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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information about us, our convertible notes, our common stock and our financial statements and accompanying notes appearing elsewhere in this prospectus. AKAMAI TECHNOLOGIES, INC. We provide global delivery services for Internet content, streaming media and applications and global Internet traffic management services. Our services improve the speed, quality, availability, reliability and scalability of Web sites. Our services deliver our customers' Internet content, streaming media and applications through a distributed worldwide server network which locates the content and applications geographically closer to users. Using technology and software that is based on our proprietary mathematical formulas, or algorithms, we monitor Internet traffic patterns and deliver our customers' content and applications by the most efficient route available. Our services are easy to implement and do not require our customers or their Web site visitors to modify their hardware or software. Using our FreeFlow service, our customers have been able to more than double the speed at which they deliver content to their users and, in some instances, have been able to improve speeds by ten times or more. Our streaming services offer customers enhanced video and audio quality, scalability and reliability. The ability of a Web site to attract users is in part based on the richness of its content and the usefulness and customization of its applications. Increasingly, Web site owners want to enhance their sites by adding graphics, such as photographs, images and logos, as well as by deploying newer technologies, such as video and audio streaming, animation and software downloads. Web sites are increasingly using application services and features such as profiling, log analysis, transaction processing, customized insertion of advertisements and content transformation to attract users to Web sites. While richer content, application services and features attract more visitors, they also place increasing demands on the Web site to deliver content and applications quickly and reliably. As a result, Web site owners frequently elect to constrain the amount of rich content and applications on their Web sites, thus sacrificing the user experience to maintain acceptable performance levels. To use our content delivery services, customers identify and tag portions of their Web site content and applications that require significant amounts of bandwidth, such as advertising banners, icons, graphics, video and audio streaming, interactive presentations and software downloads. These tagged items are delivered over our distributed server network. When users request these types of content and applications, our technology routes the request to the server that is best able to deliver the content most quickly based on the geographic proximity of all available servers on our network and performance and congestion on the Internet. We currently sell our services primarily through a direct sales force. Our plan is to continue to pursue heavily trafficked Web sites through our direct sales force and to penetrate other markets through our reseller program and other indirect distribution channels. Currently our sales force is actively targeting both domestic and international companies, focusing on Web sites that have the greatest number of visitors, Fortune 100 companies and other companies with large operations worldwide. In addition, we have recently begun to directly market and sell our services through our telesales force to smaller Web sites and businesses. As of September 30, 2000, we had 539 employees in our sales, marketing and distribution organization, of whom 113 are in direct sales. Our technology originated from research that our founders began developing at the Massachusetts Institute of Technology, or MIT, in 1995. In April 1999, we introduced commercially our service for delivery of Internet content. As of September 30, 2000, we have deployed more than 6,000 servers in over 50 countries across more than 335 different telecommunications networks. We currently have over 2,800 customers. Our customers comprise some of the Web's most popular properties. SUMMARY CONSOLIDATED FINANCIAL DATA <TABLE> <CAPTION> PRO FORMA PERIOD FROM PRO FORMA COMBINED INCEPTION COMBINED NINE MONTHS ENDED NINE MONTHS (AUGUST 20, 1998) YEAR ENDED YEAR ENDED SEPTEMBER 30, ENDED TO DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------- SEPTEMBER 30, 1998 1999 1999 1999 2000 2000 ----------------- ------------ ------------ -------- --------- -------------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue............................ $ -- $ 3,986 $ 16,555 $ 1,287 $ 52,522 $ 59,208 Total operating expenses........... 900 60,424 1,075,695 29,601 646,150 944,054 Operating loss..................... (900) (56,438) (1,059,140) (28,314) (593,628) (884,846) Net loss........................... (890) (57,559) (1,052,841) (28,325) (582,708) (871,898) Net loss attributable to common stockholders..................... (890) (59,800) (1,052,841) (29,970) (582,708) (871,898) Basic and diluted net loss per share............................ $ (0.06) $ (1.98) $ (25.79) $ (1.47) $ (6.84) $ (9.53) Weighted average common shares outstanding...................... 15,015 30,177 40,822 20,445 85,244 91,498 </TABLE> The unaudited pro forma combined column in the statement of operations data gives effect to our acquisition of Network24 in February 2000 and INTERVU in April 2000 as if each acquisition had been completed on January 1, 1999 and includes in total operating expenses $954 million and $711 million of amortization of intangible assets for the periods ended December 31, 1999 and September 30, 2000, respectively. The unaudited pro forma net loss per share reflects loss from continuing operations and excludes extraordinary loss and dividends on preferred stock. <TABLE> <CAPTION> DECEMBER 31, 1999 SEPTEMBER 30, 2000 ----------------- ------------------ (UNAUDITED) (IN THOUSANDS) <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.......... $269,554 $ 438,743 Working capital............................................ 255,026 419,338 Total assets............................................... 300,815 3,058,326 Obligations under capital leases and equipment loan, net of current portion.......................................... 733 689 Convertible subordinated notes (including the convertible notes covered by this prospectus)........................ -- 300,000 Total stockholders' equity................................. $281,445 $2,702,295 </TABLE> DEFICIENCY OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) We have not recorded earnings for the period from inception (August 20, 1998) to December 31, 1998, for the year ended December 31, 1999 or for the nine months ended September 30, 2000 and therefore are unable to cover fixed charges. Earnings (loss) consists of loss before provision for income taxes and extraordinary items plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs and a portion of rental expense that we believe to be representative of interest. The following table discloses our dollar coverage deficiency. The ratio of earnings to fixed charges is not disclosed since it is a negative number in each year and period. <TABLE> <CAPTION> NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1998 1999 2000 ---- ------- ---------------- <S> <C> <C> <C> Ratio of earnings to fixed charges.......................... -- -- -- Coverage deficiency to attain a ratio of 1:1................ $890 $54,169 $582,576 </TABLE> Our principal executive offices are located at 500 Technology Square, Cambridge, Massachusetts 02139, and our telephone number is (617) 250-3000. Our World Wide Web site address is www.akamai.com. The information in our Web site is not incorporated by reference into this prospectus. The Akamai logo, EdgeAdvantage(TM), EdgeScape(SM), EdgeSuite(SM), FirstPoint(SM), FreeFlow(SM), FreeFlow Streaming(SM), the INTERVU logo, Netpodium(SM), SteadyStream(TM), StorageFlow(SM) and Traffic Analyzer(SM) are trademarks or service marks of us or our subsidiaries. All other trademarks or trade names in this prospectus are the property of their respective owners.

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+PROSPECTUS SUMMARY This summary only highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully. Unless we indicate otherwise, information in this prospectus assumes the underwriters will not exercise their over-allotment option. You should refer to the introduction to Summary Historical Combined Financial Information for the meanings of some of the financial terms used in this prospectus. Unless the context requires otherwise, for periods before the corporate reorganization described in this prospectus, Beasley Broadcast Group, we, us, our and similar terms refer to Beasley FM Acquisition Corp. and related companies, and after giving effect to the corporate reorganization, those same terms refer to Beasley Broadcast Group, Inc., its consolidated subsidiaries and the stations we have agreed to acquire in Boston, Miami-Ft. Lauderdale, West Palm Beach and Augusta. Overview We were founded in 1961 and are the 16th largest radio broadcasting company in the United States based on 1998 gross revenues. After giving effect to pending acquisitions in Boston, Miami-Ft. Lauderdale, West Palm Beach and Augusta, we will own and operate 36 stations, 21 FM and 15 AM. Our stations are located in nine large and mid-sized markets in the eastern United States. Twelve of these stations are located in four of the nation s top 12 radio markets: Atlanta, Philadelphia, Boston and Miami-Ft. Lauderdale. Our station groups rank among the first or second largest clusters, based on gross revenues, in five of our nine markets and, collectively, our radio stations reach approximately three million people on a weekly basis. For the twelve months ended September 30, 1999, giving effect to acquisitions and dispositions completed during the period, as well as the pending acquisitions mentioned above and our recent acquisitions in Atlanta, as if those acquisitions had been completed at the beginning of the period, we had net revenues of $94.7 million, broadcast cash flow of $28.8 million and a net loss of $8.1 million. We seek to maximize revenues and broadcast cash flow by acquiring and operating clusters of stations in high-growth large and mid-sized markets located primarily in the eastern United States. We have assembled groups of five or more stations in five of our markets. Our radio stations program a variety of formats, including urban, contemporary hit radio and country, which target the demographic groups in each market that we consider the most attractive to our advertisers. The combination of our market clusters and our advertising, sales and programming expertise has enabled us to achieve strong same station revenue and broadcast cash flow growth. Operating Strategy In order to maximize revenues and broadcast cash flow at our stations, our operating strategy is to: secure and maintain a leadership position in current and future markets by creating clusters of multiple stations; conduct in-depth market research in order to refine our programming and enhance our ratings; establish a strong local brand identity through advertising and promotional initiatives; build a relationship-oriented sales force whose goal is to create a strong local and national sales effort; hire, develop and motivate strong local management teams; and enhance broadcast cash flow margins of underutilized AM stations by selling blocks of programming time to providers of health, ethnic, religious and other specialty programming. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Acquisition Strategy Since June 1996, we have acquired or agreed to acquire 25 radio stations. Our future acquisition strategy, which will focus on stations located in the 100 largest radio markets, is to: acquire additional radio stations in our current markets to further enhance our market position; acquire existing clusters in new markets or establish a presence in new markets where we believe we can build successful clusters over time; pursue swap opportunities with other radio station owners to build or enhance our market clusters; and selectively acquire large-market AM stations serving attractive demographic groups with specialty programming. Pending Transactions We have entered into agreements to purchase the following radio stations: one AM radio station in Boston for approximately $6 million, subject to an upward adjustment of up to $2 million; two AM radio stations in Miami-Ft. Lauderdale and one AM radio station in West Palm Beach, for a total purchase price of approximately $18 million; and one FM and one AM radio station in Augusta for approximately $800,000. We expect the Boston and Miami-Ft. Lauderdale/ West Palm Beach acquisitions to close in the second quarter of 2000. We are unable to predict when the Augusta acquisitions will close due to pending disputes described in Recently Completed and Pending Radio Broadcasting Transactions. We have entered into a non-binding letter of intent to purchase one FM and five AM stations in various markets in the Northeast, including one AM station in Boston, for a total purchase price of approximately $18 million. We have an additional non-binding letter of intent to purchase one AM station in Atlanta for approximately $1.5 million. Because we have not signed definitive purchase agreements for any of these stations, we have not included them in our portfolio as described in this prospectus. Our Principal Executive Offices Our principal executive offices are located at 3033 Riviera Drive, Suite 200, Naples, Florida 34103, and our telephone number is (941) 263-5000. Amendment No. 4 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering Class A common stock offered 6,850,000 shares Common stock to be outstanding after the offering 7,252,068 shares of Class A common stock 17,021,373 shares of Class B common stock 24,273,441 shares of common stock Voting rights The Class A common stock and the Class B common stock generally vote together as a single class on all matters submitted to a vote of stockholders. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to 10 votes. The holders of our Class A common stock, voting as a single class, are entitled to elect two directors. Immediately following this offering, the Class B common stock will represent approximately 95.9% of the combined voting power of our common stock, approximately 95.4% if the underwriters exercise their overallotment option in full. All of our Class B common stock is owned by George G. Beasley, our Chairman and Chief Executive Officer, and members of his immediate family. Conversion and transferability of Class B common stock Shares of Class B common stock are convertible at the option of the holder at any time into shares of Class A common stock on a one-for-one basis. Shares of Class B common stock convert automatically into shares of Class A common stock upon sale or transfer to persons or entities not related to George G. Beasley or members of his immediate family. Proposed Nasdaq National Market symbol BBGI Class A common stock offered and common stock to be outstanding after the offering excludes up to 1,027,500 shares of Class A common stock that may be issued to cover over-allotments of shares. Common stock to be outstanding after the offering is as of the closing date. It excludes grants under our 2000 equity plan of options to purchase 2,500,000 shares of Class A common stock at the initial public offering price. BEASLEY BROADCAST GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 4832 65-0960915 (state or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 3033 Riviera Drive, Suite 200 Naples, FL 34103 (941) 263-5000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents Summary Historical Combined Financial Information We have derived the summary historical financial information shown below for the years ended December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999 from our audited and unaudited combined financial statements included elsewhere in this prospectus. As you review the information contained in the following table and throughout this prospectus, you should note the following: During the periods presented, we operated as a series of partnerships and subchapter S corporations under the Internal Revenue Code. Accordingly, we were not liable for federal and some state and local corporate income taxes, as we would have been if we had been treated as a subchapter C corporation. During these periods, our stockholders included our taxable income or loss in their federal and applicable state and local income tax returns. The pro forma amounts shown in the table reflect provisions for federal, state and local income taxes, applied to income (loss) before pro forma income taxes, as if we had been taxed as a subchapter C corporation. On the day prior to the date of this prospectus, our subchapter S status will terminate. On the date of this prospectus, we will reorganize all of our entities under a holding company that is a wholly-owned subsidiary of Beasley Broadcast Group, Inc., the newly formed subchapter C corporation that is issuing the Class A common stock offered by this prospectus. For purposes of our historical financial statements, the term pro forma refers to the adjustments necessary to reflect our status as a subchapter C corporation for income tax purposes rather than a series of subchapter S corporations and partnerships, distributions to equity holders for income taxes of entities comprising Beasley Broadcast Group prior to the reorganization, the distribution of untaxed retained income and subsequent recontribution of the same amounts as additional paid-in capital and the fair value adjustment necessary to record the acquisition of minority shareholder interest using the purchase method of accounting. Broadcast cash flow consists of operating income (loss) before corporate general and administrative expenses, depreciation and amortization, equity appreciation rights expenses and impairment loss on long-lived assets. For the periods shown in the following table, broadcast cash flow is unaffected by fees paid under local management and time brokerage agreements of $1,075,000 for the year ended December 31, 1996 and zero for subsequent periods. The fees are included in other non-operating income (expense). Broadcast cash flow margin represents broadcast cash flow as a percentage of net revenues. EBITDA consists of broadcast cash flow minus corporate general and administrative expenses. Pro forma after-tax cash flow consists of pro forma net income (loss) minus net gains on sale of radio stations plus the following: loss on sale of radio stations, depreciation and amortization, equity appreciation rights expenses, impairment loss on long-lived assets and deferred tax provision (or minus deferred income tax benefit). No expense for equity appreciation rights has been recorded for the periods presented. We expect to record equity appreciation rights expenses of approximately $430,000 in the fourth quarter of 1999 and approximately $1.2 million in the first quarter of 2000. The as adjusted balance sheet data as of September 30, 1999 gives effect to: our corporate reorganization and the related reduction of additional paid-in capital by $26,905,000 to establish the net deferred tax liability resulting from the termination of our subchapter S status; the sale of 6,850,000 shares of Class A common stock by us at the initial public offering price of $15.50 per share and the application of the net proceeds as described under Use of Proceeds and Capitalization ; George G. Beasley Chief Executive Officer Beasley Broadcast Group, Inc. 3033 Riviera Drive, Suite 200 Naples, FL 34103 (941) 263-5000 (Address, including zip code, and telephone number, including area code, of agent for service) Table of Contents our recent acquisitions in Atlanta and our pending acquisitions in Boston, Miami-Ft. Lauderdale, West Palm Beach and Augusta for an aggregate purchase price of approximately $34.8 million; and distributions of $3.0 million to equity holders to pay income taxes on income of entities comprising Beasley Broadcast Group for the 1999 tax year. Although broadcast cash flow, EBITDA and pro forma after-tax cash flow are not measures of performance or liquidity calculated in accordance with generally accepted accounting principles, we believe that these measures are useful to an investor in evaluating our performance. These measures are widely used in the broadcast industry to evaluate a radio company s operating performance. However, you should not consider these measures in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. In addition, because broadcast cash flow, EBITDA and pro forma after-tax cash flow are not calculated in accordance with generally accepted accounting principles, they are not necessarily comparable to similarly titled measures employed by other companies. The comparability of the historical financial information reflected below has been significantly affected by acquisitions and dispositions. You should read the summary financial information together with Management s Discussion and Analysis of Financial Condition and Results of Operations and our combined financial statements and the related notes included elsewhere in this prospectus. Copies to: John D. Watson, Jr., Esq. Latham Watkins 1001 Pennsylvania Avenue, N.W., Suite 1300 Washington, DC 20004 (202) 637-2200 Jeremy W. Dickens, Esq. Weil, Gotshal Manges LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000 Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] (in thousands) Balance Sheet Data: Cash and cash equivalents $ 5,758 $ 2,758 Intangible assets, net 141,086 184,578 Total assets 187,204 231,673 Long-term debt, including current installments 163,155 100,216 Net stockholders equity (deficit) (2,917 ) 82,117 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION. Bruker Daltonics We are a leading developer and provider of innovative life science tools based on mass spectrometry. Our substantial investment in research and development allows us to design, manufacture and market a broad array of products intended to meet the rapidly growing needs of our diverse customer base. Our customers include pharmaceutical companies, biotechnology companies, agricultural biotechnology companies, molecular diagnostics companies, academic institutions and government agencies. Mass spectrometers are sophisticated devices that provide highly accurate molecular information on a given sample. Our mass spectrometry-based systems often combine automated sample preparation robots, advanced mass spectrometry instrumentation which analyzes the sample, reagent kits containing chemicals and other testing products that are consumed in performing the sample analysis and bioinformatics software which analyzes the data produced by the sample analysis. Our systems offer integrated solutions for applications in multiple existing and emerging markets including (a) the study of genes and their function, or genomics, (b) the separation, identification, characterization and study of proteins and their function, or proteomics, (c) the measurement of products related to the metabolism of substances and disease pathways, or metabolic and biomarker profiling, (d) drug discovery and development, (e) tests for specific molecules or biological pathways referred to as molecular assays and diagnostics, (f) molecular and systems biology and (g) basic medical research. We market our life science systems both through our direct sales force and through strategic distribution arrangements with Agilent Technologies, PerkinElmer, Sequenom, MWG-Biotech and others. We are also a worldwide leader in supplying mass spectrometry-based systems for substance detection and pathogen identification in security and defense applications. Our Products Our life science solutions incorporate instruments that are based on one of four core mass spectrometry technology platforms. Each of these platforms utilizes a different type of mass spectrometry technology, including (a) matrix-assisted laser desorption ionization, or MALDI, time-of-flight mass spectrometry, (b) electrospray ionization, or ESI, time-of-flight mass spectrometry, (c) Fourier transform mass spectrometry and (d) ion trap mass spectrometry. We also employ our mass spectrometry technology in our substance detection and pathogen identification systems. Our Solutions Our product lines integrate sophisticated mass spectrometers with automated preparation and measurement of the samples to be analyzed and, where appropriate, bioinformatics software that uses advanced computing techniques to manage and analyze the data produced by our mass spectrometers. These products address many of the analytical needs of the life science industry across a broad range of applications. Our automated systems allow our customers to generate and evaluate large volumes of accurate, high-quality data on a cost-effective basis. We believe that this enhanced throughput and high-quality data improves our customers' ability to apply bioinformatics to validate lead targets, understand disease pathways and analyze lead compounds. Our customers also use our products in molecular biology and other basic medical research. In addition, our automated, integrated mass spectrometry technology forms the basis of our substance detection and pathogen identification products used in security and defense markets. We believe that our products offer the following advantages to our customers: - high degree of automation; - integrated solutions; - accurate results; - increased productivity; and - cost efficiency. Our Strategy Our strategy is to continue to be a leading provider of mass spectrometry and related systems for use in the life sciences, as well as in substance detection and pathogen identification. Key elements of our strategy include: - provide a broad array of tools for a wide range of applications; - develop new platforms, enhanced products and new applications; - build alliances and pursue acquisitions; - generate recurring revenue; - develop and expand our bioinformation business; and - leverage our intellectual property. Bruker Daltonics was incorporated in Massachusetts in February 1991, as Bruker Federal Systems Corporation. In February 2000, we reincorporated in Delaware as Bruker Daltonics Inc. Our principal executive offices are located at 15 Fortune Drive, Billerica, Massachusetts 01821, and our telephone number is (978) 663-3660. Information about Bruker Daltonics is available at www.daltonics.bruker.com. The information on our website is not incorporated by reference into and does not form a part of this prospectus. Daltonics and the Daltonics logo are trademarks of Bruker Daltonics. All other trademarks, tradenames or copyrights referred to in this prospectus are the property of their respective owners. The Offering <TABLE> <S> <C> Common stock offered by Bruker Daltonics..... 8,000,000 shares Common stock to be outstanding after this offering........................ 53,500,000 shares Use of proceeds.............................. General corporate purposes, including research and development, expansion of sales and marketing capabilities and working capital, including funding potential strategic acquisitions, and repayment of our outstanding bank debt. For more detailed information, see "Use of Proceeds" on page 18. Proposed Nasdaq National Market symbol....... BDAL </TABLE> The number of shares to be outstanding upon completion of this offering is based on 45,500,000 shares outstanding as of August 3, 2000. This number excludes 2,140,000 shares of common stock that will be reserved for issuance under our stock option plan upon completion of this offering, of which 757,250 shares were subject to outstanding options. For a more detailed description of our capitalization, please see "Capitalization" on page 19. See "Risk Factors" and other information included in this Prospectus for a discussion of factors you should consider before investing in the shares of our common stock. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES: - THE UNDERWRITERS HAVE NOT EXERCISED THEIR OPTION TO PURCHASE ADDITIONAL SHARES; AND - THE SEVEN-FOR-ONE COMMON STOCK SPLIT COMPLETED IN FEBRUARY 2000. Summary Financial Data (in thousands, except per share data) <TABLE> <CAPTION> Three Months Year Ended December 31, Ended March 31, ------------------------------------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 ----------- ----------- ----------- ----------- ----------- -------- -------- (unaudited) <S> <C> <C> <C> <C> <C> <C> <C> Consolidated/Combined Statements of Operations Data (1): Product revenue............. $ 30,076 $ 43,942 $ 49,247 $ 40,157 $ 60,620 $ 10,879 $ 14,035 Other revenue............... 2,049 2,130 1,878 2,050 4,070 1,019 564 ---------- ---------- ---------- ---------- ---------- -------- -------- Net revenue............... 32,125 46,072 51,125 42,207 64,690 11,898 14,599 Costs and operating expenses: Cost of product revenue... 16,424 20,329 24,538 19,672 31,618 5,497 6,574 Sales and marketing....... 2,806 6,123 7,178 7,435 11,345 2,256 2,564 General and administrative.......... 1,795 1,717 2,120 2,212 3,411 618 1,108 Research and development............. 9,419 8,812 9,166 13,049 15,138 3,088 3,600 Patent litigation costs... -- 1,901 5,525 -- 538 538 303 ---------- ---------- ---------- ---------- ---------- -------- -------- Total costs and operating expenses.. 30,444 38,882 48,527 42,368 62,050 11,997 14,149 ---------- ---------- ---------- ---------- ---------- -------- -------- Operating income (loss) from continuing operations..... 1,681 7,190 2,598 (161) 2,640 (99) 450 Other income (expense)...... 196 2 127 174 130 140 (25) Interest expense, net....... (1,341) (1,032) (743) (901) (907) (267) (103) ---------- ---------- ---------- ---------- ---------- -------- -------- Income (loss) from continuing operations before provision for income taxes.............. 536 6,160 1,982 (888) 1,863 (226) 322 Provision (benefit) for income taxes.............. 9 2,265 1,627 -- 987 (120) 185 ---------- ---------- ---------- ---------- ---------- -------- -------- Income (loss) from continuing operations..... 527 3,895 355 (888) 876 (106) 137 Income from discontinued operations, net of income taxes..................... 372 368 209 383 373 90 37 ---------- ---------- ---------- ---------- ---------- -------- -------- Net income (loss)........... $ 899 $ 4,263 $ 564 $ (505) $ 1,249 $ (16) $ 174 ========== ========== ========== ========== ========== ======== ======== Net income (loss) per share-basic and diluted Income (loss) from continuing operations... $ 0.01 $ 0.08 $ 0.01 $ (0.02) $ 0.02 $ 0.00 $ 0.00 Income from discontinued operations, net of income taxes............ 0.01 0.01 0.00 0.01 0.01 0.00 0.00 ---------- ---------- ---------- ---------- ---------- -------- -------- Net income (loss) per share..................... $ 0.02 $ 0.09 $ 0.01 $ (0.01) $ 0.03 $ 0.00 $ 0.00 ========== ========== ========== ========== ========== ======== ======== Shares used in computing net income (loss) per share-basic and diluted... 45,500 45,500 45,500 45,500 45,500 45,500 45,500 </TABLE> <TABLE> <CAPTION> March 31, 2000 -------------------------- Actual As Adjusted (2) -------- --------------- (unaudited) <S> <C> <C> Consolidated Balance Sheet Data (1): Cash and cash equivalents................................... $ 3,905 $ 80,485 Working capital............................................. 13,335 92,546 Total assets................................................ 71,238 147,818 Total debt.................................................. 14,920 -- Total stockholders' equity.................................. 9,751 101,251 </TABLE> ---------- (1) In December 1998, Bruker Daltonics Inc. acquired Bruker Daltonik GmbH and its subsidiary Bruker Saxonia Analytik GmbH. Since these companies were under common ownership prior to the acquisition, the financial data is shown on a combined basis for all years presented. (2) The adjusted balance sheet data reflects the receipt of the net proceeds from the sale of 8,000,000 shares of common stock by Bruker Daltonics Inc. in this offering at an assumed initial public offering price of $12.50 per share, after underwriting discounts and commissions and estimated offering expenses.

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+PROSPECTUS SUMMARY The following summarizes information in other sections of our prospectus, including our financial statements, the notes to those financial statements and the other financial information appearing elsewhere in this prospectus. You should read the entire prospectus carefully. CAPSTONE TURBINE CORPORATION CAPSTONE We develop, design, assemble and sell Capstone(TM) MicroTurbines. Capstone MicroTurbines are marketable worldwide in the multibillion dollar market for distributed power generation. Capstone MicroTurbines provide power at the site of consumption and to hybrid electric vehicles that combine a primary source battery with an auxiliary power source, such as a microturbine, to enhance performance. We are the first company to sell a proven, commercially available power source using microturbine technology. The Capstone MicroTurbine combines sophisticated design, engineering and technology to produce a reliable and flexible generator of electricity and heat for commercial and industrial applications and is a result of over ten years of research and development. We believe the simple and flexible design of our microturbines will enable our distributors and end users to develop an increasingly broad range of applications to fit their particular power needs. PRODUCTS The Capstone MicroTurbine is a compact, environmentally friendly generator of electricity and heat. Our state-of-the-art microturbines combine patented air-bearing technology, advanced combustion technology and sophisticated power electronics to produce an efficient and reliable electricity and heat production system that requires little on-going maintenance. Our air-bearing technology provides a clean, high-pressure field of air to lubricate the one moving component of the microturbine rather than using traditional petroleum products as in conventional bearings. Our microturbines can operate by remote control and use a broad range of gaseous and liquid fuels, including previously unusable fuels. Our microturbines are easily transportable and designed to allow multiple units to run together to meet an end user's specific electrical and heat requirements. We also have applied our technology to hybrid electric vehicles such as buses, industrial use and other passenger and commercial vehicles. Buses using Capstone MicroTurbines have demonstrated greater range, less maintenance and lower costs than other low emission buses. Our microturbines have been in commercial use in buses since July 1999 and are currently being used in buses operating in U.S. cities such as Los Angeles, Atlanta, Chattanooga, and Tempe and international cities such as Christchurch, New Zealand. We offer two microturbine product families: the 30-kilowatt family, available in 24 configurations, and our 60-kilowatt microturbine family, which we introduced in September 2000, currently available in one configuration. Both the 30-kilowatt and 60-kilowatt units can be used for a variety of power applications. For example, our 30-kilowatt unit provides power sufficient to operate a typical convenience store. A typical fast food restaurant requires approximately 90 kilowatts of power and could be powered by three 30-kilowatt units or a 60-kilowatt unit used in combination with a 30-kilowatt unit. TARGET MARKETS The fundamental need for power, along with the global deregulation of the electric power industry, an increasing need for better power quality and reliability and significant advances in power technology, are creating many new opportunities for Capstone MicroTurbine systems. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED NOVEMBER 16, 2000 <TABLE> <S> <C> <C> [CAPSTONE LOGO] 7,000,000 Shares CAPSTONE TURBINE CORPORATION Common Stock </TABLE> ---------------------- Capstone Turbine Corporation is offering 1,000,000 shares and the selling stockholders identified in this prospectus are offering an additional 6,000,000 shares. Capstone Turbine will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. The common stock is quoted on the Nasdaq National Market under the symbol "CPST." The last reported sale price of our common stock on the Nasdaq National Market on November 15, 2000 was $34.563 per share. See "Risk Factors" beginning on page 6 to read about factors you should consider before buying shares of the common stock. ---------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------- <TABLE> <CAPTION> PER SHARE TOTAL --------- ----- <S> <C> <C> Initial Price to public..................................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to Capstone Turbine.............. $ $ Proceeds, before expenses, to selling stockholders.......... $ $ </TABLE> To the extent that the underwriters sell more than 7,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 1,050,000 shares from Capstone Turbine and the selling stockholders at the public offering price, less the underwriting discount. ---------------------- The underwriters expect to deliver the shares against payment in New York, New York on , 2000. GOLDMAN, SACHS & CO. CREDIT SUISSE FIRST BOSTON MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER ---------------------- Prospectus dated , 2000. STATIONARY APPLICATIONS We believe the stationary applications for our microturbines are extremely broad, either on a stand-alone basis or connected to the electric utility grid, because of our microturbines' ability to adapt to fuels, load variations, and various climates while operating in an environmentally friendly manner. We have initially targeted markets which we believe will identify and employ our product attributes quickly. As levels of acceptance and volumes increase, we expect to enter larger, more diverse markets. Our initial target markets include: - Resource Recovery Oil and gas production creates fuel byproducts that traditionally have been released or burned into the atmosphere. Capstone MicroTurbines can burn these otherwise wasted gases, including gas with high sulfur content, with minimal emissions and produce on-site electricity for these activities. Our microturbines can also burn gas released from landfills and gas produced from sludge digestion. - Micro-Cogeneration/Combined Heat and Power Using both the heat and electricity from the combustion of fuel improves the overall efficiency of the generation process and can provide a comprehensive solution to a customer's energy needs. Uses for the heat include space heating, air conditioning and heating and cooling water. We have identified the Japanese market as the most receptive for these applications in the near term. - Back-up and Standby Power/Peak Shaving Many commercial and small industrial customers in developed countries could reduce their electricity costs and/or improve their reliability of electric power supply by installing a Capstone MicroTurbine to meet some or all of their needs as a back-up power source. In addition, end users also can use our microturbines to avoid temporary spikes in power prices by producing their own power during periods when power demand and power costs are high, known in the industry as peak shaving. -- Power Quality and Reliability An important and rapidly growing sector within the back-up and standby power/peak shaving market is power quality and reliability. Consumers worldwide, particularly industrial and commercial users, are increasingly using power for digital based processes. These systems are extremely intolerant of disturbances in their power supply. Even momentary disruptions can cause material economic loss. We believe that Capstone MicroTurbines have applications in this market due to their operating flexibility, low emissions and modular form. Our products can provide support for extended outages on a cost effective basis. - Developing Regions Much of the world's population does not have access to electric power. Utilities can install Capstone MicroTurbines at the end of the electric utility grid to avoid building costly power lines. Additionally, our microturbine can be a primary, stand-alone power source which burns a variety of gaseous or liquid fuels. HYBRID ELECTRIC VEHICLES We believe that the hybrid electric vehicle market currently represents a significant opportunity and will expand as governments and consumers demand cost-efficient, reliable and environmentally friendly vehicles, particularly in urban areas. The recent ban on diesel buses imposed by the City of Los Angeles is indicative of this trend. In October 2000, we entered into a joint development <TABLE> <S> <C> [IMAGE] CAPSTONE-ENERGIZED HYBRID ELECTRIC BUS: NEW ZEALAND [IMAGE] WASTEWATER RESOURCE RECOVERY WITH MICRO-COGENERATION: PENNSYLVANIA [IMAGE] NURSING HOME MICRO-COGENERATION: OH [IMAGE] OILFIELD 2-PACK RESOURCE RECOVERY: CANADA [IMAGE] ROOFTOP MICRO-COGENERATION CHILLING: JAPAN [IMAGE] CONVENIENCE STORE PEAK-SHAVING/STANDBY: IL [IMAGE] PUBLIC POOL MICRO-COGENERATION: THE NETHERLANDS </TABLE> agreement with Hyundai Motor Company to demonstrate the feasibility of integrating our microturbine technology into Hyundai sport utility vehicles and buses. OUR STRATEGY Our objective is to remain a leading worldwide developer and supplier of microturbine technology for the stationary power generation and hybrid electric vehicle markets. Key elements of our strategy include the following: - We believe the most effective way to penetrate our target markets is with a business-to-business distribution strategy. We are forging alliances with key distribution partners worldwide. - We shipped the first commercial model of our family of 60-kilowatt microturbine systems in September 2000. We intend to develop microturbine families with power outputs of up to 125+ kilowatts. We also intend to continue our research and development efforts to enhance our current products. - We believe that a policy of actively protecting our patents and other intellectual property is an important component of our strategy to remain the leader in microturbine technology and will provide us a long-term competitive advantage. - We expect our unit production costs and prices to decline substantially as volumes increase. Our strategy is to use low cost materials and to outsource all non-proprietary hardware and electronics to achieve high volume, low cost production targets. We are pursuing a "tier one" supply strategy whereby vendors are responsible for the supply of complete subassemblies made up of parts purchased from other vendors. We will retain manufacturing control over our proprietary air-bearing and combustion components. We will begin to manufacture recuperator cores over the course of the next nine to twelve months. - We intend to minimize our financial and operational risk by maintaining adequate capitalization levels. - We intend to continue to add key personnel to complement our strong management team, which has significant industry expertise. THE OFFERING Shares offered by us.................... 1,000,000 shares Shares offered by the selling stockholders............................ 6,000,000 shares Total................................... 7,000,000 shares Common stock to be outstanding after this offering........................... 75,938,602 shares Use of proceeds......................... Our net proceeds from this offering are estimated to be approximately $32.3 million. We will use the net proceeds for recuperator core manufacturing activities. We will not receive any proceeds from the sale of the common stock by the selling stockholders. See "Use of Proceeds." Nasdaq National Market symbol........... CPST The number of shares of our common stock that will be outstanding after this offering: - includes 74,938,602 shares outstanding as of September 30, 2000; and - excludes up to 9,207,727 shares of common stock either underlying options granted or available for issue under our stock option plans, some of which will be exercised in connection with this offering, and 900,000 shares reserved for issuance under our employee stock purchase plans. Unless otherwise indicated, all information in this prospectus assumes the underwriters option to purchase additional shares in this offering will not be exercised. ------------------------ We were incorporated in California in 1988. We reincorporated in Delaware on June 22, 2000. Our principal executive offices are located at 21211 Nordhoff Street, Chatsworth, California 91311. Our telephone number is (818) 734-5300. Our internet address is www.capstoneturbine.com. This internet address is provided for informational purposes only and is not intended to be useable as a hyperlink. The information at this internet address is not a part of this prospectus. The name Capstone and the Turbine Blade logo are trademarks that belong to us. This prospectus also contains the names of other entities which are the property of their respective owners. SUMMARY FINANCIAL INFORMATION <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED DECEMBER 31, ----------------------------- --------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1997 1998 1999 1999 2000 ------- -------- -------- -------- -------- ------------- ------------- (IN THOUSANDS) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS: Total revenues.................. $ 920 $ 1,462 $ 1,623 $ 84 $ 6,694 $ 1,315 $ 16,029 Cost of goods sold.............. 199 2,179 8,147 5,335 15,629 4,570 20,658 ------- -------- -------- -------- -------- -------- -------- Gross profit (loss)........... 721 (717) (6,524) (5,251) (8,935) (3,255) (4,629) Operating costs and expenses: Research and development...... 4,796 8,599 13,281 19,019 9,151 6,681 8,416 Selling, general and administrative.............. 1,878 3,585 10,946 10,257 11,191 7,818 17,264 ------- -------- -------- -------- -------- -------- -------- Income (loss) from operations.................. (5,953) (12,901) (30,751) (34,527) (29,277) (17,754) (30,309) Net income (loss)........... $(5,957) $(12,595) $(30,553) $(33,073) $(29,530) $(17,863) $(25,067) ======= ======== ======== ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED DECEMBER 31, ----------------------------- ----------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- --------- ------------- ------------- (IN THOUSANDS) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS: BALANCE SHEET DATA: Cash and cash equivalents..... $ 525 $ 1,464 $ 44,563 $ 4,943 $ 6,858 $ 4,454 $229,783 Working capital............... 255 1,773 41,431 6,919 6,294 10,140 225,428 Total assets.................. 1,351 6,820 56,989 25,770 36,927 28,397 289,516 Capital lease obligations..... -- 846 1,885 4,449 5,899 5,164 5,963 Long-term debt................ -- -- -- -- -- -- -- Redeemable preferred stock.... 11,242 25,975 99,720 101,624 156,469 125,716 -- Stockholders' (deficiency)/equity......... (11,371) (24,176) (56,057) (91,151) (144,225) (112,543) 264,819 Total liabilities and stockholders' equity........ $ 1,351 $ 6,820 $ 56,989 $ 25,770 $ 36,927 $ 28,397 $289,516 </TABLE>

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+PROSPECTUS SUMMARY This summary does not include all of the information that may be important to you. You should read the following summary together with the more detailed information, including our financial statements and related notes, appearing elsewhere in this prospectus. Unless otherwise indicated, all information in this prospectus assumes the underwriters will not exercise their over-allotment option. On November 16, 1999, we changed our name to CollegeLink.com Incorporated from Cytation.com Incorporated and changed our state of incorporation to Delaware from New York. COLLEGELINK.COM INCORPORATED OUR COMPANY We provide college bound students and their families with a range of solutions to the challenges of the college admission process, from college selection to submission of college, financial aid, and scholarship applications. We have recently entered into an agreement to acquire a related business, Student Success, Inc., and a letter of intent to acquire another related business, Online Scouting Network, Inc. We have developed an Internet hub with a college application, financial aid and scholarship service. We expect that a large number of applications will be submitted by computer within the next several years because of increasing student computer literacy and the significant financial and administrative benefits to colleges and universities of receiving applications electronically. In addition, through the Making College Count(R) and Making High School Count(TM) programs, we help prepare students for success in college. We also continuously obtain demographic and other information which can be used by students, their families, colleges and other service providers to assist in the college admissions process and enhance the entire college experience. Due to the volume of college bound students who visit our Internet hub, we are developing an attractive e-commerce location for students and their families. CollegeLink.com. Through CollegeLink.com, and its relationships with more than 900 colleges and universities, we are a leading provider of computer-based college applications and admissions services to college bound students and their families. Student Success. Student Success is a leading provider of onsite high school and college preparatory programs for students and their families under its Making College Count(R) and Making High School Count(TM) trademarks. Through this channel, we intend to continue to expand our presence and awareness of our services with high school students. Student Success presented its seminars to more than 215,000 students at about 900 high schools and junior colleges nationwide last year. These programs were sponsored by eight major consumer products companies. Online Scouting Network. Online Scouting Network is a leading provider of online recruiting services offering student athletes greater visibility to more than 3,000 college and university professionals. To date, approximately 25,000 high school students from over 500 high schools nationwide have registered with Online Scouting Network. OUR RELATIONSHIPS We have entered into agreements and developed relationships with more than 900 colleges and universities to accept applications in their respective formats through CollegeLink(R). A complete list of these colleges and universities is included in this prospectus. We have an agreement with PNC Bank, N.A., one of the largest student loan providers in the United States, to provide certain financial products and services to college bound students and their families through our CollegeLink.com Internet hub. PNC Investment Corp., an affiliate of PNC Bank, has made a $4,000,000 investment in our company. - -------------------------------------------------------------------------------- [INSIDE SPREAD] [A two page spread containing the names of colleges and universities listed alphabetically.] - -------------------------------------------------------------------------------- We have an agreement with The College Board(R) to be the exclusive provider of electronic college applications through The College Board's ExPAN(R) guidance software. The College Board(R) is a membership organization of colleges and secondary schools and is the provider of the SAT(R) and the AP(R) Exams. We also have co-marketing relationships with Student Advantage, Inc. and FastWeb.com L.L.C. and are negotiating similar relationships with other Web-based businesses including The FamilyEducation Company. We are continually seeking appropriate relationships to expand our service and product offerings. OUR MARKET There are about 13.8 million high school students in the United States. According to the National Center for Education Statistics, this number will increase to more than 15.5 million over the next five years. Each year about 3.2 million students enter colleges and universities for the first time. Of these about 2.2 million apply as first time freshman to undergraduate colleges and universities. The remaining students apply to continuing education programs of various sorts. Each year about 3.2 million applicants submit more than seven million applications for undergraduate admission to nearly 3,400 U.S. colleges and universities. About 50% of these students apply for some form of financial aid. According to the Department of Education, it is expected that the total number of college bound students will continue to increase each year for the foreseeable future. Based on industry statistics, we believe colleges spend about $3 billion annually to recruit and enroll students. OUR STRATEGY Our strategy is to build upon the thousands of relationships we have developed with high school guidance counselors and college admissions professionals through one-on-one marketing efforts. We plan to build our brand, reach increasing numbers of high school and college students, and drive traffic to our Internet hub. Our objectives are to: Expand our market leadership position. We intend to leverage our relationships with more than 2,500 high schools and more than 900 colleges and universities to establish new affiliations, attract additional students to our website, and create a premier Internet hub for college bound students. We plan to continue to add high schools, colleges and universities through on campus direct sales calls by sales personnel, corporate sponsorships, direct mailings, targeted periodical advertising, online and broadcast advertising, partnerships and various promotional campaigns. Expand existing brand awareness. We intend to build upon our established brands and our relationships with PNC Bank, N.A., The College Board(R), Student Advantage, Inc., FastWeb.com L.L.C. and others to establish CollegeLink.com as a leading Internet hub and e-commerce site. Capitalize on our strong high school presence. Last year, The College Board(R) distributed our CollegeLink(R) software with its ExPAN(R) guidance software to about 2,000 high schools nationwide. Last school year, Making College Count(R) presented at about 900 high schools and junior colleges and Online Scouting Network registered athletes from over 500 high schools. We intend to grow our presence in the high school market through expansion of these programs. Develop strategic web partnerships. We have initiated a web partnership program to co-brand our products and services on targeted high school and college-related high traffic websites and add content to our Internet hub. Overcome resistance to online applications. We believe many college bound students and their families perceive that colleges and universities prefer applications that are submitted on the institution's specific format. CollegeLink(R) software is the only program currently available that permits students applying to more than one college to enter general information only once and still deliver to each - -------------------------------------------------------------------------------- institution an application in that institution's own format. We believe this feature gives us a significant competitive advantage and we intend to promote it to increase use of our services. Our executive offices are located at 55 Hammarlund Way, Middletown, Rhode Island 02842 and our telephone number is (401) 845-8800. Our website is located at http://www.collegelink.com. Information contained on our website is not part of this prospectus. THE OFFERING Common stock offered by CollegeLink......................... 2,200,000 shares Common stock to be outstanding after the offering(1)..................... 12,126,239 shares Use of proceeds..................... We intend to use our net proceeds for the acquisitions of Student Success and Online Scouting Network, general corporate purposes, including working capital, expansion of our sales and marketing programs and in acquisitions of and investments in complementary businesses. See "Use of Proceeds." Over-the-Counter Electronic Bulletin Board Symbol........................ CLNK (Prior to November 26, 1999, our common stock traded on the Over-the-Counter Electronic Bulletin Board under the symbol "CYTA.") Proposed American Stock Exchange symbol(2)........................... APS - --------------- (1) The number of shares of common stock to be outstanding after the offering excludes (a) 330,000 shares of the underwriters' over-allotment option, (b) 220,000 shares of common stock reserved for issuance upon exercise of the representatives' warrants, (c) options outstanding at January 19, 2000, to purchase 1,886,185 shares of common stock, and 1,980,065 shares reserved for future grants under our option plans at January 19, 2000, (d) 1,140,000 shares of common stock issuable upon conversion of 1,140,000 shares of Series A Convertible Preferred Stock outstanding at January 19, 2000, (e) 550,369 shares of common stock issuable upon conversion of 279,771 shares of Series B Convertible Preferred Stock outstanding at January 19, 2000 (assuming the maximum number of shares of common stock issuable upon such conversion), (f) 1,000,000 shares of common stock issuable upon conversion of 1,000,000 shares of Series C Convertible Preferred Stock outstanding at January 19, 2000, and (g) warrants to purchase 940,283 shares of common stock outstanding at January 19, 2000. (2) Our shares of common stock have been accepted for quotation on the American Stock Exchange under the symbol "APS." SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes our financial data. The data presented in this table is derived from the "Selected Financial Data" and the financial statements and related notes which are included elsewhere in this prospectus. You should read those sections for a further explanation of the financial data summarized here. The pro forma financial data presented in the table gives effect to the proposed issuance of common stock to the stockholders of Student Success and Online Scouting Network, and assuming a $4.00 per share price in this offering. The pro forma as adjusted financial data also gives effect to this offering. <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED JUNE 30, SEPTEMBER 30, 1999 ------------------------------- ---------------------- PRO FORMA ACQUISITIONS PRO FORMA 1998 1999 1999 ACTUAL ACQUISITIONS ------ ------- ------------ ------- ------------ <S> <C> <C> <C> <C> <C> INCOME STATEMENT Revenues.................................. $1,243 $ 562 $ 1,840 $ 266 $ 678 Expenses.................................. 1,873 3,106 7,962 1,627 2,412 ------ ------- ------- ------- ------- Net Loss.................................. $ (630) $(2,586) $(6,123) $(1,361) (1,734) ====== ======= ======= ======= ======= Weighted Average Primary Shares........... 3,499 6,531 8,540 9,495 11,196 ====== ======= ======= ======= ======= Net Loss Per Share........................ $(0.18) $ (0.40) $ (0.72) $ (0.14) $ (0.15) ====== ======= ======= ======= ======= </TABLE> <TABLE> <CAPTION> AT JUNE 30, SEPTEMBER 30, 1999 ------------------------------ ------------------------------------ PRO FORMA ACQUISITIONS PRO FORMA PRO FORMA 1998 1999 1999 ACTUAL ACQUISITIONS AS ADJUSTED ------ ------ ------------ ------- ------------ ----------- <S> <C> <C> <C> <C> <C> <C> BALANCE SHEET Current Assets............................ $ 131 $1,557 $ 2,249 $ 4,639 $ 1,988 Total Assets.............................. 358 1,807 21,619 13,181 21,297 Stockholders' Equity (Deficit)............ (69) 1,377 19,232 12,202 19,051 Shares Outstanding........................ 3,482 9,152 11,053 9,846 11,196 </TABLE>

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+PROSPECTUS SUMMARY This summary highlights certain information contained elsewhere in this prospectus. To understand this offering fully, you should read the entire prospectus carefully, including the risk factors and our consolidated financial statements. OPTICARE HEALTH SYSTEMS, INC. Our Business. We are an integrated eye care services company focused on providing laser vision correction, managed care and professional eye care services. We currently own, operate and develop laser vision correction and ambulatory surgery centers and provide systems, including Internet-based software solutions, to eye care professionals. We also provide managed eye care services to health plans and operate integrated eye health centers and retail optical stores. While we believe that all of our businesses have solid same-store growth prospects, we expect our laser correction and professional services division as well as our managed care business to have the potential for significant near-term and long-term growth. In order to focus our resources accordingly, we have recently reorganized our operations, creating three operating divisions versus only two previously. These three divisions are: o Laser Correction and Professional Services. We develop laser vision correction centers and provide marketing, systems, software and other services to eye care professionals. o Managed Care Services. We contract with managed care plans to manage the eye health portion of their benefits. o Other Integrated Services. We own and operate fully integrated eye health centers, retail optical stores and a buying group program. To realize the growth potential in these businesses: o We intend to expand our laser vision correction services at our existing owned and operated laser vision correction and ambulatory surgery centers. o We have developed a program called the OptiCare Laser Advantage (Trade Mark) to participate in the rapid growth of laser vision correction. In this arrangement, we intend to enter into laser vision correction development agreements with ophthalmology practices that already perform laser vision correction surgery at a third-party laser site, but which desire to open their own laser center. o We will emphasize our professional services offerings, in which we sell a broad range of management services and eye care systems and software to eye health professionals. o We intend to aggressively promote and grow our Managed Care Services division by leveraging our large customer base and favorable market trends. o We intend to further leverage and link our service offerings across the spectrum of eye care. We believe that having multiple businesses within the eye care services marketplace provides us with numerous advantages. Our History. Our present form is the result of two mergers completed on August 13, 1999 among Saratoga Resources, Inc., a Delaware corporation, OptiCare Eye Health Centers, Inc., and PrimeVision Health, Inc. At the time of the mergers, PrimeVision Health and OptiCare Eye Health Centers was each an integrated vision services company. Saratoga, the surviving parent of the mergers, was renamed "OptiCare Health Systems, Inc." at the time the mergers were closed. For accounting purposes, PrimeVision Health was deemed the acquirer of Saratoga and OptiCare. Throughout this prospectus: o when we use the words "we," "our," "us" or "company" for periods prior to August 13, 1999, we are referring to PrimeVision Health or to OptiCare Eye Health Centers, or to both of them on a combined pro forma basis as the context requires, and not to Saratoga; o when we use the word "Saratoga", we are referring to Saratoga Resources, Inc., a Delaware corporation, and its oil business for periods prior to August 13, 1999. Our executive offices are located at 87 Grandview Avenue, Waterbury, Connecticut 06708, and our telephone number is 203-596-2236. THE OFFERING Common Stock Offered........ Up to 4,000,000 shares Common Stock Outstanding after the Offering.......... 12,972,128 shares, assuming we sell all 4,000,000 shares we are offering. Use of Proceeds............. We intend to use our net proceeds from this offering to reduce the outstanding balance of our term loan under our credit facility, to repay indebtedness under subordinated notes, and to expand our laser correction and professional services division, and general corporate purposes; prior to applying the net proceeds to expand, we will temporarily reduce the outstanding balance of our revolving debt under our credit facility. See "Use of Proceeds." American Stock Exchange Symbol............. "OPT" Risk Factors................ You should carefully consider the information set forth in "Risk Factors" and all other information set forth in this prospectus before investing in our common stock. Dividend Policy............. We intend to retain our earnings for working capital and do not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." Unless otherwise indicated, references to numbers and percentages of shares of common stock are based upon 8,972,128 shares of our common stock outstanding on January 14, 2000. This number excludes 1,316,778 shares of common stock issuable upon the exercise of stock options under our Performance Stock Program. For more information about our Performance Stock Program, see "Performance Stock Program." SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA The following summary historical consolidated financial data has been derived from PrimeVision Health's audited consolidated financial statements for the years ended December 31, 1998, 1997, 1996 and 1995, and the unaudited consolidated financial statements as of and for the nine month periods ended September 30, 1999 and 1998. Prior to 1995, PrimeVision Health did not exist. Our present form is the result of the mergers completed on August 13, 1999 among Saratoga, PrimeVision Health and OptiCare Eye Health Centers. For accounting purposes, PrimeVision Health is treated as the accounting acquirer and, therefore, the predecessor business for historical financial statement reporting purposes. For more detailed financial data, see "Selected Consolidated Historical and Pro Forma Combined Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements which begin on page F-1. The pro forma combined financial data has been derived from the unaudited pro forma financial data appearing elsewhere in this prospectus. The pro forma statement of operations data gives effect to each of the following transactions as if each had occurred at the beginning of the respective period: o the reverse acquisition by PrimeVision Health of Saratoga; o the acquisition by PrimeVision Health of OptiCare Eye Health Centers under the purchase method of accounting; and o the issuance and sale of our common stock in this offering at an offering price of $3.50 per share, which is the closing price of our common stock on the American Stock Exchange on January 14, 2000, and the application of the net proceeds therefrom as described in "Use of Proceeds." The as adjusted combined balance sheet data gives effect to the issuance and sale of our common stock in this offering at an offering price of $3.50 per share, which is the closing price of our common stock on the American Stock Exchange on January 14, 2000, and the application of the net proceeds therefrom as if each of these transactions had occurred on September 30, 1999. The information set forth below should be read in conjunction with our consolidated financial statements and unaudited pro forma combined financial statements and notes thereto, and the "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The financial information presented below for the nine-month periods ended September 30, 1999 and 1998 reflects all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated results of operations and financial position for such periods. The information shown for the nine-month periods is not necessarily indicative of the results that may be expected for the full year. <TABLE> <CAPTION> FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- ------------------------------------------------------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL ----------- ---------------------- ----------- ------------------------------------------- 1999 1999(1) 1998 1998 1998 1997 1996 1995 ----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Total net revenues ............... $96,398 $62,895 $ 50,164 $103,982 $ 64,612 $ 58,346 $52,157 $38,523 Income (loss) from continuing operations ...................... (403) 212 (1,285) (1,538) (3,239) (2,034) (767) (391) Weighted average shares outstanding(3) .................. 12,862 3,415 2,241 12,862 2,256 1,856 693 -- Income (loss) from continuing operations per share(2) ......... $ (0.03) $ (0.11) $ (0.84) $ (0.12) $ (2.54) $ (1.10) $ (1.11) $ -- </TABLE> - ---------- (1) On August 13, 1999, OptiCare Eye Health Centers was acquired in a transaction accounted for as a purchase. Accordingly, the results of operations for OptiCare Eye Health Centers are included in the historical results of operations since September 1, 1999, the deemed effective date of the acquisition for accounting purposes. (2) Income (loss) from continuing operations per share for the historical 1999 and 1998 periods are calculated after giving effect to preferred stock dividends. (3) The weighted average common shares outstanding have been adjusted to reflect the conversion associated with the reverse merger with Saratoga. <TABLE> <CAPTION> AS OF SEPTEMBER 30, 1999 --------------------------- AS ADJUSTED HISTORICAL ------------- ----------- <S> <C> <C> Balance Sheet Data: Total current assets ........................... $25,395 $25,395 Total assets ................................... 68,308 68,444 Total current liabilities ...................... 25,327 25,327 Total debt (including current portion) ......... 27,782 41,382 Total stockholders' equity ..................... 17,800 4,336 </TABLE>

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+PROSPECTUS SUMMARY The following summary highlights information that we present more fully elsewhere in this prospectus. You should read this entire prospectus, including "Risk Factors" and the consolidated financial statements and related notes, before deciding to invest in our Class B common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of factors described under "Risk Factors" and elsewhere in this prospectus. McDATA Corporation We are a leading provider of high performance enterprise switches and related software for connecting servers and storage systems in a storage area network, or SAN, based on our historic market share in this segment. We sell our products through industry leading original equipment manufacturers, such as EMC Corporation, resellers, such as International Business Machines Corporation, and systems integrators. We invoice the value of sales at shipment and generally have on-going service arrangements with these customers or the ultimate end-users of our products. We combine years of experience in designing, developing and manufacturing high performance switching technologies with a knowledge of business critical applications, service and support to solve complex business problems at the core of a business enterprise's data infrastructure. Our products enable business enterprises to cost effectively deploy a comprehensive, highly available and centrally managed storage network to support growing storage capacity requirements. During the past decade, the volume and value of data created throughout business enterprises has increased dramatically. As a result, the demand for data storage capacity has exploded as enterprises increasingly need to access, process and manipulate data that is critical to their businesses. International Data Corporation, an independent information technology research firm referred to as IDC, estimates that multi-user disk storage grew from more than 7,000 terabytes in 1993 to more than 185,000 terabytes in 1999, and will reach more than 1.9 million terabytes in 2003. One terabyte is one trillion bytes. The growing dependence on data for fundamental business processes has also greatly increased the performance required of servers and storage systems. The inability of traditional server-to-storage connections to provide the needed performance enhancements has caused significant performance limitations. To address the limitations of traditional server-to-storage connections, fibre channel technology was introduced in the early 1990's as a means to facilitate high performance storage connectivity, accelerating the development of SANs. SANs enable fast, efficient and reliable transfer of data across multiple servers and storage devices to improve the management of data within an enterprise. However, to date, business enterprises have often deployed SANs only within particular areas of their organization, as opposed to on an enterprise-wide basis. This localized deployment requires that each SAN be administered and managed locally, which hinders access to and sharing of information on a centrally-managed enterprise-wide basis. Our solutions include hardware and software products, methodologies and education that enable businesses to scale their operations globally through a comprehensive, manageable, flexible data infrastructure that is optimized for rapid application deployment and responsiveness to customer needs. The advantages of our solutions include the following: - Scalability -- Dynamic Growth. Our solutions are designed to enable business enterprises to consolidate, add or reconfigure servers and storage assets within an enterprise-wide network of data storage and switching devices. The architecture of our products is designed to permit businesses to expand their computing and storage resource needs without causing business interruption or a decline in overall storage system performance. MCDATA The Enterprise Storage Networking Company MCDATA ED-5000 DIRECTOR -------------- The Backbone of the Enterprise SAN [GRAPHIC] [The graphic depicts images and lines representing an enterprise-wide network of services, storage facilities, workgroups and McDATA products.] MCDATA ES-1000 SWITCH MCDATA EFC MANAGER ----------------------- ------------------------- Enables Enterprise-wide Manage the Enterprise SAN Data Centralization From a Central Location MCDATA's ENTERPRISE STORAGE NETWORKING SOLUTION ----------------------------------------------- - Connectivity -- Interoperability. We are at the forefront of providing products that interoperate with the majority of popular servers and storage devices. Our products are designed to protect customers' investments in their information infrastructures. - Availability -- Information Anywhere, Anytime. Our products are designed to provide maximum availability by using fault-tolerant technology incorporating spare, or "redundant," components in the architecture of the products. These products offer internally redundant capabilities that enable customers to run their businesses on a 24x7 basis with 99.999%, or "five-nines," operational availability. - Manageability -- Comprehensive Control for Low Total Cost of Ownership. Our enterprise-wide switching and network management software solutions are designed to enable customers to manage their entire SAN fabric from a central point. Product features simplify the overall administration, service and support of the infrastructure, permitting more efficient use of personnel and increased data availability. - Performance -- High Price to Performance Value. We have designed the technology for our products to provide customers with more data transmission ports per switch. This results in a lower price per port than similarly sized products with fewer ports that must be networked together in order to provide the same number of available ports. ------------------------ We are a Delaware corporation with our principal executive offices at 310 Interlocken Parkway, Broomfield, Colorado 80021, and our telephone number is (303) 460-9200. We maintain a Web site at www.mcdata.com. We do not, however, intend for our Web site to be part of this prospectus. In this prospectus, "McDATA," "we," "us" and "our" each refers to McDATA Corporation and its subsidiaries, and not to the underwriters or EMC. "EMC" refers to EMC Corporation and its subsidiaries, excluding McDATA. McDATA and McDATA's logo are trademarks of McDATA Corporation. All other brand names, logos, copyrights and trademarks appearing in this prospectus are the property of their respective owners. OUR RELATIONSHIP WITH EMC We are currently an indirect, majority-owned subsidiary of EMC Corporation. Since October 1, 1997, EMC, through its direct, wholly-owned subsidiary, McDATA Holdings Corporation, has owned 100% of our Class A common stock. Each share of our Class A common stock entitles its holder to one vote per share, while each share of our Class B common stock entitles its holder to one-tenth (1/10) of one vote per share. The Class A common stock indirectly held by EMC will represent, immediately following this offering, approximately 97% of the combined voting power of both classes of our voting stock on a fully diluted basis. Since October 1, 1997, we have operated substantially as a separate company from McDATA Holdings Corporation and EMC under the direction of our board of directors, a majority of whom are unaffiliated with EMC. EMC currently plans to liquidate McDATA Holdings Corporation and distribute all of the shares of our Class A common stock to the holders of EMC's common stock on a pro rata basis approximately six to twelve months after the date of this offering. However, EMC is not obligated to complete this distribution, and this distribution may not occur by the anticipated time or at all. EMC will, in its sole discretion, determine whether to complete the distribution, and the timing, structure and all other terms of its distribution of our Class A common stock that it owns. EMC's distribution depends on, among other things, it receiving a private letter ruling from the Internal Revenue Service that its distribution of shares of our Class A common stock to its stockholders will be tax-free to EMC and its stockholders. EMC acquired McDATA in December 1995. In October 1997, EMC reorganized McDATA to separate our fibre channel business from EMC. As part of this reorganization, we became a company focused on designing, developing, manufacturing and selling fibre channel switching devices for connecting servers and storage systems in a SAN or other information infrastructure. We continue to provide, under a services agreement with McDATA Holdings Corporation, manufacturing and distribution management services for proprietary mainframe protocol, or ESCON(TM), switching solutions manufactured for and sold to IBM. In addition to this services agreement, in 1997 we entered into other agreements with EMC relating to our business and our relationship with EMC. In connection with the offering described in this prospectus, we have entered into additional agreements with EMC relating to the offering and the distribution by EMC of our Class A common stock to its stockholders and to our relationship with EMC after the completion of the offering. These agreements provide for, among other things, various interim and ongoing relationships with EMC. We have also entered into an OEM Purchase and License Agreement with EMC that governs EMC's purchases of our products. Each of the agreements between us and EMC is described more fully in the section of this prospectus titled "Arrangements between McDATA and EMC." The terms of these agreements, which were negotiated in the context of a parent-subsidiary relationship, may be less favorable to us than if they had been negotiated with unaffiliated third parties. See "Risk Factors -- Risks Related to our Relationship with EMC." THE OFFERING Class B common stock offered....................... 12,500,000 shares Common stock to be outstanding after this offering: Class A common stock........ 81,000,000 shares Class B common stock........ 25,452,226 shares Total......................... 106,452,226 shares Underwriters' over-allotment option........................ 1,875,000 shares Use of proceeds............... We intend to use the net proceeds for general corporate purposes, including repayment of $1.9 million of outstanding indebtedness to McDATA Holdings Corporation, a wholly-owned subsidiary of EMC, capital expenditures and working capital. Voting Rights: Class A common stock........ One (1) vote per share Class B common stock........ One-tenth ( 1/10) of one vote per share Other common stock provisions.................... The holders of our Class A common stock and Class B common stock generally have identical rights, except for the different voting rights described above. Proposed Nasdaq National Market trading symbol for the Class B common stock........ MCDT ------------------------ Unless otherwise indicated, all information contained in this prospectus: - assumes no exercise of the underwriters' option to purchase up to 1,875,000 additional shares of our Class B common stock to cover over-allotments; and - reflects a 2-for-1 split of our Class A and Class B common stock effected prior to the offering. The number of shares of our Class B common stock to be outstanding immediately after the offering: - is based upon 12,952,226 shares of our Class B common stock outstanding as of June 30, 2000; and - does not take into account 12,839,624 shares of our Class B common stock issuable upon the exercise of options outstanding as of June 30, 2000, at a weighted average exercise price of $3.26 per share. ------------------------ SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------- ------------------ 1995(1) 1996(1) 1997(1) 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Consolidated statements of operations data: Product revenue................ $11,851 $ 5,370 $ 4,035 $ 5,242 $29,466 $ 9,558 $ 26,475 Product revenue -- Parent...... -- 526 1,336 5,632 48,111 13,264 68,794 Service revenue -- Parent...... 22,438 26,304 27,652 25,674 17,686 11,368 8,326 ------- ------- ------- ------- ------- ------- -------- Total revenue.................. $34,289 $32,200 $33,023 $36,548 $95,263 $34,190 $103,595 Gross profit................... 24,382 24,196 21,753 23,443 44,983 17,885 53,331 ------- ------- ------- ------- ------- ------- -------- Income (loss) from operations................... 4,427 8,931 (1,230) (8,565) (930) (1,846) 16,238 ------- ------- ------- ------- ------- ------- -------- Net income (loss).............. $ 2,805 $ 5,770 $ (574) $(5,118) $(1,616) $(2,047) $ 9,555 ======= ======= ======= ======= ======= ======= ======== Pro Forma Earnings per Share(2): --------------------------- Basic net income (loss) per share........................ $ 0.03 $ 0.06 $ (0.01) $ (0.06) $ (0.02) $ (0.02) $ 0.10 ======= ======= ======= ======= ======= ======= ======== Shares used in computing basic net income (loss) per share........................ 91,000 91,000 91,000 91,000 91,638 91,017 93,398 Diluted net income (loss) per share........................ $ 0.03 $ 0.06 $ (0.01) $ (0.06) $ (0.02) $ (0.02) $ 0.10 ======= ======= ======= ======= ======= ======= ======== Shares used in computing diluted net income (loss) per share........................ 91,000 91,000 91,000 91,000 91,638 91,017 100,550 PRO FORMA INCOME DATA: Pro forma net income (loss)(3).................... $(1,518) $ 9,582 ======= ======== Pro forma net income (loss) per share(3)..................... $ (0.02) $ 0.10 ======= ======== Shares used in computing pro forma net income (loss) per share(3)..................... 91,719 93,479 Pro forma diluted net income (loss) per share(3).......... $ (0.02) $ 0.10 ======= ======== Shares used in computing pro forma diluted net income (loss) per share(3).......... 91,719 100,631 </TABLE> <TABLE> <CAPTION> JUNE 30, 2000 ------------------------- ACTUAL AS ADJUSTED(4) ------- -------------- <S> <C> <C> Consolidated balance sheet data: Cash and cash equivalents................................... $ 6,259 $296,251 Working capital............................................. 27,558 319,480 Total assets................................................ 73,984 363,976 Short-term debt -- Parent................................... 1,900 -- Long-term portion of capital lease obligations.............. 1,719 1,719 Total stockholders' equity.................................. 44,230 336,122 </TABLE> ------------------------- (1) In October 1997, EMC reorganized McDATA to separate our fibre channel devices business from EMC. As part of this reorganization, we became a company focused on designing, developing, manufacturing and selling fibre channel switching devices. As a result, the historical financial information for the three years ended December 31, 1997 has been adjusted to reflect the impact of the reorganization as if it occurred at the beginning of 1995. (2) Per share computations for 1995, 1996 and 1997 have been calculated using the actual number of shares issued on October 1, 1997 because the capital structure for prior periods was not indicative of the current structure. Per share computations for 1995, 1996 and 1997 are, therefore, pro forma per share data. (3) Pro forma per share computations have been calculated assuming that a portion of the proceeds from this offering were used to repay the $1.9 million in short term debt -- Parent on January 1, 1999 for the year ended December 31, 1999 and on January 1, 2000 for the six month period ended June 30, 2000. The pro forma net income (loss) is adjusted to add back the interest expense incurred related to the debt during the respective periods. The pro forma shares used to compute the pro forma net income (loss) per share, on both a basic and diluted basis, were adjusted to reflect the number of shares issued pursuant to this offering to repay the short term debt -- Parent. (4) The as adjusted balance sheet reflects this offering at an assumed initial offering price of $25.00 per share of Class B common stock, the mid-price of the filing range, after deducting an assumed underwriting discount and estimated offering expenses payable by us and the repayment of the short-term debt -- Parent.

