilities in the Southeastern United States, and subsequent to this Offering, expects to acquire Group Dental Associates ("GDA") which operates eight Dental Facilities in New Jersey and certain related businesses (collectively, the "Pending Acquisitions"). As used in this Prospectus, unless the context otherwise requires, the "Company" shall mean (a) the combined operations of First Dental and the P.C., when used with respect to historical information contained herein or (b) the combined operations of First Dental, the Pending Acquisitions, the P.C. and other affiliated professional corporations when used with respect to the current business description and information about events that will occur after the consummation of this Offering. "First Dental" shall include the Pending Acquisitions when used with respect to information about events that will occur after the consummation of this Offering and the "Network" shall mean the network for the provision of dental services by the Company at the Dental Facilities. Unless otherwise indicated, the information in this Prospectus (i) gives effect to a one-for-three reverse stock split of the Common Stock to be effected prior to the closing of the Offering, (ii) assumes that the Underwriters' over-allotment option will not be exercised, and (iii) assumes an initial public offering price per share of $ . All references herein to industry financial and statistical information are based on trade articles and industry reports that First Dental believes to be reliable, although there can be no assurance to that effect. THE COMPANY First Dental is among the largest providers of dental practice management services in the Eastern United States, with geographic concentrations of managed Dental Facilities in New England, the Mid-Atlantic and the Southeastern United States. The Company provides dental services at 58 Dental Facilities in 11 states, served by approximately 102 general dentists and 50 specialists, 107 hygienists, and 163 dental assistants. Dentists practicing at the Dental Facilities provide a mix of general dentistry services and specialty services such as endodontics, oral surgery, orthodontics, periodontics and pediatric dentistry which varies by site. The Company's Dental Facilities generated net revenue, on a pro forma basis, of $43.0 million for the year ended December 31, 1996, and $22.5 million for the six months ended June 30, 1997. For the six months ended June 30, 1997, approximately 87% of the Company's net revenue, on a pro forma basis, was generated by fee-for-service or indemnity insurance patients, and approximately 13% was generated by managed care patients. The Company seeks to enhance its presence in the markets it currently serves and to continue to expand its Network through the acquisition or development of additional Dental Facilities in other markets in the Eastern United States where there are opportunities to acquire or develop Dental Facilities fitting First Dental's facility profile. Operationally, the Company seeks to enhance the quality and profitability of each Dental Facility by increasing both patient visits and the range of dental services offered and by achieving operating efficiencies. The Health Care Financing Administration ("HCFA") has estimated the aggregate domestic market for dental services in 1996 to be approximately $45.9 billion, representing approximately 4.2% of total health care expenditures in the United States, and HCFA has projected that dental expenditures will reach approximately $79.1 billion by the year 2005. Based on HCFA estimates, the dental services market grew at an annual compound rate of approximately 8.1% from 1980 to 1995, and is projected to grow at an annual compound rate of approximately 6.2% through the year 2005. First Dental believes that the growth in dental expenditures has resulted in part from an increase in the availability of dental insurance, and from an increase in the demand for dental services, particularly preventive and cosmetic dentistry. Although the market for dental services is currently largely fragmented and has not yet undergone the consolidation experienced in other parts of the health care industry, First Dental believes that dentistry is evolving away from the solo, general practitioner model towards that of a multi-specialty group practice. According to the American Dental Association ("ADA"), approximately 12.4% of dental practices in the United States consisted of three or more dentists in 1995, an increase from approximately 4.1% in 1991. First Dental believes that three major trends are impacting consumers' demand for dental care in the United States: (i) an increased emphasis on preventive and cosmetic dentistry; (ii) the development of multi-specialty group practices; and (iii) the evolution from direct pay to third-party reimbursement. First Dental intends to take advantage of each of these industry trends. First, the Company stresses the importance of preventive dentistry, while providing consumers with access to high quality cosmetic dental care. Second, First Dental is developing dense geographic networks that can share dental specialists, maximize the utilization of existing Dental Facilities and offer comprehensive geographic coverage for managed care plans. Finally, First Dental works closely with insurance companies to negotiate dental contracts which are simple to administer and provide adequate compensation for services performed. First Dental's long term objective is to make each of its Dental Facilities the leading multi-specialty dental care provider in the local market it serves. Key elements of the Company's strategy include expanding the size and density of the Network through acquisitions and de novo Dental Facility development; increasing Dental Facility net patient revenue through expansion of hours and addition of dental staff, through advertising and marketing, and through selective managed care contracting; and lowering the cost of service delivery through economies of scale in purchasing, reducing administrative expenses, utilizing management information systems, and creating more efficient practices with standardized quality-control protocols. By using its approach to managing an integrated network of Dental Facilities, First Dental believes it will enable dentists to focus on delivering quality patient care and to realize significantly greater productivity than traditional individual and small-group dental practices. The Company expands the Network by acquiring the operating assets of existing dental practices or developing de novo Dental Facilities. First Dental believes that individual dentists increasingly will seek to affiliate with dental practice management organizations, such as the Company, which offer specialized management, billing and accounting services, information systems, and capital resources because affiliating allows the dentists to focus on the delivery of high quality patient care rather than on practice administration. In addition, dental practice management companies are attractive to individual and small-group dentists because they offer these dentists the opportunity to obtain liquidity for the equity that they have built in their practices while remaining affiliated with their practices. By using its approach to managing an integrated network of Dental Facilities, First Dental believes it will enable dentists to realize significantly greater productivity and profitability than traditional individual and small-group dental practices. THE OFFERING Common Stock Offered by the Company.............................. shares(1) Common Stock to be Outstanding after the Offering......................... shares(1) Use of Proceeds...................... Repay outstanding indebtedness, consummate the Pending Acquisitions, acquire and expand other Dental Facilities and for general corporate purposes, including working capital. See "Use of Proceeds." Proposed NASDAQ National Market symbol............................... MOLR - --------------- (1) Assumes (i) the issuance of an aggregate of 453,000 shares in connection with the consummation of the Pending Acquisitions, (ii) the issuance of 10,250 shares of Common Stock which First Dental is obligated to issue to a Selling Dentist as partial consideration for the acquisition of his dental practice in September 1996, on or prior to the date the Offering commences, (iii) no exercise of any outstanding options or warrants to purchase 534,891 shares of Common Stock at a weighted average exercise price of $14.37 per share, (iv) no issuance of any of the 100,000 shares of Common Stock reserved under First Dental's 1996 Stock Plan, of which 26,333 shares are issuable upon the exercise of outstanding stock options exercisable at the initial public offering price, no issuance of any shares issuable to employees of the affiliated P.C. of which 67,138 shares are issuable upon the exercise of outstanding stock options at the initial public offering price, and no issuance of 242,203 shares issuable upon the exercise of stock options issued in exchange for options to acquire DCP common stock in connection with the DCP Acquisition. SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ---------------------------------- ------------------------------------ PRO FORMA PRO FORMA 1995 1996 1996(1) 1996 1997 1997(1) -------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net revenue................ $ 2,190 $ 15,313 $ 42,996 $ 3,881 $ 13,806 $ 22,581 Dental Facility expenses... 3,273 18,168 45,179 5,405 14,028 21,485 -------- ---------- ---------- ------- ------- -------- Dental Facility margin (deficit)................ (1,083) (2,855) (2,183) (1,524) (222) 1,096 General and administrative expenses................. 976 3,541 4,873 1,129 2,212 3,172 Interest expense, net...... 51 655 1,572 31 715 983 -------- ---------- ---------- ------- ------- -------- Net loss................... $ (2,110) $ (7,051) $ (8,628) $ (2,684) $ (3,149) $ (3,059) ======== ========== ========== ======= ======= ======== Net loss per share......... $ (10.68) $ (5.22) $ (4.59) $ (2.22) $ (1.62) $ (1.28) ======== ========== ========== ======= ======= ======== Weighted average shares outstanding.............. 197,607 1,348,043 1,879,608 1,203,517 1,937,202 2,390,038 ======== ========== ========== ======= ======= ======== OTHER OPERATING DATA(2): Number of dentists......... 19 91 63 100 152 Number of Dental Facilities............... 9 36 17 33 58 Number of states........... 1 5 2 5 11 Number of operatories...... 69 210 118 197 381 </TABLE> <TABLE> <CAPTION> JUNE 30, 1997 ------------------------------------- PRO FORMA AS ACTUAL PRO FORMA(3) ADJUSTED(4) ------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $ 580 $ 8,515 Working capital (deficit)................................... (9,030) (1,388) Management Agreement, net................................... 13,354 26,508 Total assets................................................ 24,975 52,513 Long-term debt and capital lease obligations, less current portion................................................... 1,788 19,049 Total stockholders' equity.................................. 9,088 16,087 </TABLE> - --------------- (1) Pro forma to give effect to (i) all acquisitions of Dental Facilities consummated during 1996 (collectively, the "1996 Acquisitions") and (ii) the Pending Acquisitions, in each case as if such acquisitions had occurred on January 1, 1996. See "Business -- Dental Facilities Acquired or Developed to Date," "Unaudited Pro Forma Condensed Combined Financial Information," "The Pending Acquisitions" and Note 3 to the Company's Combined Financial Statements. (2) Presented as of end of period. (3) Pro forma to reflect the Pending Acquisitions and the issuance in July 1997 of $15.0 million in Senior Secured Fixed Rate Notes (the "Senior Notes") as such transactions had been consummated on June 30, 1997. (4) Pro forma as adjusted to reflect: (i) the Pending Acquisitions; (ii) the issuance of the Senior Notes; and (iii) the sale of shares of Common Stock offered hereby (at an assumed initial public offering price of $ per share) and the application of the net proceeds therefrom as described under "Use of Proceeds."

parsed_sections/prospectus_summary/1997/CIK0001029047_chemgenics_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information including "Risk Factors" and the Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option and reflects (i) a 1-for-2.65 reverse stock split, effected prior to the closing of this offering and (ii) the conversion of all outstanding shares of convertible preferred stock into 4,458,528 shares of Common Stock upon the closing of this offering. THE COMPANY ChemGenics is a drug discovery company that applies its two complementary technology platforms, Drug Discovery Genomics and Advanced Drug Selection Technologies, to key rate limiting steps in identifying new drugs. These rate limiting steps are the translation of genomic information into novel drug targets and the selection and identification from sources of chemical diversity of drug leads that interact with drug targets. The Company's Drug Discovery Genomics platform includes proprietary gene technologies and expertise in microbial model systems used to determine the function of genes and to prioritize drug targets. The Company's Advanced Drug Selection Technologies combine the steps of drug screening, chemical selection and structural analysis into an integrated process designed to identify drug leads faster than conventional methods. These technology platforms are used with the Company's growing drug source of 50,000 chemical-producing fungi collected worldwide. The breadth of the Company's technology platforms allows it to pursue multiple pharmaceutical and biotechnology alliances, such as its alliances with Pfizer, Inc. ("Pfizer") and Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation ("Wyeth-Ayerst"). In January 1995, the Company entered into a strategic collaboration with Pfizer for the discovery of novel drug leads for treating human fungal infections, which could provide over $50 million in equity, research funding and development milestone payments, plus potential royalties. In December 1996, the Company entered into a strategic collaboration with Wyeth-Ayerst for the discovery of novel drug leads for treating human bacterial infections, which could provide up to $70 million in equity, research funding and development milestone payments, plus potential royalties. The Company is conducting additional drug discovery programs in cancer, peptic ulcer