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+PROSPECTUS SUMMARY [JOHN HANCOCK LOGO APPEARS HERE] AN INTRODUCTION We are a financial services company with a strong record of profitable growth. John Hancock is one of the nation's leading financial services companies, providing a broad array of insurance and investment products and services to retail and institutional customers. By diversifying from traditional life insurance products to include investment-oriented savings products demanded by consumer and institutional markets, we have generated strong revenue and earnings growth. Our net income grew at a compound annual rate of 21.3% from $207.2 million in 1994 to $448.5 million in 1998. Net income of $409.1 million for the nine months ended September 30, 1999 declined 7.8% over net income [GRAPHIC] of $443.6 million for the nine months ended September 30, 1998 primarily due to non-recurring demutualization expenses, charges in connection with our court approved settlement relating to a class action lawsuit and an increase in the mutual company surplus tax. Our 1998 return on equity ("ROE") was 10.3%, calculated as net income divided by average equity excluding net unrealized investment gains and losses. We also evaluate our overall performance and base management's incentives on segment income. Total segment income differs from net income because it excludes items which management believes are not indicative of overall operating trends, including the effects of net realized investment gains and losses and unusual or non-recurring events and transactions. Total segment income grew at a compound annual rate of 15.0%, from $286.6 million in 1994 to $500.8 million in 1998. Total segment income of $473.3 million for the nine months ended September 30, 1999 grew 30.9% over total segment income of $361.7 million for the nine months ended September 30, 1998. Our 1998 total segment return on equity was 11.5%. The accompanying chart demonstrates our strong ROE as a result of our strategy of diversified products and distribution. In addition to product diversification, we have strategically expanded distribution channels to capture a broader share of the consumer market. Today's multi-distribution network includes associated sales personnel, broker/dealers, direct brokerage, financial planners, banks, direct marketing and e-commerce. With our broad product diversity and distribution reach linked to the valuable John Hancock name, we believe we are positioned to continue our growth in revenue and profitability. Our brand is a key competitive asset. The John Hancock brand is one of the most well recognized names in the financial services industry. We have used distinctive advertising strategies to expand our brand recognition both as a quality provider of insurance and as an expert in investment management. The very strong claims paying ratings we hold from each of the four major rating agencies further strengthen the John Hancock brand. We believe a strong brand and recognized financial strength are competitive advantages, and thus they continue to be key elements of our corporate strategy. We operate in five segments. We operate and report results in two retail and two institutional segments, as well as in a Corporate and Other Segment, as illustrated below. [JOHN HANCOCK LOGO APPEARS HERE] [CHART APPEARS HERE] Our retail products and distribution channels are diversified. We recognize that different consumer groups have different financial planning needs and preferences. Our retail strategy of diversifying products and distribution, which has been in place for more than five years, is designed to meet these changing consumer needs. Demand for our variable life insurance and other asset gathering products has accelerated significantly. Today, sales of variable life insurance account for nearly 68% of our total life insurance sales. Sales of variable annuities represented more than 70% of our total annuity sales in 1998. Although sales of variable annuities have decreased relative to fixed annuities through the first nine months of 1999, our total annuity sales have remained at the same level as the first nine months of 1998. From 1996 through 1998, total long-term care insurance premium increased at a compound annual rate of 25% reaching $291.2 million. For the nine months ended September 30, 1999, long-term care premiums increased 21.9% to $259.5 million. We have recently announced our agreement to purchase Fortis, Inc.'s individual long-term care business. This acquisition will reinforce our leadership position and increase our individual long-term care business by about 50% in this rapidly growing market. Given our expertise in product design, we most recently developed an innovative new product that combines the benefits of variable annuities and long-term care protection. In 1998, net deposits and reinvestments of our mutual funds were $3.1 billion, and total mutual fund assets under management were $34.9 billion. In 1999, we, like many mutual fund companies, experienced net redemptions. For the first nine months of 1999, there were net redemptions of $2.1 billion attributable primarily to our financial industries and regional bank funds, the performance of which reflected weakness in these sectors. We have taken steps to restore growth in assets under management, including the development of new fund offerings and refocusing our sales organization on regional distributors. In terms of distribution, we have been diversifying our channels to address the consumers' preferences for selecting financial services and products through a variety of sources. In addition to about 3,000 associated sales personnel, we sell through financial planners, broker/dealers, banks and direct channels including e-commerce. Over the past three and three quarter years, an average of 43% of our total annuity sales, nearly 86% of our mutual fund sales and 38% of our life insurance sales were made through alternative channels. With respect to life insurance sales, alternative channels include the M Financial Group, a national producer group of firms operating exclusively in the upper end of the wealth transfer and executive benefit markets. In addition to diversification of distribution, we are also making fundamental changes in our career agency system to improve productivity, reduce fixed costs and enhance service. As a key component of this strategy, in early 1999 we created a distribution subsidiary, Signator Financial Network ("Signator"), which will provide tailored financial planning tools and marketing support to further enable our current agents, as well as new, top- producing experienced agents, to sell products of multiple companies. Signator will also be making significant investments in agent training, expanded licensing and enhanced service and product support. Our institutional businesses are backed by a strong track record. Our institutional segments offer investment products and services to retirement plans and institutional investors including 60 of the largest 100 U.S. corporate pension plans. Major products of our Guaranteed and Structured Financial Products Segment include a variety of GICs, funding agreements and other investment products. The Investment Management Segment offers investments in a variety of asset classes, including fixed maturity securities, equities, natural resources, collateralized bond obligations and mezzanine financings. We distribute institutional products through dedicated sales professionals, independent marketing specialists, consultants and investment banks. We have built our institutional asset management businesses on the foundation of our core investment expertise, including our global investment expertise. In addition to managing $47.5 billion of general account investments, we also managed advisory assets of $39.7 billion and separate account assets of $26.0 billion which back our variable product lines. We continue to work to enhance our collaborative approach across all retail and institutional product segments to streamline the development of new asset management products and services. OUR STRATEGY FOR THE FUTURE Our strategy is focused on continued growth in revenue and profitability and on providing greater returns to our shareholders. Demutualization will support this strategy because, by converting from a mutual to a stockholder-owned company, we will have access to capital for acquisitions, which will, among other things, facilitate lowering unit costs and broadening distribution. As a stock company, we will also be better able to attract and retain talented staff. Our major strategic initiatives are: . Support and extend the John Hancock brand We will continue to commit the financial and creative resources necessary to ensure our brand leadership. . Meet changing customer needs through additional product choice To meet the needs of increasingly sophisticated consumers, we will provide a comprehensive portfolio of competitive, innovative products and provide superior service for all of our retail and institutional product lines and distribution channels. . Expand distribution channel options for our customers Expansion of our multi-distribution network will continue to be a key to our success. We will, where appropriate, continue to own distribution. Our new Investors Partner Life subsidiary is an innovative vehicle to provide life insurance through broker/dealers. In 1999, we acquired Essex Corporation, one of the nation's leading distributors of annuities through banks. Our recently announced agreement to purchase Fortis, Inc.'s individual long-term care business will provide access to an established national network of long-term care insurance brokers. . Provide customized and superior distribution channel service We will continue our customized approach to supporting and servicing our distributors. We will also expand our presence in the on-line area via delivery to portals, consumer web sites and Internet partnerships. . Expand in key international markets We recognize the increasingly global nature of the financial services business and intend to build on our presence in Canada and selected Asian markets, including China. . Build on our investment management strength We will build on our asset management capabilities, strong asset/liability management and financial engineering skills to expand both product offerings and fee-based asset management businesses. . Become more efficient We recognize the imperative to be an efficient provider of products, distribution and services. We have already taken significant steps to reduce costs and to further that aim we are assessing all major initiatives and have engaged outside consulting services to identify major savings opportunities. . Continue to invest in technology We expect to make significant investments in technology over the next several years to improve operational efficiency and enhance service. These initiatives include automated underwriting, digital signature processes, on-line shopping and electronic servicing. We intend to expand our capabilities as an efficient provider and servicing agent of multiple products to multiple channels. THE REORGANIZATION On August 31, 1999, the board of directors of John Hancock Mutual Life Insurance Company unanimously adopted the Plan of Reorganization, under which John Hancock Mutual Life Insurance Company would convert from a mutual life insurance company to a stock life insurance company and become a wholly-owned subsidiary of John Hancock Financial Services, Inc. Our reorganization is governed by the Massachusetts insurance law. The Massachusetts Commissioner of Insurance held a hearing on the Plan of Reorganization on November 17 and 18, 1999. At a special meeting of the policyholders of John Hancock Mutual Life Insurance Company held on November 30, 1999, the policyholders voted to approve the Plan of Reorganization. On December 9, 1999, the Massachusetts Commissioner of Insurance issued an order approving the Plan of Reorganization. The appeal period with respect to this order is described below. The unsatisfied conditions to the effectiveness of the Plan of Reorganization are the completion of this offering, the contribution of substantially all of the net proceeds of the offering to John Hancock Life Insurance Company, and the delivery to us by outside counsel of a legal opinion as to the tax consequences of the reorganization. The reorganization will become effective on the date of the closing of the offering. See "The Reorganization" and "Use of Proceeds." Under the Plan of Reorganization, policyholders' membership interests in John Hancock Mutual Life Insurance Company will be extinguished and in exchange eligible policyholders of John Hancock Mutual Life Insurance Company will receive shares of our common stock, policy credits or cash. See "The Reorganization--Payment of Consideration to Eligible Policyholders." Under the Plan of Reorganization, as of the effective date of the reorganization, John Hancock Life Insurance Company will be obligated to establish and operate a closed block for the benefit of the policies included therein. The policies included in the closed block are individual or joint traditional whole life insurance policies currently paying or expected to pay policy dividends and individual term life insurance policies which are in force on the effective date of the reorganization. The purpose of the closed block is to protect the policy dividend expectations of these policies after the reorganization. Unless the Massachusetts Commissioner of Insurance and, in certain circumstances, the New York Superintendent of Insurance, consent to an earlier termination, the closed block will continue in effect until the date none of the policies included in the closed block is in force. On the effective date of the reorganization, John Hancock Life Insurance Company will allocate assets to the closed block that are expected to produce cash flows which, together with anticipated revenues (principally premiums and investment income) from the policies included in the closed block, are expected to be sufficient to support those policies. The total cash flows are intended to be sufficient to provide for payment of policy benefits, taxes and direct asset acquisition and disposition costs, and for continuation of policy dividend scales payable in 1999, so long as the experience underlying such dividend scales continues. See "The Reorganization--Establishment and Operation of the Closed Block." THE OFFERING Common stock offered........ 102,000,000 shares. Common stock outstanding after the offering......... 331,700,000 shares. Use of proceeds............. We expect the net proceeds of the offering to be approximately $1,649 million. All of the net proceeds (including any proceeds received pursuant to exercise of the underwriters' over-allotment option) other than the portion to be retained by John Hancock Financial Services, Inc., as described below, will be contributed to John Hancock Life Insurance Company and will, subject to a limited exception, be used to make cash payments to, and establish reserves with respect to policy credits for, eligible policyholders and to pay expenses related to the reorganization. We expect that the amount of net proceeds to be retained by John Hancock Financial Services, Inc. will be $150 million. We intend to use these net proceeds for general corporate purposes and to pay a dividend to our stockholders in the year following the effective date of the reorganization. However, provisions of our Plan of Reorganization may serve to reduce the amount retained to an amount less than $150 million, unless specific approval is received from the Massachusetts Commissioner of Insurance. If this amount is reduced, John Hancock Financial Services, Inc. may require additional funds, to be obtained through dividends from John Hancock Life Insurance Company or borrowings, in order to pay our first year stockholder dividend, if declared. Dividend policy............. Subject to our financial condition and declaration by our board of directors, we currently intend to pay regular annual cash dividends on our common stock. We currently intend to declare an initial annual cash dividend of $.30 per share in the fourth quarter of 2000. See "Stockholder Dividend Policy." Proposed New York Stock Exchange symbol............ JHF Unless we specifically state otherwise, the information in this prospectus does not take into account the sale of up to 15,300,000 shares of our common stock which the underwriters have the option to purchase from us to cover over- allotments. SUMMARY HISTORICAL FINANCIAL DATA The following table sets forth certain summary historical consolidated financial data. The summary income statement data for each of the three years ended December 31, 1998 and balance sheet data as of December 31, 1998 and 1997 have been derived from our audited consolidated financial statements and notes thereto included elsewhere in this prospectus (the "Consolidated Financial Statements"). The following summary income statement data for the years ended December 31, 1995 and 1994 and balance sheet data as of December 31, 1996, 1995, and 1994 have been derived from our audited consolidated financial statements not included herein. The summary income statement data for the nine months ended September 30, 1999 and 1998 and balance sheet data as of September 30, 1999 have been derived from our unaudited interim consolidated financial statements included in this prospectus. The summary balance sheet data as of September 30, 1998 has been derived from our unaudited interim consolidated financial statements not included herein. All unaudited interim consolidated financial data presented in the tables below reflect all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation of our consolidated financial position and results of operations for such periods. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. The following summary historical consolidated financial data has been prepared in accordance with generally accepted accounting principles ("GAAP"), except that the statutory data presented below has been prepared in accordance with applicable statutory accounting practices and was taken from our annual statements filed with insurance regulatory authorities. The following is a summary, and in order to fully understand our consolidated financial data, you should also read "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our Consolidated Financial Statements and the notes thereto included elsewhere in this prospectus. In particular, those other sections of this prospectus contain information about the adoption of GAAP accounting standards and transactions affecting comparability of results of operations between periods that is not included in this summary. <TABLE> <CAPTION> For the Nine Months Ended September 30, For the Year Ended December 31, ------------------ --------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- (in millions) <S> <C> <C> <C> <C> <C> <C> <C> Income Statement Data: Revenues Premiums................ $2,033.3 $1,647.7 $2,197.9 $2,473.6 $2,922.5 $2,657.1 $2,473.6 Universal life and investment-type product charges................ 509.4 441.3 597.0 512.0 466.3 414.0 379.7 Net investment income... 2,581.0 2,441.5 3,330.7 3,190.7 3,223.1 3,099.4 2,910.7 Net realized investment gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contractholders (1).... 178.0 64.9 106.4 157.0 110.7 52.3 (79.4) Investment management revenues, commissions and other fees......... 504.6 487.9 659.7 554.7 751.3 660.0 588.7 Other revenue........... 11.8 2.6 10.3 58.3 230.9 248.3 194.7 -------- -------- -------- -------- -------- -------- -------- Total revenues......... 5,818.1 5,085.9 6,902.0 6,946.3 7,704.8 7,131.1 6,468.0 Benefits and expenses Benefits to policyholders, excluding amounts related to net realized investment gains credited to participating pension contractholders (2).... 3,600.4 2,944.1 4,152.0 4,303.1 4,676.7 4,226.5 3,925.2 Other operating costs and expenses........... 997.1 955.9 1,383.0 1,283.7 1,694.1 1,568.3 1,536.9 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment gains (3).............. 145.0 200.3 249.7 312.0 230.9 229.1 219.7 Dividends to policyholders.......... 361.0 348.4 473.2 457.8 435.1 496.5 416.6 -------- -------- -------- -------- -------- -------- -------- Total benefits and expenses.............. 5,103.5 4,448.7 6,257.9 6,356.6 7,036.8 6,520.4 6,098.4 -------- -------- -------- -------- -------- -------- -------- Income before income taxes, extraordinary item and cumulative effect of accounting change................. 714.6 637.2 644.1 589.7 668.0 610.7 369.6 Income taxes............ 239.2 188.8 183.9 106.4 247.5 261.2 142.2 -------- -------- -------- -------- -------- -------- -------- Income before extraordinary item and cumulative effect of accounting change...... 475.4 448.4 460.2 483.3 420.5 349.5 227.4 Extraordinary item-- demutualization expenses, net of tax... (56.6) (4.8) (11.7) -- -- -- -- Cumulative effect of accounting change...... (9.7) -- -- -- -- -- (20.2) -------- -------- -------- -------- -------- -------- -------- Net income............. $ 409.1 $ 443.6 $ 448.5 $ 483.3 $ 420.5 $ 349.5 $ 207.2 ======== ======== ======== ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> As of or for the Nine Months Ended September 30, As of or for the Year Ended December 31, ------------------- ------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- --------- --------- (in millions) <S> <C> <C> <C> <C> <C> <C> <C> Balance Sheet Data: General account assets.. $54,157.6 $52,011.2 $52,000.1 $49,906.4 $48,420.6 $47,485.7 $43,778.2 Separate accounts assets................. 26,048.5 22,690.8 24,966.6 21,511.1 18,082.1 15,835.2 12,909.8 Total assets............ 80,206.1 74,702.0 76,966.7 71,417.5 66,502.7 63,320.9 56,688.0 General account liabilities............ 48,485.8 46,443.2 46,442.2 44,693.0 43.291.2 42,795.9 40,249.9 Long-term debt.......... 536.8 647.5 602.7 543.3 1,037.0 934.3 605.4 Separate accounts liabilities............ 26,048.5 22,690.8 24,966.6 21,511.1 18,082.1 15,835.2 12,909.8 Total liabilities....... 75,071.1 69,781.5 72,011.5 66,747.4 62,410.3 59,565.4 53,765.1 Policyholders' equity... 5,135.0 4,920.5 4,955.2 4,670.1 4,092.4 3,755.5 2,922.9 Statutory Data: Capital and surplus (4).................... $ 3,811.7 $ 3,413.3 $ 3,388.7 $ 3,157.8 $ 2,856.1 $ 2,533.5 $ 2,330.0 Asset valuation reserve ("AVR")................ 1,198.0 1,280.1 1,316.9 1,191.0 1,088.4 1,035.6 852.8 --------- --------- --------- --------- --------- --------- --------- Capital and surplus plus AVR.................... $ 5,009.7 $ 4,693.4 $ 4,705.6 $ 4,348.8 $ 3,944.5 $ 3,569.1 $ 3,182.8 ========= ========= ========= ========= ========= ========= ========= Statutory net income.... $ 483.6 $ 353.4 $ 627.3 $ 414.0 $ 313.8 $ 340.8 $ 182.6 </TABLE> We evaluate segment performance and base management's incentives on segment after-tax operating income, which excludes the effect of net realized investment gains and losses and unusual or non-recurring events and transactions. Segment after-tax operating income is determined by adjusting GAAP net income for net realized investment gains and losses, extraordinary items, and certain other items which we believe are not indicative of overall operating trends. While these items may be significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of segment after-tax operating income enhances the understanding of our results of operations by highlighting net income attributable to the normal, recurring operations of the business. However, segment after-tax operating income and total segment income are not a substitute for net income determined in accordance with GAAP. <TABLE> <CAPTION> For the Nine Months Ended For the Year Ended September 30, December 31, -------------- ------------------------ 1999 1998 1998 1997 1996 ------ ------ ------- ------- ------ (in millions) <S> <C> <C> <C> <C> <C> Segment Data: (5) Segment after-tax operating income: Protection Segment................. $137.3 $133.8 $ 172.3 $ 158.1 $197.3 Asset Gathering Segment............ 97.5 87.9 111.1 93.3 55.7 ------ ------ ------- ------- ------ Total Retail..................... 234.8 221.7 283.4 251.4 253.0 Guaranteed and Structured Financial Products Segment.................. 165.8 101.8 145.7 139.9 155.4 Investment Management Segment...... 27.6 6.4 15.4 17.2 21.6 ------ ------ ------- ------- ------ Total Institutional.............. 193.4 108.2 161.1 157.1 177.0 Corporate and Other Segment........ 45.1 31.8 56.3 39.4 20.2 ------ ------ ------- ------- ------ Total segment income................. 473.3 361.7 500.8 447.9 450.2 After-tax adjustments: Realized investment gains, net (6)............................... 118.0 75.1 93.9 104.9 80.6 Class action lawsuit............... (91.1) -- (150.0) (112.5) (90.0) Restructuring charges.............. (7.5) -- -- -- -- Benefit from pension participating contract modification............. -- -- -- 7.7 -- Surplus tax........................ (17.3) 11.6 15.5 35.3 (20.3) ------ ------ ------- ------- ------ Total after-tax adjustments...... 2.1 86.7 (40.6) 35.4 (29.7) ------ ------ ------- ------- ------ GAAP Reported: Income before extraordinary item and cumulative effect of accounting change................. 475.4 448.4 460.2 483.3 420.5 Extraordinary item-demutualization expenses, net of tax.............. (56.6) (4.8) (11.7) -- -- Cumulative effect of accounting change............................ (9.7) -- -- -- -- ------ ------ ------- ------- ------ Net income......................... $409.1 $443.6 $ 448.5 $ 483.3 $420.5 ====== ====== ======= ======= ====== </TABLE> - -------- (1) Net realized investment gains have been reduced by: (1) amortization of deferred policy acquisition costs to the extent that such amortization results from realized gains and losses and (2) the portion of realized gains and losses credited to participating pension contractholder accounts. We believe presenting realized investment gains and losses in this format provides information useful in evaluating our operating performance. This presentation may not be comparable to presentations made by other insurers. See note 6 for related amounts. (2) Benefits to policyholders excludes amounts related to net realized investment gains credited to participating pension contractholders of $33.7 million and $9.6 million for the nine months ended September 30, 1999 and 1998, respectively, and $79.1 million, $29.3 million, $22.3 million, $1.3 million, and $(1.8) million for the years ended 1998, 1997, 1996, 1995, and 1994, respectively. (3) Amortization of deferred policy acquisition costs excludes amounts related to net realized investment gains of $60.0 million and $30.5 million for the nine months ended September 30, 1999 and 1998, respectively, and $41.2 million, $31.2 million, $17.6 million, $24.7 million, and $2.9 million for the years ended 1998, 1997, 1996, 1995, and 1994, respectively. (4) In accordance with accounting practices prescribed or permitted by the Massachusetts Division of Insurance, statutory capital and surplus includes $450.0 million in total principal amount of our surplus notes outstanding. (5) Our GAAP reported net income was significantly affected by net realized investment gains and losses and unusual or non-recurring events and transactions presented above as after-tax adjustments. A description of these adjustments follows. In all periods, net realized investment gains and losses, except for gains and losses from mortgage securitizations and investments backing our multi-manager funding agreements, have been excluded from segment after-tax operating income due to their volatility between periods and because such data are often excluded by analysts and investors when evaluating the overall financial performance of insurers. The volatility between periods can be impacted by fluctuations in the market, as well as by changes in the volume of activity which can be influenced by us and our investment decisions. Realized investment gains and losses from mortgage securitizations and investments backing our multi-manager funding agreements were not excluded from segment after-tax operating income because we view the related gains and losses as an integral part of the core business of those operations. See note 6 for related amounts. We have been subject to the surplus tax imposed on mutual life insurance companies which disallows a portion of a mutual life insurance company's policyholder dividends as a deduction from taxable income. As a stock company, we will no longer be subject to surplus tax and have excluded the surplus tax from segment after-tax operating income in all periods. During 1997, we entered into a court approved settlement relating to a class action lawsuit involving individual life insurance policies sold from 1979 through 1996, as specified elsewhere in this prospectus. In entering into the settlement, we specifically denied any wrongdoing. The reserve held in connection with the settlement to provide for relief to class members and for legal and administrative costs associated with the settlement amounted to $522.5 million, $436.6 million and $308.8 million at September 30, 1999, December 31, 1998 and December 31, 1997, respectively. Given the uncertainties associated with estimating the reserve, it is reasonably possible that the final cost of the settlement could differ materially from the amount previously provided. During the first nine months of 1999, we recorded $7.5 million in after-tax restructuring charges in accordance with our plans to reduce the cost structure of our mutual fund operations and career agency distribution system. These charges primarily included accruals for severance and related benefits. The restructuring liability at September 30, 1999 was $11.2 million and is expected to be paid by March 2002. During 1997, a participating pension reinsurance contractholder requested the distribution of a portion of contract funds. At the time of the request, the contract stated that these funds were to be paid out over a specified number of years. However, we distributed a portion of the contractholder's funds in exchange for the right to retain the tax credits that resulted from the distribution. The contractual amendment resulted in the recognition of a $7.7 million after-tax gain. (6) Net realized investment gains have been reduced by: (1) amortization of deferred policy acquisition costs to the extent that such amortization results from realized gains and losses and (2) the portion of realized gains and losses credited to participating pension contractholder accounts. We believe presenting realized investment gains and losses in this format provides information useful in evaluating our operating performance. This presentation may not be comparable to presentations made by other insurers. Summarized below is a reconciliation of (a) net realized investment gains per the consolidated financial statements for the nine months ended September 30, 1999 and 1998 and for the years ended 1998, 1997, 1996, 1995, and 1994, and (b) the adjustment made for net realized investment gains to calculate segment after-tax operating income for the nine months ended September 30, 1999 and 1998 and for the years ended 1998, 1997, and 1996. <TABLE> <CAPTION> For the Nine Months Ended September 30, For the Year Ended December 31, -------------- -------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ ------ ------ (in millions) <S> <C> <C> <C> <C> <C> <C> <C> Net realized investment gains (losses)......... $271.7 $105.0 $226.7 $217.5 $150.6 $ 78.3 $(78.3) Less amortization of deferred policy acquisition costs related to net realized investments gains...... (60.0) (30.5) (41.2) (31.2) (17.6) (24.7) (2.9) Less amounts credited to participating pension contractholder accounts............... (33.7) (9.6) (79.1) (29.3) (22.3) (1.3) 1.8 ------ ------ ------ ------ ------ ------ ------ Net realized investment gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contractholders--per consolidated financial statements............. 178.0 64.9 106.4 157.0 110.7 $ 52.3 $(79.4) ====== ====== Less realized investment gains (losses) attributable to mortgage securitizations and investments backing multi-manager funding agreements............. (17.4) (49.2) (42.1) (4.6) -- ------ ------ ------ ------ ------ Realized investment gains (losses), net-- pre-tax adjustment made to calculate segment operating income....... 195.4 114.1 148.5 161.6 110.7 Less income tax effect.. (77.4) (39.0) (54.6) (56.7) (30.1) ------ ------ ------ ------ ------ Realized investment gains (losses), net-- after-tax adjustment made to calculate segment operating income................. $118.0 $ 75.1 $ 93.9 $104.9 $ 80.6 ====== ====== ====== ====== ====== </TABLE>

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. Before investing in the common stock, you should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements. Any references to "we," "us," "our" or similar words or phrases refer to GeriMed of America, Inc. and its subsidiaries. We are not affiliated with GeriMed, Inc., a Kentucky corporation that purchases and distributes pharmaceuticals for the long term care industry. GENERAL We are a health care delivery and medical management organization specializing in providing health care services to patients eligible to participate in the federal Medicare program who are 65 years of age and older. Our primary business focus is on providing comprehensive health care services for Medicare beneficiaries under global risk contracts with health maintenance organizations. Global risk contracts obligate us to provide comprehensive medical services to health maintenance organization patients on a percent of total premium basis. The foundation of our health care delivery model is the MedWise Primary Care Center, a primary care medical center that uses a physician-led team and our proprietary care management software to provide comprehensive primary care services for older adults. The MedWise Primary Care Center's interdisciplinary team concept works to provide earlier, less costly intervention in medical and psycho-social problems, with a goal of improving the quality of care and patient satisfaction and decreasing utilization of inappropriate and costly health care services. A key component of our health care delivery model is our proprietary care management software. This software is a tool used by our MedWise Primary Care Center interdisciplinary teams and administrative staff to manage the care of their patients throughout the entire healthcare continuum. In addition, we are in the development stages of a physician support module for integration into our software, which we are currently beta testing for use as an electronic medical record. If such testing is positive, we will investigate potential commercialization of such software. However, we currently cannot predict the commercial viability of such software, nor our ability to fund such commercialization. Our clients include HMOs and hospitals. HMOs contract with us to provide comprehensive health care services to their members under their health plans. We currently provide most of our services under Medicare health care plans, but approximately 7% of our service revenues in 1999 were attributable to non-Medicare health care plan enrollment. We arrange for the delivery of these services for a fixed per member monthly fee, typically referred to as a capitated fee arrangement. Primary care physician services are provided THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND WILL BE AMENDED AND COMPLETED. A REGISTRATION STATEMENT RELATING TO THE COMMON STOCK HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 31, 2000 GERIMED OF AMERICA, INC. 7,759,335 Shares Of Common Stock -------------------- GeriMed of America, Inc. and its shareholders are offering up to 7,759,335 shares of common stock, including: o Up to 1,060,000 shares that we may offer to our employees directly through our stock option plan o Up to 3,545,000 shares that our officers and directors may offer through the internal market o Up to 3,154,335 shares that our other shareholders may offer through the internal market This offering of common stock is designed to allow trading of the common stock among our employees, directors, and other current shareholders up to four times each year on the internal market. No exchange will list the common stock. For more details on how the internal market will function, see "Internal Market Information" beginning on page 12. All of the shares being offered for sale by this prospectus will be sold through the internal market at the price set by the Board of Directors from time to time. Effective for the second quarter of 2000, the price for the common stock is $2.50 per share. ----------- INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. ----------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- Prospectus dated , 2000 TABLE OF CONTENTS <TABLE> <S> <C> PROSPECTUS SUMMARY................................................................................................1 RISK FACTORS......................................................................................................4 SECURITIES OFFERED BY THIS PROSPECTUS............................................................................12 INTERNAL MARKET INFORMATION......................................................................................12 USE OF PROCEEDS..................................................................................................18 DIVIDEND POLICY..................................................................................................18 DILUTION.........................................................................................................19 SELECTED FINANCIAL DATA..........................................................................................20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................21 BUSINESS.........................................................................................................27 STOCK OPTION PLAN................................................................................................37 MANAGEMENT.......................................................................................................44 CERTAIN TRANSACTIONS.............................................................................................49 PRINCIPAL SHAREHOLDERS...........................................................................................50 SECURITIES OFFERED BY THE CURRENT SHAREHOLDERS...................................................................53 DESCRIPTION OF CAPITAL STOCK.....................................................................................55 SHARES ELIGIBLE FOR FUTURE SALE..................................................................................63 LEGAL MATTERS....................................................................................................63 EXPERTS..........................................................................................................63 WHERE YOU CAN FIND MORE INFORMATION..............................................................................63 INDEX TO FINANCIAL STATEMENTS...................................................................................F-1 </TABLE> through physicians employed by or under contract with us. For services, other than primary care services, we generally arrange for these services by contracting with hospitals and other providers under a variety of fee arrangements. As of March 1, 2000, we were under contract to provide comprehensive health care services to approximately 17,150 HMO patients in Florida and Colorado, of which approximately 14,600 are Medicare HMO patients. Historically, hospitals have contracted with us for the development and management of primary care outpatient clinics primarily for patients who are 65 years of age or older. In connection with such clinics, we have also licensed our care management software. Our hospital clients typically pay a one-time fixed development fee and monthly fixed management and licensing fees for our services and the use of our software. We are currently phasing out of the business of managing hospital clinics to focus on providing medical services to managed care organizations through our own centers. We currently manage six hospital clinics. EXPANSION AND LIQUIDITY OF COMMON STOCK OWNERSHIP Historically, our shareholder agreements have restricted ownership and transfer of our common stock. To expand the ownership of our common stock, the Board of Directors decided to establish a new ownership program as a replacement for the shareholders' agreements. The main goals of the new program are: o Establishing an internal market to enable shareholders to buy and sell common stock; and o Expanding the opportunity for common stock ownership to include all of our employees and directors. OPERATION OF THE INTERNAL MARKET Through the internal market, any eligible shareholder may offer shares of common stock for sale to eligible buyers up to four times each year on predetermined trade dates. Shares will be bought and sold through the internal market at a price determined by the Board of Directors that is intended to represent fair value. The stock price is determined by the Board of Directors based upon our results of operations and total revenue, as well as a subjective analysis of market factors the Board of Directors considers relevant. We may purchase and the broker administering the internal market may purchase or sell shares of common stock on the internal market on any trade date to balance the supply and demand for common stock between sellers and buyers, but neither we nor the broker will be obligated to do so. CORPORATE INFORMATION We were incorporated in Colorado in 1993. Our executive offices are at 333 West Hampden Avenue, Suite 200, Englewood, Colorado 80110. Our telephone number is (303) 781-6430; and our website is www.gerimed.com. Information contained on our website is not part of this prospectus.

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read this entire prospectus carefully, including "Risk Factors" and our financial statements and the notes to those financial statements included elsewhere in this prospectus. We have provided definitions for some of the oil and natural gas terms used in this prospectus in the "Glossary of Oil and Natural Gas Terms" included in this prospectus. Unless otherwise indicated, the information contained in this prospectus assumes that the underwriters do not exercise their over-allotment options. ABOUT ENERGY PARTNERS, LTD. We are an independent oil and natural gas exploration and production company concentrated in the shallow to moderate depth waters of the central region of the Gulf of Mexico Shelf. This region contains over 500 oil and natural gas fields, 25 of which have individually produced over 250 million barrels of oil equivalent. Most of our properties are located in the Terrebonne Trough area of this region. We have focused on this area because it provides us with favorable economic and geologic conditions, including multiple reservoir formations, regional economies of scale, extensive infrastructure and comprehensive geologic databases. We believe that the large, established fields in this region offer a balanced and ample inventory of existing and prospective exploitation and development opportunities, as well as the long-term potential for reserve additions and production increases from deeper geologic formations. We were incorporated in January 1998 by Richard A. Bachmann, our chairman, president and chief executive officer. Mr. Bachmann, the former president and chief operating officer of The Louisiana Land and Exploration Company, assembled a team of geoscientists and management professionals with considerable region-specific geological, geophysical, technical and operational experience to form the foundation of our company. The industry relationships of Mr. Bachmann and the rest of our team provide us with access to the operators of the Gulf of Mexico Shelf fields that we target for redevelopment. Our 12-member management team has an average of 25 years of energy industry experience, many with large energy companies. Our management and employees collectively will own or have rights to acquire approximately 24.1% of our common stock after this offering. In November 1999, Evercore Capital Partners L.P., a New York-based private investment firm, invested $60.0 million in our company and will own approximately 34.8% of our outstanding shares of common stock after this offering. We have grown our company through a combination of multi-year, multi-well drill-to-earn programs and strategic acquisitions. Under our drill-to-earn programs, we use our personnel and capital to identify and pursue additional drilling opportunities on properties previously developed by our drill-to-earn partners and recover our investment through sharing revenue from the new production we establish. After successful drilling of wells, we earn an interest in the reserves we find and develop. We generally operate the properties during the drilling phase of these programs and seek to reduce costs and improve reservoir recovery efficiencies through our geophysical, technical and operational expertise. Early this year, we acquired Ocean Energy, Inc.'s interest in the East Bay field and, in a series of transactions, increased our interest in the South Timbalier 26 field. Our proved reserves at January 1, 2000, including our acquisition of the East Bay field and our increased interest in the South Timbalier 26 field, were 35.5 Mmboe (28.0 Mmbls of oil and 44.6 Bcf of natural gas, or 79% oil) and our pre-tax PV-10 (present value of future cash flows, assuming a discount rate of 10% per annum) was $258.5 million, based on a reserve report prepared by Netherland, Sewell & Associates, Inc. Our standardized measure of discounted future net cash flows, which deducts the present value of estimated income taxes from the pre-tax PV-10 amount, totaled $201.7 million. For the month ended June 30, 2000, our net daily oil production averaged approximately 9,200 Bbls and our net daily natural gas production averaged approximately 11,850 Mcf, or a total of 11,200 Boe per day. Our pro forma EBITDAX (earnings before interest, taxes, depreciation, depletion and amortization and exploration expenditures) was $47.4 million for the year ended December 31, 1999 and $34.6 million for the six months ended June 30, 2000. Our pro forma net income was $8.2 million for the year ended December 31, 1999 and $15.8 million for the six months ended June 30, 2000. EXPLANATORY NOTE This registration statement contains two forms of prospectus: one to be used in connection with an underwritten offering of our common stock in the United States and Canada, and one to be used in a concurrent international offering of our common stock. The U.S. prospectus for the offering in the United States and Canada follows immediately after this explanatory note. After the U.S. prospectus are the alternate pages for the international prospectus. Copies of the complete U.S. prospectus and international prospectus in the exact forms in which they are to be used after effectiveness will be filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act. OUR STRATEGY Our goal is to generate an attractive return on capital employed by opportunistically entering into drill-to-earn programs or complementary acquisitions in our core operating areas. We plan to achieve this goal by: - Maintaining our Gulf of Mexico focus. We focus on the large, established fields in the central Gulf of Mexico Shelf area because we believe that this region's extensive infrastructure and favorable geologic conditions will allow us to achieve attractive returns on our investments. - Capitalizing on our geoscience expertise. Our geologists and geophysicists internally generate and evaluate prospects in their current area of focus and in connection with our new business initiatives. Our drill-to-earn programs give our technical teams access to our partners' technical databases to identify and implement successful and profitable development, exploitation and exploration activities. - Continuing to operate our properties. We seek to retain operatorship following an acquisition or in connection with drill-to-earn programs. As of June 30, 2000, we operated properties which comprised approximately 88% of our production. - Expanding our asset base through additional drill-to-earn programs and strategic acquisitions. We plan to identify new drill-to-earn and acquisition opportunities by targeting both oil and natural gas properties that have high cumulative production with low levels of current production, significant identified proven reserves with potential for large reserve additions, existing infrastructure and multiple productive reservoir targets. - Maximizing profitability through outsourcing non-geoscience activities. We seek to enhance our operating capability and achieve operating cost savings through strategic alliances with oilfield service companies and by outsourcing the majority of our accounting and administrative functions. Risks related to our strategy. Prospective investors should carefully consider the matters set forth under the caption "Risk Factors," as well as the other information set forth in this prospectus, including that our future operating results are difficult to forecast because we have a limited operating history, the 3-D seismic data and other technologies we use cannot eliminate exploration risk, our relatively small number of properties increases our exposure to production problems, reserve estimate inaccuracies materially affect the quantities and net present value of our reserves, our Gulf of Mexico focus subjects us to higher reserve replacement needs, and the oil and natural gas business involves many operating and financial risks. One or more of these matters could negatively impact our ability to implement successfully our business strategy. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 24, 2000 P R O S P E C T U S 5,750,000 SHARES [ENERGY PARTNERS, LTD. LOGO] ENERGY PARTNERS, LTD. COMMON STOCK ---------------------- This is our initial public offering. We are selling all of the shares. The U.S. underwriters are offering 4,600,000 shares in the U.S. and Canada and the international managers are offering 1,150,000 shares outside the U.S. and Canada. We expect the public offering price to be between $17 and $19 per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol "EPL." INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS. ---------------------- <TABLE> <CAPTION> PER SHARE TOTAL --------- ----- <S> <C> <C> Public offering price...................................... $ $ Underwriting discount...................................... $ $ Proceeds, before expenses, to Energy Partners, Ltd......... $ $ </TABLE> The U.S. underwriters may also purchase up to an additional 690,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The international managers may similarly purchase up to an additional 172,500 shares from us. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares will be ready for delivery on or about , 2000. ---------------------- MERRILL LYNCH & CO. UBS WARBURG LLC CREDIT SUISSE FIRST BOSTON HOWARD WEIL A DIVISION OF LEGG MASON WOOD WALKER, INC. ---------------------- The date of this prospectus is , 2000. OUR PRINCIPAL OIL AND NATURAL GAS PROPERTIES Currently, we have three specific project areas: East Bay; Greater Bay Marchand; and Main Pass 122/133. South Timbalier 26, Bay Marchand and South Timbalier 22, 23 and 27 collectively comprise what is known as the Greater Bay Marchand area. The blocks are contiguous and together cover most of the large Bay Marchand area located in state and federal waters offshore Louisiana. East Bay has produced 880 Mmboe and the Greater Bay Marchand area has produced over 1,069 Mmboe. East Bay and the Greater Bay Marchand area are two of the ten largest fields in the central Gulf of Mexico Shelf, based on cumulative production. The following table and accompanying narrative summarize our interests in these properties, our significant transactions since our inception and our rationale for each transaction. We discuss each property in more detail under "Business and Properties -- Our Principal Oil and Natural Gas Properties." <TABLE> <CAPTION> AS OF JANUARY 1, 2000 JUNE 2000 -------------------------------- AVERAGE DAILY PROVED RESERVES PRE-TAX NET PRODUCTION WORKING ---------------- PV-10 -------------- PROJECT AREA INTEREST MBOE % OIL (IN MILLIONS) BOE % OIL ------------ --------- ------- ------ ------------- ------ ----- <S> <C> <C> <C> <C> <C> <C> East Bay................................... 96.1% 27,405 83% $183.5 8,150 85% Greater Bay Marchand Area: South Timbalier 26....................... 50.0 5,483 67 54.2 1,670 81 Bay Marchand............................. 12.5-45.0 1,411 83 11.0 785 80 South Timbalier 22, 23 and 27............ 12.5 383 67 1.8 115 72 ------ ------ ------ Total Greater Bay Marchand Area........ 7,277 70 67.0 2,570 80 Main Pass 122/133.......................... 51.4-75.0 792 27 8.0 480 58 ------ ------ ------ Total............................. 35,474 79 $258.5 11,200 82 ====== ====== ====== </TABLE> We acquired the East Bay field from Ocean Energy, Inc. effective January 1, 2000. Three oil and natural gas fields, South Pass 24, 27 and 39, comprise the East Bay field. This property met all of our investment criteria and also provided us with a significant source of stable production from a large number of wells. During the first half of 1998, we negotiated the purchase of a 100% working interest in the South Timbalier 26 field from Shell Offshore, Inc. We brought in Unocal Corporation as our partner in the transaction and, in June 1998, we completed the purchase. We acquired a 20% working interest in and operatorship of the field and Unocal acquired the remaining 80% working interest. Unocal subsequently elected to dispose of its interest in the field, and effective January 1, 2000, we acquired Unocal's 80% interest in the field. We subsequently sold 50% of our working interest in the field to Vastar Resources, Inc. We retained operatorship of the field. Our interests in the Bay Marchand field originated from two drill-to-earn programs with Chevron USA Inc. The first program covered the federal outer continental shelf portion of the field and commenced in August 1998. In May 2000, we entered into the second drill-to-earn program, covering the portion of the field located in Louisiana state waters. We purchased our initial interest in South Timbalier 22, 23 and 27 in October 1999. In September 2000, we acquired an additional 14.6% working interest from Texaco Exploration and Production Inc. effective January 1, 2000. Our reserves and production associated with this interest are not included in the table above or other reserve and production information in this prospectus. Our drill-to-earn program with Chevron covering Main Pass 122/133 generated our first set of drilling opportunities. Our success with these wells provided us with the operating history and track record to negotiate additional drill-to-earn programs and acquisitions. We have completed this drill-to-earn program and do not plan any additional capital investments for Main Pass 122/133. We have identified a substantial inventory of development, exploitation and exploration projects which we are pursuing in East Bay and the Greater Bay Marchand area. We believe this inventory provides us with significant opportunities to increase our reserves and production. The following table summarizes well projects and the estimated capital expenditures we currently plan to undertake through December 31, 2002. <TABLE> <CAPTION> ESTIMATED CAPITAL IDENTIFIED EXPENDITURES PROJECT AREA PROJECTS (IN MILLIONS) ------------ ---------- ------------- <S> <C> <C> East Bay.................................................... 172 $102.0 Greater Bay Marchand Area................................... 81 73.5 --- ------ Total............................................. 253 $175.5 === ====== </TABLE> OUR EXECUTIVE OFFICES Our principal executive offices are located at 201 St. Charles Avenue, Suite 3400, New Orleans, Louisiana 70170. Our telephone number is (504) 569-1875. Our Internet address on the World Wide Web is www.eplweb.com. Information on our web site does not constitute part of this prospectus. THE OFFERING Common stock offered by Energy Partners: U.S. offering.................. 4,600,000 shares International offering......... 1,150,000 shares Total.................. 5,750,000 shares Shares outstanding after the offering......................... 27,057,489 shares Use of proceeds.................. We estimate that our net proceeds from this offering without exercise of the over-allotment options will be approximately $95.1 million. We intend to use these net proceeds: - to repay indebtedness; - to redeem preferred stock; and - for general corporate purposes. Please read "Use of Proceeds" for more details regarding the allocation among the listed uses. Risk factors..................... Please read "Risk Factors" and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our common stock. Proposed New York Stock Exchange symbol........................... "EPL" The number of shares outstanding after the offering excludes 433,000 shares issuable on exercise of outstanding stock options at a weighted average exercise price of $9.88 per share and 208,295 shares which are issuable under our benefit plans and other rights to acquire shares. Please read "Capitalization" for more information regarding our capitalization immediately following this offering. SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The summary historical financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our financial statements and the notes to those financial statements included elsewhere in this prospectus. The statement of operations data for the period January 29, 1998 (inception) to December 31, 1998 and for the year ended December 31, 1999 and the balance sheet data as of December 31, 1998 and 1999 were derived from our audited financial statements included in this prospectus. The summary pro forma and historical financial data as of June 30, 2000 and for the six-month periods ended June 30, 1999 and 2000 were derived from our unaudited consolidated financial statements, which in our opinion include all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of our financial condition and results of operations for such interim periods. The pro forma financial data set forth below does not purport to represent what our financial condition or results of operations actually would have been if the acquisitions that are given pro forma effect in fact occurred on the assumed dates or to project our financial condition or results of operations for any future period or date. <TABLE> <CAPTION> JANUARY 29, 1998 PRO FORMA SIX MONTHS ENDED JUNE 30, (INCEPTION) TO YEAR ENDED YEAR ENDED ---------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, PRO FORMA 1998 1999 1999(1) 1999 2000 2000(1) -------------- ------------ ------------ -------- ----------- --------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> Statement of Operations Data: Revenue..................................... $ 1,966 $ 9,509 $78,719 $ 3,780 $ 30,356 $56,401 -------- -------- ------- -------- -------- ------- Costs and Expenses: Lease operating........................... 359 1,640 27,283 623 7,992 15,869 Exploration expenditures and dry hole costs................................... -- 1,570 1,570 -- 824 824 Depreciation, depletion and amortization............................ 1,303 4,525 23,300 1,936 8,286 12,531 General and administrative................ 615 2,609 4,077 1,098 5,577 5,944 -------- -------- ------- -------- -------- ------- Total costs and expenses.............. 2,277 10,344 56,230 3,657 22,679 35,168 -------- -------- ------- -------- -------- ------- Income (loss) from operations............... (311) (835) 22,489 123 7,677 21,233 -------- -------- ------- -------- -------- ------- Interest income............................. 49 312 312 85 328 328 Interest expense............................ (802) (2,947) (9,877) (1,301) (3,057) (4,790) Gain on sale of oil and gas assets.......... -- -- -- -- 7,781 7,781 -------- -------- ------- -------- -------- ------- Income (loss) before income taxes........... (1,064) (3,470) 12,924 (1,093) 12,729 24,552 Income taxes................................ 359 1,185 (4,716) 374 (4,474) (8,730) -------- -------- ------- -------- -------- ------- Net income (loss)........................... $ (705) $ (2,285) $ 8,208 $ (719) $ 8,255 $15,822 ======== ======== ======= ======== ======== ======= Net income (loss) available to common stockholders(2)........................... $ (705) $ (3,121) $ 7,372 $ (719) $ 4,023 $11,589 ======== ======== ======= ======== ======== ======= Basic income (loss) per common share........ $ (0.09) $ (0.22) $ 0.52 $ (0.05) $ 0.47 $ 1.36 ======== ======== ======= ======== ======== ======= Diluted income (loss) per common share...... $ (0.09) $ (0.22) $ 0.35 $ (0.05) $ 0.46 $ 0.89 ======== ======== ======= ======== ======== ======= Weighted average shares: Basic(3).................................. 7,427 14,247 14,247 15,060 8,495 8,495 ======== ======== ======= ======== ======== ======= Diluted(4)................................ 7,427 14,247 23,498 15,060 17,824 17,824 ======== ======== ======= ======== ======== ======= Other Financial Data and Selected Ratios: EBITDAX(5).................................. $ 992 $ 5,260 $47,359 $ 2,059 $ 16,787 $34,588 EBITDAX margin(6)........................... 50% 55% 60% 54% 55% 61% Cash flows provided by (used in): Operating activities...................... $ 8,044 $ (4,594) -- $ 5,165 $ 7,114 -- Investing activities...................... (27,081) (19,233) -- (10,001) (84,844) -- Financing activities...................... 19,689 45,457 -- 7,861 62,112 -- Capital and exploration expenditures........ $ 27,081 $ 19,233 -- $ 10,001 $121,454 -- </TABLE> <TABLE> <CAPTION> AS OF JUNE 30, ------------------------- AS OF DECEMBER 31, PRO FORMA ------------------ AS ADJUSTED 1998 1999 2000 2000(7) ------- ------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) <S> <C> <C> <C> <C> Balance Sheet Data: Total assets.............................................. $40,015 $69,276 $163,841 $180,745 Long-term debt, excluding current maturities.............. 20,000 10,150 60,000 -- Redeemable preferred stock................................ -- 56,475 60,663 -- Stockholders' equity...................................... (694) (3,815) 717 153,285 </TABLE> footnotes on the following page --------------- (1) Gives effect to the acquisitions and the disposition completed by us in 2000, each as if consummated on January 1, 1999. (2) Net income (loss) available to common stockholders is computed by subtracting preferred stock dividends and accretion of issuance costs for the year ended December 31, 1999 of $836,342 and for the six months ended June 30, 2000 of $4,232,583. (3) Basic weighted average shares excludes 3,304,830 shares from the date placed in escrow, November 17, 1999. (4) Diluted weighted average shares includes the conversion of Class A and B preferred stock. (5) EBITDAX is defined as earnings before interest, taxes, depreciation, depletion and amortization and exploration expenditures and is presented because it is a widely accepted financial indication of an exploration and production company's ability to service and incur debt. EBITDAX is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to earnings (loss) as an indicator of the company's operating performance or to cash flows as a measure of liquidity. EBITDAX measures presented in this prospectus may not be comparable to other similarly titled measures reported by other companies. In evaluating EBITDAX, investors should consider, among other things, the amount by which EBITDAX exceeds interest costs, how EBITDAX compares to principal repayments on debt and how EBITDAX compares to capital expenditures for each period. (6) Represents EBITDAX divided by revenue. (7) As adjusted to give effect to the offering (at an assumed offering price of $18.00 per share) and the application of the net offering proceeds described in more detail under "Use of Proceeds." ADDITIONAL PRO FORMA DATA The net income (loss) data presented in the following table adjusts our historical net income (loss) and our pro forma income giving effect to: - the conversion of all outstanding shares of our preferred stock into common stock as if the conversion had occurred on January 1, 1999; - the release of 2,545,500 shares of common stock from escrow with an expense of approximately $45.5 million as if the shares vested on January 1, 1999; and - the use of a portion of the estimated net proceeds of this offering to pay all outstanding indebtedness and the reduction of related interest expense all as if the transaction had occurred on January 1, 1999. Proceeds used to repay debt were $75 million and required the issuance of 4,166,667 shares of common stock. Interest expense was reduced by $2,947,354 in 1999 and $3,056,860 for the six months ended June 30, 2000. <TABLE> <CAPTION> YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1999 JUNE 30, 2000 -------------------------- -------------------------- PRO FORMA PRO FORMA PRO FORMA AS ADJUSTED(1) PRO FORMA AS ADJUSTED(1) --------- -------------- --------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> Pro forma income (loss).................... $(44,837) $(27,415) $11,312 $20,612 ======== ======== ======= ======= Pro forma basic and diluted income (loss) per common share......................... $ (1.64) (1.00) $ 0.46 $ 0.84 ======== ======== ======= ======= Pro forma weighted average number of common shares outstanding--basic and diluted.... 27,391 27,391 24,537 24,537 ======== ======== ======= ======= </TABLE> --------------- (1) Adjusts the pro forma net income (loss) to also give effect to the acquisitions and the disposition completed by us in 2000, each as if consummated on January 1, 1999. Pro forma interest expense was reduced on a pro forma basis by $9,877,000 in 1999 and $4,790,000 for the six months ended June 30, 2000. SUMMARY RESERVE AND OPERATING DATA The following table presents summary information regarding our estimated net proved oil and natural gas reserves as of December 31, 1998 and 1999 and January 1, 2000 and our historical and pro forma operating data for the years ended December 31, 1998 and 1999 and the six months ended June 30, 1999 and 2000. All calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the SEC, and, except as otherwise indicated, give no effect to federal or state income taxes otherwise attributable to estimated future net revenues for the sale of oil and natural gas. The January 1, 2000 estimates of proved reserves are based on a reserve report prepared by Netherland, Sewell, our independent petroleum engineering consultants. Appendix A to this prospectus contains a letter prepared by Netherland, Sewell summarizing the reserve report. For additional information regarding our reserves, please read "Business and Properties -- Oil and Natural Gas Reserves" and note 11 of the notes to our financial statements. RESERVE DATA <TABLE> <CAPTION> AS OF DECEMBER 31, AS OF ------------------- JANUARY 1, 1998 1999 2000(4) -------- -------- ---------- <S> <C> <C> <C> Total estimated net proved reserves: Oil (Mbbls)............................................... 2,861 3,824 28,040 Natural gas (Mmcf)........................................ 12,534 12,752 44,603 Total (Mboe)...................................... 4,950 5,949 35,474 Net proved developed reserves: Oil (Mbbls)............................................... 2,467 2,715 24,991 Natural gas (Mmcf)........................................ 10,859 7,631 32,476 Total (Mboe)...................................... 4,277 3,987 30,404 Estimated future net revenues before income taxes (in thousands)................................................ $41,051 $76,999 $326,416 Present value of estimated future net revenues before income taxes (in thousands)(1)(2)................................ $27,533 $54,819 $258,525 Standardized measure of discounted future net cash flows (in thousands)(3)............................................. $24,889 $47,177 $201,725 </TABLE> table continued and footnotes on the following page OPERATING DATA <TABLE> <CAPTION> PRO FORMA JANUARY 29, 1998 PRO FORMA SIX MONTHS SIX MONTHS (INCEPTION) TO YEAR ENDED YEAR ENDED ENDED JUNE 30, ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------- JUNE 30, 1998 1999 1999(6) 1999 2000 2000(6) ---------------- --------------- ------------ ------ ------- ------------ <S> <C> <C> <C> <C> <C> <C> Net production: Oil (Mbbls).............. 96 384 3,817 187 965 1,770 Natural gas (Mmcf)....... 238 831 7,430 325 1,479 2,880 Total (Mboe).......... 136 523 5,055 241 1,212 2,250 Net sales data (in thousands): Oil...................... $1,268 $6,678 $64,095 $2,613 $24,803 $47,091 Natural gas.............. 524 1,806 14,365 601 5,206 9,241 ------ ------ ------- ------ ------- ------- Total................. $1,792 $8,484 $78,460 $3,214 $30,009 $56,332 ====== ====== ======= ====== ======= ======= Average sales prices: Oil (per Bbl)............ $13.21 $17.39 $ 16.79 $13.97 $ 25.70 $ 26.61 Natural gas (per Mcf).... 2.20 2.17 1.93 1.85 3.52 3.21 Total (per Boe)....... 13.18 16.22 15.52 13.34 24.76 25.04 Average (per Boe): Lease operating expense............... $ 2.64 $ 3.14 $ 5.40 $ 2.59 $ 6.60 $ 7.05 General and administrative expense............... 4.52 4.99 0.81 4.56 4.60 2.64 Depreciation, depletion and amortization expense............... 9.58 8.65 4.74 8.03 6.84 5.57 EBITDAX(5)............... 7.29 10.06 9.37 8.54 13.85 15.37 </TABLE> --------------- (1) The present value of estimated future net revenues attributable to our reserves was prepared using constant prices, as of the calculation date, discounted at 10% per year on a pre-tax basis. (2) The December 31, 1999 amount was calculated using a period end average realized oil price of $24.64 per barrel and a period end average realized gas price of $2.42 per Mcf. (3) The standardized measure of discounted future net cash flows represents the present value of future cash flows after income tax discounted at 10%. (4) Includes reserves for East Bay and the additional interest acquired in South Timbalier 26. (5) EBITDAX is defined as earnings before interest, taxes, depreciation, depletion and amortization and exploration expenditures and is presented because it is a widely accepted financial indication of an exploration and production company's ability to service and incur debt. EBITDAX is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to earnings (loss) as an indicator of the company's operating performance or to cash flows as a measure of liquidity. EBITDAX measures presented in this prospectus may not be comparable to other similarly titled measures reported by other companies. In evaluating EBITDAX, investors should consider, among other things, the amount by which EBITDAX exceeds interest costs, how EBITDAX compares to principal repayments on debt and how EBITDAX compares to capital expenditures for each period. (6) The pro forma production amounts were obtained by aggregating the production for the properties we acquired with our historical production. The pro forma sales, expense and EBITDAX information per Boe was derived by dividing the respective amounts from the unaudited pro forma financial statements appearing elsewhere in this prospectus by the pro forma production.

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+PROSPECTUS SUMMARY To fully understand this offering and its consequences to you, you should read the following summary together with the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus. Qualstar Corporation We design, develop, manufacture and sell automated magnetic tape libraries used to store, retrieve and manage electronic data primarily in network computing environments. Tape libraries consist of cartridge tape drives, storage arrays of tape cartridges and robotics to move the tape cartridges from their storage locations to the tape drives under software control. Our tape libraries provide storage solutions for organizations requiring backup, recovery and archival storage of critical electronic information. Our tape libraries are compatible with commonly used network operating systems, including UNIX, Windows NT, NetWare and Linux, and a wide range of storage management software. We offer tape libraries for multiple tape drive technologies, including those using Advanced Intelligent Tape, DLT, and quarter inch cartridge tape drives and media. We recently announced tape libraries for the Linear Tape Open, Ultrium tape drives and media. The amount of electronic data and information has been growing due to the emergence of new applications such as image processing, e-commerce, Internet information and email, video and motion picture image storage and other multimedia applications. Storing, managing and protecting this data is increasingly important to the success and operations of many organizations. Consequently, the data storage industry is growing in response to this increase in data. Tape libraries are an important part of a data storage solution and are less expensive on a cost per-megabyte basis than any other data storage method. The growth in data and the need for complex storage solutions have spurred the evolution of new storage and data management technologies. These new technologies include: . Fibre Channel, an interface technology which allows users to share storage information with other storage devices and servers over longer distances with data transfer speeds at least 10 times faster than the most common interface technology in use today. In November 1999, we invested $1.1 million for an approximately 1% interest in Chaparral Network Storage, Inc. We purchase products from Chaparral that we incorporate into our tape libraries to provide Fibre Channel connectivity; . Storage Area Networks, a networking architecture which allows data to move efficiently and reliably between multiple storage devices and servers; . Advanced storage management software, which has increased the ability of businesses to store, retrieve and manage important data, which in turn allows businesses to operate more efficiently; and . Internet-based storage backup, which allows individuals and enterprises to outsource their storage of data on a cost-efficient basis through services provided by Internet-based storage backup companies. We have designed and developed our products to work with these emerging technologies. We have focused our business primarily on supporting value added resellers and original equipment manufacturers as the most effective and profitable distribution channels for our tape libraries. Value added resellers develop and install storage solutions for enterprises that face complex storage needs but lack the in-house capability to design and implement their own solution. Value added resellers integrate our tape libraries with the products of other manufacturers and sell the combined products to their customers. Original equipment manufacturers combine our tape libraries with their own products and generally resell our products under their own brand names. We custom configure our library products based on our customer's requirements, with a standard delivery time of one to three working days. We support our value added resellers with a wide array of marketing programs and offer all of our customers around-the-clock technical support. Our six senior operations executives have worked in the computer and data storage industries for an average of more than 30 years each. We believe that our experience provides us the ability to bring new products to market in response to changing market conditions and new opportunities as they arise. From July 1, 1996 through March 31, 2000, our revenues have grown at a compound annual growth rate of 35.8% and our net income has grown at a compound annual growth rate of 85.3%. We believe that we are well-positioned to become a key provider of automated tape libraries to the storage solutions market. To achieve our goals, we intend to focus on the following key strategies: . Offer libraries for multiple tape drive technologies in order to target the specific preferences of our value added reseller and original equipment manufacturer customers; . Focus distribution on the value added reseller channel, which we believe is the most effective market channel for our products; . Maintain and strengthen our original equipment manufacturer relationships, which allow us to reach end users not served by our value added reseller customers; . Develop libraries for new tape technologies as they come to market; and . Increase our rate of innovation in order to exploit emerging technologies and product opportunities. Corporate Information We were incorporated in California in August 1984. Our executive offices are located at 6709 Independence Avenue, Canoga Park, CA 91303. Our telephone number is (818) 592-0061. Our website address is www.qualstar.com. Information contained in our website does not constitute part of this prospectus. "Qualstar(R)," "Inventory Sentry(TM)" and our logo are trademarks of Qualstar. This prospectus also contains product names, trade names and trademarks that belong to other companies. The Offering <TABLE> <C> <C> <S> Common stock offered................................ 2,500,000 shares Common stock to be outstanding after this offering.. 12,123,155 shares Use of proceeds..................................... We intend to use the net proceeds from this offering for leasehold improvements, sales and marketing activities, research and development, capital expenditures, working capital and other general corporate purposes. See "Use of Proceeds." Nasdaq National Market Symbol....................... QBAK </TABLE> The number of shares of common stock outstanding after this offering is based on shares outstanding as of April 30, 2000, and excludes: . 1,152,900 shares of common stock reserved for issuance under our stock incentive plans, of which options to purchase 326,700 shares were outstanding as of April 30, 2000, at a weighted average exercise price of $1.44 per share. Unless otherwise indicated, all information in this prospectus: . has been adjusted to give effect to a 2.7-for-1 stock split that became effective on March 29, 2000; . reflects the automatic conversion of all outstanding shares of our preferred stock into a total of 2,378,160 shares of common stock upon the closing of this offering; . assumes no exercise of the underwriters' over-allotment option; and . assumes no exercise of outstanding options to purchase shares of our common stock after April 30, 2000. Summary Financial Data (in thousands, except per share amounts) <TABLE> <CAPTION> Nine Months Ended Years Ended June 30, March 31, -------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ------ ------- ------- ------- ------- -------- -------- (unaudited) <S> <C> <C> <C> <C> <C> <C> <C> Statements of Income Data: Net revenues............ $8,432 $10,974 $15,333 $19,155 $29,698 $ 20,643 $ 34,896 Gross profit............ 2,934 3,834 4,565 6,263 10,640 7,624 12,940 Income from operations.. 37 793 1,451 3,030 6,507 4,671 8,973 Net income applicable to common shareholders.... 82 526 848 1,786 3,986 2,829 5,490 Earnings per share: Basic................. $ 0.01 $ 0.08 $ 0.13 $ 0.28 $ 0.60 $ 0.43 $ 0.79 Diluted............... $ 0.01 $ 0.06 $ 0.09 $ 0.19 $ 0.42 $ 0.30 $ 0.57 Shares used to compute earnings per share: Basic................. 6,221 6,288 6,332 6,404 6,629 6,627 6,928 Diluted............... 9,231 9,196 9,065 9,290 9,467 9,370 9,625 Pro forma earnings per share: Basic................. $ 0.44 $ 0.59 Diluted............... $ 0.42 $ 0.57 Shares used to compute pro forma earnings per share: Basic................. 9,008 9,306 Diluted............... 9,467 9,625 </TABLE> The pro forma basic and diluted net income per share data presented above gives effect to the conversion of our preferred stock into a total of 2,378,160 shares of common stock upon the closing of this offering from the beginning of the periods presented. The as adjusted column contained in the balance sheet data summarized below gives effect to our receipt of the net proceeds from this offering assuming an initial public offering price of $8.00 per share, which are estimated to be $17.5 million, as described under "Use of Proceeds." <TABLE> <CAPTION> March 31, 2000 ------------------- Actual As Adjusted ------- ----------- (unaudited) <S> <C> <C> Balance Sheet Data: Cash and cash equivalents................................... $ 2,094 $19,594 Working capital............................................. 15,830 33,330 Total assets................................................ 20,082 37,582 Total debt.................................................. -- -- Shareholders' equity........................................ 17,323 34,823 </TABLE>

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+PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially "Risk Factors" beginning on page 8. Our Business We are a provider of Internet business collaboration software. Our eMatrix suite of products serves as an Internet platform facilitating collaboration among different departments and geographic locations of global organizations. Our software is also designed to serve as a backbone for an enterprise to collaborate through the Internet with its customers, suppliers and other business partners. Our eMatrix line of products integrates different business processes and facilitates the exchange of information and ideas such as conceptual planning and design of new products, design for manufacturability, new product introduction and a variety of other key business activities. Additionally, we provide a full line of services, including implementation, training, maintenance and customer support, designed to ensure that our customers successfully utilize our eMatrix products. The emergence of a global economy and the rapid growth of the Internet are requiring organizations to rapidly respond to a constantly changing business environment. Today, companies need timely, greater and tighter integration and collaboration among their engineering, manufacturing, sales and marketing and customer support departments to efficiently bring feature-rich products and services to market at competitive prices. Organizations may be hindered in their abilities to interact and exchange information both internally and externally due to disparate business processes, differing information technology systems, language barriers, the lack of a reliable and secure environment, network constraints and the prospect of long implementation times for new software solutions. Our eMatrix suite of software products is designed to address these issues. Our products provide companies with an Internet platform enabling flexible, real-time collaboration within their organizations and with their customers, suppliers and other business partners. Our product features allow our customers to dynamically model, continuously re-evaluate, change and optimize their business processes and content with minimal programming. Customers are also able to define business processes in multiple languages or dialects and to minimize the problems of misinterpretation or misunderstanding. In addition, we offer our customers off-the-shelf integrations to a wide variety of software products, which allow our customers to leverage their existing technology infrastructures and continue to use other best-of-breed applications and point solutions. Our open-standards Internet architecture enables our customers to exchange large volumes of different types of data, information, ideas and knowledge regardless of their information technology infrastructures, systems or software. Our eMatrix products also contain security features designed to protect the confidentiality and integrity of the data, information and ideas being exchanged. Although implementation times for our products vary with the scope of the project, our customers are able to implement specific applications in as little as two weeks, which allows our customers to rapidly realize the benefits of our software. Our installed customer base represents a wide variety of industries, including aerospace/ defense, automotive, communications, high technology, machinery and medical equipment. Over 300 companies in more than 40 countries worldwide use our eMatrix product suite, including Celestica, Honda, Honeywell, John Deere, Scania, Siemens and 3Com. For more information about our customers please see "Business--Customers and Case Studies" beginning on page 48. For the six months ended January 1, 2000, we achieved revenues of $30.0 million and reported an operating loss of $3.5 million and for the year ended July 3, 1999, we had revenues of $41.3 million and an operating loss of $7.7 million. Our Strategy We seek to be the world's leading provider of Internet business collaboration software. To accomplish this goal, we intend to: . extend our technology leadership by accelerating research and development investments; . expand our business-to-business collaboration capabilities by continuing to enhance the scope of the features and functionality of our eMatrix product line; . develop business process and industry-focused applications which capture and automate particular business processes; . broaden our business alliances with systems integrators and distributors and with enterprise, Internet and application software companies; . leverage our customer base to sell additional products and services, to access our customers' suppliers, customers and other business partners, and to further penetrate our customers' industries; and . expand our global presence to increase our ability to provide our customers with high-quality service in any of their locations. Our History We incorporated in Delaware under the name Adra Systems, Inc. in July 1983. We commercially shipped the first version of our business collaboration software in November 1993 and released our first Internet business collaboration software product in March 1997. In October 1997, we changed our name to MatrixOne, Inc., and in May 1998, we sold our legacy design and manufacturing software business, Adra Systems, to focus on our Internet suite of products. We released the current version of our business collaboration suite of products, eMatrix, in June 1999. Our principal executive offices are located at Two Executive Drive, Chelmsford, Massachusetts 01824, and our telephone number is (978) 322-2000. Our Internet address is www.matrixone.com. The information contained on our website is not incorporated by reference in this prospectus. MatrixOne(R) is a registered trademark, and eMatrix, eMatrix Advantage, Adaplet, eMatrix Integrations, Matrix Global Advantage, Matrix Systems Administrator, Matrix Business Administrator, MatrixWeb User, Matrix Application Development Kit ADK, CSM and Customer Success Model are trademarks, of MatrixOne. All other trademarks or trade names referenced in this prospectus are the property of their respective owners. The Offering <TABLE> <C> <S> Shares offered by MatrixOne.................. 5,000,000 shares Shares to be outstanding after the offering.. 38,158,245 shares Proposed Nasdaq National Market symbol....... MONE Use of proceeds.............................. For general corporate purposes, including working capital and possible acquisitions. </TABLE> The shares of common stock to be outstanding after the offering exclude: . 12,828,270 shares issuable upon the exercise of outstanding stock options as of January 1, 2000 at a weighted average exercise price of $0.80; . 168,750 shares issuable upon the exercise of an outstanding warrant as of January 1, 2000 at an exercise price of $0.44 per share; and . 200,000 shares issuable upon the exercise of an outstanding warrant as of February 1, 2000 at an exercise price equal to 125% of the initial public offering price. Unless otherwise specifically stated, information throughout this prospectus assumes: . no exercise of the underwriters' over-allotment option; . the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 26,762,779 shares of common stock immediately prior to the closing of the offering; . the effectiveness of a three-for-one stock split of the common stock immediately prior to the date of this prospectus; . the effectiveness of our Second Amended and Restated Certificate of Incorporation which reflects 100,000,000 shares of authorized common stock and authorizes 5,000,000 shares of undesignated preferred stock and the adoption of our Amended and Restated By-laws as of the closing of the offering; and . the sale of 450,000 shares of common stock to GE Capital Equity Investments, Inc. based on an assumed initial public offering price of $21.00 per share. The shares will be sold at the initial public offering price less underwriters' discounts and commissions in a concurrent private placement. For additional information, please see "Business-- Customers and Case Studies" beginning on page 48 and "Description of Capital Stock--Concurrent Private Placement" on page 69. Summary Consolidated Financial Data The following table summarizes our consolidated statements of operations data. In May 1998, we sold our legacy design and manufacturing software business, Adra Systems, to focus on our Internet-enabled suite of software products. The financial results of this divested business are reflected in our consolidated financial statements as discontinued operations. Shares used in computing pro forma basic and diluted net income (loss) per share give effect to the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, as if the conversion had occurred on the original date of issuance. <TABLE> <CAPTION> Year Ended Six Months Ended ---------------------------------------------- --------------------- July 1, June 29, June 28, June 27, July 3, January 2, January 1, 1995 1996 1997 1998 1999 1999 2000 ------- -------- -------- -------- ------- ---------- ---------- (in thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> <C> Consolidated Statements of Operations Data: Total revenues.......... $ 1,885 $ 6,130 $12,275 $ 21,179 $41,346 $17,731 $30,048 Gross profit............ 521 3,608 8,469 13,351 23,556 10,133 16,924 Total operating expenses............... 4,692 10,243 12,873 26,203 31,504 14,479 20,562 Net loss from continuing operations............. (4,171) (6,635) (3,669) (10,876) (7,704) (4,146) (3,498) Net income (loss) from discontinued operations............. 3,816 (319) 1,777 8,684 -- -- -- Net loss................ $ (355) $(6,954) $(1,892) $ (2,192) $(7,704) $(4,146) $(3,498) Basic and diluted net income (loss) per share: Continuing operations... $ (1.19) $ (1.84) $ (0.98) $ (2.88) $ (1.74) $ (1.03) $ (0.63) Discontinued operations............. 1.09 (0.09) 0.47 2.30 -- -- -- ------- ------- ------- -------- ------- ------- ------- Net loss................ $ (0.10) $ (1.93) $ (0.51) $ (0.58) $ (1.74) $ (1.03) $ (0.63) ======= ======= ======= ======== ======= ======= ======= Shares used in computation............ 3,516 3,606 3,729 3,777 4,428 4,026 5,535 ======= ======= ======= ======== ======= ======= ======= Pro forma basic and diluted net income (loss) per share: Continuing operations... $ (0.22) $ (0.35) $ (0.19) $ (0.43) $ (0.28) $ (0.15) $ (0.11) Discontinued operations............. 0.20 (0.02) 0.09 0.34 -- -- -- ------- ------- ------- -------- ------- ------- ------- Net loss................ $ (0.02) $ (0.37) $ (0.10) $ (0.09) $ (0.28) $ (0.15) $ (0.11) ======= ======= ======= ======== ======= ======= ======= Shares used in computation............ 18,785 18,874 18,998 25,050 27,970 27,413 32,298 ======= ======= ======= ======== ======= ======= ======= </TABLE> The following table presents a summary of our balance sheet as of January 1, 2000: . on an actual basis; . on a pro forma basis after giving effect to the conversion of our outstanding convertible preferred stock into 26,762,779 shares of common stock immediately prior to the closing of the offering and the filing of our Second Amended and Restated Certificate of Incorporation as of the closing of the offering which reflects 100,000,000 shares of authorized common stock and authorizes 5,000,000 shares of undesignated preferred stock; and . on a pro forma as adjusted basis to reflect the sale of 5,000,000 shares of common stock at an assumed initial public offering price of $21.00 per share after deducting the estimated underwriters' discounts and commissions and estimated offering expenses, and the sale of 450,000 shares of common stock in a concurrent private placement at an assumed initial public offering price of $21.00 per share less an amount equal to underwriters' discounts and commissions. <TABLE> <CAPTION> As of January 1, 2000 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) <S> <C> <C> <C> Consolidated Balance Sheet Data: Cash and equivalents............................. $ 6,850 $ 6,850 $111,664 Working capital.................................. 5,261 5,261 110,075 Total assets of continuing operations............ 30,956 30,956 135,770 Redeemable convertible preferred stock........... 17,015 -- -- Total stockholders' equity (deficit)............. (7,947) 9,068 113,882 </TABLE>

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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and consolidated financial statements and notes thereto appearing elsewhere in this prospectus before making an investment decision. Unless we indicate otherwise, all information in this prospectus assumes no exercise of the over-allotment option granted to the underwriters. References to fiscal 1996 and fiscal 1997 refer to the twelve month periods ended June 30, 1996 and June 30, 1997, respectively. In February 1998, we changed our fiscal year end from June 30 to January 31. References to the transition period refer to the seven month period beginning July 1, 1997 and ended January 31, 1998, which precedes the start of the new fiscal year and bridges the gap between our previous and new fiscal year ends. References to fiscal 1999, fiscal 2000 and fiscal 2001 refer to the twelve month periods ended January 31, 1999, 2000 and 2001, respectively. This prospectus contains forward-looking statements regarding our performance, strategy, plans, objectives, expectations, beliefs and intentions. The actual outcome of the events described in these forward-looking statements could differ materially. This prospectus, and especially the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contain discussions of some of the factors and risks that could contribute to those differences. SOUND ADVICE OVERVIEW Sound Advice is a specialty retailer of high-end audio and video entertainment products and systems and mobile electronics. We provide our customers knowledgeable advice concerning product selection and system integration in conjunction with products incorporating the latest technology. We operate 28 stores in the State of Florida, the fourth largest state with the fastest growing population in the United States. We distinguish ourselves from most large retailers of consumer electronics by: - focusing on high-end audio, video, television and mobile electronics product categories produced by manufacturers whose premium products are not readily available in the general consumer marketplace; - offering the most innovative and technologically advanced products currently available; - featuring audition rooms, home theaters and demonstration areas in our stores to allow our customers to experience our products and systems; - enabling our customers to integrate these products into multi-room, multi-functional residential entertainment systems; - supporting our customers through every stage of product and system selection, purchase, installation, service and, in some cases, upgrades; - ensuring that our sales associates are well trained, highly knowledgeable and able to add value to our customers' experience; and - facilitating the design, installation and repair process through our at-home service support team. We currently operate 24 full-size stores, most of which are between 15,000 and 17,000 square feet. We offer over 2,100 products from approximately 150 high-end manufacturers. These products include home and car audio systems, large screen projection and conventional televisions, video products, mobile electronics, car security systems, home entertainment furniture and related customized services and accessories. Our full-size stores contain audition and demonstration areas in which customers are encouraged to experience and compare our products. We also operate four Bang & Olufsen stores, which are smaller, specialty boutiques featuring Bang & Olufsen products. Our Bang & Olufsen stores are typically 1,500 square feet. We plan to open our first Electronic Interiors concept store in October 2000 in Palm Beach. Our concept stores will be entirely demonstration oriented, built to simulate a residential environment showcasing some of our integrated entertainment systems. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. SOUND ADVICE AND THE UNDERWRITERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION SEPTEMBER 14, 2000 2,150,000 SHARES (WE GIVE SOUND ADVICE LOGO) COMMON STOCK This is a public offering of 2,150,000 shares of common stock of Sound Advice, Inc. Sound Advice is a full service specialty retailer of upscale entertainment and consumer electronic products. Sound Advice is selling 1,800,000 shares in this offering, and the selling shareholders identified in this prospectus are selling 350,000 shares in this offering. Some of the selling shareholders have also granted the underwriters the right to purchase up to 322,500 additional shares to cover any over-allotments. Sound Advice's common stock is quoted on the Nasdaq National Market under the symbol "SUND." On September 12, 2000, the last reported sale price of the common stock was $9.31 per share. INVESTING IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7. <TABLE> <CAPTION> PER SHARE TOTAL --------- ----------- <S> <C> <C> Offering price.............................................. $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to Sound Advice.................. $ $ Proceeds, before expenses, to the selling shareholders...... $ $ </TABLE> The representatives of the underwriters will also receive warrants to purchase 200,000 shares of our common stock at an exercise price per share equal to 120% of the offering price per share set forth above. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. FAHNESTOCK & CO. INC. RYAN, BECK & CO. , 2000 In fiscal 2000, our sales increased to $177,349,000, a 16.6% increase from the prior year. Comparable store sales in fiscal 2000 increased 13.1%. Average net sales were $7,161,000 per full-size store and $2,053,000 per Bang & Olufsen store. Our gross margin improved slightly to 35.1% from the prior fiscal year, while our income from operations increased to $6,782,000, a 103.2% increase from the prior year. Inventory turned 3.7 times in fiscal 2000. During the first six months of fiscal 2001, our sales were $84,491,000, a 6.7% increase over the first six months of fiscal 2000. Comparable store sales increased 6.0%. Our gross margin increased to 35.5% of sales compared to 34.8% in the first six months of fiscal 2000, while our income from operations increased to $3,102,000, a 41.8% increase over the first six months of fiscal 2000. THE CONSUMER ELECTRONICS INDUSTRY The consumer electronics industry is defined to include audio, video, mobile electronics, communications, information technology, multimedia and accessory products, as well as related services. According to the Consumer Electronics Association, total sales of consumer electronics in the United States were estimated to be $80 billion in 1999, a 5% increase from $76 billion in 1998, and are projected to increase to $84 billion in 2000. Growth in the consumer electronics market has historically been driven by the introduction of new products based on technological innovations. For example, the proliferation of video cassette recorders and compact disc players helped to accelerate growth in the 1980s. We believe that a new generation of technology offers the prospect of increased industry sales with the introduction of digital delivery systems such as high definition televisions (HDTV), digital audio players such as MP3 players, digital versatile discs players (DVD) and direct broadcast satellite systems. The Consumer Electronics Association estimates that digital video products will average 35% annual growth from 1999 to 2002. We believe that specialty retailers with sales personnel capable of understanding and communicating the benefits of technologically advanced products to consumers are well positioned to capture the anticipated increased sales. GROWTH STRATEGY We have become the largest specialty consumer electronics retailer in Florida by delivering to consumers a total system solution for home entertainment and mobile electronics. Our solution integrates outstanding product selection, concept design, professional installation and after-market service and support. We intend to grow our business through the following strategies: Increase Same Store Sales We expect to increase our same store sales by continuing to focus on products incorporating the latest technology, since higher sales prices are typically associated with these products. For example, we believe that by offering an increasing number of digitally based products as they become available to the market, we can benefit from the higher prices at which these products are sold. In addition, we intend to increase our same store sales by expanding the capabilities that can be incorporated into our integrated systems. We recently began offering lighting and security systems as additional features to our integrated solutions. Open New Stores We opened two new full-size stores, one in Tallahassee and one in North Palm Beach, in November 1998 and four mall based Bang & Olufsen stores in February and December 1998, June 1999 and March 2000. We expect to continue to explore the opening of new stores in geographic areas within our existing Florida distribution network and advertising radius in order to realize efficiencies and cost benefits as a result of our clustering of stores. Our current plans are to open two new Bang & Olufsen stores in the next 18 months, one of which will be located adjacent to our first Electronic Interiors location, which we expect to open in October 2000. The Electronic Interiors stores will allow customers to experience our products and the integration of our systems in aesthetically pleasing environments. We expect to open approximately eight additional Electronic Interiors stores during the next two years. [INSIDE COVER] [PICTURE OF SOUND ADVICE STORE] [PICTURE OF BANG & OLUFSEN STORE] [PICTURES OF PRODUCTS] Upgrade and Relocate Existing Stores We continually improve our existing stores by upgrading and rotating product displays and remodeling the stores' interiors. At times, we may choose to relocate our stores in connection with the need for expansion. In November 1999, we relocated and upgraded our Tampa-Dale Mabry location from a 7,400 square foot facility to a 15,000 square foot facility. In Fall 2000, we plan to relocate one of our Miami stores, which is currently housed in a 11,000 square foot facility, to a 15,700 square foot facility located in Miami. We also plan to relocate our Altamonte Springs store in Spring 2001 from a 10,800 square foot facility to a 15,000 square foot facility located in Altamonte Springs. We believe these relocations will improve store visibility and increase customer traffic for these stores. Pursue Acquisitions We believe that we may gain significant benefits through strategic acquisitions of local and regional specialty retailers. Due to the fragmentation of the retail consumer electronics market, many opportunities exist for the acquisition of high-end stores. We have identified geographic markets with favorable demographics and intend to pursue acquisitions of local and regional stores with brand name recognition as a platform for expansion into those markets. We have executed a letter of intent and are engaged in the process of negotiating a definitive agreement for the acquisition of the assets of Showcase Home Entertainment of the Southwest, LLC, a privately held retailer of upscale home entertainment products and custom design services with stores located in Scottsdale and Chandler, Arizona. * * * Sound Advice is a Florida corporation incorporated on March 12, 1974. In this prospectus, the terms "Sound Advice," "we," "us" and "our" mean Sound Advice, Inc. and our subsidiaries, unless otherwise required by the context. WHERE TO CONTACT US Our principal executive offices are located at 1901 Tigertail Boulevard, Dania Beach, Florida 33004 and our telephone number is (954) 922-4434. Our Web site is www.wegivesoundadvice.com. The information on our Web site is not part of this prospectus. THIS OFFERING Shares offered by Sound Advice...... 1,800,000 shares Shares offered by the selling shareholders........................ 350,000 shares Shares to be outstanding after this offering............................ 5,588,394 shares Use of proceeds..................... We intend to use the net proceeds from this offering to pursue potential acquisitions, retire some of our indebtedness, open new stores, upgrade and relocate some existing stores and for general corporate purposes. Nasdaq National Market symbol....... SUND The number of shares to be outstanding after this offering does not include 838,500 shares reserved for issuance upon exercise of outstanding options and warrants and 200,000 shares issuable upon the exercise of the warrants to be issued to the representatives of the underwriters. SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA) The following table contains our summary consolidated financial and operating information. Information for the fiscal years ended June 30, 1996 and 1997, the seven month transition period ended January 31, 1998 and the fiscal years ended January 31, 1999 and 2000 have been derived from our consolidated financial statements, which have been audited by KPMG LLP, our independent certified public accountants. Information for the seven months ended January 31, 1997, the twelve months ended January 31, 1998 and the six months ended July 31, 1999 and 2000 have been derived from our consolidated financial statements and are unaudited. The information presented below under the caption "Store Data," "Selected Consolidated Operating Data" and "Balance Sheet Data" is unaudited. The results of operations for the six months ended July 31, 2000 are not necessarily indicative of the results to be expected for the full year. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the Notes thereto included elsewhere in this prospectus. <TABLE> <CAPTION> SEVEN SEVEN MONTH TWELVE FISCAL YEARS ENDED MONTHS TRANSITION MONTHS FISCAL YEARS ENDED JUNE 30, ENDED PERIOD ENDED ENDED JANUARY 31, ---------------------- JANUARY 31, JANUARY 31, JANUARY 31, ------------------- 1996 1997 1997 1998 1998 1999 2000 -------- ----------- ------------ ------------ ----------- -------- -------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA(1): Net sales......................... $165,384 $152,316 $98,558 $95,205 $148,963 $152,124 $177,349 Cost of goods sold................ 116,174 102,298 67,005 64,234 99,527 98,893 115,057 -------- -------- ------- ------- -------- -------- -------- Gross profit.................... 49,210 50,018 31,553 30,971 49,436 53,231 62,292 Selling, general and administrative expenses......... 52,393 49,045 29,827 29,903 49,122 49,893 55,510 -------- -------- ------- ------- -------- -------- -------- Income (loss) from operations..... (3,183) 973 1,726 1,068 314 3,338 6,782 Other income (expense): Interest expense................ (1,526) (1,556) (891) (897) (1,562) (1,417) (1,367) Other income (expense).......... (4) 101 31 48 120 96 (107) -------- -------- ------- ------- -------- -------- -------- Income (loss) before income taxes (benefit)....................... (4,713) (482) 866 219 (1,128) 2,017 5,308 Income taxes (benefit)............ (486) 389 475 1,175 1,089 1,310 (1,218) -------- -------- ------- ------- -------- -------- -------- Net income (loss)............... $ (4,227) $ (871) $ 391 $ (956) $ (2,217) $ 707 $ 6,526 ======== ======== ======= ======= ======== ======== ======== Common and common equivalent per share amounts: Basic earnings (loss) per share(2)...................... $ (1.13) $ (.23) $ .10 $ (.26) $ (.59) $ .19 $ 1.74 Diluted earnings (loss) per share(2)...................... $ (1.13) $ (.23) $ .10 $ (.26) $ (.59) $ .18 $ 1.55 Weighted average number of shares outstanding -- basic............ 3,729 3,729 3,729 3,729 3,729 3,730 3,746 Weighted average number of shares outstanding -- diluted.......... 3,729 3,729 3,729 3,729 3,729 3,965 4,223 STORE DATA: Number of stores open at end of period: Full-size stores................ 21 21 22 24 24 Bang & Olufsen stores........... -- -- -- 2 3 Weighted average net sales per store(3): Full-size stores................ $ 7,875 $ 7,253 $ 7,038 $ 6,669 $ 7,161 Bang & Olufsen Stores........... -- -- -- 1,770 2,053 <CAPTION> SIX MONTHS ENDED JULY 31, --------------------- 1999 2000 ------- ----------- (UNAUDITED) <S> <C> <C> STATEMENT OF OPERATIONS DATA(1): Net sales......................... $79,151 $84,491 Cost of goods sold................ 51,599 54,508 ------- ------- Gross profit.................... 27,552 29,983 Selling, general and administrative expenses......... 25,364 26,881 ------- ------- Income (loss) from operations..... 2,188 3,102 Other income (expense): Interest expense................ (706) (902) Other income (expense).......... 20 38 ------- ------- Income (loss) before income taxes (benefit)....................... 1,502 2,238 Income taxes (benefit)............ -- 873 ------- ------- Net income (loss)............... $ 1,502 $ 1,365 ======= ======= Common and common equivalent per share amounts: Basic earnings (loss) per share(2)...................... $ .40 $ .36 Diluted earnings (loss) per share(2)...................... $ .36 $ .32 Weighted average number of shares outstanding -- basic............ 3,734 3,771 Weighted average number of shares outstanding -- diluted.......... 4,121 4,316 STORE DATA: Number of stores open at end of period: Full-size stores................ 24 24 Bang & Olufsen stores........... 3 4 Weighted average net sales per store(3): Full-size stores................ $ 3,212 $ 3,400 Bang & Olufsen Stores........... 886 751 </TABLE> <TABLE> <CAPTION> FISCAL YEAR ENDED SIX MONTHS ENDED JANUARY 31, JULY 31, -------------------- ------------------------ 1999 2000 1999 2000 ------- ------- ------- ----------- <S> <C> <C> <C> <C> SELECTED CONSOLIDATED OPERATING DATA: Gross profit margin....................................... 35.0% 35.1% 34.8% 35.5% Operating income margin................................... 2.2% 3.8% 2.8% 3.7% Store contribution to profit and corporate expenses(4).... $22,087 $28,616 $12,484 $14,401 Comparable store sales increase (decrease)(5)............. (3.2)% 13.1% 13.0% 6.0% </TABLE> <TABLE> <CAPTION> JANUARY 31, 2000 JULY 31, 2000 -------------------- ------------------------ AS ACTUAL ACTUAL ADJUSTED(6) ------ ------- ----------- <S> <C> <C> <C> <C> BALANCE SHEET DATA: Working capital........................................... $13,020 $13,917 $26,690 Total assets.............................................. 60,932 59,092 64,089 Revolving line of credit.................................. 7,310 9,776 -- Total debt, excluding revolving line of credit and cash overdraft............................................... 5,679 5,642 5,642 Shareholders' equity...................................... 22,692 24,127 38,901 </TABLE> --------------- (1) We eliminated personal computers from our product mix in January 1996. (2) In December 1997, we adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which establishes new guidelines for the calculations of earnings per share. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share have been computed using the exercise of stock options, and their related income tax effects, if any. Earnings per share for all periods have been restated to reflect the adoption of this statement. (3) Weighted average net sales per store represents the net sales of our full-size and Bang & Olufsen stores for the period divided by the number of full-size and Bang & Olufsen stores open during the period, weighted to account for stores open for only a portion of the period. (4) Refers to gross profit after deducting selling expenses including labor, advertising, store level operations and pre-opening expenses. Store contribution is presented to provide additional information about us and is commonly used as a performance measurement by retail companies. Store contribution should not be considered in isolation or as a substitute for operating income, cash flow from operating activities and other income or cash flow data prepared in accordance with generally accepted accounting principles, or as a measure of our profitability or liquidity. Our calculation of store contribution may not be comparable to similarly titled items reported by other companies. (5) Refers to the percentage change in sales for stores open for at least one year. (6) Adjusted to reflect the application of the estimated net proceeds of the sale of 1,800,000 shares of common stock offered by us at an assumed public offering price of $9.31 (the closing price on September 12, 2000), after deducting the estimated underwriting discount and offering expenses payable by us.

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL INFORMATION AND RELATED NOTES, BEFORE INVESTING IN OUR COMMON STOCK. THE TERMS "WE," "US," "OUR," "OUR COMPANY" AND "RMS" AS USED IN THIS PROSPECTUS REFER TO RMS NETWORKS, INC. AND ITS SUBSIDIARIES AS A COMBINED ENTITY, EXCEPT WHERE THE CONTEXT REQUIRES OTHERWISE. RMS NETWORKS, INC. OUR BUSINESS We are a premier provider of point-of-purchase advertising and information distributed by broadband satellite networks. Through our relationships with retailers, we provide advertisers with a platform to direct advertising at targeted consumers. Retailers use our broadband networks to enhance their in- store environments with entertaining and informative audio-visual programming that is designed to increase the duration of shopping visits and result in increased sales. Our programming consists of broadcast-quality, full motion video and high quality sound delivered through strategically placed monitors in retail locations. By delivering programming at the point of purchase, we enable advertisers and retailers to efficiently engage customers where the most important purchase decisions are made. Our networks were installed at more than 2,300 locations in 49 states in the United States as of February 29, 2000, an increase from 37 locations in 20 states at March 31, 1999. We estimate that our networks currently reach an average of approximately 750,000 consumers each day. We offer retailers fully-installed turnkey systems consisting of video monitors, audio components, digital video servers, satellite receivers and proprietary software that receive and transmit our programming. Our technology allows programming and advertising to be customized to the specific needs of a retailer based on location, customer preferences, product availability, current events and other retailer needs. Broadband satellite technology, integrated with our proprietary software, enables us to add, delete or rotate programming segments in real-time via satellite and to verify network statistics necessary to monitor advertising on our networks. We have entered into a service agreement with Spacenet Inc., a U.S. subsidiary of Gilat Satellite Networks Ltd., in which Spacenet has agreed to provide satellite service for our broadband networks and to install, maintain and finance a significant portion of our equipment. Our technology, combined with our relationships with retailers such as Advance Auto Parts and The Sports Authority, enables us to offer what we believe is one of the most effective advertising mediums currently available at the point of purchase. Studies show that advertising and product demonstrations at the point of purchase can significantly influence which products a consumer buys. Our networks are designed to encourage consumers to remain in retail stores longer, make return visits and increase their product purchases. By providing audio-visual programming targeted to clearly defined demographic groups, we believe that we offer advertisers an efficient and cost-effective advertising medium. We can also reinforce advertisers' and retailers' relationships with consumers through additional channels such as the Internet and e-mail. We develop tailored Internet strategies for retailers by designing and maintaining websites with content that largely parallels the presentation on our video networks. Each network's website can be specifically designed to integrate in-store video segments and product advertisements with related news, product promotions and additional web content. We produce our network programming using video segments that we create ourselves or that we obtain from various programming suppliers, including CNN, E! Entertainment, Fox, Time Warner and Ziff Davis. We design our programming to provide relevant and entertaining information tailored to the demographic audience of specific retailers. We update our programming on a daily or weekly basis in order to keep it fresh and topical. Programming represents approximately 60% of the airtime on our networks, with the remaining 40% reserved for advertising. We typically target retail industries with high consumer traffic, multiple retail outlets, a concentrated base of advertisers and a large number of stock keeping units, or SKUs. Our strategy is to install our broadband networks in both national and regional chains as well as in independent stores. To date, we have created networks in the following industries: - PHARMACIES. We launched the PharmaSee Network in July 1999 and, as of February 29, 2000, we provided this network to more than 740 independent pharmacies with an average audience we estimate to be 110,000 consumers each day. Programming on the network is also available on our related website, WWW.PHARMASEE.COM. We have entered into an exclusive licensing agreement to make the PharmaSee Network available to members of the National Community Pharmacists Association, or NCPA, the largest association of independent pharmacists in the United States. In addition, we have entered into an agreement to launch a custom version of the PharmaSee Network at five pharmacies run by Albertson's, Inc., which operates more than 2,600 pharmacies nationwide. We have agreed with Albertson's to work towards a definitive agreement to install and transmit the network in all of the Albertson's family of drug stores, including its Sav-On, Osco, Albertson's and Acme locations. There are more than 40,000 pharmacies and drug stores in the United States. - AUTO PARTS. We launched the Advance Auto Parts Network in April 1999 and provide this network to stores operated by Advance Auto Parts, the second largest auto parts retailer in the United States with more than 1,600 stores in 37 states. As of February 29, 2000, this network supported more than 1,550 Advance Auto Parts stores with an estimated average audience of 620,000 consumers each day. - SPORTING GOODS. We launched our sporting goods network in January 2000 and have entered into an agreement with The Sports Authority, a leading U.S. sporting goods retailer, to expand the network to all of The Sports Authority's nearly 200 stores nationwide. The network is currently provided at three Sports Authority locations. There are more than 15,000 sporting goods stores in the United States. - BEER, WINE AND SPIRITS. BEVision, our network for beer, wine and spirits retailers, is currently under contract to be installed at more than 280 independent beer, wine and spirits stores. We have also entered into an agreement to provide BEVision at five stores operated by ABC Liquors, Inc., which has an option to expand the network to all of its 150 stores after a two-month trial period. We began the production of programming for this network in January 2000. We expect to begin installing equipment for this network and to launch a related website, WWW.BEVISION.NET, during the second quarter of 2000. We also have an arrangement with the National Association of Beverage Retailers in which the association has agreed to actively promote our services to all of its members. There are more than 25,000 beer, wine and spirits stores in the United States. Our networks' digital broadband platform can be adapted to support a variety of complementary services. For example, retailers use our networks to deliver training and product information to in-store employees and the networks can be adapted for company-wide corporate communications or live events. Our networks are also capable of supporting two-way broadband communications and future commercial data transmission services, including the transmission of retail inventory and credit card data. MARKET OPPORTUNITY Our strategy is to obtain an increasing percentage of companies' advertising budgets. Approximately $255 billion was spent on U.S. advertising in 1998 and U.S. advertising sales are expected to reach approximately $365 billion in 2003, according to Veronis Suhler. The advertising industry is diverse and includes television, newspapers, magazines, radio, specialty media, the Internet, billboards, direct mail and telephone directories. Advertisers are increasingly seeking to diversify their advertising. According to Veronis Suhler, spending on specialty media was $105.7 billion in 1998 and is estimated to reach $149.3 billion in 2003. Specialty media consists of consumer promotion, business to business promotion, direct mail and sponsorships. Consumer promotion includes point-of-purchase materials and retail displays, premiums, promotional licensing, product sampling and in-store marketing. Veronis Suhler estimates that consumer promotion spending totaled $25.3 billion in 1998 and will reach approximately $31.8 billion in 2003. Our broadband satellite networks offer advertisers and retailers a unique, technologically advanced advertising solution which we believe is one of the most effective advertising mediums available in retail locations. COMPETITIVE STRENGTHS We provide the following key benefits to advertisers: - access to consumers at the point of purchase; - ability to access large numbers of consumers and to target specific audience demographics; - a cost-effective advertising medium; - integrated advertising across video and Internet media; - technologically advanced, full motion, broadcast-quality advertising; and - customized and timely advertising. We provide the following key benefits to retailers: - a fully-installed turnkey system; - an enhanced shopping environment; - branded networks for specific retailers; - longer lengths of stay by consumers and an opportunity to enhance sales; - an ability to promote private label brands and influence brand and product selection; and - in-store employee training and product education. BUSINESS STRATEGY Our goal is to provide the leading point-of-purchase advertising medium available to advertisers. Key elements of our business strategy include: - capturing significant revenue and profits through our point-of-purchase advertising medium; - utilizing our broadband technological capabilities to deliver effective advertising solutions, including timely inventory management; - expanding current networks and developing new networks in order to extend the reach of our advertisers; and - pursuing ancillary revenue sources, including Internet access and credit card processing, utilizing our broadband platform. THE OFFERING <TABLE> <S> <C> Common stock offered by us.................. shares Common stock to be outstanding after this offering.................................. shares(1) Use of proceeds............................. We intend to use the proceeds of this offering for working capital and general corporate purposes, including the development of new networks, the purchase of network equipment and capital expenditures. See "Use of Proceeds." Proposed Nasdaq National Market symbol...... RMSN </TABLE> - ------------------------ (1) The number of shares of common stock to be outstanding after this offering is estimated based on the number of shares outstanding as of February 29, 2000. This number excludes: - shares subject to outstanding options at a weighted average exercise price of $ per share; - shares available for future issuance under our employee stock option plans; - shares that may be issued if the underwriters exercise their over-allotment option in full; and - shares subject to options that will be granted upon completion of this offering to the placement agent for our second 1999 private placement. SUMMARY FINANCIAL INFORMATION We present below our summary historical financial data. We derived the historical consolidated balance sheet data as of December 31, 1999 and the historical consolidated statement of operations data for each of the three years ended December 31, 1999 from our audited consolidated financial statements, which are included elsewhere in this prospectus. The statement of operations data for the period from May 29, 1996 (inception) to December 31, 1996 is derived from our audited financial statements which are not included in this prospectus. <TABLE> <CAPTION> MAY 29, 1996 (INCEPTION) TO FISCAL YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------------ 1996 1997 1998 1999 -------------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenue..................................... $ -- $ -- $ 717 $ 2,182 Operating expenses: Cost of revenue........................... -- -- 554 1,422 Selling, general and administrative expenses................................ 18 93 470 2,377 Development expenses...................... 161 686 218 638 Loss on impairment of fixed assets........ -- -- -- 262 ---------- ---------- ---------- ---------- Loss from operations.................... (179) (779) (525) (2,517) Other income (expense): Interest income........................... -- 11 2 29 Interest expense.......................... (11) (118) (158) (68) ---------- ---------- ---------- ---------- Loss before income taxes................ (190) (886) (681) (2,556) Income taxes................................ -- -- -- -- ---------- ---------- ---------- ---------- Net loss................................ $ (190) $ (886) $ (681) $ (2,556) ========== ========== ========== ========== NET LOSS PER COMMON SHARE: Basic and diluted......................... $ (0.18) $ (0.13) $ (0.39) ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted......................... 5,019,521 5,229,219 6,577,840 ========== ========== ========== OTHER DATA: EBITDA(1)................................... $ (179) $ (773) $ (510) $ (2,402) Net cash provided by (used in): Operating activities...................... (120) (557) (340) (1,749) Investing activities...................... -- (47) (29) (610) Financing activities...................... 144 882 127 10,887 Capital expenditures........................ -- (47) (29) (520) </TABLE> (CONTINUED ON THE FOLLOWING PAGE) <TABLE> <CAPTION> DECEMBER 31, 1999 --------------------------- HISTORICAL AS ADJUSTED(2) ---------- -------------- (IN THOUSANDS) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................. $8,588 $ Working capital........................................... 7,986 Total assets.............................................. 9,809 Total debt................................................ -- -- Total stockholders' equity................................ 8,735 </TABLE> - ------------------------ (1) EBITDA represents, for any period, loss from operations plus depreciation and amortization. EBITDA is presented because it is a widely accepted financial indicator of a company's operating results and cash flows and management believes that presentation of EBITDA is helpful to investors. However, EBITDA should not be considered as an alternative to net loss as a measure of our operating results or to cash flows as a measure of liquidity. In addition, although the EBITDA measure of performance is not recognized under generally accepted accounting principles, it is widely used as a general measure of a company's operating performance because it assists in comparing performance on a relatively consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending on accounting methods or non-operating factors such as historical cost bases. Because EBITDA is not calculated identically by all companies, the presentation herein may not be comparable to other similarly titled measures of other companies. (2) The as adjusted data gives effect to receipt of the net proceeds from the sale of shares of common stock offered by us in this offering at the assumed public offering price of $ per share, the mid-point of the range on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by our company.

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+PROSPECTUS SUMMARY In this section, we have provided you with an overview of some of the more important information in this prospectus. However, we caution you that this information is not complete. You should read all of the information in this prospectus before purchasing any common stock. Unless the context otherwise requires, we use the terms "we," "our," "us" and the "Company" to mean Able Telcom Holding Corp. and its subsidiaries, including the subsidiaries we acquired in the acquisition of the network construction and transportation systems business of WorldCom, Inc. on July 2, 1998. We use the term "Able" when we refer to Able Telcom Holding Corp. and its subsidiaries prior to this acquisition. We sometimes use the term "MFSNT" to refer to MFS Network Technologies and its subsidiaries before we acquired them and to refer to our subsidiaries that now own the assets and liabilities that we acquired from WorldCom, Inc. THE COMPANY We develop, build and maintain communications systems for companies and government authorities. We have five main organizational groups. Each group is comprised of subsidiaries of the Company with each group having local executive management functioning in a decentralized operating environment. We completed operational restructuring of our subsidiaries during fiscal 1999. As a result, we now have fourteen subsidiaries, eleven of which are wholly owned. We own at least 80% of each of the remaining three subsidiaries. The services provided by each group are as follows: <TABLE> <CAPTION> Organizational Group Service Provided -------------------- ---------------- <S> <C> Network Service .................. Design, development, engineering, installation, construction, operation and maintenance services for telecommunications systems. Network Development .............. Own, operate and maintain local and regional telecommunication networks. Transportation Services .......... Design, development, integration, installation, construction, project management, maintenance and operation of automated toll collection systems. Construction ..................... Design, development, installation, construction, maintenance and operation of electronic traffic management and control systems, and road signage and telcom infrastructure construction. Communications Development ....... Design, installation and maintenance services to foreign telephone companies in South America. </TABLE> In conjunction with our reorganization, much of our executive management has changed. We have replaced several senior executives and Group Presidents and have added other senior people to our executive staff. As reflected above, we reorganized our subsidiaries into five main operating groups. Additionally, as part of our ongoing efforts to strategically align the profitable portions of our business, we took the following steps during the fiscal year ended October 31, 1999 to discontinue the operations of, merge, and/or manage unprofitable subsidiaries: - We assigned control of certain of our previously independent operating subsidiaries (Patton Management Corp. and Able Telecommunications & Power) to the Construction Group. - We merged several of our previously independent operating subsidiaries into Construction Group subsidiaries. - As a result of significant turnover and a deterioration of underlying contracts, we discontinued the operations of two subsidiaries, which together used cash flows from operations of approximately $7.4 million and $3.8 million during the fiscal years ended October 31, 1998 and 1999. The Company was originally incorporated in 1987 as a Colorado corporation under the name "Delta Venture Fund, Inc." We adopted our current name in 1989 and became a Florida corporation in 1991. Our principal executive offices are located at 1000 Holcomb Woods Parkway, Suite 440, Roswell, Georgia 30076 and our telephone number is (770) 993-1570. This information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED AUGUST ___, 2000 PROSPECTUS 16,271,507 SHARES OF COMMON STOCK, PAR VALUE $.001 ABLE TELCOM HOLDING CORP. This is a public offering of common stock of Able Telcom Holding Corp. We are registering 16,271,507 shares of common stock for sale by selling shareholders (the "Selling Shareholders"), as follows: - 2,000,000 shares of common stock that WorldCom, Inc. may receive upon the exercise in full of an option granted to it by us on April 24, 1998. - 600,000 shares of common stock, which is the maximum number of shares of common stock that WorldCom may receive upon the exercise of certain stock appreciation rights ("SARs") granted by us on September 9, 1998. - 409,505 shares of common stock that certain holders of warrants may receive upon the exercise of all of these warrants. We issued these warrants in connection with the sale of our 12% Senior Subordinated Notes originally due January 6, 2005. - 2,932,991 shares of common stock issued or issuable upon the conversion or redemption of securities held by former holders of our Series B Preferred Stock. - 570,000 shares of common stock, representing the total amount of common stock that holders of certain warrants may receive upon the exercise of all of their warrants. We issued these warrants at various times in connection with the sale and conversion and exchange of the Series B Preferred Stock. Because the exercise price of and number of shares issuable pursuant to these warrants is subject to adjustment under certain circumstances, this amount does not necessarily represent the actual total number of shares of common stock that these holders may receive if they exercise all of their warrants. - 3,750,000 shares of common stock issuable upon the conversion of our Series C Convertible Preferred Stock. This amount represents the number of shares of common stock that would be issued upon the conversion of all outstanding Series C Preferred Stock at a conversion price of $4.00 per share. - 997,500 shares of common stock, representing 105% of the total amount of common stock that holders of certain warrants may receive upon the exercise of all of their warrants. We issued these warrants in connection with the sale and amendment of the terms of the Series C Preferred Stock. Because the exercise price of and number of shares issuable pursuant to these warrants is subject to adjustment under certain circumstances, this amount does not necessarily represent the actual total number of shares of common stock that these holders may receive if they exercise all of their warrants. - 5,011,511 shares of common stock to be issued to Sirit Technologies, Inc. in settlement of a lawsuit between us and Sirit. We will not be selling any of the shares of common stock that we register in this prospectus. No underwriters will be used to sell the shares. We will not receive any proceeds from the sale of these shares. However, we may receive cash upon the exercise of the options and warrants described above. Our common stock is traded on the Nasdaq National Market under the symbol "ABTE." We intend to list the common stock that we are registering in this prospectus on the Nasdaq National Market, but this application has not yet been approved. On August 29, 2000, the last reported sales price of the common stock was $2.88 per share. MATERIAL DEVELOPMENTS BRACKNELL MERGER. On August 24, 2000, we announced that we had entered into an agreement to merge with Bracknell Corporation of Toronto in a stock-for-stock transaction with a conversion rate of 0.6 shares of Bracknell's common stock for each share of our common stock. The completion of this merger is conditioned upon a number of items, including the receipt of regulatory and shareholder approval, the receipt by Bracknell of appropriate financing and the absence of a material adverse change as to us. Bracknell is a leading provider of value-added facilities and structure services to businesses across North America, servicing customers in the technology, telecommunications, industrial and commercial sectors. If the merger is consummated, we will become a wholly owned subsidiary of Bracknell and our stock will no longer be publicly traded. However, our shareholders will receive shares of Bracknell's common stock, which is traded on the Toronto Stock Exchange. There can be no assurance that the merger with Bracknell will be consummated. In connection with our signing the merger agreement with Bracknell, and to comply with terms of our settlement with Sirit which is described below, we entered into a new Master Services Agreement with WorldCom which extends the term of that agreement and provides for a minimum purchase of $55 million of our services by WorldCom each year. WorldCom also agreed to vote in favor of the merger with Bracknell when it is proposed to our shareholders. Further, WorldCom converted $37,000,000 of our indebtedness to WorldCom for advances under the Master Services Agreement into our Series D Preferred Stock. The Series D Preferred Stock is convertible into our common stock at a price of $10.01 per share. For a description of the terms of our Series D Preferred Stock see the discussion under the heading "Description of Securities -- Preferred Stock -- Series D Convertible Preferred Stock." Further, WorldCom agreed to extend the term of our $4.5 million note payable to WorldCom to a seven-year, 8% interest rate note. As extended, this note will mature on July 12, 2007. SHAREHOLDERS' MEETING. We are submitting a number of proposals related to the securities covered by this prospectus for approval at an annual meeting of our shareholders currently scheduled to be held in late September or early October of this year. In addition to other matters to be considered at this annual meeting, we are submitting the following proposals to our shareholders: - to approve grants of stock options to officers and directors outside of our 1995 Stock Option Plan; - to approve issuing up to 2,600,000 shares of our common stock to WorldCom if it exercises options and stock appreciation rights obtained from us when we acquired the network, construction and transportation systems business from WorldCom; - to approve issuing shares of our common stock in connection with conversion, redemption and exercise of securities issued to finance our acquisition of the network construction and transportation business from WorldCom; - to approve issuing shares of our common stock to holders of our Series C Preferred Stock and warrants upon conversion or exercise of those securities; and - to approve issuing shares of our common stock in connection with a litigation settlement with Sirit Technologies, Inc. These proposals are being submitted for approval because they include actions for which shareholder approval is required under rules applicable to companies listed on the Nasdaq National Market System, such as us. Under Nasdaq rules, certain transactions require us to obtain the approval of holders of a majority of our shares casting votes if we plan to issue new shares of common stock that represent 20% or more of the shares of common stock that are outstanding at the time we agree to issue the common stock. The Nasdaq rules apply to the following stock issuances relevant to the proposals being submitted to our shareholders: - common stock to be issued to acquire another company; - common stock to be issued at a price below the greater of book value or market value of the common stock immediately prior to the issuance; and - common stock to be issued to officers and directors under an arrangement that does not include other employees, even if less than 20% of the outstanding common stock. For purposes of disclosure in this prospectus, we have assumed that the shareholders will approve each of the proposals described above. For a discussion of risks related to the shareholders failure to approve such proposals, see the discussion under the heading "Risk Factors." We also intend to submit a proposal at our annual meeting to approve a change in our name to "The Adesta Group, Inc." We will not reflect this proposed change in this prospectus unless and until our name is actually changed. The Selling Shareholders may offer their shares of common stock in public or private transactions, on or off the Nasdaq National Market, at prevailing market prices, or at privately negotiated prices. An investment in our common stock involves a high amount of risk. Before you invest in our common stock, we strongly recommend that you carefully consider all of the risks and information contained in this prospectus, including the information contained in the "Risk Factors" section that begins on page 6. Our principal executive offices are located at 1000 Holcomb Woods Parkway, Suite 440, Roswell, Georgia 30076, and our telephone number is (770) 993-1570. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS DATED , 2000 No dealer, salesperson or other person is authorized to provide any oral or written information about us or this offering that is not included in this prospectus. THE SIRIT SETTLEMENT. In May 1998, Sirit Technologies, Inc. filed a lawsuit against us and Thomas M. Davidson, a former member of our Board of Directors. Sirit sued for tortious interference, fraudulent inducement, negligent misrepresentation and breach of contract in connection with our acquisition of the network construction and transportation systems business of WorldCom. In May 2000, the jury awarded Sirit compensatory damages against us in the amount of $1.2 million and punitive damages in the amount of $30.0 million. Additionally, the Court assessed punitive damages against Mr. Davidson. In July 2000, we and Sirit, among others, entered into a settlement agreement which resulted in the court's entry of a consent judgment vacating the $31.2 million judgment. As part of the Sirit settlement, we agreed to issue Sirit and its affiliates, subject to using our best efforts to obtain shareholder approval at our annual shareholder meeting, the following securities: - 4,074,597 shares of our common stock, and - an additional 936,914 shares of common stock at such time as holders of the Series C Convertible Preferred Stock have converted their shares of Series C Convertible Preferred Stock into common stock. This amount assumes that the Series C Convertible Preferred Stock has a $15.0 million face value and is converted at a conversion price of $4.00 per share. The resale by Sirit of the common stock issued or issuable to it is covered by this prospectus. GOING CONCERN We incurred losses applicable to common stock of $57.5 million during the six months ended April 30, 2000, and losses applicable to common stock of $36.8 million during the fiscal year ended October 31, 1999. These net losses, our default under our Secured Credit Facility and our contractual obligations are placing a significant strain on our financial resources that raise substantial doubt about our ability to continue as a going concern. See "Risk Factors," "Management's Discussion and Analysis" and the consolidated financial statements and footnotes included in this prospectus. Our ability to continue as a going concern is dependent upon our ability to: - generate sufficient cash flow to meet our obligations on a timely basis; - obtain additional financing when we need it; and - achieve and maintain profitability. We have strategically realigned portions of our business, converted some of our debt to common stock and discontinued unprofitable cash-intensive operations to correct our financial difficulties. We also are reallocating resources to meet contractual commitments and seeking other sources of capital, whether with existing lenders or investors or new strategic investors. However, we cannot assure you that the realignment or reallocation of resources will be successful or that we will be able to secure additional capital on acceptable terms or at all.

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+PROSPECTUS SUMMARY This summary highlights only selected information contained elsewhere in this prospectus. Before investing in our common stock, you should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements. ROCKFORD We design, manufacture and distribute high-performance audio systems for the car and professional audio markets. Our car audio products are sold primarily in the $6.3 billion worldwide car audio aftermarket to consumers who want to improve their existing car audio systems. We market our car audio products under our Rockford Fosgate and Lightning Audio brand names, selling products that include digital and analog amplifiers, speakers, source units, CD and MP3 changers and accessories. Based on 1999 dollar sales, we rank first in U.S. market share for car audio amplifiers and third for car speakers. Under our Hafler brand, we market amplifiers and speakers in the professional audio market and plan to introduce Hafler home theater products later this year. We believe our ability to deliver innovative and technologically advanced products appeals to our consumers' desires for distinctive, leading-edge products and powerful, high-quality sound. We continue to develop new products to capitalize on improvements in digital technology that have increased demand for high-performance audio products. Our Rockford Fosgate, Lightning Audio and Hafler products have won numerous consumer and industry awards. Car Audio For over 20 years, Rockford Fosgate has been the brand of choice among our core consumers, 16-24 year old males. Many of these consumers devote a significant portion of their time and disposable income to their car audio systems. We believe our core consumers perceive Rockford Fosgate as the "coolest" car audio brand and we target our message to them using aggressive grass-roots marketing. As a result of our consumers' loyalty, we believe Rockford Fosgate has generated loyalty among the retailers who use our brand, products and distinctive marketing programs as a "pull" brand to attract these consumers. In June 1999, as part of our growth strategy to develop additional brands, we acquired Lightning Audio, a manufacturer and distributor of car audio accessories. In January 2000, at the Consumer Electronics Show, we introduced a line of high-performance amplifiers and subwoofers under the Lightning Audio brand name that are more moderately priced than our Rockford Fosgate products. Our newly introduced Lightning Audio amplifier won an EIA/CES Innovation Award at the Consumer Electronics Show. We currently sell our car audio products in the U.S. through approximately 2300 independent retail stores, including specialty dealers, audio/video retailers, national consumer electronics retailers and catalog merchants. Internationally, we sell our car audio products in over 60 countries through independent distributors and sales representatives. We believe the Rockford Fosgate brand is as widely-recognized internationally as it is in the U.S. Historically, specialty dealers dominated the retail distribution of car audio aftermarket products. However, over the last several years, as a result of changing consumer buying patterns, audio/video and national consumer electronics retailers have become the fastest growing distribution channels for car audio aftermarket products, increasing their combined market share from 35% in 1987 to 48% in 1999. To capitalize on these changing industry dynamics, in early 1999 we began distributing our products through Best Buy, a national consumer electronics retailer, in all of its more than 350 stores. Professional Audio and Home Theater Our Hafler professional audio products are used in recording studios, movie theaters, concert facilities, stadiums, traveling bands and broadcast studios. Our amplifiers are designed for use in recording studios. We believe our ability to meet the needs of this demanding niche positions us well for expansion into other segments of the professional audio market. Additionally, we are developing a full line of home theater products, including a preamp/surround processor, multi-channel amplifiers and speakers for introduction in 2000. We believe our home theater products will benefit from the reputation of our Hafler brand in the professional audio market. Our Growth Strategy Our goal is to design, produce and distribute the best engineered and most recognized and respected brands of high-performance audio products in the world. Each element of our strategy is intended to enhance and reinforce the global brand images of Rockford Fosgate, Lightning Audio and Hafler among consumers and retailers. Key elements of our growth strategy are to: - Continue to introduce new and technologically innovative products; - Acquire and develop additional audio brands, taking advantage of our technology and distribution strengths; - Broaden our distribution by entering new distribution channels and increasing our penetration of our existing distribution channels; - Capitalize on our worldwide brand recognition to increase sales in international markets; and - Expand our professional audio business and enter the home theater market. As a result of our strong brands and growth strategy, we believe we can grow our business significantly and become a much larger participant in the worldwide car and professional audio markets. ------------------------ Our principal executive offices are located at 546 South Rockford Drive, Tempe, Arizona 85281, and our telephone number is (480) 967-3565. Our corporate Web site is located at www.rockfordcorp.com. INFORMATION CONTAINED ON OUR WEB SITES DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS. THE OFFERING Except as otherwise indicated, all information in this prospectus reflects a 4.3-for-1 split of the common stock effected on August 2, 1999, and assumes no exercise of the underwriters' over-allotment option. Common stock offered by Rockford.......... 2,500,000 shares Common stock offered by selling shareholders.............................. 850,000 shares Common stock to be outstanding after the offering and common stock underlying outstanding options, warrants and convertible securities.................. 9,793,627 shares Use of proceeds........................... For repayment of debt, working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.... ROFO OWNERSHIP AFTER THE OFFERING The following table shows ownership of our outstanding shares, and shares underlying our outstanding options, warrants and convertible securities even if they are not exercisable immediately after the offering: <TABLE> <CAPTION> OPTIONS, WARRANTS OUTSTANDING AND CONVERTIBLE SHARES SECURITIES TOTAL ----------- ----------------- --------- <S> <C> <C> <C> Officers, directors and employees............. 3,470,883 2,199,043 5,669,926 Other existing shareholders................... 624,110 149,591 773,701 New shareholders.............................. 3,350,000 0 3,350,000 --------- --------- --------- Total....................................... 7,444,993 2,348,634 9,793,627 ========= ========= ========= </TABLE> After this offering, we will have 7,444,993 shares outstanding, including: - 4,753,146 shares outstanding on December 31, 1999; - 67,488 shares issued after December 31, 1999, upon exercise of outstanding warrants; - 2,500,000 shares issued in this offering; and - 124,359 shares we will issue to shareholders who currently own $277,417 of our 8.5% convertible subordinated debentures or warrants and who will convert them into shares in order to sell the shares in this offering. In addition, after this offering we will have 2,348,634 shares reserved for issuance to holders of outstanding options, warrants and convertible securities, including: - 1,998,131 shares of common stock that we will issue if the holders choose to exercise outstanding options and warrants, with a weighted average exercise price of $3.34 per share; - 286,003 shares of common stock that we will issue if the holders of our 8.5% convertible subordinated debentures exercise their conversion rights, with a conversion price of $2.44 per share; and - 64,500 shares of common stock that we will issue if the holders choose to exercise outstanding options, with an exercise price of the price per share of this offering. We also will have reserved 272,485 shares of common stock for future issuance of options under our 1994 and 1997 stock option plans and 361,200 shares of common stock for future issuance under our 1999 employee stock purchase plan. SUMMARY CONSOLIDATED FINANCIAL DATA You should read the following summary consolidated financial data together with our financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Set forth below are summary consolidated statements of operations data for the years ended December 31, 1997, 1998 and 1999. Also set forth below is summary consolidated balance sheet data as at December 31, 1999, on an actual, pro forma and pro forma as adjusted basis. The pro forma data gives effect to (1) the conversion of $277,417 of our 8.5% convertible subordinated debentures into 113,609 shares of common stock to occur concurrently with this offering, (2) the issuance of 10,750 shares upon exercise of warrants to occur concurrently with this offering and (3) the issuance of 67,488 shares after December 31, 1999 upon exercise of outstanding warrants. The pro forma as adjusted data gives effect to the sale by us of 2,500,000 shares in this offering at an assumed initial public offering price of $12.00 per share, our receipt of the estimated proceeds of that sale after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds. See "Capitalization."