disease (Helicobacter pylori), immune system regulation, inflammatory disease and viral infections. In May, November and December 1996, the Company entered into agreements with PerSeptive Biosystems, Inc. ("PerSeptive") under which, in exchange for a substantial equity interest in ChemGenics and a $3 million promissory note, the Company acquired certain assets and a worldwide, royalty-free license to present and future technology of PerSeptive for use in the field of drug discovery. Current rate limiting steps in drug discovery provide opportunities for innovative technologies that can increase the speed, efficiency and productivity of this process. A significant rate limiting step is the translation of genomic information into novel drug targets. Genomics is a powerful technique that can identify disease genes, but is unlikely by itself to produce the next generation of drug targets. Once a gene is identified, its function in disease and utility as a drug target must be determined. A second significant rate limiting step is separation and identification of drug leads from large sources of chemical diversity. Advances in combinatorial chemistry and other drug sourcing technologies have expanded the size and diversity of chemical libraries, but separation and identification of individual drug leads remain time consuming and expensive. The Company has designed its Drug Discovery Genomics and Advanced Drug Selection Technologies to integrate the process of drug target and drug lead discovery to enhance speed, efficiency and productivity. ChemGenics' Drug Discovery Genomics platform encompasses proprietary gene technologies and expertise in microbial model systems and is applied to gene discovery, determination of gene function, selection of drug targets, configuration of drug screens and genetic manipulation of fungi to produce its novel drug source. The Company believes that model organisms, such as its microbial systems, offer solutions to translate efficiently genes and genomic information into novel drug targets. ChemGenics is translating genomic information into useful drug targets by identifying essential genes for cell function, using fungal homologs of human disease genes and measuring expression levels of genes in model organisms to determine - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the function of unknown microbial and human genes. The Company is applying its Drug Discovery Genomics platform to the discovery of both anti-infective drugs and drugs targeting other human diseases. ChemGenics' Advanced Drug Selection Technologies are designed to select drug leads rapidly and cost effectively from large, complex chemical mixtures by combining drug screening and chemical and structural analysis into a single flow-through process. These technologies are supported and enhanced by miniaturization, high throughput screening, automation and informatics. The Company has demonstrated that its Advanced Drug Selection Technologies are highly sensitive and capable of identifying drug leads that cannot readily be found using conventional methods and permit the direct quantification and prioritization of drug leads. The Company believes that the technology it acquired from PerSeptive has enhanced its Advanced Drug Selection Technologies platform. ChemGenics has assembled a large, diverse and productive collection of over 50,000 fungi as a drug source. The Company has developed proprietary BioCombinatorial methods of genetically manipulating these fungi to enhance their chemical diversity. The Company has also developed a proprietary, informatics-based index to its fungal chemical source, referred to as QuickScan, that has been used to increase the speed of identifying natural product drug leads by five- to ten-fold compared to previous methods used by the Company. THE OFFERING <TABLE> <S> <C> Common Stock offered hereby........................ 2,500,000 shares Common Stock to be outstanding after this offering......................................... 10,103,815 shares(1) Use of proceeds.................................... For repayment of the $3 million promissory note to PerSeptive, research and development, expansion of its laboratory facilities, working capital and general corporate purposes. Proposed Nasdaq National Market symbol............. CGNS </TABLE> - --------------- (1) Excludes 912,109 shares issuable upon the exercise of options with a weighted average exercise price of $1.89 per share and 1,914,496 shares issuable upon exercise of warrants with a weighted average exercise price of $12.90 per share. See "Capitalization," "Management -- Employee Benefit Plans" and "Description of Capital Stock -- Stock Purchase Warrants." - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ------------------------------------------------ 1994 1995 1996 ----------- ----------- ------------ <S> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues....................................... $ 218,095 $ 2,903,179 $ 3,573,010 Operating expenses: Research and development..................... 3,870,375 4,949,925 7,370,780 General and administrative................... 883,219 1,011,505 1,437,664 Acquired in-process research and development(1)............................... -- -- 6,783,900 ----------- ----------- ------------ Total operating expenses.................. 4,753,594 5,961,430 15,592,344 ----------- ----------- ------------ Interest income (expense), net................. (84,609) 662,969 486,513 ----------- ----------- ------------ Net loss....................................... $(4,620,108) $(2,395,282) $(11,532,821) =========== =========== ============ Pro forma net loss per common share(2)......... $(1.37) ====== Shares used in computing pro forma net loss per common share(2).............................. 8,434,365 ============ </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1996 ------------------------------------ PRO FORMA ACTUAL AS ADJUSTED(3) ------------ --------------- <S> <C> <C> BALANCE SHEET DATA: Cash, cash equivalents and marketable securities...... $ 13,460,876 $ 37,610,876 Total assets.......................................... 17,221,271 41,371,271 Promissory note....................................... 3,000,000 -- Accumulated deficit(1)................................ (22,762,682) (22,762,682) Total stockholders' equity............................ 11,797,512 38,947,512 </TABLE> - --------------- (1) Reflects a one-time charge equal to the value placed on technology acquired from PerSeptive that is in the research stage and has no alternative future use. Such value was determined by independent appraisal and was charged to operations because the future net realizable value of the technology is uncertain. See Note 3 of Notes to Financial Statements. (2) Computed on the basis described in Note 2(f) of Notes to Financial Statements. (3) Gives effect to (i) the automatic conversion of all outstanding Convertible Preferred Stock into 4,458,528 shares of Common Stock upon the closing of this offering and (ii) the sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share and the application of the net proceeds therefrom (including the payment of the $3,000,000 promissory note payable to PerSeptive), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. See "Use of Proceeds."