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+PROSPECTUS SUMMARY BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. OUR BUSINESS We provide a patent-pending security solution which secures corporate Web-related information while enabling businesses to provide secure access to their corporate Website and applications and to conduct secure communications over computer networks and the Internet. Our product suite and processes enable a corporation to provide secure access to the information on its Web server to its customers, suppliers, employees and public visitors from the Internet, according to their pre-determined security profile. We believe our solution to be innovatively different from other security solutions available today. Our solution provides security by securing a customer's Website, corporate information assets and contents off-line, making this information completely inaccessible, except through the customer's Web server. This process eliminates any direct contact between the person requesting information and the corporate information assets. The benefit of our product suite is that it has been designed to provide an added dimension of security to existing security products, such as: - firewalls; - virtual private networks; - encryptions; - security tokens; - smart cards; and - biometrics. Our customer investments in these other security technologies can be preserved and combined with our product suite. Our executive offices are located at 1 Justin Road, Natick, Massachusetts 01760-5565. Our telephone number is (508) 650-3916 and our Website address is http://www.authoriszor.com. The information contained on our Website is not incorporated by reference into this prospectus. THE OFFERING This prospectus relates to 2,827,273 shares of common stock that may be offered and sold from time to time by selling stockholders. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders. The selling stockholders purchased the shares offered by this prospectus from us in offerings exempt from the registration requirements of U.S. federal securities laws. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following selected consolidated financial data are derived from the financial statements of the Company, which have been audited by Grant Thornton, independent chartered accountants. The selected consolidated statement of operations for the nine month periods ended March 31, 2000 and 1999 are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the information included therein. The financial data for the Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Prospectus. The results for the nine month period ended March 31, 2000 are not necessarily indicative of results that may be expected for the full year. <TABLE> <CAPTION> JANUARY 15, 1997 (DATE OF INCEPTION) YEAR ENDED NINE MONTHS ENDED TO JUNE 30, MARCH 31, JUNE 30, ------------------------- ------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Statement of operations data: Net sales................. $ 3,290 $ -- $ 33,711 $ 32,682 $ 121,186 Operating loss............ (5,283) (23,821) (49,631) (27,504) (4,682,127) Other income, net......... -- -- -- -- 73,263 Net loss.................. (5,283) (23,821) (49,631) (27,504) (4,608,864) Loss per common share-- basic and diluted....... (0.00) (0.00) (0.00) (0.00) (0.32) Weighted average shares outstanding--basic and diluted................. 13,765,808 13,765,808 13,765,808 13,765,808 14,462,226 </TABLE> <TABLE> <CAPTION> JUNE 30, ------------------------------ MARCH 31, 1997 1998 1999 2000 -------- -------- -------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> Balance sheet data: Current assets.......................... $ 4,855 $ 1,049 $ 3,196 $27,863,341 Current liabilities..................... 10,815 34,730 100,670 604,469 Total assets............................ 5,473 5,224 24,790 32,755,668 Stockholders' equity (deficit).......... (5,342) (29,506) (75,880) 32,151,199 </TABLE>

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+PROSPECTUS SUMMARY You should read this Prospectus carefully before making any investment decision regarding our common stock and pay particular attention to the information under "Risk Factors" and in the financial statements and related notes elsewhere in this Prospectus. In addition, you should consult your own advisors to understand fully the consequences of an investment in our shares. . The Company AutoLend Group, Inc., is a company headquartered in Albuquerque, New Mexico. We are currently winding down our existing businesses. We operate through our subsidiaries, which are: . AutoLend Corporation, which maintains a residual portfolio of installment contract receivables. At September 30, 1999, this portfolio consisted of 12 active sub-prime consumer used-car loan contracts purchased from used- car dealers valued at $30,000. In addition to the active portion of the portfolio, we also have a substantial inactive portion, which consists of loans that have been more than six months in arrears and have been written off. These inactive loans presently provide us an irregular net cash flow of approximately $14,000 per month. We ceased purchasing car loans in December 1995. . American Life Resources Group, Inc., and LB NM, Inc., which maintain residual portfolios of unmatured life insurance policies having a combined face value of $0.4 million and a net book value of $55,000, and which consisted of 6 policies as of September 30, 1999. These policies were purchased from persons with life-threatening illnesses, a business generically referred to as viatical settlements. We ceased purchasing these policies in September 1994. Since the sale in September 1996 of another subsidiary which provided short-term "floor" financing to used-car dealers, our activities have been concentrated on resolving our bankruptcy; developing or acquiring a new business activity, primarily in the gaming industry (which is now a division of ours doing business under the name of Kachina Gaming); resolving certain obligations and litigation associated with former operations; collecting amounts due from the outstanding used-car loans; and collecting proceeds from the life insurance policies. See "BUSINESS." . Proposed New Business: PROVIDING GAMING SERVICES TO FRATERNAL ORGANIZATIONS IN NEW MEXICO . Economic Assumptions for Providing Gaming Services to Fraternal --------------------------------------------------------------- Organizations in New Mexico --------------------------- Our plan of reorganization involves developing a new business that consists primarily of providing, installing and servicing gaming devices and gaming machines for certain non-profit organizations in New Mexico, as made possible by the relatively recent passage of new state laws and regulations. According to the state's leading newspaper, the Albuquerque Journal, there are approximately 200 local veteran and fraternal clubs within the state which are potentially licensable under the new state gaming laws. These clubs, under present state law and after becoming licensed, may install up to 15 slot machines each on their premises. Many of these clubs have indicated a preference that a distributor organization obtain, provide, install, and service these machines on their behalf (as opposed to purchasing or leasing such machines directly from a machine manufacturer). We anticipate that while, on average, these fraternals will not install the maximum number of machines allowed by law, a total of approximately 1,300 machines will likely be installed throughout the state under present regulations. [This total assumes that some fraternal clubs will economically support 15 machines, and some fraternals will support only 1 or 2 machines, and some fraternals will decide not to have gaming at all, and, overall, there will be an average of 6 or 7 machines per club across the state. This average is our internal estimate, based upon management's knowledge of the local market, and is not supported by any verifiable sources.] Average sustained revenues which may be generated by these gaming machines are unknown at this time, but we estimate these revenues to eventually range between $40 and $150 per machine per day of operation. [This range is based upon a report issued by Bear Stearns (a major investment banking firm), as well as anecdotal reports.] This would imply potential total statewide fraternal gaming gross revenues (i.e., the total market which we plan to obtain a portion thereof) of between $16 million and $60 million per year. At present, the state takes 25 percent off the top of this "net win" according to a February 1999 publication issued by the New Mexico Gaming Control Board. This publication also reports that the distributor portion of these gross gaming revenues is presently limited to a maximum of 40 percent of the after-tax net win, plus possible additional fees for other affiliated services (which can be up to about 10 percent, but cannot be a strict percentage relationship). At this point and, to the best of our knowledge (based on our negotiations and discussions with many fraternal organizations) most fraternal contracts with distributors (including our own) have tended to be at or near this maximum, which yields an equivalent of about 37 percent of the net win. [The 37% is calculated as follows: A) If 100 is the total net win, then 75 is the after- tax portion of the net win. B) The distributor's share can be a maximum of 40% of this after-tax portion plus an additional amount for extra services, which may approximate another 10% of the after-tax portion, for a total maximum distributor share of approximately 50% of the after-tax portion. C) 50% of 75 is about 37.] This implies total net revenues available to all distributors statewide under the present laws of between $6 million and $22 million per year. At this relatively early point in the development of legalized fraternal gaming in New Mexico, only 19 fraternal clubs have become licensed thus far according to the New Mexico Gaming Control Board (the first of which started gaming in July of this year), and as of late November 1999, state-wide only 8 fraternal clubs have actually started gaming. There are currently 6 potential providers of gaming services which have been licensed by the New Mexico Gaming Control Board. During the last year, we have been actively pursuing relationships with many fraternal organizations. This effort has resulted in our obtaining 13 signed agreements to provide services to these organizations contingent upon their and our ability to obtain licensing from the state, among other things. As of this date, 3 of these fraternal organizations have obtained a license. No individual potential customer is anticipated to represent more than 10 percent of our revenue from this activity. It is our belief that if our licensing process is not significantly further delayed, we will be able to capture a significant share of the total statewide distributor net revenues. [Based on management's review of competitor capabilities and management's relationships with fraternal organizations across the state, we believe that such a market share may be possible; however, this is impossible to predict with any certainty at the time.] It is our belief that gaming in New Mexico will be expanded in future years. Thus, establishing our position early would provide a significant advantage for us to capitalize on any such expansion, through legislated increases to the numbers of machines per club, and/or the addition of table games, and possibly the expansion of the types of organizations eventually allowed to have such gaming. Finally, if we are successful in participating in the development of the New Mexico gaming market, we would look at any similar possibilities that may develop in other geographic areas. . Background ---------- We have been considering various prospects to develop a new business suitable for our situation. The realities of new business development are almost always difficult. Our particular realities impose significant constraints that make this undertaking even more difficult. These constraints include: . the need to acquire or develop the business without paying substantial cash or taking on significant debt; . the handicap of not having actively traded stock to use to procure such a business; . the requirement that, after launch, the business will not need a significant capital investment to "ramp-up"; and . the need for the new business to produce a positive cash flow almost immediately. In 1997, the New Mexico Legislature passed the "Gaming Control Act," and on approximately July 2, 1999, the first legalized gaming in a non-profit fraternal organization began in New Mexico. We propose to provide, supply, and service gaming devices as described in the Gaming Control Act, and the business would be regulated by the New Mexico Gaming Control Board as described in the Gaming Control Act. We have commenced efforts in this arena, doing business as Kachina Gaming, which has been organized as a Division of AutoLend Group, Inc. In connection with these efforts, we have hired a Vice President of Gaming Development and Marketing. We believe we can obtain the proper licenses, gaming machines, and contracts with non-profit organizations to make this business viable and to allow us to meet our obligations. In this regard, we have made application to the New Mexico Gaming Control Board for licensure as a distributor. Additionally, we have signed a number of contingent agreements with fraternal organizations, whereby we would supply gaming machines to licensed operators. The agreements are contingent upon certain matters, such as our and our fraternal organizations ability to obtain the appropriate state licensing as well as the actual approval of the respective agreements by the Gaming Control Board. We are also holding discussions with several licensed gaming machine manufacturers with respect to obtaining such machines. In as much as no distributors have yet developed any financial history for such licensed operations in New Mexico, and no fraternals have yet established records of average "net drops" under regulated gaming in New Mexico, potential operating results are unknown, and thus we cannot be assured of success in this venture. Material terms of most of our anticipated contracts would generally include the following: . contract would become effective after both parties become licensed and the contract itself is approved by the New Mexico Gaming Control Board; . we provide the slot machines, software, and related equipment to the fraternal organization (however, all this equipment remains our property); . we provide a range of additional services, which includes on-going service to the machines on short notice, and can include "house bank" loans, facility enhancement loans, assistance with the licensing process, training, assistance with required state reporting, optimizing the mix of machines, and/or other services which may be needed; . a four-year term, with automatic one-year renewals if not cancelled in writing by either party at least sixty days before the end of the term; . the number of slot machines to be installed (both initially and at any time during the term) is at our discretion; . no fixed monthly or per-machine payments required of the fraternal; our primary payment is a percentage of the net win (after the state gaming tax of 25 percent); additionally, we will collect other (lessor) fees for other services provided; . we have exclusive rights to gaming equipment on premises during the term; . the fraternal organization provides acceptable insurance and indemnification; . a one-time unilateral cancellation capability for us at the end of the first six-months of operation; . assignability to the extent permitted by licensing and gaming regulations. We are obligated to pursue the gaming business (as hereinbefore described) under the plan of reorganization approved by the Bankruptcy Court. If this business does not meet our expectation and does not significantly add to our operation, once we are no longer under the constraints of the Bankruptcy Court, we may need to seek other business opportunities which would be compatible to our operations. . Present Status -------------- Costs to commence the gaming business currently consist of salaries, marketing, and travel. Additional costs, including lease payments, will be incurred upon servicing our contracts, which will occur after we and the fraternal organizations have obtained required gaming licenses. The New Mexico Gaming Control Board is currently processing our application for licensure as a distributor. In connection with this review, we have received correspondence from them indicating that the process has been significantly lengthened due to the yet unconcluded SEC investigation (see "Legal Proceedings"). We are unable to predict with certainty at this time how much longer the review may take. . Background; Recent History . Change In Management -------------------- In September 1996, new management, led by Nunzio P. DeSantis, our current Chairman of the Board, President, and Chief Executive Officer, took over our management and direction. This was the result of a Stipulation of Settlement approved by a Chancery Court arising from litigation brought by Mr. DeSantis and other stockholders in Delaware. The losses that forced us into bankruptcy were caused primarily by the business our former management initiated and operated, i.e., purchasing and maintaining a portfolio of sub-prime car loan contracts. New management significantly reduced our overhead expenses, including reducing our number of employees and moving our headquarters from Miami Beach, Florida, to Albuquerque, New Mexico. It also took other actions to improve our financial condition, including an exchange offer of our old common and preferred stock for our outstanding debentures, purchasing some of those debentures at a discount in the open market, and resolving the expensive lease of the Miami Beach office space. . Voluntary Bankruptcy -------------------- On September 23, 1997, we filed for reorganization under Chapter 11 of the Code in the Bankruptcy Court. Under Chapter 11, certain claims against us in existence before the petition for relief was filed were stayed while we continued our business operations as "debtor-in-possession." The losses that forced us into bankruptcy were caused primarily by a business our former management initiated and operated, i.e., purchasing and maintaining a portfolio of sub-prime car loan contracts, resulting in our inability to make scheduled principal payments and accrued interest on our debentures. Our Disclosure Statement was approved by the Bankruptcy Court in September 1998 and, together with our plan of reorganization, was mailed to our creditors and other interest holders in October 1998. They approved the plan of reorganization, and a Confirmation Hearing was held on February 3, 1999. The Bankruptcy Court confirmed the plan of reorganization, and it became effective on March 5, 1999. On January 13, 2000, the Bankruptcy Court entered its final decree thereby closing our Chapter 11 case. . Plan of Reorganization ---------------------- The material features of our plan of reorganization have provided for the cancellation of all of our $7.2 million principal of convertible subordinated debentures and $2.3 million accrued interest thereon, and all of our equity securities, effective as of March 5, 1999. The class of unsecured creditors has now received 100 percent of its allowed claims. The holders of our debentures will receive approximately 1.0 million shares of our common stock, $3.0 million in cash, and non-interest bearing, uncollateralized notes aggregating $0.6 million payable in five annual payments. As of December 17, 1999, approximately $2.8 million of the $3.0 million in cash had already been disbursed, and the remainder has been set aside as restricted cash. The holders of our canceled securities have the right to purchase new shares of common stock during certain periods beginning on the date of this Prospectus. If the holders of canceled securities purchase all available new common stock, the following shares and potential equity capital will result: <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- Class of Maximum number of Offering Price Per Unit Potential Equity Canceled Securities Shares of Capital New Common Stock - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Common stock 6,079,530 (1) $1.00 $ 6,079,530 - -------------------------------------------------------------------------------------------------------------------------------- Preferred stock 5,780,000 (1) $1.00 $ 5,780,000 - -------------------------------------------------------------------------------------------------------------------------------- Warrants 2,663,500 (2) $4.00 $10,654,000 - -------------------------------------------------------------------------------------------------------------------------------- Options 3,660,000 (2) $4.00 $14,640,000 - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) Right to purchase will expire on March 17, 2000 (2) Right to purchase will expire on March 4, 2000 We expect that only a portion of these shares will be purchased by existing equity holders, resulting in total common stock outstanding between 1.5 million and 9 million shares; this would result in a total net equity (before the impact of any interim operating results) of up to $8.1 million. See "SUMMARY - The Offering." . Termination of Option to Purchase ITB Shares -------------------------------------------- In January 1999, we settled litigation (which settlement was approved by the Bankruptcy Court) that involved an option we had purchased pursuant to a related loan transaction. The option was for the potential acquisition of up to an approximately 25 percent ownership equity in International Thoroughbred Breeders, Inc. ("ITB"). In consideration for this option we paid $0.2 million in cash and issued a contingent promissory note payable. We acquired this option in 1997 from NPD, Inc. ("NPD"), which is majority-owned by Nunzio DeSantis, our Chairman of the Board (who was also Chairman of NPD). Also covered in the settlement were transactions related to the option purchase, wherein we had loaned $3.0 million to NPD, and had deposited $2.0 million in an escrow account. On January 29, 1999, in connection with the settlement, we received $4,446,771 in cash from third parties (including ITB), and the option was cancelled, as were the contingent note payable to NPD and the loan receivable from NPD. Our receipt of these funds represents the return of the escrow deposit (plus interest) and repayment to us of $2.3 million against our $3.0 million (principal) loan to NPD (which loan had accrued interest outstanding of $0.5 million). The option itself, which we held for approximately a year, was then expensed for $0.2 million. In total, we recognized a loss associated with these events of approximately $1.4 million for the fiscal year ended March 31, 1999. This loss was later partially offset by a $0.5 million gain from the settlement of a related adversary litigation. See "Business - Termination of Option to Purchase ITB Shares," and "Legal Proceedings." . The Offering We are offering shares of our new common stock to holders of our old common and preferred stock and Class A and Class B warrants, options, and debentures, all of which were canceled on March 5, 1999, under the plan of reorganization. Specifically, the offering includes the following shares: - -------------------------------------------------------------------------------- Total Maximum Available Shares of Canceled Securities New Common Stock - ------------------------------------------------------------------------------- Common stock 6,079,530 - ------------------------------------------------------------------------------- Preferred stock 5,780,000 - ------------------------------------------------------------------------------- Warrants 2,663,500 - ------------------------------------------------------------------------------- Options 3,660,000 - ------------------------------------------------------------------------------- Debentures 1,040,000 - ------------------------------------------------------------------------------- Total 19,223,030 - ------------------------------------------------------------------------------- However, we estimate that no more than 9 million of these shares will actually be issued as a result of the offering. Any shares of new common stock not issued in these transactions will remain authorized and unissued and will be available to be issued in other transactions in the future as approved by our Board of Directors. . Holders of Old Common and Preferred Stock ----------------------------------------- Pursuant to our plan of reorganization, during the 60 days following the date of this Prospectus, holders of old: Common stock have the right to purchase up to one share of our new common stock for each share of old common stock they own, for $1.00 per new share of common stock; and Preferred stock have the right to purchase up to 100 shares of our new common stock for each share of old preferred stock they own, for $1.00 per new share of common stock. For the next 30 days thereafter, each holder of our new common stock will have the right to purchase a pro rata portion of the aggregate number of shares of our new common stock not purchased by the holders of old common and preferred stock during the initial (60-day) offering period, for $1.00 per share. In addition, each holder of new common stock has the option during this period to purchase any amount of any remaining shares of our new common stock not otherwise purchased by our holders of new common stock on a pro rata basis at $1.00 per share. See "PROSPECTUS SUMMARY - The Offering." . Holders of Class A and Class B Warrants --------------------------------------- For one year after March 5, 1999, holders of our Class A and Class B warrants may purchase up to the same number of shares of our new common stock that they could have purchased of our old common stock pursuant to the old warrants for $4.00 per share of new common stock. . Holders of Options ------------------ For one year after March 5, 1999, holders of options to purchase shares of our old common stock may purchase the same number of shares of our new common stock that they could have purchased of our old common stock pursuant to their old options for $4.00 per share of new common stock. . Terms ----- For holders of old common and preferred stock, the cost for shares of new common stock purchased during the initial 60-day offering period is payable in cash or certified funds, and those holders may pay either entirely up front, or over one year with quarterly payments in increments of 25 percent of the purchase price, and certificates representing the new common stock will be issued as they are paid for in full. Payment, either in full or the first quarterly payment, is due with the subscription agreement and must be made by 60 days after the date of this Prospectus. Holders of new common stock who exercise their rights under our plan of reorganization to purchase additional shares of new common stock during the second (30-day) offering period must pay in full upon exercise. Holders of old warrants and options will pay us only if they exercise their warrants and options during the next year (ending March 4, 2000); upon their exercise, payment is due in full. Certificates representing the number of shares of new common stock will be issued upon payment by holders of old common and preferred stock and warrants and options upon our receipt of payment for shares of new common stock. . Holders of Debentures --------------------- Debenture holders will receive 1,040,000 shares of new common stock, plus cash payments of $3,043,250 and notes payable in the amount of $624,000 (undiscounted) in exchange for a total of $7,225,000 in principal value of debenture debt and $2,375,689 in accrued interest. As of December 17, 1999, approximately $2.8 million in cash has already been disbursed, and the remainder has been set aside as restricted cash. If purchases of new common stock at $1.00 per share (by holders of old common stock and preferred stock) and at $4.00 per share (by warrant and option holders) bring in less than $1.1 million in new capital, then the former debenture holders will own a majority of our Company. . Summary Financial Information Our summary financial data is given below for the six months ended September 30, 1999 and 1998 (unaudited), and the fiscal years ended March 31, 1999, 1998, and 1997 (audited). The unaudited financial data for the interim periods reflect, in the opinion of our management, all adjustments necessary to present fairly the data for those periods. The results of operations for the interim periods do not necessarily indicate operating results for the entire year. Fresh-start reporting has been reflected in the financial statements as of March 31, 1999, thus certain material aspects of these financial statements are not comparable to such statements of any prior period, since the statements as of March 31, 1999 are those of a reorganized entity. A "black line" has been drawn between the Registrant's financial statements and those of the Predecessor Company. This data should be read with our financial statements and the related notes elsewhere herein. <TABLE> <CAPTION> Registrant | Predecessor Six months -------------- |------------------------------------------ ended September 30: Twenty-six |Eleven months and Years ended March 31: ---------------------- days ended | five days ended ----------------------- Registrant Predecessor March 31, 1999 | March 5, 1999 1998 1997 1999 1998 -------------- |----------------- ---------- ---------- --------- |----------- <S> <C> |<C> <C> <C> <C> | <C> Total net revenues $ 9 |$ 356 $ 597 $ 2,075 $ 121| $ 373 | | Operation earnings/(loss), including | | loan loss provisions $ (31)|$ (967) $ (1,469) $ (7,402) $ (528)| $ (174) Recovery/(write-off) of assets and | | (accrual of expenses) related to the | | consumer loan and viatical businesses - | 536 (132) (2,109) -| 491 Net interest income/(expense) 21 | (208) (571) (1,816) 67| (152) Non-cash debenture conversion charge - | - (6,261) - -| - Loss on settlement ITB/NPD - | (1,368) - - -| - Gain on adversary settlement | 451| Cancellation of Florida tax claim | 163| Miscellaneous other income/(expense), net 37 | (146) (38) (461) (16)| 41 -------------- |---------------- ---------- ---------- ----------| -------- | | Pretax results of operations $ 27 |$ (2,153) $ (8,471) $ (11,788) $ 137| $ 206 Tax offset to loss/(taxes) - | - - 86 -| - Net gain on early extinguishment of debt - | - 3,172 - -| - Net gain as result of - | 5,342 - - -| - reorganization-Debentures | | Bankruptcy reorganization expense (151)| (341) (212) - (131)| (244) Discontinued operations - | - - 167 -| - -------------- |---------------- ---------- ---------- ----------| ---------- | | | | Net loss income/(loss) $ (124)|$ 2,848 $ (5,511) $ (11,535) $ 6| $ (38) ============== |================ ========== ========== ==========| ========= | | | | | | Per Share Data: | | - --------------- | | Net loss income/(loss) $ (0.12)|$ 0.47 $ (0.91) $ (2.49) $ -| $ (0.01) ============== |================ ========== ========== ==========| ========= | | Weighted average number of common and | | common equivalent shares outstanding - | 6,079,530 6,039,391 4,634,530 -| 6,079,530 ============== |================ ========== ========== ==========| ========= Weighted average number of common and | | common equivalent shares issuable 1,040,000 | - - - 1,040,000| - ============== |================ ========== ========== ==========| ========= Balance Sheet Data: | | - ------------------- | | Total Assets $ 5,197 |$ 6,888 $ 7,640 $ 16,276 $ 1,808| $ 8,623 Total Liabilities 4,629 | 6,196 11,078 28,128 1,233| 11,709 Total Stockholders' Equity 568 | 692 (3,438) (11,852) 575| (3,086) </TABLE>

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+PROSPECTUS SUMMARY This summary highlights information about our company, but does not contain all the information that you should consider before investing in the common stock or the warrants. You should read the entire prospectus carefully. Security Associates International, Inc., which was founded by 30 independent alarm dealers and three members of our senior management, is the largest wholesale alarm monitoring company in the United States. We have grown rapidly in recent years, principally through the acquisition of central monitoring station businesses. Over the last two years our company experienced an approximate 76% net increase in the number of systems monitored. As of March 23, 2000 we provided security alarm monitoring to over 400,000 residential and business consumers whose alarm systems were installed and are serviced by members of our dealer network. We market our monitoring services to independent alarm dealers and, as a result, do not compete directly with most of the large, integrated alarm companies. Independent alarm dealers are those who generally have less than 10,000 customers. We do not sell or install alarm systems, and are committed to not compete with the independent alarm dealer community. Our dealers represent a national group with a strong local presence. We believe we can serve as a vehicle to aggregate these dealers into a nationwide marketing, installation and servicing network. We own and operate ten central monitoring stations which are strategically located to provide services to most of the major geographic regions of the country, including: the Southeast, Midwest, North Central, Mountain, Northwest, West and Southwest regions. We also provide education and training in the areas of marketing, finance and new products and services to alarm dealers through one-on-one contact, periodic regional seminars and our annual convention. We believe that the recruitment, training and motivation of dealers are key factors in the success and growth of our company. The electronic monitoring of alarm systems is characterized by high fixed costs and incrementally lower variable costs, often referred to as economies of scale. Since most independent alarm dealers are small, they outsource or subcontract, the monitoring of their customer's alarm systems and focus on the sale, installation and service aspects of their business. Despite the fact that they subcontract the monitoring services, dealers retain the bulk of the monitoring fees. Dealers, therefore, view monitoring as an important part of their business and frequently look to their central monitoring company for support and additional services. Industry statistics suggest that substantial benefits, in the form of lower burglary rates, accrue to consumers who protect their premises with electronically monitored security systems. Approximately 15% of residences in the United States have monitored alarm systems. The security alarm industry has grown at a 6.7% average annual rate over the past three years, and we expect that rate to continue in the foreseeable future. The industry has a relatively small number of large, well-capitalized and integrated participants, but remains dominated by many thousands of independent alarm dealers. We are the largest wholesale monitoring company in the United States and all of our central stations are Underwriters Laboratories (UL) listed. There are approximately 250 UL listed and approximately 1,500 to 2,000 non-UL central stations in the United States, although most are small, locally owned companies. We anticipate that the alarm industry will gradually converge with other industries and small central station owners will be increasingly pressured to provide additional products and services to help dealers grow and compete. We believe this is a significant factor creating the opportunity for us to acquire and possibly consolidate these small central stations. There are approximately 27 million residential and commercial electronically monitored alarm systems in <TABLE> <CAPTION> CALCULATION OF REGISTRATION FEE PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH OFFERING AGGREGATE AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION TO BE REGISTERED REGISTERED (2) SHARE (1) PRICE (1) FEE - ----------------- -------------- --------- --------- --- <S> <C> <C> <C> <C> Common Stock, $0.001 par value 3,918,600 shares (3) $ 3.50 $13,715,100 $3,621(4)(5) </TABLE> (1) Estimated solely for purposes of computing the registration fee pursuant to Rule 457 under the Securities Act of 1933 on the basis of the average of the high and low prices reported in the consolidated reporting system on March 23, 2000. (2) Does not include 2,778,088 shares (including shares registered for resale by certain selling stockholders) and 2,000,000 warrants were registered pursuant to a Registration Statement on Form S-1, Registration No. 333-31775, declared effective on October 20, 1997. 1,000,000 shares were registered for resale pursuant to a Registration Statement on Form S-1, Registration No. 33-49897, declared effective on April 22, 1998, with the consent of the Registrant, by certain selling stockholders who may wish to sell such shares under circumstances requiring or making desirable the use of the prospectus contained herein. The 2,778,088 shares registered included 2,000,000 shares that may be issued upon the exercise of the warrants. (3) 3,918,600 shares that are being registered for resale, with the consent of the Registrant, by certain selling stockholders who may wish to sell such shares under circumstances requiring or making desirable the use of the prospectus contained herein. (4) The Registrant previously paid a fee of $7,079 in connection with the registration of the shares and warrants referred to in footnote No. 2 above. (5) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the prospectus filed as part of this Registration Statement relates to the securities registered hereby and also relates to 2,778,088 shares of the Registrant's common stock (including shares registered for resale by certain selling stockholders) and 2,000,000 Warrants to purchase such common stock under our Registration Statement on Form S-1 (File No. 333-31775) and 1,000,000 shares of the Registrant's common stock which were registered for resale by certain selling stockholders under our Registration Statement on Form S-1 (File No. 33-49897). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ the United States, of which approximately half are represented by independent alarm dealers. Our senior management and marketing personnel have extensive relationships with independent alarm dealers, which have been cultivated over a combined 100 years of experience in the security industry, serving or working with independent alarm dealers. We have the largest dealer network in the United States, with over 3,000 dealers who install and service approximately 600,000 residential and commercial security systems in nearly every major community in the United States. Approximately 2,500 of those dealers purchase all or a portion of their monitoring services from our regional monitoring stations and have regular contact with us. Additionally, many of these dealers participate in one or more of our educational or training programs. We believe that our focused strategy of wholesale monitoring for independent alarm dealers has advantages over an integrated sales, installation, service and monitoring strategy. Our revenue base grows with the overall growth in the industry, particularly with the growth of new sales and installations by independent alarm dealers. We believe that independent alarm dealers as a group enjoy better customer retention and relationships than the large, integrated national companies by virtue of their local ownership and emphasis on quality service. Additionally, independent alarm dealers install a large percentage of "custom" alarm systems which we believe enjoy better retention rates than "low cost" or "no money down" systems. As a result, as their customer base grows, we anticipate an inherent growth in our wholesale monitoring business. Historically, this growth has been accommodated with only modest, incremental capital expenditures to increase capacity. We believe independent alarm dealers will continue to be a dominant force in the alarm industry and we will continue to invest in and provide programs specifically designed to assist our dealers in achieving profitable growth. We will continue to pursue our existing business strategy of aligning ourselves closely with independent alarm dealers, as we believe this will provide greater long-term value to customers, our dealers and our stockholders. The key elements of our strategy to sustain and accelerate the growth in our wholesale monitoring business and dealer network are as follows: Alarm Dealer Network and Stock Incentive Plans. We believe that alarm dealers are more productive, provide more revenue to us and remain associated with us longer, if they are equity owners in our company. For this reason we offer dealers common stock based incentive plans that allow them to become owners of our company in return for agreeing to monitor their alarm systems in one of our central stations. Central Monitoring Stations. We will continue to pursue acquisitions of central monitoring station businesses in order to complete a nationwide network of strategically located regional monitoring stations. We believe that regional wholesale monitoring services are more attractive to independent alarm dealers and are consistent with the "local" marketing and service most independent alarm dealers provide to their customers. We will continue, where appropriate, to consolidate our monitoring businesses within the framework of our regional operating structure. We expect that our acquisition and consolidation strategy will significantly increase our operating margins, while maintaining the quality of service our dealers and their customers expect. Our dealer network has the technical capability to provide existing and potential customers with a wide range of low-voltage products and services that are security, communications, information, entertainment or recurring revenue related. In fact, many of them already do provide some of these services. We also believe that a nationwide network of secure, redundant central monitoring facilities with substantial communication capability and capacity can facilitate and support many additional products and services. As a result, we anticipate that the combination of the collective customer base, market share, installation, service and sales capability of our dealer THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION DATED MARCH 27, 2000 PROSPECTUS 7,696,688 SHARES AND WARRANTS TO PURCHASE 2,000,000 SHARES 0F [SECURITY ASSOCIATES LOGO] SECURITY ASSOCIATES INTERNATIONAL, INC. COMMON STOCK Security Associates International, Inc. is offering 2,000,000 shares of its common stock and warrants to purchase up to 2,000,000 of those shares. The shares and warrants will not be issued for cash, but rather will be issued: - On a continuing basis to independent security alarm dealers as an inducement for them to enter into agreements to use the alarm monitoring services we offer. See "Business - Dealer Partner Program" and "Business -Dealer Financing Programs - The ValueBuilder Program." - As all or part of the price we pay in purchasing other businesses. The warrants have an exercise price of $6.00 per share of common stock purchased. We will not receive any cash from the initial issuance of shares or warrants. We will receive $6.00 for each share of common stock purchased on exercise of the warrants. The selling stockholders identified in this prospectus may also sell up to 5,696,688 shares of common stock. If any of the selling stockholders elect to sell their shares they may do so from time to time privately at prices individually negotiated with the purchasers, or publicly in transactions on the American Stock Exchange. Selling stockholders may pledge common stock to Bear Stearns Securities Corp. or to another broker as collateral for margin loans. In the event of a default by such a selling stockholder, Bear Stearns or such other broker may offer and sell the pledged shares in the manner described above. Additionally, the common stock may be sold from time to time by pledgees, donees, transferees or other successors in interest, including but not limited to Bear Stearns. Our common stock is traded on the American Stock Exchange under the symbol "SAI." On March 23, 2000, the last reported sale price of the common stock was $3.50. network, and the technical and operational capabilities of our nationwide network of electronic monitoring stations, will provide numerous opportunities to profitably grow and diversify the recurring revenue of our dealers and our company. We believe we are uniquely positioned to respond to these challenges and opportunities. Our Executive Offices are located at 2101 South Arlington Heights Road, Suite 100, Arlington Heights, Illinois 60005. Our telephone number is (847) 956-8650.

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+PROSPECTUS SUMMARY The following summary contains basic information about our business and this offering. It may not contain all of the information that is important to you. You should read the entire prospectus, including "Risk Factors" and the financial statements and related notes, before making an investment decision. Except as otherwise indicated, all information in this prospectus assumes the conversion of all outstanding shares of preferred stock into common stock, no exercise of the underwriters' over-allotment option and our reincorporation from California to Delaware. TALARIAN CORPORATION We develop and market infrastructure software that enables businesses to exchange information reliably and securely in real time, both internally and with their partners, suppliers and customers. Our products allow software applications to communicate across local or wide area networks, including private networks and the Internet. Our flagship software product, SmartSockets, provides businesses with a robust and easy-to-use method of distributing relevant, time-critical information that continues to operate efficiently, or "scale," with networks as they grow. We also offer professional services that assist our customers in systems planning, architecture and design, custom development and systems integration for the rapid deployment of our products. Our products are designed for and implemented in demanding, mission-critical environments with high volumes of users and data. Our products have been deployed by over 300 companies in a variety of markets such as financial services, networking, satellite communications, securities and energy exchanges, telecommunications and transportation. Our end-user customers include Credit Suisse First Boston, D.E. Shaw, Lockheed Martin, MCI WorldCom, Micron Technology, Raytheon Systems and SIAC (the New York Stock Exchange). We have also entered into agreements with Aspect Telecommunications, BMC Software, Micromuse, Nortel Networks, Novell and Platinum Technology (now part of Computer Associates) that allow them to embed our infrastructure software in their product offerings. These customers and independent software vendors have accounted for more than 40% of our total revenue since October 1, 1997. We were incorporated in 1988 and originally offered software products used primarily in connection with mission-critical command and control operations in industries such as satellite communications. In 1997, leveraging our existing technology, we refocused our business strategy to provide infrastructure software for applications relying heavily upon the use of real-time communications over distributed systems. Our SmartSockets infrastructure software facilitates selective information delivery through the use of high-performance publish-subscribe technology. This technology enables messages, or "packets" of data, to be delivered automatically to interested applications, or subscribers, rather than requiring users to request information on a case by case basis. Our products use both Transmission Control Protocol/Internet Protocol, or TCP/IP, the standard Internet protocol for one-to-one communication, or unicast, and multicast protocols for one-to-many communication. Multicast allows information requested by multiple applications to be sent only once, rather than as multiple separate messages to each application. As a result, multicast can provide information simultaneously to multiple applications and use the existing capacity, or bandwidth, of the network more efficiently. We also offer implementations of multicast protocols that contain enhanced error recovery mechanisms, known as "reliable multicast," for mission-critical environments, and delivery services for the implementation of these protocols. We believe that our products meet the needs of the market by providing our customers with the following benefits: - One of the highest performing infrastructure software products available, capable of delivering over 20,000 200-byte messages per second; - High scalability in terms of transaction volumes, number of users, and geographic location of users and applications, enabling businesses to add new clients, servers and applications easily without having to rewrite software; - Easy to use and quickly deployable without extensive use of system integrators, reducing the overall cost of ownership for the customer; - Efficient and cost-effective use of available network bandwidth due to our publish-subscribe and multicast technologies; - The reliability and fault tolerance required by very demanding environments such as e-commerce sites, financial exchanges and large-scale transportation systems; and - Automatic delivery of information only to those applications, known as subscribers, that have previously expressed an interest in receiving that information when it becomes available. Our objective is to be the leading provider of infrastructure software that enables businesses to communicate and collaborate in real-time within and between organizations. The key elements of our strategy include: - Strengthening our technology position by investing substantial resources in research and development, making strategic acquisitions and participating in the development of industry standards relevant to our business; - Proliferating our technology by strengthening our strategic relationships with Nortel Networks and Novell and developing new relationships with other key industry players; - Expanding our presence in key existing vertical target markets such as financial services and telecommunications, and establishing a similar presence in other key markets, both domestically and internationally; - Investing in research and development to provide our products with the enhanced capabilities required for the Internet infrastructure market and focusing additional sales and marketing resources on that market; - Expanding our distribution channels by creating re-seller relationships with major systems and business-to-business integration companies, professional services organizations and enterprise application integration vendors; and - Increasing investment in our marketing infrastructure to promote market awareness of our company and our products. RISKS RELATED TO OUR BUSINESS Our operating history with our current business strategy is limited. We incurred net losses of $3.5 million for the fiscal year ended September 30, 1999 and $5.7 million for the six months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of approximately $24.8 million. We expect to continue to incur significant product development, sales and marketing, and administrative expenses over the next several years as we continue to expand our business. We operate in a highly competitive market characterized by rapid technological change. Our future success is subject to risks and uncertainties. The market for real-time infrastructure products is in an early stage of development and these products, including our SmartSockets software, may not achieve market acceptance. In addition, several of our competitors have broader product offerings than ours and many have significantly greater resources than we do. ------------------------- We incorporated in Maryland in November 1988, reincorporated in California in May 1991 and reincorporated in Delaware in July 2000. Our principal executive offices are located at 333 Distel Circle, Los Altos, California 94022, and our telephone number is (650) 965-8050. Our Internet address is talarian.com. The information on our Web site is not a part of this prospectus. SmartSockets(R) is our registered trademark, and Talarian(TM), the Talarian logo, RMTP-II(TM), PGM(TM), RTmonitor(TM), MQadmin(TM), MQexpress(TM), GlobalCast(TM) and WhiteBarn(TM) are our trademarks. All other trademarks or trade names appearing elsewhere in this prospectus are the property of their respective owners. RECENT DEVELOPMENTS The following are our unaudited results for the three months ended June 30, 2000, although we have not finalized our financial statements for this period. For the three months ended June 30, 2000, our total revenue was $4.4 million. This total revenue was comprised of $2.7 million of license revenue, $781,000 of maintenance revenue and $940,000 of professional services revenue, including $395,000 of professional services revenue from customers obtained through our acquisition of WhiteBarn on March 13, 2000. For the three months ended June 30, 2000, our gross profit was $3.2 million and our net loss was $5.0 million. This loss included amortization of deferred stock compensation of $3.5 million and amortization of goodwill and intangible assets of $607,000. THE OFFERING Common stock offered by Talarian...... 4,000,000 shares Common stock to be outstanding after this offering......................... 18,855,053 shares Use of proceeds....................... We estimate that we will receive net proceeds from this offering of $46.8 million, or $54.1 million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds for general corporate purposes, including sales and marketing expenses, research and development expenses, capital expenditures and, if appropriate opportunities arise, acquiring, or investing in, businesses, products or technologies or establishing joint ventures. See "Use of Proceeds." Nasdaq National Market symbol......... TALR The number of shares of our common stock that will be outstanding after this offering is based on the number outstanding on March 31, 2000 and assumes the conversion of our outstanding shares of preferred stock into 8,810,882 shares of common stock upon the closing of this offering; The number of shares of our common stock that will be outstanding after this offering excludes: - 2,122,387 shares subject to options outstanding at March 31, 2000 at a weighted average exercise price of $1.92 per share; - 131,502 shares subject to warrants outstanding at March 31, 2000 at a weighted average exercise price of $0.72 per share; - 1,051,773 additional shares available at March 31, 2000 for issuance under our 1998 Equity Incentive Plan; and - 3,300,000 shares currently reserved for future issuance under our 2000 Equity Incentive Plan and 2000 Employee Stock Purchase Plan. From April 1, 2000 through July 15, 2000, we have granted options to purchase 476,500 shares with a weighted average exercise price of $6.22 and options and warrants to purchase 17,018 shares have been exercised for aggregate proceeds of $13,664. SUMMARY CONSOLIDATED FINANCIAL DATA The following tables summarize our consolidated financial data and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. The unaudited pro forma information in the consolidated statement of operations data gives effect to our acquisition of substantially all the assets of GlobalCast Communications, Inc. in September 1999 and our acquisition of WhiteBarn, Inc. in March 2000, as if the acquisitions had occurred on October 1, 1998, but does not assume the conversion of the shares of our outstanding preferred stock into common stock upon the closing of this offering. <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------ ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue: Licenses........................ $2,821 $3,560 $4,209 $ 5,100 $ 5,912 Maintenance..................... 780 1,255 1,426 1,873 2,488 Professional services........... 503 733 807 540 640 ------ ------ ------ ------- ------- Total revenue................. 4,104 5,548 6,442 7,513 9,040 Gross profit...................... 3,515 5,148 5,230 6,448 7,872 Income (loss) from operations..... (185) 48 (889) (1,718) (3,522) Net income (loss)................. $ (181) $ 118 $ (894) $(1,728) $(3,539) Basic and diluted net loss per share attributable to common stockholders.................... $(0.28) $(0.18) $(0.57) $ (0.80) $ (1.30) Basic and diluted common shares used in computation............. 2,073 2,139 2,434 2,781 3,099 <CAPTION> PRO FORMA --------------------------- SIX MONTHS ENDED SIX MONTHS MARCH 31, YEAR ENDED ENDED ------------------------- SEPTEMBER 30, MARCH 31, 1999 2000 1999 2000 ----------- ----------- ------------- ----------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue: Licenses........................ $ 2,939 $ 4,080 $ 5,912 $ 4,080 Maintenance..................... 1,085 1,469 2,488 1,469 Professional services........... 163 879 2,233 1,571 ------- ------- ------- ------- Total revenue................. 4,187 6,428 10,633 7,120 Gross profit...................... 3,675 5,322 7,766 5,347 Income (loss) from operations..... (1,244) (5,702) (9,146) (6,866) Net income (loss)................. $(1,229) $(5,672) $(9,517) $(6,805) Basic and diluted net loss per share attributable to common stockholders.................... $ (0.50) $ (2.88) $ (2.51) $ (2.91) Basic and diluted common shares used in computation............. 2,941 4,089 3,985 4,437 </TABLE> The pro forma column of the consolidated balance sheet data reflects the conversion of our outstanding preferred stock into 8,810,882 shares of common stock upon the closing of this offering, the related cancellation of accrued preferred dividends and the repayment of all bank borrowings and other debt after March 31, 2000. The pro forma as adjusted column of the consolidated balance sheet data reflects the sale of 4,000,000 shares of our common stock at an assumed initial public offering price of $13.00 per share, after deducting the estimated underwriting discount and offering expenses payable by us. <TABLE> <CAPTION> MARCH 31, 2000 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) <S> <C> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 10,120 $ 8,982 $55,792 Working capital............................................. 8,019 8,019 54,829 Total assets................................................ 22,113 20,975 67,785 Debt, less current portion.................................. -- -- -- Redeemable convertible preferred stock...................... 24,672 -- -- Stockholders' equity (deficit).............................. (10,783) 13,889 60,699 </TABLE>

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE INFORMATION UNDER "RISK FACTORS" BEGINNING ON PAGE 4 AND THE FINANCIAL STATEMENTS BEGINNING ON PAGE F-1, BEFORE MAKING AN INVESTMENT DECISION. OUR BUSINESS iSKY provides a complete customer service solution to both electronic businesses and traditional companies seeking to enhance their customers' interaction with them over the internet and through traditional communication methods, before, during and after a purchase. Our services use interactive one-to-one communications through a variety of media including text conversation over the internet, e-mail, voice conversations over the internet, telephone and facsimile, enhanced by personalized data collection and management that occurs during the interaction, to find, win, keep and enhance profitable customer relationships. In addition, we are able to collect valuable customer data which provides insights into buying behavior, responses to different sales channels, the effectiveness of promotions and trends in customer service issues. Our services enable our clients to provide high quality customer care and to establish long-term relationships with customers that are critical to the ability of internet-based and traditional businesses to maintain their competitive positions. Both internet-based and traditional businesses often lack the expertise, resources and infrastructure necessary to provide top quality customer support and as a result may look for a solution from a third party to fulfill this need. OUR COMPETITIVE ADVANTAGES We believe our competitive advantages include: - Integrated customer loyalty management solution. - Unique data management and web-based reporting capabilities. - Flexible infrastructure that can easily be modified to handle larger volumes of transactions. - Diverse and long-term client relationships. - Experienced management team. OUR GROWTH STRATEGY The key elements of our growth strategy include the following: - Rapidly expand and enhance existing client relationships. - Expand client base in key vertical markets. - Promote the iSKY brand. - Pursue acquisitions and strategic partnerships. - Expand our presence abroad. OUR HISTORY iSKY was incorporated in Maryland as Original Research Corporation on May 8, 1984, changed its name to Sky Alland Research, Inc. on May 5, 1989, and changed its name to iSKY on February 4, 2000. We began offering, on a test basis, our integrated internet-based services in September 1999. We have experienced operating losses and net losses for the past two years and rely on financing to support our operating and capital requirements. Our principal executive offices are located at 6740 Alexander Bell Drive, Suite 300, Columbia, Maryland 21046. Our telephone number is (410) 312-1515. Our website is located at www.isky.com. Information contained in this website does not constitute part of this prospectus and is not incorporated into this prospectus by reference. THE OFFERING <TABLE> <S> <C> Common stock offered by us.................................. 4,000,000 shares Common stock to be outstanding after the offering........... 17,334,754 shares Use of proceeds............................................. General corporate purposes, working capital needs and payment of debt and accrued preferred stock dividends. Proposed Nasdaq National Market Symbol...................... "ISKY" </TABLE> ------------------------ UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS DO NOT EXERCISE THEIR OPTION TO PURCHASE AN ADDITIONAL 600,000 SHARES OF COMMON STOCK FROM US TO COVER OVER-ALLOTMENTS. THE NUMBER OF OUTSTANDING SHARES USED IN THIS PROSPECTUS IS 13,334,754 AND EXCLUDES 2,361,120 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS AND 4,824,360 SHARES OF COMMON STOCK AVAILABLE FOR THE FUTURE GRANT OF STOCK OPTIONS UNDER OUR STOCK OPTION PLANS. SUMMARY FINANCIAL INFORMATION The following table presents summary financial data for iSKY. This data should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma balance sheet data reflects the net proceeds from the sale of 1,260,775 shares of convertible preferred stock in a private offering after deducting related offering expenses. The pro forma as adjusted column reflects the net proceeds from the sale of 4,000,000 shares of common stock offered by us after deducting the estimated underwriting discounts and related offering expenses, automatic conversion of all outstanding shares of preferred stock into common stock and repayment of the line of credit upon the closing of this offering. The number of interactions line represents completed inbound and outbound telephone calls and facsimiles, e-mails and internet chat sessions. Our historical financial information may not necessarily reflect our results of operations or financial position in the future. The shares used to compute supplemental pro forma unaudited basic and diluted net income (loss) per share includes 371,743 shares, representing the number of shares whose proceeds would be necessary to cover the $2,886,556 for payment of accrued, unpaid dividends and to cover the $645,000 payment of outstanding debt upon consummation of the anticipated initial public offering at the assumed initial public offering price of $9.50 per share. Interest expense incurred during 1999 related to this debt was $56,584. <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, --------------------------------- 1997 1998 1999 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues.................................................... $18,709 $19,733 $23,840 Income (loss) from operations............................... 448 (1,120) (2,274) Net income (loss)........................................... 159 (1,550) (2,432) Preferred stock dividend requirements....................... (788) (682) (1,349) Net income (loss) applicable to common stockholders......... (629) (2,232) (3,781) ======= ======= ======= Basic and diluted net income (loss) per share applicable to common stockholders....................................... $ (0.38) $ (1.32) $ (2.15) ======= ======= ======= Shares used to compute basic and diluted net income (loss) per share applicable to common stockholders............... 1,652 1,685 1,758 ======= ======= ======= Pro forma unaudited basic and diluted net income (loss) per share..................................................... $ (0.23) Shares used to compute pro forma unaudited basic and diluted net income (loss) per share............................... 10,362 Supplemental pro forma unaudited basic and diluted net income (loss) per share................................... $ (0.23) Shares used to compute supplemental pro forma unaudited basic and diluted net income (loss) per share............. 10,733 </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1999 ---------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $ 1,612 $29,912 $60,415 Working capital............................................. 1,882 30,182 61,331 Total assets................................................ 14,646 42,946 73,449 Long-term obligations, net of current portion............... 586 586 586 Convertible redeemable preferred stock...................... 1,421 1,421 -- Stockholders' equity........................................ 6,917 35,217 66,365 </TABLE>

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before buying shares in this offering. You should read the entire prospectus carefully, including the risk factors and consolidated financial statements and related notes appearing elsewhere in this prospectus. The prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors described under "Risk Factors" and elsewhere in this prospectus. See "Cautionary Note on Forward-Looking Statements." Our Company We are an independent provider of client/server network software for the delivery of video and audio information over networks. Our principal executive offices are located in San Francisco, California and we have seven additional sales offices in several domestic metropolitan areas. Our software manages the delivery of video and audio content over various networks, including the Internet and corporate intranets, optimizing network efficiency and quality of service. Our Burstware(R) suite of software products enables companies to transmit video and audio files at Faster-Than-Real-Time(TM) speed, which is accomplished by utilizing available bandwidth capacity to send more video or audio data to users than the players are demanding. This data is stored on the users' machine for playing on demand, thus isolating the user from noise and other network interference. The result is high quality, full-motion video and CD-quality audio to the end-user. Burstware(R) utilizes several components of our international patent portfolio, including the Faster-Than-Real-Time(TM) delivery method. As network bandwidth, data storage, processing power and compression technologies have become increasingly available, the demand for high-quality video and audio over the Internet, intranet and extranet has expanded rapidly. According to Paul Kagan Associates, in 1999, the number of households with high-speed access was estimated to be 1.9 million with service revenue of $574.0 million; by 2002, these figures are expected to reach 12.0 million and $3.6 billion, respectively. As businesses have begun to recognize the cost, inconvenience and inefficiency of business communication tools such as audio and videoconferencing, online business-to-business, business-to-consumer and business-to-employee communications have become commonplace. Frost & Sullivan, a leading market research firm, reported that video server market revenue for 1999 was expected to reach $722.7 million, growing to $2.1 billion by 2002. As current real-time streaming technology expands rapidly online, content delivery becomes increasingly susceptible to network congestion and disruption causing interruption or degradation of the client's multimedia experience. Additionally, the number of real-time connections that can be maintained simultaneously by the server is limited by processing power as well as bandwidth availability. This, along with the fact that a server tends to devote disproportionate resources to the client with the most available bandwidth, also reduces the quality as well as the availability of the audio-visual content. As a result of these limitations, and including the fact that most streaming technology involves proprietary encoding schemes and limited platform acceptance, widespread dissemination of high-quality streaming content has yet to occur within either the business-to-business or business-to-consumer market. Escalating demand for audio-visual content as well as quality enhancement in its delivery has created a need for a software solution capable of eliminating network disruptions and utilizing client bandwidth efficiently. Our Java-based Burstware(R) architecture delivers consistent, high-quality multimedia content with open standard flexibility through optimization of network resources and superior isolation from network disturbances. In a Burst-Enabled(TM) network, the server sends multiplexed "bursts" of content into the network at rates faster than real-time consumption, providing a local reserve in the event that data across the network slows or ceases. During all phases of content delivery, Burstware(R) provides continuous monitoring of consumption rates, multiple end-user needs and changes in network conditions. With a need-based delivery model and the ability to service the same number of real-time streaming clients using fewer network resources, our Burstware(R) Network Simulator has shown improvements of up to 60% in network efficiency, or throughput, when compared to real-time streaming. Page 1 <PAGE> Burstware(R) intelligence allows for multiple end-user applications as well. With the capacity to deliver data in a clear, efficient and cost-effective manner, Burstware(R) enables powerful business-to-business, business-to-consumer and business-to-employee communication. Burstware(R) also gives producers, aggregators and developers the ability to reach new markets with virtually unlimited access to vast libraries of content. Finally, Burstware(R)'s network delivery mechanism is ideally suited for numerous industries including news, entertainment, retail and advertising as well as local, state and federal governments and agencies. Our principal executive offices are located at 500 Sansome Street, Suite 503, San Francisco, California, 95111, and our telephone number is (415) 391-4455. In this prospectus, the terms "Burst.com," "we," "us," and "our" refer to Burst.com and our subsidiaries Timeshift-TV, Inc. and Explore Technology, Inc. unless the context otherwise requires. <TABLE> <CAPTION>

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+PROSPECTUS SUMMARY This section provides a brief overview of the most significant terms of the rights offering and answers in summary form some questions you may have about us and this rights offering. The information in this section is not complete and may not contain all of the information that you should consider before exercising your rights. You should read the entire prospectus carefully, including the "Risk Factors" section. QUESTIONS AND ANSWERS ABOUT OUR COMPANY WHAT IS BPI PACKAGING TECHNOLOGIES, INC.? We convert commercially available high molecular weight, high density polyethylene resins into thin film. This film is either sold directly into industrial or packaging applications or converted in-house into carryout bags of "T-shirt sack" design for supermarkets, convenience stores and other retail markets. All of our plastic products are manufactured using advanced, high quality extrusion, printing and bag making equipment in our facility in North Dighton, Massachusetts. Plastic resin is heated and blown into a thin film on blown film extrusion lines. The film is cooled, wound on large rolls, printed with customer information using water-based inks and shipped to customers. However, if the film is to be used to manufacture bags, it is slit-sealed into bags, reviewed by quality control inspectors, boxed and shipped to customers. Our manufacturing equipment consists of blown film extrusion lines, printing presses, bag making machines and film slitting operations. WHERE ARE WE LOCATED? Our corporate offices are located at 455 Somerset Avenue, North Dighton, Massachusetts 02764. Our telephone number is (508) 824-8636. WHAT ARE RECENT DEVELOPMENTS? In July 1997, we sold 2,100,902 shares of common stock at a price of $1.00 per share in a best-efforts private placement offering with total net proceeds of $2,100,902. Shares of common stock were sold in a single offering under Regulation D and Regulation S of the Securities Act. Under Regulation D, we sold 850,902 shares of common stock only to accredited investors as defined in Regulation D. Under Regulation S, we sold 1,250,000 shares of common stock outside the United States to non-U.S investors. In October 1997, we sold 1,796,000 shares of common stock at a price of $1.05 per share in a best-efforts private placement offering with total net proceeds of $1,885,800. Shares of common stock were sold in a single offering under Regulation D and Regulation S of the Securities Act. Under Regulation D, we sold 400,000 shares of common stock only to accredited investors as defined in Regulation D. Under Regulation S, we sold 1,396,000 shares of common stock outside the United States to non-U.S. investors. In December 1997, we sold 1,094,223 shares each of common stock and warrants in a private placement offering of restricted securities with total net proceeds of $1,004,800. The price per share for 88,889 of the shares was $1.125 per share and the remaining shares were sold at $0.90 per share. Warrants exercisable for a minimum of 10,000 shares at $1.08 per share were sold in this offering. Under Regulation D, we sold 222,223 shares each of common stock and warrants only to accredited investors as defined in Regulation D. Under Regulation S, we sold 872,000 shares each of common stock and warrants outside the United States to non-U.S. investors. In June 1998, we completed an offering of private placement units. Each unit consisted of 100,000 shares of common stock and a three-year warrant to purchase 100,000 shares of common stock at $1.25 per share. However, if we announce the receipt of a contract for the purchase of goods or services resulting in revenues of $5,000,000 or more, then the purchase price will be reduced to $1.05 per share for 15 days after the announcement. The offering price was $90,000 per unit and the net proceeds from the offering were $1,485,000. Under Regulation D, we sold 1,050,000 shares of common stock only to accredited investors as defined in Regulation D. Under Regulation S, we sold 600,000 shares of common stock outside the United States to non-U.S. investors. In each of the above four offerings: - the issuances of the securities were deemed to be exempt from registration under Section 4(2) and Regulation D of the Securities Act as transactions by an issuer not involving any public offering; - the sale proceeds were used as part of our working capital; - we promised to use our best efforts to file with the SEC a registration statement on Form S-1 or S-3 relating to the shares in each offering; and - the securities sold under Regulation D were registered under the Securities Act on October 28, 1999. On June 27, 1998, we stopped funding the operations of our two wholly-owned subsidiaries, RC America, Inc. and Market Media, Inc. RC America purchased surplus inventory from manufacturers of consumer products and markets and sold the products to mass merchandise retailers and other retail chains. Market Media sold and marketed in-store advertising and promotion programs. At the same time, we also ended the employment of Ronald V. Caulfield, the Chief Executive Officer and President of RC America. On July 2, 1998, the employment of Dennis Caulfield, our former Chief Executive Officer, was terminated. On August 13, 1998, the NASDAQ Listing Qualifications Panel of the NASDAQ Stock Market delisted our securities from NASDAQ NMS principally due to our failure to maintain compliance with the minimum bid price and net tangible assets requirements, effective as of close of business on August 13, 1998. Shortly thereafter, we formally requested that the NASDAQ Listing and Hearing Review Council review the August 13, 1998 decision. On December 22, 1998, NASDAQ Listing and Review Council affirmed the decision of the NASDAQ Listing Qualifications Panel to delist our common stock from the NASDAQ NMS. As of the date of this prospectus, we have not appealed the NASDAQ decision to the SEC. Since August 14, 1998, our common stock has been traded on the NASDAQ Over-the-Counter Bulletin Board under the symbol "BPIE." Throughout the remainder of 1998, our management at the time attempted to obtain additional financing to fund our ongoing losses from operations. During this time period, we were unable to service our then existing capital and operating leases and numerous of our creditors had perfected their judgments against us and several of such creditors were attempting to perfect their security interests in a manner which would have forced us to cease our operations. In early January 1999, we commenced negotiations with DGJ for the financing which would allow us to address these capital needs. We were introduced to DGJ by Global Financial Services, Inc., a company unaffiliated with us and DGJ, which we engaged to help us in our efforts to find equity or debt financing in order to continue to fund the ongoing costs of our operations. On January 27, 1999, we entered into a Securities Purchase Agreement with DGJ, under which we issued and sold to DGJ: 1. a Promissory Note in the principal amount of $3,200,000; 2. a Common Stock Purchase Warrant to purchase up to 80,000,000 shares of common stock, at an exercise price of $0.04 per share, exercisable until January 27, 2009; and 3. 1,629,930 shares of our Series C Preferred Stock for $100. In connection with this financing, DGJ required certain members of our management, C. Jill Beresford, James F. Koehlinger, Hanspeter Schulz, Richard H. Nurse and Ivan J. Hughes, to invest $300,000, in the aggregate, in our warrants. As of January 5, 2000, 6,563,000 of the 7,500,000 issued warrant shares were converted into common stock. On January 27, 1999, we entered into a factoring agreement with Franklin Capital Corporation, an entity affiliated with Gary Edidin, one of our Directors and a member of DGJ, whereby we, with full recourse, assigned and sold to Franklin our entire interest in all of our present and future accounts and similar rights and instruments arising from our sales of goods, then existing or created thereafter. We paid Franklin a factoring fee in an amount equal to 2% of the gross amount of such receivables, however, the minimum commission for any receivable was $5.00. Under this factoring agreement, Franklin was able to advance to us up to 85% of the purchase price of our receivables as they were created, subject to a maximum advance at any time outstanding of $2,000,000. Interest was charged for the number of days that advances of the purchase price of the receivables were made to us prior to the date they were paid and the number of days that the advances from Franklin's account remained outstanding at the prime rate plus 2% per annum, except that interest was in no event less than 8% per annum. We retired this factoring agreement on August 19, 1999 when we entered into the relationships with LaSalle Business Credit, Inc. and DGJ. We also issued a demand revolving note to Franklin in the principal sum of $1,000,000 at an interest rate of 5% above the prime rate, however, the interest charged could not be less than a minimal annual fixed rate of 12 3/4%. This note was secured by a security agreement between us and Franklin which granted Franklin a continuing security interest in our present and future accounts, inventory, equipment and other property. Pursuant to the terms of this agreement, the amount eligible to be advanced to us under this revolving note was limited to the lesser of $1,000,000 or the sum of 50% of eligible inventory and 50% of our eligible raw materials. We retired our obligations under this note on August 19, 1999. The members of DGJ are Gary R. Edidin, Lawrence A. Sherman, Deere Park Capital Management, Inc. and BPI Hilco, L.L.C. Three of our Directors, Gary R. Edidin, Allen S. Gerrard and Theodore L. Koenig, are affiliated with DGJ and a fourth Director, Bruce M. Fleisher, was appointed to our Board by DGJ. Messrs. Edidin and Sherman are also stockholders of Franklin, however, our obligations to Franklin were satisfied in full at the time of the August 1999 financing, described below. We also refinanced our equipment, capital and operating leases in January 1999 when we entered into an equipment lease with DGJ. The new lease carries no debt reduction obligation and is treated as long-term debt. The combined monthly payments under the retired leases were reduced from approximately $305,000 per month to $102,000 per month under the new equipment lease with DGJ. The term of the lease is ten years and its monthly payments of $102,000 represent interest only. Also in January 1999, we entered into agreements with most of our unsecured creditors that provided for a discounted payment in February 1999 or permitted us to pay the entire balance without interest over a three-year period. On August 19, 1999, we entered into a series of transactions with LaSalle Business Credit, Inc. and DGJ to refinance our existing indebtedness. Our loan agreement with LaSalle provides us with a $4,000,000 revolving line of credit. This credit facility is secured by a first priority security interest in our accounts receivable, inventory and certain other assets. DGJ is the lessor of substantially all the equipment that we use, under a capital lease, and holds a first priority security interest in our equipment. LaSalle received a second priority security interest in our equipment. Certain of the proceeds of this credit facility were used to retire existing indebtedness we owed to Franklin Capital Corporation, including the factoring agreement and revolving note described above, while the remaining proceeds were used to retire some of our other indebtedness and for working capital purposes. This credit facility bears interest at a fluctuating rate equal to 1.5% per annum above the prime rate of LaSalle in effect from time to time and matures in three years. We were introduced to LaSalle by one of our Directors, Theodore L. Koenig, a principal of Monroe Investments, Inc., which is a member of Hilco BPI, L.L.C., which is a member of DGJ. As of January 5, 2000, the balance outstanding under this agreement is $3,442,435. In addition, we and DGJ amended and restated the promissory note in the original principal amount of $3,200,000, described above, because we were unable to fulfill the financial obligations under the terms of the loan and lease documents with DGJ. To cure the defaults, we restated the note to include, in addition to the original principal and interest accrued thereunder at 6%, all amounts outstanding under: (i) an equipment loan made by DGJ to us as of March 1, 1999 in the original principal amount of $218,665; (ii) a series of advances made to us by Franklin Capital Corporation during the second quarter of 1999 (which totaled approximately $900,000, and were reduced to approximately $660,000 after application of proceeds of the credit facility), rights to repayment of which were subsequently assigned by Franklin to us; (iii) delinquent payments under the DGJ lease of approximately $570,000; and (iv) interest on the foregoing. The resulting balance of $4,773,585 was restated as the principal amount of a new amended promissory note. The amended promissory note is in the original principal amount of $4,773,585 and is payable as follows: $3,200,000 of principal is due and payable on February 1, 2004, or earlier by acceleration, as described in the Securities Purchase Agreement between us and DGJ, or otherwise, and $1,573,585 is due and payable pursuant to the terms of an intercreditor agreement between DGJ and LaSalle. The amended promissory note bears interest at a rate of 10% per annum, and is secured by all of our assets, subordinated to LaSalle except as to equipment. During the third quarter of 1999, DGJ made additional advances to us totaling $252,000. These loans bear interest at the rate of 10% per annum with interest payable monthly and the principal is due and payable on the same date as the maturity date of the amended promissory note discussed in the prior paragraph. At our annual meeting of stockholders on August 24, 1999, our stockholders approved the increase in our authorized number of shares of common stock from 60,000,000 to 150,000,000 shares.