parsed_sections/prospectus_summary/1997/CIK0001029445_asi_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary 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. See "Risk Factors" for information that should be considered by prospective investors. References to the "Company" include ASI Solutions Incorporated and its subsidiaries. Unless the context otherwise requires, this Prospectus assumes (i) the effectiveness of the reorganization thereof (the "Reorganization"), which is described more fully in "Certain Relationships and Related Transactions," (ii) an approximately 1.06-for-1 stock split to be effected as a stock dividend on the date hereof, and (iii) that the over-allotment option granted to the Underwriters by the Selling Stockholders is not exercised. THE COMPANY ASI Solutions Incorporated is a leading national provider of a comprehensive range of human resources outsourcing services for large organizations seeking to hire, train and develop a higher quality, more effective workforce. The Company's services are organized into four core areas: (i) assessment and selection; (ii) training and development; (iii) customer contact monitoring; and (iv) employment process administration. The Company, which has been providing human resources services for over 18 years, believes it is well positioned to be a single-source solution for organizations which outsource all or a portion of these human resources functions. The Company's assessment and selection services entail designing and implementing assessment processes for the selection of new hires and for the evaluation of existing employees for advancement to positions of increased responsibility. The Company's training and development services include live simulations, competency surveys for job skill evaluation, and situational exercises through which managers are introduced to techniques to improve their performance. The Company's customer contact monitoring capability typically is used by clients which utilize inbound and outbound call centers for their customer contact service functions. The Company's employment process administration services address recurring staffing needs resulting from regular employee turnover, as well as large-scale, rapid hiring needs, for clients who do not have the in-house capacity to fulfill their hiring requirements. In fiscal 1996 and the nine months ended December 31, 1996, the Company processed 145,000 and 288,000 candidates, respectively. The Company's clients are principally Fortune 500 companies in a variety of industries, including telecommunications, financial services, information technology, consumer products and healthcare, for which customer service, sales and call center functions are critical components of their businesses. Current customers include American Express Company, BellSouth Corporation, Citibank, N.A., Dean Witter Reynolds, Inc., Georgia-Pacific Corporation, Hewlett-Packard Company, NYNEX Corporation, Oxford Health Plans, Inc., Pepsi-Cola Bottling Co., United Parcel Service of America, Inc. and Westinghouse Electric Corporation. The Company provides its services primarily through its two operations centers in Melville, New York, but also through its three regional offices and at clients' locations. Services are provided by 242 employees, approximately 41% of whom have masters or doctoral degrees, primarily in psychology. The Company believes that its business has benefited from a number of significant industry trends which have increased the demand for human resources outsourcing services. As global markets have continued to become more competitive, many businesses have begun to view the interface between customer and company as an increasingly critical leverage point and have placed heightened emphasis on recruiting, training and monitoring sales and customer service staffs. Additionally, many businesses have engaged in corporate downsizing in an effort to remain competitive, resulting in inadequate staffing to meet future growth and peak period activity. Furthermore, in an attempt to achieve a greater focus on their core businesses, many companies are outsourcing non-revenue producing functions, such as human resources. The Company's objective is to strengthen its position as a leading provider of services in support of a range of human resources outsourcing functions. Key elements of the Company's business strategy to achieve this objective include: (i) Increase Penetration of Existing Clients by identifying additional opportunities to address existing clients' human resources needs and by promoting those Company services not currently being utilized by those clients; (ii) Develop New Clients by targeting primarily Fortune 500 companies with substantial human resources needs in industries such as telecommunications and financial services, as well as other industries that are likely to benefit from the Company's services, such as information technology, consumer products and healthcare; (iii) Expand Customer Contact Monitoring Services in order to capitalize on both the Company's expertise in developing proprietary call monitoring systems and the increasing demand for quality assurance in the interaction between companies' sales and service representatives and their customers; and, (iv) Expand Existing Services Beyond the Sales and Customer Service Functions to areas such as senior management, administration, operations and manufacturing. The Company was founded in 1978 as a New York corporation by Bernard F. Reynolds, Eli Salig and Seymour Adler and was recently reorganized in March 1996 as a Delaware holding company. The Company maintains its principal executive offices at 780 Third Avenue, New York, New York, 10017. The Company's telephone number is (212) 319-8400 and its Internet address is www.asisolutions.com. THE OFFERING <TABLE> <C> <S> Common Stock being offered by the Company....... 2,200,000 shares Common Stock to be outstanding after the Offering (1).................................... 6,825,158 shares Use of proceeds................................. To repay indebtedness, to expand and upgrade facilities and systems, and for working capital and general corporate purposes, including possible acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market symbol.......... ASIS </TABLE> - -------- (1) Excludes (i) 368,533 shares of Common Stock issuable upon exercise of options outstanding on the date hereof, (ii) 431,467 shares of Common Stock reserved for issuance under the Company's 1996 Stock Option and Grant Plan and (iii) 50,000 shares of Common Stock reserved for issuance under the Company's 1996 Directors' Stock Option Plan. See "Capitalization," "Management--Director Compensation," "Management--Stock Option and Grant Plan," "Principal Stockholders" and "Selling Stockholders." SUMMARY FINANCIAL AND OPERATING DATA (1) (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------------------------ ----------------- 1992 1993 1994 1995 1996 1995 1996 ------ ------ ------ ------ ------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenue................ $4,268 $5,152 $6,028 $8,023 $10,558 $ 7,691 $ 12,859 ------ ------ ------ ------ ------- -------- -------- Income (loss) from operations............ (301) 477 232 777 1,412 1,114 2,650 Net income (loss)...... $ (363) $ 243 $ 166 $ 571 $ 732 $ 579 $ 1,192 ====== ====== ====== ====== ======= ======== ======== Net income (loss) per proforma common and common equivalent share................. $ (.08) $ 0.05 $ 0.04 $ 0.12 $ 0.16 $ 0.12 $ 0.26 Proforma weighted- average number of common and common equivalent shares outstanding (2)....... 4,667 4,667 4,667 4,667 4,667 4,667 4,667 OPERATING DATA: Number of employees.... 61 75 116 123 145 130 242 Number of candidates processed (3)......... 40,000 46,000 55,000 84,000 145,000 108,000 288,000 </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1996 ACTUAL AS ADJUSTED (4) ------ --------------- <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents............................... $ 146 $13,652 Working capital......................................... 624 14,939 Total assets............................................ 7,077 20,583 Total liabilities....................................... 3,489 2,350 Stockholders' equity.................................... 3,588 18,233 </TABLE> - -------- (1) The financial statements for all periods prior to March 31, 1996, have been presented on a consolidated basis at the historical cost basis of the entities involved in the Reorganization in a manner similar to a pooling of interests. As of March 31, 1996, the date of the Reorganization, the interests of the shareholders of such entities other than one controlling shareholder have been accounted for as a purchase of minority interest. See "Certain Relationships and Related Transactions" and Note 1 to the Notes to Consolidated Financial Statements. (2) See Note 2 to Notes to Consolidated Financial Statements for a description of proforma weighted-average number of common and common equivalent shares outstanding. (3) Represents total number of candidate interactions with one of the Company's four service functions, such as number of candidates assessed, number of candidates trained and developed, number of service representatives monitored and number of employment applicants processed. (4) Reflects the sale of the 2,200,000 shares of Common Stock offered by the Company hereby after deduction of the underwriting discount and estimated offering expenses payable by the Company and after application of $1,139,000 of the net proceeds from the Offering to reduce outstanding indebtedness at December 31, 1996. The Company estimates that it will apply an additional $1,761,000 of the net proceeds from the Offering to reduce indebtedness expected to be outstanding at the time of consummation of the Offering. See "Use of Proceeds," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources."

parsed_sections/prospectus_summary/1997/CIK0001029457_nationwide_prospectus_summary.txt

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and financial statements appearing elsewhere in this Prospectus. The Company was formed in November 1996 as a holding company for Nationwide Life Insurance Company and the other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. The information contained in this Prospectus gives effect to the contribution by Nationwide Corporation to the Company of Nationwide Life and such other companies described under "Recent History." Except as otherwise indicated, all financial data and ratios presented herein have been prepared using generally accepted accounting principles ("GAAP"). See "Glossary of Selected Insurance Terms" for the definitions of certain insurance terms used herein. As used in this Prospectus, the "Company" means Nationwide Financial Services, Inc. and, unless the context otherwise requires, its subsidiaries; "Nationwide Life" means Nationwide Life Insurance Company and, unless the context otherwise requires, Nationwide Life and Annuity Insurance Company; "Nationwide Corp." means Nationwide Corporation; "Nationwide Mutual" means Nationwide Mutual Insurance Company; and "Nationwide Insurance Enterprise" means Nationwide Mutual and its subsidiaries and affiliates. Nationwide(R) is a registered service mark of Nationwide Mutual, and The Best of America(R) is a registered service mark of Nationwide Life. THE COMPANY OVERVIEW The Company is a leading provider of long-term savings and retirement products to retail and institutional customers throughout the United States. The Company offers variable annuities, fixed annuities and life insurance as well as mutual funds and pension products and administrative services. By developing and offering a wide variety of products, the Company believes that it has positioned itself to compete effectively in various stock market and interest rate environments. The Company markets its products through a broad spectrum of wholesale and retail distribution channels, including financial planners, pension plan administrators, securities firms, banks and Nationwide Insurance Enterprise insurance agents. The Company is one of the leaders in the development and sale of variable annuities. For the year ended December 31, 1996, the Company was the fourth largest U.S. writer of individual variable annuity contracts based on sales, according to The Variable Annuity Research & Data Service ("VARDS"). Its principal variable annuity series, The Best of America, allows the customer to choose from 36 investment options, including mutual funds managed by such well- known firms as American Century, Dreyfus, Fidelity, Janus, Neuberger & Berman, Oppenheimer, T. Rowe Price, Templeton, Vanguard and Warburg Pincus, as well as mutual funds managed by the Company. The Company is a member of the Nationwide Insurance Enterprise, which is known nationally as a writer of automobile and homeowners' insurance throughout the United States. The property/casualty insurers within the Nationwide Insurance Enterprise are the fifth largest property/casualty insurance group in the United States based on 1995 net premiums written, according to A.M. Best Company, Inc. ("A.M. Best"). In the mid-1970s, to capitalize on anticipated opportunities in the growing market for long-term savings and retirement products, the Company embarked on a specific strategy of broadening its distribution channels and product offerings beyond selling traditional life insurance to the automobile and homeowner customers of the Nationwide Insurance Enterprise. Over a 20-year period, the Company added financial planners, pension plan administrators, securities firms and banks as new distribution channels. Such distribution channels in the aggregate accounted for approximately 93.8% of the Company's sales in 1996. Currently, the Company administers approximately 15,000 pension plans and has distribution arrangements with 125 banks and other financial institutions, over 1,000 broker/dealers and over 30,000 registered representatives. The Company has payroll deduction variable annuity enrollee customers in approximately 6,000 state and local government entities and 1,800 school districts, which have been obtained principally through sponsorship relationships with the National Association of Counties and The United States Conference of Mayors and an exclusive contractual arrangement with The National Education Association of the United States. The Company has grown substantially in recent years as a result of its long- term investment in developing the distribution channels necessary to reach its target customers and the products required to meet the demands of these customers. The Company believes its growth has been further enhanced by favorable demographic trends, the growing tendency of Americans to supplement traditional sources of retirement income with self-directed investments, such as products offered by the Company, and the performance of the financial markets, particularly the U.S. stock markets, in recent years. From 1992 to 1996, the Company's assets grew from $20.8 billion to $47.8 billion, a compound annual growth rate of 23.1%. Asset growth during this period resulted from sales of the Company's products as well as market appreciation of assets in the Company's separate accounts and in its general account investment portfolio. During the same period, the Company's net operating income (i.e., net income excluding realized gains and losses on investments (net of related federal income tax), discontinued operations and cumulative effect of accounting changes) grew from $97.0 million to $211.3 million, a compound annual growth rate of 21.5%. The Company's sales of variable annuities grew from $1.56 billion in 1992 to $6.50 billion in 1996, a compound annual growth rate of 42.9%. The Company's separate account assets, which are generated by the sale of variable annuities and variable universal life insurance, grew from 29.3% of total assets at December 31, 1992 to 56.4% of total assets at December 31, 1996. During this period of substantial growth, the Company controlled its operating expenses by taking advantage of economies of scale and by increasing productivity through investments in technology. From 1992 to 1996, the Company's total assets increased by 130.1% while operating expenses increased by only 55.1%. As a result, its ratio of operating expenses to total assets fell from 1.10% in 1992 to 0.74% in 1996. The Company believes that demographic trends and shifts in attitudes toward retirement savings will continue to support increased consumer demand for its products. According to U.S. Census Bureau projections, the number of Americans between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1 million in 2005, making this "preretirement" age group the fastest growing segment of the U.S. population. The Company believes that Americans increasingly are supplementing traditional sources of retirement income, such as employer-provided defined benefit plans and Social Security, with self- directed investments. Reflecting this shift, industry sales of individual variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in 1996, a compound annual growth rate of 26.9%, according to