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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus, including the financial data and related notes, carefully before making an investment decision. This prospectus contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in "Risk Factors" and elsewhere in this prospectus. Unless otherwise stated, the information contained in this prospectus: (1) assumes no exercise of the underwriters' over-allotment option and (2) reflects the reclassification of all of our classes of common stock into a single class of common stock and the 1.6942-for-1 stock split of that single class, which will occur immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. Integrated Circuit Systems, Inc. We are a worldwide leader in the design, development and marketing of silicon timing devices for a number of high-growth application segments. Our silicon timing devices are used in a variety of consumer and business electronics such as personal computers, or PCs, digital cameras, set-top boxes, PC peripherals and DVD players. Our products are also increasingly being used in various communications applications including routers, switches, fiber optics, cable modems and ADSL equipment. Silicon timing devices are integrated circuits that emit timing signals or pulses required to sequence and synchronize electronic operations to ensure that information is interpreted at the right time and speed. All digital devices require a timing signal and those with any degree of complexity require silicon timing devices to time and synchronize their various operations. Growth in our markets is being driven by the rapid pace of infrastructure development for the Internet, the increasing complexity of our customers' end products, and the transition from traditional analog devices to digital technologies. Internet infrastructure expansion is now largely broadband based, requiring higher operating frequencies and more complex digital equipment. This advancement has driven the continued proliferation of technologically complex consumer and business electronic devices that help optimize the Internet experience. In addition, the transition from traditional analog devices to digital devices has led to increasing consumer adoption of digital technologies such as HDTV or DVD players. Our silicon timing devices are well suited to these developments as they operate in analog and digital environments (i.e., mixed-signal) and can manage multiple frequencies, have high programmability and generally require less power than traditional timing products such as crystal oscillators, which are predominantly quartz based timing devices that resonate at a single frequency. We have developed a reputation for engineering excellence and innovative technology in silicon timing design. We pioneered the silicon timing market in 1988, introducing silicon timing devices for video and graphics applications. Since then, we have consistently led the industry with several technical designs, including delivering the first silicon timing device for the PC motherboard in 1990. Our ongoing focus on product innovation has led to the introduction of approximately 424 new products into the marketplace over the past three fiscal years. We are the leading supplier of silicon timing devices to several markets, including PCs and digital set-top boxes, and we are continuing to design and introduce new products for communications equipment companies such as Motorola, Lucent, Nortel, Cisco Systems, Fujitsu and Alcatel. Over 40% of our current design opportunities are for communications equipment companies. A design opportunity reflects a request from a customer or potential customer for a silicon timing design. In the first six months of fiscal 2000, we converted over 80% of our design opportunities into design wins, which could lead to future production orders. We have developed long-standing and valuable relationships with the majority of leading original equipment manufacturers, or OEMs, of consumer and business electronics and communications equipment. We work closely with these OEMs to develop unique and often proprietary timing, sequencing and synchronization solutions and are closely integrated into their product design and development process. Our top OEM customers include such companies as Asustek, Hughes Networks, Compaq, Dell, IBM, Echostar, Intel, E-Machines, General Instruments and Hewlett Packard. In the PC market, our research and development efforts are aligned with Intel's product and technology road map. Intel made a $13.5 million investment in our company in December 1999. For the 1999 calendar year, we had revenues of approximately $150 million, and over the past three calendar years, we have grown our core revenues at over 25% per year. With continued focus on our core silicon timing devices, our gross profit has grown from $63.5 million, or a 46.3% gross margin, for the 1997 calendar year to $88.2 million, or a 58.8% gross margin, for the 1999 calendar year. Industry Overview As silicon timing devices are critical to the functioning of end-user consumer and business electronics as well as certain communications equipment, we expect the market for our products to experience significant growth. In 1999, the total available market for timing devices, which includes both silicon timing solutions and crystal oscillators, was approximately $2.8 billion. We expect this market to grow 18% per year to over $3.8 billion by 2001. Silicon timing devices represent approximately $378 million, or 14% of the overall timing market, but we expect it to grow to over $850 million, or 23% of this market, by 2001, a growth rate of approximately 50% per year. The accelerated growth for silicon timing devices reflects not only the underlying growth in our end markets, but also the conversion of crystal oscillators to silicon timing devices in our customers' increasingly complex digital products. Business Strategy Our business strategy is to focus on our core silicon timing business and continue to provide customized and high performance products to our expanding and diversified customer base. We have a proprietary development process that allows for the timely customization of our products to a specific application and our fabless operating model allows us to focus on new product development and customer relationships. Our specific strategies include: . Identify and target new market opportunities where there are strong growth prospects and where we can leverage our core silicon timing technologies. . Dominate these new markets by developing multiple application-specific products to meet the needs of our customers and create a leading market position. . Maintain design leadership in core silicon timing technologies through our extensive design library, patents on core technologies and significant investments in research and development. . Expand into new timing markets through select acquisitions of technology and recruitment of personnel that complement our existing expertise. Results for the Three Months Ended April 1, 2000 For the three months ended April 1, 2000, our consolidated revenue was $41.6 million, a 19% increase from the corresponding quarter last year. Our core revenues increased 34% as compared to the same period in the prior year. Sales growth for our silicon timing products reflected an increase in market share, particularly in the PC industry, as well as increased shipments to the communications industry and for digital set-top box applications. Gross margin during the quarter increased to 61% from 58% during the same quarter a year ago, reflecting reduced material costs and a favorable product mix for the quarter. Traditionally, this quarter is our weakest quarter, particularly for PC-related sales. The Recapitalization Through a recapitalization effected in May 1999, Bain Capital, Inc. and its affiliates, an affiliate of The Bear Stearns Companies Inc., or Bear Stearns, and our senior management team acquired securities that represented approximately 98% of our outstanding voting power at such time. We refer to this transaction in this prospectus as the recapitalization. Our senior management team, together with many of our other employees, own common stock and options that together will represent approximately 18% of our common stock on a fully diluted basis following this offering. Such equity ownership represents a significant economic commitment to, and participation in, our continued success.

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+PROSPECTUS SUMMARY This summary highlights some of the information provided elsewhere in this prospectus. The summary is not complete and may not provide all information you should consider before deciding whether or not to exercise the rights. You should read the entire prospectus carefully. Portions of this prospectus, such as the Risk Factors section starting on page 12, are not summarized below. Riddell also encourages you to review the financial statements and other information provided in the reports and other documents it files under the Securities Exchange Act of 1934, as described in the "Where You Can Find More Information" section in this prospectus at page 92. The Rights Offering Securities offered Rights to purchase 1,000,000 shares of our common stock. Further, to those individuals and entities who exercise rights, we will issue warrants which, upon exercise, will represent in the aggregate, _____ (____%) percent of Riddell's ownership in an existing subsidiary or a new subsidiary that we may establish in the future to conduct substantially all of our Internet operations. Concurrent offering Concurrently with the rights offering, we are offering 250,000 shares of newly-issued shares of stock. Shares of common stock outstanding 9,317,957 outstanding on March 1, 2000. prior to this offering Shares of common stock outstanding 10,567,957. Unless expressly stated after this offering (assuming to the contrary, the share information completion of this rights offering in this prospectus excludes: in full and the sale of 250,000 shares in the concurrent offering under a separate prospectus) o 2,496,025 shares issuable upon exercise of options granted pursuant to Riddell's 1991 Stock Option Plan and 1997 Stock Option Plan as of March 1, 2000. o 1,395,011 shares of common stock issuable upon conversion at $5.3763 per share (subject to certain adjustments) of Riddell's 4.1% Convertible Subordinated Note due 2004. o The shares issued upon exercise of the underwriter's over-allotment option in the concurrent offering. Record date December 27, 1999 Expiration date and time The rights expire at 5:00 p.m., New York City time, on _________ __, 2000, unless properly exercised before that time and date. Rights To each record holder of common stock on December 27,1999 Riddell is granting 0.10795 of a right for each share of common stock held on such date. To exercise the right, you must deliver one full right for each share of common stock you would like to purchase. Subscription price We currently anticipate that the subscription price for each full right will be approximately $3.00 per share, payable in cash. Payment by personal check must clear payment on or before the expiration date, which may require five or more business days from the date that we receive your personal check. As a result, we recommend that stockholders pay the subscription price by certified or cashier's check drawn on a U.S. bank, U.S. postal money order or wire transfer of funds. The subscription price will be approved by those members of our Board of Directors that are not members of the standby group. Transferability of rights The rights are transferable, but we do not anticipate that a formal market will be made in the rights or that they will be listed for trading on any exchange; although an informal market may develop. The rights are issued in the form of subscription certificates which accompany this prospectus sent to the record holders. Fractional shares We will not issue fractional shares. If your rights would allow you to purchase a fractional share, you may exercise your rights only by rounding down to and paying for the nearest whole share, or paying for any lesser number of whole shares. No revocation Once you submit the form of subscription certificate to exercise any rights, you are not allowed to revoke, or change the exercise or request a refund of monies paid. Common Stock Purchase Warrant If the right is exercised, the exercising holder will receive, for no additional cash, a common stock purchase warrant that will entitle the exercising holder to purchase shares in an existing subsidiary or a new subsidiary that we may establish in the future to conduct substantially all of our Internet operations. These warrants will not be exercisable until the later of (A) one year after the effective date of this rights offering, and (B) the effective date of an initial public offering of such an Internet subsidiary, which presently does not exist, and which initial public offering must occur on or before December 31, 2002. If we effect an initial public offering of our Internet subsidiary after the one year anniversary of the effective date of this rights offering, and before December 31, 2002, you will have six months after the closing of that initial public offering to exercise your common stock purchase warrant. If we effect an initial public offering of the Internet subsidiary prior to the one year anniversary of this rights offering, these warrants will not become exercisable until the one year anniversary of the effective date of this rights offering, but you will have six months commencing on the one year anniversary of this rights offering to exercise your common stock purchase warrant. If we do not establish the Internet subsidiary before December 31, 2002, or establish the Internet subsidiary but do not effect an initial public offering for such subsidiary before December 31, 2002, the common stock purchase warrant will never become exercisable and will automatically expire. These warrants have an exercise price of $0.01 per share and are non-transferrable except in the event of the death of the holder. Reasons for the rights offering To finance our Internet business and for additional working capital. No board or committee recommendation Our Board of Directors will not make any recommendation to stockholders regarding the exercise of rights under this offering. Stockholders who do exercise rights risk investment loss on new money invested. We can not assure you that the subscription price will be below the market price for the common stock, or that anyone purchasing shares at the subscription price will be able to sell those shares in the future at a higher price. See "Risk Factors --Risks relating to the rights offering." Standby purchase commitment It is currently anticipated that a group to consist of some of Riddell's officers and directors and certain others with whom we are currently in discussions regarding joining this group will standby and agree to exercise all of the rights granted to those members of this standby group who are officers and/or directors of the Company on the record date. In addition, this standby group will be contractually bound to purchase up to $____________ of the shares offered under the rights offering that are not purchased by stockholders who are not a part of this standby group. The rights granted to this standby group represent ____% of all of the rights being issued to stockholders. Conditions to the rights offering The obligations of the standby group to complete its purchase of shares under the proposed standby agreement are subject to certain conditions described under "Rights Offering -- Conditions relating to the rights offering." If the standby agreement with the standby group is not consummated in accordance with its terms for any reason, or if the other conditions are not satisfied or waived, we may terminate the rights offering and the concurrent offering in their entirety. If the rights offering is terminated, we will refund without interest to those persons who subscribed for shares in the rights offering all payments received from those subscribers. Subscription agent American Stock Transfer & Trust Company Solicitation agent H.C. Wainwright & Co., Inc. Procedure for exercising rights To exercise rights, you must complete the subscription certificate and deliver it to American Stock Transfer & Trust Company with full payment under the subscription privilege. American Stock Transfer & Trust Company must receive the proper forms and payments in good funds on or before the expiration date. You may deliver the documents and payments by mail or commercial courier. If regular mail is used for this purpose, we recommend using insured, registered mail. You may use an alternative, the "Notice of Guaranteed Delivery", if you are unable to deliver the subscription certificate before the expiration date, subject to the requirements of this procedure described under "The Rights Offering--Special procedure under "Notice of Guaranteed Delivery" form. Payment adjustments If you send a payment that is insufficient to purchase the number of shares requested, or if the number of shares requested is not specified in the forms, the payment received will be applied to exercise the subscription privilege to the extent of the payment. If the payment exceeds the subscription price for the full exercise of the subscription privilege, the excess will be refunded to you as soon as it is practicable. You will not receive interest on any payments received under the rights offering. Nominee accounts If you wish to purchase shares in this offering and your shares are held by a securities broker, bank, trust company or other nominee, you should promptly contact your record holder(s) and request that they exercise rights on your behalf. You may also contact the nominee and request that the nominee send a separate subscription certificate to you. If you are a record holder who wishes an institution such as a broker or bank to exercise your rights for you, you should contact that institution promptly to arrange the method of exercise. If you are a nominee who desires subscription certificates re-issued in smaller denominations, you must act promptly under special procedures described under "The Rights Offering--How to transfer rights." You are responsible for the payment of any fees that brokers or other persons holding your shares may charge. You are not responsible for any fees payable to the Subscription Agent or the solicitation agent. Exercise by foreign and certain other American Stock Transfer & Trust Company stockholders will hold subscription certificates for stockholders having addresses outside the United States. In order to exercise rights, holders with addresses outside the United States must notify American Stock Transfer & Trust Company and timely follow other procedures on or before the expiration date of the rights. U.S. income tax consequences For United States federal income tax purposes, we believe that a stockholder will not recognize taxable income as a result of the distribution of the rights. Upon exercise of the rights, we believe that receipt of the common stock purchase warrants will be treated as a distribution of property and taxable as a dividend to the stockholders to the extent the fair value of the common stock purchase warrant on the date of receipt exceeds the subscription price allocated to the warrants. See "The Rights Offering - Federal Income Tax Consequences" and "Certain Federal Income Tax Consequences". Each stockholder should, and is urged to, consult their own tax adviser concerning the tax consequences of this offering under the holder's own tax situation. This prospectus does not summarize tax consequences arising under state tax laws, non-U.S. tax laws, or any tax laws relating to special tax circumstances or particular types of taxpayers. Stock certificates We will deliver stock certificates representing common stock purchased by the exercise of rights as soon as practicable after the expiration date of the rights. Warrant certificates We will deliver warrant certificates representing the common stock purchase warrants granted to you upon the exercise of your rights as soon as practicable after the expiration date of the rights. Amendment, extension and termination We may amend or extend the rights offering. We reserve the right to withdraw the rights offering at any time prior to the expiration date for any reason, in which event all funds received in the rights offering will be returned without interest to those persons who subscribed for shares in the rights offering. Riddell Our Business Riddell is a leading marketer and manufacturer of branded products and services to the extracurricular activities portion of the educational market. We believe that the extracurricular activities market encompasses approximately 30 million young men and women in the United States who participate in team sports and other organized activities outside the classroom. We estimate that this market generates approximately $5 billion in sales annually, including approximately $2 billion in athletic equipment and uniforms for team sports and various products and services for cheerleaders and dancers. Under our many brands, the best known of which are Riddell(R) and Varsity Spirit(R), which we own, and Umbro(R), which we license, we are: o a leading provider of equipment and clothing for team sports; o the only national reconditioner of football protective and other athletic equipment; o the largest designer, marketer and supplier of innovative cheerleader and dance team uniforms and accessories; o the biggest operator of cheerleading and dance team training camps and clinics; o a leading organizer of special events for extracurricular activities; o a nationwide provider of soccer apparel, equipment and footwear for team play; and o a supplier of sports collectible products sold through retailers in the U.S. and internationally. We believe that more than 50% of all high school and collegiate football players either wear our football helmets or use other branded football equipment made by us. We also have a longstanding agreement with the NFL for the promotion of our Riddell brand. Over 80% of the NFL players choose to wear our helmets. We believe that our Varsity Spirit brand cheerleading uniforms are worn by approximately 40% of all high school and 75% of all collegiate cheerleaders. In 1999, our cheerleading camps were attended by more than 215,000 students, and, in 1999, more than 25,000 people traveled to the Walt Disney Resort in Orlando, Florida to participate in and view our various cheerleading and dance competitions. In the fourth quarter of 1998, we became the exclusive U.S. licensee for Umbro branded soccer apparel, footwear and equipment for the team channel of distribution. Umbro is one of the leading soccer brands worldwide. Our strategy Our strategy is to increase our current market share and broaden the recognition of our brands in the extracurricular market. We intend to implement this strategy by: o continuing to focus on opportunities to add new products within the array of products and services offered through our traditional team sports and school spirit business; o develop special events, competitions and championships to create new relationships with participants in extracurricular activities that we are currently not serving effectively, such as youth baseball; o expand the size of our sales force; and o implement our Internet operations. Our opportunities for growth Over the past few years we have positioned ourselves for growth in four areas: o Football, baseball and softball game uniforms to high school and collegiate teams o Football, baseball and softball game uniforms and equipment to recreational youth leagues o Apparel, equipment and footwear to the team soccer market o New Internet operations Our advantages We believe that we have three principal advantages that will support our growth opportunities: o Our direct, proprietary sales force has approximately 320 people who are responsible for developing and maintaining relationships among 40,000 junior and senior high schools, colleges and numerous recreational organizations throughout the United States. Our sales force will be particularly important in connection with sales of athletic clothing and equipment to high schools, colleges and recreational youth leagues. We believe that we have the only national sales force in the U.S. serving the extracurricular market. o Our efficient manufacturing and sourcing capabilities support our direct sales effort and enable us to produce and deliver competitively priced, high quality customized products faster than our competitors. o Our relationship marketing, which we began 25 years ago, is a year-round, integrated marketing approach that creates a strong bond between us and our customers. In the case of cheerleading it includes conducting training camps, clinics and conventions, producing various nationally-televised and regional championships and performance events and selling cheerleading uniforms and accessories. Our relationship marketing is designed so that each of our products and services reinforce one another, as well as strengthen overall brand awareness. We believe that our new Internet operations are a logical extension of, and will effectively reinforce, our relationship marketing strategy. Our Internet operations Our Internet business, which will be funded, in part, by the proceeds of this offering, has a community and a commerce orientation. We started our Internet operations in the fourth quarter of 1999 with our first two web sites: a community web site with e-commerce elements for cheerleaders, www.varsity.com, and an e-commerce web site for sports collectibles, www.riddell.com. To date, we have received approximately $100,000 in revenues from our Internet business. o Community: We will be developing web sites for identifiable, highly-focused communities in the extracurricular activities market. We believe that the community members in this market, such as cheerleaders, football players and other participants in extracurricular activities, often define their lives through their participation in these activities. As a result, we believe that these community members will become frequent visitors to our web sites. Our community web sites will provide these users with meaningful, timely, activity-specific content. o Commerce: On our community sites, we anticipate that users will be able to purchase our products and purchase the products of other marketers who will want to sell to our community members. We will offer products that will appeal to the members of our focused community sites as well as products that will appeal to members of different communities. We believe as we create web sites for these discrete, highly-focused communities, that our combined group of users will represent a large, sought after audience for third-party advertisers and marketers. We believe that many of these community members, such as cheerleaders and others, are often the leaders and trend setters in their communities. We also believe that our web site for sports collectibles will be attractive to a broad range of sports fans. We believe that the Internet will help us expand our traditional business, increase our brand recognition and give rise to new revenue streams. o Direct link to our customers: We believe that the content and community-building aspects of each community web site will enhance our existing relationships and help us build new relationships with coaches and participants in various extracurricular activities. The Internet will also provide us with another way to rapidly disseminate new product information and promote our camps, clinics, competitions and performance events. o Market penetration: We believe that the Internet will be particularly effective with respect to the sale of game uniforms and equipment to recreational youth leagues, a large and highly-fragmented market. o Expand into new businesses: In addition to new revenue streams from alliances with other companies and the sale of advertising, we believe that the Internet will ultimately provide us with a cost-effective vehicle to begin marketing beyond our traditional extracurricular groups, such as cheerleaders and team sports, to non-athletic extracurricular activities, such as musical organizations, drama clubs and dance studios. o Broaden distribution of sports collectibles: We believe that the web site dedicated to our retail products will overcome the geographical constraints and inventory limitations of retail stores, which preclude our ability to offer collectibles of every team in every city. The Internet will also enable us to offer customized products that cannot readily be sold through traditional commercial channels. We are a Delaware corporation with our principal offices located at 50 East 42nd Street, Suite 1808, New York, NY 10017. Our phone number is (212) 808-5400. Our current web sites are www.varsity.com and www.riddell.com. The information contained on our web sites is not intended to be a part of this prospectus. Summary Financial Data The selected financial information set forth below is derived from the more detailed financial data and related notes thereto included elsewhere in this prospectus. This information shall be read in conjunction with such financial data. <TABLE> <CAPTION> (In thousands, except per share amounts) ----------------------------------------------- Year Ended December 31, ----------------------------------------------- 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> Statements of Operations Data: Net revenues $208,597 $186,600 $138,273 Gross profit 84,835 73,059 57,598 Interest expense 15,379 14,656 11,879 Net (loss) (599) (7,139) (559) Net (loss) per share, basic and diluted (0.06) (0.78) (0.07) December 31, ------------ 1999 1998 1997 ---- ---- ---- Balance Sheet Data: Working capital $49,908 $37,963 $37,599 Total assets 194,336 186,211 181,761 Long-term debt, less current portion 136,097 126,900 122,500 Stockholders' equity 24,865 25,451 32,125 </TABLE>

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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION. OUR COMPANY We have developed proprietary tachyarrhythmia detection and discrimination software, RHYTHMx ECD-TM-,to be incorporated into devices that are attached prophylactically to patients determined to be at risk of sudden cardiac arrest. RHYTHMx ECD enables these devices, such as external defibrillator monitors and patient monitoring systems, to provide patients suffering sudden cardiac arrest with potentially lifesaving defibrillation therapy in as little as 10 seconds without human intervention. We intend to license RHYTHMx ECD to third parties. We also have designed, are developing, and intend to market non-invasive automatic external cardiac defibrillation or "AECD-Registered Trademark-" devices that use RHYTHMx ECD as well as our other proprietary technology. We believe our proprietary technology will help to create a new standard of care by significantly increasing the rate at which patients survive sudden cardiac arrests. Our first device, the Powerheart, is the only FDA cleared non-invasive external cardioverter defibrillator device that provides fully automatic detection and treatment of ventricular tachyarrhythmias for in-hospital patients. In December 1998, we entered into a five-year exclusive distribution and licensing agreement with Medtronic Physio-Control, a subsidiary of Medtronic, Inc. Medtronic Physio-Control will market the Powerheart in the U.S., Canada, and selected European countries, and also has been licensed to integrate RHYTHMx ECD into Medtronic's LIFEPAK-Registered Trademark- line of in-hospital external defibrillators. We also have signed distribution agreements covering 27 other international markets giving us representation in 39 countries. In addition to the Powerheart, we are developing two other products based on our proprietary technology: - a fully automatic defibrillator module that is designed to be embedded and integrated into existing, third party patient monitoring systems which typically are located in most acute care areas within hospitals; and - an automatic, portable, "public-access" external defibrillator for use by early responders and non-medical personnel. Our strategy is to rapidly build a large installed base of products using our proprietary technology through strategic alliances with established industry leaders and by marketing through country-specific, independent international distributors. We hope to generate revenue from licensing RHYTHMx ECD, from selling devices that use our proprietary technology, and from recurring sales of our single-use, disposable defibrillator pads. Both the Powerheart and the automatic defibrillator module utilize these disposable defibrillator pads which, for sanitary, safety, and performance reasons, must be changed once every 24 hours. Our disposable defibrillator pads feature our proprietary "smart chip" technology, designed to assure that only our pads will be used with defibrillator and monitoring devices utilizing our proprietary technology. ABOUT US We were incorporated in the State of Delaware in May 1991. Our principal executive offices are located at 16931 Millikan Avenue, Irvine, California 92606. Our phone number is 949-587-0357. Our website address is cardiacscience.com. The information in our website is not a part of this prospectus. AECD, POWERHEART and MDF are our U.S. registered trademarks. AECD, AECD ELECTRODES, and POWERHEART are our registered trademarks in Great Britain, France, Japan, and China. Other service marks, trademarks, and trade names referred to in this prospectus are the property of their respective owners. THE OFFERING <TABLE> <S> <C> Common Stock offered by the selling stockholders ........ 8,791,630 shares Common Stock outstanding prior to the offering........... 12,313,127 shares Common Stock outstanding after the offering ............. 12,313,127 shares OTC Bulletin Board Symbol................................ DFIB </TABLE>

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+PROSPECTUS SUMMARY This summary highlights certain information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors" and the financial statements and notes thereto, before deciding to invest in shares of our common stock. WESTBURY METALS GROUP We are a rapidly growing provider of integrated fabrication, reclamation, refining, processing, and financial and risk management services to small and medium sized consumers of precious metals and intermediate industrial products. Our primary focus is on the manufacture and sale of base and precious metal products to industrial users. We also reclaim precious and specialty metals from scrap and industrial residue from industrial scrap and provide industrial commodity management services to industrial users. Management has built the company through a series of strategic acquisitions of small to medium-sized metals companies and through internal growth. Our revenues have grown from approximately $1.5 million for the fiscal year ended June 30, 1997 to approximately $34.5 million for the fiscal year ended June 30, 1999 and from approximately $14.6 million for the six months ended December 31, 1998 to approximately $36.5 million for the six months ended December 31, 1999. We provide a broad range of processing, refining and financial services in connection with reclamation of precious and specialty metals from primary and secondary sources. We reclaim gold, silver, platinum and palladium from scrap and residues from the electronics, jewelry, petroleum, dental, chemical, automotive, mining and aerospace industries. After controlled weighing, sampling and assaying to determine values and to settle with the customer, we either purchase the reclaimed metal or return it to the customer. Through our 98% owned Peruvian subsidiary, Alloy Trading S.A., we import metals for our own use, as well as for direct sales to third parties. Through our subsidiaries, we operate in three inter-related areas of the precious metals business: - Industrial Products - We manufacture and sell customized, value-added precious and base metal products principally to the North American metal finishing and plating industry. - Metal Processing - We reclaim precious and specialty metals materials through processing and refining services, including platinum group metals from used automotive catalytic converters. - Industrial Commodities Management - We buy, sell and finance metal for our own account and for our customers and offer hedging and risk management services, including spot fixing market pricing and forward contracts, to our customers. We believe that we are one of only a few companies that offers a full range of precious metal related services to small and medium-sized customers. We offer services to our customers throughout the entire operating cycle - from fabrication through recycling back to fabrication, together with hedging and risk management services. We believe that our ability to address our customers' needs throughout their precious metal usage cycle distinguishes us from most of our competitors and positions us to expand sales to our existing customers. We were incorporated in New York in August 1990 under the name Rosecap, Inc. Westbury Metals Group, Inc. and our subsidiaries were formed through a reverse merger of Westbury Acquisition Corporation and Westbury Alloys, Inc. on March 31, 1998. On June 18, 1998, we changed our name to Westbury Metals Group, Inc. Our principal executive offices are located at 750 Shames Drive, Westbury, New York 11590, and our telephone number is (516) 997-8333. PROSPECTUS WESTBURY METALS GROUP, INC. 4,960,373 SHARES OF COMMON STOCK This prospectus relates to the public offering of up to 4,960,373 shares of our common stock held by the stockholders named in this prospectus and the person(s) to whom the stockholders may transfer their shares, including shares of common stock to be acquired upon exercise of warrants. The selling stockholders and any broker-dealer who may participate in sales of the shares may use this prospectus. See "Plan of Distribution." The prices at which such stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive proceeds from the sale of the shares. We will bear substantially all expenses of registration of the shares, and the selling stockholders will pay any underwriting fees, discounts or commissions, and transfer taxes. Our common stock is traded on the Nasdaq Bulletin Board under the symbol "WMET." On May 9, 2000, the average of the bid and ask sale prices for the common stock as reported on the Nasdaq Bulletin Board was $ 2.59375 per share. -------------------- INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. -------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------- The date of this Prospectus is May 12, 2000 -------------------- THE OFFERING <TABLE> <S> <C> Common stock offered by selling stockholders: Common stock ............................... 3,187,780 shares ========= Common stock issuable upon the exercise of warrants...................... 1,772,593 shares ========= Common Stock outstanding...................... 5,270,028 shares* Use of proceeds............................... We will not receive any proceeds from this offering. All proceeds will be received by the selling stockholders. We will receive the net proceeds from the exercise, if any, of warrants. Nasdaq OTC Bulletin Board symbol.............. "WMET" </TABLE> - ------------------------- * Based on the shares of common stock outstanding as of March 31, 2000. Excludes: - - 1,269,818 shares of common stock issuable upon exercise of warrants held by selling stockholders at an exercise price of $4.00 per share; - - 502,775 shares of common stock issuable upon exercise of warrants held by selling stockholders at an exercise price of $2.25 per share; - - 93,273 shares of common stock issuable upon exercise of warrants held by Alliance Capital Investment Corp. at an exercise price of $9.00 per share; and - - an aggregate of 750,000 shares of common stock reserved for issuance under our stock option plan of which 389,000 shares are subject to outstanding options, at a weighted average exercise price of $2.02 per share. TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY.......................................................1 RISK FACTORS.............................................................4 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................8 USE OF PROCEEDS..........................................................9 MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS..............9 SELECTED CONSOLIDATED FINANCIAL DATA....................................10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................11 BUSINESS................................................................17 MANAGEMENT..............................................................22 CERTAIN TRANSACTIONS....................................................26 PRINCIPAL STOCKHOLDERS..................................................28 THE SELLING STOCKHOLDERS................................................29 PLAN OF DISTRIBUTION....................................................34 DESCRIPTION OF CAPITAL STOCK............................................36 LEGAL MATTERS...........................................................37 EXPERTS.................................................................37 WHERE YOU CAN FIND INFORMATION..........................................37 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell, and seeking offers to buy, shares of Westbury Metals Group common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the shares. SUMMARY FINANCIAL DATA (in thousands, except per share data and shares outstanding) <TABLE> <CAPTION> SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, DECEMBER 31, -------------------------- ---------------------- 1995(1) 1996(1) 1997 1998 1999 1998 1999 ---- ---- ---- ---- ---- ---- ---- CONSOLIDATED STATEMENT OF OPERATIONS DATA: <S> <C> <C> <C> <C> <C> <C> <C> Total revenue.............................. $ - $ - $1,541 $ 3,300 $ 34,470 $ 14,594 $ 36,475 Total cost of sales........................ - - 704 2,143 31,422 13,269 34,575 ------ ------- ------ ---------- ---------- --------- ---------- Gross profit............................... - - 837 1,157 3,048 1,325 1,900 Total operating expenses................... 6 6 874 1,472 2,900 1,248 2,062 ------ ------- ------ ---------- ---------- --------- ---------- (Loss) earnings from operations............ (6) (6) (37) (315) 148 77 (162) Net (loss) income ......................... $ (6) $ (6) $ (103) $ (424) $ (185) $ 59 $ (568) ------ ------ ------ ---------- ---------- --------- ---------- Net (loss) income per share-basic and diluted............ $(0.10) $(0.10) $(0.05) $ (0.20) $ (0.06) $ 0.02 $ (0.17) ====== ====== ====== ========== ========== ========== ========== Weighted average number of shares outstanding-basic and diluted.......... 62,500 62,500 1,937,500 2,173,139 3,197,586 3,197,312 3,415,885 ====== ====== ========= ========== ========== ========== ========== </TABLE> - ----------------------- (1) Reflects financial data for Rosecap, Inc., predecessor to Westbury Metals Group, Inc. <TABLE> <CAPTION> AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1999 ------------------- ----------------------- <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.......................................... $1,242 $1,365 Total current assets............................................... $5,305 $7,408 Total assets....................................................... $9,157 $11,280 Current liabilities................................................ $5,300 $3,376 Long-term debt..................................................... $1,342 $2,680 Total stockholders' equity......................................... $2,515 $5,224 </TABLE>

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+PROSPECTUS SUMMARY Entrade Inc. We own all of the outstanding shares of entrade.com, our Nationwide Auction Systems entities and Artra Group. We also currently own an approximately 14.65% equity interest in asseTrade.com, computed on a fully diluted basis, or 17.47% of the outstanding voting common stock, a 61% equity interest in printeralliance.com and a 15% equity interest in Pricecontainer.com. We operate as an Internet business-to-business electronic commerce, or "e- commerce," service provider. entrade.com combines its internal transaction technologies with business-to-business commercial applications to provide clients with marketing, procurement, inventory and supply-chain management functions for use in a multiple-site or industry community on-line environment. Clients use entrade.com's software and services for the management, purchase and sale of the clients' products and services including inventory, equipment and other assets. We have also created and are managing industry-specific websites for marketing, sales and procurement of products and services. We refer to this kind of website as a "vertical portal," which is a website dedicated to a specific industry for use by companies in that particular industry to buy and sell products and services. Under this business model, entrade.com generates commissions based upon these transactions and license fees for its software. entrade.com is directing its initial marketing efforts to utilities through utiliparts.com and to the heavy equipment industry through asseTrade.com. Artra became a wholly owned subsidiary of ours pursuant to a merger in September 1999, at which time the shareholders of Artra became the holders of approximately 83% of our outstanding shares of common stock. In recent years through November 20, 1998, Artra had operated as a manufacturer of packaging products principally serving the food industry. Artra currently has no active business operations. In October 1999, we acquired two entities that operate as Nationwide Auction Systems. Nationwide, which has operated for over 20 years, is one of the nation's largest volume public auction firms in the disposition of municipality, law enforcement, corporate and utility company surplus property. In addition to vehicles and equipment, Nationwide conducts real property and jewelry auctions. Nationwide conducts the auctions at its facilities or at off-site locations. Nationwide has six auction facilities located in California, Missouri, Delaware, New Mexico and Georgia. The address of our headquarters is 500 Central Avenue, Northfield, Illinois 60093, and our telephone number is (847) 441-6650. EXPERTS ................................................................90 WHERE YOU CAN FIND MORE INFORMATION......................................90 INDEX TO FINANCIAL STATEMENTS...........................................F-1 ORBIT System(R) is a registered trademark of entrade.com Inc. and Nationwide Auction Systems(R) and a related design are registered service marks of Asset Liquidation Group, Inc., each of which is a wholly owned subsidiary of Entrade. MARS System(TM) is a trademark of entrade.com Inc. The Offering Securities offered Up to 5,629,584 shares of common stock. Price per share Prevailing market prices for the common stock. See "Plan of Distribution" and "Selling Shareholders."

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+PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes specific terms of the securities as well as information regarding our business and detailed financial data. We encourage you to read this prospectus carefully, including the "Risk Factors" and the financial statements included herein. References in this prospectus to "us," "our" and "we" refer to TransTexas Gas Corporation and its predecessors and subsidiaries unless the context requires otherwise. "TEC" refers to TransAmerican Energy Corporation, our former parent, and "TARC" refers to TransAmerican Refining Corporation, another subsidiary of TEC. For purposes of this prospectus when we describe information on a pro forma basis, unless otherwise indicated, we are giving effect to our bankruptcy plan of reorganization described further down on this page. THE COMPANY We were organized in May 1993 as a Delaware corporation. Our principal executive office is located at 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas 77032, and our telephone number at that address is (281) 987-8600. We are engaged in the exploration for and development and production of natural gas and condensate, primarily in South Texas and along the Upper Gulf Coast. Our business strategy is to use our experience in drilling and operating wells in South Texas to find, develop and produce reserves at a low cost. Our long-term goal is to convert unproven acreage to proved reserves by drilling in under-exploited areas. In order to meet these long-term goals, our strategy is to drill wells in areas of the Upper Texas Gulf Coast where 3-D seismic data indicates productive potential and to drill development wells in our proven producing areas such as the Eagle Bay field and Wharton County. During the year ended January 31, 2000, our drilling program was restricted by reduced capital available from operations and by our debtor-in-possession financing. As of February 1, 2000, we had net proved reserves, as estimated by Netherland, Sewell & Associates, Inc., an independent firm of petroleum engineers, of 118 billion cubic feet equivalent ("Bcfe"). As of January 31, 2000, we owned approximately 333,400 gross (210,000 net) acres of mineral interests. Our average net daily natural gas production for the year ended January 31, 2000 was approximately 77 million cubic feet per day ("MMcfd"), for a total net production of 27.8 billion cubic feet ("Bcf") of natural gas. Our average net daily condensate and oil production for the year ended January 31, 2000 was approximately 5,005 barrels of oil per day ("Bpd"), for a total net production of 1.8 million barrels of condensate and oil. Our average net daily production of natural gas liquids ("NGLs") for the year ended January 31, 2000 was approximately 120,519 gallons per day, for a total net production of 44 million gallons of natural gas liquids. REORGANIZATION OF THE COMPANY PURSUANT TO OUR BANKRUPTCY FILING On April 19, 1999, we filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On April 20, 1999, our then parent company, TEC, and TARC also filed voluntary petitions for relief under Chapter 11. On May 20, 1999, the bankruptcy cases were transferred to the Southern District of Texas, Corpus Christi Division. Our Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 was confirmed by the bankruptcy court on February 7, 2000. The effective date of our bankruptcy plan was March 17, 2000. Under our bankruptcy plan, we executed several transactions, most of which were dated as of March 15, 2000. Among other things, we: o filed an amended and restated certificate of incorporation (as amended through the date of this prospectus, our "certificate of incorporation"); o canceled all of our old common stock, our $450 million intercompany loan payable to TEC, and all of our 13 3/4% Senior Subordinated Notes; o issued 1,002,751 shares of class A common stock and 247,500 shares of class B common stock; o issued 625,000 warrants; o filed a certificate of designation relating to 328,667,820 shares of senior preferred stock, and issued 222,455,320 of those shares; o filed a certificate of designation relating to 37,469,711 shares of junior preferred stock, and issued 20,716,080 of those shares; o entered into an Indenture relating to, and issued, $200 million of notes; o entered into a $52.5 million oil and gas credit facility; o entered into a $15 million accounts receivable credit facility; and o sold a production payment with a primary sum outstanding as of March 15, 2000 of $35 million. We describe these transactions more fully in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" located at page 37 of this prospectus. As a result of the effectiveness of our bankruptcy plan, we adopted "fresh-start" reporting as of January 31, 2000, and a new entity was created for the purposes of our financial reporting (sometimes referred to as the "Successor"). Information prior to January 31, 2000 is that of the predecessor entity. Pursuant to fresh-start reporting, we estimated our reorganization value as of January 31, 2000, which value was allocated to identified assets based on the assets' relative fair values. Liabilities surviving our bankruptcy plan were valued at the present value of amounts to be paid. We adjusted the present value of our liabilities to reflect an assumed interest rate of 15% for the period from February 1, 2000 to the effective date of our bankruptcy plan. The accretion of the discount was recorded as interest expense, which totalled $4.8 million for the six months ended July 31, 2000. RECENT EVENTS AND TRANSACTIONS On the effective date of our bankruptcy plan, we entered into an Oil and Gas Revolving Credit and Term Loan Agreement with GMAC Commercial Credit LLC, or GMACC, as a lender and as the agent for other lenders, under which we were provided certain loans to implement our bankruptcy plan and ongoing operations. The oil and gas credit facility consists of a term loan in the principal amount of $22.5 million and a revolving credit facility in a maximum amount of $30 million (all of which we borrowed on the effective date of our bankruptcy plan). The term loan bears interest at a rate of 14% per annum and the revolving loan bears interest at a rate of 13 1/2% per annum. Interest on the term loan and the revolving loan is payable monthly in arrears. The principal amount of the term loan is due in 20 quarterly installments of $56,250 each, with the balance due March 14, 2005. The principal amount of the revolving loan is due on March 14, 2005; however, we may, and in certain circumstances must, make prepayments of the revolving loan. If we make prepayments of the revolving loan and we demonstrate sufficient collateral value to satisfy certain requirements of the oil and gas credit facility provisions, we may be entitled to reborrow money under the revolving loan. The oil and gas credit facility is secured by substantially all of our assets. The security interest in our accounts receivable and inventory that secures the oil and gas credit facility is subordinated to the security interest of GMACC under the accounts receivable facility (described in the second paragraph following this paragraph). The repayment of the oil and gas credit facility is guaranteed by our subsidiaries, Galveston Bay Processing Corporation and Galveston Bay Pipeline Company. On the effective date of our bankruptcy plan, we entered into an Indenture with Firstar Bank, N.A., as Trustee, pursuant to which we issued the notes. Our subsidiaries Galveston Bay Processing Corporation and Galveston Bay Pipeline Company also entered into the indenture as guarantors of our obligations under the Indenture and the notes. Interest on the notes is due semi-annually on March 15 and September 15, beginning September 15, 2000. The stated maturity date of the notes is March 15, 2005. The Indenture contains certain covenants that restrict our ability to incur indebtedness, engage in transactions with our affiliates and related parties, dispose of assets or engage in sale/leaseback transactions, issue dividends on common stock, redeem our preferred stock, change our line of business, consolidate or merge with or into another entity or convey, transfer or lease all or substantially all of our assets, and suffer a change of control. The notes are secured by substantially all of our assets other than our accounts receivable and inventory. However, the security interest in favor of the Trustee (for the benefit of the holders of the notes) and securing repayment of the notes is subordinated to the security interest in favor of the agent under the oil and gas credit facility described in the immediately preceding paragraph. On the effective date of our bankruptcy plan, we entered into a Third Amended and Restated Accounts Receivable Management and Security Agreement with GMACC. This accounts receivable facility is a revolving credit facility secured by our accounts receivable and inventory. The maximum loan amount under this facility is $15 million, against which we may from time to time borrow, repay and reborrow, subject to the terms and conditions of the accounts receivable facility. As of July 31, 2000, $12.2 million was outstanding under this facility and there was availability to borrow an additional $1.2 million. Money borrowed under the accounts receivable facility bears interest at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the federal funds rate plus 1 1/2%, payable monthly in arrears. The outstanding principal balance under the accounts receivable facility will be due on March 14, 2005. In March 2000, we entered into a production payment agreement with certain parties unrelated to us whereby the third parties, or counterparties, advanced us money to finance drilling (a "primary sum") in exchange for the right to receive a portion of the proceeds resulting from the production of certain wells owned and/or operated by us ("production payments"). The production payment agreement requires us to pay the counterparties the primary sum plus an amount equivalent to a 15% interest rate on the unpaid portion of the primary sum. As of July 31, 2000 and September 15, 2000, the primary sum outstanding under the production payment agreement was $30.9 million and $32.4 million, respectively. We have the right to sell further production payments to the counterparties in return for additional sums up to a maximum aggregate primary sum of $52 million. The provisions of the oil and gas credit facility place certain restrictions on the amount of the aggregate primary sum that may be outstanding under the production payment agreement. SUMMARY OF THE OFFERING <TABLE> <S> <C> <C> Securities Offered by Selling Security Holders: $200,000,000 aggregate principal amount of notes 328,667,820 shares of senior preferred stock 37,469,711 shares of junior preferred stock 515,625 warrants 62,963,376 shares of class A common stock 247,500 shares of class B common stock </TABLE> Use of Proceeds: We will use the proceeds, if any, received upon exercise of the warrants for general corporate purposes. We will not receive any proceeds from the sale of any other of the securities. Registration Rights: We entered into various registration rights agreements with or for the benefit of each of the selling security holders relating to the notes, the senior preferred stock, the junior preferred stock and the class A common stock. Under the terms of these various registration rights agreements, we have agreed to register the securities under a registration statement filed with the SEC and, among other things, do the following: o keep the registration statement effective for five years (or a shorter time if all of the securities covered thereby have been sold pursuant to the registration statement); o cause the registration statement to be kept sufficiently accurate to comply with the requirements of the Securities Act of 1933 and the rules and regulations of the SEC; o give written notice to the holders of any of the securities covered thereby of any amendment to the registration statement; o give written notice to the holders of any of the securities covered thereby of a suspension of the effectiveness of the registration statement or any event that we believe could lead to such a suspension; o make reasonable efforts to have the registration statement made effective as soon as possible after any suspension of its effectiveness; and o provide each holder of any security covered by the registration statement with as many copies of this prospectus (and any amendments or supplements hereto) that are reasonably requested. SUMMARY OF THE SECURITIES The following descriptions of the securities offered by this prospectus are summaries only and are not complete. You should also carefully read the descriptions of the securities set forth in the section entitled "Description of the Securities" beginning on page 59 of this prospectus. NOTES The 15% Senior Secured Notes due 2005 covered by this prospectus are referred to in this prospectus as the "notes." Interest: We will pay you interest on the notes in cash at a rate of 15% per annum, paid twice a year on March 15 and September 15. Maturity: March 15, 2005. Optional Redemption: Before March 15, 2005, at our option, we can buy back all or a portion of the notes, in cash, at the redemption prices (expressed as a percentage of the outstanding principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date: <TABLE> <CAPTION> IF REDEEMED DURING THE REDEMPTION 12-MONTH PERIOD BEGINNING PRICE --------------------------------- ---------- <S> <C> March 15, 2000 115% March 15, 2001 112% March 15, 2002 109% March 15, 2003 106% March 15, 2004 103% </TABLE> Guaranty: Our material subsidiaries, whether existing now or created in the future, are required to unconditionally guarantee our payment of the notes. If we cannot make payments on the notes when due, our guarantor subsidiaries must make them instead. Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, each a wholly owned subsidiary of ours, are currently the guarantor subsidiaries of the notes. Our Obligation to Purchase the notes: If control of our Board of Directors changes in certain respects, we must offer to purchase your notes at 101% of the unpaid principal amount, plus accrued interest. Security: Our repayment of the notes is secured by substantially all of our assets other than our accounts receivable and inventory; however, this collateral for repayment of the notes is subject to a prior lien securing the payment of our oil and gas credit facility. Therefore, in the event that we default on both the notes and our oil and gas credit facility, our pledged assets will be used to pay our obligations under our oil and gas credit facility before they are used to pay our obligations to you under the notes. Ranking: The notes rank senior to all of our junior debt, but rank equally with our other senior debt, if any. Therefore, if we default, your right to payment under the notes will be shared, on a dollar for dollar basis, by any other person who holds any of our other senior debt, even if the other senior debt is incurred in the future. Currently the notes are our only outstanding senior indebtedness other than the following: o our oil and gas credit facility; o our accounts receivable facility; and o a promissory note in favor of Jefferies Analytical Trading Group, Inc. in the principal amount of $6,676,288, due March 17, 2003. Restrictive Covenants: We issued the notes under an Indenture with Firstar Bank, N.A. The Indenture, among other things, restricts our ability and the ability of our subsidiaries to: o borrow money; o pay dividends on common stock or preferred stock or make other asset transfers; o transact business with affiliates and related parties; o sell stock in subsidiaries; o engage in any new line of business; o further impair the security interests in any collateral for the notes; o use assets as security in other transactions; and o sell certain assets or merge with or into other companies. For additional information concerning the notes, see "Description of the Securities -- The Notes" beginning at page 59 of this prospectus. SENIOR PREFERRED STOCK The shares of Series A Senior Preferred Stock covered by this prospectus are referred to in this prospectus as the "senior preferred stock." Dividends: As a holder of shares of senior preferred stock, you have the right to receive quarterly cash dividends at the rate of $0.10 per share of senior preferred stock per annum, except that during the first two years after March 15, 2000, in lieu of paying cash dividends, we have the option to pay you dividends in kind (i.e., in additional shares of senior preferred stock with an aggregate liquidation preference equal to the amount of the dividend to be paid) at a rate of $0.20 per share per annum. After March 15, 2002, we will pay you dividends only in cash at the rate of $0.0775 per share per annum. We cannot pay you dividends if we do not have sufficient surplus (or, in certain cases, sufficient net profits) to legally make such dividend payments. Par Value: $0.001 per share. Liquidation Preference: $1.00 per share, plus an amount equal to accrued and unpaid dividends. Mandatory Redemption: We are required to redeem your shares of senior preferred stock on March 15, 2006 at 100% of the liquidation preference per share. Optional Redemption: We may redeem your shares of senior preferred stock at any time at an initial price equal to $0.88 per share plus all accrued but unpaid dividends, increasing by $0.005 per share per month to a maximum of 100% of the liquidation preference per share. However, we are not permitted to redeem the senior preferred stock prior to the time the notes have been retired. Mandatory Conversion: If either (i) more than 75 million shares of the senior preferred stock are outstanding after March 15, 2006 or (ii) any two dividend payments have not been paid on the senior preferred stock, then, on a pro rata basis, one-half of the outstanding shares of the senior preferred stock will automatically convert into shares of our common stock on the basis of 0.3461 shares of class A common stock for each $1.00 of liquidation preference of the shares of senior preferred stock converted. The conversion ratio is subject to adjustment pursuant to customary anti-dilution provisions. The remaining shares of senior preferred stock will remain outstanding. Voting Rights: Holders of senior preferred stock have the right, voting separately as a class, to elect four (4) of the five (5) directors to our Board of Directors; provided, that if we have not paid dividends with respect to the payments due commencing March 15, 2002, such holders will have the right, voting separately as a class, to elect all five (5) directors to our Board of Directors. Holders of senior preferred stock have one vote per share, voting together with the class A common stock, the junior preferred stock and any other series or classes of our stock entitled to vote with the class A common stock, on all matters on which the holders of the class A common stock are entitled to vote generally. Voting rights of the senior preferred stock may not be changed without the consent of the holders of 75% of the shares of senior preferred stock, voting as a class. Ranking: The senior preferred stock ranks senior to all of our other capital stock with respect to the payment of dividends and amounts upon our liquidation, dissolution or winding up, unless additional preferred stock is issued that ranks senior or equal to the senior preferred stock in these respects. We are not entitled to issue any such senior or equal ranking stock without the approval of the holders of a majority of the senior preferred stock. Restrictive Covenants: The certificate of designation governing the senior preferred stock contains restrictive covenants that, among other things, restrict our ability and the ability of our subsidiaries to: o borrow money; o pay dividends on capital stock or make other asset transfers; o transact business with affiliates and related parties; o sell stock in subsidiaries; o engage in any new line of business; o use assets as security in other transactions; and o sell certain assets or merge with or into other companies. Additional Issuances: We may not issue additional shares of senior preferred stock other than shares that we issue to pay dividends in kind. For additional information concerning the senior preferred stock, see the section entitled "Description of the Securities -- The Senior Preferred Stock" beginning at page 87 of this prospectus. JUNIOR PREFERRED STOCK The shares of Series A Junior Preferred Stock covered by this prospectus are referred to in this prospectus as the shares of "junior preferred stock." The senior preferred stock and the junior preferred stock, when referred to collectively, are sometimes referred to as the "preferred stock." Dividends: As a holder of shares of junior preferred stock, you have the right to receive quarterly dividends at the rate of $0.10 per share per annum through March 15, 2006, and at a rate of $0.20 per share per annum thereafter. We will pay you dividends only in additional shares of junior preferred stock through March 15, 2006. Beginning June 15, 2006, we will pay you dividends both (i) in cash at the rate of $0.10 per share per annum and (ii) in additional shares of junior preferred stock at the rate of $0.10 per share per annum. We cannot pay you dividends if we do not have sufficient surplus (or, in certain cases, sufficient net profits) to legally make such dividend payments. Par Value: $0.001 per share. Liquidation Preference: $1.00 per share, plus an amount equal to accrued and unpaid dividends. Mandatory Redemption: We are required to redeem your shares of junior preferred stock on March 15, 2010 at 100% of the liquidation preference per share. Optional Redemption: We may redeem your shares of junior preferred stock, in whole or in part, at our option for cash in an amount equal to 100% of the liquidation preference per share at any time after the notes and the senior preferred stock have been retired and all accrued and unpaid dividends on the junior preferred stock have been paid in full. Mandatory Conversion: If either (i) more than 75 million shares of the senior preferred stock are outstanding after March 15, 2006 or (ii) any two dividend payments have not been paid on the senior preferred stock, then all of the outstanding shares of the junior preferred stock will automatically convert into shares of our common stock on the basis of 0.1168 shares of class A common stock for each $1.00 of liquidation preference of the junior preferred stock. The conversion ratio is subject to adjustment pursuant to customary anti-dilution provisions. Voting Rights: Holders of junior preferred stock have one vote per share, voting together with holders of the class A common stock, the senior preferred stock and any other series or classes of our stock entitled to vote with the class A common stock, on all matters on which holders of the class A common stock are entitled to vote. If no shares of the senior preferred stock are outstanding, holders of the shares of junior preferred stock will have the right, voting separately as a class, to elect two directors to our Board of Directors. Voting rights of the junior preferred stock may not be changed without the consent of the holders of 75% of the shares of the junior preferred stock, voting as a class. Ranking: The junior preferred stock ranks junior to the senior preferred stock and to all of our hereafter issued preferred stock that is expressly stated to be senior to the junior preferred stock, and senior to our common stock and to all of our hereafter issued preferred stock, if any, that is expressly stated to be junior to the junior preferred stock with respect to the payment of dividends and amounts upon our liquidation, dissolution or winding up. Restrictive Covenants: The certificate of designation governing the junior preferred stock contains restrictive covenants that, among other things, restrict our ability and the ability of our subsidiaries to: o borrow money; o pay dividends on common stock or the preferred stock or make other asset transfers; o transact business with affiliates and related parties; o sell stock in subsidiaries; o engage in any new line of business; o use assets as security in other transactions; and o sell certain assets or merge with or into other companies. These covenants will become effective when all of the notes (and any refinancings thereof) have been repaid and all of the senior preferred stock has been redeemed. Additional Issuances: We may not issue additional shares of junior preferred stock other than shares that we issue to pay dividends in kind. For additional information concerning the junior preferred stock, see the section entitled "Description of the Securities -- The Junior Preferred Stock" beginning at page 90 of this prospectus. WARRANTS We have issued a total of 625,000 Class A Common Stock Purchase Warrants, of which 515,625 are covered by this prospectus. The Class A Common Stock Purchase Warrants are referred to in this prospectus as the "warrants." The shares of class A common stock issuable upon exercise of the warrants are referred to as the "warrant shares." Warrants Issued: 625,000 warrants. The shares of our class A common stock to be issued upon exercise of the warrants and our other outstanding warrants will represent approximately 33% of our common stock on a fully-diluted basis (after giving effect to the exercise of all of our outstanding warrants and the conversion of the class B common stock but before any conversion of the senior preferred stock or the junior preferred stock). Exercise: Each warrant is immediately exercisable to purchase one share of class A common stock at the exercise price. Expiration Date: June 30, 2002. Exercise Price: $120 per share. Anti-Dilution Provisions: We issued the warrants pursuant to a Warrant Agreement with ChaseMellon Shareholder Services, L.L.C., as warrant agent. The warrant agreement contains customary anti-dilution provisions. However, the anti-dilution provisions will not provide for any adjustments relating to shares that we issue upon the exercise of warrants covered by the warrant agreement or upon conversion, if any, of the senior preferred stock or the junior preferred stock. For additional information concerning the warrants, see "Description of the Securities -- The Warrants" beginning at page 94 of this prospectus. CLASS A COMMON STOCK The shares of class A common stock covered by this prospectus are sometimes referred to in this prospectus as the "common stock." Par Value: $0.01 per share. Voting Rights: Subject to the rights of the preferred stock and the class B common stock to elect certain directors, holders of shares of class A common stock are entitled to one vote per share on any matter submitted to a vote of stockholders, including the election of directors to fill vacancies which are not otherwise designated to be filled by the holders of the preferred stock or class B common stock. Cumulative voting is prohibited. The holders of the class B common stock will have the right, voting separately as a class, to elect one of our directors during periods in which the holders of the senior preferred stock are not entitled to elect all five of our directors. Rights Regarding Dividends and Liquidation: Shares of class A common stock are not redeemable, do not have any conversion rights and are not subject to any obligation of ours to repurchase the class A common stock. As a holder of class A common stock, you have no preemptive rights to maintain your percentage ownership of us in future offerings or sales of stock by us. We do not pay a dividend on the common stock and may not do so as long as the preferred stock is outstanding. Upon liquidation, dissolution or winding-up of our affairs, you will be entitled to participate equally and ratably, in proportion to the number of shares you hold, in our net assets available for distribution to holders of class A common stock. The shares of class A common stock currently outstanding are validly issued, fully paid and nonassessable. CLASS B COMMON STOCK The shares of class B common stock offered by this prospectus will automatically convert, on a share for share basis, into shares of class A common stock upon their transfer to any person other than John R. Stanley, his affiliates and members of his family or upon the termination, for certain reasons, of John R. Stanley as our chief executive officer and as one of our directors. Par Value: $0.01 per share. Voting Rights: Subject to the rights of the preferred stock to elect certain directors, the holders of class B common stock will have the right, voting separately as a class, to elect one director of the Company and to one vote per share on any other matter submitted to a vote of stockholders, including the election of directors to fill vacancies which are not otherwise designated to be filled by the holders of the preferred stock. Cumulative voting is prohibited. Rights Regarding Dividends and Liquidation: Shares of class B common stock are not redeemable, do not have any conversion rights (other than the automatic conversion into class A common stock in the instances described above) and are not subject to any obligation of the Company to repurchase the class B common stock. As a holder of class B common stock, you have no preemptive rights to maintain your percentage ownership of us in future offerings or sales of stock by us. We do not pay a dividend on the class B common stock and may not do so as long as the preferred stock is outstanding. Upon liquidation, dissolution or winding-up of our affairs, you will be entitled to participate equally and ratably, in proportion to the number of shares you hold, in our net assets available for distribution to holders of class B common stock. The shares of class B common stock currently outstanding are validly issued, fully paid and nonassessable. SUMMARY BALANCE SHEET DATA The following table presents our summary balance sheet data as of July 31, 2000. The summary balance sheet data should be read in conjunction with our historical financial statements included herein. <TABLE> <CAPTION> JULY 31, 2000 ---------------- (IN THOUSANDS OF DOLLARS) <S> <C> Working capital............... $ 3,362 Net property and equipment.... $335,718 Total assets.................. $388,136 Total debt.................... $313,824 Stockholders' deficit......... $ 13,436 </TABLE>