VARDS. During the same period, industry individual variable annuity assets grew from $212 billion to $501 billion, a compound annual growth rate of 24.0%, according to VARDS. The Company has three product segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment, which accounted for $90.3 million (or 27.5%) of the Company's operating income before federal income tax expense in 1996, consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by independent investment managers and the Company, with investment returns accumulating on a tax- deferred basis. The Fixed Annuities segment, which accounted for $135.4 million (or 41.2%) of the Company's operating income before federal income tax expense in 1996, consists of annuity contracts that generate a return for the customer at a specified interest rate, fixed for a prescribed period, with returns accumulating on a tax-deferred basis. Such contracts consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The Fixed Annuities segment also includes the fixed option under the Company's variable annuity contracts, which accounted for 70.5% of the Company's fixed annuity policy reserves as of December 31, 1996. For the year ended December 31, 1996, the average crediting rate on contracts (including the fixed option under the Company's variable annuity contracts) in the Fixed Annuities segment was 6.3%. Substantially all of the Company's crediting rates on its fixed annuity contracts are guaranteed for a period not exceeding 15 months. See "Business--Product Segments--Fixed Annuities." The Life Insurance segment, which accounted for $67.2 million (or 20.5%) of the Company's operating income before federal income tax expense in 1996, consists of insurance products, including variable life insurance, that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. BUSINESS STRATEGIES The Company's objective is to continue its record of profitable growth by following the strategies set forth below: Enhance the Company's Leading Position in the Market for Variable Annuities. The Company believes that the variable annuity business is attractive because it generates fee income and requires significantly less capital support than fixed annuities and life insurance. The Company also believes, based on the aging of the U.S. population and recent increases in sales of retirement savings products, that variable annuities will continue to experience high rates of industry sales growth and that the Company possesses distinct competitive advantages that will allow it to continue to benefit from this anticipated growth. Some of the Company's most important advantages include its innovative product offerings and strong relationships with independent, well-known fund managers. For example, the Company's The Best of America IV and The Best of America--America's Vision individual variable annuity contracts allow the customer to choose from 36 investment options, including mutual funds managed by a variety of well-known fund managers and the Company. In the aggregate, the Company's group variable annuity products offer over 100 underlying investment options. The Company works closely with its investment managers and product distributors to adapt the Company's products and services to changes in the retail and institutional marketplace. Capture a Growing Share of Sales in all Distribution Channels. The Company's broad distribution system permits it to offer its products across a wide range of markets and customers. The Company continually seeks to gain a larger share of each of its distributor's sales by offering products that are attractive to its distributors from both a financial perspective and in helping the distributor build relationships with its customers. In addition to providing new products to its distributors, the Company seeks to increase sales in each of its existing distribution channels by cross-selling those products not currently offered through such channel. The Company also seeks to add new distributors to its existing channels and regularly evaluates possible new distribution channels. While many of the Company's competitors employ a variety of distribution channels, the Company believes that few of its competitors have a developed distribution system that is as broad as the Company's and that this distinguishing characteristic provides the Company with an important competitive advantage. Maintain a Diverse Product Portfolio. The Company offers a diverse mix of variable annuity, fixed annuity, mutual fund and life insurance products. Based on its experience, the Company believes that demand for, and financial results of, certain of these products are sensitive to stock market and/or interest rate environments, while some products are relatively insensitive to such factors. The Company emphasizes the sale and development of variable annuities, which tend to experience higher sales growth when interest rates are low, and fixed annuities, which tend to experience higher sales growth when interest rates are high. The Company also sells traditional life insurance products which it believes provide it with a stable source of revenues throughout changing market conditions. The Company's strategy is to rely on a variety of products, each of which may perform differently in given stock market and interest rate environments, so that the Company will be able to grow profitably in a variety of such environments. Emphasize Payroll Deductions and Tax-Qualified and Group Annuities. To further enable it to grow profitably in a variety of stock market and interest rate environments, the Company concentrates on the sale of annuities through payroll deductions and the sale of tax-qualified and group annuities. Annuities sold through payroll deductions are somewhat insulated from changes in market conditions because of the recurring nature of their deposits. In 1996, 38.2% of the Company's total annuity statutory premiums and deposits were attributable to payroll deductions. Group annuities and tax-qualified annuities are also somewhat insulated from changes in market conditions because they usually are provided through employers as a voluntary retirement benefit with a limited number of competing investment options. In addition, tax-qualified annuities subject the customer to a tax penalty for early withdrawal. Tax-qualified annuities accounted for 70.3% and group annuities accounted for 43.6% of the Company's total annuity statutory premiums and deposits in 1996. Build on the Company's Brand Strength. The Company believes that the brand names it uses in connection with its products, such as Nationwide and The Best of America, are well-known and have a strong reputation in the financial services market. The Company intends to extend its brand names across markets, applying The Best of America name across many of its wholesale and retail distribution channels. The Company believes that, as the numbers of products and competitors in its markets grow, consumers, distributors, retirement plan sponsors and other decision makers in the market for long-term savings and retirement products will continue to emphasize nationally known brand names. See "Certain Relationships and Related Transactions--New Agreements with the Nationwide Insurance Enterprise--Intercompany Agreement." Continue Commitment to