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+PROSPECTUS SUMMARY THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THE PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. DYAX CORP. We are a biopharmaceutical company that has developed and patented a method, known as phage display, that we are using to identify a broad range of compounds with potential for the treatment and diagnosis of diseases. We are also using this method to identify compounds that could be used in purifying and manufacturing biopharmaceuticals and other chemicals. We believe that we and others can use our phage display technology to rapidly and cost-effectively determine the potential medical uses of newly discovered proteins and genes and subsequently discover biopharmaceutical product candidates. Given the quantity of genetic information made available by the recent mapping of most of the human genome, we believe that the advantages of our technology over other technologies should increase in importance. We believe that phage display can have the greatest potential impact on our business through our discovery of proprietary biopharmaceuticals. We also develop, manufacture and sell chromatography separations systems and products that are used in laboratories and pharmaceutical manufacturing to separate molecules in liquid mixtures. These systems are used during the discovery, development and manufacture of biological and pharmaceutical products. We are a leading developer, manufacturer and supplier of chromatography separations systems that use disposable cartridges to separate and thereby purify pharmaceuticals being produced for research and clinical development. Using our phage display technology, we are also developing novel separations products to purify biopharmaceuticals. PHAGE DISPLAY In the late 1980s, Dyax scientists invented phage display, a novel method to display individually up to tens of billions of peptides and proteins, including human antibodies and enzymes, on the surface of a small bacterial virus called a phage. Using phage display, we can produce and search through large collections, or libraries, of peptides and proteins to identify rapidly those compounds that bind tightly to a specific molecular target. Our scientists, collaborators and licensees use phage display to improve the speed and cost effectiveness of drug discovery and optimization. Our core patent position in this technology has enabled us to license our patents to an extensive and increasing number of companies that use phage display. We believe that with our intellectual property position, our diverse types of libraries and our substantial experience in applying phage display technology, we are an attractive partner for companies seeking collaborative arrangements in the application of this technology. BUSINESS STRATEGY We plan to maximize the value of our phage display technology by pursuing our internal product discovery and development programs and our collaborative arrangements and by broadly licensing our phage display technology. The principal elements of our business strategy are to: - discover and develop proprietary biopharmaceuticals; - leverage our technology through collaborative arrangements and licensing of our phage display patents and libraries; - develop and market innovative separations products, including separations products developed using phage display; - develop novel products in other areas using phage display, including molecules for imaging disease conditions in humans, and industrial enzymes, which are enzymes used to accelerate chemical reactions in industrial processes; and - continue to extend our intellectual property and technology through internal and external initiatives. We plan to continue to invest substantially in programs using our phage display technology to develop biopharmaceutical and other products. We have accumulated losses since inception as we have invested in our businesses. For us to be profitable, we must fully develop and commercialize biopharmaceuticals, establish additional collaborative arrangements and achieve greater market penetration for our separations products with new and existing separations products. OUR PRODUCTS, PROGRAMS AND INITIATIVES BIOPHARMACEUTICAL PRODUCT DEVELOPMENT PROGRAMS We have used our phage display technology to: - discover two potential biopharmaceuticals, EPI-HNE4, which we refer to as Reltran-TM-, and DX-88, that are in Phase I human clinical trials for some inflammatory diseases; and - identify two proteins, including one human monoclonal antibody, with potential applications for treating some cancers. EPI-HNE4/Reltran-TM- is a potential biopharmaceutical for the treatment of cystic fibrosis, chronic obstructive pulmonary disease, asthma and acute respiratory distress syndrome. Our collaborator, Debiopharm S.A., a Swiss pharmaceutical development company, is currently conducting a Phase I clinical trial of this compound, which will determine the safety of this compound in healthy human subjects. We have retained the right to develop the drug ourselves outside of Europe. DX-88 is a potential therapeutic for the treatment of an hereditary condition involving abnormal swelling of body tissue, as well as for complications of cardiopulmonary bypass surgery and rheumatoid arthritis. We have entered into a collaboration with Genzyme Corporation to develop DX-88, which is now in a Phase I clinical trial. COLLABORATION AND LICENSE ARRANGEMENTS We are currently engaged in collaborative arrangements with biotechnology and pharmaceutical companies for the discovery and/or development of potential pharmaceutical, separations and diagnostic products. We currently have 10 of these arrangements, and have completed work under several others, that generally provide us with research funding, license fees, milestone payments and royalties. We have also licensed our phage display patents to enable the broad application of this technology in the fields of therapeutics and laboratory, or IN VITRO, diagnostics. We have licensed our phage display patents to over 40 companies and institutions on a non-exclusive basis. Under these licenses, we generally obtain revenues from license fees, milestone payments and royalties on sales of products developed using phage display. We recently entered into two broad license and collaboration agreements with Amgen Inc. and Human Genome Sciences, Inc.: - In February 2000, we entered into a license technology transfer and technology services agreement with Amgen Inc. under which we are developing a new phage library for Amgen. Amgen has broad rights to develop and commercialize biopharmaceuticals using our phage display technology. - In March 2000, we entered into a collaboration and license agreement with Human Genome Sciences, Inc. Under this agreement, we and HGSI will use our phage display technology and compound libraries to identify and optimize product candidates that bind to molecular targets selected by HGSI, and also to develop new technologies for screening and purifying molecular targets. SEPARATIONS PRODUCTS AND PRODUCT DEVELOPMENT PROGRAMS Our customers use our separations systems in processes that range from drug discovery to full commercial production. We market our separations products under our Biotage trade name. In 1999, we had over $12 million in Biotage product revenues. We are also developing potential separations products that will use unique binding compounds identified through phage display to provide improved purification for discovery, development and manufacture of biopharmaceuticals. We refer to these potential products as affinity separations products because they are based on the tight binding quality, also known as high affinity, that we can select using phage display technology. DIAGNOSTIC IMAGING AND INDUSTRIAL ENZYME PRODUCT DEVELOPMENT PROGRAMS We have discovery and preclinical programs for diagnostic imaging products that are used in humans, or IN VIVO, and for discovery programs for novel industrial enzymes. We are using our phage display technology to develop compounds as IN VIVO imaging agents for diagnosis and monitoring of cardiovascular and inflammatory diseases and some cancers. We are also using our phage display technology to develop methods for engineering novel industrial enzymes for use in the field of pharmaceutical production. TECHNOLOGY EXPANSION INITIATIVES We continue to develop technology internally and acquire technology rights that are complementary to or expand our existing technology. As an example of these initiatives, in July 1999 we acquired Target Quest B.V., which increased our ability to discover human antibodies using our phage display technology. THE OFFERING The number of shares outstanding after the offering is based on shares outstanding as of July 25, 2000 and excludes 2,740,730 shares reserved for issuance under our stock plans, of which options to purchase 2,320,516 shares are outstanding at a weighted average exercise price of $2.05 per share. This number also excludes 27,022 shares issuable upon exercise of outstanding warrants at an exercise price of $3.97 per share. This number assumes no exercise of the underwriters' over-allotment option. If the over-allotment option is exercised in full, we will issue and sell an additional 600,000 shares. Unless otherwise indicated, all information in this prospectus reflects the filing of an amended and restated certificate of incorporation with the Secretary of State of the State of Delaware prior to the closing of this offering. <TABLE> <S> <C> COMMON STOCK OFFERED BY DYAX.................... 4,000,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THE 18,102,711 shares OFFERING...................................... USE OF PROCEEDS................................. We expect to use the net proceeds to fund: - research and development; - possible acquisitions of technology and complementary businesses; and - working capital, capital expenditures and other general corporate purposes. Please read "Use of Proceeds." PROPOSED NASDAQ NATIONAL MARKET SYMBOL.......... "DYAX" </TABLE> All information in this prospectus assumes the issuance and sale of common stock in the offering at an assumed initial public offering price of $14.00 per share, the mid-point of the range of the initial public offering prices set forth on the cover page of this prospectus. ------------------------ We have filed for trademark protection for the Dyax mark and the Dyax logo. We have a United States registration on the Kiloprep mark. We have also registered the Kiloprep mark in Japan, Germany and the United Kingdom. In addition, we consider "Biotage" as a trade name and consider Parallex, ProPrep, BioFLASH and Reltran to be trademarks. All other trademarks or service marks appearing in this prospectus are the property of their respective holders. ------------------------ We incorporated in Delaware in 1989 under the name Biotage, Inc. and merged with Protein Engineering Corporation in August 1995. Our principal executive offices are located at One Kendall Square, Building 600, Cambridge, Massachusetts 02139, and our telephone number is (617) 225-2500. SUMMARY CONSOLIDATED FINANCIAL DATA We have derived the consolidated statement of operations data for the years ended December 31, 1997, 1998, and 1999 from our audited financial statements included elsewhere in this prospectus. We have derived the summary consolidated financial data as of June 30, 2000 and for the six months ended June 30, 1999 and June 30, 2000 from our unaudited financial statements included elsewhere in this prospectus. The pro forma net loss per share reflects the number of shares outstanding as of December 31, 1999 and June 30, 2000, after giving effect to the conversion of all of the outstanding shares of preferred stock into common stock and the acceleration of vesting with respect to some shares of restricted common stock. The pro forma as adjusted balance sheet data reflect that conversion and also reflect the sale of 4,000,000 shares of common stock in this offering at an assumed initial offering price of $14.00 per share after deducting underwriting discounts and estimated offering expenses. You should read the selected financial information below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes related to those financial statements included elsewhere in this prospectus. <TABLE> <CAPTION> ---------------------------------------------------------------- <S> <C> <C> <C> <C> <C> SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------- ------------------------ IN THOUSANDS, EXCEPT SHARE DATA 1997 1998 1999 1999 2000 ---------- ---------- ----------- ---------- ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Product sales................................. $ 7,138 $ 9,641 $ 12,596 $ 5,246 $ 6,686 Product development and license fee revenues.................................... 2,192 4,490 4,237 1,728 3,577 ---------- ---------- ----------- ---------- ----------- Total revenues............................ 9,330 14,131 16,833 6,974 10,263 ---------- ---------- ----------- ---------- ----------- Operating expenses: Cost of products sold......................... 2,931 4,164 5,515 2,311 3,071 Research and development...................... 5,625 6,778 10,618 4,653 6,992 Selling, general and administrative........... 6,787 10,061 14,069 6,113 8,365 Stock-based compensation...................... 75 681 939 470 878 ---------- ---------- ----------- ---------- ----------- Total operating expenses.................. 15,418 21,684 31,141 13,547 19,306 ---------- ---------- ----------- ---------- ----------- Loss from operations............................ (6,088) (7,553) (14,308) (6,573) (9,043) Interest income (expenses), net................. 265 401 856 418 318 Investment income............................... -- -- 265 -- -- ---------- ---------- ----------- ---------- ----------- Net loss........................................ $ (5,823) $ (7,152) $ (13,187) $ (6,155) $ (8,725) ---------- ---------- ----------- ---------- ----------- Net loss per common share, basic and diluted.... $ (3.95) $ (4.22) $ (6.81) $ (3.53) $ (3.74) Shares used in computing basic and diluted net loss per share--................................... 1,473,474 1,694,782 1,936,907 1,743,759 2,333,493 Unaudited pro forma basic and diluted net loss per share..................................... $ (.97) $ (.62) Shares used in computing unaudited, pro forma basic and diluted net loss per share.......... 13,604,750 14,006,038 </TABLE> <TABLE> <CAPTION> ------------------- <S> <C> <C> AS OF JUNE 30, 2000 ------------------- PRO FORMA AS IN THOUSANDS ACTUAL ADJUSTED -------- -------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $16,156 $ 67,156 Working capital............................................. 12,713 63,713 Total assets................................................ 30,053 81,053 Long-term debt and capital lease obligations, less current portion................................................... 1,929 1,929 Accumulated (deficit)....................................... (60,380) (60,380) Total stockholders' equity.................................. 11,835 62,835 </TABLE>

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+PROSPECTUS SUMMARY This summary highlights information contained in this prospectus. This summary does not contain all of the important information that you should consider before exercising the rights and investing in our new common stock. You should read the entire prospectus carefully, including the section called "Risk Factors" and the financial data and related notes, before making an investment decision. The terms "Coho," "our," "us" and "we" as used in this prospectus refer to Coho Energy, Inc. and its consolidated subsidiaries, unless we indicate otherwise or the context otherwise requires. Additional definitions related to oil and gas terms are located in the section of this prospectus called "Glossary." COHO ENERGY, INC. We are an independent energy company engaged, through our wholly owned subsidiaries, in the development and production of, and exploration for, crude oil and natural gas. Our operations are concentrated principally in the U.S. Gulf Coast and Mid-Continent regions, including Mississippi, Oklahoma and Texas. At December 31, 1999, our total proved reserves were 113.9 MMBOE, of which approximately 94% were comprised of crude oil and approximately 69% were proved developed. The present value of estimated future net cash flows, before income taxes, of proved crude oil and natural gas reserves, discounted at an assumed rate of 10%, was $790.2 million. We also have substantial exploitation reserve growth opportunities, including recompletions, drilling and waterflood projects. Additionally, we have exploration and exploitation reserve growth opportunities associated with our 3-D seismic databases in Mississippi and Oklahoma within the geographical confines of our existing fields. Of the 21 major producing properties in which operations are conducted, we operate 17 and own an average working interest of approximately 77% in these operated properties. Our significant control of operations and geographic focus have resulted in substantial operating economies of scale that have enabled us to maintain a low cost structure. Our strategy is to maximize production and increase reserves through - relatively low-risk activities such as development and delineation drilling, multi-zone completions, recompletions, enhancement of production facilities and secondary recovery projects; - use of 3-D seismic and other technologies to identify exploration projects and to identify reserves; - acquisition of controlling interests in underdeveloped crude oil and natural gas properties; and - significant control of operations. Our executive offices are located at 14785 Preston Road, Suite 860, Dallas, Texas 75240, and our telephone number is (972) 774-8300. RECENT DEVELOPMENTS On November 30, 1999, we filed our plan of reorganization with the United States Bankruptcy Court for the Northern District of Texas. At a hearing on February 4, 2000, the bankruptcy court approved our disclosure statement with respect to the plan of reorganization. In that hearing, the bankruptcy court also scheduled a confirmation hearing to consider the plan of reorganization for March 15, 2000. On February 14, 2000, we and the Official Committee of Unsecured Creditors jointly filed the Debtors' and Creditors Committee's First Amended and Restated Chapter 11 Plan of Reorganization to reflect the matters contained in the approved disclosure statement. On February 15, 2000, we filed the approved disclosure statement with the bankruptcy court and on February 14, 2000, we began mailing it to holders of claims and equity interests for voting on our plan of reorganization. Subsequently, we obtained approval of our plan of reorganization. On March 20, 2000, the bankruptcy court entered a confirmation order confirming our plan of reorganization, as amended and restated, and on March 31, 2000, our plan of reorganization became effective and was consummated.

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+PROSPECTUS SUMMARY Following is a summary of the more detailed information and the financial statements and notes contained elsewhere in this prospectus. We encourage you to read the entire prospectus carefully, including the section titled "Risk Factors" and the financial statements and the notes to those financial statements. Our Business We develop, license and support data storage software. Our software products provide data storage management for computer systems ranging in size from single servers to large, complex networks. Our software products meet the demands of organizations requiring uninterrupted access to information 24 hours per day, seven days per week. Our products allow organizations to efficiently and reliably create, store, access, manage, analyze and move data across local and remote computer networks and over a new type of computing environment, called a storage area network or SAN, which we believe will emerge as a preferred data storage method. We have over 600 licenses of our software in 33 countries with more than 250 customers. Our six largest commercial customers, based on software license revenues in 1999, were Abbey National Insurance, Audi, Bristol-Myers Squibb, Hallmark, Volkswagen AG and Xerox Corporation. We currently offer six primary software products and have additional products under development. Our core product, Storage and Archive Manager File System or SAM-FS, is our main revenue generator. Revenue attributable to SAM-FS accounted for 71.8%, 84.4% and 73.2% of our total revenue for 1997, 1998 and 1999, respectively. Industry Background Until recently, organizations required data storage software only for high performance computing applications generating enormous quantities of data, such as military or oil and gas exploration applications. In recent years, however, the emergence of lower cost, powerful workstations, high speed computer networks and the Internet has led to broader demand for data storage management. Today, diverse organizations such as hospitals, printing companies, automotive manufacturers and retailers generate their own massive amounts of data demanding high performance computer networks. In turn, these organizations now require sophisticated data storage software to more effectively utilize their increasing amounts of data. International Data Corporation, an independent technology research firm, estimates that the overall market for data protection and management software is growing from $3.5 billion in 1998 to $6.7 billion in 2003. Our Market Positioning and Strategy We believe that our data storage software meets and exceeds the increasing demands of today's organizations to handle large volumes of data because we have designed our products to provide: scalability, or the ability of our products to efficiently manage customers' storage systems as their hardware components and data storage management needs increase; protection against data loss and file system corruption; SAN capability, or the ability of multiple computer servers to share the same data on a common group of storage devices; rapid data recovery in the event of computer system failure; consistent and uninterrupted access to data; access to data over commonly used computer networks, the Internet and SANs; compatibility with leading computer applications and ease of use; the ability for customers' data storage hardware to perform at essentially full rated speeds; and flexible automated management. Our data storage software products operate only on the Sun Microsystems Solaris operating system. Sun is the leading provider of UNIX operating environments. We market our software directly to original equipment manufacturers, or OEMs, and to end users through resellers, value added resellers, hardware distributors, application software vendors and system integrators. Our objective is to emerge as a market leader among providers of data storage software. Our plans for meeting this goal are to: introduce new products through our development efforts; build brand awareness and product recognition; retain more OEMs and distribution partners in an effort to license our products for new applications and into new markets; and pursue strategic product or technology acquisitions. Our History and Structure We were originally incorporated in Texas in 1985 as a consulting company. In 1993, we reincorporated in Minnesota and began focusing exclusively on data storage software in 1997. Our principal executive offices are located at 1270 Eagan Industrial Road, Suite 160, Eagan, Minnesota 55121-1231, and our telephone number is (651) 554-1500. We own or have rights to trademarks that we use in connection with the sale of our products. This prospectus also makes reference to trademarks and trade names of other companies. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 The Offering Common stock offered 3,000,000 shares Common stock to be outstanding after the offering 7,540,834 shares Use of proceeds Although we have no firm plans for how to use the net proceeds of this offering, we anticipate using the net proceeds for expansion of sales and marketing, development of new data management storage software products and working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol LSCI The table above and, unless otherwise specified, other references in this prospectus to our outstanding common stock, are based on the number of shares outstanding as of March 31, 2000, assume that the underwriters' over-allotment option will not be exercised and exclude: 1,000,000 shares of common stock reserved for issuance under our 1992 stock option plan, under which options to acquire 782,600 shares are outstanding at a weighted average exercise price of $2.88 per share, options to acquire 166,000 shares are outstanding at an exercise price equal to the initial public offering price in this offering and options to acquire 51,400 shares are available for future issuance; 1,000,000 shares of common stock reserved for issuance under our 2000 stock incentive plan, under which no awards have been granted; 850,000 shares of common stock reserved for issuance under stock options and an agreement to grant stock options at a weighted average exercise price of $3.59 per share; 200,000 shares of common stock reserved for issuance under our employee stock purchase plan, which will commence after completion of this offering; 357,562 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $3.29 per share; up to 300,000 shares of common stock issuable upon exercise of warrants to be issued to the underwriters; and 40,000 shares of common stock an individual claims to hold but which we do not treat as outstanding because we believe the individual is required to forfeit these shares. AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Total operating expenses 1,621 2,240 2,914 2,900 4,007 722 1,082 Operating income (loss) (1,369 ) (1,070 ) (1,329 ) 121 889 324 450 Interest income (expense), net 16 57 (129 ) (343 ) (86 ) (28 ) (1)Includes non-cash stock compensation expense of $489,195 and $49,231 for the year ended December 31, 1999 and for the three months ended March 31, 2000, respectively. (2)The as adjusted amounts reflect the receipt and application of the net proceeds from the sale of 3,000,000 shares of our common stock at an assumed initial public offering price of $8.00, after deducting the underwriting discounts and estimated offering expenses payable by us. Total operating expenses 1,621 2,240 2,914 2,900 4,007 722 1,082 Operating income (loss) (1,369 ) (1,070 ) (1,329 ) 121 889 324 450 Interest income (expense), net 16 57 (129 ) (343 ) (86 ) (28 ) LSC, INCORPORATED (Exact name of registrant as specified in its charter) Minnesota 7372 75-1977026 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 1270 Eagan Industrial Road, Suite 160 Eagan, Minnesota 55121-1231 (651) 554-1500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) J. B. (Brad) Balogh President and Chief Executive Officer LSC, Incorporated 1270 Eagan Industrial Road, Suite 160 Eagan, Minnesota 55121-1231 (651) 554-1500 (Name, address, including zip code, and telephone number, including area code, of agent for service)

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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and our consolidated financial statements and related notes appearing elsewhere in this prospectus. OUR BUSINESS We are a market leader in the United States in developing, manufacturing, and marketing differentiated animal nutrition products and programs for dairy cattle, beef cattle, hogs, and horses. We also develop, manufacture and sell poultry feeds as well as specialty feeds for rabbits, zoo animals, laboratory animals, birds, fish and pets. In the United States our products are generally marketed under the widely recognized brand names Purina(R) and Chow(R), and the "Checkerboard" Nine Square Logo(R) and other trademarks pursuant to an exclusive, perpetual, royalty-free license from Ralston Purina Company, except with regard to dog and cat food, which is marketed domestically under the PMI Nutrition brand name. Our products are sold as complete feeds or concentrated nutritional additives which are mixed with our customer's base ingredients. Our product lines range from economy feeds to high-performance, value-added products, and are sold in complete rations or as concentrated nutritional additives to be mixed with grains. We maintain a total of over 36,000 active feed formulas, which encompass a wide range of animal species. Although products are the principal point of differentiation, we develop and sell our products as part of nutrition and management programs that address all critical areas in the production of meat, milk and eggs. Our nutrition programs include information and services regarding the care of the animals and their facilities, as well as nutritional, genetic and breeding counseling. We distribute our products through two primary distribution channels: through dealers and directly to end-users. During 1999, approximately 60% of our sales were made through our dealer network and 40% of sales were made directly to animal producers. Although sales volume through our dealer network has always been substantially higher than our direct sales volume, direct sales to customers have accounted for an increasing proportion of our sales volume over the past 10 years. Our basic feed manufacturing process consists of grinding various grains and protein sources into a meal form that is then mixed with various nutritional additives. The resulting products are sold in a variety of forms, including meal, pellets, blocks and liquids. Our feed formulas are based upon the nutrient content as determined through proprietary scientific research. When the price of certain raw ingredients increases, we can generally adjust our feed formulas by substituting lower-cost, alternative ingredients to produce feeds with comparable nutritional value. By using our least-cost product formulation system, we can determine optimal formulations that meet our nutritional standards and maintain product quality. We currently operate 48 feed manufacturing plants located in 25 states. Our total feed manufacturing capacity is approximately 6.4 million tons per year based on a three shift per day, five-day week, and individual plant capacity ranges from 60,000 tons to 275,000 tons per year. We have invested in highly sophisticated computerized systems for mixing, pelleting, micro-ingredient blending and packing. In addition, we have developed and implemented a sophisticated software program for feed formulation that incorporates the nutritional value of substitute ingredients. Our research efforts are focused on the development of proprietary product forms and process technologies designed to support new product development and increase manufacturing efficiency while lowering processing costs. At our research center in Gray Summit, Missouri, we conduct extensive animal research to develop value-added products and programs designed to optimize the genetic performance potential of animals. Each species of animal is closely studied from birth to maturity to enable scientists to understand the complex nutritional needs and genetic capabilities at each stage in its life cycle. By understanding the metabolic process of each species, our scientists have identified which nutrients are required by an animal at various stages in its development to maximize its genetic potential. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND NEITHER WE NOR THE SELLING STOCKHOLDERS ARE SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED OCTOBER 11, 2000 UP TO 2,356,168 SHARES PURINA MILLS, INC. LOGO COMMON STOCK ------------------------ We have prepared this prospectus to allow GSCP Recovery, Inc. and its transferees as selling stockholders to sell up to 2,356,168 shares of our common stock. GSCP Recovery acquired the common stock from us by operation of our plan of reorganization under the Bankruptcy Code, which became effective on June 29, 2000. Our common stock currently trades under the symbol "PMIL" on the Nasdaq National Market System. On October 9, 2000, the last reported sale price of our common stock on Nasdaq was $9.56 per share. ------------------------ See "Risk Factors" beginning on page 4 to read about factors you should consider before buying shares of our common stock. ------------------------ The selling stockholders directly, through agents designated from time to time, or through dealers or underwriters also to be designated, may sell the common stock from time to time on terms to be determined at the time of sale. To the extent required, the specific shares to be sold, names of the selling stockholders, purchase price, public offering price, the names of any such agent, dealer or underwriter, amount of expenses of the offering and any applicable commission or discount with respect to a particular offer will be set forth in an accompanying prospectus supplement. The selling stockholders reserve the sole right to accept and, together with its agents from time to time, to reject in whole or in part any proposed purchase of shares of common stock to be made directly or through agents. The aggregate proceeds to the selling stockholders from the shares of common stock will be the purchase price of the shares of common stock sold less the aggregate agents' commissions and the underwriters' discounts, if any. We will receive no proceeds from this offering, but will pay the expenses of this offering. The selling stockholders and any broker-dealers, agents or underwriters that participate with them in the distribution of the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, and any commissions received by them and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ Prospectus dated , 2000. We are a Delaware corporation and our principal executive offices are located at 1401 South Hanley Road, St. Louis, Missouri 63144. Our telephone number is (314) 768-4100. OUR HISTORY Purina Mills and its predecessors have been in the animal nutrition business since 1894. Over the past 100 years, we have built and maintained our industry leadership by consistently providing high-quality, innovative products and dedicated customer service. In March 1998 we and our subsidiaries were acquired in a leveraged acquisition by Koch Agriculture Company, a subsidiary of Koch Industries, Inc. Subsequent to the acquisition, we had substantial indebtedness. Because of the highly leveraged nature of the acquisition, a significant portion of our cash flow from operations was thereafter dedicated to the payment of principal and interest on our indebtedness, reducing the funds available for our operations. Ultimately, our substantial degree of leverage limited our ability to adjust to depressed conditions in the agricultural markets we serve and resulted in our decision to seek bankruptcy protection. In October 1999, after defaulting on our debt obligations, we and our subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Our plan of reorganization was confirmed by the bankruptcy court in April 2000. The plan became effective and we emerged from bankruptcy on June 29, 2000. The plan provided for, among other things: - cancellation of Koch Agriculture's equity interest in us; - issuance of 10,000,000 shares of our common stock, par value $0.01 per share, of which 9,910,000 shares will be distributed to holders of general unsecured claims under the plan, which includes holders of all of our $350 million in prepetition subordinated debt; - repayment of all of our $278 million prepetition secured debt through a $103 million cash payment and $175 million in borrowings under a new, post-bankruptcy term loan; and - a new $50 million revolving credit facility. Affiliates of GSCP Recovery, Inc. owned approximately 32.1% of our prepetition subordinated debt and, by operation of our plan of reorganization, GSCP Recovery became our largest stockholder, owning approximately 28.6% of our common stock as of August 25, 2000. THE OFFERING Common stock offered by Purina Mills....... None Common stock offered by selling stockholders............................... Up to 2,356,168 shares Common stock outstanding prior to this offering................................... 8,230,332 shares Use of proceeds............................ Purina Mills will not receive any proceeds from this offering Nasdaq National Market symbol.............. "PMIL" ------------------------ The above information is based upon the number of shares outstanding as of August 25, 2000. This information excludes 912,858 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $21.97 per share and 87,142 shares of common stock reserved for future issuance under our equity incentive plan.

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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and our financial statements before making an investment decision. TESSERA, INC. We provide intellectual property for chip scale packaging to meet the accelerating demand for performance and miniaturization in wireless communications, Internet access, computing and consumer electronics. Our intellectual property, which includes 116 issued patents and 169 pending patents in the United States as of September 30, 2000, enables the semiconductor industry to overcome fundamental issues in performance, reliability and size. The high growth markets for electronic products demand continued innovation in semiconductor technology. Advancements in semiconductor design and manufacturing have enabled the number of transistors on a chip to double every 18 months, resulting in improvements in semiconductor performance and size. Packaging technology has failed to keep pace with these improvements, and has become a limiting factor in the continued advancement of electronic products. To address the need for advanced packaging technology, we have developed a solution that combines our intellectual property with our design and manufacturing expertise to enable our customers to successfully adopt and implement our technology. Our patented chip scale packaging technology is designed to offer the following key benefits: - Reduced Size. By reducing the size of the package to almost the size of the chip itself, our proprietary technology enables the semiconductor to occupy a smaller area on the circuit board, allowing for increased system miniaturization and functionality. - Higher Performance. Our technology enables higher system level performance by allowing shorter electrical paths throughout the system, resulting in a more rapid transfer of data, voice and multimedia information. - Increased Reliability. Our patented technology compensates for the differing rates of thermal expansion and contraction between the chip and the circuit board preventing the failure of connections between the chip and board. Our objective is to establish our chip scale packaging technology as the industry standard by providing the most advanced intellectual property and services. We have licensed our patented technology to over 35 companies, including leading semiconductor manufacturers, assemblers and material and equipment suppliers. We have received royalties on more than 350 million semiconductors packaged using our technology. Our customers include ChipPAC, EEMS, Intel, IPAC, LG Electronics, OSE, Samsung and Toshiba. Each of these named customers accounted for more than $250,000 of our revenues for the nine months ended September 30, 2000. Our technology is incorporated in electronic products, including wireless handsets, or mobile phones, personal digital assistants, personal computers, servers and game consoles, from Casio, Compaq, Dell, Ericsson, Hewlett-Packard, IBM, Motorola, Nokia, Samsung and Sony. We were incorporated in Delaware in May 1990. Our principal executive offices are located at 3099 Orchard Drive, San Jose, CA 95134. Our telephone number is (408) 894-0700. The information in this prospectus is not complete and may be changed. We may not sell any of these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED OCTOBER 20, 2000 PROSPECTUS SHARES [LOGO] COMMON STOCK This is an initial public offering of common stock by Tessera, Inc. Tessera is selling 7,500,000 shares of common stock. The estimated offering price will be between $10 and $12 per share. ------------------ No public market currently exists for our common stock. We have applied for listing of our common stock on the Nasdaq National Market under the symbol "TSRA." ------------------ <TABLE> <CAPTION> PER SHARE TOTAL ---------- -------- <S> <C> <C> Initial public offering price............................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds to Tessera, before expenses........................ $ $ </TABLE> Tessera has granted the underwriters an option for a period of 30 days to purchase up to 1,125,000 additional shares of our common stock. ------------------ INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4. ------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CHASE H&Q UBS WARBURG LLC NEEDHAM & COMPANY, INC. WIT SOUNDVIEW , 2000 THE OFFERING Common stock offered by Tessera........... 7,500,000 shares Common stock to be outstanding after this offering.................................. 39,056,774 shares Use of proceeds........................... Working capital and general corporate purposes. Proposed Nasdaq National Market Symbol.... TSRA ------------------ The common stock outstanding after the offering is based on the number of shares outstanding as of September 30, 2000, and does not include: - 6,918,042 shares of common stock issuable upon the exercise of outstanding stock options as of September 30, 2000; - 1,076,934 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2000; - 1,475,469 shares of common stock available for issuance under our 1999 Stock Plan following this offering; and - 200,000 additional shares of common stock available for issuance under our 2000 Employee Stock Purchase Plan following this offering. ------------------------ Unless otherwise noted, all share information in this prospectus: - reflects the conversion of all outstanding shares of our convertible preferred stock into 25,544,290 shares of common stock, immediately prior to the closing of this offering; - gives effect to a two-for-three reverse stock split of our common stock and preferred stock effective as of September 1, 2000; and - assumes no exercise of the underwriter's over-allotment option. ------------------ We operate on a 52-53 week fiscal year which ends on the Sunday nearest to December 31. Our 52 week fiscal years consist of four equal quarters of 13 weeks each, and our 53 week fiscal years consist of three 13 week quarters and one 14 week quarter. The financial results for our 53 week fiscal years and our 14 week fiscal quarters will not be exactly comparable to our 52 week fiscal years and our 13 week fiscal quarters. For presentation purposes, all fiscal periods presented or discussed in this prospectus have been presented as ending on the last day of the nearest calendar month. For example, our 1999 fiscal year ended on January 2, 2000, but we present our 1999 fiscal year as ending December 31, 1999. [INSIDE FRONT COVER] [DESCRIPTION OF ARTWORK] [Left side art: (Tessera logo) "Providing the Chip-to-System Interface" Artwork will illustrate the chip-to-system interface by showing a photo illustration of a semiconductor, integrating into a chip scale package using our technology, integrating onto a circuit board, and finally inside a cell phone. There will be a cut out illustration on the phone showing the chip scale package inside.] [Right side art: The following body copy will be on the right side of the inside cover, with illustrations depicting each major point of copy: "Establishing Standards for Chip Scale Packaging. Our objective is to establish our technology as the industry standard by providing the most advanced, cost-effective chip scale packaging solution with the intellectual property and services demanded by industry leaders in our target markets." "Targeting High Growth Markets. We target high growth applications that we believe represent the greatest immediate need for our technology, including wireless communications, high performance computing and high bandwidth networking. These applications demand ever-increasing functionality and performance and continued miniaturization." "Serving Leading Customers. Our technology has been adopted by the semiconductor industry including more than 35 industry leading semiconductor assemblers, manufacturers and equipment and material providers, such as Intel, Samsung, Toshiba and Amkor." "Providing Fundamental Technology. We are a leading provider of proprietary chip scale packaging technology that addresses fundamental issues in performance, reliability and size. Our intellectual property portfolio includes 116 issued patents and 169 pending patent applications in the United States for chip scale packaging."] ["Gatefold. The gatefold will be an illustration with photography showing a chip scale package using our technology in the center of the page, with the words "High Performance", "Small Size", and "High Reliability" around the package. The rest of the page will list our target markets and include photographs and illustrations of the products that incorporate our technology." The text and illustrations will include: Top of page text: "Tessera . . . providing intellectual property for chip scale packaging to meet the demand for smaller and faster electronic products." High Bandwidth Networking Devices -- photo of a server with an illustrated cut-out showing a chip scale package using our technology inside the server. Game Consoles -- photo of a game console with an illustrated cut-out showing a chip scale package using our technology inside the game console. Wireless Phones and Portable Devices -- photo of a wireless phone and a personal digital assistant with cut-out in each device showing a chip scale package using our technology inside. Internet Access -- photo of a personal computer with a cut-out showing a chip scale package using our technology inside the personal computer.] SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes the consolidated financial data for our business. You should read this information together with the financial statements and the notes to those statements appearing elsewhere in this prospectus. <TABLE> <CAPTION> NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, ----------------------------- ---------------------- 1997 1998 1999 1999 2000 ------- -------- -------- ----------- -------- (UNAUDITED) <S> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues: License.......................... $ 3,730 $ 4,594 $ 2,925 $ 2,525 $ 2,740 Royalty.......................... 26 630 1,475 642 2,699 Engineering services and other... 1,175 1,435 2,019 2,381 2,858 ------- -------- -------- ------- -------- Total revenues................. 4,931 6,659 6,419 5,548 8,297 Gross profit (loss)................... 911 (69) (189) 1,027 3,523 Net loss from continuing operations... (9,140) (12,550) (13,960) (8,762) (21,821) Net loss.............................. $(9,545) $(13,890) $(17,777) $(9,800) $(21,534) ======= ======== ======== ======= ======== Net loss from continuing operations per common share, basic and diluted(1).......................... $ (2.65) $ (2.66) $ (2.96) $ (1.78) $ (5.88) Net loss per common share, basic and diluted(1).......................... $ (2.77) $ (2.94) $ (3.77) $ (1.99) $ (5.83) Shares used in computing basic and diluted net loss per common share... 3,452 4,724 4,713 4,913 5,328 Pro forma as adjusted net loss per common share, basic and diluted (unaudited)......................... $ (0.69) $ (1.03) Shares used in computing pro forma as adjusted net loss per common share, basic and diluted (unaudited)....... 25,760 30,281 </TABLE> <TABLE> <CAPTION> SEPTEMBER 30, 2000 -------------------------- PRO FORMA ACTUAL AS ADJUSTED(2) -------- -------------- (UNAUDITED) <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 570 $ 75,570 Working capital............................................. 23,232 98,232 Total assets................................................ 36,667 111,667 Long-term obligations, less current portion................. 456 456 Mandatorily redeemable cumulative convertible preferred stock..................................................... 96,155 0 Total stockholders' equity (deficit)........................ $(68,591) $102,564 </TABLE> ------------------------- (1) Net loss attributable to common stockholders for the period ended September 30, 2000, was reduced by a cumulative preferred stock dividend and a deemed preferred stock dividend of $7.7 million and $1.9 million, respectively. See note 1 of the notes to the financial statements for an explanation of the determination of net loss per common share. (2) The pro forma as adjusted numbers reflect the automatic conversion of all shares of mandatorily redeemable cumulative convertible preferred stock into common stock upon the closing of this offer and the receipt of the net proceeds from the sale of shares of common stock offered hereby at an assumed initial public offering price of $11 per share, after deducting the estimated underwriting discount and estimated offering expenses payable by us.

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+PROSPECTUS SUMMARY This summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all the information you should consider before buying shares in this offering. You should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements. EDEN BIOSCIENCE CORPORATION We are a plant technology company focused on developing, manufacturing and marketing innovative natural products for agriculture. We have a fundamentally new, patented and proprietary technology that we believe will significantly improve plant protection and crop production worldwide. We believe our technology and our initial product, Messenger, allow us to offer superior alternatives to existing plant protection and crop yield enhancement products in terms of both performance and safety and, importantly, to avoid the substantial public resistance to many chemical pesticides and genetically modified plants. We are aware of no other product or technology currently being marketed, under development or described in scientific literature that generates the comprehensive set of beneficial results that Messenger produces on such a wide array of crops. Our Core Harpin Technology Our core harpin and harpin-related technology is based on an understanding of innate complex plant defense and growth systems and the discovery of how these systems are activated in nature. In recent years, researchers have begun to recognize the critical role these natural systems play in determining plant health, growth and survival, but there has been no effective means to reliably activate these mechanisms without toxic effects to the plant. Through the discovery of a new class of nontoxic, naturally occurring proteins called harpins, we have been able to activate these previously inaccessible plant mechanisms. Harpin proteins trigger a plant's natural defense systems to protect against disease and pests, and simultaneously activate plant growth systems, leading to increased biomass, photosynthesis, nutrient uptake and root development and, ultimately, to greater crop yield and quality. We own or have obtained exclusive worldwide rights to patents and patent applications that cover our core harpin and harpin-related technology. Messenger -- Our Initial Product Commercial sales of Messenger began in August 2000. Based on our harpin technology, Messenger can be used for both plant protection and yield enhancement on a wide variety of crops. Messenger is a water-soluble, granular powder that is topically applied either independently or in conjunction with traditional chemical pesticides. Once applied, Messenger degrades rapidly and leaves no detectable residue. In field trials on over 40 crops, Messenger has generally reduced, or even eliminated, the need for traditional chemical pesticides. In addition, Messenger has been shown to be effective in simultaneously: - improving crop yields generally by 10% to 20%; - protecting against a broad array of viral, fungal and bacterial diseases, including some diseases for which there is currently no effective treatment; - reducing damage caused by a variety of pests; and - enhancing plant growth and crop quality. Unlike traditional chemical pesticides, Messenger and other products we are developing have no direct killing effect on pests and pathogens. Instead, Messenger activates the plant's own defense and growth systems. Furthermore, unlike genetically modified plants, Messenger delivers the advantages of TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Prospectus Summary.......................................... 3 Risk Factors................................................ 8 Use of Proceeds............................................. 17 Dividend Policy............................................. 17 Special Note Regarding Forward-Looking Statements........... 17 Capitalization.............................................. 18 Dilution.................................................... 19 Selected Financial Data..................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 21 Business.................................................... 25 Management.................................................. 39 Certain Relationships and Related Party Transactions........ 49 Principal Shareholders...................................... 51 Description of Capital Stock................................ 53 Shares Eligible for Future Sale............................. 56 Underwriting................................................ 58 Legal Matters............................................... 61 Experts..................................................... 62 Where You Can Find More Information......................... 62 Index to Financial Statements............................... F-1 </TABLE> ---------------------- You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. EDEN(R), EDEN Bioscience(R) and Messenger(R) are registered trademarks of EDEN. modern biotechnology without altering the plant's DNA. Messenger offers several other key advantages over existing plant protection and yield enhancement alternatives, including: - improved food safety; - reduced risk of environmental damage; - improved worker safety; and - reduced likelihood of pest resistance. Messenger received conditional EPA approval for full commercial use in April 2000. The EPA approval requires that we submit the results of four additional studies relating to the safety of the product by April 19, 2001. We have completed three of the required studies and believe they meet the EPA's requirements, and we are in the process of completing the remaining required study. If we are unable to meet the conditions imposed by the EPA within the time frames specified by the EPA, the agency could revoke our registration or impose use restrictions that are not currently applicable to Messenger, such as restrictions on frequency or method of application. Business Strategy The increasing scarcity of agricultural resources and growing global demand for food, together with concerns regarding the use of traditional chemical pesticides and genetically modified plants, are forcing growers to look at new alternatives to traditional plant protection and yield enhancement methods. Annual crop losses from pests are estimated to be $300 billion worldwide. To mitigate these losses, growers worldwide spent approximately $30 billion for agricultural chemicals in 1999. Our strategy is to be a leading provider of innovative plant protection and yield enhancement solutions to growers throughout the world. We are focusing on the following key initiatives: - commercialize Messenger and future products based on our proprietary technology; - promote the benefits of Messenger and our harpin and harpin-related technologies; - continue to develop Messenger product extensions and new products that utilize natural plant defense and growth systems; - control and protect our technology; and - maintain control over product manufacturing. Our near-term focus is the commercialization of Messenger for use on a variety of crops. We are currently concentrating our efforts in the United States on high-value crops, such as citrus, tomatoes, peppers, cucumbers, strawberries and other horticultural and specialty crops, from which we expect growers will derive the greatest economic benefit from Messenger. In 1999, over 121 million acres of horticultural and specialty crops were harvested worldwide, including approximately 17 million acres of tomatoes, peppers, cucumbers and strawberries and approximately 18 million acres of citrus. We plan to take advantage of the Messenger brand developed in the use on these high-value crops to penetrate traditional field crop markets, including cotton, wheat, rice, corn and soybean. In 1999, approximately 2.0 billion acres of row crops were harvested worldwide, with corn, wheat, cotton and rice accounting for approximately 1.3 billion acres. We will continue to expand our sales and field development specialist force to educate industry leaders on the benefits of Messenger and maintain close relationships with large commercial growers and independent agricultural product distributors. We also intend to continue to conduct domestic and international field trials and aggressively pursue international regulatory approvals to establish Messenger as a leading plant protection and yield enhancement product in the global marketplace. Prior to August 2000, we had derived all of our revenues from research grants and from providing consulting services. Since 1997 we have not sought, and do not intend to seek in the future, additional research grants, and since January 2000 we no longer provide any consulting services. For the immediately foreseeable future, we will be dependent on the successful development and commercialization of Messenger. To be successful, we must achieve broad market acceptance for Messenger and differentiate it from products that genetically modify plants, which have been subject to public concerns and negative public attitudes, particularly in Europe. Research and Development We will continue to focus significant resources on discovering and developing new products based on our harpin and harpin-related technology platform. These efforts will include Messenger product line extensions, such as crop, disease and pest specific products. In addition, we have identified and are currently performing efficacy studies on new harpin proteins that are significantly more potent and may be effective against other classes of disease or induce additional growth pathways. We believe that many of the additional products and technologies currently under development will lead to significant business opportunities in the future. THE OFFERING Common stock offered by EDEN........... 5,800,000 shares Common stock to be outstanding after the offering........................... 22,732,707 shares Use of proceeds........................ We estimate that our net proceeds from this offering, assuming no exercise of the underwriters' over- allotment option, will be approximately $69.0 million. We intend to use a portion of the net proceeds of this offering to expand and enhance our manufacturing and research and development facilities, and the remainder for working capital and general corporate purposes, including expansion of our sales and marketing capabilities for the commercialization of Messenger and for research and development activities. Risk factors........................... See "Risk Factors" and other information included in this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of the common stock. Nasdaq National Market symbol.......... EDEN The number of shares of common stock to be outstanding after this offering is based on shares outstanding as of August 31, 2000 and excludes: - 2,468,000 shares of common stock issuable under our 1995 combined incentive and non-qualified stock option plan upon the exercise of stock options outstanding as of August 31, 2000, at a weighted average exercise price of $6.93 per share, and 326,334 shares of common stock reserved for issuance under such plan; - 331,953 shares of common stock issuable upon the exercise of warrants outstanding as of August 31, 2000, at a weighted average exercise price of $1.64 per share; - 230,769 shares of common stock, assuming an initial public offering price of $13.00 per share, issuable upon the exercise of currently outstanding warrants associated with our two existing credit facilities, at an exercise price equal to the public offering price of shares sold in this offering; and - 1,500,000 shares of common stock reserved for issuance under our 2000 stock incentive plan and 500,000 shares of common stock reserved for issuance under our 2000 employee stock purchase plan. In addition, except as otherwise noted, all information in this prospectus is based on the following assumptions: - the conversion of all outstanding shares of preferred stock into an aggregate of 13,794,104 shares of common stock upon the effectiveness of our registration statement; and - no exercise of the underwriters' over-allotment option. We were incorporated in the state of Washington in 1994. Our executive offices are located at 11816 North Creek Parkway North, Bothell, Washington 98011-8205, and our telephone number is (425) 806-7300. Our Web site is located at http://www.edenbio.com. Any information that is included on or linked to our Web site is not a part of this prospectus. SUMMARY FINANCIAL DATA The following tables set forth our summary financial data. When you read this summary financial data, it is important that you also read our financial statements and related notes included elsewhere in this prospectus, as well as the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." <TABLE> <CAPTION> SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> STATEMENTS OF OPERATIONS DATA: Revenues: Consulting services..................... $ 132 $ 178 $ 176 $ 121 $ 115 $ 43 $ -- Research grants......................... 110 42 7 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Total revenues................... 242 220 183 121 115 43 -- ------- ------- ------- ------- ------- ------- ------- Operating expenses: Research and development................ 990 1,643 2,865 5,322 7,555 3,713 5,116 General and administrative.............. 269 396 577 1,708 2,209 1,010 1,911 ------- ------- ------- ------- ------- ------- ------- Total operating expenses......... 1,259 2,039 3,442 7,030 9,764 4,723 7,027 ------- ------- ------- ------- ------- ------- ------- Loss from operations............. (1,017) (1,819) (3,259) (6,909) (9,649) (4,680) (7,027) ------- ------- ------- ------- ------- ------- ------- Interest and dividend income.............. 20 99 172 135 435 248 279 Interest expense.......................... (3) (27) (116) (162) (181) (93) (74) ------- ------- ------- ------- ------- ------- ------- Net loss.................................. $(1,000) $(1,747) $(3,203) $(6,936) $(9,395) $(4,525) $(6,822) ======= ======= ======= ======= ======= ======= ======= Historical basic and diluted net loss per share................................... $ (0.57) $ (1.04) $ (1.90) $ (3.93) $ (5.23) $ (2.48) $ (2.38) ======= ======= ======= ======= ======= ======= ======= Weighted average shares outstanding used in computation of historical basic and diluted net loss per share.............. 1,742 1,681 1,681 1,765 1,902 1,823 2,863 ======= ======= ======= ======= ======= ======= ======= Pro forma basic and diluted net loss per share................................... $ (0.67) $ (0.41) ======= ======= Weighted average shares outstanding used in computation of pro forma basic and diluted net loss per share.............. 14,820 16,657 ======= ======= </TABLE> <TABLE> <CAPTION> JUNE 30, 2000 ---------------------- PRO FORMA ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) (UNAUDITED) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $ 6,609 $ 75,648 Working capital............................................. 3,833 72,872 Total assets................................................ 11,601 80,640 Capital lease obligations, net of current portion........... 393 393 Deficit accumulated during development stage................ (29,797) (29,797) Total shareholders' equity.................................. 8,093 77,132 </TABLE> The table above presents balance sheet data as of June 30, 2000: - on an actual basis; and - on a pro forma as adjusted basis to reflect the sale of 5,800,000 shares of common stock offered by this prospectus at an assumed initial public offering price of $13.00 per share (the midpoint of the expected price range) and the receipt by EDEN of the estimated net proceeds after deducting estimated underwriting discounts and commissions and estimated offering expenses.

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+PROSPECTUS SUMMARY This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in the shares. You should read the entire prospectus carefully. ISTA PHARMACEUTICALS OVERVIEW We discover and develop new remedies for diseases and conditions of the eye. Our product development efforts involve mixtures, or formulations, of a natural enzyme called hyaluronidase. We target serious conditions of the eye such as vitreous hemorrhage, diabetic retinopathy, corneal opacification and keratoconus. Each of these conditions affects a significant number of patients and has limited treatment options. We currently have no products available for sale and have incurred losses since inception. We expect to continue to incur operating losses for the foreseeable future as we increase our research and development, preclinical and clinical testing activities, and seek regulatory approval for our product candidates. STRATEGY Our objective is to build a leading biopharmaceutical company that discovers, develops and commercializes new and superior drug products for treatment of serious diseases and conditions of the eye. We intend to accomplish this through the following strategic initiatives: - targeting diseases and conditions representing large underserved markets for which there are currently no approved drug treatments - focusing on bringing our lead product candidate, Vitrase, to market as quickly as possible and establishing its broad acceptance for treatment of serious conditions of the eye - continuing to discover and develop new, safe and effective applications for hyaluronidase - forming strategic collaborations with pharmaceutical companies or others to accelerate commercialization of our products, as appropriate - seeking to acquire or in-license complementary products and technologies OUR PRODUCTS IN DEVELOPMENT Our products are currently in various stages of clinical trials. Phase I, II and III clinical trials are three successively more difficult and larger studies that test the safety and effectiveness of an experimental drug. Vitrase We are developing Vitrase, a proprietary formulation of hyaluronidase, for treatment of severe vitreous hemorrhage, a sight threatening condition, and diabetic retinopathy, the leading cause of adult blindness in the United States. Vitrase is currently in two Phase III clinical trials for treatment of severe vitreous hemorrhage. We are also conducting a pilot Phase IIa clinical trial of Vitrase in Mexico for treatment of diabetic retinopathy. Vitreous hemorrhage. A vitreous hemorrhage occurs when retinal blood vessels rupture and bleed into the vitreous humor, the clear, gel-like substance that fills the back of the eye between the lens and the retina. The blood from the hemorrhage can obscure vision and prevent ophthalmologists from seeing into the eye to diagnose or treat the cause of the hemorrhage. The only current treatment options are a "watchful waiting" period, during which the attending physician provides no medical treatment in the hope that the hemorrhage will clear on its own, and an invasive surgical procedure to remove the blood filled vitreous humor from the eye. Vitrase, when injected into the vitreous humor, causes the vitreous humor to liquefy and promotes clearance of vitreous hemorrhage. Based on market research we commissioned in February 1999, we believe that approximately one million cases of vitreous hemorrhage occur each year in the United States, Europe and Japan and that approximately half of these cases are candidates for treatment using Vitrase. Diabetic retinopathy. Diabetes can result in abnormal changes to blood vessels in the eye, a condition known as diabetic retinopathy. Diabetic retinopathy is a progressive disease consisting of two stages. We are developing Vitrase for treatment for nonproliferative diabetic retinopathy, the first stage of the disease, for which there is currently no effective treatment. Vitrase, when injected into the vitreous humor, causes the vitreous humor to liquefy and separate from the retina, thereby limiting growth of abnormal blood vessels in the back of the eye. We believe that Vitrase may be effective for treating diabetic retinopathy at the nonproliferative stage. Approximately four to six million people in the United States with diabetes have some form of diabetic retinopathy, the majority of whom are in the nonproliferative stage of the disease. Keratase We are currently conducting a Phase IIb trial of Keratase, a proprietary formulation of hyaluronidase, for the treatment of corneal opacification. Corneal opacification occurs when the cornea, which is normally transparent, becomes scarred, cloudy or opaque, diminishing the amount of light entering the eye. The only current treatment for corneal opacification is a corneal transplant. Risks associated with a corneal transplant include loss of vision, rejection and creation of astigmatism. We believe that there are approximately three million people in the United States, Western Europe and Japan that have a form of vision impairment due to corneal opacification. We believe physicians can use Keratase to treat corneal opacification with benefits equivalent to those of corneal transplants but without the associated risks of rejection and astigmatism. Keraform We are developing Keraform, our proprietary system for the treatment of keratoconus, a degenerative corneal disease that impairs vision. Keratoconus is a progressive thinning of the cornea and the development of an irregular, cone- like protrusion of the cornea, which typically occurs in both eyes. We believe that there are approximately 400,000 people in the United States, Western Europe and Japan who currently have keratoconus. COLLABORATION WITH ALLERGAN In March 2000, we entered into agreements with subsidiaries of Allergan, Inc. for the marketing, sale and distribution of Vitrase in the United States and all international markets, except Mexico until April 2004 and Japan. Allergan is a leading provider of eye care and specialty pharmaceutical products throughout the world. Allergan has agreed to pay us a royalty on any sales of Vitrase outside the United States and will split any profits on sales of Vitrase in the United States on a 50/50 basis. Pursuant to our agreements, Allergan made an equity investment of $10.0 million in us and may pay us aggregate future milestone payments of up to $35.0 million. GENERAL INFORMATION Since our inception, we have financed our operational losses primarily through private sales of our preferred stock. We incorporated in California in February 1992 as Advanced Corneal Systems, Inc. In March 2000, we changed our name to ISTA Pharmaceuticals, Inc. and we reincorporated in Delaware in August 2000. Our corporate headquarters and principal research laboratories are located at 15279 Alton Parkway, Building 100, Irvine, California 92618, and our telephone number is (949) 788-6000. Vitrase, Keratase, Keraform, ISTA, ISTA Pharmaceuticals and the ISTA logo are our trademarks. We also use trademarks of other companies in this prospectus. THE OFFERING Common stock offered...................... 4,500,000 shares Common stock to be outstanding after the offering.................................. 15,926,759 shares Use of proceeds........................... To fund clinical trials and preclinical research, with a particular focus on Vitrase, to finance the possible acquisition of complementary technologies, products or businesses, and for general corporate purposes. Proposed Nasdaq National Market symbol.... ISTA We based the number of shares of common stock to be outstanding after the offering in the table above on the number of shares outstanding as of June 30, 2000 and have excluded 2,416,933 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2000, at a weighted average exercise price of $0.62 per share. Unless otherwise stated, all information contained in this prospectus assumes: - no exercise of the over-allotment option granted to the underwriters - the conversion of all outstanding shares of our preferred stock into shares of common stock - the cashless exercise, prior to the offering, of 1,153,877 warrants to purchase 808,569 shares of our common stock SUMMARY FINANCIAL INFORMATION (in thousands, except per share data) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------- ------------------------ 1997 1998 1999 1999 2000 ------- --------- ----------- --------- ----------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Costs and expenses: Research and development.......... $ 4,969 $ 7,523 $ 11,062 $ 1,930 $ 3,023 General and administrative........ 1,949 2,147 3,240 449 1,500 ------- ------- -------- ------- -------- Total costs and expenses............ 6,918 9,670 14,302 2,379 4,523 ------- ------- -------- ------- -------- Loss from operations................ (6,918) (9,670) (14,302) (2,379) (4,523) Interest income (expense), net...... 166 46 18 13 (32) ------- ------- -------- ------- -------- Net loss............................ (6,752) (9,624) (14,284) (2,366) (4,555) Deemed dividend to preferred stockholders...................... -- -- -- -- (19,245) ------- ------- -------- ------- -------- Net loss attributable to common stockholders...................... $(6,752) $(9,624) $(14,284) $(2,366) $(23,800) ======= ======= ======== ======= ======== Net loss per common share, basic and diluted........................... $ (5.28) $ (7.17) $ (9.50) $ (1.62) $ (13.10) ======= ======= ======== ======= ======== Shares used in computing net loss per common share, basic and diluted........................... 1,279 1,342 1,503 1,457 1,817 Pro forma net loss per common share, basic and diluted................. $ (1.95) $ (2.76) ======== ======== Shares used in computing pro forma net loss per common share, basic and diluted....................... 7,333 8,636 </TABLE> <TABLE> <CAPTION> MARCH 31, 2000 ---------------------- PRO FORMA ACTUAL AS ADJUSTED ------- ----------- <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $10,620 $68,020 Working capital............................................. 5,388 62,788 Total assets................................................ 13,357 70,757 Total stockholders' equity.................................. 7,088 64,488 </TABLE> We calculated net loss per common share, basic and diluted, and shares used in computing net loss per common share, basic and diluted, by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. We calculated the pro forma net loss per common share, basic and diluted, and the shares used in computing pro forma net loss per common share, basic and diluted, assuming (i) the conversion of all outstanding shares of preferred stock into common stock as if the shares had converted immediately upon issuance and (ii) the cashless exercise prior to the offering of 1,153,877 warrants to purchase 808,569 shares of our common stock as though the exercise had occurred January 1, 1999. The pro forma as adjusted balance sheet data above also give effect to the sale of 4,500,000 shares in this offering at an assumed initial public offering price of $14.00 per share, less the underwriting discount and other offering expenses. The statement of operations data for the year ended December 31, 1999 and the three months ended March 31, 2000 would not be materially affected on a pro forma basis had the acquisition of Visionex Pte. Ltd. on March 8, 2000 occurred on January 1, 1999. The pro forma net loss per common share would have been $1.46 and $2.28 for the year ended December 31, 1999 and the three months ended March 31, 2000, respectively.

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+PROSPECTUS SUMMARY This summary highlights certain information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors." Except as otherwise noted, the information in this prospectus does not give effect to the conversion of outstanding convertible securities or to the exercise of outstanding options and warrants. Unless otherwise noted, references in this prospectus to "TTR," "we," "our" and "us" refer to TTR Technologies, Inc., a Delaware corporation, and our wholly owned subsidiary, TTR Technologies, Ltd., an Israeli company. We design and develop anti-piracy software technologies that provide copy protection for electronic content distributed on optical media and over the Internet. Our proprietary anti-piracy technology, MusicGuard(TM), is a unique hardware-based technology designed to prevent the unauthorized copying of audio content distributed on CDs. Our copy protection technologies are designed to be transparent to the legitimate end-user. As of November 24, 1999, we entered into an agreement with Macrovision Corporation to jointly design and develop and market a copy protection product designed to thwart the illegal copying of audio content on CDs, DVDs and other optical media. The new product will be based primarily upon our MusicGuard technology as well as related Macrovision technology and will be jointly owned by us and Macrovision. We expect that the immediate application of the technology we are developing with Macrovision will be of interest for the music distribution business and recording studios whose products are customarily distributed on CDs. We granted to Macrovision an exclusive world-wide royalty bearing license to design, develop and market the copy protection technology which we are jointly developing. Our immediate goal is to establish the proposed audio content protection technology which we and Macrovision are developing as the leading product in the target market of audio content copy protection for the high-volume recording industry. Additionally, we are actively developing other technologies and looking to acquire technologies which are synergistic with our current business and will enable us to leverage our knowledge base and skill. We were organized in July 1994. We have an Israeli subsidiary, organized in December 1994, through which we conduct research and development. Our principal executive offices are located at 2 HaNager Street, Kfar Saba, Israel, telephone 011-972-9-766-2393. We also have a mailing address at 67 Wall Street, Suite 2411, New York, New York 10005 and can be reached by telephone in New York at 212-323-8284. Our Web site is www.ttrtech.com. Information contained on our Web site is not, and should not be deemed to be, a part of this prospectus. The Offering <TABLE> <S> <C> Securities offered..................10,468,505 shares of common stock. (1) Shares outstanding..................15,967,890 shares of common stock. (2) Use of proceeds.....................We will not receive any proceeds from the sale of common stock by the selling stockholders. We may, however, receive proceeds from the sale of certain of the warrants held by certain of the selling stockholders. </TABLE> - ---------- (1) Includes (i) 7,552,493 shares of common stock held by certain selling stockholders, and (ii) 2,916,012 shares of common stock issuable upon exercise of certain warrants and options held by certain selling stockholders. (2) Does not include (a) up to an aggregate of 1,166,400 shares of our common stock issuable upon exercise of options granted under our 1996 Stock Option Plan, (b) any of the shares described in clause (ii) in footnote (1) above, or (c) 95,000 shares issuable upon exercise of certain outstanding options and warrants that are not held by the selling stockholders. We are registering the shares offered hereby in order to satisfy various obligations to the selling stockholders to register their resale of our common stock. See "Plan of Distribution."

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. GENVEC, INC. We develop gene-based products that produce medically beneficial proteins at the site of disease. We believe that this approach minimizes the overall toxicity that can occur when large doses of a protein are introduced directly into the body. Our current areas of focus are diseases of the heart and blood vessels, cancer and diseases of the eye. Our lead product candidate, BIOBYPASS angiogen, is currently in Phase II clinical trials. Our product candidates are made up of genes and vehicles, commonly called vectors, that deliver those genes into cells at the site of the disease. Our technology focuses on the use and improvement of vectors. We believe that our technology allows us to rapidly and cost effectively test the potential benefit of genes. It also generally allows us to advance our product candidates into clinical testing in less time than traditional drug discovery methods. OUR PRODUCT CANDIDATES We are using our technology to convert knowledge about genes and gene function into products with a medical benefit for patients. We currently have four product development programs: - BIOBYPASS angiogen, our lead product candidate, produces vascular endothelial growth factor, or VEGF, in diseased tissues. VEGF is a protein that stimulates the formation of new blood vessels and improves blood flow. We deliver BIOBYPASS angiogen locally to the site of disease. We believe local production of VEGF minimizes the toxicity associated with delivery of large doses of this protein directly into the body. In collaboration with Warner-Lambert, we have initiated Phase II clinical trials for the treatment of two major disease indications--coronary artery disease, or insufficient blood flow in the vessels of the heart, and peripheral vascular disease, or insufficient blood flow in the body's extremities, particularly the legs. - We are developing TNFerade to treat cancer in combination with radiation therapy. Our product candidate produces a protein called tumor necrosis factor-alpha, or TNFa, in the tumor to cause a reduction in tumor size while minimizing overall toxicity to the body. We have designed TNFerade so that the maximum TNFa production takes place with traditional radiation treatment. We have completed preclinical testing of TNFerade and are beginning Phase I clinical trials. - We are developing product candidates to treat two diseases of the eye, macular degeneration and diabetic retinopathy. Excessive growth of blood vessels in the eye is the primary contributor to the loss of vision in these diseases. Our product candidates cause the production in the eye of the protein called pigment epithelium-derived factor, or PEDF. This protein inhibits new blood vessel formation. These product candidates are undergoing preclinical testing. - We are developing GENSTENT to prevent the narrowing of blood vessels resulting from damage caused by some medical procedures used to treat coronary artery disease and peripheral vascular disease. Our product candidate causes the local production of nitric oxide at the site of blood vessel injury to promote healing and to prevent the narrowing of damaged blood vessels. GENSTENT is undergoing preclinical testing. OUR DRUG DISCOVERY AND DEVELOPMENT TECHNOLOGY Our core technology is based on the use of modified adenoviruses. Adenoviruses are naturally occurring viruses that cause ailments such as the common cold. We use modified adenoviruses, commonly called adenovectors, to deliver genes to cells. To create our product candidates, we incorporate into our adenovectors genes that provide the blueprint for the production of desired proteins. We deliver our product candidates directly to the site of disease using devices such as catheters and syringes to localize the production of medically beneficial, or therapeutic, proteins. We have developed proprietary techniques to enhance the delivery of genes for the production of proteins at the site of disease. Our technology enables us to design product candidates that bind to essentially all cells or only to selected cell types. Our technology also allows us to control the level and length of time of therapeutic protein production. STRATEGIC ALLIANCES We establish collaborations with pharmaceutical companies and other organizations to enhance our ability to discover, evaluate, develop and commercialize multiple product opportunities. OUR COLLABORATION WITH THE WARNER-LAMBERT COMPANY We have a collaboration agreement with Warner-Lambert to research, develop and commercialize gene-based products, including BIOBYPASS angiogen, for the treatment of coronary artery disease and peripheral vascular disease. Warner-Lambert has the primary responsibility for clinical development, regulatory approval, manufacturing and commercialization of products that we develop under this collaboration. Under the terms of the collaboration, we may receive more than $100 million, excluding royalties, in research and development funding, milestone payments, equity purchases and license fees. As of September 30, 2000, Warner-Lambert had paid us $53.7 million under this collaboration. CORPORATE INFORMATION We were incorporated in Delaware in December 1992. Our corporate headquarters is located at 65 West Watkins Mill Road, Gaithersburg, Maryland 20878, and our telephone number is (240) 632-0740. Our corporate website is located at www.genvec.com. We do not intend for information found on our website to be part of this prospectus. We own or have rights to various copyrights, trademarks and trade names used in our business. BIOBYPASS-Registered Trademark- is a registered trademark of GenVec, and the term angiogen is used to refer to an angiogenic agent. "GenVec," the GenVec logo, GENSTENT-TM- biologic, AdFAST-TM- system, AdACE-TM- system, AdLIBRARY-TM- system, UTV-TM- technology and DART-TM- vectors are some of our trademarks. Other copyrights, trademarks and trade names referred to in this prospectus are the property of their respective owners. THE OFFERING <TABLE> <S> <C> COMMON STOCK OFFERED................................ 4,000,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THIS 17,826,268 shares OFFERING.......................................... USE OF PROCEEDS..................................... We expect to use the net proceeds to fund: - research and development activities; - clinical trials, capital expenditures and working capital; and - other corporate purposes, including possible acquisitions. Please read "Use of Proceeds." PROPOSED NASDAQ NATIONAL MARKET SYMBOL.............. "GNVC" </TABLE> The information in the above table: - reflects 1,935,350 shares of common stock outstanding as of September 30, 2000; - reflects the conversion of all our outstanding convertible preferred stock into 11,543,092 shares of common stock upon the closing of this offering; and - assumes the sale of 347,826 shares of our common stock to Warner-Lambert in a private transaction concurrent with the closing of this offering at a price of $14.375 per share reflecting a purchase price equal to 125% of the initial public offering price. The number of outstanding shares of common stock does not include: - 3,506,017 shares of common stock issuable on the exercise of stock options outstanding as of September 30, 2000 at a weighted average exercise price of $2.88 per share; - 582,317 shares of common stock issuable upon exercise of warrants outstanding as of September 30, 2000 at a weighted average exercise price of $9.02 per share; or - 1,056,712 additional shares of common stock that we could issue under our stock option and stock purchase plans. Unless otherwise indicated, information in this prospectus assumes the following: - the reclassification of each share of common stock into one and one-half shares of our common stock and a corresponding adjustment to the conversion ratio for the convertible preferred stock before the closing of this offering; - the filing of our amended and restated certificate of incorporation and the adoption of amended and restated bylaws before the closing of this offering; - no exercise of the underwriters' over-allotment option; and - an initial public offering price of $11.50 per share, the midpoint of the range shown on the cover of this prospectus. SUMMARY FINANCIAL DATA The following table summarizes our statements of operations data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the nine-month periods ended September 30, 1999 and 2000 and our balance sheet data as of September 30, 2000. The pro forma net loss per share data reflects the conversion of our outstanding convertible preferred stock upon the closing of this offering. The summary balance sheet data as of September 30, 2000 are presented: - on an actual basis; - on a pro forma basis to reflect that conversion of all of our outstanding preferred stock at September 30, 2000 into a total of 11,543,092 shares of common stock upon completion of this offering; and - on a pro forma basis as adjusted to reflect the sale of 4,000,000 shares of common stock in this offering at an assumed initial public offering price of $11.50 per share, the sale of 347,826 shares of common stock in the direct offering to Warner-Lambert in a private transaction concurrent with the closing of this offering at an assumed price of $14.375 per share, and our receipt of the net proceeds after deducting underwriting discounts and estimated offering expenses. <TABLE> <CAPTION> ---------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> IN THOUSANDS, EXCEPT PER SHARE DATA STATEMENTS OF OPERATIONS DATA: Revenues: Ongoing research and development support......................... $ 1,005 $ 698 $ 3,188 $ 6,750 $14,075 $10,628 $ 7,109 Contract, license and milestone payments........................ -- -- 2,500 3,000 2,875 2,156 4,231 ------- ------- ------- ------- ------- ------- ------- Total revenues.................. 1,005 698 5,688 9,750 16,950 12,784 11,340 ------- ------- ------- ------- ------- ------- ------- Operating expenses: Research and development.......... 6,460 5,896 8,085 10,592 14,018 10,645 10,639 General and administrative........ 2,266 3,915 4,031 5,903 5,428 3,969 5,731 Purchase of in-process technology...................... 592 -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Total operating expenses........ 9,318 9,811 12,116 16,495 19,446 14,614 16,370 ------- ------- ------- ------- ------- ------- ------- Loss from operations................ (8,313) (9,113) (6,428) (6,745) (2,496) (1,830) (5,030) Other income, net................... 413 496 263 398 577 436 373 ------- ------- ------- ------- ------- ------- ------- Net loss............................ $(7,900) $(8,617) $(6,165) $(6,347) $(1,919) $(1,394) $(4,657) ======= ======= ======= ======= ======= ======= ======= Basic and diluted net loss per share............................. $ (9.39) $ (7.16) $ (4.30) $ (4.10) $ (1.22) $ (0.89) $ (2.52) ======= ======= ======= ======= ======= ======= ======= Shares used in computing basic and diluted net loss per share........ 841 1,203 1,435 1,549 1,576 1,569 1,851 Pro forma basic and diluted net loss per share......................... $ (0.15) $ (0.35) ======= ======= Shares used in computing pro forma basic and diluted net loss per share............................. 12,708 13,394 </TABLE> <TABLE> <CAPTION> ---------------------------------- AS OF SEPTEMBER 30, 2000 ---------------------------------- (UNAUDITED) PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- <S> <C> <C> <C> IN THOUSANDS BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 7,444 $ 7,444 $ 54,024 Working capital............................................. 4,640 4,640 51,220 Total assets................................................ 20,878 20,878 67,458 Long-term obligations, less current portion................. 6,567 6,567 6,567 Convertible preferred stock................................. 8 -- -- Common stock................................................ 2 14 18 Additional paid-in capital.................................. 61,088 61,084 107,660 Accumulated deficit......................................... (47,554) (47,554) (47,554) Deferred compensation....................................... (5,414) (5,414) (5,414) Total stockholders' equity.................................. 8,126 8,126 54,706 </TABLE>

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION REGARDING OUR BUSINESS AND THIS OFFERING. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 6 AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. MANUFACTURERS' SERVICES LIMITED Overview We are a leading global provider of advanced electronics design, manufacturing and related services. We provide these services to original equipment manufacturers primarily in the voice and data communications, computer and related peripherals, medical equipment and industrial and consumer electronics industries. The services that we provide are commonly referred to as electronics manufacturing services. We provide original equipment manufacturers, or OEMs, with a comprehensive range of services, including: - product design and new product introduction services; - materials procurement and management; - assembly and manufacturing; - testing services; - order fulfillment and distribution; and - after-market support. We assist our customers in the design and product introduction phases of development to reduce the time it takes to bring their products to market and optimize their design for high volume manufacturing. We obtain competitive component pricing and greater sourcing flexibility for our customers through our material and inventory management expertise and our global information systems. We utilize sophisticated assembly and manufacturing techniques in order to provide the complex functionality and small product size that is required by OEMs. We subject our manufactured products to a comprehensive set of tests for quality, functionality and reliability, including, in some instances, product-specific tests that we design for our customers. Additionally, we assist our customers in packaging and distributing the final products directly into their distribution channels and to their end users. We also provide a wide range of after-market support services such as repair, refurbishment, exchange, system upgrades and spare part manufacturing. By providing these services, we allow our customers to focus on their core competencies, and we enhance their competitiveness by reducing the cost of their products and shortening the time from product conception to product introduction in the marketplace. We have established a network of manufacturing facilities in the world's major electronics markets--North America, Europe and Asia--to serve the increasing outsourcing needs of both multinational and regional OEMs. We have strategically located our manufacturing facilities near our customers and their end-markets, which benefits our customers by reducing the time required to get their products to market and by increasing their flexibility to respond to changing market conditions. We believe that the combination of our services and our global manufacturing network has enabled us to become integral to our customers' product development and manufacturing strategies. We target leading OEMs in rapidly growing industries. We seek to establish long-term, integrated relationships with OEMs that have chosen outsourcing as a core manufacturing strategy. Due to our focus on rapidly growing industries, our prospects are influenced by recent trends, such as the buildout of the communications and Internet infrastructure, the proliferation of personal computing devices and other technological trends. Our most significant customers based on sales in the first fiscal quarter of 2000 include industry leaders such as: <TABLE> <S> <C> 3Com Corporation Iomega Corporation ADC Telecommunications, Inc. LM Ericsson Telefon AB Gilat Satellite Networks Ltd. LSI Logic Corporation Hewlett-Packard Company Palm, Inc. International Business Machines Rockwell International Corporation Corporation </TABLE> We also serve selected emerging companies in order to establish an early outsourcing relationship that will provide us with attractive growth opportunities as the products of these emerging companies gain market acceptance. OEMs, which once pursued fully integrated business strategies, have begun outsourcing their new product design, materials procurement and management, assembly and manufacturing, order fulfillment and distribution and after-market support functions. As a result of this increasing trend by OEMs to outsource these functions, the electronics manufacturing services industry has experienced significant growth over the past several years. We have capitalized on this industry growth through a combination of strategic acquisitions and internal expansion. Our total net sales have increased from $183.2 million in 1995, our first full year of operations, to $920.7 million in 1999, a compound annual growth rate of approximately 50%. While we experienced net losses of approximately $9.7 million, $17.3 million and $6.2 million in 1996, 1997 and 1998, respectively, we reported net income of approximately $2.0 million in 1999. Technology Forecasters projects that electronics manufacturing services industry revenues will grow annually at 20% from 1998 through 2003, reaching $149 billion in 2003. Technology Forecasters also projects that the twelve electronics manufacturing services providers with revenues of greater than $500 million in 1998 will have an annual growth rate of 30% over the 1998 to 2003 period. We believe that we are well positioned to benefit from this forecasted growth. Our Business Strategy Our objective is to be the premier provider of value-added electronics design, manufacturing and related services to leading OEMs in rapidly growing industries. Our strategy to achieve this objective includes the following key elements: - establish and maintain long-term relationships with leading OEMs in rapidly growing industries; - expand our global presence; - expand our integrated design, manufacturing and related services; - continually reduce our customers' overall product costs; - reduce our customers' time-to-global market and time-to-global volume; and - actively pursue strategic acquisitions. An important element of our business strategy has been to acquire existing OEM manufacturing facilities, retain their business and employees, integrate the acquired operations and introduce new customers into the acquired facilities. As an increasing number of OEMs are divesting their manufacturing operations, we intend to selectively pursue acquisitions of OEM divestitures and other strategic opportunities. In 1995, we established a significant presence in North America, Europe and Asia by acquiring facilities from AT&T, IBM and Omnitron, a spin-off of LM Ericsson. We also acquired two Asian contract manufacturers, Connett Technologies and Topas Electronics. More recently, in 1998 we assumed operation of an IBM facility in Charlotte, North Carolina. In 1999, we acquired an existing manufacturing facility in Salt Lake City, Utah, from 3Com. The Salt Lake City facility manufactures handheld computing devices, known as Palm computing devices, and modems and network interface cards. In connection with this acquisition, we entered into a two-year supply agreement with Palm, a subsidiary of 3Com, to produce Palm computing devices and a two-year supply agreement with 3Com to produce modems and network interface cards. Additionally in 1999, we considerably enhanced our North American product design services with the acquisition of two electronics design firms, Electronic System Packaging and Ronlin Design. Our History We are organized as a Delaware corporation. In January 1995, investment entities affiliated with Donaldson, Lufkin & Jenrette, Inc. acquired substantially all of our outstanding common stock, and after this offering they will own approximately 57.5% of our common stock. Our principal executive office is located at 300 Baker Avenue, Suite 106, Concord, Massachusetts 01742 and our telephone number is (978) 287-5630. We maintain a website on the Internet at WWW.MSL.COM. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information as part of this prospectus. THE OFFERING <TABLE> <S> <C> Common stock offered by us................ 11,000,000 shares Common stock outstanding after this offering........................... 30,947,770 shares Use of proceeds........................... We plan to use the net proceeds from this offering to retire all of our outstanding senior preferred stock and to repay a portion of our indebtedness. See "Use of Proceeds." New York Stock Exchange symbol............ MSV </TABLE> The number of shares of our common stock to be outstanding after this offering is based on the number of shares outstanding as of April 2, 2000, the last day of our first fiscal quarter. It excludes: - 2,521,703 shares of common stock reserved for issuance upon the exercise of outstanding options granted under our stock option plans, of which 889,929 were exercisable at a weighted average exercise price equal to $12.12 per share; - 2,264,207 additional shares of common stock available for future grants under our stock option plans; and - 1,288,550 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price equal to $4.72 per share. SUMMARY CONSOLIDATED FINANCIAL DATA The following table summarizes the consolidated financial data for our business. You should read this information together with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes included elsewhere in this prospectus. <TABLE> <CAPTION> First Fiscal Year Ended December 31, Quarter(a) ---------------------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 (Unaudited) (In thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> <C> Consolidated Statement of Operations Data: Net sales...................... $183,164 $474,288 $562,666 $837,993 $920,722 $206,964 $332,820 Gross profit................... 16,499 38,133 35,879 45,259 55,233 11,085 16,315 Operating income (loss)........ 5,210 3,880 (4,252) 8,695 16,411 3,157 (6,387) Income (loss) applicable to common stock before extraordinary loss........... 1,217 (9,726) (17,278) (4,039) 1,201 103 (12,954) Income (loss) per share applicable to common stock before extraordinary loss: Basic...................... $ 0.19 $ (0.74) $ (1.07) $ (0.21) $ 0.06 $ 0.01 $ (0.66) Diluted.................... $ 0.19 $ (0.74) $ (1.07) $ (0.21) $ 0.06 $ 0.01 $ (0.66) Weighted average number of shares outstanding: Basic...................... 6,430 13,159 16,172 18,746 19,384 19,053 19,673 Diluted.................... 6,430 13,159 16,172 18,746 19,608 19,208 19,673 </TABLE> <TABLE> <CAPTION> April 2, 2000 ------------------------- Actual As Adjusted(b) (In thousands) <S> <C> <C> Consolidated Balance Sheet Data: Cash and cash equivalents................................... $ 11,736 $ 11,736 Working capital............................................. 102,944 103,444 Total assets................................................ 451,236 449,696 Current portion of long-term debt and capital lease obligations............................................... 7,500 7,000 Long-term debt and capital lease obligations................ 142,215 37,575 Senior preferred stock...................................... 39,595 -- Total stockholders' equity.................................. 39,197 182,392 </TABLE> -------------------------- (a) The financial data for the first fiscal quarter of 1999 and 2000 is as of and for the three-month periods ended April 4, 1999 and April 2, 2000, respectively. (b) As adjusted gives effect to this offering, assuming net proceeds of $162.1 million. See "Use of Proceeds" and "Capitalization."

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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus and does not contain all of the information that may be important to you. For a more complete description of this offering, you should read this entire prospectus as well as the additional documents we refer to under the heading "Where To Find Additional Information." OUR COMPANY Our principal business is the acquisition of high quality, limited service and full service hotels throughout the United States, which are affiliated with national or regional hotel chains. As of May 31, 2000, our hotel portfolio included 11 hotels, located in 8 states and consisting of approximately 850 rooms. All of our hotels are leased and operated by third party lessees or operators under lease agreements or operating agreements. We were initially structured to operate as a real estate investment trust ("REIT"), but we do not qualify for and have not elected REIT status under the Internal Revenue Code. MANAGEMENT AND PRINCIPAL OFFICES There are five (5) persons on our Board of Directors. C.E. Patterson is our Chief Executive Officer and Robert E. Dixon is the Chairman of our Board of Directors. Our principal executive offices are located at 1640 School Street, Suite 100, Moraga, California 94556. Our telephone number is (925) 631-7929. Although our Board of Directors is directly responsible for managing our affairs and for setting the policies which guide us, our day-to-day operations are performed by MacKenzie Patterson, Inc., a contractual external advisor under the supervision of our Board of Directors. The duties of our advisor include, among other things, investigating, evaluating and recommending real estate investment and sales opportunities, and locating financing and refinancing sources. Our advisor also serves as a consultant in connection with our business plan and investment policy decisions made by our Board of Directors. SECURITIES TO BE OFFERED This prospectus relates to the offering of up to $50,000,000 of an indeterminate amount of our shares of Common Stock and up to $50,000,000 of an indeterminate amount of our shares of Preferred Stock. USE OF PROCEEDS Unless we advise you differently in a prospectus supplement, we will use the net proceeds from the sale of any securities under this prospectus for general corporate purposes. These general purposes may include repayment of indebtedness and existing obligations, making improvements or renovations to our hotel properties and the acquisition of additional hotel properties. SUMMARY FINANCIAL AND OTHER DATA We are providing the following summary financial information to aid you in your analysis of the financial aspects of an investment in Host Funding. The table sets forth summary historical financial data for Host Funding for the years ended December 31, 1999, 1998 and 1997. We believe that this presentation is informative to the reader. <TABLE> <CAPTION> YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------ ------------------ ------------------ <S> <C> <C> <C> OPERATING RESULTS: --------------------------------------------- GROSS REVENUES............................... $ 3,879,333 $ 3,926,042 $ 3,837,350 LOSS BEFORE INCOME TAXES..................... $(1,972,726) $ (904,316) $(1,025,514) NET LOSS..................................... $(1,972,726) $ (904,316) $(1,025,514) BASIC AND DILUTED NET LOSS PER COMMON SHARE...................................... $ (1.22) $ (0.58) $ (0.68) TOTAL ASSETS................................. $30,570,050 $32,449,658 $31,996,180 PREFERRED STOCK.............................. $ 1,500,000 -0 - -0 - SHAREHOLDERS' EQUITY......................... $ 2,789,580 $ 3,587,500 $ 4,279,337 </TABLE>

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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus, but does not contain all information that may be important to you. We encourage you to read this prospectus in its entirety before making an investment decision. CMS Oil and Gas Company is currently a wholly-owned subsidiary of CMS Enterprises Company, which in turn is a wholly-owned subsidiary of CMS Energy Corporation. Unless the context otherwise requires, references to (1) "CMS Oil and Gas," "we," "us" or "our" refers to CMS Oil and Gas Company and its subsidiaries; (2) "CMS Enterprises" refers to CMS Enterprises Company; and (3) "CMS Energy" refers to CMS Energy Corporation and its subsidiaries, other than CMS Oil and Gas. Unless otherwise indicated, this prospectus assumes that the underwriters' over- allotment option is not exercised. The September 30, 2000 estimated reserve data included throughout this prospectus are based on the report of Ryder Scott Company, L.P., independent petroleum engineers. We have provided definitions for some of the oil and natural gas industry terms used in this prospectus in "Glossary of Oil and Natural Gas Terms" beginning on page 101. ABOUT CMS OIL AND GAS COMPANY CMS Oil and Gas Company is an independent energy company engaged in oil and natural gas acquisition, exploration and development activities principally in Africa, the U.S. and South America. Formed in 1967, we have grown our operations through acquisition and exploration and are currently one of the larger U.S. based independent oil and natural gas companies. Our strategy is to increase reserves, production, cash flow and earnings by committing our resources to regions with significant growth prospects and properties that allow us to leverage our extensive operating and technical expertise. On a pro forma basis, excluding our Michigan and Ecuador properties which we recently sold, we have grown our production and estimated proved reserves at annualized rates of 12.4% and 25.4%, respectively, from January 1, 1995 through September 30, 2000. We have achieved these impressive growth rates by employing a lower-risk, disciplined international and domestic acquisition, exploration and development strategy. Internationally, we have been active in Africa and South America for over a decade and currently have concessions which have significant production, reserves and, we believe, reserve growth potential. We are actively exploiting our properties in Equatorial Guinea, Colombia, Venezuela and the Republic of Congo (Brazzaville). Domestically, we have built an attractive reserve base and acreage holdings located principally in the Powder River Basin of Wyoming and Montana and the Permian Basin of West Texas. We are actively exploring and developing these domestic properties which have increasing production and, we believe, significant reserve growth potential. We expect to spend approximately $166.0 million in 2001 to further develop our existing reserves and to pursue attractive exploration opportunities. We believe that our regional operating philosophy, acreage and reserve positions and management expertise provide us with significant opportunities for growth. As of September 30, 2000, we had estimated proved reserves of 212.0 million barrels of oil equivalent, or MMBoe, with a net present value (before taxes) of $1,164.7 million. Of these reserves, 92% were classified as proved developed. We operate properties accounting for approximately 91% of these estimated proved reserves, allowing us to better manage expenses, capital allocation and the timing of exploration and development activities. On a pro forma basis, excluding our recently sold Michigan and Ecuador properties and after giving effect to the acquisition in October 1999 of an additional interest in the Bioko Permit offshore Equatorial Guinea, we produced 7.1 MMBoe in 1999 and 6.3 MMBoe for the nine months ended September 30, 2000. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2000 SHARES [LOGO] CMS OIL AND GAS COMPANY COMMON STOCK ------------------ We are selling shares of common stock and the selling shareholder, CMS Enterprises Company, our parent company, is selling shares of common stock. We will not receive any of the proceeds from the shares of common stock sold by the selling shareholder. The underwriters have an option to purchase a maximum of additional shares from us and/or the selling shareholder to cover over-allotments of shares. Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We will apply to list our common stock on The New York Stock Exchange under the symbol "CGS." Concurrently with this offering, we plan to issue $200,000,000 aggregate principal amount of our senior subordinated notes in either the public or private markets. Neither offering is contingent upon the other. Following this offering, CMS Enterprises Company and CMS Energy Corporation, its parent company, will continue to beneficially own approximately % of our common stock and will be able to determine, or have significant influence over, the outcome of all corporate actions requiring shareholder approval. INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 9. <TABLE> <CAPTION> UNDERWRITING PROCEEDS TO PROCEEDS TO PRICE TO DISCOUNTS AND CMS OIL SELLING PUBLIC COMMISSIONS AND GAS SHAREHOLDER -------- ------------- ----------- ----------- <S> <C> <C> <C> <C> Per Share................................. $ $ $ $ Total..................................... $ $ $ $ </TABLE> Delivery of our shares of common stock will be made on or about , 2001. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CREDIT SUISSE FIRST BOSTON The date of this prospectus is , 2001. ------------------------ TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> PROSPECTUS SUMMARY.................... 1 RISK FACTORS.......................... 9 SPECIAL NOTE REGARDING FORWARD- LOOKING STATEMENTS.................. 21 USE OF PROCEEDS....................... 22 DIVIDEND POLICY....................... 22 DILUTION.............................. 23 CAPITALIZATION........................ 24 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA...................... 25 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA...................... 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 33 BUSINESS AND PROPERTIES............... 48 MANAGEMENT............................ 73 OWNERSHIP OF CAPITAL STOCK............ 81 RELATIONSHIP AND CERTAIN TRANSACTIONS WITH CMS ENERGY AND AFFILIATES...... 82 </TABLE> <TABLE> <CAPTION> PAGE ---- <S> <C> DESCRIPTION OF CAPITAL STOCK.......... 90 SHARES ELIGIBLE FOR FUTURE SALE....... 92 UNDERWRITING.......................... 94 NOTICE TO CANADIAN RESIDENTS.......... 96 MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK.................... 97 LEGAL MATTERS......................... 99 EXPERTS............................... 99 INDEPENDENT PETROLEUM ENGINEERS....... 99 WHERE YOU CAN FIND MORE INFORMATION... 100 GLOSSARY OF OIL AND NATURAL GAS TERMS............................... 101 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.......................... F-1 REPORT OF INDEPENDENT PETROLEUM ENGINEERS........................... A-1 </TABLE> ------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT, AS THIS DOCUMENT MAY BE AMENDED OR SUPPLEMENTED AFTER THAT DATE IN THE EVENT OF ANY SUBSEQUENT MATERIAL CHANGES DURING THE PROSPECTUS DELIVERY PERIOD SPECIFIED BELOW. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The following table summarizes by region our estimated proved reserves as of September 30, 2000 and our average daily net production during the three months ended September 30, 2000: <TABLE> <CAPTION> AVERAGE DAILY NET PRODUCTION ESTIMATED PROVED RESERVES DURING THE THREE MONTHS ENDED AS OF SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 ---------------------------------------------- ------------------------------------------ % OF % OF OIL AND NATURAL TOTAL PROVED OIL AND NATURAL TOTAL CONDENSATE GAS TOTAL RESERVES CONDENSATE GAS TOTAL PRODUCTION (MMBBLS)(1) (BCF) (MMBOE) (MMBOE) (MBBLS)(1) (MMCF) (MBOE) (MBOE) ----------- ------- ------- ------------ ---------- ------- ------ ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> INTERNATIONAL: Africa: Equatorial Guinea...... 50.8 587.1 148.6 70.1% 4.3 4.8 5.1 19.8% Congo.................. 14.7 -- 14.7 6.9 5.7 -- 5.7 22.2 Tunisia................ 3.2 36.0 9.2 4.3 1.0 8.5 2.4 9.3 South America: Venezuela.............. 12.5 6.4 13.6 6.4 5.4 2.9 5.9 23.0 Colombia............... 4.3 -- 4.3 2.0 1.7 -- 1.7 6.6 ---- ----- ----- ----- ---- ---- ---- ----- Total International.... 85.5 629.5 190.4 89.8 18.1 16.2 20.8 80.9 DOMESTIC: Powder River Basin...... -- 33.8 5.6 2.6 -- 4.2 0.7 2.7 West Texas.............. 5.3 48.3 13.5 6.4 0.8 9.2 2.4 9.4 Louisiana............... 0.3 10.8 2.1 1.0 0.1 9.5 1.7 6.6 Other Domestic.......... 0.3 1.4 0.4 0.2 0.1 0.3 0.1 0.4 ---- ----- ----- ----- ---- ---- ---- ----- Total Domestic....... 5.9 94.3 21.6 10.2 1.0 23.2 4.9 19.1 ---- ----- ----- ----- ---- ---- ---- ----- Total.............. 91.4 723.8 212.0 100.0% 19.1 39.4 25.7 100.0% ==== ===== ===== ===== ==== ==== ==== ===== </TABLE> --------------- (1) For purposes of this table, oil and condensate reserves includes 12.2 million barrels, or MMBbls, of international natural gas liquids, or NGLs, and oil and condensate production includes 0.9 thousand barrels, or MBbls, of international NGLs. OUR STRATEGY Our strategy is to increase reserves, production, cash flow and earnings by committing our resources to regions with significant growth potential and properties that allow us to leverage our extensive operating experience and focused technical expertise. We intend to achieve an attractive return on capital while seeking to diversify our geologic, geographic and political risks. We intend to implement our strategy as follows: FOCUS ON PROPERTIES WITH SIGNIFICANT GROWTH POTENTIAL. We focus on known hydrocarbon provinces with significant growth potential. Internationally, we hold properties which we believe have significant growth potential in West Africa, Colombia and Venezuela. Domestically, our activities are concentrated in the high-growth areas of the Powder River Basin in Wyoming and Montana and the Permian Basin in West Texas. TARGET SPECIFIC REGIONS AND LARGE ACREAGE POSITIONS. We believe that ownership of significant working interests in large acreage positions in targeted regions allows us to achieve economies of scale in the utilization of our geologic, engineering, exploration and production expertise. We own at least a 50% working interest in substantially all of our properties. The concentration of our operations permits us to manage a larger asset base with fewer staff, enabling us to add production at relatively low incremental cost. Moreover, we believe that the collective expertise we acquire as we explore and develop hydrocarbon systems containing multiple prospects should improve our drilling success rates while reducing our finding costs and diminishing our overall drilling and operating risk profile. MANAGE COST STRUCTURE, CAPITAL ALLOCATION AND RISK PROFILE BY SERVING AS OPERATOR. We have operations in seven countries on three continents, and we operate all but one of our major projects. Our operated properties accounted for approximately 91% of our estimated proved reserves as of September 30, 2000. As operator, we can better manage production performance and more effectively control costs, the allocation of capital and the timing of exploration and development of our properties. [Maps illustrating the location of international and domestic oil and gas properties] EXPAND OUR POSITION IN DOMESTIC NATURAL GAS. We hold 273,813 net acres in the Powder River Basin, which makes us one of the larger holders of coal bed methane acreage in this basin. By year-end 2000, we will have participated in the drilling of 500 wells in this basin. For the three months ended September 30, 2000, our aggregate net production from this basin averaged 4.2 million cubic feet, or MMcf, per day of natural gas. We expect this production to increase as we plan to participate in the drilling of approximately another 510 wells in 2001 and 700 wells in 2002. In the Permian Basin of West Texas, as of September 30, 2000 we held 44,750 net undeveloped acres and we have options on an additional 43,400 net undeveloped acres. Since June 1999 we have spudded 43 wells, of which 34 were producing, eight were in the process of being drilled or completed and one was a salt water disposal well. For the three months ended September 30, 2000 our aggregate net production from the Permian Basin averaged 9.2 MMcf per day of natural gas. We will continue to seek natural gas exploration, development and acquisition opportunities in these and other gas-prone areas of North America, including western Canada, in order to attain a more balanced portfolio and capitalize on the strength of the domestic gas market. LEVERAGE MANAGEMENT AND TECHNICAL EXPERTISE AND EXPERIENCE. We employ seasoned managers and technical personnel who have many years' experience operating in our targeted geographic regions. We have 38 professionals dedicated to our West Africa properties with over 246 cumulative years of area-specific management and technical experience and 26 professionals dedicated to our South American properties with over 140 cumulative years of area-specific management and technical experience. Furthermore, at least in part due to our former Antrim Shale operations in Michigan and other domestic operations, our Powder River Basin and West Texas operations employ dedicated personnel with over 55 cumulative years of domestic experience in the exploitation of tight gas sands and unconventional reservoirs. We believe that our seasoned managers and technical personnel have contributed to a significant reduction in our per-foot drilling costs over the past five years. ACQUISITIONS AND DISPOSITIONS OF PROPERTIES We continually reevaluate our portfolio of property holdings in order to maintain a disciplined adherence to our business strategy. As a result, we have sought to make acquisitions of reserves which complement our business objectives and to divest properties that dilute those objectives. Acquisition of Additional Working Interest in Equatorial Guinea In October 1999, we purchased an additional 11.5% working interest in the Bioko Permit in Equatorial Guinea for approximately $53.3 million in cash, increasing our working interest in this property from 42.5% to 54.0%. Acquisition of Methanol Production Facility We have agreed to purchase, prior to the completion of this offering, a 50% interest in Atlantic Methanol Capital Company, which owns an indirect 90% interest in a 2,500 metric ton per day methanol production facility currently in the late stages of construction on Bioko Island in Equatorial Guinea. We will purchase this interest from CMS Gas Transmission Company, a subsidiary of CMS Enterprises, by issuance of a note in the principal amount of approximately $137.0 million, which will be repaid with a portion of the aggregate proceeds from this offering and our concurrent offering of senior subordinated notes. Atlantic Methanol Capital has issued $125.0 million of limited recourse indebtedness, which is secured by, among other things, a pledge of 60% of the interest we expect to acquire. We believe that ownership of an interest in this methanol facility will allow us to further enhance the value of our natural gas reserves in Equatorial Guinea. Prior to our agreement to acquire this facility, our return on this natural gas was limited by the $0.25 per MMBtu selling price under a 20-year contract to sell up to 126,500 MMBtu per day of natural gas to the facility. Given that natural gas is typically the largest cost component in the production of methanol, we believe this gas sales contract will position this facility to be one of the lowest cost methanol producers in world markets. Recent Dispositions of Non-Strategic Assets In the first half of 2000, we sold our Michigan and Ecuador properties for aggregate cash consideration of approximately $258.7 million. We sold these properties because they had lower growth potential than our other properties, our working interest was relatively small and, with respect to Ecuador, we did not serve as operator. OUR RELATIONSHIP WITH CMS ENERGY Pending completion of this offering, we are an indirect wholly-owned subsidiary of CMS Energy Corporation. CMS Enterprises Company owns all of our outstanding stock, and CMS Energy owns all of the outstanding common stock of CMS Enterprises. CMS Energy is a major international energy company with electric and natural gas utility operations; independent power production; natural gas pipelines, gathering, processing and storage; energy marketing, services and trading; and, through us, oil and natural gas exploration and development. After completion of this offering, CMS Energy will continue to own indirectly approximately %, or approximately % if the underwriters exercise their over-allotment option in full, of the outstanding shares of our common stock. OUR EXECUTIVE OFFICES Our principal executive offices are located at 1021 Main Street, Suite 2800, Houston, Texas, 77002, and our telephone number is (713) 651-1700. THE OFFERING Common stock offered by us.......... shares Common stock offered by CMS Enterprises......................... shares Common stock to be outstanding after this offering(1).................... shares Common stock to be held by CMS Enterprises after this offering..... shares Use of proceeds..................... We intend to use the net proceeds to us from this offering, together with the net proceeds from our concurrent offering of $200.0 million aggregate principal amount of our senior subordinated notes, for repayment of debt under our bank credit facility and repayment of intercompany notes payable to CMS Energy. In the aggregate, CMS Energy will generate funds of approximately $ million from these transactions. Any remaining proceeds will be used for general corporate purposes. Proposed New York Stock Exchange symbol.............................. "CGS" --------------- (1) Excludes (a) shares of common stock issuable upon exercise of options we expect to grant to our executive officers in connection with this offering at an exercise price equal to the initial public offering price and (b) restricted shares of common stock we expect to issue to our outside directors in connection with this offering. SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents our summary historical and pro forma consolidated financial data as of the dates and for the periods shown. The data presented in these tables are derived from "Selected Historical Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Data" and our historical consolidated financial statements and related notes included elsewhere in this prospectus. You should read those sections for a further explanation of the data summarized here. The pro forma income statement and other data for the year ended December 31, 1999 and for the nine months ended September 30, 2000 give effect to the transactions noted below as if these transactions had been completed on January 1 of the relevant period: - our acquisition in October 1999 of an additional 11.5% interest in the Bioko Permit offshore Equatorial Guinea and the disposition of our properties in Michigan and Ecuador in March 2000 and June 2000, respectively; and - the application of the estimated net proceeds to us of $140.3 million from shares sold by us in this offering and of $194.0 million from our concurrent offering of $200.0 million aggregate principal amount of our senior subordinated notes with an assumed annual interest rate of 9.5%. The pro forma balance sheet data give effect to the transactions noted below as if these transactions had been completed on September 30, 2000: - our proposed distribution of a $39.0 million note payable to our parent, CMS Enterprises; and - our pending acquisition of an indirect 45% interest in a methanol production plant for a note in the principal amount of approximately $137.0 million. The pro forma as adjusted balance sheet data give effect to these two transactions, as well as our sale of shares of common stock in this offering and our concurrent offering of $200.0 million aggregate principal amount of our senior subordinated notes and the application of the estimated net proceeds to us from these offerings of $140.3 million and $194.0 million, respectively, as if these transactions had been completed on September 30, 2000. The pro forma financial data are not necessarily indicative of the financial position or results of operations that would have been achieved if the pro forma transactions had occurred on the dates indicated or the financial position or results of operations that will be achieved in the future. The consolidated financial position and results of operations as of and for the nine months ended September 30, 2000 are not necessarily indicative of the financial position or results of operations that may be achieved as of and for the full year ending December 31, 2000. <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------- --------------------------------------- PRO FORMA PRO FORMA 1997 1998 1999 1999 1999 2000 2000 -------- -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) ------- (UNAUDITED) ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> INCOME STATEMENT DATA: Operating Revenues: Oil and condensate..................... $ 91,364 $ 66,821 $ 82,560 $ 64,097 $ 58,858 $ 76,311 $ 66,772 Natural gas............................ 56,369 56,103 54,664 17,498 39,590 35,684 26,009 Other operating........................ 8,472 4,395 5,538 4,455 2,828 6,506 6,076 -------- -------- -------- -------- -------- -------- -------- Total operating revenues(1)...... 156,205 127,319 142,762 86,050 101,276 118,501 98,857 Operating Expenses: Depreciation, depletion and amortization......................... 48,129 38,067 43,786 21,740 31,812 28,505 22,126 Operating and maintenance.............. 44,169 44,322 51,985 35,762 37,685 40,882 34,566 Exploration costs...................... 27,747 18,976 9,456 7,914 6,142 6,160 5,822 General and administrative............. 16,517 14,250 16,819 16,294 11,056 14,775 14,945 Production taxes and other............. 5,470 5,315 4,029 571 2,484 3,289 2,169 -------- -------- -------- -------- -------- -------- -------- Total operating expenses......... 142,032 120,930 126,075 82,281 89,179 93,611 79,628 -------- -------- -------- -------- -------- -------- -------- </TABLE> <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------- --------------------------------------- PRO FORMA PRO FORMA 1997 1998 1999 1999 1999 2000 2000 -------- -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) ------- (UNAUDITED) ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> Pretax operating income.................. 14,173 6,389 16,687 3,769 12,097 24,890 19,229 Other income (expense)................... 13,146 1,233 712 (1,632) 879 32,842 (2,120) Interest expense, net of capitalized interest............................... 15,723 16,069 13,606 19,600 10,004 11,369 14,700 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes........ 11,596 (8,447) 3,793 (17,463) 2,972 46,363 2,409 Total income tax provision (benefit)..... (6,982) (13,881) (14,082) (8,458) (9,854) (2,516) (1,853) -------- -------- -------- -------- -------- -------- -------- Net income............................... $ 18,578 $ 5,434 $ 17,875 $ (9,005) $ 12,826 $ 48,879 $ 4,262 ======== ======== ======== ======== ======== ======== ======== Net income per common share.............. $ $ $ $ $ $ $ ======== ======== ======== ======== ======== ======== ======== Average common shares outstanding........ OTHER DATA: EBITDAX(2)............................... $ 90,049 $ 63,432 $ 69,929 $ 33,423 $ 50,051 $ 59,555 $ 47,177 Capital expenditures(3).................. 120,774 142,196 153,253 142,743 55,321 85,503 83,843 </TABLE> <TABLE> <CAPTION> AS OF SEPTEMBER 30, 2000 ------------------------------------ PRO FORMA HISTORICAL PRO FORMA AS ADJUSTED ---------- --------- ----------- ------- (UNAUDITED) ------- (IN THOUSANDS) <S> <C> <C> <C> BALANCE SHEET DATA: Working capital(4).......................................... $ 71,309 $(104,691) $102,388 Investment and other assets................................. 10,026 147,026 153,026 Property, plant and equipment, net.......................... 421,735 421,735 421,735 Total assets................................................ 693,045 830,045 867,124 Long-term debt, including current portion................... 130,514 130,514 203,343 Stockholder's equity........................................ 403,969 364,969 505,219 </TABLE> --------------- (1) Total operating revenues include the effect of settlement of various hedging transactions to which we have been a party. Excluding the impact of these hedging transactions, total operating revenues for the years ended December 31, 1997, 1998 and 1999 and pro forma 1999 would have been $175.4 million, $124.4 million, $163.8 million and $109.5 million, respectively. Excluding the impact of hedging transactions, total operating revenues for the nine months ended September 30, 1999 and 2000 and pro forma 2000 would have been $108.5 million, $162.3 million and $131.3 million, respectively. For a discussion of our recent hedging activities and the expected adoption of new policies applicable to our hedging, we refer you to "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Hedging Transactions" and "Business and Properties -- Hedging Objectives," respectively. (2) EBITDAX is earnings before interest, income taxes, depreciation, depletion and amortization, other income (expense), extraordinary item and exploration costs. EBITDAX is presented to provide additional information about our ability to meet our future requirements for debt service, capital expenditures and working capital. EBITDAX should not be considered as an alternative to net income as an indicator of operating performance or as an alternative to cash flows as a measure of liquidity. (3) Costs incurred for exploration, development and acquisition activities, including such of those costs as are expensed under the successful efforts method of accounting. (4) Excludes current maturities of long-term debt. SUMMARY OIL AND NATURAL GAS RESERVE DATA The following table summarizes our estimated proved oil and natural gas reserves as of the dates indicated. The reserve estimates as of September 30, 2000 have been prepared by Ryder Scott Company, L.P., our independent petroleum engineers. The reserve estimates as of January 1, 1998, 1999 and 2000 have been prepared based on reports prepared by Ryder Scott Company and/or Lee Keeling and Associates, Inc., independent petroleum engineers, and adjusted by us to exclude our reserves in Michigan and Ecuador, which we sold in March 2000 and June 2000, respectively. For additional information relating to our oil and natural gas reserves, you should read the risk factor relating to our reserves under "Risk Factors," "Business and Properties -- Reserves" and "Supplemental Information -- Oil and Gas Producing Activities" in the notes to our consolidated financial statements included elsewhere in this prospectus. Attached to this prospectus as Appendix A is a letter from Ryder Scott Company relating to its report on our estimated proved reserves as of September 30, 2000. <TABLE> <CAPTION> AS OF JANUARY 1, ------------------------- AS OF 1998(1) 1999(1) 2000 SEPTEMBER 30, 2000 ------- ------- ----- ------------------ <S> <C> <C> <C> <C> ESTIMATED PROVED RESERVES: Oil and condensate (MMBbls)(2)............. 83.9 78.3 91.6 91.4 Natural gas (Bcf).......................... 107.8 468.5 616.8 723.8 Total (MMBoe).............................. 101.9 156.4 194.4 212.0 </TABLE> --------------- (1) Includes additional interest in the Bioko Permit offshore Equatorial Guinea, which we acquired in October 1999. (2) Includes NGLs. The following table summarizes the net present value of future cash flows and the standardized measure of discounted future net cash flows attributable to our estimated proved reserves as of September 30, 2000, discounted at 10% per annum. The net present value of future cash flows has been prepared by Ryder Scott Company using the September 30, 2000 prices of $5.13 per million British thermal units, or MMBtu, of natural gas at the Henry Hub Index and $30.83 per barrel of oil at the Cushing spot market, except where we have fixed and determinable prices or service fees provided by contracts. The standardized measure of discounted future net cash flows has been prepared by us using the net present value information prepared by Ryder Scott. <TABLE> <CAPTION> AS OF SEPTEMBER 30, 2000 ------------------ <S> <C> Net present value(millions)(1).............................. $1,164.7 Standardized measure of discounted future net cash flows (millions)(2)............................................. $ 894.9 </TABLE> --------------- (1) Net present value represents the net present value of future cash flows on a pre-tax basis calculated in accordance with SEC guidelines. Net present value is sometimes also known as PV 10. (2) The standardized measure of discounted future net cash flows represents the net present value of future cash flows attributable to our reserves after income tax, calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 69. For further details concerning this calculation, see "Business and Properties -- Reserves."

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+PROSPECTUS SUMMARY This summary provides an overview of the key aspects of the offering. Because this is a summary, it may not contain all of the information that is important to you. You should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and related notes. OUR BUSINESS We develop, manufacture and market solar power cells, panels and systems that provide reliable and environmentally clean electric power throughout the world. Solar power products convert the sun's energy into electricity. Our sales are composed of primarily solar panels. After three years of research and development and three years of refining our solar power technologies in our pilot manufacturing facility, we are preparing to begin large-scale manufacturing of our solar power products in our new manufacturing facility by early 2001. We believe the proprietary and patented solar power technologies that we have developed and are currently developing will give us significant cost and product design advantages. We intend to become a leading producer of high-quality solar power products by reducing manufacturing costs, developing innovative solar power products and pursuing strategic relationships, such as our distribution and marketing relationship with Kawasaki Heavy Industries, Ltd. of Japan. OUR MARKET OPPORTUNITY The electric power industry is one of the world's largest industries, with 1998 annual revenues of approximately $900 billion. Furthermore, electricity accounts for a growing share of overall energy use. According to The Huber Mills Digital Power Report, electricity accounted for 25% of domestic energy use 25 years ago and 37% in 1999, and is projected to account for more than 50% of domestic energy use early in this century. A principal driver of this growth is increasing reliance on electricity-dependent advanced technologies, such as in the Internet and telecommunications industries. We believe that deregulation and technological innovations are creating significant opportunities for new entrants and technologies within the electric power industry, just as these changes have created similar opportunities in other regulated industries such as telecommunications, banking and transportation. We believe that distributed generation is one of the most promising areas for growth in the global electric power industry. Distributed generation is defined as point-of-use electricity generation that either supplements or bypasses the electric utility grid, and employs technologies such as solar power, microturbines and fuel cells. Distributed generation is expected to provide greater portability, reliability, power quality and user control. We believe capacity constraints, increased demand for power reliability and quality, and new environmental initiatives will drive the demand for distributed generation. The solar power market has experienced significant growth over the past 20 years. Solar power applications that are not connected to the existing utility grid, also referred to as off-grid applications, provide remote power for rural electrification in developing countries, remote homes in developed countries, water pumping, transportation signals, telecommunications and other uses. Solar power applications that are connected to the existing utility grid, also referred to as on-grid applications, are used to supplement power generated by electric utilities, typically on residential and commercial buildings. PV Energy Systems, a leading independent market research firm, estimates that on-grid shipments represented 31% of the total solar power market in 1999 and have grown at a compound annual growth rate of approximately 47% from 1990 to 1999, while off-grid shipments, representing 69% of the 1999 solar power market, have grown approximately 13% per year since 1990. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Prospectus (Not Complete) Issued October 31, 2000 3,000,000 SHARES [EVERGREEN LOGO] EVERGREEN SOLAR, INC. COMMON STOCK ------------------------------ Evergreen Solar, Inc. is offering shares of common stock in a firmly underwritten offering. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price for our shares will be between $13.00 and $15.00 per share. After the offering, the market price for our shares may be outside of this range. ------------------------------ We have applied to have our common stock quoted on the Nasdaq National Market under the symbol "ESLR." ------------------------------ INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. ------------------------------ <TABLE> <CAPTION> Per Share Total --------- ----- <S> <C> <C> Offering Price.............................................. $ $ Discounts and Commissions to Underwriters................... $ $ Offering Proceeds to Evergreen Solar........................ $ $ </TABLE> Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Evergreen Solar, Inc. has granted the underwriters the right to purchase up to an additional 450,000 shares of common stock to cover any over-allotments. The underwriters can exercise this right at any time within thirty days after the offering. Banc of America Securities LLC expects to deliver the shares of common stock to investors on , 2000. BANC OF AMERICA SECURITIES LLC CIBC WORLD MARKETS FAC/EQUITIES ------------------------------ , 2000 OUR TECHNOLOGY SOLUTION We believe the principal challenge to the widespread adoption of solar power is reducing manufacturing costs without impairing product reliability. We believe that our proprietary and patented technologies will enable us to meet this challenge due to the following advantages: - Efficient material use. Unlike conventional crystalline silicon technologies, our proprietary and patented String Ribbon technology avoids the slicing of solid blocks of silicon. Our technology currently uses approximately half the silicon required by today's market-leading technologies, which reduces manufacturing costs. We believe we can reduce this amount to one-fifth over the next few years. - Simplified and continuous processing. We are developing continuous manufacturing processes that require fewer and simpler steps, which we believe will reduce manufacturing costs. - Reduced manufacturing capital costs. We believe our manufacturing technologies require significantly lower capital investment than most existing technologies, enabling us to more easily and quickly scale our manufacturing capacity to our needs with less capital risk. - Improved product design and performance. We believe the advanced solar panels we are developing will be thinner, easier to ship and install, longer lasting and more attractive. OUR ALLIANCE WITH KAWASAKI In December 1999, we formed a five-year strategic distribution and marketing relationship with Kawasaki for the Japanese market. According to PV Energy Systems, a leading solar power market research firm, Japan is currently the largest solar power market in the world and in 1998 accounted for 26% of worldwide solar power shipments. We have agreed to sell our solar power products in Japan exclusively through Kawasaki, and Kawasaki has agreed that we will be Kawasaki's exclusive supplier of the types of solar power products we produce for the Japanese market. We are also collaborating with Kawasaki on technical training, and have agreed to explore the possibility of joint manufacturing in Japan in the future. In addition, Kawasaki made a $5 million equity investment in our company. We believe strategic relationships such as our alliance with Kawasaki will enable us to more easily and cost-effectively enter new geographic markets, attract new customers and develop innovative solar power products. OUR STRATEGY Our principal objective is to become a leading producer of high-quality solar power products, primarily for the on-grid market and the off-grid rural electrification market. We plan to achieve this objective by aggressively pursuing the following strategies: - Expanding our manufacturing capacity by relocating to our new 56,250 square foot manufacturing facility by early 2001. - Reducing manufacturing costs without compromising product quality by capitalizing on our proprietary and patented technologies in String Ribbon wafer manufacturing, innovative solar cell fabrication and advanced solar panel designs. - Developing innovative solar power products that will be longer lasting, more attractive, and easier to deliver and install by building on our technological advantages in solar power product design and performance. - Pursuing strategic relationships to leverage the marketing, manufacturing and distribution capabilities of larger companies and to explore opportunities for additional solar power product development. - Penetrating international markets through local manufacturing of solar wafers, cells and panels using our modular manufacturing technology to achieve economies of scale at smaller capacities than conventional solar power technologies. [Captions and graphics appearing on gatefold:] [Heading that reads "EVERGREEN SOLAR SERVING TODAY'S ELECTRIC POWER APPLICATIONS" beside the Evergreen Solar logo] [Underneath heading appear six photographs: a photograph of solar panels on a rooftop over the caption "Kawasaki Heavy Industries rooftop installation, Chiba, Japan.", a photograph of the EverSun AC Module over the caption "EverSun AC Module providing supplemental home power.", a photograph of a solar panel over the caption "Single panel powering military instrumentation that requires high reliability.", a photograph of solar panels on a rooftop over the caption "Roof-mounted panels installed at a private lakeside retreat.", a photograph of solar panels over the caption "Water pumping system for a business in Tanzania.", and a photograph of a single pole-mounted solar power system over the caption "Backup power system at a day care center in Arizona."] [Captions and graphics appearing in inside front cover] [Heading that reads "EVERGREEN SOLAR'S PROPRIETARY TECHNOLOGY - DESIGNED TO IMPROVE EACH PHASE IN THE MANUFACTURING CYCLE" beside the Evergreen Solar logo] [Photograph of String Ribbon furnaces over the caption "STRING RIBBON FURNACES- Evergreen Solar's proprietary and patented String Ribbon technology uses a continuous silicon growth process to avoid the conventional slicing of silicon blocks. Furnaces in which ribbons of silicon are being produced are shown above."] [Photograph of wrap-around solar cells over the caption "WRAP-AROUND CELLS - UNDER DEVELOPMENT - Evergreen Solar's proprietary and patented solar cells, called wrap-around solar cells, are being designed to place all electrical connections on the back of the solar cell to simplify the process of assembling numerous solar cells into solar panels."] [Photograph of solar panels over the caption "POLYMER PANELS - UNDER DEVELOPMENT - Evergreen Solar's innovative frameless solar panels, including roofing tiles, are being designed to be thinner, lighter, easier to ship and install, longer lasting and more attractive."] OUR HISTORY Evergreen Solar, Inc. was incorporated in Delaware in August 1994. Our corporate offices are located at 211 Second Avenue, Waltham, Massachusetts, and our telephone number is (781) 890-7117. Our web site address is www.evergreensolar.com. Information contained in our web site does not constitute a part of this prospectus. Our registered trademarks include "Evergreen Solar" and the Evergreen Solar logo. Our trademarks include "EverSun" and "String Ribbon." Other trademarks and tradenames in this prospectus are the property of their respective owners. THE OFFERING Common stock offered................ 3,000,000 shares Common stock outstanding after this offering............................ 11,057,705 shares Use of proceeds..................... We intend to use the net proceeds of this offering to expand our manufacturing operations and distribution network, finance research and development activities, fund operating losses, and provide working capital for general corporate purposes. We may also use a portion of the net proceeds to expand our business through strategic alliances and acquisitions. Proposed Nasdaq National Market symbol.............................. "ESLR" The number of shares of common stock outstanding after this offering: - includes the conversion of all of our outstanding convertible preferred stock into an aggregate of 7,248,240 shares of common stock upon the closing of the offering; - excludes 617,696 shares issuable upon the exercise of all outstanding stock options under our 1994 Stock Option Plan as of June 30, 2000 with a weighted average exercise price of $1.42 per share, 151,603 of which were exercisable as of June 30, 2000; - excludes 636,027 shares issuable upon the exercise of all warrants outstanding as of June 30, 2000 with an exercise price of $4.33 per share; and - excludes 65,553 shares issuable upon the exercise of all options granted under our 1994 Stock Option Plan between July 1, 2000 and September 30, 2000 with a weighted average exercise price of $6.45 per share, 15,687 of which were exercisable as of September 30, 2000; and 127,019 shares issuable upon the exercise of options to be granted under our 1994 Stock Option Plan immediately prior to this offering with an exercise price equal to the public offering price per share. ------------------------ Unless otherwise specifically stated, information throughout this prospectus assumes: - no exercise of the underwriters' over-allotment option; - the conversion of all of our outstanding convertible preferred stock into an aggregate of 7,248,240 shares of common stock upon the closing of the offering; - the effectiveness of our third amended and restated certificate of incorporation, which reflects 30,000,000 shares of authorized common stock and authorizes 1,000,000 shares of undesignated preferred stock, and the adoption of our amended and restated by-laws, in each case effective as of the closing of the offering; and - a 1-for-2.165 reverse stock split to be effected immediately prior to the consummation of this offering. SUMMARY FINANCIAL DATA The following tables set forth summary financial data for our company. You should read this information together with the financial statements and notes to those statements appearing elsewhere in this prospectus. The pro forma data and pro forma as adjusted data give effect to the conversion of all of our outstanding convertible preferred stock into 7,248,240 shares of our common stock upon the closing of this offering. The pro forma as adjusted data also reflect the sale of 3,000,000 shares of common stock by us in this offering at an assumed initial public offering price of $14.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. <TABLE> <CAPTION> SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------- ----------------- 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Product revenues............................... $ 153 $ 163 $ 189 $ 81 $ 97 Research revenues.............................. 556 1,395 2,113 1,070 1,008 ------- ------- ------- ------- ------- Total revenues............................ 709 1,558 2,302 1,151 1,105 Operating expenses: Cost of product revenues..................... 1,007 955 991 447 970 Research and development expenses............ 2,051 2,373 3,085 1,334 1,682 Selling, general and administrative expenses.................................. 809 917 1,303 581 733 Stock-based compensation expense............. -- -- 18 -- 110 ------- ------- ------- ------- ------- Total operating expenses.................. 3,867 4,245 5,397 2,362 3,495 ------- ------- ------- ------- ------- Operating income (loss)........................ (3,158) (2,687) (3,095) (1,211) (2,390) Net interest income............................ 102 165 163 98 515 ------- ------- ------- ------- ------- Net income (loss).............................. (3,056) (2,522) (2,932) (1,113) (1,875) ------- ------- ------- ------- ------- Accretion of redeemable convertible preferred stock........................................ (537) (953) (1,231) (610) (1,256) ------- ------- ------- ------- ------- Net income (loss) attributable to common stockholders................................. $(3,593) $(3,475) $(4,163) $(1,723) $(3,131) ======= ======= ======= ======= ======= Net income (loss) per common share (basic and diluted)..................................... $ (4.47) $ (4.33) $ (5.18) $ (2.15) $ (3.88) ======= ======= ======= ======= ======= Shares used in computing basic and diluted net income (loss) per common share............... 803 803 803 803 807 </TABLE> <TABLE> <CAPTION> JUNE 30, 2000 ------------------------------------------ PRO FORMA AS ACTUAL PRO FORMA ADJUSTED -------- -------------- ------------ (UNAUDITED) (IN THOUSANDS) <S> <C> <C> <C> BALANCE SHEET DATA: Cash, cash equivalents and short-term investments...... $ 16,143 $16,143 $54,153 Working capital........................................ 16,416 16,416 54,426 Total assets........................................... 19,522 19,522 57,532 Total long-term debt................................... -- -- -- Total redeemable convertible preferred stock........... 35,766 -- -- Total stockholders' equity (deficit)................... (16,423) 19,343 57,353 </TABLE>