Technological Excellence. The Company has made and is committed to continue making significant investments in information systems to enable it to offer innovative products, to more effectively cross-sell products across distribution channels and to offer high quality service. The information systems that the Company has developed for its variable products are costly to replicate. The Company believes that these systems provide it with a significant competitive advantage and impose a barrier to entry for new competitors. PRINCIPAL STOCKHOLDER Following the Equity Offerings, Nationwide Corp. will be the controlling stockholder of the Company. Upon completion of the Equity Offerings, Nationwide Corp. will own all of the outstanding shares of the Class B Common Stock, $0.01 par value, of the Company ("Class B Common Stock and, together with Class A Common Stock, the "Common Stock"), representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters' over-allotment option is exercised in full) of the total number of shares of Common Stock outstanding and the combined voting power of the stockholders of the Company, respectively. Nationwide Corp. is a subsidiary of Nationwide Mutual. Nationwide Mutual and Nationwide Mutual Fire Insurance Company ("Nationwide Mutual Fire") are mutual companies which are the controlling entities of the Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise is an affiliated group of over 100 companies that offers a wide range of insurance and investment products and services. Nationwide Mutual and Nationwide Mutual Fire control the companies within the Nationwide Insurance Enterprise through a variety of means, including security ownership, management contracts and common directors. The Nationwide Insurance Enterprise had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk Factors--Control by and Relationship with the Nationwide Insurance Enterprise; Conflicts of Interest" and "Certain Relationships and Related Transactions." THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING Prior to the Capital Securities Offering, the Company expects to consummate the Equity Offerings, and, concurrently with the Capital Securities Offering, the Company expects to consummate the Note Offering. The consummation of the Capital Securities Offering is not conditioned on the completion of the Note Offering. There can be no assurance that the Note Offering will be consummated. See "Use of Proceeds," "Recent History" and "The Equity Offerings, the Note Offering and the Capital Securities Offering." The Equity Offerings and the Note Offering are being made pursuant to separate prospectuses. ---------------- The Company's executive offices are located at One Nationwide Plaza, Columbus, Ohio 43215, and its telephone number is (614) 249-7111. The place of business and the telephone number of the Trust are the principal executive offices and telephone number of the Company. THE CAPITAL SECURITIES OFFERING The Trust..................... Nationwide Financial Services Capital Trust, a Delaware business trust. Securities Offered............ $100,000,000 aggregate liquidation amount of % Capital Securities (Liquidation Amount, $1,000 per Capital Security). Distributions................. Distributions on the Capital Securities will accrue from the date of original issuance of the Capital Securities and will be payable at the annual rate of % of the liquidation amount of $1,000 per Capital Security. Subject to the distribution deferral provisions described below, distributions will be payable semi-annually in arrears on and of each year, commencing , 1997. Because distributions on the Capital Securities constitute interest, corporate holders thereof will not be entitled to a dividends-received deduction. Distribution Deferral The ability of the Trust to pay distributions Provisions.................... on the Capital Securities is solely dependent on its receipt of principal and interest payments from the Company on the Junior Subordinated Debentures. So long as no Event of Default has occurred and is continuing, the Company has the right at any time to defer the interest payments due from time to time on the Junior Subordinated Debentures during any Deferral Period for a period not exceeding 10 consecutive semi-annual periods. Semi-annual distributions on the Capital Securities would be deferred by the Trust (but would continue to accumulate semi-annually and would accrue interest to the extent permitted by law) until the end of any such Deferral Period. There could be multiple Deferral Periods of varying lengths throughout the term of the Junior Subordinated Debentures. See "Risk Factors-- Factors Relating to the Capital Securities-- Option to Extend Interest Payment Period" and "--Tax Consequences of Extension of Interest Payment Period," "Description of the Capital Securities--Distributions" and "Description of the Junior Subordinated Debentures--Option to Extend Interest Payment Period." If a deferral of an interest payment occurs, the holders of the Capital Securities will continue to accrue income for United States federal income tax purposes in advance of any corresponding cash distribution. See "Risk Factors--Factors Relating to the Capital Securities--Option to Extend Interest Payment Period" and "--Tax Consequences of Extension of Interest Payment Period," and "United States Federal Income Taxation--Original Issue Discount." Rights Upon Deferral of During any Deferral Period, interest on the Distributions................. Junior Subordinated Debentures will compound semi-annually and semi-annual distributions (compounded semi-annually at the distribution rate) will accrue on the Capital Securities. The Company has agreed, among other things, not to declare or pay any dividend on its capital stock (subject to certain exceptions) or make certain other restricted payments during any Deferral Period. See "Description of the Junior Subordinated Debentures--Option to Extend Interest Payment Period" and "Description of the Guarantee--Certain Covenants of the Company." Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust..... At any time, the Company will have the right to terminate the Trust and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, cause Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in connection with the liquidation of the Trust. Such Junior Subordinated Debentures shall have an aggregate principal amount, an interest rate and accrued and unpaid interest equal to, respectively, the aggregate liquidation amount, distribution rate and accrued and unpaid distributions of the Trust Securities. See "Description of the Capital Securities-- Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust." Distribution of Cash Upon Liquidation of the Trust..... In the event of a Liquidation of the Trust, the holders will be entitled, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to receive $1,000 per Capital Security plus any additional amount payable upon redemption of the Junior Subordinated Debentures as a result of the Make-Whole Premium and accrued and unpaid distributions thereon to the date of payment, unless, in connection with such Liquidation, Junior Subordinated Debentures are distributed to such holders. See "Description of the Capital Securities--Distribution of Cash Upon Liquidation