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+PROSPECTUS SUMMARY The following summary is intended to highlight information found in greater detail elsewhere in this prospectus. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors." As used in this prospectus, the terms "HOB Entertainment," "we," "us," and "our" refer to HOB Entertainment, Inc. HOB Entertainment, Inc. Our Business We are a leading live music entertainment company with a network of premier clubs and concert venues, a strong brand name and an integrated Internet and digital strategy. We own, operate or exclusively book 27 live music venues including: . seven widely known House of Blues(R) clubs and . 20 premier amphitheatre, theatre and arena concert venues. We believe that we are the second largest operator of amphitheatre, theatre and arena concert venues, and the second largest promoter of live concerts in the United States. We believe that we are also the largest promoter of live concerts in Canada through a joint venture we operate. The live concert performances that we promote and distribute reflect a diverse array of music genres, including pop, rock, hard rock, Latin, hip hop, rap, blues, R&B, jazz, soul, funk, swing, country & western, gospel and contemporary, and appeal to an equally diverse demographic base. We promote more than 3,500 live music performances annually and are able to attract high-quality talent by offering a state-of-the-art live performance environment, venues of varying types and sizes and unique multimedia promotional opportunities for artists. We are uniquely positioned to capitalize on the live performances we present at our venues by digitally capturing a wide array of audio and visual live music content and distributing it through a variety of media, including our web site, www.hob.com, other forms of digital media, television and radio. We began distributing live music entertainment over the Internet in 1995. We believe we were the first to offer both free and pay-per-view streaming of live music entertainment on the Internet. We believe that we are well-positioned to be a leader in the distribution of high-quality live music entertainment through the Internet and other digital media because of our fully integrated operations and the strength of our widely recognized House of Blues brand name. We believe that consumers and artists identify our House of Blues brand with a high-quality live music experience and we seek to continually reinforce our brand as "The Home of Live Music" SM and "The Home of Live Music on the Internet." SM Our Unique Business Model We believe that there is a large, unmet demand for live music entertainment worldwide. We believe that the live music entertainment business has historically fulfilled only a limited portion of consumer demand because of inherent constraints of time, geography, availability and cost of live music performances. We believe there are numerous economically and demographically advantageous markets which are under-served by existing live music venues. Additionally, we believe that the high costs of producing, marketing and distributing a single live music event have limited the selection of live music content currently available to consumers. We believe that the continued development of new digital distribution media will result in significant opportunities to efficiently and effectively meet consumer demand for live music entertainment. Our business provides consumers with the opportunity to experience high- quality live music both at our premier clubs and concert venues and through the Internet and other forms of digital and traditional media. Key components of our unique business model include: . our wide array of concert venue types and sizes; . our widely recognized and powerful House of Blues brand name; . our talent buyers' and promoters' strong relationships with both emerging and established artists, their representatives and record labels; . our direct access to high-quality live music content created at our clubs and concert venues; . our technical expertise and unique ability to digitally capture, repurpose and distribute live music content at little incremental cost, thus creating new, innovative, revenue-generating products; . our "first-mover" advantage and experience in creating an online source for high-quality live music, which enables us to cultivate hob.com as "The Home of Live Music on the Internet;" and . our strategic relationships with leading music content, Internet, digital distribution and technology companies. Our Strategy Our objective is to be the leading source for high-quality, diverse live music entertainment through a powerful multimedia distribution platform. Our key strategies to fulfill this objective include: . Positioning our House of Blues brand as the source for the highest- quality live music entertainment across a variety of music genres. We believe that House of Blues is one of the most widely recognized consumer brands for live music in North America. We intend to continue to develop House of Blues as an internationally recognized brand synonymous with high-quality live music entertainment. . Expanding and capitalizing on long-term relationships with artists, their representatives and record labels to maximize our access to high- quality live music content. We intend to nurture our strong industry relationships and enhance artists' attraction to our state-of-the-art live concert facilities and multimedia promotional opportunities in order to expand our access to a wide array of high-quality live music content. . Growing our position as a leading live music venue operator and promoter. We intend to develop additional House of Blues clubs and larger capacity concert venues in targeted markets. We also intend to continue to expand our promotions businesses to further increase our access to artists and our penetration of important geographical markets. . Leveraging the opportunities created by our fully integrated operations to become the leading multimedia producer and distributor of live music entertainment products. We intend to capitalize on our position as a leading live music venue operator and promoter, as well as our multimedia capabilities, to continue booking and showcasing high-quality artists. We intend to continue to use our existing, cost-effective production infrastructure to digitally capture and distribute high- quality live music content which will generate new sources of revenue for ourselves, artists, their representatives and record labels. . Continuing to pursue strategic alliances and relationships to enhance our access to live music entertainment content and expand our distribution network. We intend to continue to enter into strategic relationships with leading content providers in order to gain greater access to live music content. Furthermore, we intend to continue to enter into strategic relationships with leading telecommunications companies, Internet service providers, online portals and other music- related web site operators in order to enhance our Internet and other digital distribution capabilities, generate new Internet traffic for our hob.com web site and broaden our interaction with web users. Corporate Information We were incorporated in Texas in June 1992 under the name House of Blues, Inc. and reincorporated in Delaware in December 1992 under the same name. On June 18, 1993, House of Blues, Inc. changed its name to HOB Entertainment, Inc. Our executive offices are located at 6255 Sunset Boulevard, 16th Floor, Hollywood, California 90028, our telephone number is (323) 769-4600 and our fax number is (323) 769-4601. We maintain a web site at www.hob.com. Information contained on our web site does not constitute a part of this prospectus. The Offering <TABLE> <C> <S> Common stock offered.......................... shares Common stock outstanding after this offering.. shares Use of proceeds............................... We intend to use the net proceeds of this offering . to redeem outstanding shares of our 12% senior redeemable preferred stock and our 10% senior convertible preferred stock; . to repay a portion of our outstanding indebtedness under our senior credit facility; and . for working capital and other general corporate purposes. Proposed Nasdaq National Market symbol........ HOBE </TABLE> ---------------- The shares of common stock outstanding after this offering is based on the shares of common stock outstanding at , 2000 and includes the conversion of outstanding shares of our convertible preferred stock into shares of common stock upon the closing of this offering. The number of shares of common stock outstanding after this offering excludes the following: . shares of common stock issuable upon exercise of outstanding warrants to purchase common stock with a weighted average exercise price of $ per share; . shares of common stock issuable upon exercise of outstanding stock options under our 1993 Amended and Restated Stock Option Plan with a weighted average exercise price of $ per share, of which are immediately exercisable as of , 2000; and . shares of common stock issuable upon exercise of stock options granted outside our employee plans with a weighted average exercise price of $ per share. Please see "Management--Employee Benefit Plans" and "Description of Capital Stock" for more information. Conventions Which Apply to this Prospectus Unless we indicate otherwise, all information in this prospectus reflects the following: . the completion of a one-for- reverse stock split that will occur upon the closing of this offering; . the conversion of outstanding shares of our convertible preferred stock into shares of common stock upon the closing of this offering; and . no exercise of the underwriters' over-allotment option to purchase up to additional shares of common stock. References in this prospectus to the offering refer to the initial public offering of our common stock being made by this prospectus. Summary Historical and Pro Forma Consolidated Financial Data The following table sets forth summary historical and pro forma consolidated financial data about us. On September 10, 1999, we acquired Universal Concerts, Inc., which we renamed House of Blues Concerts, Inc., and its affiliates that comprised the Universal Concerts business from Universal Studios, Inc. and its Canadian affiliate, both subsidiaries of The Seagram Company Ltd. The pro forma consolidated statement of operations data gives effect to our acquisition of Universal Concerts, Inc. and its affiliates as if we completed the acquisition on December 29, 1997. You should read this information together with our historical and pro forma financial statements and the notes to those statements appearing elsewhere in this prospectus and the information under "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." <TABLE> <CAPTION> Years Ended Six Months Ended -------------------------------------- ----------------------------------- December 29, December 28, December 27, December 27, June 27, December 26, 1996 1997 1998 1998 1999 1999(a) ------------ ------------ ------------ ------------ -------- ------------ (unaudited) (unaudited) (in thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> Consolidated Statement of Operations Data: Historical Revenues................ $ 36,108 $ 69,548 $ 87,783 $ 45,074 $ 52,003 $107,263 Operating loss.......... (27,085) (18,184) (7,394) (3,904) (4,910) (4,888) Net loss................ (26,814) (18,890) (8,526)(b) (4,340) (8,945) (6,880) Basic and diluted loss per share.............. (8.20) (6.66) (3.89)(c) (2.12) (3.57) (4.55) Pro Forma(d) Revenues.......................................... $203,872 $125,793 $120,499 $163,426 Operating loss.................................... (10,131) (515) (11,129) (1,851) Net income (loss)................................. (13,272) 315 (18,790) (2,219) Basic and diluted loss per share.................. (9.63) (2.08) (8.99) (3.99) </TABLE> <TABLE> <CAPTION> As of December 26, 1999 ------------------------- Pro Forma Actual(a) As Adjusted(e) --------- -------------- (unaudited) (in thousands) <S> <C> <C> Consolidated Balance Sheet Data: Cash and cash equivalents............................ $ 35,993 $ Working capital...................................... 4,412 Total assets......................................... 323,274 Total long-term debt, including current portion...... 72,570 Total preferred stock................................ 287,986 Total stockholders' equity (deficit)................. (102,029) </TABLE> <TABLE> <CAPTION> Years Ended Six Months Ended -------------------------------------- ----------------------------------- December 29, December 28, December 27, December 27, June 27, December 26, 1996 1997 1998 1998 1999 1999(a) ------------ ------------ ------------ ------------ -------- ------------ (unaudited) (unaudited) (in thousands) <S> <C> <C> <C> <C> <C> <C> Other Operating Data: EBITDA(f)............... $ (24,649) $ (10,789) $ (1,989) $ (1,083) $ (1,345) $ 1,044 Operating cash flow..... (13,813) (18,009) (10,452) (4,410) 920 (3,215) Investing cash flow..... (35,336) (14,422) (4,340) (2,318) (5,713) (162,132) Financing cash flow..... 31,708 22,910 18,373 9,122 2,567 199,914 Pro Forma EBITDA(d)(f).. 9,128 11,764 (3,521) 8,988 </TABLE> - ------- Notes: (a) Includes results of Universal Concerts after the September 10, 1999 acquisition date. (b) Net loss is from continuing operations before cumulative effect of change in accounting principle. (c) Basic and diluted loss per share is before cumulative effect of change in accounting principle. (d) This note provides supplemental pro forma segment data consistent with the historical segment data provided in Note 16 to our historical financial statements and the pro forma segment data provided in the notes to the pro forma consolidated statements of operations. <TABLE> <CAPTION> Year Ended Six Months Ended ------------ ----------------------------------- December 27, December 27, June 27, December 26, 1998 1998 1999 1999 ------------ ------------ -------- ------------ (in thousands) <S> <C> <C> <C> <C> Attributed revenues(g) Clubs.................. $ 83,679 $ 41,879 $ 51,712 $ 57,374 Concerts............... 178,105 122,840 87,580 144,556 Digital................ 274 159 141 302 Other.................. 3,830 3,036 150 82 -------- -------- -------- -------- Total attributed revenues .............. 265,888 167,914 139,583 202,314 Less attributed revenues from managed unconsolidated joint ventures.............. (62,016) (42,121) (19,084) (38,888) -------- -------- -------- -------- Total revenues as reported............... 203,872 125,793 120,499 163,426 Operating income (loss) Clubs.................. (3,805) (2,319) (1,072) (975) Concerts............... (2,737) 3,389 (6,219) 5,327 Digital................ (3,390) (1,752) (3,023) (4,824) Other.................. (199) 167 (815) (1,379) -------- -------- -------- -------- Total operating loss.... (10,131) (515) (11,129) (1,851) EBITDA(f) Clubs.................. 1,136 171 2,261 1,643 Concerts............... 11,117 12,847 (2,176) 13,227 Digital................ (3,218) (1,644) (2,863) (4,599) Other.................. 93 390 (743) (1,283) -------- -------- -------- -------- Total EBITDA............ 9,128 11,764 (3,521) 8,988 </TABLE> (e) Reflects the impacts of issuances of warrants and preferred stock consummated subsequent to December 26, 1999, the conversion of shares of our convertible preferred stock into shares of our common stock and this offering. (f) We define EBITDA as operating income plus depreciation and amortization, plus venue pre-opening costs, plus our attributed share of the EBITDA from joint ventures which we manage and account for under the equity method. You should not consider EBITDA in isolation or as a substitute for operating income, net income, net cash provided by operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. EBITDA, as we calculate it, may not be comparable to calculations of similarly titled measures presented by other companies. (g) We define attributed revenue as total consolidated revenues plus our share of the revenues from joint ventures which we manage and account for under the equity method.

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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in "Risk Factors." Transmeta develops and sells software-based microprocessors and develops additional hardware and software technologies for Mobile Internet Computers, which are portable computing and communication devices designed to provide an Internet experience comparable to that traditionally provided by a desktop personal computer, or PC. Our Crusoe family of microprocessors is targeted at the notebook and Internet appliance segments of the Mobile Internet Computer market, and we provide Crusoe microprocessors to suit both existing and emerging products within these market segments. We believe that our microprocessors are also well suited for other developing markets requiring low power consumption, including a variety of home electronic devices connected to the Internet. As people are becoming increasingly mobile, they are dependent on use of the Internet from remote locations to conduct their business and personal lives. In addition, the emergence of high-speed wired and wireless Internet access is enabling a new generation of notebook and Internet appliance products that offer significant improvements in portability and provide users with a full-featured Internet experience. International Data Corporation, or IDC, forecasts that the market for notebook computers will grow to 35 million units in 2003, while the market for Internet appliances and similar devices that access the Internet will grow to more than 75 million units in the same time frame. Rather than using the traditional method of designing microprocessors primarily with hardware, we have developed a novel approach that incorporates a substantial portion of microprocessor functionality into our software. We believe that our approach to designing microprocessors allows us to provide the first microprocessor solution that simultaneously satisfies a wide range of user requirements for Mobile Internet Computers, including compatibility with PC software, long battery life and performance comparable to a desktop PC. The primary components of our Crusoe microprocessors are as follows: CODE MORPHING SOFTWARE. Our Code Morphing software provides a compatibility bridge between PC software and our own proprietary instruction set, using a translation process that is indiscernible to the end user. In addition, Code Morphing software continuously learns about and re-optimizes software applications a user is running to improve power usage and performance. VERY LONG INSTRUCTION WORD (VLIW) PROCESSOR HARDWARE. Our VLIW processor hardware provides for parallel processing of instructions to achieve high performance. Because we use Code Morphing software to perform much of the functionality typically found in hardware, our microprocessors use a relatively simple hardware design that is optimized for low power consumption in addition to speed. We are focused on extending our leadership in software-based microprocessor technologies and expanding the number of products and end markets that use Crusoe microprocessors. We have assembled a team of engineers with comprehensive systems expertise to help manufacturers quickly resolve any system design issues and achieve rapid time-to-market for next generation products built with our Crusoe microprocessors. In addition, we have established, and intend to continue to establish, relationships with computer manufacturers to design and develop next generation Mobile Internet Computers. We introduced our first Crusoe microprocessors in January 2000 and recognized our first product revenue from these products in the first half of 2000. Through June 30, 2000, we had manufactured only limited quantities of our products. In September 2000, we began volume shipments. As of September 30, 2000, we had shipped products in volume only to Sony Electronics and Fujitsu Ltd. Sony Electronics has announced that it will use our Crusoe microprocessor in its new VAIO PictureBook C1VN notebook computer. Fujitsu has announced that it will use our Crusoe microprocessor in its new FM Biblo Loox T and FM Biblo Loox S notebook computers. Hitachi has announced three notebook computers and an Internet appliance incorporating Crusoe. Gateway has announced that it will use Crusoe in Internet appliances still under development with America Online. NEC has announced that it will use our Crusoe microprocessor in its new LaVie MX notebook computer. We have a history of substantial losses, and at September 30, 2000, we had an accumulated deficit of approximately $147.5 million. THE OFFERING Common stock offered by Transmeta..... 13,000,000 shares Common stock to be outstanding after this offering......................... 127,752,858 shares Use of proceeds....................... We intend to use the net proceeds from this offering to increase working capital and for other general corporate purposes. See "Use of Proceeds." Nasdaq National Market symbol......... TMTA The number of shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding on September 30, 2000 and assumes the conversion of our outstanding shares of preferred stock into 73,174,342 shares of common stock and the conversion of a convertible promissory note into 1,200,000 shares of common stock upon the closing of this offering. The number of shares of our common stock that will be outstanding immediately after this offering excludes: - 14,775,142 shares of common stock issuable upon exercise of options outstanding at September 30, 2000 with a weighted average exercise price of $3.68 per share; - 2,066,432 shares of common stock issuable upon exercise of warrants outstanding at September 30, 2000 with a weighted average exercise price of $1.15 per share; and - 10,007,414 additional shares available for issuance under our stock purchase and option plans. We were incorporated in California in March 1995 and reincorporated in Delaware in October 2000. Our principal executive offices are located at 3940 Freedom Circle, Santa Clara, California 95054, and our telephone number at that address is (408) 919-3000. Transmeta()(TM), the Transmeta logo, Crusoe()(TM), the Crusoe logo, Code Morphing()(TM) and LongRun()(TM) are trademarks of Transmeta Corporation in the United States and other countries. All other trademarks or trade names appearing in this prospectus are the property of their respective owners. SUMMARY CONSOLIDATED FINANCIAL DATA The following tables provide summary consolidated financial data and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. The pro forma information in the tables below reflects the conversion of our outstanding shares of preferred stock into 73,174,342 shares of common stock and the conversion of a convertible promissory note into 1,200,000 shares of common stock upon the closing of this offering. The pro forma as adjusted column of consolidated balance sheet data also reflects the sale of 13,000,000 shares of common stock offered by us at an assumed initial public offering price of $17.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The financial data as of September 30, 2000 and for the nine months ended September 30, 1999 and 2000, and the pro forma data, are derived from financial statements that are unaudited. <TABLE> <CAPTION> PERIOD FROM MARCH 3, 1995 (DATE OF NINE MONTHS INCORPORATION) ENDED THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ----------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 -------------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Product revenue............................. $ 250 $ -- $ -- $ 326 $ 76 $ 76 $ 3,817 License revenue............................. -- -- 1,400 28,000 5,000 5,000 -- Total revenue............................. 250 -- 1,400 28,326 5,076 5,076 3,817 Gross profit................................ 250 -- 1,400 28,255 5,058 5,058 1,512 Total operating expenses.................... 1,295 7,640 17,412 36,083 46,151 32,517 76,670 Operating loss.............................. (1,045) (7,640) (16,012) (7,828) (41,093) (27,459) (75,158) Net loss.................................... (1,009) (7,471) (16,187) (10,090) (41,089) (27,990) (71,464) Net loss per share -- basic and diluted..... $ (.05) $ (.37) $ (.79) $ (.44) $ (1.51) $ (1.05) $ (2.26) Weighted average shares outstanding -- basic and diluted............................... 20,000 20,000 20,576 23,074 27,236 26,707 31,652 Pro forma net loss per share -- basic and diluted (unaudited)....................... $ (.52) $ (.71) Pro forma weighted average shares outstanding -- basic and diluted (unaudited)............................... 79,564 100,030 </TABLE> <TABLE> <CAPTION> SEPTEMBER 30, 2000 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) <S> <C> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 64,076 $ 64,076 $268,106 Working capital............................................. 75,171 75,171 279,201 Total assets................................................ 149,426 149,426 353,456 Long-term obligations, net of current portion............... 26,192 25,770 25,770 Total stockholders' equity.................................. 94,652 95,074 299,104 </TABLE>

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+SUMMARY This summary highlights some of the information in this prospectus and summarizes the material terms of this offering. It is not complete and may not contain all of the information that you should consider before deciding to purchase our common stock. You should read the entire prospectus carefully, including the "Risk Factors" and the financial statements and the notes to those statements. Unless otherwise noted, this prospectus (1) reflects the retroactive restatement of our accounts to reflect our transaction with National Telemanagement Corporation ("NTC"), which was accounted for as a pooling of interests, and (2) assumes the underwriters do not exercise their over-allotment option. ILLUMINET OUR COMPANY We operate the largest unaffiliated Signaling System 7 ("SS7") network in the United States and are a leading provider of complementary intelligent network and SS7 services to telecommunications carriers. Connection to our network gives carriers access to the system of signaling networks of nearly the entire U.S. public-switched telecommunications infrastructure through a single source. Our SS7 network also provides us with an established platform from which we can provide other value-added services. SS7 is the industry standard used by almost every switched telephone network operator in the United States and Canada to identify available network routes and designate the circuits to be used for each individual telephone call. SS7 networks also provide access to intelligent network services, such as caller identification, calling card validation and other specialized database access functions, all of which are performed in the seconds it takes to complete a call. SS7 networks are specialized packet-switched data networks that provide these control functions and services in parallel with separate voice networks. We have been a provider of telecommunications database services since 1981 and of critical SS7 network services since 1990. In 1999, we generated revenues of $116.7 million, operating income of $21.8 million and net income of $13.6 million. NETWORKS & SERVICES Through our networks, we provide: - SS7 connectivity, switching and transport; - intelligent network services, including local number portability and support for roaming between wireless carriers and various specialized database services; and - prepaid wireless account management and access to wireless roaming for unregistered wireless users. We also provide: - clearinghouse services to facilitate payment among telecommunications carriers; and - network usage software applications. Our SS7 network is composed of specialized SS7 switches, sophisticated computers and databases strategically located across the country. These elements interconnect our customers and the largest U.S. telecommunications carriers through leased lines. Our SS7 network serves over 700 network services customers, including incumbent local exchange carriers, competitive local exchange carriers, long distance companies, wireless telecommunications providers and Internet service providers. OUR COMPETITIVE STRENGTHS Our competitive strengths include: - SINGLE SOURCE ACCESS TO SS7 NETWORK AND INTELLIGENT NETWORK SERVICES. We provide our customers connectivity to the signaling networks of nearly the entire U.S. public-switched telecommunications infrastructure and an array of network-enabled services through a single source. We believe most of our customers choose not to build in-house SS7 networks due to the significant capital and technical expertise required to install and manage necessary SS7 connections with the largest U.S. telecommunications carriers. - ESTABLISHED CUSTOMER RELATIONSHIPS BASED ON INDEPENDENCE AND NEUTRALITY. As the largest non-carrier affiliated SS7 network provider, we have fostered business relationships with AT&T, MCI WorldCom, Sprint, all of the regional Bell operating companies, many major competitive local exchange carriers and a significant number of wireless operators, independent telephone companies and interexchange carriers. We believe that our independence and neutrality significantly enhance our attractiveness as a provider of outsourced SS7 services. In addition, our established relationships provide us with the opportunity to sell additional services to a broad base of customers. - PROVEN BUSINESS MODEL WITH STABLE AND RECURRING REVENUE STREAMS. Our networks provide us with a profitable base of recurring service revenue. We believe this recurring revenue stream gives us greater clarity as to our projected financial performance and future capital needs and significantly enhances our planning processes. We also believe that the costs incurred by a carrier in moving to a competitor's SS7 network are relatively high, further strengthening the stability of our revenue base. - ABILITY TO LEVERAGE OUR EXISTING SS7 NETWORK PLATFORM TO OFFER NEW AND INNOVATIVE SERVICES. Our SS7 network design is advanced and flexible, which enables us to rapidly add services to our existing offerings with limited service disruptions or additional costs. We have added and expect to continue to add new services which we believe will complement the services we currently provide to existing customers, and therefore increase revenues per customer, as well as help us add new customers. - ABILITY TO LEVERAGE OUR PLANNED OSS MEDIATION PLATFORM TO PROVIDE ADDITIONAL SERVICES. We believe our planned OSS mediation platform, which will use our SS7 network and established interfaces with multiple carriers to facilitate communication among their back office or operational support systems ("OSS"), will enable us to provide additional services to existing customers and to attract new customers. Because of the complexity of establishing intercarrier interfaces, we believe there is a growing need for outsourced OSS mediation and that we are well equipped to provide these services. - POSITIONED TO BE THE SS7 SERVICE PROVIDER OF CHOICE TO INTERNET PROTOCOL-BASED CARRIERS. As one of the largest providers of outsourced SS7 and intelligent network services in the United States, we are strategically positioned to provide those services to emerging Internet protocol-based carriers who must access existing public-switched telecommunications networks to serve their rapidly growing customer bases. OUR GROWTH STRATEGY Our growth strategy consists of the following key elements: - BROADEN OUR CUSTOMER BASE BY TARGETING EMERGING CARRIERS. We intend to continue to aggressively grow our customer base by targeting new telecommunications carriers as they enter the market. These carriers include competitive local exchange carriers, integrated communications providers, wireless carriers and Internet service providers. - PROVIDE NEW SERVICES TO HELP DIFFERENTIATE OUR CUSTOMERS FROM THEIR COMPETITORS. We intend to continue to deliver new and enhanced services and applications that will enable our customers to broaden their service offerings and thus improve their market position. - GENERATE ADDITIONAL REVENUE THROUGH OUR SS7 NETWORK USAGE MEASUREMENT CAPABILITIES. We believe that the traffic and usage data we capture from our network SS7 can be used to enhance the billing and network management capabilities of our customers. We are developing services that will enable our customers to use this information to more efficiently operate their networks and develop targeted marketing plans. - BECOME THE PREFERRED PROVIDER OF SS7-BASED SERVICES TO EMERGING INTERNET PROTOCOL-BASED CARRIERS. We believe that providing carrier-class intelligent network capabilities is one of the biggest challenges facing emerging Internet protocol-based carriers. We have worked with hardware providers, including Cisco and Lucent, to certify new SS7-related equipment for emerging Internet protocol-based carriers. We intend to pursue additional opportunities to provide intelligent network capabilities using emerging Internet protocol-based technologies. - DEVELOP AND MARKET OSS MEDIATION SERVICES. We are developing an OSS mediation service to meet the growing demand for interface between carriers to execute complex transactions. We intend to initially focus on existing customers before expanding to new customers. We believe that our mediation service will be more attractive to carriers than the alternative of developing their own interfaces with other carriers. - STRENGTHEN OUR MARKET PRESENCE THROUGH SELECT ACQUISITIONS. We will actively seek to acquire companies that possess complementary service offerings. Companies that have developed signaling-based services or services that can be improved or delivered more economically through the use of our SS7 network can provide us incremental revenues and net income. OUR INDUSTRY Key industry trends that are expanding our business opportunities include: - DEREGULATION. Deregulation has opened telecommunications markets to many new service providers, many of which use our SS7 services. In addition, deregulation has opened specific service opportunities to competition, such as the provision of toll-free number database services, line information database services and local number portability. - GROWING NEED FOR VALUE ADDED SERVICES. Increased competition in the telecommunications industry is forcing carriers to differentiate themselves by providing advanced, value-added services, such as personal toll-free numbers, caller identification and real time billing validation. Providing many of these services requires SS7 connectivity and simultaneous database access through an SS7 network. Most U.S. independent local exchange carriers and a significant number of competitive local exchange carriers use us to provide these types of services. - GROWING NEED FOR INTER-CARRIER MEDIATION SERVICES. Competitive local exchange carriers must establish interfaces with several other carriers to provide services to their customers. Establishing an interface with another carrier can be difficult and time consuming. We believe that because these interfaces are not standardized a significant burden is put on competitive local exchange carriers to establish these interfaces. As a result, we believe that there is a growing need for mediation services to assist in the establishment of these interfaces. RECENT DEVELOPMENTS On June 30, 2000, we acquired NTC through a merger of NTC with one of our subsidiaries. NTC is a developer and provider of advanced applications for the wireless communications industry, including prepaid wireless account management and services for wireless users that do not have service contracts, who we refer to as "unregistered users." We offer unregistered users the ability to roam on wireless carriers' networks, a service we refer to as "unregistered wireless roaming service." NTC's account management and services enable wireless network providers to offer a wide variety of features intended to control costs and manage usage, including roaming management, multiple rate plans, call blocking, account history and calling pattern monitoring. NTC's services also allow wireless providers to instantly calculate a customer's account balance, while providing for automatic debiting and replenishment of customer accounts. For the year ended December 31, 1999, NTC reported net revenues of $16.1 million and net income of $630,000. Between December 31, 1998 and December 31, 1999, NTC's net revenues increased 56%, and for the quarters ended March 31, 1999 and March 31, 2000, its net revenues increased 52%. In connection with the merger, we issued 1,888,944 shares of common stock and options to purchase up to 80,297 shares of common stock to NTC stockholders and employees. The transaction has been accounted for as a pooling of interests, and accordingly, our accounts have been retroactively restated to reflect the merger. THE OFFERING Common stock offered by: Illuminet................... 400,000 shares Selling stockholders........ 3,792,262 shares Total.................. 4,192,262 shares Common stock to be outstanding after this offering(1)........... 32,150,480 shares Over-allotment option............ 628,839 shares Use of proceeds.................. We intend to use the net proceeds we receive: - to fund potential acquisitions; - to develop new and improved services; - to maintain and expand our network; and - for general corporate purposes. We cannot specify with certainty all of the particular uses for the net proceeds. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See "Use of Proceeds." Dividend policy.................. We have never declared or paid any dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors. Nasdaq National Market Symbol.... ILUM ------------------------ (1) Includes shares issued in our transaction with NTC, as shown under "Capitalization." The number of shares of our common stock that will be outstanding after the offering does not take into account 3,298,904 shares of our common stock issuable upon exercise of outstanding options, which have a weighted average exercise price of $4.25 a share, as of March 31, 2000. SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL AND OTHER DATA We derived the following summary supplemental consolidated financial data for the years ended December 31, 1997, 1998 and 1999 from our consolidated supplemental financial statements, which have been audited by Ernst & Young LLP, independent auditors. We derived the summary supplemental consolidated financial data as of and for the three months ended March 31, 1999 and 2000 from our unaudited supplemental consolidated financial statements, which, in our opinion, reflect all adjustments (consisting of only normal and recurring accruals) necessary to present fairly our financial position and results of operations for those periods. Other financial data and other data are unaudited. Interim results do not necessarily indicate the results that you may expect for any other interim period or for the full year. You should read this summary information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our supplemental consolidated financial statements and the notes to those financial statements that are included in the back of this prospectus. You should read the following information with the data in the table on the next page: - Our summary supplemental consolidated financial and other data provided below is derived from the supplemental consolidated financial statements included in this prospectus, which reflects our transaction with NTC, which was accounted for as a pooling of interests. Our supplemental financial statements will become our historical financial statements after the financial statements covering the date of our transaction with NTC are issued. - The 1997 income tax benefit reflects the benefits of net operating loss carryforwards of $2.4 million. In addition, the 1997 income tax benefit includes a benefit of $0.9 million attributable to the reversal of substantially all of the remaining previously recorded deferred tax valuation allowance due to improved operating results. - Earnings per share-basic is based on net income available to common stockholders divided by the weighted average number of common shares outstanding. Earnings per share-diluted includes the dilutive effect of outstanding convertible securities, warrants, debentures and common stock options. - Long-term obligations, less current portion includes: (1) obligations under capital leases, less current portion, and (2) long-term debt, less current portion. - Capital expenditures includes purchases and capital leases of property and equipment. - Customers is the number of entities that received a bill from us during the relevant period, including, in some cases, subsidiaries of consolidated groups and individual locations of a single company. - Signaling points represents the number of connections to our SS7 network. These points may be either individual switches or connections to other companies' signaling transfer points with networks attached to them. - The pro forma supplemental balance sheet data as of March 31, 2000 reflects the impact of the conversion of convertible redeemable preferred stock into common stock in connection with our transaction with NTC. - The pro forma as adjusted supplemental balance sheet data as of March 31, 2000 reflects the receipt of our estimated net proceeds from this offering. <TABLE> <CAPTION> THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------- ------------------------- 1997 1998 1999 1999 2000 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) <S> <C> <C> <C> <C> <C> SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME DATA: Revenues: Network services.............. $ 52,829 $ 70,577 $ 109,317 $ 23,315 $ 32,944 Clearinghouse services........ 6,723 6,232 5,851 1,539 1,315 Network usage software applications............... 3,468 5,406 1,532 231 270 ----------- ----------- ----------- ----------- ----------- Total revenues............. 63,020 82,215 116,700 25,085 34,529 Expenses: Carrier costs................. 17,893 25,506 28,004 6,945 6,512 Operating..................... 18,857 23,288 36,623 7,539 9,164 Selling, general and administrative............. 10,382 12,882 16,656 3,702 4,888 Depreciation and amortization............... 7,622 10,131 13,610 2,751 3,643 ----------- ----------- ----------- ----------- ----------- Total expenses............. 54,754 71,807 94,893 20,937 24,207 ----------- ----------- ----------- ----------- ----------- Operating income................ 8,266 10,408 21,807 4,148 10,322 Interest and other income, net........................... 501 767 2,020 278 1,800 Interest expense................ (1,770) (1,966) (2,060) (484) (371) ----------- ----------- ----------- ----------- ----------- Income before income taxes...... 6,997 9,209 21,767 3,942 11,751 Income tax provision (benefit)..................... (676) 3,826 8,132 1,492 4,468 ----------- ----------- ----------- ----------- ----------- Net income...................... $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283 =========== =========== =========== =========== =========== SUPPLEMENTAL PER SHARE DATA: Earnings per share -- basic..... $ .33 $ .22 $ .52 $ .10 $ .23 Earnings per share -- diluted... $ .30 $ .19 $ .45 $ .08 $ .21 Weighted average common shares -- basic............... 23,073,310 23,027,833 24,630,095 22,716,671 31,114,235 Weighted average common shares -- diluted............. 27,477,934 27,798,781 29,246,941 27,841,831 33,512,649 SUPPLEMENTAL OTHER FINANCIAL DATA: Capital expenditures............ $ 12,639 $ 19,678 $ 17,346 $ 2,626 $ 2,780 SUPPLEMENTAL OTHER DATA: Customers....................... 417 544 735 584 766 Signaling points................ 533 686 765 706 770 </TABLE> <TABLE> <CAPTION> AS OF MARCH 31, 2000 ---------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- <S> <C> <C> <C> SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents, and securities available for sale... $107,870 $107,870 $123,900 Property and equipment, net................................. 50,381 50,381 50,381 Total assets................................................ 200,638 200,638 216,668 Long-term obligations, less current portion................. 14,163 14,163 14,163 Convertible Redeemable Preferred Stock...................... 4,273 -- -- Stockholders' equity........................................ $142,883 $147,156 $163,186 </TABLE>

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+SUMMARY The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information contained in this prospectus, including the financial statements and related notes. ELOQUENT Eloquent provides rich media solutions for business-to-business communications. "Rich media" is the combination of video, audio, sophisticated graphics and text into a synchronized, interactive, navigable and searchable format. We have developed a unique and proprietary combination of software and services that we use together, in what we call a "solutions platform," to create and deliver rich media presentations, or "events," on behalf of our customers. These events can be delivered over Web-based channels or CD-ROMs to be viewed by end users on their personal computers. "Web-based channels" includes the World Wide Web, internal computer networks known as "intranets," and computer networks known as "extranets" that provide access to customers and business partners but not to the public. Our customers, which are primarily large companies, use our solutions to communicate time-sensitive, business-critical information to target audiences in an effective, consistent and cost-efficient manner. Customers use our events for product launch briefings to sales teams, strategic and corporate alignment presentations to employees, sales pitches to potential customers, employee training seminars, business partner education programs and complex customer support activities. Since our inception in March 1995, we have produced over 700 rich media events consisting of over 3,500 hours of content for more than 150 customers. Business-to-business communications involve the dissemination of corporate information to audiences both inside and outside an organization, including employees, customers and business partners. The ability to communicate effectively with these audiences represents an important competitive advantage for companies under increasing pressure to operate more efficiently and to better serve the needs of their customers. Companies disseminate information to their target audiences through a variety of means and a number of different technologies that, although useful, do not always provide the most efficient and robust means of delivering communications. The emergence of the Web as a global communications medium has enabled companies to gather information, communicate and conduct business electronically over Web-based channels. Furthermore, the development of streaming media technologies and the proliferation of multimedia-capable computers has enabled the delivery of continuous "streams" of video and audio content, including our rich media events. Most streaming media applications, however, have been focused on entertainment applications and do not provide for synchronization of multiple media or sophisticated search and navigation capabilities. Additionally, a number of technical challenges have limited the adoption of streaming media technology for business-to-business communications. We believe our customers recognize the benefits of outsourcing the production and delivery of rich media events to Eloquent because we have specialized rich media expertise, the ability to deliver a complete set of products and services, and the ability to achieve economies of scale in producing rich media events. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Our platform includes all of the software and services our customers need to deliver rich media business-to-business communications to their target audiences. We have developed what we believe to be the most effective, comprehensive and robust platform available for producing and delivering rich media events for business-to-business communications that are: - easier to produce and deliver -- we have the capability to produce rich media events for our clients in a turnkey fashion. By "turnkey" we mean that we do substantially all of the work to produce an event ourselves from start to finish, rather than providing our customers with tools with which to produce an event themselves. In addition, by delivering rich media events through the Web, intranets, extranets and CD-ROMs, we enable our customers to reach their entire target audience easily. - more effective -- our rich media events provide users with business-critical information in an interactive, searchable and navigable format that we believe makes our events more engaging than other forms of business-to-business communication, enhancing comprehension and retention of the information. - faster -- we enable our customers to disseminate critical information rapidly due to our unique and efficient production process and Web-based channel and CD-ROM delivery. Using our proprietary scheduling software and production expertise, we can produce a typical four- to five-hour rich media event in nine business days, compared to months for alternative solutions. - less expensive -- our solutions eliminate many of the costs associated with traditional business presentations, including airline, hotel and other travel expenses for event participants, facilities costs and the opportunity costs associated with diverting employees from their work schedules. We believe that these benefits can result in a number of strategic and competitive advantages for our customers, including accelerating the commercial launch of new products, increasing employee productivity, strengthening important business relationships and enhancing sales and marketing efforts. Our objective is to enhance our leadership position in rich media solutions for business-to-business communications. Key elements of our strategy include: - further penetration of our existing customer base of large corporate accounts; - expansion into additional industries; - identification of new applications for our solutions; - expansion and enhancement of our existing set of customer solutions by broadening the functionality of our platform and adding value-added services; and - expansion into international markets. OFFICE LOCATION Our principal executive offices are located at 2000 Alameda de las Pulgas, Suite 100, San Mateo, California 94403 and our telephone number is (650) 294-6500. Our primary Web site is located at www.eloquent.com. Information contained on our Web site is not part of this prospectus. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE OFFERING Common stock offered...................... 4,500,000 shares Common stock and common stock warrants outstanding after the offering............ 16,917,267 shares Offering price............................ $ per share Use of proceeds........................... We will receive net proceeds from this offering of approximately $ million. We intend to use approximately $23.0 million of these net proceeds for the repayment of debt. We intend to use $7.5 million to $9.0 million of the remaining net proceeds to increase the size of our sales and marketing organizations, and $1.5 million to $2.0 million to expand research and development efforts in order to enhance the functionality of our solutions platform. We anticipate using the remaining net proceeds for working capital and for general corporate purposes, including international expansion. See "Use of Proceeds" on page 17 for a more detailed description of our plans to use the net proceeds of this offering. Proposed Nasdaq National Market symbol.... ELOQ The common stock and common stock warrants outstanding after the offering set forth above are based on the total number of shares of common stock outstanding on December 31, 1999 and shares issuable upon exercise of warrants outstanding on that date. These warrants are exercisable for 1,685,387 shares of common stock. Of these warrants, warrants to purchase 14,450 shares will expire upon the closing of this offering if not exercised by that time. The number of shares and warrants set forth above excludes: - 3,327,342 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 1999; and - 2,162,849 shares of common stock reserved for issuance pursuant to future grants of stock options made under our equity incentive plans and our stock purchase plan. Unless otherwise specifically stated, information contained in this prospectus: - does not take into account the exercise of the underwriters' over-allotment option to purchase up to 675,000 shares of our common stock; and - gives effect to the conversion of all of our outstanding preferred stock into common stock upon the closing of this offering. "Eloquent" and the Eloquent logo are trademarks of Eloquent, Inc. that are registered in the United States and other jurisdictions. All other trademarks or service marks appearing in this prospectus are trademarks or service marks of the respective companies that use them. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA <TABLE> <CAPTION> INCEPTION (MARCH 29, 1995) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------------------------- 1995 1996 1997 1998 1999 ----------------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues: Content production services................... $ 55 $ 944 $ 3,519 $ 6,750 $ 8,412 Software licenses and maintenance................................... -- -- 406 993 2,959 Professional services......................... -- -- -- -- 1,121 -------- -------- -------- -------- -------- Total revenues......................... 55 944 3,925 7,743 12,492 -------- -------- -------- -------- -------- Cost of revenues: Content production services................... -- 405 3,717 5,730 5,021 Software licenses and maintenance............. -- -- 50 445 646 Professional services......................... -- -- -- -- 1,496 -------- -------- -------- -------- -------- Total cost of revenues................. -- 405 3,767 6,175 7,163 -------- -------- -------- -------- -------- Gross margin.................................. 55 539 158 1,568 5,329 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing........................... 81 846 3,785 6,812 8,856 Research and development...................... 86 659 845 1,510 1,959 General and administrative.................... 208 597 1,876 2,211 3,499 Stock-based compensation...................... -- -- -- 992 5,756 -------- -------- -------- -------- -------- Total operating expenses............... 375 2,102 6,506 11,525 20,070 -------- -------- -------- -------- -------- Loss from operations................. (320) (1,563) (6,348) (9,957) (14,741) Interest expense and other charges.............. 1 (21) (100) (259) (2,175) Interest income and other income................ -- 49 79 208 301 -------- -------- -------- -------- -------- Net loss........................................ $ (319) $ (1,535) $ (6,369) $(10,008) $(16,615) ======== ======== ======== ======== ======== Net loss per share, basic and diluted........... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (5.47) ======== ======== ======== ======== ======== Weighted average shares, basic and diluted...... 240 781 1,388 2,111 3,036 ======== ======== ======== ======== ======== Pro forma net loss per share, basic and diluted....................................... $ (1.63) ======== Pro forma weighted average shares, basic and diluted....................................... 10,195 ======== </TABLE> The following table summarizes our balance sheet as of December 31, 1999: - on an actual basis; and - on a pro forma basis to reflect the sale of 4,500,000 shares of common stock offered hereby at an assumed initial offering price of $13.00 per share, after deducting estimated underwriting discounts, commissions and offering expenses, the application of $20.0 million of the net proceeds from the offering to repay our subordinated notes and the application of $3.0 million of the net proceeds from the offering to repay borrowings under our existing line of credit. <TABLE> <CAPTION> DECEMBER 31, 1999 ---------------------- ACTUAL PRO FORMA ------- ----------- (UNAUDITED) (IN THOUSANDS) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $17,174 $47,301 Working capital............................................. 12,706 45,833 Total assets................................................ 25,265 53,724 Long-term obligations and subordinated notes................ 9,254 777 Total stockholders' equity.................................. 7,688 47,626 </TABLE> Long-term obligations and subordinated notes presented above in the "Actual" column are net of $11.5 million of unamortized debt discount. Total stockholders' equity presented above in the "Pro Forma" column reflects a loss on extinguishment of debt of $8.0 million. For more detail on the accounting treatment of our subordinated notes and their repayment, see "Management's Discussion and Analysis of Financial Condition and Results of Operations"

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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information about us, the sale of our common stock in this offering, and our financial statements and notes to those financial statements that appear elsewhere in this prospectus. Our Business We are a leading provider of interactive, on-demand television products and services. We are the only company currently commercially deploying an end-to- end video-on-demand service in North America. We have also recently introduced an interactive program guide as a stand-alone product. Both our video-on-demand service and interactive program guide operate on industry-standard digital set- top boxes and operating systems and provide flexible and cost-effective interactive television solutions for cable and other broadband network operators, which we refer to as network operators. We are also enhancing our core technology to support new services including on-demand timeshifted television, interactive targeted advertising and television-based e-commerce. We have recently deployed the newest version of our video-on-demand services at three Insight Communications cable systems, one MediaOne cable system and one Charter Communications cable system. Our interactive program guide has recently been deployed on a limited basis at two cable operators' systems. We are currently developing a video-on-demand capability for NTL, the largest cable network operator in the United Kingdom, under an agreement we entered into in September 1999. In May 2000, in a separate transaction NTL entered into an agreement to make a $6.0 million strategic investment in our company. In May 2000, we entered into an agreement with Charter Communications to launch our video-on-demand service as part of its core digital cable package in a number of its cable systems. The agreement covers Charter's Los Angeles and Atlanta area systems, and provides incentives for Charter to deploy our service in other markets. Under the agreement, Charter will purchase our video-on- demand hardware, license our video-on-demand and navigation software, and obtain the full range of our video-on-demand support services, including content acquisition and management. We continue to pursue discussions with major cable operators in the United States as well as internationally for deployment and expansion of our services at selected sites. We entered into development arrangements with OpenTV Corp. in March and April 2000 to integrate our video-on-demand system and our interactive program guide into OpenTV's interactive television software platform. In connection with these arrangements, OpenTV made a $5.0 million investment in our company. We also entered into a development agreement with Liberate Technologies in May 2000 to integrate our video-on-demand system into Liberate's interactive television software platform. In a separate transaction, also in May 2000, Liberate made a $4.0 million investment in our company. Our Opportunity The market opportunity for interactive, on-demand television products and services is being driven by demand from cable operators for new services to increase their share of home entertainment industry revenues. According to Veronis, Suhler & Associates, television-based home entertainment revenues were $57 billion in 1999 and are expected to reach $76 billion in 2003. In 1999, approximately $18.7 billion of this market was comprised of videotape rentals and sales and approximately $1.9 billion was comprised of pay-per-view. We believe that video-on-demand offers consumers compelling advantages over video store rentals. We also believe interactive, on-demand television services will allow cable television operators to offer consumers more programming choices and differentiate their product offerings from those of direct broadcast satellite operators. In addition, we believe these services will further drive penetration of the cable operators' new digital cable program package. In order to provide these services, cable operators are deploying digital set-top boxes and upgrading their networks. According to Paul Kagan Associates, by the end of 2000, cable operators will deploy 10 million digital set-top boxes and upgrade 75% of their networks to two-way-capable hybrid fiber coaxial plant. The rollout of this digital infrastructure coupled with significant reductions in the cost of technology has made the wide-scale deployment of video-on-demand, interactive program guides and other interactive services a compelling economic opportunity for cable television operators. DIVA Benefits As the first video-on-demand provider to be commercially deployed with several cable operators, we believe that we are well-positioned to capture significant market share for video-on-demand and other interactive, on-demand products and services. We believe that the benefits of our interactive, on- demand television products and services include: Compelling On-Demand Entertainment. Our video-on-demand services offer subscribers immediate access to hundreds of viewing choices including feature films, library titles, children's programming, special interest videos and other programming content. This service combines pause, fast forward and rewind control with high-quality digital picture and sound at prices comparable to home video rentals without inconvenient trips to the video store, late return fees and tape rewind charges. Our interactive program guide, which combines programming information and full motion video, serves as an easy-to-use television portal to help consumers navigate the myriad of channels and services offered by digital cable. Significant Revenue Opportunity. We believe our interactive, on-demand television products and services provide a platform that enables cable operators to increase customer penetration for their digital tier and generate significant incremental revenue from the ordering of on-demand movies and other programming. We also believe our interactive program guide provides operators with additional revenue opportunities from promotions and advertising. Comprehensive and Flexible Solution. Our products and services have been field-proven and, accordingly, reduce both the time-to-market and the operational challenges associated with implementing interactive television services. We offer our core suite of software and hardware products, including sophisticated back office support, as an end-to-end solution or as individual components. Our architecture is designed to scale to support thousands of titles, serve the full range of cable systems and integrate our products and services with major digital broadcast platforms, including Motorola (formerly General Instrument) and Scientific-Atlanta in the United States and PACE in Europe. Our Strategy Our objective is to be the leading provider of interactive, on-demand television products and services for cable and other broadband network operators. Our strategy includes the following key elements: . leverage our first mover advantage; . aggressively expand our customer base; . pursue commercial opportunities for our interactive program guide; . enhance and expand our products and services; . pursue industry relationships; . adapt our technology and services for other broadband networks; and . penetrate global markets. Other Information We are an early stage company with limited commercial operating history. We have generated revenues of $1.5 million and have incurred net losses of approximately $292.3 million since our inception through December 31, 1999. Our principal executive offices are located at 800 Saginaw Drive, Redwood City, California 94063, and our telephone number is (650) 779-3000. We were incorporated in Delaware in June 1995. We maintain a Web site at www.divatv.com. Information contained on our Web site does not constitute part of this prospectus. Our logo and certain titles and logos of our products mentioned in this prospectus are our service marks or trademarks. Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its holder. The Offering <TABLE> <C> <S> Common stock offered................................ shares Common stock to be outstanding after this offering.. shares Proposed Nasdaq National Market symbol.............. DVTV Use of proceeds..................................... For general corporate purposes, including working capital and to fund operating losses and capital expenditures. </TABLE> ---------------- Unless we specifically state otherwise, whenever we present the number of shares of our common stock outstanding, this number is based on shares outstanding as of December 31, 1999, assuming the cash exercise of warrants to purchase 2,398,794 shares of common stock and preferred stock and the conversion of all outstanding preferred stock into common stock upon the closing of this offering, and excludes: . an aggregate of 1,666,667 shares of our common stock issuable upon the conversion of preferred stock issued to OpenTV, NTL and Liberate subsequent to December 31, 1999; . 8,608,935 shares of our common stock and preferred stock issuable upon the exercise of outstanding options at a weighted average exercise price of $2.56 per share; . 4,876,800 shares of our common stock and preferred stock issuable upon exercise of outstanding warrants (which will not expire on the effective date of this offering) at a weighted average exercise price of $0.18 per share; . 1,336,942 shares of our common stock issuable upon exercise of warrants at an exercise price of $0.005 per share to be issued on May 15, 2000 to the holders of warrants issued in connection with our debt financing in May 1996; . shares of our common stock available for future issuance as of December 31, 1999 under our existing and proposed stock plans; and . up to shares of common stock that the underwriters have the option to purchase to cover over-allotments. Between January 1, 2000 and March 31, 2000, our board of directors granted options to purchase an additional 277,430 shares of common stock at a weighted average exercise price of $3.35 per share under our 1995 Stock Plan. SUMMARY CONSOLIDATED FINANCIAL DATA <TABLE> <CAPTION> Six Months Ended Year Ended June 30, December ----------------------------------- ---------------- 1996 1997 1998 1999 1998 1999 ------- ------- ------- -------- ------- ------- (unaudited) (in thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> Consolidated Statement of Operations Data: Revenue................ $ -- $ -- $ 82 $ 293 $ 120 $ 1,115 Operating expenses..... 11,300 24,647 46,224 82,235 33,379 34,282 Acquired in-process research and development(1)........ -- 4,061 24,321 -- -- -- ------- ------- ------- -------- ------- ------- Operating loss......... 11,300 28,708 70,463 81,942 33,259 33,167 Equity in (income) loss of investee........... (357) 2,080 1,631 -- -- -- Interest (income)...... (65) (410) (5,632) (8,645) (4,991) (3,099) Interest expense....... 395 3,590 13,730 33,967 16,408 18,817 ------- ------- ------- -------- ------- ------- Net loss before extraordinary item.... 11,273 33,968 80,192 107,264 44,676 48,885 Extraordinary loss on early extinguishment of debt(2)............ -- -- 10,676 -- -- -- ------- ------- ------- -------- ------- ------- Net loss............... 11,273 33,968 90,868 107,264 44,676 48,885 Accretion of redeemable warrants.............. -- 91 763 969 522 304 ------- ------- ------- -------- ------- ------- Net loss attributed to common stockholders... $11,273 $34,059 $91,631 $108,233 $45,198 $49,189 ======= ======= ======= ======== ======= ======= Basic and diluted net loss per share: Loss before extraordinary item.... $ 1.03 $ 2.22 $ 4.92 $ 6.31 $ 2.65 $ 2.79 Extraordinary loss- early extinguishment of debt(2)............ -- -- 0.65 -- -- -- ------- ------- ------- -------- ------- ------- Net loss per share..... $ 1.03 $ 2.22 $ 5.57 $ 6.31 $ 2.65 $ 2.79 ======= ======= ======= ======== ======= ======= Shares used in per share computation..... 10,895 15,316 16,447 17,147 17,063 17,600 ======= ======= ======= ======== ======= ======= </TABLE> <TABLE> <CAPTION> December 31, 1999 ------------------------- Pro Forma Actual As Adjusted (3) -------- --------------- (unaudited) (in thousands) <S> <C> <C> Consolidated Balance Sheet Data: Cash, cash equivalents and investments............... $ 52,907 Short-term investments............................... 57,262 Total current assets................................. 113,591 Total assets......................................... 133,331 Total current liabilities............................ 5,009 Long-term debt....................................... 294,564 Total stockholders' deficit.......................... (168,653) </TABLE> - ------- (1) In connection with the acquisition of Norstar Multimedia, Inc. in July 1996 and Sarnoff Real Time Corporation in April 1998, we wrote off acquired in- process research and development of $4.1 million and $24.3 million, respectively, as one-time charges to operations for the fiscal years ended June 30, 1997 and 1998, respectively. (2) In February 1998, we received $250.0 million in gross proceeds from an offering of 463,000 units consisting of warrants to purchase common stock and senior discount notes with an aggregate principal amount at maturity of $463.0 million. In connection with this unit offering, we retired all of our subordinated discount notes issued in a previous offering resulting in an extraordinary loss of approximately $10.7 million ($0.65 per share), for the fiscal year ended June 30, 1998. (3) Reflects the exercise of warrants to purchase 186,000 shares of our common stock, the exercise of warrants to purchase 2,212,794 shares of our preferred stock and the conversion of these 2,212,794 shares and an additional 22,239,605 shares of preferred stock into an equivalent number of shares of our common stock upon the closing of this offering, the sale of $15.0 million of preferred stock in April and May 2000 which will convert into 1,666,667 shares of common stock upon the closing of this offering and the sale of shares of our common stock at an assumed initial public offering price of $ per share, and the application of the net proceeds from such sale.

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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including "Risk Factors" and the financial statements before making an investment decision. We are a leading provider of application services and licensed software applications that support personal computers, or PCs, over the Internet and corporate intranets. With our eSupport solution, users can solve their PC problems themselves online, virtually anywhere, 24 hours a day. Our solution automates diagnosis and self-repair, supports upgrades, and restores data and applications lost due to such problems as virus damage, lost or stolen PCs, and hard drive crashes. We believe that our solution is applicable worldwide to companies of all sizes in all industries. We have developed critical technologies that we believe enable our solution to efficiently support the demands of the largest enterprises as well as millions of small companies and individual users. International Data Corporation, an independent market research firm, estimates worldwide PC purchases will increase from 112 million in 1998 to 190 million in 2003. Advances in PC hard drive capacity, distributed software applications, and trends toward remote usage of laptops have created environments in which the majority of information and applications resides on personal computers. While businesses have invested in storage management systems to provide high availability for their servers and mainframes, they have been unable to provide similar availability for PCs. In attempting to support large and growing deployments of PCs, information technology, or IT, staffs are faced with many unique challenges: - the sheer volume, complexity, and diversity of applications and data; - uncooperative, non-technical user communities; - frequent application changes, amended files, and hardware upgrades; - frequently lost or damaged systems in uncontrolled environments; and - increasing remote PC usage. We believe most attempts to provide PC application and data availability have failed due to the high costs and inefficacy of manually-intensive support processes. The Internet provides a new vehicle for automating the PC support process. This provision of online PC support, known as eSupport, is estimated by International Data Corporation to reach a $14 billion market opportunity in 2003. We use the Internet and our proprietary technologies to overcome the challenges of PC support. Using the power of the Internet, our eSupport solution automatically captures and centrally stores a PC's profile, including data, applications, and settings, without user involvement. Through a combination of proprietary data reduction techniques, hierarchical storage management methods and computationally efficient software design, we can support millions of individual users, or the largest enterprise. We plan to leverage these core technologies to provide a broader range of eSupport capabilities as well as support additional networked devices. Our worldwide sales strategy is to focus direct sales efforts on larger enterprises while expanding our partnerships with application service providers, Internet service providers, PC manufacturers, and IT service outsourcers to address small and medium size businesses. Along with our strategic partners, we currently provide eSupport application services to approximately 12,000 PCs, and our eSupport solution is currently licensed by over 50 customers for over 85,000 PCs. Some of our customers include Ariba, Inc., General Electric Company, GTE Internetworking, Hewlett-Packard, Honeywell, Koch, and Visa. 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. SUBJECT TO COMPLETION, DATED APRIL 19, 2000 [CONNECTED FPO LOGO] - -------------------------------------------------------------------------------- SHARES COMMON STOCK - -------------------------------------------------------------------------------- This is the initial public offering of Connected Corporation and we are offering shares of our common stock. We have applied to list our common stock on The Nasdaq National Market under the symbol "CNTD." The stockholders listed on page 61 under the caption "Certain Transactions -- Preemptive Rights" have the right to purchase up to a total of shares in our offering. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. <TABLE> <CAPTION> UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS CONNECTED <S> <C> <C> <C> Per share $ $ $ Total $ $ $ </TABLE> We have granted the underwriters the right to purchase up to additional shares to cover over-allotments. DEUTSCHE BANC ALEX. BROWN BEAR, STEARNS & CO. INC. WIT SOUNDVIEW THE DATE OF THIS PROSPECTUS IS , 2000. THE OFFERING <TABLE> <S> <C> Common stock offered by Connected................. shares Common stock to be outstanding after this shares offering........................................ Use of proceeds................................... General corporate purposes, including working capital. See "Use of Proceeds." Proposed Nasdaq National Market Symbol............ CNTD </TABLE> The number of shares to be outstanding upon completion of this offering is based on shares outstanding as of March 31, 2000. This number assumes the conversion into common stock of all of our preferred stock outstanding on that date and certain warrants upon the closing of this offering, and excludes: - 8,278,617 shares of common stock issuable upon exercise of stock options and warrants outstanding at March 31, 2000, at a weighted average exercise price of $1.02 per share; - 500,000 shares of common stock reserved for issuance pursuant to our employee stock purchase plan; and - 3,496,141 shares of common stock reserved for issuance pursuant to stock options not yet granted under all of our stock option plans. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------- ----------------- 1995(1) 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License..................... $ -- $ 13 $ 112 $ 1,166 $ 3,157 $ 329 $ 1,833 Subscription................ -- 9 210 975 2,586 543 915 Other....................... -- 10 230 899 196 117 36 ------- ------- ------- ------- ------- ------- ------- Total revenues....... -- 32 552 3,040 5,939 989 2,784 Gross profit.................. -- -- -- 2,438 5,011 795 2,337 Loss from operations.......... (128) (3,330) (4,550) (2,878) (4,458) (868) (2,974) Net loss...................... (126) (3,231) (4,381) (2,794) (4,910) (892) (2,722) Net loss available to common stockholders................ (126) (3,231) (4,381) (2,794) (6,140) (892) (2,722) Net loss per share -- basic and diluted................. $ -- $ (4.43) $ (1.51) $ (0.77) $ (1.31) $ (0.21) $ (0.51) Weighted average common shares outstanding -- basic and diluted..................... -- 729 2,909 3,634 4,679 4,329 5,369 Pro forma net loss per share -- basic and diluted..................... $ (0.36) $ (0.11) Pro forma weighted average common shares outstanding -- basic and diluted..................... 16,920 25,582 </TABLE> - ------------------------- (1) Data presented for the period from our inception, October 31, 1995, through December 31, 1995. [Graphics appearing on inside front cover: Diagram of two arrows which follow tip to tail to create a circle with the text "IT Staff Overload" at the center and the following text positioned on the arrows around the circumference of the circle: "PC Deployment," "Virus Damage," "Lost Data," "Software Upgrades,"Application Corruption," "Lost or Stolen PCs," "Company Access to Data," "Hardware Upgrades," "System Failures," "Drive Crashes," and "PC Retirement." The diagram is entitled "Problems of the PC eSupport Lifecycle." Positioned around the outside of the diagram are pictures of four different types of computing devices. Our logo appears in the lower right-hand corner.] <TABLE> <CAPTION> MARCH 31, 2000 -------------------------------------------- PRO FORMA AS ACTUAL PRO FORMA ADJUSTED ------------ ------------ ------------ (UNAUDITED) <S> <C> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.............................. $18,346 $18,346 $ Current assets......................................... 21,191 21,191 Total assets........................................... 22,853 22,853 Current liabilities.................................... 4,253 4,253 Redeemable convertible preferred stock................. 23,582 -- Total stockholders' equity............................. (4,982) 18,600 </TABLE> The pro forma information in the tables above gives effect to the conversion into common stock of all outstanding shares of preferred stock and of certain warrants upon the closing of this offering. The pro forma as adjusted balance sheet data as of March 31, 2000 also gives effect to the sale of shares of common stock that we are offering under this prospectus, assuming an initial public offering price of $ per share and after deducting underwriting discounts and commissions and estimated offering expenses. We are a Delaware corporation. We were formed in October 1995. We have incurred net losses since we were formed. For the year ended December 31, 1999, we recognized total revenue of approximately $5.9 million and incurred a net loss of approximately $4.9 million. For the quarter ended March 31, 2000, we recognized total revenue of approximately $2.8 million and incurred a net loss of approximately $2.7 million. We have not yet achieved profitability, and as of March 31, 2000, we have accumulated losses of approximately $18.2 million. Our principal offices are located at 24 Prime Parkway, Natick, Massachusetts 01760 and our telephone number is (508) 652-7300. Our website is located at www.connected.com. The information contained on our website does not constitute part of this prospectus. The names "Connected," "SendOnce," "eWare," "Connected TLM," "Delta Block," "eConnect," "Powered by Connected," "Transparent, Effortless and Certain," and our logo are names and service marks that belong to us. We claim rights in other names and marks. This prospectus also contains the trademarks and trade names of other entities which are the property of their respective owners. ------------------------- Except where we note otherwise, all information in this prospectus: - assumes the completion of a 3-for-1 split effected prior to the completion of this offering; - assumes the over-allotment option granted by us to the underwriters has not been exercised; and - assumes the conversion of all shares of our outstanding convertible preferred stock and of certain warrants into 20,212,665 shares of common stock occurs immediately prior to completion of this offering. [Graphics appearing on gatefold following inside front cover: Diagram entitled "Connected eSupport Solution." The diagram is divided into three vertical segments. The left most segment appears under the caption "License Software Application" and contains six pictures of the users of an intranet-based eSupport Solution with the following overlaid on these pictures: "LAN PCs," "Mobile Users," and "Remote Offices." At the bottom of this segment is a picture of a data center with the text "Corporate Data Center" overlaid on the picture. These pictures are arranged around two arrows which form a rectangle with the word "Intranet" centered in the middle. The center segment contains the following text stacked vertically: Self Healing, PC Upgrade, Virus Repair, Data Recovery, Secure Corporate Storage and Help Desk. The right most segment appears under the caption "Application Services" and contains four pictures of the users of an internet-based eSupport Solution with the following text overlaid on these pictures: "Consumers," "Large Enterprises," "Small and Medium Size Businesses." These pictures are arranged around two arrows which form a circle with the word "Internet" centered in the middle. At the bottom of this segment is a picture of a data center with the text "ASP" overlaid on the picture.]

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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus and may not contain all the information that may be important to you. You should read the entire prospectus, including the financial data and related notes, before making an investment decision. Unless we state otherwise, the terms "Onyx,""our,"and "we" refer to Onyx Acceptance Corporation and its subsidiaries, and the term "notes" refers to the ___% Subordinated Notes due _____ 2006 we are offering pursuant to this prospectus. Certain industry terms that we use are defined in the Glossary which begins on page 74. ONYX We are a specialized consumer finance company engaged principally in the business of providing indirect automobile financing to franchised new car dealerships and select used car dealerships throughout the United States. We primarily purchase motor vehicle contracts from such dealerships. We focus our efforts on acquiring motor vehicle contracts that are secured by late model used motor vehicles and, to a lesser extent, new motor vehicles, that were entered into with purchasers whom we believe have favorable credit profiles. We generate revenues primarily through the purchase, warehousing, securitization and ongoing servicing of motor vehicle contracts. Since we started purchasing, originating and servicing motor vehicle contracts in February 1994, we have purchased or originated more than $3.8 billion in motor vehicle contracts from approximately 7,600 dealers, and we have expanded our operations from a single office in Orange County, California to major markets throughout the United States.