of the Trust" and "--Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust." Mandatory Redemption.......... Upon the repayment or payment of the Junior Subordinated Debentures, whether at maturity or upon redemption or otherwise, the Trust must use the proceeds from such repayment or redemption to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of Junior Subordinated Debentures so repaid or redeemed at the Redemption Price. See "Description of the Capital Securities--Mandatory Redemption." Tax Event..................... If at any time a Tax Event shall occur and be continuing, the Trust shall, except in limited circumstances, be dissolved and Junior Subordinated Debentures shall be distributed to the holders of Trust Securities. See "-- Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust." In certain circumstances, upon the occurrence of a Tax Event, cash will be distributed in redemption of the Junior Subordinated Debentures at the Redemption Price; provided, that no Make-Whole Premium shall be payable in connection with such redemption. See "Description of the Capital Securities--Tax Event Distribution." Guarantee..................... The Company will guarantee, as described herein, the payment in full of (i) the distributions on the Capital Securities to the extent of funds held by the Trust, (ii) the amount payable upon redemption of the Capital Securities to the extent of funds held by the Trust and (iii) generally, the liquidation amount of the Capital Securities to the extent of the assets of the Trust available for distribution to holders of Capital Securities. The Guarantee will be subordinated and junior in right of payment to all other liabilities of the Company, except any liabilities that may be made pari passu expressly by their terms. The Guarantee will rank pari passu with the most senior preferred or preference stock now or hereafter issued by the Company and any guarantee now or hereafter entered into by the Company in respect of any preferred or preference stock or preferred securities of any affiliate of the Company. Upon the liquidation, dissolution or winding up of the Company, its obligations under the Guarantee will rank junior to all of its other liabilities, except as aforesaid, and as a result, funds may not be available for payment under the Guarantee. See "Risk Factors--Factors Relating to the Capital Securities--Subordination of Guarantee and Junior Subordinated Debentures" and "Description of the Guarantee--Status of the Guarantee; Subordination." The Company has, through the Guarantee, the Junior Subordinated Debentures, the Indenture and the Declaration, taken together, fully and unconditionally guaranteed all of the Trust's obligations under the Capital Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full and unconditional guarantee of the Trust's obligations under the Capital Securities. See "Description of the Guarantee" and "Effect of Obligations Under the Junior Subordinated Debentures, the Guarantee and the Declaration." Voting Rights................. Except as specified herein, holders of the Capital Securities will have no voting rights. See "Description of the Capital Securities-- Voting Rights; Amendment of Declaration." Junior Subordinated The Junior Subordinated Debentures will mature Debentures.................... on , 2037 and will bear interest at the rate of % per annum, payable semi- annually in arrears. So long as no Event of Default has occurred and is continuing, interest payments may be deferred from time to time by the Company (during any Deferral Period, interest would continue to accrue and compound semi-annually) for a Deferral Period not to exceed 10 consecutive semi-annual periods, provided that no such Deferral Period may extend beyond the maturity date of the Junior Subordinated Debentures. Prior to the termination of any Deferral Period of less than 10 consecutive semi-annual periods, so long as no Event of Default has occurred and is continuing, the Company may further extend the Deferral Period; provided, that no such Deferral Period, as extended, may exceed 10 consecutive semi-annual periods or extend beyond the maturity date of the Junior Subordinated Debentures. Upon the termination of any Deferral Period, the Company is required to pay all amounts then due and, upon such payment, the Company may select a new Deferral Period, subject to the preceding sentence. No interest shall be due during a Deferral Period until the end of such period. During a Deferral Period, the Company will be prohibited from paying dividends on any of its capital stock (subject to certain exceptions) and making certain other restricted payments until semi- annual interest payments are resumed and all accumulated and unpaid interest (including interest thereon to the extent permitted by law) on the Junior Subordinated Debentures is made current. The Company may optionally redeem the Junior Subordinated Debentures at any time at the Redemption Price, which includes (except in the case of a redemption following a Tax Event) the Make-Whole Premium. The payment of the principal of and interest on the Junior Subordinated Debentures will be subordinated and junior in right of payment, to the extent set forth herein, to all existing and future Senior Indebtedness of the Company. Further, the Junior Subordinated Debentures (and therefore the Capital Securities) will be effectively subordinated to all existing and future liabilities and obligations of the Company's subsidiaries, including obligations to policyholders. At December 31, 1996, after giving effect to the Note Offering, the aggregate amount of Senior Indebtedness and liabilities and obligations of the Company's subsidiaries, including obligations to policyholders, that would effectively rank senior to the Junior Subordinated Debentures was approximately $45.9 billion. See "Capitalization" and "Pro Forma Selected Consolidated Financial Data." See "Description of the Junior Subordinated Debentures" and "Risk Factors--Factors Relating to the Capital Securities--Subordination of Guarantee and Junior Subordinated Debentures." Form of Capital Securities.... The Capital Securities will be issued only as fully-registered securities registered in the name of Cede & Co., as nominee for DTC. One or more fully registered global Capital Security certificates will be issued, representing in the aggregate the total number of Capital Securities, and will be deposited with DTC. See "Description of the Capital Securities--Book- Entry-Only Issuance--The Depository Trust Company." Use of Proceeds............... All of the proceeds from the sale of the Capital Securities will be invested by the Trust in Junior Subordinated Debentures and the net proceeds to the Company of $98.6 million from the sale of Junior Subordinated Debentures will be contributed by the Company to the capital of Nationwide Life. Of the $426.6 million estimated net proceeds from the Equity Offerings, the Company will contribute $371.6 million to the capital of Nationwide Life and retain the balance for general corporate purposes. All of the net proceeds from the Note Offering will be contributed by the Company to the capital of Nationwide Life. See "Use of Proceeds" and "The Equity Offerings, the Note Offering and the Capital Securities Offering."